The Banker: Dominican Republic

NALs

NALs

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The Banker recently published several articles concerning the Dominican Republic's economy, the actions of the Central Bank in the last three years, etc.

All very interesting and might be of much interest to many DR1ers.

The Banker: Dominican Republic

-NALs
 
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CarpeDReam

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Feb 17, 2006
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Thanks Nals.

It's amazing how many people here and in the DR criticize Leonel Fernandez so much. I respect a lot of what he has done for the DR. I am not the type of talk so highly of any politician but what he has done for the DR does not compare to anyone in DR history. He is not perfect and no leader ever is...it's not easy to be a president..especially of a developing country like the DR.

I particularly liked this part of the articles:

Project fever
Published: 03 September, 2007 Page: 21 A huge number of construction projects are under way as the Dominican Republic focuses on improving its infrastructure across the board.

The Dominican Republic is undergoing a dramatic makeover through a programme of construction projects, of which the most ambitious is the Santo Domingo metro.

The Caribbean?s second underground mass transit system responds to the need to reduce the heavy road traffic congestion and air pollution of the country?s capital city. The 15.5-kilometre metro now under construction will have one line and 16 stations, with ?92.6m of rolling stock supplied by France?s Alstom from its factories in Belgium, France and Spain. The government expects to have the line open early next year, with capacity for 200,000 passengers.

OPRET, the public authority in charge of the reorganisation of public transport in the Dominican Republic, says the project is part of the government?s development programme to meet the increasing demand for public transport and reduce road traffic congestion in Santo Domingo.

The metro is one of the largest of the infrastructure programmes in the planning or execution stage, as the country?s economy regains the momentum it lost in the 2003-04 financial crisis.

Santo Domingo is also the home of the country?s first cyber park, a public-private partnership providing IT and related industries, including information services exports, software development and computer design, as well as of manufacturing technology products. Parque Cibern?tico Santo Domingo is established in Andres, Boca Chica, less than five minutes from Las Am?ricas International Airport. The cyber park is designed for industrial and office users. Planned infrastructure includes a state-of-the-art digit park, designed to host software and telecom-based operations, and an industrial area for high tech manufacturing.


Project go-ahead


Since president Leonel Fern?ndez came into office three years ago, the government has given the green light to nearly 1000 projects, representing an outlay of about $3.5bn. The construction industry is benefiting from a huge increase in public spending following successful sovereign bond issues in the international markets since Mr Fern?ndez took office. Public spending in this sector has increased 16.8%, which also stimulated a 27% rise in private sector investment in construction.

?Low interest rates, which have come down from 50% or more to 11%, have fuelled a construction boom,? says Ivelisse Mieses, an associate at PricewaterhouseCoopers in the Dominican Republic. ?Hence investors are taking a renewed interest in the country as an attractive market, thanks in a large degree to a low interest rate environment and a massive programme of investment in infrastructure.?

These projects range from urban renewal, housing and power infrastructure, to roads and seaports. Much of the work is focused on modernising the country?s tourism facilities, the major foreign exchange earner.


IFC commitment


The International Finance Corporation (IFC), the private sector arm of the World Bank, has provided a long-term financing package to Sans Souc? Ports to expand and operate the Sans Souc? and Don Diego cruise ship terminals in Santo Domingo. The IFC?s $21m financing will help to reintroduce the cruise industry to the city and support tourism.

Sans Souc? Ports is carrying out a 40-year build-operate-transfer concession that will renovate the existing infrastructure at the terminals, manage pollution issues that affect the Ozama River basin, and upgrade the navigational channel. Expanding the Sans Souc? and Don Diego ports is part of a larger urban revamp, which includes a marina and a real estate development, to create a multipurpose attraction on the Santo Domingo waterfront.

Salem Rohana, IFC country manager for the Dominican Republic, says: ?IFC?s involvement will encourage international investors to extend private financing to local companies like Sans Souc? Ports.?

The government has invested more than $120m in infrastructure renewal in the Puerto Plata region in the past three years, as part of a $275m outlay on projects in the city. ?This investment in the province of Puerto Plata represents more than what has been spent in the area in 25 years,? says the government?s tourism secretary F?lix Jim?nez. The work includes a new sewerage system, roads connecting various towns in the province and public housing, as well as new tourism facilities offering snorkelling and other water sports.


Wealth of projects


The government?s infrastructure programme is spread across the country, focusing on schools, hospitals, roads and sanitary facilities in rural areas, as part of the 2004-2008 Provincial Development Council. In the region around Santo Domingo, 76 projects are under way, ranging from the refurbishment of the university to swamp drainage.

