The Peso and the Election?

nakom · Mar 23, 2012

The peso currently sits at about 38.9 to 1 ($USD). I have been told that after the Presidential Election on May 20th, the Peso could swing strongly against the $USD.

My questions are, is there a general consensus as to what will happen to the peso:

1) If Hippo wins - will it go up or down?
2) If Medina wins - will it go up or down?
3) Why would an election result have a big effect on the peso?
4) How much of a swing - in either direction with either result?
5) What has happened in the past?

I know no one has a crystal ball, but there must be some speculation within the financial sector in the DR.

Thanks for the time, if you have any info.

Ken · Mar 23, 2012

nakom said:
The peso currently sits at about 38.9 to 1 ($USD). I have been told that after the Presidential Election on May 20th, the Peso could swing strongly against the $USD.

My questions are, is there a general consensus as to what will happen to the peso:

1) If Hippo wins - will it go up or down?
2) If Medina wins - will it go up or down?
3) Why would an election result have a big effect on the peso?
4) How much of a swing - in either direction with either result?
5) What has happened in the past?

I know no one has a crystal ball, but there must be some speculation within the financial sector in the DR.

Thanks for the time, if you have any info.

Whatever consensus there exists is politically motivated. PLDers say the peso will fall if hippo wins; PRDers say things will get better if their man wins and the PLD candidate will make things worse if he wins.

Other than that, nobody knows. Just figure the country will be lucky if things are as stable after the election as they are now.

Last time PRD won, before the 4 years was up it looked like the peso was headed toward 100 to 1, which is a major reason why PLD defeated them.

That does not mean it will happen again if PRD wins this election. There is also no guarantee that it won't happen if PLD wins.

Do you get the picture? Stay tuned and watch with the rest of us. Meantime, keep your money in dollars or currency of your own country, not pesos.

playacaribe2 · Mar 23, 2012

nakom said:
The peso currently sits at about 38.9 to 1 ($USD). I have been told that after the Presidential Election on May 20th, the Peso could swing strongly against the $USD.

My questions are, is there a general consensus as to what will happen to the peso:

1) If Hippo wins - will it go up or down?

Peso lose value against all major currencies.

2) If Medina wins - will it go up or down?

Peso will lose value against all major currencies.

3) Why would an election result have a big effect on the peso?

Because the DR has delayed, until after the election, austerity measures imposed by the IMF, and regardless of who becomes President, the bill will need to be paid and the financial reforms will need to be implemented. The resulting effects on the peso will force the Central Bank to continue to devalue it.

4) How much of a swing - in either direction with either result?

The Central Bank controls the peso rate, it is not set by the market. Given that, the only way to gauge any wild swings in the peso is to follow the Central Banks' holding of foreign reserves.

5) What has happened in the past?

A new President is elected with much fanfare and then the winners start carving up the spoils. Rinse and repeat every four years....much like many other corrupt countries around the world.

Respectfully,
Playacaribe2

bochinche · Mar 23, 2012

Ken said:
........

Last time PRD won, before the 4 years was up it looked like the peso was headed toward 100 to 1, which is a major reason why PLD defeated them.

.........

I think this is an example of people collectively remembering something that was an exaggeration and didn't actually even come close to happening. ( .......i do believe in the holocaust.)

In fact, i am sure the peso was starting to come down again by the close of his four years.

I also believe that while there were many reasons for the PRD losing, the exchange rate itself was not a major reason, but merely an indirect one.

If hipolito had not re-stood for election, there would have been a much better chance of PRD winning in 2004.
The PRD is the party with the largest number of die-hard supporters. Unfortunately it's history is riddled with internal squabbles.
PLD won as a result of those squabbles. Anti-hipolito rather than pro-leonel.
Miguel vargas did nothing to bring PRD back together and is in politics for personal glory. He will never be president.
2012 - hipolito, has worked on those die-hard supporters and is now the best alternative available.

Anyway - exchange rate was not a major reason.

playacaribe2 · Mar 23, 2012

bochinche said:
bochinche said:

I think this is an example of people collectively remembering something that was an exaggeration and didn't actually even come close to happening. ( .......i do believe in the holocaust.)

In fact, i am sure the peso was starting to come down again by the close of his four years.

Click to expand...

Actually, the peso was quite high going into the May 2004 election...46:1. By August of 2004, when Leonel took office, the peso had begun its major decline and was brought down into the high 30's and on the way to the high 20's. Lest you give Leonel credit, the IMF waited until the election was over and Leonel took office to provide massive liquidity to the banking system that had been brought to its knees and was very close to collapse. That decline was an aberration for the peso, whose history has been one of weakening against all major currencies on a fairly consistent basis for the past twenty plus years.

