Annual Report on Exchange Arrangements and Exchange Restrictions 2005
Chapter

DOMINICAN REPUBLIC

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2005
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(Position as of January 31, 2005)

Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: August 1, 1953.
Exchange Arrangement
CurrencyThe currency of the Dominican Republic is the Dominican peso.
Exchange rate structure
Unitary.On January 1, 2004, the process of unifying the foreign exchange market was completed. The reference rate used by the Central Bank of the Dominican Republic (CBDR) for its operations is set as the weighted average of daily rates reported by authorized exchange intermediaries. Previously, there were three exchange rates: the official exchange rate set by the CBDR, the rate used by commercial banks for foreign exchange transactions with the public, and the extrabank market rate used by exchange houses. All private sector transactions were settled at the market rate.
Classification
Independently floatingIn January 2004, the authorities unified the exchange rate market and ceased their policy of intervening in the foreign exchange market to manage the exchange rate. Intervention is geared instead to attaining the goals of monetary policy and to preventing undue exchange rate volatility. As a result, effective January 31, 2004, the exchange rate arrangement of the Dominican Republic has been reclassified to the category independently floating from the category managed floating with no predetermined path for the exchange rate.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketNo.
Arrangements for Payments and Receipts
Prescription of currency requirementsSettlements under the LAIA framework must be made in dollars. Other transactions between residents and nonresidents may be made in any convertible currency.
Payments arrangements
Bilateral payments arrangements
OperativeYes.
InoperativeThere is an inoperative agreement with Paraguay.
Regional arrangementsYes.
Clearing agreementsSettlements with Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Peru, and Uruguay may be made through two accounts that were established under reciprocal credit agreements within the framework of the LAIA. Imports (debits) and exports (credits) are recorded in these accounts, and all payments must be invoiced in dollars.
Barter agreements and open accountsSettlements take place under reciprocal credit agreements with Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Peru, Uruguay, and República Bolivariana de Venezuela.
Administration of controlExchange control policy is determined by the Monetary Board and administered by the CBDR.
International security restrictionsNo.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)No.
Controls on exports and imports of banknotesExports and imports of currency are unrestricted, but amounts exceeding the equivalent of $10,000 must be reported for anti–money laundering purposes.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyResident corporations and individuals may locally maintain savings or time deposit accounts in dollars or in any other freely convertible foreign currency at banks authorized to offer full services.
Accounts in domestic currency held abroadNo.
Accounts in domestic currency convertible into foreign currencyAccounts denominated in Dominican pesos are convertible against other currencies. Economic agents may enter into transactions involving foreign currencies on freely negotiated terms, in accordance with the general rules and regulations governing contracts.
Nonresident Accounts
Foreign exchange accounts permittedNonresident corporations and individuals may locally maintain savings or time deposit accounts in dollars or in any other freely convertible foreign currency at banks authorized to offer full services.
Domestic currency accounts
Convertible into foreign currencyYes.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsNo.
Import licenses and other nontariff measures
Positive listThis list includes beans, corn, garlic, milk, onions, chicken, rice, and sugar.
Negative listImports of live animals; seeds; plants; fruits; plant and animal products that are unhealthy, decomposing, or infected with germs or parasites; and substances harmful or injurious to human, plant, or animal health are prohibited.
Licenses with quotasImports of beans, corn, garlic, milk, onions, chicken, rice, and refined sugar require licenses.
Import taxes and/or tariffsThere are five tariff rates: zero, 3%, 8%, 14%, and 20%. Effective January 3, 2005, an exchange commission of 13% (previously, 10%) is charged on all imports, and it is collected by the General Directorate of Customs. There is a temporary import system for the entry, free of import duties and taxes, of certain goods that are to be reexported within a maximum of 18 months of being processed, worked, or repaired. In addition, there is a zero rate for imports of inputs, machinery, and equipment to be used in the textile and agricultural sectors.
Taxes collected through the exchange systemYes.
State import monopolyNo.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirementsNo.
Export licenses
With quotasLicenses are required for sugar and textile exports to the United States. Bananas are subject to quantitative restrictions in the EU, as are coffee and cocoa in the markets of signatories to the International Coffee Agreement and International Cocoa Agreement.
Export taxesNo.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersAll invisible payments may be made freely through banks authorized to offer full services, subject to documentation requirements.
Foreign workers’ wages
Prior approvalPrior approval of the President of the Republic is required for the hiring of Haitian workers to harvest sugarcane.
Other paymentsTechnical assistance fees must be registered with the CBDR.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
Capital Transactions
Controls on capital transactionsYes.
Controls on capital and money market instrumentsTransactions are regulated under the Law on the Securities Market and by the Superintendency of Securities.
On capital market securitiesShares and bonds are not yet traded. Only primary market operations involving commercial paper denominated in domestic currency are carried out.
Bonds or other debt securities
Sale or issue abroad by residentsYes.
Controls on derivatives and other instrumentsNo.
Controls on credit operations
Commercial credits
To residents from nonresidentsPrior CBDR approval is required.
Financial credits
By residents to nonresidentsFull-service banks and credit institutions may extend direct or indirect loans and guarantees or securities to a single resident or nonresident individual, legal entity, or risk group for up to 10% of their paid-up capital and reserves, or up to 20% if such operations are secured with first-rank mortgages or real guarantees.
