economic comments from the daily news

sjh

aka - shadley
Jan 1, 2002
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TW is going to hate this one but here goes....

8. Bank interest rates take a leap
El Caribe newspaper reports that commercial bank rates have begun an
upwards trend. The interest rates have climbed four points in the
past two weeks. Economists had warned the government that one of the
negative consequences of borrowing from local commercial banks could
be an increase in interest rates. By borrowing on the local market,
the government uses up the banks' liquidity leaving less funds
available to loan to private companies.


so now when the DR can'tt pay the loans back the banks will go under too... these guys are setting themselves up for a major crash...

so now the gov has 2 Billion in debt, much of it foreign, and is currently taking out loans from local commercial banks to pay the debt to outside the country... All the cash borrowed is driving interest rates up for private companies, This slows down the economy because it increases the cost of doing business (same as the Fed adjusting the interest rate here).... Therefore revenue derived from taxes on businesses will go down and further reduce the govs ability to pay debt....

Also the loan is taken out in Dollars and has to be paid back in dollars... Think supply and demand.... now imagine what will happen to the exchange rate when the gov has to buy dollars with pesos...

If history repeats one of two things will happen:
A. the government will print peso notes with no backing, not tell anyone, dump them on the market and further degrade the value of the peso..
B. The government will default on the loans..

from part 7
Commenting on the exchange rate increase, he said it is cyclical and
normal during the first three months of the year.

cyclical is when it goes up AND down... when was the last time that happened....

again from part 7

The peso also slid more than usual given new players in the market,
such as the large foreign power companies that repatriate their
earnings.

now profits that used to stay in the country provide income to the government are being syphoned off out of the country. This sounds remarkable similar to another South American Country making headlines these days.... Again, income produced in pesos, converted to other currencies (spanish?) and moved out of the country..... Supply and demand..



intelligent comments and thoughts welcome!!!!
 

Golo100

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Jan 5, 2002
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Shadley

Don't rush out to conclusions so fast. The dollar has just inched a few points over its value, nothing to worry about. I predicted the dollar would be at $18.50 to $19.00 by year end. This is just a normal escalation. It is the lowest of any nation in Latin America and perhaps the world. We can handle it.

So what if interest rates go up again? It was only a few months ago I was getting as much as 23% interest on my certificates. We are getting 15% now...so what if it goes up again to the 20's? Was business slowed when it was 23%? No way. Remember we had 7 to 8% growth when it was that high?

Shad, Dominican Republic has too much going for it to crash now. People are wrong about us. We are not a normal economy. Our economy is dominated by things that hardly ever crash...like drugs, money laundering, white collar crime, sex, good beaches, sun,2,000,000 Dominicans from abroad sending money like fools to their greedy relatives and now a growing number of foreigners who fall prey to our charm sending money to the woman or man of her dreams in a caribbean fantasy, black markets, counterfeiting, stolen merchandise, stolen cars, you name it we got it all. Besides that, we are now beginning to have a real entrepeneurial class and business people doing business legally and paying incredibly high taxes. Our land continues to rise in value. Foreigners are paying incredible prices for every Square meter of beachfront or cultivated land. A pretty solid combination.
We are a corrupted society where the dollar talks. We sell our soul to the dollar. We protect crime money better than anybody. This is a haven for money.

TW
 

sjh

aka - shadley
Jan 1, 2002
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well put but

I dont intend to jump to conclusions, I feel that open minded intelligent debate is a good way to learn something new.....

All true, except none of these things serve to pay off the debt

How is the illegal money entering the country going to end up in the governments tax dollars? no one is paying tax on it.. In the end the government has to pay back the debt it owes. Most of the drug money spent in country is being spent on foreign goods anyway (even the tiles in the houses are imported, along with the cement) The local companies get very little.

All the money from the power sector, phone companies, and tourism (big foreign AIs) is all being repatriated back. The majority of your food is imported. All of your oil, cars, light bulbs, u name it... The DR has no signifigant product being produced in return...

O then there is tourism!!! Just wait till US drops sanctions on Cuba and see what happens to that..

Basically, the gov is acting like a teenager with its first credit card before the first bill comes in. The Government has no way to collect the money they will owe. Any money collected is squandered, stolen, or already spent. There are few if any legitimate businesses and they cant collect taxes efficiently anyway. Even if the population has money, how is that going to pay of the governments debt?

