Some Warnings Concerning Possible Financial Reform in the Dominican Republic

Abstract

One of the recommendations international financial institutions, particularly the International Monetary Fund and the World Bank, often make to less developed countries with severe balance of payments disequilibria, is to increase the rate of interest on time deposits. The experts who work at these agencies, and the technical missions who visit these countries, adopt the theoretical frameworks of McKinnon (1973), Shaw (1973) and Kapur (1976), and consider that the increase in the rate of interest on time deposits will raise the economy’s level of savings. This would enlarge the real size of the banking system and, consequently, the net banking credit flow necessary to finance investment.