Dominican Republic News & Travel Information Service
What would change? Will prices go up or down? What is your opinion?
What would change? Will prices go up or down? What is your opinion?
Sometime ago there was talk about the US Dollar going the way of the doodoo as well. It would seem this continues being the case. Bernanke has been purchasing $85 billion per month in treasury bonds, presumably to continue selling the debt to foreign countries interested in holding it. This so-called Quantitative Easing is meant to help prop up the US economy and restart consumer spending here.
I'm no economist by any stretch of the imagination, but if workers cannot find work, they cannot produce, and if there's no productivity there's no wages, and if there's no wages there's no consumer spending-driven economy from which much of the financial system here seems to rely.
This problem is obviously exacerbated in DR with many other fundamental issues at hand.
One could probably take China as a case study for what might help prop up the economy in the DR; make it foreign business friendly; make local wages ridiculously cheap (already in DR so; check), continue intentionally devaluing your local currency (already happening in DR so; check) and have a favorable free trade to encourage more importing/exporting (HA! That's where the DGII and customs will disagree no doubt).
It triggers a demand for locally produced items, thus attracting outside markets (since they are cheap to make due to local labor), hence economic growth.
With devaluation, it takes less to produce something locally and sell it at international markets under foreign currencies.
And welcome back!
El Salvador switched to the US dollar several years ago, mostly because remittances were the only thing holding their economy together.
I understand that Panama is already on the US dollar.
I really don't see the DR giving up the peso and using the US dollar as its currency. First and foremost, pride is involved.
If the DR government really wanted things to get better, all they would have to do is list who is on government payrolls (and how much they make) and secondly, list who owes money on their electric bill. Publish that every month in Listin or Hoy, and within 2 years time, half the problems of the country would be cleared up.
firstly, thank you for your kind welcome.
now for the negative part. devaluation makes imports more expensive, so local products actually become more expensive to produce if they have a high import content.
Correct. But consider that China produces a considerable variety of goods that are exported; anything from electronics to toiletries; and there's no need for citizens of that country to consume products that contain many imported parts or quantityfirstly, thank you for your kind welcome.
now for the negative part. devaluation makes imports more expensive, so local products actually become more expensive to produce if they have a high import content.
Correct. But consider that China produces a considerable variety of goods that are exported; anything from electronics to toiletries; and there's no need for citizens of that country to consume products that contain many imported parts or quantity
It's probably too late for DR to jump on that gravy train, but if there's one commodity or product that DR can still massively produce and export aside from Brugal that would be precious metals. Get some mining companies together and produce iron ore, aluminum, etc instead of letting in a foreign national to do it for them for a slice of that pot and that could single-handedly start solving DR's economic problems.
The government can only keep taxing for so long before it becomes an unsustainable model, if it hasn't already become that way.
two problems with the devaluation thing....first, foreign inputs, like machinery, components, and proprietary intellectual property, plus energy..all become more expensive.
secondly, you only benefit from the exchange rate effect if there are elasticities in place. not because a product becomes relatively cheaper means there is a corresponding increase in demand. if the price of tetracycline goes down tomorrow, that does not mean people will be rushing to the pharmacy to buy cartons. along with that, elasticity of supply has to be in place. no point in having the increased demand if your productive capacity cannot keep pace.
Costs of getting an infrastructure in place can be rolled into a capital investment. Amortize the cost over a period of time. The government can also perhaps finance this the same way the US does; sell debt. Create a bond market, attract investors, and get the wheels spinning. The government guarantees interest payments only over a period of time, freeing itself to use the cash as needed to get that return on investment.
Supply and demand is never exact science, but the possibility of creating it alone is sufficient incentive to get a feel for what is needed to satisfy the demand.
The biggest problem with getting this sort of thing going is with keeping hands off the cookie jar. DR is probably in a big dilemma as it stands borrowing money it cannot repay and it cannot account for.
two problems with the devaluation thing....first, foreign inputs, like machinery, components, and proprietary intellectual property, plus energy..all become more expensive.
So much of the electricity here is created by imported fossil fuels that it is going to be tough to overcome that trade deficit. Not to mention that many companies don't want to invest here because there is no reliable electricity. There is no reliable electricity because so many do not pay for what they receive.
That seems to be a key factor in the economy that has to be resolved, dollar, euro, or peso.
And welcome back from me, too. You always have such great insights. :rambo: