Jeffrey Sachs, US economist and director of the Earth Institute at Columbia University, though not a supporter of dollarization, sees the Dominican Republic as a good candidate to such aim.

He added that dollarization would be a viable and desirable option for its integration with the United States; however, there are pros and cons to it.

Sachs, who spoke for about one hour at an April 25 conference-lunch sponsored by the Global Foundation for Democracy and Development, addressed the issue on the "Turbulent World Economy after the War in Iraq: Challenges for the Dominican Republic."
FUNGLODE's president, Leonel Fernández, introduced Dr. Sachs at the event hosted at the nonprofit organization headquarters.
The former Harvard University professor, considered the most important expert in the field worldwide, recommended the country to be cautious about its tax and monetary policy.
The aim of such warning is to face the turbulence affecting the world economy.

Dollarization

Elaborating on Dollarization, Sachs made clear that since there are negative sides to it, such as the cost of the dollar bills, which is money that would have to be bought from the United States, it is an option worth exploring.

Nonetheless, Dr. Sachs, who is an advisor to Kofi Annan, United Nations Secretary General, advocates for discussion and debate in this regard in economies closely linked to the United States.

He thinks that for basic commodities manufacturers a national currency is desirable, as when a price variation occurs, compensation and devaluation must take place to replace exports and for the country to be able to compete.

For instance, Dr. Sachs said that if the Dominican Republic exported sugar, it would reject the dollarization; however the more integrated and diversified it becomes with its potential partner, the less value it will obtain for its currency movement.
However, the economist states that this situation may be adjusted with the flexibility of labor market salaries, as the more Dominicans come from New York, the less pressure will be put on the exchange rate.

Some of the negative points seen by Dr. Sachs includes the cost of "Seigniorage" as a result of the adoption of the US dollar as the official currency, or the use of a USD reserve for every peso issued, a system that led Argentina into a Collapse.

Other failure is that by not paying the "Seigniorage," a cheaper price could be bargained for with the US Federal Reserves, as it does not have a safety valve between what is positive and negative in something of a certain value.

He said that he is neither in favor nor against the dollarization of the Dominican economy, but that it is something that must be assessed.

He underlined that though this prevents the Central Bank from turning into a last minute moneylender, it is not a panacea to think that it prevents the government from going bankrupt.

This is so because the sole idea of dollarization is a strait jacket in terms of the monetary not tax policy.

Sachs added that such a situation was evidenced in Panama, where it proved that it could be a choice, but at the same time it could lead to bankruptcy.

Finally he said "the positive point is the stability of the value with its trade partner, the appropriateness for tourism and small transaction industries with the US economy."

If the country's economy gets more integrated into the US economy, dollarization is a choice that could be looked into, as no one loses value, this is something to be discussed.

Great Uncertainty

Sachs assured that after the war in Iraq, the world economy has been affected by great uncertainty.

He said that the United States has applied massive tax cuts, but also an unprecedented arms expenditure.
The well-known economist and director of the Earth Institute at Columbia University understands that the tax deficit in his country could reach the three trillion dollars figure.

He suggested that the Dominican Republic should not copy the United States in this regard, because though it is true that such country has enough money, the same is not true for the Caribbean nation.

When focusing on this problematic aspect in the Dominican Republic, Dr. Sachs pointed out that during the '90s the country accomplished many things, and estimated that a step forward as to its development must be taken in order to recover the then growth, which has been interrupted.

In order to accomplish it great efforts in the field of education must be made.

Furthermore, Sachs estimates that since the Dominican economy greatly relies on tourism and foreign investment, epidemic diseases such AIDS must be kept under control.

He stressed the fact that a strong investment should be made on education in order to develop high-technology services.

About AIDS, he said, besides Africa, the Dominican Republic is one of the nations with a higher rate of patients suffering from this disease that, if left uncontrolled, could have an adverse effect on its development

The IMF

In another aspect of such an outstanding conference, Dr. Sachs expressed that nations should not delegate on the International Monetary Fund (IMF) the devising of its economic policy.

He added that countries must have healthy economic policies, in addition to assuming a position of leadership face to the International Monetary Fund, when adopting and enforcing their economic policies.

The expert emphasized that the issue with the IMF is that you are to do whatever those with the greatest power within the organization instruct you to do, that is the United States and the European Union, which are the ones that contribute with the highest amounts of money.

He said that the IMF relies on 1,200 experts who understand that they can manage the economies of all member countries just by spending a couple of weeks in those member countries.

But he indicated that such short visits does not allow technicians to accurately asses the economic situation of a nation, or take into account the legitimate interests of the nations.

SANTO DOMINGO, APRIL 24, 2003.

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