I also believe that while there were many reasons for the PRD losing, the exchange rate itself was not a major reason, but merely an indirect one.

Click to expand...

While I cannot speculate as to whether the PRD would have been voted back into power had Mejia not run, I do believe the peso exchange rate and the Baninter scandal was a major contributing factor in his defeat.

Respectfully,
Playacaribe2

Ken · Mar 23, 2012

playacaribe2 said:
While I cannot speculate as to whether the PRD would have been voted back into power had Mejia not run, I do believe the peso exchange rate and the Baninter scandal was a major contributing factor in his defeat.

Click to expand...

I think they were, too. Also the 18-19 hours a day on the generator was a factor.

Unlike many elections in the DR, the defeat of Mejia and victory by Leonel was so one sided that I don't
think any PRD candidate could have won.

bochinche · Mar 23, 2012

playacaribe2 said:
Actually, the peso was quite high going into the May 2004 election...46:1. By August of 2004, when Leonel took office, the peso had begun its major decline and was brought down into the high 30's and on the way to the high 20's. Lest you give Leonel credit, the IMF waited until the election was over and Leonel took office to provide massive liquidity to the banking system that had been brought to its knees and was very close to collapse. That decline was an aberration for the peso, whose history has been one of weakening against all major currencies on a fairly consistent basis for the past twenty plus years.

While I cannot speculate as to whether the PRD would have been voted back into power had Mejia not run, I do believe the peso exchange rate and the Baninter scandal was a major contributing factor in his defeat.

Respectfully,
Playacaribe2

Click to expand...

agreed - the peso was high.
it was higher, both officially and black market in jan/feb 2004 though.
in may 2004 it was declining already.

yes....the baninter scandal....but surely you can't link that to the exchange rate as a "major contributing factor" in the same breath.

like me, you agree with hipolito (albeit eight years later), that outside forces were directly manipulating the result of the dominican election. ......yes i know it happens here, there and everywhere.

still maintain PRD lost the election rather than Leonel won it.
In 2004, I was at a function where the current VP personally received many a contribution from well known PRD-istas that were against hipolito's re-election.
fortunately, those same prd-istas are batting for the home side again.

i do agree with ken that at that time it would have been difficult for any PRD candidate to have won......but that was the direct result of hipolito's "fragmentation". ......there were so many different camps....descamps, subervi, abinader, esquea, ortiz-bosch.

no illusions....another reason (of many) could well have been panam 2003......but the exchange rate was not a major reason.

playacaribe2 · Mar 23, 2012

yes....the baninter scandal....but surely you can't link that to the exchange rate as a "major contributing factor" in the same breath.

To clarify, the rapid rise in the exchange rate as a "major contributing factor" was a direct result of Mejia's failure to control the shadow banking system and the systemic losses, which in turn led to a near collapse of the DR's economy. As the crisis unfolded, Mejia started printing more and more pesos, causing the value of the peso to decline and the price of goods in pesos to accelerate. This brought about flight out of the peso and into Dollars/Euros. Private capital was soaking up the supply of Dollars which the government desperately needed to pay its foreign creditors.

In summation, I see and concur with your point about the exchange rate.....on a stand alone basis....but when you look at the totality of the circumstances with the exchange rate being the result of many other problems, then I must conclude that it was a major reason....but not the only reason that Mejia was defeated in 2004.

like me, you agree with hipolito (albeit eight years later), that outside forces were directly manipulating the result of the dominican election. ......yes i know it happens here, there and everywhere.

Outside forces are always in play.

still maintain PRD lost the election rather than Leonel won it.

Actually, I think it was a little of both...along with some of those outside forces.

Respectfully,
Playacaribe2

PICHARDO · Mar 24, 2012

nakom said:
The peso currently sits at about 38.9 to 1 ($USD). I have been told that after the Presidential Election on May 20th, the Peso could swing strongly against the $USD.

My questions are, is there a general consensus as to what will happen to the peso:

1) If Hippo wins - will it go up or down?

The sky will be the limit!

2) If Medina wins - will it go up or down?

It will go up during the elections and then it will crash down double as much as it went up by %.

3) Why would an election result have a big effect on the peso?

Because each time the PRD has gotten into office the economy has gone toast by the end of their administrations.
Financial sectors would not trust the banking system and keep their dollars locally.

4) How much of a swing - in either direction with either result?

PRD = Up, up and away!

PLD = Up during elections and shortly after a big double dip by %.

5) What has happened in the past?

PRD wins and soon after the peso kept depreciating 25% faster each year than the year prior to the PRD in power, until it was seeking the stars...