The bulk of the work is being carried out with state funds. There has been a rising level of foreign participation in some of the larger projects, however. Some examples are the Caucedo megaport, and the $100m in foreign investment going into infrastructure projects of several international airports, such as Saman?, Puerto Plata and Las Am?ricas in Santo Domingo.

Foreign participation in government contracts is not allowed to exceed 50%, except in certain cases when 70% control may be granted to a foreign investor depending on the complexity or sophistication of the project. Investors point out that the negotiating process can be arduous and unnecessarily time-consuming, particularly when it involves regional or local authorities.

The big stumbling block for any infrastructure project is a reliable and sufficient supply of electricity. High levels of energy loss are a result of technical failures due to deficiencies in substations and transmission lines, fraud committed in connection services and direct theft of power supply. Energy losses until last year amounted to 40% of total generation.

?We have managed to reduce the amount of loss to 30%,? says Ricardo Arrese, general manager of Edesur, one of the country?s three electricity distributors. ?We have installed 3000 new transformers in the past two years to improve our distribution network, reduce theft and improve the quality of service.?

The company has spent $5m to install new meters that register consumption levels directly to a central computer, and which can automatically cut off electricity supplies if a customer fails to pay. ?Thanks to our new tamper-proof systems, electricity bill payments in Santo Domingo are expected to increase by 15% to 20% this year,? says Mr Arrese.

Nevertheless, the three electricity distributors are still costing the government about $600m a year in subsidies. There is talk of privatisation once the companies are operating on a profitable basis, but no move in this direction is expected until after next year?s general election at the earliest.

Source: Project fever - The Banker
 
NALs

NALs

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CarpeDReam said:
Thanks Nals.

It's amazing how many people here and in the DR criticize Leonel Fernandez so much.
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The reasons why people criticize so much depends on many factors, among which includes party loyalties and/or with whom a person socializes with.

For example, there is a certain someone on this board who will remain nameless, but this person is very close to strong individuals that own companies in the tobacco, liquor, and free trade zone industries. The tobacco and liquor industry has seen a very direct and sharp increase in added taxes and the free trade zones are adjusting to the new currency exchange regime of stability, which is not that new since it has been stable since Leonel came back to power.

This particular someone has become adamantly anti-PLD and anti-Leonel for the simple reason that some of his closest buddies are now complaining due to government taxation creeping into the substantial profits those enterprises and business owners reap year after year. One of those is a virtual monopoly.

Never mind that prices now rise much slower than they did in the 2000-2004 time period, never mind that the economy is actually growing, never mind that there is an increase in employment and a subsequent decrease in unemployment, never mind that interest rates have come down allowing for an increase in borrowing and better financing deals for consumers. Never mind that foreign investment has increased substantially in the tourist and consumer oriented market, never mind any of that and many other things including avoiding default on international loans and a total economic collapse that would had lead to social unrest had it not been halted promptly.

Even the historically tumultuous relationship with Haiti are at their best right now.

Then you have all the speculators, the people who assume things prior to investigating them fully, etc.

This is not to say that their criticism are not valid, some of them are, but a good chunk of them are not.

In any case, most people in the DR prefer Leonel than any other politician, at least that's what all the recent gallup polls have shown.

The PLD and Leonel will be in for four more years, whomever likes it or not.

Going by the polls, more will like it than not.

-NALs
 
NALs

NALs

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Want to add this:

Most critics against Leonel and the PLD do so using the following subjects:

1. The Metro: they claim all sorts of incorrect assumptions about this project and, by default, attempt to use such incorrect assumptions as a way of creating discontent towards the PLD and Leonel. For example, saying that the project was going to use the entire budget, when of the entire four-year budget of Leonel's term, a small portion is devoted to such project and by small, I mean extremely small.

Or, the rants by the grudge holding Osiris, who insisted that the Metro was being badly built, that the tunnels were collapsing, that the tunnels were going to be flooded, etc. Of course, no one notices the recent storm that has dumped more rain on the DR than anyone has seen in years, and yet the tunnels are not collapsing, flooding, or anything of the sort.

2. Taxation: they claim that the taxes are too high and unnecessary. Makes sense if we ignore the fact that the national debt reached over 50% of GDP when the PLD took power in 2004, now down to almost 40%. When you take into account that in 2000, Leonel left the power with a national debt that was a little more than 20% of GDP, it doesn't take a rocket scientist to realize that more debt means more taxes to pay the thing off!

3. Education and public health funding: they claim that funding for these social services are low, but ignore that spending on these very same social services was practically frozen during the 2000-2004 PRD years, and now have seen some of the greatest increases in investment during the current administration.

