Forced Dollarization

I'm not really clear on why the US would care about the DR's economy, certainly not to the point of forcing it to adopt another currency.

I also don't know why the US would need "help" from Brazil, Paraguay, Honduras, and Nicaragua to invade the DR. What did they help with, directions?

"No senor, Republica Dominicana is more to the north, it's an island. Yes, senor, we are absolutely sure it is NOT in South America."

Boat people

The US will get involved to attempt to curb immigration. The only reason it gets involved with Haiti and the only reason when the Mexican Peso took a nose dive a few years ago the US help prop it up.
If the economy is so bad as to not have any hope then people will take drastic steps to get out.
During the cold war most decisions to get involved with anything by the US in this area of the world was to be anti Soviet and now with the fall of the Soviet Union everything is anti immigration.
John

There are hundreds of countries with bigger "immigration" issues in the US than the DR, none of which have been forced to change their currency.

Immigration from anywhere is good for the US economy, and the US government knows this even if the general population doesn't.

jsizemore

is probably correct. The immigration problems with the DR are close to the top of the list in the US. There are not "hundreds" of other countries with these immigration problems. The Dr is one of the only countries (maybe 8 total) in the world not allowed in the visa lottery every year and I have heard that while the visa violation rate worldwide is about 3 percent, while it is almost 80 percent for Dominicans...........thus not eligible for the lottery.

WASP forever

In the US we have this identity Crisis. We call ourselves the great melting pot but we want everyone to melt to look like WASPs. We also have this thing called free love Birth control and abortion. Now go back around to 1965 or so. Cultures of America that normally had 6 or seven kids now had three or so. Then those family became middle class with blue collar jobs.
The number of 30 and under crowd in the US is shrinking while the number of people getting to Social Security age is increasing. See what happens with war induced hormones with out birth control.
So America is at a crisis in workers. We need people to come to the US and work and pay taxes and so forth. America is afraid of non English speakers. America is also afraid of being called racist by making English the official language.
America will cut off its nose to spite its face when it comes to social issues. If America would set a clear cut immigration policy and guest worker status to where if you are in the US and have a child and you are a guest worker rather than a legal resident and many other things such as non eligibility for certain benefits.
Make the employer that sponsors someone take care of medical coverage and so forth and open the gates. Let it happen. If after someone was there for a few years they could request to be changed from guest worker to resident and make that based on English comprehension and work history.
But to do that would feed the fears of the Nathan Bedford Forrest Disciples and could somehow be called cruel because we would not have a safety net for the illegals.
So in the mean time we meddle in other countries to try to keep the immigrants out. We fight over official Language and miss the chance of having immigrants come to the US and then be able to freely go back home and take the capitalism and hope they learned from the US. If they could return home and try to build a business with the knowlege if it failed they could go back the US and try again there may be more influx of skills. How many immigrants that are in America have given up going back home because once they get there they may not be able to come back.
I know this is off thread somewhat but this is my feeling if the mind set of the US and why we meddle.
John

Seachange said:

Dollarization occurs when residents of a country extensively use the U.S. dollar or another foreign currency alongside or instead of the domestic currency. Unofficial dollarization occurs when individuals hold foreign-currency bank deposits or notes (paper money) to protect against high inflation in the domestic currency as we do here in the DR. Official dollarization occurs when a government adopts foreign currency as the predominant or exclusive legal tender which is what the US wants the DR to do.

While inflation would be reduced, dollarization does not guarantee fiscal discipline or restraint. For example, the fiscal performance of Panama (which dollarized long ago) has been poor and led to very high public debt and even default on external obligations. Moreover, in the last 25 years Panama has had 13 IMF programs, which is more than any Latin American country since 1963.

More recently, in March 2001, Ecuador completely converted over to the US Dollar. The economic benefits and drawbacks are complex; you can read an analysis here (http://sceco.univ-aix.fr/cefi/actualites/salvadormarconi.pdf)

However, without getting too analytical, here are a few outcomes, both amusing and instructional to us here in the DR.

1. Currency. 20% of Ecuadorians are functionally illiterate. They depended upon the color of the various denominations of the Sucre bills to tell the bills apart. But, US dollars are all the same color! Big problem.

