US $ vs Dom. Peso

JAMIE

New member
Jun 10, 2002
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What do you think the exchange rate of the US $ and Dom. Peso to be? or will be? or might be?

Things bother me are "where are the dollars?" of course, there are so many different respons from different point of view by differnet thinkers. If the inflation rate is keep on going up, I don't know how" the average populations" to pass through this?

Things implied to me in this country is when short money in somewhere then increase the tax on here, on there, but never bother to fix the problems from the bottom. For me, it becomes "MALIGNANT CIRCULATION."
 

ricktoronto

Grande Pollo en Boca Chica
Jan 9, 2002
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What??

This is the most confusing post about this subject I have ever read.

The only thing one can answer is that it is about 35:1 now.
 

JAMIE

New member
Jun 10, 2002
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True, it is very confusing for a lot of people about the exchange rate.

However, from all different government officials were telling different stories about the exchange reate will be or should be or how it will be controlled. Someone say it should be controlled to be the reasonable 24:1, someone say it should be around 28:1,... all different answers.

Yet, the street or the bank's exchange rate is 35:1 now , that's why any individual's predictions or comments could be shared with the other viewers as well. There is no "know, or certain" answers to this topic. But, whoever expresses the ideas, hopefully, can be used as the reference for whoever agrees with.
 

ricktoronto

Grande Pollo en Boca Chica
Jan 9, 2002
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The issue about the exchange rates being ...

"variable" shall we say isnot confusing since of course they are changing a lot - your entire question was very confusing, e.g. nobody knows what it is you want to know or say.
 

JAMIE

New member
Jun 10, 2002
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The exchange rate is a very complicated issue, much more complicated than simply discussed on this "OPEN FORUMS", but your view is still helpful to have some other viewers know how your comments are. This subject is "Macro-Economics" with global business trends, and really should be monitored/controlled by those Govt. Officials with the opinions of the Economists, Business leaders,....etc. (quote: my personal feelings). But nothing wrong to express your own thinking in general, specific...etc.

I would like to explain more specific to this topic from what I think and if this can help you to share your knowledges with others.

Since the rapid depreciation of the DR's peso in this year, there are so many things influenced by this trend, namely, importation business, exportation business, foreigners' staying expenses in this country, local retail business,...etc. For example, I was in one big department store in SDQ yesterday 7/31, what I found out was quite a lot of merchandises have no price tickets on them. Why, by doing this way, the dept. store can monitor the selling price in a better controllable way. However, for the public consumers, they will be the group always in the passive side and incapable to bargain the price with those big or strong financial group, of course you can argue they don't need to buy. But what about the staple foods they have to buy and eat everyday?

Sure, this is the supply and demand thing, and eventually or hopefully, there should have one equilibrium point to balance this supply and demand. But the exchange rate is so "variable" or "confusing" as you so called, or no one knows what will be the answers, consequence is " the public consumers will be kept on paying the unpredictable purchasing price for unknown time, not even able to lay out the budget for the living expenses. "

A lot of times things beyond our control, but there is nothing wrong to predict or estimate or express your thinking on the exchange rate. The exchange rate is a hot issue on all medias now, your opinions on this issue can be general, can be specific, can be personl think. Please note, your response is only your personal think, people agrees with it, take it as reference. Not agree, don't take it and just read through.
 

Ken

Platinum
Jan 1, 2002
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Yes, there have been many things affected by the downward spiral of the peso, many, many people have been badly hurt.

What supply and demand are you talking about. Especially with imported items the merchants have little choice but to raise the prices and keep them there, going out of business if people can't afford to buy.

Monitoring by government officials? That is the laugh of the day. The government is responsible for the crisis. There is no confidence in the peso, which is why it is worth 50% less than it did a few months ago and is likely to keep dropping, if the experts of the Economist magazine are correct. They predict 41 to 1 in 2004.
 

JAMIE

New member
Jun 10, 2002
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Ken, you are right that the government needs to take the responsibilities for the depreication of the peso, because they are the one with the authority to monitoring or supervising the fluctuation of the exchange rate (not interfering or controlling).

The supply and demand could mean a lot of different things. (I should make the statement clearly at the beginning.) For example: the supply and demand of the new cars, of the US$...etc

Whe more people want a new car, the price of the car could :
1. go up, or
2. import more cars to satisfy the public demand by the importers, or
3. the price of the new car could go down if the price goes up beyong the normal tolerance level.

Somewhere, sometime, the price of the new cars should be automatically adusted down to the acceptable price levels, by then, the supply and demand are in a balance point (the equilibrium point).

I am not specifically think about negative of the peso's value, but the demand of the US$ in DR, I think is far more than the supply of US$ this country could possibly meet or satisfy the needs in the short-term. As some economists estimate the exchange rate could reach 1:41 in year 2004, this is not a surprising estimation.

In reality, the depreciation of the peso may be even more than estimated. Because the supply of the US$ could come from:
1. domestic exportation to the US
2. Free zones's exportation to the US
3. the remittance of the overseas Dominican
4. ths tourists' spending in DR

According to the statistics from the DR1 few days ago, the 75% of the US dollars generated from Free Zones, 25% from all the others. Do you think free zones are shipping more goods to the US? I don't think so, it can be verified by those empty containers sitting in each free zone and the available data from the US customs.

But the demand of the US$ especially the payment of the interest and principal of the foreign debts will have a big bite of this country's GDP. Also, the importers need to pay US dollars to the overseas suppliers.