PLD wins and the Peso stables, starts gaining lost value to pre-crisis levels and cotinues the normal fall as it's controlled to devalued to keep exports cheap due to lack of competitiveness against other market sectors. Something the tourism industry hates and is against 100%...

I know no one has a crystal ball, but there must be some speculation within the financial sector in the DR.

Thanks for the time, if you have any info.

We all know what's up and what's down depending on who wins it this time...

The only way the PRD can make the local economy move (from the agricultural, FTZ and exports alone) is by devaluing the peso fast. It's the only way they know on how to make the country's economic sectors to be competitive.

Like Hippo said, cheapen the goods for exports and place VATs (taxes) to imports in order to make the local goods competitive at home... It's all written in the media from his own words!

PICHARDO · Mar 24, 2012

Oh and if you any doubts above the pesos being devalued to the dollar and not the other way as some here put their heads under the blade for, read this interview of the man that made the tourism industry as we know it today in the DR and the pesos control (devalued) from the gov.

In it, he says that they all want a free floating peso, which will be around less than 25 to the dollar and mean real income to the industry at large. A devalued peso hurts them a lot, since when tourist go off the premises they can obtain services than are not so far apart from those in the complex at cheaper rates, because they can stretch the value there far more than not as pesos rule the streets...

The price of the peso is easy to see when you use the Mac index for the DR...

Randall Bell · Mar 24, 2012

Good late evening everyone.

Well it seems everyone has their own hypothesis with no real evidence so far, so why not throw my hypothesis into the mix?

Since we can all agree that the Central Bank and government presently has some ability to affect the tassa/exchange rate by manipulating some levers and pulleys, why not analyze this situation from a 'motivations' perspective?

At present, who 'benefits' if the tassa is below the conventional 37-39?

It would seem the present incumbent government going into an election would do everything in their power to ensure that the peso is STRONG and that the tassa is sub 39. If not, then energy and consumer goods start getting expensive, and people start blaming them for having money left for pocket share and a basket of goods.

To this end, would it not follow that the central bank must be pulling as many levers and pulleys to ensure that the exchange rate is kept low going into the election?

Furthermore, shouldn't it be a concern that even if they're 'trying' to use present reserves to keep the tassa low, that the tassa has still increased in the past 4 months?

Doesn't this suggest that if left to float freely without CB manipulation, that the freemarket tassa would be MUCH higher than 39?

Discuss

waytogo · Mar 24, 2012

bochinche said:
I think this is an example of people collectively remembering something that was an exaggeration and didn't actually even come close to happening. ( .......i do believe in the holocaust.).

Would you please define exactly what you mean by this statement.....
Am I understanding your statement correctly, are you saying that the holocaust was an exaggeration.....
Please correct me if I am wrong.....

B in Santiago

PICHARDO · Mar 24, 2012

Randall Bell said:
Good late evening everyone.

Well it seems everyone has their own hypothesis with no real evidence so far, so why not throw my hypothesis into the mix?

Since we can all agree that the Central Bank and government presently has some ability to affect the tassa/exchange rate by manipulating some levers and pulleys, why not analyze this situation from a 'motivations' perspective?

At present, who 'benefits' if the tassa is below the conventional 37-39?

It would seem the present incumbent government going into an election would do everything in their power to ensure that the peso is STRONG and that the tassa is sub 39. If not, then energy and consumer goods start getting expensive, and people start blaming them for having money left for pocket share and a basket of goods.

To this end, would it not follow that the central bank must be pulling as many levers and pulleys to ensure that the exchange rate is kept low going into the election?

Furthermore, shouldn't it be a concern that even if they're 'trying' to use present reserves to keep the tassa low, that the tassa has still increased in the past 4 months?

Doesn't this suggest that if left to float freely without CB manipulation, that the freemarket tassa would be MUCH higher than 39?

Discuss

http://www.dr1.com/forums/real-estate/122314-punta-cana-what-you-didnt-know.html

Read the part where he talks about the exchange rate and control of the gov over it, as well where it should be left to go...
That's the head of the tourism sector that creates the largest piece of foreign currency for the gov after none!

playacaribe2 · Mar 24, 2012

PICHARDO said:
PICHARDO said:

Oh and if you any doubts above the pesos being devalued to the dollar and not the other way as some here put their heads under the blade for, read this interview of the man that made the tourism industry as we know it today in the DR and the pesos control (devalued) from the gov.

Click to expand...

Pichardo:

Like your mistaken autos post in another thread regarding 95% of all vehicles in the DR being 2006 or newer, this post appears to do the same thing.

