Some curiousities about the DR economy

While the US has that ability to lend money out at a cheap price simply by lowering rates, the DR cannot do the same without devaluing their peso to nothing.

Re: I don't see that-please explain in detail

Onions&carrots said:

The peso is 17 to 1. What does that matter? The economy is based in pesos. If this is an internal decision affecting the national economy, why would they have to devalue it to nothing?

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While the economy in the DR is basically based on the peso the DR needs dollars to pay their foreign trade. NO COUNTRY would take DR Pesos as payment. The DR relies on imports to exist. If they didn't they would be in the straights of Cuba almost. Would you take pesos for your carrots and onions in Miami?

In order to get the Dollars they need a high interest rate or else the dollars will go somewhere else. If you look to 1993 the Peso was approx. 13.50 now it is 17.50. If it wasn't for the high interest rate it would be 22.00 to the dollar where it will probably go in the next 2 years anyway.

Risk vs. rewards is the name of the game. It was truly amazing when the US dropped the interest rate to a similar rate as under the mattress that the dollar did NOT drop in value. I think it was because of world troubles that money seeks safe havens hence the dollar held up. NO one thinks that the PESO is a reliable currency. Well no one that counts in the International Banking community anyway.

Hope this helped. Parts were oversimplified, other parts are just my opinion.

Regards
Escott

Re: That's true but

Onions&carrots said:

what about way back when the peso and the dollar where equal. I think it occurred during Trujillo's time.
Wasn't the country better off back then? Also Trujillo paid off the external debt completely. No debt and equal parity with the dollar.

Isn't that better for the DR instead of all this debt and a crummy valued peso?

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That was a different time. Sugar was king and it brought in tons of Dollars. Also imports were limited by the fact that only a small select few consumed them.
Now the DR is a country where the Gov. Takes out a loan from a Miami bank to build a hospital for its congressmen. Just about every Gov. project has to be financed by an outside lender. And where does all the monies collected in taxes and duties go. It goes to pay of the debt of all those loans. Can you see wht is going to happen? All you Dominicans better strap in you seat belts. There is going to be a crash!

Tony C.

Re: That's also true but

Onions&carrots said:

What does that have to do with those astronomical mtg rates. What does that have to do with luring dollars the fact that most people can't afford a mtg?

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Jesus man. I put money in the bank to get the high interest. If they don't get higher interest loaning the money out what good is giving me high %? They use my dollars to pay their bills.

People ARE affording the mtg. Or else they won't get it. Mortgage companies are loaning money to the people with crappy credit at higher rates that are closer to 30%. I invest money with them also.

Look at all the dollars that come into the country from Doms living in the US. If it wasn't for those expat Dominicans in the US the DR would probably become another state of the US.

O&C

Its just as simple as supply and demand. As a commodity trader you should know that?

The supply in this case is limited by money supply, the risk of the investment due to bad credit rating overall, Bad credit rating of individuals, alternate investment avenues, and the currency risk.

The demand is huge, because there are lots of people who want to take out loans, the government, businesses, and home buyers....

huge demand, lots of risk, low supply of lenders

Jesus, man are you thick or what?

First of all the Central bank cant make rich men out of poor men or else every country would make everyone rich. People still have to work for a living no matter what the banks do.

You are not servicing DEBT as much as paying for your imports in a currency that is taken by other than third world countries.

Go to freakin CUBA, you would be happier with the way that the government works there I guess.

The government or the central bank cannot, by the definition of the relationship between money supply and inflation, just print money and make everyone rich. Shadley and jazzcom have explained what causes high interest rates. I can summarize it in one word: uncertainty. If I cant tell if you're going to pay me back...i'll charge you a high interest rate. if i think the goverment is going to seize a larger chunk of your wages, i'll charge you high interest....and so on and so on..
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the more i find out about the DR...the more sick to my stomach i become...it is abjectly shameful what those in power are doing...

if we're going to help...one of the things that must be done is follow lhtown's advice from another thread.....nuke 'em...round them up and fry them all....they are freakin' stealing your money...putting it in some foreign bank account....agghhhh!!!!....i am ready to follow in the footsteps of my late father and my mother and pick up arms and start a new revolution. they did it 40+ years ago...its my turn now...Onions...you in?