2. Coins. US coins generally don't have an amount on them! Ecuador decided to mint their own version of the nickel, dime, quarter, to use instead of US coins. These coins were exactly the same size as the US coin, but had big nombres on them. Now, these Ecuadorian coins are showing up in parking meters and vending machines in the US!!

3. Dollars. The Colombians, ever enterprising, are taking advantage of the Ecuadorian's unfamiliarity with US currency. They are counterfeiting US bills and passing them easily in Ecuador.

4. Investment dollars. Contrary to most Latin American countries (including the DR) Colombia has LOTS OF DOLLARS. (Payment for Juan Valdez' coffee beans? Probably not.) Now that Ecuador accepts US dollars "for all debts, foreign & domestic" Columbians are buying up Ecuadorian property at an alarming rate. (Using both real and counterfeit dollars!)

Why do countries exchange currencies? Because they need something that's produced in that country. e.g. People want dollars so that they can buy American goods they can't get anywhere else. Example: Computer CPUs. Motherboards from China. Chips from Japan. CPU's -- US.

So, the DR wants US dollars. What does the US want from the DR?

The one thing that the DR has that every one wants is space. Convert to the dollar, and people with lots of US dollars will be buying that space. (Gringos or Columbians, which is worse?)

Much of the desirable coast land is already owned by Gringos. Most of the space that's left is currently protected. Even now the tug-of-war between the "greenies" and the greenbacks is interesting to watch. However, if the DR dollarizes, the "greenies" won't have a chance.

Click to expand...

Excellent description! However, there is more to the DR than just space. There is an array of natural resources (Iron, Marble, Gold, Nickel [DR is fourth largest producer of Nickel], Zinc, Granite, Bauxite, Amber, Larimar, and there are huge speculation of petroleum in the Central and Southern part of the island including some offshore locales).

In addition, the DR has an array of food products including Bananas, Sugar, Cacao, Coffee, Pineapples, Potatos, Oranges, Rice, Palm Oils, Yucca, Tobacco, and some other less known foodstuffs such as mamey.

The DR has over 200,000 fine Iberian Cattles which produce some of the richest and most drinkable milk, in addition to meat - though Dominican steaks are not as great as Argentine for some reason.

The DR also has a very young labor force (median age in the country according to the CIA country study is 23) that is adaptable, trainable, and very energetic.

The DR also has an economy that produces a minimum of $53 billion a year. That is more than any other country in the Caribbean and Central America (including Costa Rica and Panama). That gives the DR a per capita GDP of $6,000. The DR is the largest trading partner of the United States with huge imports and exports in the Caribbean and Central American region.

The DR also is located at the exact center of the Antilles and the Hemisphere. The country stands in the way of two of the world's major shipping routes (The Panama Canal - US/Europe route and the US - South America route, ships along both routes eventually pass within less than 10 miles from Dominican shores passing either through the Windward Passage between Hispaniola and Cuba and/or the Mona Passage between the DR and Puerto Rico). The DR is currently building the largest maritime port in the Caribbean and Central America called Puerto Caucedo next to the Americas Airport, visible from Boca Chica. It is expected to be used as a transhipment point for all products coming from or heading through the Panama Canal. Other ports that have seen an increase in activities lately include the Port of Haina, the Port of La Romana and the Port of Barahona.

For these reasons and more, its critical for the US to make sure the DR economy doesn't sink too low, causing its biggest trading partner in the Caribbean to become Puerto Rico - which ironically imports 50% less products in Dollar figures from the US mainland than the Dominican Republic.

Its interesting to note that while the DR is the largest economy in the Caribbean and Central America producing over $53 Billion Dollars of goods and services per year, our neighbor Haiti which also shares the same island with just about the same resources and advantages as the DR (except fertility of the land and land mass - the DR is twice the size of Haiti and receives more rain than Haiti), Haiti still produces the lowest amount in Dollar figures of goods and services in the Hemisphere, a mere $10 billion Dollars per year. The only biggest difference between the two countries (aside from the fertility of the land and land mass) economic policies has been the way of thought and culture that each country has. Apparently, those factors are major players in how much development a country can achieve, despite the potential.