Unfortunately, the total US $ of the importations last quarter was larger than that of the exportations, you can review this data from DR1 few weeks ago. That was a deficit already, what about the payment of the foreigh debts?

1:41, good estimation. 1:43 or 1:44 not a big surprising. 1:30 or 1:29, then we have to see how the government handles this tough issue.
 

mondongo

Bronze
Jan 1, 2002
1,533
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Jamie, nice post and good analysis. As a Dominican living in Sto Dgo, what do you think can be practically done to reverse this trend? What do your friends think?
 

JAMIE

New member
Jun 10, 2002
47
2
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To reverse the trend of the devaluation of Peso at this time is not an easy job (I don't like to use the word "impossible"). There are so many issuses involved, much more complicated than we can imagine or can be implemented.

Any country with strong exportation will have sufficient money reserved in foreign reputable banks. cases before such as Japan, Taiwan. Recent case such as China. Consequently, the following side effects of strong exportation will be the strong pressure of local currency's appreciation to a certain percentage that is agreed and acceptable by those countries that import a lot of goods from you in order to balance the international deficit trade account.

Reversely, Country with low exportation/high importation will face the depreciation of the local currency eventually, and hopefully the depreciation can:
(a) attract more foreign investments come in to increase the job markets and stimulate economic growth (not as I know yet)., or

the unpleasant case could happen, borrowing .
(b) because you have no way to get enough dollars from exportations to pay-off the foreign debts except borrowing, borrowing, borrowing... which unfortunately is the DR's case.

In order to hold or reverse the depreciation of the Peso, there is no perfect ways to satisfy every aspect, every people, every business, or every political party, you name it. But in order to gain something in the long-run for the public and this country, you have to give up something in the short-run. It is not trade-off or exchange, it is the future benefits for all Dominicans as whole, especially in this very moment.

when all the possible alternatives have been presented and evaluate all the Pros and Cons, the decision maker needs to have a strong mind to decide "Among those options, which one is the best for the public, again for the public, not for the small interest groups." The saying sounds like not clearly enough, but there are some most directive ways to see the quick results, namely (A) externally and (B) internally.

Externally:

1. EITHER reduce the "unnecessay items" of importations to balance the international trade OR levy very high importation tax to reduce the market demand for those "unnecessary items". Unnecessary items are defined those things not have life threatening without using them, plus locally can obtain those items. For example, you can either eat domestic food products or you will pay high price to eat imported food products. Likewise, You can either drive a nice luxury car but you have to pay 3 or 4 times of the purchasing price domestically as opposed to the purchasing price in foreign countries.

2. EITHER reduce the gasoline's importation OR levy high importation tax on gasoline usage from local users. Government needs to encourage people use public transportations, yet, need to monitor or set up regulations on the fare charged of the public transportation.

3. EITHER take terms to reduce the power supply in each area with pre-scheduled, and announced time , OR set up the constraints that every house can consume. The more you consume, you will have to pay much more than the other average families.

There are many other available ways and can be utilized by the govenment. In fact, those are not perfect ways, but what are the perfect ways? Can any body tell us? I think it is hard to find out. For some people, these are not acceptable ways, because the government is intervening the life style of them.

But, the answer is EITHER you have to give up the temporary enjoyments NOW to exchange the better future living for your children/descendant and prosperity of the country OR you want your children/descendant to live in a big debt life?


Internally

1. Set up a good example (frugal, thrify on everything) from the hing post government officials, and take actions right now. (will they give up this? I don't know)

2. Heavy penalty for government employees who are violating the code of conduts. Set up one independent special unit, and this unit needs to report the results to the public on regular basis, not to any specific government unit. The member of the special unit needs to have the highest standard moral value for his/her country. They will unschedule, unannounce to investigate all government different units, and they should be entitled some certain protections from the government. If they commit any violations, they will have even heavier penalties, and everything needs to be open, transparency, not black-box system. (not easy jot, isn't it?)

3. Set up a special fund for those "best of the best" students in DR (the screening test is very very important, the criteria should be knowledge, language ability, loyalty...etc) , send them to the US or other highly developed countries to study in different fields and learning from them. Those sudents have to come back to DR after the graduation of the Ph.D degree (by signing the contract). They will contribute their knowledge to this country and work in the public assigned post regardless whoever the political party is in power. (Remember, they will be the essence of this country's future, and they deserve some certain respects)

4. Every year, government should host one big scholars meeting in different fields such as "technology, economical, medical, biotechnology, enviromental, social...etc." Invite those scholars (local or foreign) to discuss the approachable and feasible ways to improve this country, then the goverment should follow-up with time tables to accomplish those "highly valuable, constructive suggestions." (Don't think the money spending is in vain, you will get much much more in returns in the future.)

Again, internally there are so many ways could be done, the key is" do you want to make it work or not?" "Do the actions, not only saying." "Rome is not built in one day."

As a foreigner living in this country few years, I have found most of the people are very friendly, but they are also the main group have to put up with a lot of unfair things such as high inflation, high bills for the power, ...etc. You can argue this is the living style they choose because they can learn or improve themselves to a better level, but they did not it. True, But, from the government's responsibilities point of views, government can't get any excuse to ignore or neglect the facts: "HOW TO IMPROVE MY PEOPLE'S LIVING STANDARD TO A BETTER LEVEL IN THE FUTURE."














internally