The Real Value of the Peso

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DCfred

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Jun 19, 2003
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I've seen much talk here and other places about the "true value of the peso" and I think most people are missing one important point. The dollar is a commodity just like gold, coffee, sugar and the price will rise and fall based on demand and supply. The Central Bank tried to tinker with the value of the peso through a variety of erratic monetary policy shifts that only aggravated the problem. One important indicator of what was to come was the constant infusion by the Central Bank of its dollar reserves into the economy, in order to meet the demand for dollars and keep the exchange stable. As they learned in Argentina, you can only keep that gig going so long before there is one big collapse. There is just not enough "organic" money in the system to meet all obligations, private and public, hence the IMF. The main problem as I see it is that with an election coming and the President running again, the government won't be able to maintain fiscal discipline and meet the IMF terms. Elections in the Dominican Republic usually mean out of control spending in order to buy votes. Its going to be a tricky situation.
 
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Porfio_Rubirosa

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Apr 26, 2002
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Yes, one has to believe that Hippo has every intent of trying to scam the IMF too. It will be interesting to see if he can keep the scam going until election day (I think he can - he excels at this type of thing). Yours is a very good observation, I think.
 
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DCfred

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Jun 19, 2003
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Just to follow up on what I wrote, The following is a quote from the Miami Hearald today:

"When growth faltered, funds to refinance loans dried up. The banks had been expanding recklessly. Rumors of problems caused a run on funds, prompting residents to withdraw their pesos to exchange for dollars, forcing down the exchange rate from 22 to $1 to 31 to $1.
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The article calls the Dominican Republic "Argentina Redux"
 
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Porfio_Rubirosa

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Apr 26, 2002
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Thanks for the link to the article. I believe that the article overstates the impact of "overheating" of the economy, and underestimates how the reckless borrowing and spending ("spending" is putting it nicely - given that half of it went to mansions, boats, Jeepetas and Rolexes and the other half went to no-show political hack patronage jobs) of Hippo could only have resulted in disaster.

"Overheating" suggests a period of fast economic growth followed by increases in government spending based on mistaken government assumptions that growth will continue at the same high rate for the indefinite future.

But Hippo's borrowing and spending were never based on an overly rosey pictures of economic growth. In fact, with the national budget growing at 25% a year, even the incredible 7% annual GDP growth rate of the late 1990s wouldn't have justified it.

It was never an economic mistake. Hippo's people never cared about growth projections. It has always been about taking as much money as you can get your hands on for you and your friends as fast as you can.

Many of the posters to this forum saw this train wreck coming, even while Hippo's people were in New York selling bonds to ignorantes. What Moody's and Standard and Poors didn't know (or didn't care to know), and what they could have learned by tuning into this forum, was that the collapse of the DR economy was being engineered. These guys were all along going to take all of the tax revenues and, that not being enough, as much as New York and Zurich could lend in the name of the state.

The country has been looted.
 
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