4. Denounce clientilism, nepotism, and other problems: they love to make these problems appear as solely a PLD problem, claiming that this party favors those who are loyal to the PLD; but ignore that this is a structured problem present in all political parties, not just the PLD. The problem in this criticism is not the demand to end this practice, but rather making people believe that the PLD and only the PLD perpetuates this problem.

5. Corruption: they ask for an end to corruption and make it seem as a problem that is solely present under PLD rule. Of course, they ignore the anti-corruption schemes that have been implemented by this administration, schemes that have lead to the revealing of the earnings of public officials, to making public via the internet information that was once only available at government offices and to government officials, so on and so forth.

6. The US/Peso exchange rate: they claim that the currency is being fixed at an unfavorable rate and that its overvalued. Of course, they forget to explain why there is a lack of a different exchange rate in the black market from that in the official market, etc. Exports are up, imports are up, the economy is growing and the exchange rate is stable because there is enough dollars to meet demand, unlike during Hipolito's time when dollars were so scarce in the Dominican market, thus the sharp increase in its value and its volatility.

7. Try to juxtapose criticism Leonel currently makes about critics vis-a-vis those he made of the PRD during the 2004 presidential race: they claim that Leonel is now criticizing his critics in the same manner he criticized the PRD regarding the crisis that the country experienced during their rule, claiming that the PRD was responsible for its aggravation. Well, its true! The PRD didn't create the crisis, they simply made it much worst than it had to be due to gross mismanagement. Even the IMF team came to that conclusion in a report they made, even the IMF and World Bank. The PRD grossly mismanaged a crisis that could had been solved with prudent action based on macroeconomic stability, something the PLD put in place as soon as it took power and the economy responded favorably in less than 6 months after that, initiating the beginning of the end of the worst economic crisis in the history of the country.

8. Lies: when all else fails, they simply lie like Vargas Maldonado recently did when he claimed that foreign investment has collapsed during this administration, when he very well know that now is when foreign investment is at its highest; something he acknowledged in a real estate project he is currently involved in but denounced in the political race he is also currently involved in.

Again, its not that many of the criticisms are not valid, because in principle they are. The problem is that the opposition can't use those criticisms with just the basic principle, but rather they try to make them appear as problems that only exist or only get worst under PLD rule, which is the biggest peace of bull crap anyone can ever say, hear, or believe.

-NALs
 
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Onions/Carrots

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I wonder how the current destruction of the US dollar orchestrated by Bernanke, the subprime mortgage meltdown and the ensuing collapse in the credit markets will affect the DR. The dollar continues on its downward trajectory breaking, every week, new lows. The subprime market, despite the pollyannish comments by realtors, fund managers and mtg. brokers continues to register more defaults every day. Wall St. is also reeling from the securitization of all this mortgage junk sold off as AAA thanks to erroneous ratings by Moody. What wonderful collusion by the whole group (real estate/mortgage markets, the securitizers/ Wall Street, and the poor saps who signed on these ARM's because they wanted a home all knew they couldn't afford) so this begs the question.

Nice points NALS but how will this affect the DR and its incipient credit market, its largely unregulated mortgage market and its exchange rate? Maybe they should consider their options i.e. the euro and start hedging by diversifying their government portfolio.
 
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Onions/Carrots

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Forgot to add- while the DR is experiencing a relative calm economically via a stable exchange rate due to an abundance of cheap dollars worldwide, the US is about to enter uncharted waters via the structured financial disaster engineered by Wall St aka the securitization of all things that have steady stream of payments (mortgages, insurance premiums, account receivables, you name it). Who would ever of thought that one would live to see the day when the DR was stable versus the US.

WHAT A PARADOX!!!
 
NALs

NALs

Economist by Profession
Jan 20, 2003
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Onions/Carrots said:
Forgot to add- while the DR is experiencing a relative calm economically via a stable exchange rate due to an abundance of cheap dollars worldwide, the US is about to enter uncharted waters via the structured financial disaster engineered by Wall St aka the securitization of all things that have steady stream of payments (mortgages, insurance premiums, account receivables, you name it). Who would ever of thought that one would live to see the day when the DR was stable versus the US.

WHAT A PARADOX!!!
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That's not even the most impressive paradox, but rather the impressive rate at which the U.S. economy is losing prominence in the global economy measured by the percentage of global GDP being U.S. GDP. As more time passes and many of the new growing consumer markets in the Third World become more affluent and the focus of the global economy (think China and India as prime examples), the role and impact of the U.S. economy in the greater scheme of things will continue to decrease.

What this means is that, unlike in the past, we are now moving into an era where the U.S. economy sneezes and the world doesn't catches a cold; unlike in the past when the U.S. economy went through some problems and the entire world felt it.

