Great opportunity or a scam?

Sure it is for real. It is however, probably too good to be true. The problem is that your investment in pesos while earning over 15% interest might very well be losing far more to inflation. If you are willing to take the gamble that the currency exchange rate will stabilize and that the bank wont default on your investment, then go ahead. While it might be appropriate for some, personally, I could think of other investments that are much more suitable to my situation and probably to yours. Invested in the US or European stock markets, that same money could earn 8-10% with a much lower (in my humble opinion) risk. As a rule, if you don't understand it, figure it out or don't invest in it.

jasonmiami said:

.....to Peso. Interest rates are currently a massive 18% or 19% PA on Peso 90 day CD's depending on which bank you use and the amount invested.

Guys and gals, PLEASE, help me out here - you live over there and can tell what's realistic and what's just a hype: is this for real?

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The peso is worth right now almost exacly 1/2 of what it was worth in US$ in October 2002. That is a 50% devaluation in less than 8 months.

It is not as was said an inflation issue it is a devaluation issue. The inflation rate is high but not 50% in 8 months. It is pure supply and demand and there is no demand vs. US$.

So if you were to invest at 19% p.a. in October 2002 you would today, a mere 8 months later, have 1/2 the US you started with ( in fact less since the selling rate for $ is about 33 - the BUYING rate if you can buy them at all might be 37-39) plus you would have earned 8/12ths of the 19% interest so you would have less than 65% of what you invested AND it would be in pesos not $ or Stg.

And you would NOT have earned any US$ interest so even if it was 8% per annum, you lost even more. Since you'd have kept 106% of your US$ starting investment in US$.

With the immense uncertainty as to the true value of the peso stay away from peso denominated deposits of your life savings, OK?

jasonmiami said:

Thank you guys very much for taking the time to reply. I understand now that putting my money into a peso CD is not the way to go. Would you say though that the 10% US $ CDs are reasonably safe and a recommended way of investing? I have currently about $120.000 in US mutual funds earning around 9% per year average minus taxes, so it seems like guaranteed 10% would be a better way to go...? Jason

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Jazon, I don't keep money in the DR banks because I want to keep it in dollars and I don't feel confident that the DR Gov wouldn't order the banks to seize the foreign currency and replace it with Pesos so they can pay for imports if necessary.

I use a finance house in Puerto Plata and I get 15+ in US Dollars and you can even keep it in pounds and get paid back in pounds through the company I invest with. Contact Grahame Bush on this board, another Brit like yourself that uses the same company. They are not government regulated like the banks. I have been with them for a few years and have been very pleased.

Regards
Escott

Punctuation marks

jasonmiami said:

I have currently about $120.000 in US mutual funds earning around 9% per year

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I hope that period between the 0's is a comma or this is a pretty small investment.

I wouldn't use DR banks at all and as for finance houses , maybe the rate is good, all eggs in one basket is imprudent, there too.

Re: Punctuation marks

Originally posted by ricktoronto
I hope that period between the 0's is a comma or this is a pretty small investment.

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120.000,00 in Europe = 120,000.00 in America.

Re: Punctuation marks

ricktoronto said:

I hope that period between the 0's is a comma or this is a pretty small investment.

I wouldn't use DR banks at all and as for finance houses , maybe the rate is good, all eggs in one basket is imprudent, there too.

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I have a few other eggs Rick

Keep your money in Britain & save your principal. The Dominican Republic is bankrupt, getting an IMF bailout and the financial system is teetering on the edge of collapse. Remember what happened to the Spanish and Brits who held Argentine securities, public and private?

Any country that suffers a 50% devaluation in 8 months has some serious structural problems in the economy. The economy is going thru a painful correction and foreign investors would be wise to stay away for now, at least until the election of next year is decided.

Traditionally, during presidential elections, the government increases the money supply to dole out patronage. This, under current circumstances, will put more pressure on the peso-- a classical case of too many pesos chasing too few dollars, simple economics 101. But the end result will be more economic instability and social-economic chaos.

Jason Miami..interest & investing info

I have America on Line and they have some good info pop up each day. Check into this link at Google search: AOL Personal Finance Money Today. It is sponsored by CNN Money and helps with WHERE TO INVEST SINCE INTEREST IS SO LOW..May or maynot be helpful..thought I would throw it out there..Pam
I went back to read it and here is the address: http:Money.cnn.com/PF/Banking/

DCfred,
PLEASE, please, PLEASE come down & visit us. I'll gladly take you round to see some of the banks & financial institutions here & then you will see for yourself what the current situation REALLY is!!

"The Dominican Republic is bankrupt,"
......... Wrong! Yes it is having a very hard time (as you correctly state later, it is going through a painful correction) but it is NOT Bankrupt. Bank of Nova Scotia executives are not stupid & would not be investing so much money down here if they thought it was bankrupt!!

"getting an IMF bailout"
......... Bailout or time to re-adjust -Debateable. What is clear is that this is the EASY option for Hippolito, one he can blame at a later stage for the hardships it puts on the individuals & businesses of the country. "NOT MY fault" he will say, "Look what the IMF have imposed upon us"!!! "THEY are the cause of all your woes, not ME!!" The fact that HE was responsible for having to call in the IMF to investigate to possiblities of assistance will be TOTALLY forgotten by the masses!! Is the IMF help really needed? A lot of economists seem to think NOT. Lower Governmental handouts, payroll, don't increase salaries next year (something that looks like it WILL happen!!), get politicians being reponsible for their voting decisions/actions .... THESE are the ways to reduce the countries financial woes, but Hippo won't do that because of his desire to be KING again next year ---- God Help us if he succeeds!!!

