DR economy coming back?

Riu

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I have been following DR news, by the looks of things, confidence in DR economy is building up, dollar's tendency is downward (as of yesterday in the 37.50 range or so), the government is slashing national spending by retiring many generals etc., the power debacle is easing, appears that their is an influx of foreign capital. Is this to say that Dominican economy is staging a come back although it may be a slow one but sure one? Which would also lead me to believe that the state of the economy today is due not only to negligence and leadership failure but also to opposing parties to make things worse as to appear to be the saviors of the DR? In any case, is the confidence of you, the forum participants and expats living in DR currently, in the Dominican economy well founded, although cautious? For many of us, who are thinking to move to DR, timing is essential to the planning of such a move and doing this in improving DR economic conditions is best. I would like to know from my fellow forum participants their opinions.
 

Escott

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I think the country bottomed out with Hippo! I think things cannot get any worse and has to get better because you couldnt possibly do worse. I have been investing in the DR for about 1.5 years because I thought all the nasty bad news had been on the table and things actually had to get better from there. Prices have been rising since. I think this is just the beginning of a upwards cycle in R.E. in the DR and the prices will now catch up with the rest of the Caribbean. At the time there were plenty of naysayers and probably still are. I think it will take 2 years before the DR carves out a new pattern where people will have close to total confidence.

If I had it to do all over again I would do the same thing with as much confidence as before.

I would guess and only offer as a guess that the peso hoovers at around 35 to 1 dollar shortly. I hope the prices reflect the strength of the peso and the Dominicans can live better than they were able to at 48 to 1 but that remains to be seen.

Scott
 

Riu

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Escott said:
I think the country bottomed out with Hippo! I think things cannot get any worse and has to get better because you couldnt possibly do worse. I have been investing in the DR for about 1.5 years because I thought all the nasty bad news had been on the table and things actually had to get better from there. Prices have been rising since. I think this is just the beginning of a upwards cycle in R.E. in the DR and the prices will now catch up with the rest of the Caribbean. At the time there were plenty of naysayers and probably still are. I think it will take 2 years before the DR carves out a new pattern where people will have close to total confidence.

If I had it to do all over again I would do the same thing with as much confidence as before.

I would guess and only offer as a guess that the peso hoovers at around 35 to 1 dollar shortly. I hope the prices reflect the strength of the peso and the Dominicans can live better than they were able to at 48 to 1 but that remains to be seen.

Scott


Thank you Scott for the input. Do you think the peso will stabilize and just hover around 35 to 1 or you think it has a chance to go lower. For those who bought pesos at 48-50 to 1, they are smiling right now if the pesos keeps gaining strenght and exchange rate sinking to 35 and below. How much higher you think real estate prices will go? As it stands right know they are high, if they go up more it will be unaffordable and to invest the initial cash outlay will be too great since RE interest rate on RE loans over there are so high.

Another questions, with the fiscal reform in the works, do you think the DR will be a good environment for start-up businesses. The fiscal reform calls for new taxes that may affect a start-up business beginning stages. Do you think this could be a problem for prospective enterprises?
 

BushBaby

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For what it is worth, I do not see the exchange rate remaining at RD $36 (or possibly a little lower yet) to U$D 1.00. The Country is in a state of euphoria at the moment - Mejia & crooks out, Leonel (& we hope without crooks) IN. We WANT to be optimistic, so we ARE being optimistic. We WANT things to be great again, so we are trying to make believe that all the problems are over!! ........ BUT, they are not.

Once realism sets in & the true effect of the last administration's pillaging of the country gets known, once the full knowledge of the country's indebtedness to the rest of the world gets known, THEN reality will settle in & the exchange rate will have to go up again. See what Leonel himself said about the exchange rate last week - he expected it to even out at about RD $45 to the US $1.00!!

