The Daily News today reported that Hippo Mejia is considering another round of Sovereign bonds. Lets examine how the first US$500 is being spent. Bare with me, this might be long....
1. Interest rate: 15.5% equivalent .....not 9.5%. The published reports of 9.5% is very misleading. This rate is what is called the Coupon Rate. When most of us think of a loan, we think for example a car loan: 5 years, 7% in USA. At the end of the 5 years the car is yours. The US$500MIL is a 5 year loan, but it is an interest ONLY loan. This means that at the end of the 5 years, the DR governmen STILL OWES US$500MIL. That's on top of having paid US$237MIL along the way. Thats equivalent to a Principal and Interest (most loans you and I know of) loan of 15.5%. Now you know why they are talking about a new loan,which will be used to pay back the old one. To be fair, this is pretty much what the USA does.
2. US$2.5MIL finders fee for bankers and friends (not itemized)
3. http://www.contraloria.gov.do/web site contraloria/default.htm
shows the loan to have been transferred 9/28/01 to the DR Central Bank. The Central Bank transferred the US$286.5MIL to the Treasury on 3/28/02 at an avergage exchange rate of 16.9.
What happened to the interest for those 6 months? Thats another >US$2.8MIL. Much more of the money had been sitting in a DR$ account.
4. Exchange rate. On 3/27/02 the Central bank transferred US$27.615MIL from the loan the the DR treasury in pesos using an exchange rate of 17.15. THAT SAME DAY, the Treasury through the Central Bank made the bi-annual coupon payment of US$23.75MIL. The Central Bank exchanged the Treasury's pesos using an exchange rate of 17.96. Thats a 5% profit for the Central Bank. Not bad for pressing a button on a computer. That's a 5% loss just on the exchange rate from your own Central Bank: 5% of US$737MIL=US36.85MIL.
5. Of the DR$4.844BILL the Central Bank gave the Treasury, DR$4.02BILL was actually sent to be spent. What happened to the DR$800MIL? Thats another US$85MIL unaccounted for.
BOTTOM LINE: of the US$500MILL, US$125MILL was skimmed even before it got the the agancies. If history is an indication, 70% of the remainder will go to "salaries"..leaving US$112MIL for capital investment..what kind of return do we need to pay back US$737MIL?
1. Interest rate: 15.5% equivalent .....not 9.5%. The published reports of 9.5% is very misleading. This rate is what is called the Coupon Rate. When most of us think of a loan, we think for example a car loan: 5 years, 7% in USA. At the end of the 5 years the car is yours. The US$500MIL is a 5 year loan, but it is an interest ONLY loan. This means that at the end of the 5 years, the DR governmen STILL OWES US$500MIL. That's on top of having paid US$237MIL along the way. Thats equivalent to a Principal and Interest (most loans you and I know of) loan of 15.5%. Now you know why they are talking about a new loan,which will be used to pay back the old one. To be fair, this is pretty much what the USA does.
2. US$2.5MIL finders fee for bankers and friends (not itemized)
3. http://www.contraloria.gov.do/web site contraloria/default.htm
shows the loan to have been transferred 9/28/01 to the DR Central Bank. The Central Bank transferred the US$286.5MIL to the Treasury on 3/28/02 at an avergage exchange rate of 16.9.
What happened to the interest for those 6 months? Thats another >US$2.8MIL. Much more of the money had been sitting in a DR$ account.
4. Exchange rate. On 3/27/02 the Central bank transferred US$27.615MIL from the loan the the DR treasury in pesos using an exchange rate of 17.15. THAT SAME DAY, the Treasury through the Central Bank made the bi-annual coupon payment of US$23.75MIL. The Central Bank exchanged the Treasury's pesos using an exchange rate of 17.96. Thats a 5% profit for the Central Bank. Not bad for pressing a button on a computer. That's a 5% loss just on the exchange rate from your own Central Bank: 5% of US$737MIL=US36.85MIL.
5. Of the DR$4.844BILL the Central Bank gave the Treasury, DR$4.02BILL was actually sent to be spent. What happened to the DR$800MIL? Thats another US$85MIL unaccounted for.
BOTTOM LINE: of the US$500MILL, US$125MILL was skimmed even before it got the the agancies. If history is an indication, 70% of the remainder will go to "salaries"..leaving US$112MIL for capital investment..what kind of return do we need to pay back US$737MIL?
