D.R. the next Argentina?

I read it in horror. I remember an April when Salvador Jorge Blanco was a president and I was about 10 years old. The D.R. was an Argentina back then. I remember and I hope my fellow citizens do too.

Good question kingofdice......of course only time will tell....I have done some incomplete research on Japan from the late 80's, Argentina, and now Uruguay....when these countries went into a tailspin, they had a larger debt problem than the DR does now....so if the DR feds stop their funny business right now, and if the economy does reasonably well, then its probable that the DR will not end up like those other countries.

However, what alarms me is how quickly over the last couple of years Mejia has worsened the situation...what further alarms me is that he seems to deny the potential problems and continues headstrong in piling on debt....

If you look at the other countries you will also find that it took at least a year from the time that the alarms rang to when the bell finally tolled.....the market is fickle... no one knows for sure when or if the DR will have a monetary crisis...its all up to the government and its taxes,regulations,payroll,etc....

In today's newspapers

There is one section called La Vida in the Listin Diario that is dedicated to the penchant of the general Dominican public to use Tarot, Ouiji, and other far out stuff to resolve their lives.

Today is Tuesday the 13th, considered a day not to leave your house nor your loved ones.

In the Hoy newspaper, the Coctelera column mentioned how one of the major business men in Santo Domingo recommended the elimination of 5 Secretariats, in order to reduce the public payroll..

These two, apparently disparate issues, are one in the same: There is a sort of Dreamland that pervades the National Place.

Maybe someone with a Ouiji board is guiding Hipolito's economic team....

HB, guessing???

One of the major problems made moreso

by the gov't tendency to maintain the status quo and keep the general population uneducated, thus uninformed is that the voting majority tend not to remember or comprehend major past events that could repeat themselves due to mismanagement by greed filled gov't.
How many remember the last time the bill collector came to collect? I believe it was sometime in the early 60's not too long after Truijillo "fell"! Does anyone remember what conditions were like for the "average Joe Blow"???

DR vs Argentina

I have wondered about this myself for several months. I am contemplating moving there and if there are problems like a complete meltdown I need to be able to overcome them.

My take on the outstanding debt of the DR is different from many here. I feel that they can pay this debt easily if the economy recovers in other first world countries.

I also agree about the foreign investments in the DR generating maybe enough revenue to even pay this debt. Like Mondongo mentioned there was the writing on the wall previous to the meltdown in Argentina and that their debt was more substantial.

I think that anyone invested in the DR should keep their eyes open and have a plan if it appears that things will get bad there. I plan to have accounts in other countries to move money to if things look bad after I am there.

I have also notice a bigger push to promote the DR in NY. Liberty travel in their full page ads are using about 1/8th on Puerto Plata and also the other coast. That to me is a good sign. If the economy picks up here that will relate to many more tourists there.

It is no longer a ? of if,but when?

Like a drunk on a binge drinking more and more and more until he has a "blackout",the government borrows more and more and more,until it needsa "bailout"! Only this time it won't come.The DR has been warned to many times,by too many Int. Orgs. to limit its borrowing.When the DR begins to default it will be too late.I look forward with anticipation to what I will be able to purchase with the US dollars I will then bring into the country.When the peso is at 100 to one,or 1000 to one,or even 10,000 to one,the DOLLAR will rule! CRISCO

I spent about a year in Venezuela, which had been spending as though oil was still about US$30/barrel (at the time price on world market was way down). The currency there is the Bol?var. At that time the rate of exchange was about 600 to 1 and you routinely walked around with B$10,000 bills in your wallet.

I would hate to see that happen to the DR.

There might be some differences ...

While I completely agree that Hipolito's borrowing policy is going to cause major problems, I do want to point out that our situation is very different from that of Argentina's:

1) We are being watched ..... CLOSELY!!! After the argetinean debacle the general foreign debt issue has come into perspective for a lot of people. So this might make investors more cautios, causing the well to dry up for Hipolito before we have to sell our souls to the devil.