There are those FAR closer to the economic structure of the DR that can give the reasons for the exchange rate to go back up & hopefully they will join in on this, but I honestly believe the country can not afford to keep the RD peso at 36 - US $1.00 for more than a month or two! This does NOT mean I am negative about the future of the DR economic recovery - far from it. I strongly believe that if President Leonel can LEAD the country with a firm hand, put into place the structure for the country that HE sees it needing, then the country will get back on it's feet - AND within the two year period mentioned above. But NOT with the RD Peso being at 36 - 1!! After 2 years of economic recovery I can see the rate falling slightly - maybe back to 40 to 1 from the 45/46 to 1 it will go to, but there will have to be quite a significant upsurge in GDP growth for that to happen!

Please feel free to persuade me differently as I am an optimist at heart & would LOVE to believe you!! - Grahame.
 

Riu

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BushBaby said:
For what it is worth, I do not see the exchange rate remaining at RD $36 (or possibly a little lower yet) to U$D 1.00. The Country is in a state of euphoria at the moment - Mejia & crooks out, Leonel (& we hope without crooks) IN. We WANT to be optimistic, so we ARE being optimistic. We WANT things to be great again, so we are trying to make believe that all the problems are over!! ........ BUT, they are not.

Once realism sets in & the true effect of the last administration's pillaging of the country gets known, once the full knowledge of the country's indebtedness to the rest of the world gets known, THEN reality will settle in & the exchange rate will have to go up again. See what Leonel himself said about the exchange rate last week - he expected it to even out at about RD $45 to the US $1.00!!

There are those FAR closer to the economic structure of the DR that can give the reasons for the exchange rate to go back up & hopefully they will join in on this, but I honestly believe the country can not afford to keep the RD peso at 36 - US $1.00 for more than a month or two! This does NOT mean I am negative about the future of the DR economic recovery - far from it. I strongly believe that if President Leonel can LEAD the country with a firm hand, put into place the structure for the country that HE sees it needing, then the country will get back on it's feet - AND within the two year period mentioned above. But NOT with the RD Peso being at 36 - 1!! After 2 years of economic recovery I can see the rate falling slightly - maybe back to 40 to 1 from the 45/46 to 1 it will go to, but there will have to be quite a significant upsurge in GDP growth for that to happen!

Please feel free to persuade me differently as I am an optimist at heart & would LOVE to believe you!! - Grahame.
Interesting points BushBaby. So, the exchange rate decline we have seen you believe is due to the euphoria symptom. I think that is partially true. But remember that with the new government new allies in terms of businesses will renew projects in DR and this will only help. The peso may hold the 36 to 1 range for longer than we may think provided there are no surprises or very nasty skeletons in the previous administration closet that may come to light. Do you think that the peso gaining too much strength say to the tune of 30-35 to 1 will actually hurt the recovery in the long run?

Capital influx into any economy will strengthen the currency. The Leonel administration has promised to honor is indebt ness. This fuels interests for investments not only of the powerful but of regular Dominicans who buy, build and invest. It would be interesting however to see where the peso is going to stabilize 30, 35, 40 or 45. It will be very difficult to bring the economy to the plus side but so far things are looking a little better.

BushBaby, how negative is the current GDP? Ballpark figure.
 
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Long term vs short term

My 2 pesos:

1) Short term. currently there is an uplifting in spirits (rightfully so) because Hippo left office. This has caused the peso to gian ground against the dollar. Also because of the fact the government wasn't paying its bills there was little real demand for dollars, again strengthening the peso. In the short term the country will realise that the problems are not solved by voting in Leonel (although it allows for a start) and I think there will be some skeletons in the closet, thus weakening the peso again. Also because the current government will start paying its bill again the demand for dollars will increase, again weakening the peso. My guess would be a short term low of around 2-3 weeks of 35-40 then an 45-50 for a year or so...

Is this a bad thing, I don't think so because in this way:

a) if they act now, the government pays its bills with relative high value pesos
b) low exchange rate increases the opp for export and investment so encouraging the economic growth.

2) Long term. Nobody can tell but my guess would be that economic growth would return, offering jobs, exports and some investment in the DR. From the strength of the economy the peso will come down from 45-50 to around 40 at a stable course.
 