Perhaps another way to look at this:

The US Governement has one of the best credit ratings around. All other credit ratings are "worse". Therefore all other interest rates are based off of the rate of the safest rate, the US Bond rate.

The US government can now use this by changing the its interest rate. All other interest rates can compensate. This can be used to control the money supply of the country.

In the DR, the governements credit rating is not particularly good, and there are other investment vehicals are safer (like US Bonds). This removes this important "lever" from DR Central bank control.

I am not really an economist, maybe someone else can answer better, but I would start with improving the countries credit rating... The current government is doing exactly the opposite of that IMHO.

Also note that the exchange rate is not as important as the buying power of the average citizen.... In other words, measuring my income in pennies does not make me 100 times richer, but perhaps we could compare wages in Hamburgers or something.

www.bancentral.gov.do

I obtained the following from the DR central bank website. This is its mission statement.


En el Orden Nacional

1. Emitir billetes y monedas en el territorio nacional, sujeto a las disposiciones de la Constituci?n de la Rep?blica y las Leyes Monetaria y Org?nica del Banco Central de la Rep?blica Dominicana.
2. Dise?ar y ejecutar la pol?tica monetaria mediante los instrumentos aprobados al efecto por la Junta Monetaria, dentro de los marcos legales existentes.
3. Dise?ar la pol?tica crediticia y financiera y velar por el cumplimiento de las mismas.
4. Adecuar los medios de pago al ritmo de las actividades productivas.
5. Contrarrestar toda tendencia inflacionaria o deflacionaria perjudicial a los intereses permanentes de la Naci?n.
6. Regular el sistema financiero nacional con las garant?as y limitaciones establecidas en la Constituci?n y las Leyes del pa?s.
7. Promover la liquidez y solvencia del sistema bancario de la Naci?n.


En el Orden Internacional

1. Crear las condiciones para mantener el valor externo y la convertibilidad de la moneda nacional.
2.Administrar eficientemente las reservas internacionales del pa?s, a fin de preservar su seguridad, asegurar una adecuada liquidez y al mismo tiempo una eficiente rentabilidad.
3. Registrar las operaciones relativas a la deuda externa tanto del sector p?blico como del sector privado y servir de agente financiero del Gobierno para el pago de la misma.
4. Efectuar las operaciones de cambio que ponen a su cargo las leyes vigentes y/o las resoluciones que a tal efecto dicte la Junta Monetaria.

sadly but true

Since USA have lot of influence and other contry currency they can almost keep contry like DR or Haiti in I debts. One raison is if the DR would acctaly improve there credit rating central mortgage and bank would have to lower there interest rate therefore, in the long run, improve quality of life. The consequence, many of Dominican people living and paying taxes in the US would start moving back to there contry, that would create a big lost in US revenus since the estimate domincan living in the US is 2 millions.
It is Imperative for the US to keep contry's like Dominican Republic, Haiti non attractive. J.P.

hbernard

That doesnt make a lot of sense to me. The Dominican contribution to the US economy in $ terms cant make much of a difference.

Additionally a strong economy in these developing countries would cause the exchange rate to become more equal, makeing it HARDER to retire back home.

please explain further?

2 millions paying...

if there is 2 millions dominicans livingin the US and paying let say, $1000.00 in taxes a years, grand total of $ 2,000,000,000.00 that is lot of dinero the gringo won't let go.!

First of the 2 million in the US, how many are working adults? How many are working illegally? how many make enough to even pay taxes? How many are on welfare?

Dont get me wrong I like the DR, but most Americans dont even know how to find it on a map.

there are 298000000 more people paying taxes left, and the top 5% in income are paying half the total income tax anyway. On top of that is the corporate income taxes anyway.

The taxes they pay on their mostly low income salaries are a tiny fraction of the goverments budget.