I think the current administration is noticing these changes in the U.S. role in the global economy and is becoming more aware of the heavy dependance the DR economy is to the U.S.; that now the DR is beginning to expand its diplomatic and economic relations to countries it never did business with; such as India and an African country whose name escapes my mind right now, but the DR recently developed diplomatic relations with them. Also, new relations with the United Arab Emirates were initiated this year.

A diversification of our diplomatic and economic partners will lead to less dependence on the U.S. and consequently, protect the Dominican economy from being too harshly affected by adverse economic conditions in the U.S.

This is one of the reasons why the DR is currently developing a new free trade agreement with the European Union which should lessen the American dominance in the DR-CAFTA agreement that was started earlier this year.

In an era where the U.S. economy can ail and the rest of the world continues with the business as usual mantra, diversification becomes crucial!

-NALs
 
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CarpeDReam

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You've raised great points Nals...many of the one's I've used to argue with people...especially my grandmother and some other family members who see politics as a sport and are loyal to their teams/political parties as such.

I've never really trusted or liked dominican politicians...and I still don't for the most part. And i'm not saying that I put ALL my trust on Leonel bc you just never know. I'm not saying he's some kind of saint but I really believe he has proven himself to be a very wise and capable leader.

A great point raised by you and OC is the fact that the US is not doing as great as it has done in the past but the DR is still, as has been the pattern--increasing it's economy to higher-than-expected levels. Just imagine how much better it would be if the US was doing better and not at war.

Even with Noel and the gas prices affecting us, I really think Leonel and his team will do the best they can to come up with a strategy that will alleviate the negative effects of the current situation. They were able to get the DR out of the economic crisis and have proven themselves with amazement...I see no reason why they wont do it yet again...and I think this time, the poor (many of whom don't understand the progress because for the most part, they probably have not felt it personally) will see it more if the government really does build better homes for these people as promised. This government has acclompished most of what has been promised.
 
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Onions/Carrots

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CarpeDReam said:
A great point raised by you and OC is the fact that the US is not doing as great as it has done in the past but the DR is still, as has been the pattern--increasing it's economy to higher-than-expected levels. Just imagine how much better it would be if the US was doing better and not at war.
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Remember the days when Hungry Hungry Hippo was debasing the currency (DOP) at alarming rates and some black marketeers were even registering it at 60. At the time, the US appeared to be stable, at least when compared to today.

Now Citigroup, Merrill Lynch, Wamu are anticipating larger losses from all of the junk loans they originated that were later bundled as AAA paper by their collusionary friends at Moody's and other rating's agencies. Now the situation is so dire that The Treasury Dep't is getting involved and trying to be the middleman to create a fund to help stabilize the mess in the credit markets.

A super SIV fund or as has been parodied as a SITH fund is being put together to raise the money to roll over the short term commercial paper coming due, pay the investors (pension funds, hedge funds) who were duped by the ratings and bought that mortgage junk touted as structured finance (what an eloquent name) in order to bring uniformity and consistency to an unstable situation. I think its called the Master Enhancement Liquidity Conduit (I think?) M-LEC for short, just the name should bring stability to the credit and money markets, LOL.

Whoever has a substantial amount of money in US banks should at least be aware of this ongoing situation and decide accordingly. FDIC will insure up to 100,000 per account, not sure if that is per account or per bank. Someone was telling me that it is per bank, others per account. Not to be Chicken Little, but those in the DR dependent on funds in US banks should at LEAST be aware!

Interesting point- all of those dominican opportunists, Central Bank currency debasers during the peso heydays in Hippo's reign, the political cronies who shaved off their portion from the budgets the state entrusted them with, the arbitrage between the exchange rates from official bank rates to the guys on the Duarte with the bills in hand, the cost overrun experts at construction sites, the market makers who provide liquidity and then extract hefty sums with ridiculously high simple interest rates with balloon payment provisions, the bogus titles enacted in order to gain loan money for projects that were never begun and all the financial schemes and scams perpetrated on dominican soil-

ALL OF THESE individuals and corporations who have saved their money in SAFE American banks MAY have a rude awakening when they realize that the very banks they trusted are engaging in the very acts they engaged in. As the saying goes, what goes around comes around.

Here's the caveat, if the US is able to come away from this gargantuan mess unscathed and financially stronger (by stronger I don't mean a 20 year deflationary recessionary cycle with a market halved as is the case in Japan) then there is no financial debacle the US can not find the monetary forces to muster.

As I said before, the US is in a mess, the DR is stable- WHAT A PARADOX!
 
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dms3611

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You guys are SOOOOO RIGHT......Please get the word out to all the emerging and 3d world nations to quit the inflow of immigration into the U.S. ....nothing but unrest and instability there. GLAD I have all my money in DR, Venezuelan, and Columbian banks!!!!!
 
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