To residents from nonresidentsExternal debt may be contracted directly by the central government, subject to authorization by the National Congress. New loans by other public entities require authorization from the President of the Republic prior to their registration with the CBDR. Private external debt must be registered with the CBDR.
Guarantees, sureties, and financial backup facilitiesFull-service banks must request prior CBDR authorization to issue foreign currency guarantees, other than for trade operations. External short-term financing by such banks is limited to 30% of paid-up capital and reserves.
By residents to nonresidentsYes.
Controls on direct investment
Outward direct investmentFull-service banks and other credit institutions may invest up to 20% of their paid-up capital in branches, agencies, or representative offices abroad, as well as make equity investments in foreign financial institutions. Effective March 31, 2004, full-service banks wishing to invest abroad or to open cross-border entities must fulfill certain minimum requirements including: (1) prior authorization of the Monetary Board, which requires host country authorization and the opinion of the Superintendency of Banks; (2) in the case of full-service banks, a solvency ratio equal to or greater than 10% and fulfillment of prudential requirements in the Monetary and Financial Law or in monetary board resolutions; (3) in the case of full-service banks, sufficient management capacity to perform offshore functions; (4) maintenance of a cooperation agreement between the Superintendency of Banks and the host country supervisory authority; (5) approval by the host country authorities of the investment; (6) a favorable report from the host country supervisory authority regarding the rating and soundness of the financial intermediary in which investment is to be made; and (7) submission of necessary documentation to the Superintendency of Banks.
Inward direct investmentInvestments must be registered with the CBDR. Investment in the following sectors is prohibited: (1) disposal of toxic waste and dangerous or radioactive substances not produced in the country, (2) activities that affect public health and the environment, and (3) production of materials and equipment that affect defense and national security.
Controls on liquidation of direct investmentNo.
Controls on real estate transactionsNo.
Controls on personal capital transactions
Transfer of assets
Transfer abroad by emigrantsYes.
Transfer into the country by immigrantsYes.
Provisions specific to commercial banks and other credit institutions
Borrowing abroadBanks authorized to offer full services may obtain financing abroad on a short-term basis, subject to a limit of 30% of their paid-up capital and reserves.
Lending locally in foreign exchangeBanks authorized to offer full services may grant loans in dollars up to 100% of their foreign exchange resources that are held in the form of savings or time deposits. Eighty-five percent of these loans must be channeled to individuals or legal entities that generate foreign exchange.
Differential treatment of deposit accounts in foreign exchange
Reserve requirementsThe reserve requirement ratio is 20% for both domestic and foreign currency deposits. Reserve requirements on foreign currency deposits must be held at the CBDR. On March 23, 2004, the structure of the 20% reserve requirement for domestic currency deposits was changed to allow the banks to retain up to 5% (i.e., one-fourth of the reserve requirement) in vaults, with the remainder to be retained at the CBDR. In addition, effective June 1, 2004, banks are required to hold 8% (previously, 5%) of their domestic currency liabilities at the CBDR in 30-day certificates at an annual interest rate of 15%.
Credit controlsBanks and credit institutions may extend direct or indirect loans and guarantees or securities to a single resident or nonresident individual, legal entity, or risk group, for up to 10% of their paid-up capital and reserves, and up to 20% of capital and reserves if such operations are secured with first-rank mortgages or real guarantees.
Open foreign exchangeposition limits The net short or long positions of full-service banks are subject to exchange risk controls.
On resident assets and liabilitiesTransactions are regulated by the Exchange Market Law and by the Superintendency of Securities.
On nonresident assets and liabilitiesShares and bonds are not yet traded.
Provisions specific to institutional investors
Limits (max.) on investment portfolio held abroad held locallyFinancial institutions’ external loan portfolios are subject to the following limits relative to principal: (1) 10% for unsecured loans, (2) 20% for secured loans, and (3) 50% for tied loans. Equity investments are limited to 20% of capital.
Limits (max.) on investment portfolio held abroad held locallyFinancial institutions’ domestic loan portfolios are subject to the following limits relative to principal: (1) 10% for unsecured loans, (2) 20% for secured loans, and (3) 50% for tied loans. Equity investments in the Dominican Republic are subject to the following limits relative to principal: (1) 20% in service companies and (2) 10% in nonfinancial enterprises.
Other controls imposed by securities lawsNo.
Changes During 2004
Exchange arrangementJanuary 1. The foreign exchange market was unified.
January 31. As a result of the authorities’ cessation of intervention in the foreign exchange market to manage the exchange rate, the exchange rate arrangement of the Dominican Republic was reclassified to the category independently floating from the category managed floating with no predetermined path for the exchange rate.
Capital transactions
Controls on direct investmentMarch 31. Full-service banks wishing to invest abroad or to open cross-border entities were required to fulfill certain minimum requirements.
Provisions specific to commercial banks and other credit institutionsMarch 23. The structure of the 20% reserve requirement for domestic currency deposits was changed to allow banks to retain up to 5% (i.e., one-fourth) of the reserve requirements in vaults, with the remainder to be kept at the CBDR.
June 1. The additional reserve deposits banks are required to hold at the CBDR in the form of 30-day certificates was increased to 8% from 5% of their domestic currency liabilities.
Changes During 2005
Imports and import paymentsJanuary 3. The exchange commission on all imports collected by the General Directorate of Customs was increased to 13% from 10%.

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