Banco Central Certificates

[Golo100]

Banco Central

The most recent Banco Central auctions and offerings are so close to the bank certificate rates that it doesn't make sense to get into Banco Central certificates anymore. Unless you were able to fix your certificate several months ago at just over 30% rates for a year, you are out of luck. The tactic by Banco Central and the new government is to continue reducing interest rates in the hope that offering more certificates at lower rates will reduce the fiscal quasy-deficit(debt differential from bankrupt banks) the bank inherited from the Baninter and Bancredito mess.

Knowing there are naive investors out there, they are now offering dollar certificates at miserable 7% rates. No one should fall for this. You're better off getting peso certificates.

The new government has taken a a mission to keep the peso artificially high so it can steal 50% of the value of the dollar from the poor Dominicans abroad who send over $3 billion dollars to DR every year. But the dollar is worth at least as much as $40 Dominican pesos, not less.

Just read this comment sent by a Dominican from Brooklyn in today's Diario Libre Online in the economics page..
"De: juan , brooklyn
Que podemos nosotros hacer el dolar vajando el banco central
vajando Y los articulos de primera nesecidad subiendo como puede vivir el pobre con lo poco que podemos mandarles
si todo estuviera a como uno cambia en realidad estuviese
la cituacion un poco mejor perdon (Es mi pensar)."

Although his Spanish is not that good, his essence is clear. He, as well as all Dominicans abroad, now have to work twice as hard to send the same amount of peso equivalent as a few months ago, but as the dollar goes down in DR, prices have risen twice as much and not gone down as called for by the fake overvaluation of the peso.

Prices have gone so high since Leonel took office that the pound of grapes has gone from $49.95(Hipolito's government) to $98.95 today. So do apples, pears, platanos, bananas, oranges, 95% of canned foods, transportation, taxes, phone bills, electric bills...you name it, it has gone up and it will continue to go up.
TW

 

[iluvdr]

We can't all be winner's...

Hey Golo, let's face it: one man's lost is another man's win... Take for exemple the upper middle class dominican who is triving to send his kid to school in the US. What use to cost him RD$50,000 a month now cost him $30,000.
The price of cars have significantly devaluated compared to last year...it's not all black... it all depends on witch side of the fence are you...
The real question here is :
Primo: Is the Banco Central secure?
I would think yes, once again I don't know of any National Bank in the world that as gone bankrupt in the last 10 years.
Secondo: Is the currency stable?
No one could objectively answer that question, but base on the present social and economical situation in the DR the answer to the opposite question is obvious: Is the currency unstable. The answer is NO.
Therefore buying into the CB CD's seems like an attractive move in the short term even at the interest rates of 24% annual.
I rest my case!

 

[Lurch]

Economics 101

Primo: Is the Banco Central secure?
I would think yes, once again I don't know of any National Bank in the world that as gone bankrupt in the last 10 years.!

Nonsense, perhaps you should educate yourself slightly by reviewing the defaulted bonds from Argentina. 76% (+/-) of these people will receive only 30-35% of the face value. 24% (+/-) have rejected the restructuring and will no doubt spend the next 5-10 years in court.

Secondo: Is the currency stable?
No one could objectively answer that question, but base on the present social and economical situation in the DR the answer to the opposite question is obvious: Is the currency unstable. The answer is NO.
Therefore buying into the CB CD's seems like an attractive move in the short term even at the interest rates of 24% annual.
I rest my case!

Further nonsense! A nation?s currency value and stability most certainly can be determined through an evaluation of economic climate, policies, debt ratios, current account and foreign interests. Furthermore a nation?s currency is inherently in question when market forces are subverted or manipulated.

This Fernandez administration appears to have finally admitted to what has been clear to most everyone, direct manipulation in the peso exchange rate. Thus the peso is by definition unstable and without tangible fundamental value. I do believe direct intervention is a violation of Dominican law, however the laws change so quickly and often this may no longer be the case.

Are the RD CB bonds of short term value? Yes, however only if you have the relationships & connections within the Dominican system to know when the bail out. I have seen only one person on this forum who has the connections even remotely approaching this requirement. Otherwise you are playing in the casino nothing more and nothing less.