2) Argentina decided(or someone decided for her) to peg its currency to the US dollar, and by doing so they refused themselves the right to have their own monetary policy (of any kind), basically Alan Greenspan became the president of their central bank. Because the DR can have an "independent" monetary policy, if things start getting ugly a gradual devaluation of the peso could be achieved, creating less of a mess for the country (a mess nonetheless, but a smaller one). A depreciation of the peso would actually be the only way for the government to cut government salaries (other than firing hordes[sp?] of perredeistas, which is not likely to happen).

3)There seems to be a stronger opposition to the government's borrowing spree from all sectors in society(except Congress, unfortunately), and I think the proximity of presidential elections will have government taking more popular decisions that would guarantee for them the backing of influential business groups.

So, there, that's my 2 cents.

Shame on the Foreign Banks

According to an article that I recently read in "The Economist", there is growing concern, especially after the recent bailouts of Brazil and Uruguay, that Latin American governments expect bailouts and borrow accordingly as a matter of policy - defeating the concept that bailouts are emergency measures for unanticipated circumstances. In other words, though the borrowing is excessive, reckless and bound to cause an economic crisis if not relieved, it is NOT bad policy because the wealthy countries will just have to come bail you out later. In the meanwhile, the money can be put to good use for the country.

This thinking is flawed in regard to the governments of really poor countires, not because those in power don't expect a bailout, but rather because they don't care whether one comes or not. And unless you're a Swiss banker, you could not say that the money was being put to good use either.

The idea is to get as much as you can, personally or politically, out of the loans as quickly as you can. Long-term planning is not an issue.

Politicians, who anyone with a brain would expect to be corrupt and shiftless, are not as much to blame as the (mainly European) commercial banks that issue these loans. THE COMMERCIAL BANKS are the ones that defeat the legitimacy of the whole IMF/World Bank system because they are the ones that EXPECT AND RELY UPON THE BAILOUT COMING.

The banks know full well that the loans are for inadequately specified purposes and that the funds will likely be absconded. They also know that the governments of poor countries will never get their acts sufficiently together to pay them. SO IT IS REALLY THE BANKS THAT ARE COUNTING ON THE COMING BAIL OUT. And since these same banks tend to play a large role in the IMF, it becomes a self-fulfilling prophecy. Sort of like the biggest "ponzy scheme" on the planet.

The good news is that the international financial community has decided that the DR's economy is large enough to make the country a good place to play this game. In other words, they hope that the DR is considered important enough to make the world feel that a bailout were appropriate. That's why Mexico and Brazil get bailouts while Angola and East Timor can't get any loans at all.

The bad news is that this game, bailout or no bailout, means plenty of future upheaval and pain for the regular people of the DR.

Bailouts are not handouts. They are just loans to pay the defaulting debt. "Bailouts" never benefit the common folk. A "bailout" is just a loan with many,,many strings attached. What happens is that in a couple years the IMF will come "bailout" hte DR by forcing austere measures on the DR government and its people. The DR feds will then be "forced" to use good fiscal judgement: lay off many workers, raid pension and other cash plans, etc. Its a no lose situation for the scum politicians because the DR commoners will think that its these "bad foreigners" who are destroying their country.....when in fact its those unscrupulous,bottom feeding larvae known as the Mejia mafia.

Lets play!

Math quiz:

The size of the DR fed's budget is growing at 22% per year. The economy is purported to be growing at 6%. The budget is currently 20% of the country's income (GDP). At the above pace, approximately how many years will it take before each individual and each corporation has to pay 100% taxes....yes by that I mean ALL your money goes to the goverment?

a) 1
b) 7
c) 11
d) 19

jojocho....monetary policy and exchange rates do not necessarily have a strong correlation. The USA Federal Reserve does not base its decision on the exchange rate of the USD. when you look at currency exchange rates, for most of the world curencies, the Central banks are powerless against the much larger volume of the free market. goverments ancd central banks dont usually have enough cash reserver to dictate a given exchange rate. sometimes they act "in unison" for very short periods of time. Interest rates, inflation, economic growth and asset appreciation are factors that can in the short and long term affect the value of a currency.


when a country pegs its currency to the USD, its basically betting that its ecomony can outperform the USA. one of th reasons interest rates are so high in the DR is to attract foreign currency. This allows the DR to keep the exchange rate artificially high. but at the same time it suffocates and stiffles business in the DR.