Riu

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Well worth over 2 pesos

MerengueDutchie said:
My 2 pesos:

1) Short term. currently there is an uplifting in spirits (rightfully so) because Hippo left office. This has caused the peso to gian ground against the dollar. Also because of the fact the government wasn't paying its bills there was little real demand for dollars, again strengthening the peso. In the short term the country will realise that the problems are not solved by voting in Leonel (although it allows for a start) and I think there will be some skeletons in the closet, thus weakening the peso again. Also because the current government will start paying its bill again the demand for dollars will increase, again weakening the peso. My guess would be a short term low of around 2-3 weeks of 35-40 then an 45-50 for a year or so...

Is this a bad thing, I don't think so because in this way:

a) if they act now, the government pays its bills with relative high value pesos
b) low exchange rate increases the opp for export and investment so encouraging the economic growth.

2) Long term. Nobody can tell but my guess would be that economic growth would return, offering jobs, exports and some investment in the DR. From the strength of the economy the peso will come down from 45-50 to around 40 at a stable course.

Your explanation is well over 2 pesos worth. I guess everyone is expecting skeletons to come out is just a matter of when.

Then, the consensus is, that economy will improve slowly over a 2-3 year period, making it again a good place to start a business or invest. Is this assessment correct?

As Scott mentioned before, he expects real estate to go higher, is this also a consensus, are expats and investors expecting the RE market to go even higher and if so by how much, 10, 20 or even 30 percent higher?
 

Lambada

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It looks like the austerity measures have started. El Caribe Online is reporting a Cabinet meeting yesterday (not open to the press, but with a press conference afterwards) where a decision was made to axe 68,000 public sector jobs thus getting the number of public sector employees back to where it was in August 2000 (260,800 as opposed to the 328,938 which Leonel inherited). This is in keeping with Leonel's inauguration speech (20% reduction). The same Cabinet also proposed the elimination of the propane subsidy for drivers & the elimination of electricity subsidy. The point I found interesting was the suggestion that this should be achieved by Presidential Decree. My guess is that such a determined stance will further strengthen the peso, alongside the foreign investment money which Leonel was busy getting in before he took office. But I agree that once dollars are taken out of the economy to pay bills etc the peso will weaken again.
For what it is worth, Riu, my take on the time for recovery is somewhat longer than those already posted. I see 2 years of "belt-tightening" followed by approx 2 years of stabilisation & maybe some significant growth 4 to 5 years down the line.
 

Riu

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Lambada said:
It looks like the austerity measures have started. El Caribe Online is reporting a Cabinet meeting yesterday (not open to the press, but with a press conference afterwards) where a decision was made to axe 68,000 public sector jobs thus getting the number of public sector employees back to where it was in August 2000 (260,800 as opposed to the 328,938 which Leonel inherited). This is in keeping with Leonel's inauguration speech (20% reduction). The same Cabinet also proposed the elimination of the propane subsidy for drivers & the elimination of electricity subsidy. The point I found interesting was the suggestion that this should be achieved by Presidential Decree. My guess is that such a determined stance will further strengthen the peso, alongside the foreign investment money which Leonel was busy getting in before he took office. But I agree that once dollars are taken out of the economy to pay bills etc the peso will weaken again.
For what it is worth, Riu, my take on the time for recovery is somewhat longer than those already posted. I see 2 years of "belt-tightening" followed by approx 2 years of stabilisation & maybe some significant growth 4 to 5 years down the line.

I also read the article. I would say this administration has started with the right foot. Barely 2 weeks into power and the drastic needed changes are materializing. I am especially interested in the Generals that were retired. 98 or so generals retired, why so many generals needed in DR, these is not only dead weight but a detriment to the national budget. This was an excellent action taken by this administration. I would go farther to say that even deeper cuts should be in order. Example the Central Banks has 1000 or more employees when other counterparts in other countries larger than DR conduct operations with far less. I also read that the Central Bank could operate well with 600 or so.

Four years of taking out of the economy by previous admin will yield a very very costly recovery. Lambada I want to be a little optimistic and say recovery in 2-3 years max, and I am not talking about full recovery just a recovery that may be seen by all sectors as ongoing, but your assessment may be on point. If Dominicans stick to their plans and parties work together I think 3 years would give a real push. On the other hand, if they do not I would go as far to say that it may be more than 4 to 5 before we see great improvements.
 