 

[Firefan]

Good post Lurch. I also had Argentina bonds in mind.

The manipulation of the Pesos is certainly a risk factor to consider. Who on this board is the "well-connected" one you refer to?

In the end risk/return is connected. As long as one understands the risks involved and accepts them in order to get the (potential!) return then fine.

Equities have on a global basis done about 10%/year (Emerging Markets slightly better but with more volatility), bonds about 5-6% (again EM debt have done better but with more volatility) and cash about 3%.

Any investement indicating higher returns than the above comes with more risk.

Cheers! FF

 

[iluvdr]

Thus propaganda or unfounded uneducated statements such as ?change your dollars into pesos now? should be phrase of the day. I suspect you?ll be kind enough to indemnify the losses since there is not a single person who believes that the peso will not go to at least 35-40:1 USD before April 2005.

As for teaching me, I have read your threads and honestly I see nothing that you could teach anyone about the RD, money or any other topic as well for that matter.

Didn't we have this discussion before Christmas? wheren't you the one that was predicting dooms day?! The fall of the pesos by March? Some people just don't know when to give up!!!

Nonsense, perhaps you should educate yourself slightly by reviewing the defaulted bonds from Argentina. 76% (+/-) of these people will receive only 30-35% of the face value. 24% (+/-) have rejected the restructuring and will no doubt spend the next 5-10 years in court...

My question here was is the Central Bank secure?
The currency might have devaluated but The National Bank in Argentina did not go BANKRUPT!!!
Then again Argentina's case is completely different, they never let there currency float freely against the US dollar until now, wich explains the fall of there pesos. The situation in the DR is completely different.
Be carefull not to mix apples and oranges....

Further nonsense! A nation?s currency value and stability most certainly can be determined through an evaluation of economic climate, policies, debt ratios, current account and foreign interests. Furthermore a nation?s currency is inherently in question when market forces are subverted or manipulated.

If any one could predict accurately currency fluctuation, they would be the richesses people in the world! If there are that sort of people, you certainly are no expert on the matter, just read your previous post and look at the value of the pesos today! WRONG wrong and wrong again.
Sorry Lurch, but I would rather take Martha's advice then yours when it commes to investing!

 

[Firefan]

He,he - you gotta love a board where a discussion on bank cercificates can become emotional!
Maybe we should make a DR investment club - we (the ones in DR at least) meet Fridays after work and discuss investments? :classic:
The Presidente (Light! I like it!) should ensure a buddy-buddy atmosphere!
Cheers!

 

[Lurch]

Ignorance maximus

Didn't we have this discussion before Christmas? wheren't you the one that was predicting dooms day?! The fall of the pesos by March? Some people just don't know when to give up!!!

Was this the discussion where you were referencing prostitutes and porters when judging the RD educational prowess? Or was this when you were searching for escorts for a supposed client meeting.

In all seriousness the peso most certainly would be 40:1 (+10%) by now if the Fernandez administration had not continued to take direct action to manipulate the currency. The government has already admitted this point, in violation of Dominican law (unless this was changed) and the IMF letter of intent. The deficits are skyrocketing, unemployment rates in the FZs are skyrocketing and a number of these FZ companies are already beyond reconsidering the RD.

The country is in selective default in previous debt obligations and hoping the creditors accept a favorable restructuring (I hope you are not na?ve enough to believe that is coming without a price).

The cherry on top of this sundae is a pork barrel subway for an island that cannot even pay its electrical bills.

Your position is neither logical nor tenable.

My question here was is the Central Bank secure?
The currency might have devaluated but The National Bank in Argentina did not go BANKRUPT!!!
Then again Argentina's case is completely different, they never let there currency float freely against the US dollar until now, wich explains the fall of there pesos. The situation in the DR is completely different.
Be carefull not to mix apples and oranges....

Once again I ask you to educate yourself before making posting such as this.

There are no international bankruptcy laws for countries. This is part of the stated reasoning for the existence of IMF.

Furthermore you make my point when you state a major factor for the Argentinean collapse was the manipulation of the local currency market for the purpose of overvaluing of the Argentinean Peso vs USD.

Do you now understand more clearly the danger of the current overvaluation of the peso?