By the way, the DR produces $53 billion and the DR is not being utilized to the full of its potential, meaning that the amounts of wealth being created are inferior to what the country is capable of creating if it was to utilize its resources properly. But the reason why I pin point Haiti and the DR is because economically both islands have the same resources, lie along the same shipping routes, have populations that are identical in numbers, and have had similar histories of wars, invasions, and destruction and yet, the DR produces $43 billion more than Haiti or 5 times more. That I find interesting and I wonder if the way each country tends to look at the samethings have alot to do with it.

Nal0whs said:

....By the way, the DR produces $53 billion ....

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Nal0whs, the DR GDP is in the vicinity of US$15 Billion. What does this "$53 billion" represent?

mondongo said:

Nal0whs, the DR GDP is in the vicinity of US$15 Billion. What does this "$53 billion" represent?

Click to expand...

Click on the CIA web-link below. It will take you directly to the updated (Dec. 2003) facts of the DR according to the United States CIA Country Study. Scroll down to economy section and there you'll see the fact. Since that is the most up to date info. I follow thus far, I can only take that as a reference point. I don't like to speculate. Take a look at it. Eventhough the economy shranked by a mere 1%, the truth is that 1% of $53billion is only $530 million dollars, so it went down to something like $52,470,000,000 from $53,000,000,000.

http://www.cia.gov/cia/publications/factbook/geos/dr.html

The Economics data CIA Fact Book is not very accurate, or at least misleading. I have in the past used its data .... only to regret it later. When looking up any country's economic performance, I will usually go to its Central Bank web site.

Lets take a look at the DR. We know that in 2003, Mejia spent around DR$90 Billion. Most federal governments around the world spend at least 15-20% of GDP. (note that the Mejia will surpass that in the first trimester of 2004). Multiply DR$90 Billion by 6 = DR$540 Billion as a crude estimate of 2003 DR GDP. The average exchange rate (this is a crude approx) in 2003 was around 32. This yeilds a 2003 GDP of around US$16.5 Billion.

You can verify this number by looking at some of the DR Central Bank online publications.

Furthermore, the CIA Fact Book does no actually give you the GDP. It gives you what they claim is the "purchasing power parity" numer. To get this number, they basically dial in whatever exchange rate they feel like using.

Good beef

Nal0whs
On the issue of beef the reason it is of higher quality in Argentina has to do with the weather. Cattle need a cold period to induce fat storage. The fat is called marbling and that is what makes a steak juicy and tender. A good quality steak is actually fairly high in fat.
Tropical cattle do not need the fat stores there for they stay lean and that makes them a little tough by beef standards.
I no not related to thread but it is explaining a comment made on thread.
John

mondongo said:

The Economics data CIA Fact Book is not very accurate, or at least misleading. I have in the past used its data .... only to regret it later. When looking up any country's economic performance, I will usually go to its Central Bank web site.

Lets take a look at the DR. We know that in 2003, Mejia spent around DR$90 Billion. Most federal governments around the world spend at least 15-20% of GDP. (note that the Mejia will surpass that in the first trimester of 2004). Multiply DR$90 Billion by 6 = DR$540 Billion as a crude estimate of 2003 DR GDP. The average exchange rate (this is a crude approx) in 2003 was around 32. This yeilds a 2003 GDP of around US$16.5 Billion.

You can verify this number by looking at some of the DR Central Bank online publications.

Furthermore, the CIA Fact Book does no actually give you the GDP. It gives you what they claim is the "purchasing power parity" numer. To get this number, they basically dial in whatever exchange rate they feel like using.

Click to expand...

If you are basing your info on the amount the government spent, then you are simply doing just that, figuring out how much money was involved in federal spending. Total GDP constitute the value in money of all the goods and services produced in the country combined from public and private sectors. These are gross amounts usually when presenting GDP, meaning that expenses are not deducted because if they are, then we are going to be seeing the amount left from the amount made during that year. When statistic shows GDP, they are just showing how much was made on a given year. Also, keep in mind that GDP doesn't just counts tangible capital but also the value of the goods and services produced in the country. I'll check the Central Bank site to do some further research onto this, but I'm pretty sure that what you are saying is correct, except that you are looking at govenment expenditures, instead of the actual GDP produced in the country.

Also, GNP (notice the N) is the amount of money (or goods and services value) produced by Dominican based companies anywhere in the world.

GDP (notice the D) is the amount of money (or goods and services value) produced within the Dominican Republic's geographic territory, regardless where the companies are based.