Riu

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veinard said:
... even though I do not have that much insight into Dominican economy and its boundary conditions like many among you, but what I can follow and as far as I understand, there's currently a more or less emotionally underpinned upswing in economy and will be followed by some downward trend ... how deep this downturn will be, I mean a real sink or just a small hurdle to overcome will depend on many circumstances, we can't judge right now ...

But I am also very optimistic, since Meija has been wipped out and I trust that Mr. Fernandez has a much better accumen to succeed also kept in mind that Dominicans appear to me to be however smart people who know how to do business ... thus an already remarkable recovery should be perceived latest in three years or so and hopefully turn into a sustainable growth of economic power, therefore allowing Mr. Fernandez and its government to take on even power in the parliament during 2006 elections (?!) and get another stance when (hopefully) be reelected in 2008 ... am I too optimistic ?!

Depending on how well Mr. Fernandez performs, he would have a great chance at re-election, but if the past is any indication of future trends oppositon will try to make it extremely difficult for him. Look at Mejia for instance, I believe the law was that a President could no run again after his term ended, but they changed this around because they wanted to stay in power. Politics is very dirty in DR from what I could gather, so comes re-election time, I will be watching in the side lines and comparing notes past and present.
 

Escott

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Riu said:
Thank you Scott for the input. Do you think the peso will stabilize and just hover around 35 to 1 or you think it has a chance to go lower. For those who bought pesos at 48-50 to 1, they are smiling right now if the pesos keeps gaining strenght and exchange rate sinking to 35 and below. How much higher you think real estate prices will go? As it stands right know they are high, if they go up more it will be unaffordable and to invest the initial cash outlay will be too great since RE interest rate on RE loans over there are so high.
Interest rates have always been high in the DR. This is NOT something new other than the idea of taking pesos out of circulation and giving 50% returns.

I think it will hover around 35 for a while. What is a while? I am not sure but I would suspect a few months at least. This is just a guess on my part based on speaking to a few Dominicans I have some faith in.

I think that R.E. prices can double or even do better in 2-3 years and that is what I would bet on but, that is only in the Sosua/Cabarete area. I have no experience in any other part of the country but feel comfortable with these predictions in that area.

You also have to remember that prices had been coming down for years and only started a reversal in the last 1.5 years. We are way below the other Caribbean Islands and even Costa Rica in values of real estate and I expect the DR to catch up. Ever look in the Bahamas for a lot or a condo? How about Grand Cayman, Aruba, St. Thomas, Turks and Caicos?? You will see what a bargain the DR is. This is also a COUNTRY instead of a little Island and more beautiful and has a lot more to offer. Then compare the infrastructure to Costa Rica and then make sense of the values.



Riu said:
Another questions, with the fiscal reform in the works, do you think the DR will be a good environment for start-up businesses. The fiscal reform calls for new taxes that may affect a start-up business beginning stages. Do you think this could be a problem for prospective enterprises?
I haven't looked into opening up a business in the DR. Labor is relatively cheap and so are rents so why shouldnt this be as good as other places but I have no clue since I haven't even looked into this in a small way.

Scott
 

Simon & Nicky

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Thanks guys -

Everyone is quick to say they think it will hover around 35 but look at my posts a few weeks ago and many people suggested it will bounce right up again. Nobody on DR1 is an economist and nobody has a crystal ball. I've asked for advice and been right royaly shafted. I could have stashed a few million in CD's but didn't - silly me.

Here's my theory - Leonel and his team knew Hippo was going to drive the peso down. Rumour was he'd cash in and screw the economy up for years. How do you stop that AND shaft him at the same time? Drive the value down even lower and hold it there until we're all begging for mercy. If you need to get your cash back out you're gonna fry. Meanwhile pay off debt with better value pesos. It's simple - Isn't hindsight a wonderful thing?

Simon
 

jerryme

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No one knows what the Peso exchange rate will level off at. The same people on this thread posted that it would be 75 - 100: 1 by now.

Also, yes the DR is a bargain compared to the other islands you mentioned Scott. Although the islands you listed have power 24 hours and they are NOT THIRD WORLDS. Yes I love the DR but lets not compare it to a real first world tropical paradise.
 

