MerengueDutchie...your turn

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WAYNET

New member
Dec 17, 2003
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Thank you for your informative threads.

I am here three months of the year, and have been coming here for some eleven years now.

I note, and of course, each to their own, but I have to wonder if the situation will be held together down here until at least, as is probable, Lionel, governs. Do you have any faith in his possible handling of things, at least to hold things together? The mechanism of govt is flawed down here, so I believe it is ungovernable.
Corruption starts with the public, and the politicos are a symptom of the problem; the problem being the public. I expect half the govt payroll to be eliminated after, if indeed he does, Lionel wins. That maybe is why he is offering little on the election policy issue.

This country needs to get that Free Trade agreement with the US next April too. I have a feeling Hipolito knows this too.

I also believe Ramon Baez Figueroa will beat the wrap, because if the govt had a good case, they'd nail him now, as an election positive.

I have some certificates with the Central Bank, but, they are all terminating BEFORE the election. I also can convert pesos to dollars at will, and can receive maybe RD$150,000/day abroad. That adds up after a week or two. So, I can get my funds out of here quickly.

I was aware last December that three banks were slipping, maybe going to fall; but I did not know which ones. After an exhaustive investigation, I concluded Baninter, and two of Mercantil/Progreso/Credito. However, I also correctly concluded that nothing would be permitted to fall before any election. I was advised in January 2003 that the peso would hit 30 in no time at all. I had a dollar certificate in Baninter (selling my pesos at 23 to get it), but called it right when, after Baninter slid, the CB was converting my Baninter dollar certificate to a 28% peso certificate at 42 = 1 dollar. Unfortunatley, the bank has made some internal errors and are trying to pay me at 25. That is another story. I can accept a Scotiabank certificate at 25 to the dollar at 22% if I like. I wounder if there is any advantage to that?

I know there is agression at Hipolito controlling-or at least trying to-the exchange rate, but it has happened, and still does in many countries; China, Hong Kong, South AFrica to name a few. Did not Balaguer have some kind of parallel system which worked well during his reign? Lionel is an articulate man, but is that enough here?

I await your reply, at your conveneince. Again, much appreciated your threads.
 
M

MerengueDutchie

Silver
Oct 13, 2003
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Dear Waynet

Thank you for your compliments.

First a little disclaimer:

While in real life I am a professional consultant in the financial field, I do not intend to advise you in any formal way. I will state my opion however, but it is an opinion only! As the noteable CC has already posted, opions are like noses, everybody has one (I believe he actually referred to another opening but that is beside the point).

I will also point out that, in general, community bulletin boards like DR are not the right place to obtain specific information.

I suggest you check any of my opions and discuss them with others before reaching a conclusion.

Now to your questions

Your current situation, based upon the information in your post is:

1) You have an undisclosed amount invested in Central Bank certificates, that will expire before the next elections. It is unclear when precisely.

2) You have the ability to transform pesos into dollars at will. It is unclear which means. Do you have a dollar account offshore or in the country, do you have acces to an exchanger that will change dollars for you.

3) You have the ability to receive around RD$ 150,000 abroad per day. From your post this would mean transferring the money from some internal to an external account.

Your worries are:

1) What are the chances that the financial system will hold together, until elections are held and anew president is installed?

2) You have some problems with actually getting your money from previous certificates from the Baninter scandal, even though this was promised by the government.

3) You can accept a Scotiabank certificate at 25 to the dollar at 22% and wonder if you should take this opportunity.


My opinion:

1) Stability of the financial system. The DR is a country ofwhich the government has over the last years and most notably over the last year has spent much more than it actually received as income.

This deficit has been chiefly created by a government that has inflated the pay-roll by adding more civil servants (patronage), by hemmoraghing money to unknown expenditures (according to one poster almost 15% of the current spending), by buying the national power companies and by deciding to guarantee more than the law required in terms of the so-called Baninter scandal.

This deficit has been financed by increased lending both domestic and foreign.

It has now come the pass whereby international institutions are refusing to loan more money to the governement unless they drastically change their ways. The international credit-rating agencies have assessed the posibility of anyone investing in the DR to get their money back, below that of Argentinia. In fact the credibility of the DR-government bonds has almost been reduced to 'junk-bond' status.

During the coming months the government faces the choice of coming up with a substantial amount of money to pay back short-term loans both in pesos and in dollars or defaulting on its issued bonds.

What will happen? Looking at previous behaviour of the governement, they have broke trust with the IMF in the buy-back of the power companies, they have broken trust with the local populace by allowing inflation to run ever higher and printing more money. It also appears that the promise to pay out any amounts from the Baninter scandal will still have to be fulfilled.

While they can always print money for the payment of the peso certificates, I think there is a good chance that the government will default on its dollar bonds. If that happens Argentinian riots can start to occur and stability will be difficult to maintain.

2) Getting money from your Baninter certificates. To me it is apparent that the shortage of money to payout your investment is not a thing that happens to you only. It fear that the promises made by the government to pay out these obligations will not be honoured in full. I'm afraid you will loose money on this deal.

3) You wonder if you should accept additional investments in pesos. My answers would be no. Given the instability of the peso and to my view very short period over which artificial exchange rates can be maintained, apart from the default risk you run a much too high risk of losing money to inflation. Remember, peso prices are up 100% from last year.


My opinion is to get your money out while you can and go liquid in a stable currency at a fixed interest. I make no recommendations but would suggest either Euro or dollar. The Euro has a higher interest rate, but you could lose a little once the dollar firms up. For the dollar it is exactly reversed.


Well, I hope this is any help to you.

Regards,

MD
 
W

WAYNET

New member
Dec 17, 2003
7
0
0
MERINGUEDUTCHIE

Thank you for your informative posting.

I will ponder over it, and throw you a thought or two, if you don't mind. Indeed, we all have opinions, and yes, I too say they are like noses.

I will clarify some of my information, and indeed, the thread represents your opinion, but, as you point out, changing from RD$ to US$ or Euros is always a safe option, so it is an easy last resort.

One small thought. I am aware that the US$ will surge in an election year, 2004, but I wonder when it might start to rise from its slumber; like the sun rising, it must come.

Again, thanks.
 
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