Banco Intercontinental - Bank Crisis

Bank Crisis

BANINTER's octopus-like acquisitiveness raised some eyebrows, as did Báez's luxurious tastes. In 2002 he bought a US$14,600,000 yacht, the Patricia. Moreover, Báez had personal expenses of more than US$1,000,000 monthly..

Speculation about the source of Báez's fortune ran wild, but nobody considered the explanation being given nowadays by the Dominican authority, that Báez was robbing his own bank.

Rumors that BANINTER might've been in trouble began circulating during the fall of 2002, and depositors started to withdraw their savings. The Dominican Central Bank stepped in to support the bank by providing new lines of credit. Anxious for a permanent solution, the government announced in early 2003 that Banco del Progreso, run by Pedro Castillo Lefeld, the brother of Mejía's son-in-law, would acquire BANINTER. But Banco del Progreso abruptly withdrew from the deal. Government officials and Castillo said that two-thirds of the money that customers had deposited in BANINTER was kept off its official books by a custom-designed software system.

On April 7, 2003, the government took control of BANINTER. Báez Figueroa's family owned more than the 80% of the bank, and soon after, a deeper examination supported by the International Monetary Fund and the Inter-American Development Bank, revealed the scale of the meltdown.

Báez Figueroa was arrested on May 15, 2003 along with BANINTER vice presidents Marcos Báez Cocco and Vivian Lubrano de Castillo, the secretary of the Board of Directors, Jesús M. Troncoso, and wealthy financier Luis Alvarez Renta, on charges of bank fraud, money laundering and concealing information from the government as part of a massive fraud scheme of more than RD$ 55 billion (USD $2.2 billion). This sum would be big anywhere, but it was overwhelming for the Dominican economy, equivalent to two-thirds of its national budget.

The resulting central bank bailout spurred a 30% annual inflation and a large increase in poverty. The government was forced to devalue the peso, triggering the collapse of two other banks, and prompting a US$600 million (euro$420 million) loan package from the International Monetary Fund.

Though required by the country's Monetary Laws to only guarantee individual deposits of up to RD$500,000 Dominican Pesos (about US$21,000 at the time) placed within the country, the Dominican Central Bank (Banco Central Dominicano) opted to guarantee all $2.2B in unbacked BANINTER deposits, regardless of the amount, or whether deposits were in Dominican Pesos or American Dollars and without apparent knowledge whether the deposits were held in the Dominican Republic or in BANINTER's branches in the Cayman Islands and Panama. The subsequent fiscal shortfall resulted in massive inflation (42%) and the devaluation of the DOP by over 100%.

Former president Mejía and the Central Bank (Banco Central) stated that the unlimited payouts to depositors were to protect the Dominican banking system from a crisis of confidence and potential chain reaction. However, the overall consequence of the bailout was to reimburse the wealthiest of Domincan depositors, some of whom had received rates of interest as high as 27% annually, at the expense of the majority of poor Dominicans—the latter of whom would be required to pay the cost of the bailout through inflation, currency devaluation, government austerity plans and higher taxes over the coming years.