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  1. #1
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    Default USD versus Dominican Peso versus Euro

    It's reallly amazing that while the dollar is gaining value against he Euro (expectations are that the US$ might gain slowly on more and more strength ) the peso gains more and more against the US$ .
    How can the peso gain egainst the US$ while the Euro is loosing some strength?
    I never realized that the Dominican economy is going better than the European one..
    If this is a Dominican new governmental game it might one day go totally against them in a very hard way ..
    I know that the topic of exchange rate has been discussed several times but it seems to me that now the government is loosing any common sense and have no longer any feeling for reality .. I think that this could become a dangerous game .



  2. #2
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    Default My .0333 cents...

    Although, this may not "jive" with the DR1 community, to me what the government is doing makes sense. Although the government could be trying to achieve a rate of exchange of 30 pesos to the dollar, through the buying of pesos (in exchange for dollars) on the open market (which is difficult and costly to do long-term), they may have just decided to reduce government spending (they're printing money at a much slower rate than before.)

    If this is the case, good for them. It will make it easier for them to pay down US denominated debt and they will be able to attract more FDI, with a stable currency (a currency with an inflation rate that mimics the US.) The downside is that exports may severely decrease (they may have picked a FX rate that was too ambitious) and that they will most likely go into recession (similar to the US in the early '80s) because unemployment will rise. There isn't much you can do about it, unless you want to reduce unemployment (in the short-term like Hippo did, to try to get re-elected) through inflationary monetary and fiscal policies. Although, I am not in a favor of pegging one's currency to the US$ long-term (ala Argentina,) this may be the best short-term policy.

    Any recent peso gains that deviate from the 30:1 ratio, are most likely attributed to the influx of Dominican-Americans around Semana Santa (exchange of US$ for pesos.) The peso always appears to appreciate during major holidays (Christmas, New Year's, Easter...)

    What I don't understand is why prices on imports never adjusted with the appreciation of the peso?? Any thoughts??


    My .0333 cents...
    Helpmann

  3. #3
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    Default

    Quote Originally Posted by helpmann
    Although, this may not "jive" with the DR1 community, to me what the government is doing makes sense. Although the government could be trying to achieve a rate of exchange of 30 pesos to the dollar, through the buying of pesos (in exchange for dollars) on the open market (which is difficult and costly to do long-term), they may have just decided to reduce government spending (they're printing money at a much slower rate than before.)

    If this is the case, good for them. It will make it easier for them to pay down US denominated debt and they will be able to attract more FDI, with a stable currency (a currency with an inflation rate that mimics the US.) The downside is that exports may severely decrease (they may have picked a FX rate that was too ambitious) and that they will most likely go into recession (similar to the US in the early '80s) because unemployment will rise. There isn't much you can do about it, unless you want to reduce unemployment (in the short-term like Hippo did, to try to get re-elected) through inflationary monetary and fiscal policies. Although, I am not in a favor of pegging one's currency to the US$ long-term (ala Argentina,) this may be the best short-term policy.

    Any recent peso gains that deviate from the 30:1 ratio, are most likely attributed to the influx of Dominican-Americans around Semana Santa (exchange of US$ for pesos.) The peso always appears to appreciate during major holidays (Christmas, New Year's, Easter...)

    What I don't understand is why prices on imports never adjusted with the appreciation of the peso?? Any thoughts??


    My .0333 cents...
    Helpmann
    You think just Exports may decrease? You think TOURISM is going to hold up at twice the cost?

    Manipulation can only work short term. I believe this is going to backfire and cause more grief than good for the DR. I just had dinner with a friend in NY last night and he hasn't come down to the DR in 6 months because of the cost. He would have been down twice by now. The long term effects of this will outlast the correction. If they made the Peso depreciate 30% tomorrow there will be a slowdown in Tourism and Exports for far longer. By the same token it takes time for exports and tourism to react to the strength of the Peso and hasn't taken a nose dive YET. It will. Then and only then will the country have to pay for the Governments nonsensical decisions.

    VooDoo Economics didn't work for MCI so how can it work for the DR? Only problem is no one goes to jail for anything in the DR.

  4. #4
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    Default Just out of curiosity!

    Were you all visiting the DR when the peso was at 17, before super Hippo took over???