"and the financial system is teetering on the edge of collapse"
....... WRONG! As mentioned above, difficult times YES - Bankruptcy/teetering on the edge of callapse, NO!! Please, come down & check it out for yourself!!!!

"Remember what happened to the Spanish and Brits who held Argentine securities, public and private?"
.... Yes, remember it well, but do you remember what happened to the money saved by many in 401K's & other pension plans held in America?? They have taken a tremendous drop too with many people losing their total retirement funds!! Don't see the USA being accused of going BUST, even allowing for the heavy expenditure they are making in Africa, Afganistan, Iraq etc. etc!! We ALL have our scam artists & problem areas at various times of our history - the trick is to LEARN from them & go on to prosper as a result. Whether the DR politicians are capable of this is a mute point unless the Dominican people say a lot more as to the way their country is run. See TonyC's thread on this subject - not many responses so far!!


"Traditionally, during presidential elections, the government increases the money supply to dole out patronage. This, under current circumstances, will put more pressure on the peso-- a classical case of too many pesos chasing too few dollars, simple economics 101. But the end result will be more economic instability and social-economic chaos." ...... Hopefully the IMF accord/agreement will offset a lot of this & we will grow from having a better administrative system put in to the Governmental system & greater transparancy!!

WE that LIVE here Hope & pray that this will be the case!! - Grahame.

I Hope that things turn out better than expected, but some trends do not point favorably to a positive outcome.

Is Mejia and the PRD willing to give up any chances of being reelected for the good of macro economic stability? I don't think so, not from all the infighting in the PRD. An incumbent administration has to spend BIG in order to get reelected and the average person in the street, who couldn't care less about meeting commitments with the IMF and I can't say that I blame them, expects this. The party bosses expect this.
A presidential election is like one big mega Christmas -- people expect regalitos. How you pay for them, well as many ordinary people do at Christmas, they will worry about it "tomorrow."

The government will initially meet IMF conditions but will find it too painful to digest during the heat of the campaign and will suspend the agreement, with the idea that they can go back to IMF once they have been reelected.

And the DR is bankrupt. They do not have enough "organic money' in the system to meet all its obligations. That is why Baninter depositors are being compensated with treasury certificates that they can't immediately redeem. It would be like me giving you a check and saying don't cash it for three months.
The government is hoping that the money from the IMF will satisfy the Central Bank obligations.

There is no free lunch....

jasonmiami said:

Thank you guys very much for taking the time to reply. I understand now that putting my money into a peso CD is not the way to go. Would you say though that the 10% US $ CDs are reasonably safe and a recommended way of investing? I have currently about $120.000 in US mutual funds earning around 9% per year average minus taxes, so it seems like guaranteed 10% would be a better way to go...? Jason

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Let me give you a real-life example.

I once spoke to a Citibank executive who himself deposited US$ in Argentina because he was getting as high as 20% per year on his US$ deposit. Being a banker himself who well knows high interests= high risks, he nevertheless couldn't resist the allure of 20% !!

When the Argentine peso collapose starting Jan/2001, he had two choices:

1. Convert his US$ into Arg $ at the government-mandated rate of 1:1.4 even though the black market conversion was already 1:2 (and it eventually became 1:4 before stablizing around 1:2.8 now).

2. Convert his US$ into government-mandated 10-year Argentine bond which (allegedly) would give his principal and interest (not 20%, but some other published government rate) back in 10 years.


I didn't ask which route he took, but it's apparent that he either had to cash out with big loss and be paid in rapidly devaluing Argentine pesos (if he needed the money) or he had to wait 10 years to get his money back (hopefully intact, but nobody knows).

The bank would not give his US$ back immediately, quoting government restriction.

And this was Citi Bank we are talking about !!

Bottom Line: 10% return means nothing if you don't get your principal IN US$ back whenever you want !

I personally will not trust anybody to "lock" my money up for 10 years, let alone by a government. How about you ??

BushBaby said:

"The Dominican Republic is bankrupt,"
......... Wrong! Yes it is having a very hard time (as you correctly state later, it is going through a painful correction) but it is NOT Bankrupt. Bank of Nova Scotia executives are not stupid & would not be investing so much money down here if they thought it was bankrupt!!

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While I agree with you generally, ScotiaBank has USD$203 Billion in assets. Thus a $25 Million investment in the branch network is not a large risk. It is .012% of their assets.

Other than some credit cards, I bet they buy little of the loans unless at pennies on the $ as the Baninter loans were graded sub-prime and then some almost across the board.

What the name of the bank ?

Jason

What's the name of the Dominican bank that gives 10% on US$ deposits, I would like some of that.

Rgds Paul

Mercantil pays 10% on US cd's over 100k

well, and we all know what happened to the last bank that was paying such high rates.... in fact, 14% as I recall. There is always a risk associated w/ these higher returns.

I would certainly never call 10% high interest. Having said that, risk management is always the key.

I consider it high given that we are talking about USD denominated CDs; keep in mind annual inflation in the US is only about 2%. Beating inflation almost 5 times over I would regard as a relative high return.

If a person sets their sights low enough they will always be met, mine are set much higher than 10%