Riu

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Scott, you are right about the prices in other islands but jerry has point, the dominican infrastructure is lagging a little behind. There should be no reason for the power outages experienced. The only reasons I see is serious lack of leadership, compliance laws not enforced and a lot of greed. When I look at RE prices over there I am also comparing the prices of other like locations but also looking at the services provided. I totally believe you when you say they will go up more, but that is when DR gets the game together, as for now I think is a little expensive. A little expensive but as you say, time to start planning on your investments in RE.
 

santanatwins

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Can someone explain this rate

As some of you many know...I do alot of traveling.......So here I am in Higuey and I decide to exchange a few dollars and what do I get 39 to 1.

I think the initial upswing has seen it?s peak. Reality is about to set in and I see the dollar reaching 40 to 1 before the end of the week.

I asked the exchange house why 37$1 last night and 39$1 today and he informed me that the dollar is very unstable right now...or should he have said the peso....
Requesting some advise....

I recently purchased some land in puerto plata and I?m debating on paying it off in one lump sum but I am hesitant because the peso is fluctuating so much. I purchased the land when it was at 43 to one. Every point up or down means a difference of $200 us for the price. What should I do......
 

Lambada

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The U.S.$ was 1.79 against the ? sterling yesterday when peso was 36/37 to dollar. Today U.S.$ is STILL 1.79 against ? (although dollar softened a fraction) yet peso has weakened by 2 pesos to U.S.$. This is internal not external. Maybe the dollars to pay bills have been removed from the economy? It is a bit quicker than I would have thought, but the new government is getting on with things. If Leonel is working on a baseline of 45 to $ we could be back there in a week or so. Sorry santanatwins, don't know which currency you are paying in?
 

Escott

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jerryme said:
No one knows what the Peso exchange rate will level off at. The same people on this thread posted that it would be 75 - 100: 1 by now.

Also, yes the DR is a bargain compared to the other islands you mentioned Scott. Although the islands you listed have power 24 hours and they are NOT THIRD WORLDS. Yes I love the DR but lets not compare it to a real first world tropical paradise.
Ok, how about Costa Rica. Prices are triple the DR and infrastructure is about 1/3 of the DR.

I also consider the DR a Country with different climates and ecologies. These other places are tiny islands without much going for them.

Scott
 

NALs

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The austerity plans are in action

I finally got an official copy of the very confidential IMF austerity plan for the country. Don't ask me how I got it, because I won't say. Lets just say that when I want something, it gets done!

Anyways, everything that is being done by the current administration is coming right out of the IMF austerity plan for the country. According to the world bank, the implementation of the plans would allow the DR economy to finish this year with a negative 1% decline or no growth and 2005 with a 4-5% economic growth, which is quite an impressive jump.

The only thing that could hamper the economy is a slowdown in the US economy and thanks to the super high petroleum prices lately, many American economist are fearing that the US could fall back into recession if fuel prices continue to jump in international markets. Because the DR economy is litched to the US like a parasite, our economy will also feel such brunt if it happens. For now, everything is working as planned, but those OPEC members are really getting on everybody's nerve with their $50 a barrel prices!!

However, if OPEC could be proven to be an unfair trade agent in the international scheme of things at the WTO, maybe those countries would be forced to compete and that would really bring relief worldwide.

The bottomline is that under Leonel the country will prosper (thus my extremely high optimism), but some external uncontrollable factors are worth having in the back of one's mind as these external factors have a deep impact in the global economy.

Expect the Peso to continue appreciate, expect things to fall into place and expect some of the money that fled to come crawling back. It will be even better after his first year in office. After such period of forward movements in the economy, confidence will reach even the most skeptical of investors and the economy will take off, thus the prediction of 4-5% economic growth for 2005 and probably even higher growth in the other years after that.
 

jerryme

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Scott, I own real estate in the DR and I am looking for another house there. It is obvious why the prices are lower than the rest of the Carribean. On Saint Martin, Aruba, Bahamas, etc. the locals don't riot, burn tires in the street, you don't get robbed by officials at the airport and you don't need 24 hour security to sleep at night.

If the prices were the same on these other islands, I would own RE there instead.