Devaluing a currency means that each unit has less value against a benchmark currenct, i.e, when the peso goes from 38 to 39 per dollar, it is devaluing (or becoming worth less) against its benchmark.....in this case the dollar.

You have advocated and stated the peso is going to 25:1. That means the peso would be getting stronger, something many of us in the Recession thread do not believe.

In it, he says that they all want a free floating peso, which will be around less than 25 to the dollar and mean real income to the industry at large. A devalued or weaker peso hurts them a lot, since when tourist go off the premises they can obtain services than are not so far apart from those in the complex at cheaper rates, because they can stretch the value there far more than not as pesos rule the streets...

Click to expand...

The tourist industry does want a free floating peso, and a stable one, but not because it would be 25:1. They believe it would "devalue" further (43-45+), creating a boom in the DR's tourist industry as a weaker peso would attract more tourists because they would/could afford a longer or more luxurious vacation....the proverbial "more bang for the buck."

The price of the peso is easy to see when you use the Mac index for the DR...

Click to expand...

Ah yes, the Big Mac index, with all the credibility of the Superbowl index, or the length of skirts index, or the leap year index.

Respectfully,
Playacaribe2

pelaut · Mar 24, 2012

bochinche said:
I think this is an example of people collectively remembering something that was an exaggeration and didn't actually even come close to happening.

I guess you weren't here then. The Peso went from 18 to the dollar down to 55 to the dollar in less than two years during the reign of the guy with no forehead.

Leonel brought it back up to 28 to the dollar in less than two years during his first term. It has of course diminished since at 5-6% per year compounded.

Bakaguer's austerity program lasted 10 years in which water dried up in the cities, power dropped from 24/7 to barely available and roads became impassable. All to recover from the PRD's peso dive that followed Balaguer's tight reign in the 70's.

Not saying who's right, who's wrong, or the why of it. But that's the way it was.

"...die-hard supporters ...." Yeah, los due?os del pais. The good guys, right?

"Anyway - exchange rate was not a major reason." Tell it to the parents without jobs whose food bill went up by 300%!
What planet do you live on?

bob saunders · Mar 24, 2012

Those that forget the past are doomed to repeat it. Hippo's term " WAS" as bad as people remember it.

Malibook · Mar 24, 2012

R. What we lived in 2003 and 2004, when the currency went to 50 and up, we had instability. We do not want exchange privileges or higher rates, we want the real rate. An artificially high currency rate creates volatility, and no one invests or comes to the country. That's when the fiscal reform began in 2003 and 2004 and stopped everything.

So this is supposed to mean that the peso is currently being manipulated way below it`s real value?

Wow, I am going to sell all of my Loonies and US$ and buy Dominican CDs.
Thanks P.

windeguy · Mar 24, 2012

Malibook said:
So this is supposed to mean that the peso is currently being manipulated way below it`s real value?

Wow, I am going to sell all of my Loonies and US$ and buy Dominican CDs.
Thanks P.

That is indeed what PICHARDO has said time and time again that the peso would be at 25 to the dollar if left to float. I do not think anyone else goes along with it.

PICHARDO · Mar 24, 2012

windeguy said:
That is indeed what PICHARDO has said time and time again that the peso would be at 25 to the dollar if left to float. I do not think anyone else goes along with it.

You don't have to agree with me at all, but just read the words on the matter from a multi billion dollar industry in the DR in a one to one interview to the press... The link is there and was translated from Spanish for all to read and understand 100%.

Another hint is just to use the Mac Index for the DR and see the undervalued pesos clearly too...

There are plenty of ways to see it in everyday items, goods and services in the country.

If the peso was left to float, the exports would drop by more than half as goods would not even come close to competitors in the region or elsewhere for that matter.

The offset the gov does is to collect VAT and doubling the taxes as they also collect ITBIS as end point too. All that keeps the gov from running a huge depreciation tab against the peso from the dollar perspective.

Why else you think it's so easy for the gov to appreciate the value of the pesos when some PRD sectors try to hike the rate by placing lots of dollars buy on the market? All they have to do is let it float a bit and that's about all it takes.

PICHARDO · Mar 24, 2012

The PLD will continue to under value the peso against the dollar since there's little competitive change in the local industry to let it float anytime soon.

Why it needs to do so, you may ask if all it needs is to keep it at a constant level? Well, for starters it must LOOK like if follows a free float market when you compared it to other currencies. Just take a side to side, year by year long term graph for the Peso and the Japanese Yen and the dollar atop. You'll see how the peso in some instances takes even months to depreciate VS the Yen against the dollar.

A lot of people I know living in Japan trade the DR Peso and the Japanese Yen for a profit from that scheme.

The Peso and the Election?

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