Who's The Bigger Scum

mondongo said:

Bailouts are not handouts. They are just loans to pay the defaulting debt. "Bailouts" never benefit the common folk. A "bailout" is just a loan with many,,many strings attached. .

Click to expand...

Mondongo,

I think we're in agreement. And I promise to consider you for Finance Minister in my regime.

My point is that the foreign banks do not receive enough blame for driving countries like the DR into virtual bankruptcy. These banks are fully aware that the money loaned will be absconded and that the loans themselves will place the country in financial distress. But it's still good business for them.

The interest rates and terms are much more favorable for these banks than if they were lending to, say, IBM. In fact, the word "usurous" comes to mind.

And then these same banks, with interlocking directorates with the World Bank and IMF, will authorize the bailouts using further loans that are likely to be backed in part by the American or other G7 governments through their central banks.

You correctly state that bailouts are not handouts, and will cause real pain and anguish for the average Dominican. THEN WE AGREE THAT THE BANKS ARE THE BIGGER SCUM BECAUSE THEY WILL, USING QUASI-GOVERNMENTAL FINANCIAL ORGANIZATIONS THAT THE BANKS THEMSELVES CONTROL, ENSURE THAT THEY ARE PAID BACK IN FULL - ON THE BACKS OF POOR DOMINICANS.

mondongo ... while I agree with most of your post you must keep in mind that monetary policy inlcudes a lot of things. Deciding to print money is part of a country's monetary policy, and this is a pretty sure way to have an inmediate effect on the exchange rate. Inyecting dollars into the market, as the Central Bank has been doing in the DR, is also part of monetary policy and this is how they have managed a little bit the variations in the exchange rate. Issuing bonds to reduce the amount of circulating cash is also monetary policy and the Central Bank also uses this to control the exchange rate, eventhough its clearer effect is on interest rates.

While these actions will not dictate the exchange rate for a given currency they will all have an inmediate effect on the existing exchange rate.

Porfio...great post...I agree that the international banking institutions should be ashamed for abetting and inciting criminal activities like that perpetrated by the Mejia clan.

jojocho...excellent points on how the central banks influence the exchange rates...

you guys know your stuff!!

this is ridiclous.
you can not and may not put a moral duty on the lending institutions, That would be political interference.
and you can not abscond the borrowers obligation.
The Dominican Republic with it duly elected goverment
are the borrowers. they are the sole responsible for creating the mess not the lenders.
And the dominican voters are the ones that are responsible
for putting Hipolito there .
They get good information from their newspapers they are aware
what happens . they know their goverment is corrupt
and they like it and accept it.
or otherwise where is the outcry.
where is the public protest in the streets organised by the opposition. I see nothing.
So stop blaming the lenders.
first blame Hipolito then the Dominican voter.

Good post Paul.

All these banks have an obligation to do is to make a profit. After all that is what their whole purpose is. If they make bad loans they lose their money. All risks and rewards.

Seems as if people don't want to take responsibility for their actions or inactions. The Dominican government is elected after all.

Only difference of opinion I have with your post is that I would but the blame first on the Dominican People and secondly on their elected officials.

Can you be a victim of circumstance that you created?

re whom to blame, you would be right if the politicians campaigned on being crooks.
they are not , they show their true selves after the election
so forgive the voters for hoping that for once they get an honest politician.
So I still believe the blame is in order of politician and then voter.
so the voters are guilty of naivity.