  5. #5
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    Default

    Quote Originally Posted by juanita
    Were you all visiting the DR when the peso was at 17, before super Hippo took over???
    Sure Juanita but there was a big difference then and that was the prices reflected the 17 pesos to a dollar. Same when it was 1 to 1. I was here in 70'.

    Now you pay more for a six of Presidente beer than they are selling IMPORTED BEER in the US. What does being here when the peso was 17 have to do with anything?

  6. #6
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    Default

    Quote Originally Posted by helpmann
    What I don't understand is why prices on imports never adjusted with the appreciation of the peso?? Any thoughts??
    Because of the general increase in the total cost base of products. Moving them, stocking them, storing them, selling them etc etc. Also, no-one trusts the peso at the moment and that keeps prices still artifically high - profit taking is still happening by most vendors. I see car prices decreasing lately though.

  7. #7
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    Default My .0333 cents x 2

    Quote Originally Posted by Escott
    You think just Exports may decrease? You think TOURISM is going to hold up at twice the cost?

    Manipulation can only work short term. I believe this is going to backfire and cause more grief than good for the DR. I just had dinner with a friend in NY last night and he hasn't come down to the DR in 6 months because of the cost. He would have been down twice by now. The long term effects of this will outlast the correction. If they made the Peso depreciate 30% tomorrow there will be a slowdown in Tourism and Exports for far longer. By the same token it takes time for exports and tourism to react to the strength of the Peso and hasn't taken a nose dive YET. It will. Then and only then will the country have to pay for the Governments nonsensical decisions.

    VooDoo Economics didn't work for MCI so how can it work for the DR? Only problem is no one goes to jail for anything in the DR.
    I don't know what percentage of GDP comes from tourism, and I'm not sure how the government defines tourism. However, I am guessing that tourism is less of a percentage in the DR than it is in Jamaica, the Bahamas, Aruba, and the Virgin Islands, caribbean substitutes for "tourists" that offer comparable scenery at significantly higher rates. I do know that the majority of people that travel to the Dominican Republic are Dominicans and Dominican-Americans. Although, they may reduce their visits to the DR, they will most likely not substitute their visit with a vacation to a neighboring island. And because, Dominicans are heavily concentrated in two metropolitan areas, Miami and New York and are strongly increasing their numbers in these two cities, they have been able to benefit from low-fare flights from NYC and Miami to the DR, as airlines compete for their business (price themselves out of business. )

    So even if your own personal experience might lead you to believe that the drop in tourism will starve the DR, I think that the rate of travel will not affect the DR as much as a reduction in exports (sugar.) Dominicans (the overwhelming majority of the 'tourist' population) will continue to travel back home (NOT Aruba) and will have financial incentives (low airfares) to do so.

    -Helpmann

  8. #8
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    Default Uggh?

    Quote Originally Posted by Escott
    VooDoo Economics didn't work for MCI so how can it work for the DR? Only problem is no one goes to jail for anything in the DR.
    This doesn't make any sense.

    Voodoo Economics (aka Trickle Down... aka Supply-Side Economics) is the belief that tax-cuts given to those in the higher income tax brackets (the rich) will use that money to invest, which will in turn create jobs, for the middle/working class w/o the need for government spending.

    Voodoo economics has nothing to do with MCI or the peso peg in the DR (however it may have something to do with you personally, and the reasons why the DR has become too expensive for you.)

    -Helpmann

  9. #9
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    Default Car Prices

    Quote Originally Posted by Chris
    Because of the general increase in the total cost base of products. Moving them, stocking them, storing them, selling them etc etc. Also, no-one trusts the peso at the moment and that keeps prices still artifically high - profit taking is still happening by most vendors. I see car prices decreasing lately though.
    Thats good! Car prices are probably the best and most visible price indicators.

    -Helpmann

  10. #10
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    Default

    Quote Originally Posted by helpmann
    Dominicans (the overwhelming majority of the 'tourist' population) will continue to travel back home (NOT Aruba) and will have financial incentives (low airfares) to do so.

    -Helpmann
    Right here at this sentence you're somewhat off the mark. Perhaps you could check up on tourist/traveller to the DR statistics.

    Bolding mine..

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