How can 7-8% growth be considered positive when interest rates are at ~20%.... It cant, it means no credit anywhere, Everything has to be on a cash down only basis. It makes it impossible to do biz on a loan.

additionally The peso has traded already at above 18 as reported the other day... This wasnt supposed to happen until end of year...

just remember the Argentinias thought they were pretty special too....
 

Marc

New member
Jan 1, 2002
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The demise of the DR

I don't believe that the country can continue to operate in the same fashion for the next two years. They are not paying their bills, nor their employees.

They are boosting taxes, fining people RD$300 for parking in a no parking zone in Sosua, RD$500 for seatbelts, and arresting you/fining you for talking on phones. These are all ways of getting money from those that have money. It marginally has something to do with making roads safer. But where does the cash go?

They are cancelling projects that international loans/bond money was intended for, yet increasing payrolls and arresting those that question where the money went.

I believe that the DR is headed for real trouble in the next 6-12 months. They appear to be a government that wants to emulate a first world nation, but are so rife with corruption and like playing the "high roller" role a little too much and are going to get themselves in more trouble than they are in now.

Then again, this is all based on "news" sources here, and I don't know how much is hype and how much is reliable. Also, this is apparently nothing new according to many people I know....my question is: <b>How long can it go on before it crashes?</b>

marc
 

Trivalent

New member
Jan 31, 2002
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I agree with most of the above, here's my two cents...

Deficit spending during a recession is not encouraged but understandable. Deficit spending during growth is unacceptable.

Deficit spending on infrastructure is an investment. Deficit spending on wages and patronage is simply a cost (0% return on investment).

We can argue until we are blue in the face about the validity of the Argentina comparison. The point is that foriegn investors will make the comparison (simply because Latin America is all the same to many of them) and stay away if they see parallels. Although DR did not do anything as silly as locking the value of the peso to the dollar; there are at least two parallels, dificit spending and patronage.

As a Dominican-American who is in the process of making an investment in a free zone manufacturing company what I see concerns me. Imagine how much it would concern someone with no ties to the country?

Trivalent
 

tiger

Endangered Species!
Jan 26, 2002
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Remedy Social Revolution!

Brothers! to end all of these corruptions..we must emberk on the GREATEST QUISQUEYANO REVOLUTION EVER!!..the books must be all burnt! and start a-new..ideology!...The Tiger roams! End.
 

Criss Colon

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Jan 2, 2002
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Marc

We don,t have long to wait! The new year will be Bleak! I think that things will be;"In The Toilet" by December,and "Flushed" not long after! I thought that the peso would be at;18 to 1 by November,but I now think July,and "sooner"! Keep those Dollars! You can make 20 to 25 % this year! Criss Colon
 

mondongo

Bronze
Jan 1, 2002
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Trivalent, you posted that you are investing if a free-trade zone manufacturing business...out of curiosity, and if you dont mind my intrusion, would you mind sharing what type of company you are investing in?

thanks in advance
 

Escott

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Jan 14, 2002
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O then there is tourism!!! Just wait till US drops sanctions on Cuba and see what happens to that..


Reply:

Only 15% of tourists to DR are Americans to start with. Lifting sanctions on Cuba won't hurt the DR. As an American I would like to see Cuba. We are NOT allowed to go legally although you can go through the DR or Mexico or even Canada. I don't think that it will be a big deal though. If it was a big deal all the Canadians and Europeans would be there now instead of the DR.

Question is what will happen to the Dollar accounts in DR. Will it go the way of Argentina to pay back bills?

Scott
 

Janice

New member
Jan 12, 2002
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I think you are wrong about 15%

jazzcom said:
O then there is tourism!!! Just wait till US drops sanctions on Cuba and see what happens to that..


Reply:

Only 15% of tourists to DR are Americans to start with. Lifting sanctions on Cuba won't hurt the DR. As an American I would like to see Cuba. We are NOT allowed to go legally although you can go through the DR or Mexico or even Canada. I don't think that it will be a big deal though. If it was a big deal all the Canadians and Europeans would be there now instead of the DR.

Question is what will happen to the Dollar accounts in DR. Will it go the way of Argentina to pay back bills?

