Economic Stimulus Plan by Dominican Central Bank
On June 1, the Dominican Central Bank (BC) announced an economic stimulus plan aimed at boosting the country’s economy. The plan involves the placement of RD$34,000 million of the legal reserve and RD$60,000 million of rapid liquidity facilities (FLR) to the financial system. These funds will be provided at interest rates not exceeding 9% per year.
Slowing Growth and Surprising Placement
The Dominican economy has experienced a slowdown, with only 1.2% growth in the first four months of this year. The quick placement of the RD$60 billion of FLR by commercial banks has surprised the monetary authorities. This rapid placement has left other sectors with limited time to benefit from these resources.
Control Measures by the Central Bank
In response to the situation, the Central Bank has implemented control measures to ensure that the low-rate loans are allocated to the intended sectors. The aim is to prevent certain sectors from taking advantage of the opportunity to replace expensive credits with cheaper ones, instead of seeking new loans.
Gradual Disbursement of Funds
Last Monday, June 19, the Central Bank announced the release of an additional RD$25,000 million of FLR, along with the remaining RD$34,000 million of legal reserves. However, this time, the disbursement will be done gradually. The Central Bank has specified that the RD$59,000 million will be disbursed in weekly proportions, not exceeding 25% of the amount allocated to each entity.
Intended Use of Resources
The Central Bank has clarified that the resources will be used for the placement of new loans to productive sectors, micro, small, and medium enterprises (mipymes), as well as households for consumption. The interest rates for these loans will not exceed 9% per year.
Surprising Speed of Placement
The speed at which the banks placed the initial RD$60 billion has surprised many clients who were unable to access the credits as they had already run out. Economist Jaime Aristy Escuder has demanded a detailed report from the monetary authorities regarding the form and destination of these loans.
Comparing Placement Speed
To understand the surprising speed of the placement, let’s consider some examples. On January 17 of this year, the Central Bank made RD$21,424.4 million of the legal reserve available for home loans. However, only RD$3,735.6 million, or 17.4% of the total amount, was disbursed by May 2. In contrast, the banks were able to channel RD$60,000 million to other destinations in just two weeks.
Credit Portfolio Comparison
The banks’ credit portfolio growth also highlights their surprising placement capacity. In 2019, the credit portfolio registered a net growth of RD$115,246 million, which is less than double the RD$60,000 million placed in two weeks. Even in the first four months of this year, the net loan portfolio of the financial sector grew by RD$61,387 million.
Allocation of Resources
The Central Bank has reported that between June 2 and 16, the RD$60,000 million of FLR were channeled by the banks as follows: RD$30,000 million for new financing to productive sectors, households, and MSMEs. Additionally, RD$30,000 million were disbursed to increase liquidity levels for entities, contributing to the transition mechanism of monetary policy and interest rate reduction. The funds were allocated to various sectors, with commerce and MSMEs receiving the largest share.
The Dominican Central Bank has announced an economic stimulus plan to boost the country’s slowing economy. The plan involves providing RD$34,000 million of the legal reserve and RD$60,000 million of rapid liquidity facilities to the financial system at interest rates not exceeding 9% per year. Commercial banks quickly placed RD$60 billion of the FLR, surprising monetary authorities and leaving other sectors with limited time to benefit. The Central Bank has implemented control measures to ensure the low-rate loans go to intended sectors. An additional RD$25,000 million of FLR and the remaining RD$34,000 million of legal reserves will be gradually disbursed in weekly proportions, not exceeding 25% of the amount allocated to each entity.
What control measures has the Dominican Central Bank implemented to ensure the low-rate loans go to intended sectors?
The Dominican Central Bank has implemented various control measures to ensure that low-rate loans are provided to the intended sectors. These measures include:
1. Targeted lending programs: The Central Bank has launched specific lending programs that allocate funds to specific sectors, such as agriculture, small businesses, and affordable housing. These programs are designed to directly provide low-rate loans to the intended sectors.
2. Credit risk analysis: Before approving loans, the Central Bank conducts a thorough analysis of the creditworthiness and financial stability of the borrowers. This ensures that the loans are disbursed to eligible borrowers who fit the criteria for low-rate financing.
3. Sector-specific loan guidelines: The Central Bank sets specific guidelines and criteria for each sector to qualify for low-rate loans. This ensures that only businesses or individuals engaged in the targeted sectors can access the loans.
4. Reporting and monitoring: The Central Bank requires financial institutions to regularly report on the utilization of low-rate loans and the sectors they have been disbursed to. This enables effective monitoring of the allocation of funds and ensures compliance with the intended sectors.
5. Collaboration with financial institutions: The Central Bank works closely with commercial banks and other financial institutions to implement these control measures. This collaboration ensures that the banks adhere to the Central Bank’s guidelines and allocate the low-rate loans to the intended sectors.
Overall, these control measures aim to prevent misuse or misallocation of low-rate loans and ensure that they effectively support the targeted sectors of the Dominican economy.
Central Takes: A powerful and concise overview of the current state of affairs. This article not only lays out the facts but also provides insightful analysis. Well done!