I'll check the CB info and if I find that I'm incorrect in some aspect of my explanation or understand of this, then I'll correct it.

jsizemore said:

Nal0whs
On the issue of beef the reason it is of higher quality in Argentina has to do with the weather. Cattle need a cold period to induce fat storage. The fat is called marbling and that is what makes a steak juicy and tender. A good quality steak is actually fairly high in fat.
Tropical cattle do not need the fat stores there for they stay lean and that makes them a little tough by beef standards.
I no not related to thread but it is explaining a comment made on thread.
John

Click to expand...

That's interesting. I didn't know that. I guess the DR could still produce good eatable steak if the cattle were to be grazed in Valle Nuevo. With average temps in the 60-70 degrees farenheit during the day and getting well below freezing at night, that should cause the cattle to store fat. The problem is that Valle Nuevo is protected (as it should be anyways), so I guess we will just have to keep supporting Argentine beef. Aah, who cares!! Our Argentine friends need all the economic help they can get after that brutal collapse, which in my opinion was much worse than the DR in many aspects.

Nal, you must have misunderstood what I wrote. If the govt spends 16% of GDP....and the govt spends DR$90 Billion....then the facts are easily calculated. The DR GDP IS around US$15 Billion. I don't post facts unless I do my research and am nearly 100% certain. Go to the DR Central Bank and convince yourself. Also do a search on DR online newspapers.

DR GDP peaked at ~US$20 Billion a few years back. By the end of 2004, at today's exchange rate, it will be closer to US$12 Billion (traling 12 months).

Beef

While grazing by normal standards would not work there maybe some feed lots for short duration before slaughter. I do not know all the ins and outs but I know that right now the US has lost all of it Japan export market due to mad cow disease. The US had a zero tolerance for importing beef from any country with even one case of mad cow. Then we had the one case and Japan applied the same standard to the US. Of course the US cant whine for one country applying our own standards. With Japan being a large consumer that leaves an interesting vacume.
BTW a problem the US is having is Japan agreed to allow US beef imports if 100% of the Animals are tested but the FDA and Department of AGriculture are not allowing the licenses due to the fact that they do not want to set a precident the where the American public will want the same protection as Japan.
My advice to the DR fix everything in house. Make the Peso the dominant currency and take over the world before the US implodes from biting the hand that feeds them .LOL.

John

Here is the data.

This is from an excel file I downloaded at the Central Bank website. Year-population-PIB in DR$. Note that my estimate for 2003 is very close:

1970 4,009 1,485.5
1971 4,182 1,666.5
1972 4,305 1,987.4
1973 4,432 2,344.8
1974 4,562 2,925.7
1975 4,697 3,599.2
1976 4,835 3,951.5
1977 4,978 4,587.1
1978 5,124 4,734.4
1979 5,275 5,498.8
1980 5,431 6,761.3
1981 5,546 7,561.3
1982 5,674 8,267.4
1983 5,805 9,220.6
1984 5,939 11,594.0
1985 6,076 15,701.8
1986 6,216 17,780.7
1987 6,360 22,403.6
1988 6,507 32,850.5
1989 6,657 42,393.0
1990 6,811 60,305.2
1991 6,968 96,333.0
1992 7,129 112,697.7
1993 7,293 121,808.3
1994 7,425 137,566.4
1995 7,558 162,282.6
1996 7,694 183,361.2
1997 7,832 214,863.7
1998 7,973 241,977.1
1999 8,117 278,629.6
2000 8,263 323,430.3
2001* 8,411 366,205.4
2002* 8,563 401,883.2
2003* 8,717 509,965.4

What's the real question?

To me, the question on US-encouraged dollarization is: why? Why does the US want Latin American dollarization. I really don't get any feeling that there are privateers lobbying the Treasury Department so they can buy Dominican nickel mines. They can buy them now. Their dollars are worth plenty here already.

It also seems to me that US anti-immigration policy is more reactive than proactive. The US watched (and some would say helped) Haiti die on the vine, even though it had tremendous immigration implications. No, US policy on immigration seems to be to buy more gunboats.

Is it possible that American businesses feel deprived of investment opportunities in places like the Dominican Republic because of the inability to convert and repatriate profits, and that this is the real motivation behind the dollarization efforts?