Scott

When i first started reading DR1, I seem to recall their posting statistics regarding tourism and the US surprisingly was the LARGEST suppier of tourists.

If you don't think the "opening" of Cuba is going to devesate ALL the Caribbean destinations, you have your head in the sand

Janice
 

Escott

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Jan 14, 2002
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Re: I think you are wrong about 15%

Janice said:


When i first started reading DR1, I seem to recall their posting statistics regarding tourism and the US surprisingly was the LARGEST suppier of tourists.

If you don't think the "opening" of Cuba is going to devesate ALL the Caribbean destinations, you have your head in the sand

Janice

Well you recall wrong. Only 15% of the tourists that come to the Dominican Republic are Americans. Rest are from countries that currently allow travel to Cuba.

Only thing this will affect are the countries that have an 85% American tourist count and that is only a MAYBE. Cuba is still in worse shape than the DR and has less facilities in demand by tourists.

As far as my head being in the sand, I think I would far prefer where it is than where your head evidently is at the moment:)

Regards
Scott
 

Janice

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Jan 12, 2002
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Trifle nasty

Whats the matter Scott, I hit a raw nerve?

Could you cite your sources for the 15% of the total tourists to the DR being American?

Do you always try to intimidate and base your post on verbose and baseless attacks? You would have some credibility if you cited sources and didn't simply try to denegrate other people.

I was not sure of the statistics, so I await the results of my request for solid information before I put my foot in my mouth, I think you will need an oral surgeon soon.


Janice
 
Last edited:

Dolores1

DR1
May 3, 2000
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Central Bank statistics show that of the total arrivals in 2001 (2,294,121) 666,290 were United States citizens. This is 29% of the total foreign arrivals. Of that percentage, one could say about 4% are of Dominican origin, either citizens or offspring of Dominicans, so they will continue to visit the DR. Thus it would be safe to estimate that the DR is receiving about 25% of its leisure and business travelers from the US.
As Punta Cana and La Romana destinations become more popular, the percentage of visiting US travelers will increase.
One of the negatives that most affects the number of US travelers to the DR is the lack of reasonably priced air fares. At present, for the most part only charter airlines are offering attractive fares. Thus the country has not yet begun to tap into the market that would open up if it had adequate air service.
If Cuba opens up, yes, thousands of US travelers will visit that island. Cuba was a popular destination years back and should again attract thousands of US travelers. Expect lots of hotel investment to flow as that country prepares for the US traveler seeking a Caribbean vacation, rather than a glimpse at something prohibitive.
But years of the Castro regime have affected the hospitality service in Cuba. Dominicans are more natural at being hosts. Dominicans are spontaneous in their service providing. This friendliness of Dominicans will continue to be a major plus to this country.
Another major plus on the side of the DR is that winters are chilly in Cuba. Weather in winter in the DR is perfect.
On the other hand, the DR could gain if Cuba becomes popular. It will make the Spanish Caribbean more popular. Furthermore, island-hopping vacations could catch on. Multi-destination visits in Europe have always been popular, they could also be an attractive alternative in the Caribbean.

To read statistics on where visitors to the DR come from, see http://www.bancentral.gov.do/lleg_men_nac.html
 

Trivalent

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Jan 31, 2002
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Mondongo:

Thanks for your interest. We are in the process of starting up a new manufacturing/distribution company that will focus on the medical and dental industry. I am unable to get more specific on the products at this point.

When we started looking for investment opportunities in DR we felt there was too much focus on textiles and even more alarming was the focus on cheap direct labor. My partners and I have always felt that charging the lowest price is not a competitive advantage since there will always be someone else who can do it for less (in the Textile industries' case that is China and Bangeldesh, etc).

Our business models hopes to capitalize on two aspects of DR:
1) The severly under-utilized college educated work force. Our products require highly skilled technical knowledge. We felt there were many technical grads who were working in areas that were not technical (i.e. tourism) because that was the best job they could find.
2) The geographic location of DR. We felt DR would be an ideal hub for the management of a supply chain network to the caribbean and the rest of Latin America. With so much focus on textiles and CBI, sometimes people forget that there is money to be made by going South, East and West of DR not just North.

