Hector Valdez Albizu

Governor, Central Bank of the Dominican Republic

The Dominican Republic bounced back in 2005, with the economy expanding briskly and inflation ending the year in single digits. According to the central bank, GDP growth was estimated at 7%, up from 2% the year before, while 12-month average inflation was forecast at 8% by year-end.

Things went from bad to worse in 2003 and 2004, after first a major banking crisis and then the mishandling of the aftermath by the government of then president Hipólito Mejía. Because of that, the economy went into a tailspin, with the exchange rate going into freefall, inflation soaring and debt ballooning.

Elections in 2004 returned Leonel Fernández to office – a bittersweet victory considering he was returning to repair an economy he had carefully managed towards growth during his first term from 1996-2000. Without delay, he set about painful reforms, hiking taxes and cutting spending, and winning back IMF support with a new $670m loan package. Allied with comprehensive debt restructuring, the economy was brought back to life.

The turnaround has been a team effort but the man tasked with arguably the messiest job was governor of the central bank Héctor Valdez Albizu. Considering the economic crisis began in 2002 with massive fraud at Baninter bank, leading to a run on deposits there and ultimately a total loss of confidence in the economy, Mr Albizu had his hands full to shore up confidence in the sector and tighten oversight, while managing severe macro-economic instability that included exchange rate volatility and runaway prices.

The appointment of the respected Mr Albizu to the central bank was designed to calm foreign investors and local depositors; he has more than repaid that faith.

The governor can thank the policies of others for doing some of his work – curbing public spending, raising taxes and debt restructuring all boosted confidence and saw the peso strengthen and ease inflation. But Mr Albizu’s hand at managing exchange rate and interest rate volatility and macroeconomic instability is still very much in evidence. In doing so, he has restored policy credibility.

Simultaneously, Mr Albizu has overseen several regulatory and supervisory improvements to the banking sector. Progress has been made in bringing bank regulations in line with international best practices and ensuring that banks meet capitalisation requirements. Restoring confidence in the sector will take time but a good start has been made.


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