Trivalent
 

mondongo

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Jan 1, 2002
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educated work force

Trivalent,
Thanks for your reply. You make a great point about making use of the educated labor force in the DR. In your research, how large did you find this pool of workers and was it easy to find them? I am just curious at this point, I dont have any fully developed business ideas or plans just yet. But at some point in the next few years, I hope to do something in the DR also. But like yourself, I would like to do something that has value added, and can compete in the global economy. Going there for cheap, destitute labor is not for me. Did you look at all at how well educated the work force was in high technology? Engineers, scientists and the like?

sorry for all the questions,
mondongo
 

Golo100

Bronze
Jan 5, 2002
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Shadley and repatriated money

Who says drug and laundered money does not get into the tax rolls? Actually, dirty money finds itself looking for a legal outlet faster than income produced by legal business. Tax evasion comes mostly from legallly established businesses. But dirty money needs to be laundered into the economy. How? Thru the construction industry, fancy automobiles,new businesses, store fronts, real estate, bank investments, etc.

All of these legal activities that fit dirty money like a tailored suit is heavily taxed. For instance, If you bring $5,000,000 pesos from a drug deal and you buy a condo, you have to pay taxes on the purchase, duties on the title, taxes on furniture and fixtures,lawyer fees and the attorney pays his own taxes on it. You have to pay a maintenance fee that employs people and pays resources that flow into the economy.

So what if money from multinationals flows out of the economy? Laundered money flows in from abroad too. Plus income from Dominicans abroad continues to rise as the Dominican community abroad increases and expands into different world economies. We now have all of our eggs spread out into different nations. If one has a bad economic year, the other one shouldn't. If all have a bad economy, that means the whole world is in trouble. While we have been affected by Sept. 11(WTC) its has not affected us as much as other nations that depend solely on the US economy.

The income repatriated from DR comes with an advance payment to DR in the form of capital and plant investment, plus employment opportunities. Before a multinational can repatriate money it has to invest on real estate, construction, equipment, human resources and pay taxes. They also have to produce a profit, so during the first three years, they just leave everything here.

TW
 

Trivalent

New member
Jan 31, 2002
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Re: Educated Work Force

Mondongo:

I wish I could cite some sophisticated numbers but we really couldn't get a great deal of empirical data or research. We used CNZFE 2000 stats to determine how we would compare against current free zone enterprises.

1)In 2000 only 13 out of 481 companies (2.7%) were in the medical industry.

2)In the same year only 8% of the workforce was classified as technical. This term is being used loosely since most of the industry is focused on unskilled labor.

3) We conducted some interviews with some contacts at universities to determine how the technical grads (engineers, chemist, biologist, other scences) were fairing in the marketplace and it was pretty grim.


Hope this helps. Email me direct, I would like to get your comments on the above.

Trivalent
 

Golo100

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Jan 5, 2002
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Shadley

What do you make of the latest economic factors in the DR economy? The dollar is almost officially at $18, something that was projected by most pundits, but now interest rates are jumping up(to my deep satisfaction).

The dollars being pumped up into the economy by the Central Bank are being swallowed by a monster. Dollars are getting scarce. Is someone stockpiling? Or, are we really importing that much these first two months.

OK, blame it on Luis Miguel!!! He just took a cool US$1,000,000 for his concert.

Whatever it is, I LOVE IT. Nothing I like better than fishing in troubled waters.

TW
 

sjh

aka - shadley
Jan 1, 2002
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I dont really have enough info to make a good comment but I will anyway...

look at the spread between what the DR banks are paying on USD accounts and on Peso accounts... If that is opening up then your currency rate risk is increasing.

If both are rising then credit risk is increasing across the board.

If dollars are getting scarce at the same time the peso supply is increasing then currency devaluation is coming soon behind.

Stockpileing USD is a pretty good guess. Those in the know (the government thieves and the banks) will want to move deposits out of pesos and maybe even out of country. I dont know when the government debt payments are due, but they are due in dollars. USD will be in short supply while the goverment collects them for the payments

Fishing in troubled waters is the way to go. I generally fish with high VOL banged up stocks on the NASDAQ. thats where the fun is, but dont get burnt and hedge your bets..

Anyway, tommorow I am out of the cold and into the sun... flying down for two weeks tommorow..