If any one could predict accurately currency fluctuation, they would be the richesses people in the world! If there are that sort of people, you certainly are no expert on the matter, just read your previous post and look at the value of the pesos today! WRONG wrong and wrong again.
Sorry Lurch, but I would rather take Martha's advice then yours when it commes to investing!

You seem to have confused fluctuation for long term fundamentals analysis.

To be brief and simple analyzing the economic fundamentals of a country?s currency is not only possible it is done daily where geopolitical and economic factors are analyzed and a reasonable projection made. Why do you think there has been such a discussion regarding the twin deficits of the USA and the dollar movement over the last 24 months in relation to the Bush administration?s economic policies?

Sorry Lurch, but I would rather take Martha's advice then yours when it commes to investing!

I offer neither advice nor counsel only an objective viewpoint. I only hope you will spend less time with propaganda in your clear attempts to minimize the risk or inflate the financial pyramid scheme of the CB bonds. Perhaps a basic economic education would be of more value or interest and far less dangerous to the young or inexperienced investor who might be mislead by your IMHO nefarious intentions.

 

[iluvdr]

Be a man and admit you have been wrong Lurch !

Common Lurch...who cares that the pesos should have been 40:1...
The fact is: You predicted that the pesos would have considerably devaluated by April 2005 and you called me uneducated and foolish to think differently 3 month ago!
?YOU WHERE WRONG!!!? Stop looking for lame excuses....
You where wrong then and probably will be wrong again. Members on this forum who are smart enough to research your previous posts will see that you are an egocentric, pompous, arrogant no it all...
I don't think my opinion is better then yours or any one else?s for that matter, but I don't go around calling other people foolish, uneducated or ignorant because they don't agree with me.
If I had a dollar for every time you where wrong , I would be $86.00 richer today?
Start by scoring a few points and being right a few times, before you can get any credibility on this forum, for now, no one in there right mind should bother listening to your BS ? Mr. WRONG!!! ?

 

[leekirkpatrick]

I'm not financial wizard, by any stretch of the imagination and the motive for my post is more to cross-check my logic & math, since I am not a financial wizard. (I work on computers all day.)

My wife and I are planning on investing some money in CD's in Banco Central (Central Bank of the Dominican Republic) in the next couple of months. We understand the rates Banco Central offers, 20%-27%, depending on the term of the CD. We've looked at the history of the value of the peso and realize that "past experiences do not guarantee future results" (typical disclaimer from any broker). Up until 1985, the value of the Dominican pesos was 1:1 with the US dollar. Since then, the pesos value has decreased over time with the largest decrease in value coming within the last year or couple of years. The average decrease in value since 1985 is roughly 14% and if you don't factor in the last couple of years, the decrease in value between 1985 and 2002 was 10.7%.

To check out the historic value of the peso, please check out this link:

http://www.bancentral.gov.do/tasas_cambio/TAC4014.pdf

Let's take a hypothetical situation:

$10,000 US
Banco Central CD for 1 year, in pesos: 26%
initial exchange rate (today's rate): 28.47
exchange rate in one year: 28.47 + 14% = 32.46 (almost worst case scenario. Worst case scenario would be, the exchange rate goes to inifinity and/or the bank gives you the finger [as in "F" you] when you ask to withdraw your money and you lose all your money. Now a days, this could happen in the US too.)

The quick way would be to take the 14% and subtract it from the 26% and then multiply the result by your initial investment, $10,000US = $11,200US.

The long way would be to go through the calculations.

As I understand the documentation on Banco Central's website (I've also spoken with folks with CD's from Banco Central) your initial investment, $10,000x30= $300,000 pesos, is guaranteed. You will not lose your initial investment, should anything happen to the bank. I'm a pessimist so imho, NOTHING is guaranteed, except death. You do get a nice little piece of paper indicating how much money is/was in the CD.

Personally, I don't mind making 12% on my money. It's better than what I can get from any bank in the US. Also, we're looking at becoming a legal "loan shark" (as I put it) in the DR. I hear folks loan other folks money (with or without collateral) for 4-10% MONTHLY. I almost fell out of my chair when I heard this and this is common & well accepted. I can't believe somoene could make 48%-120% on their money. If the folks default, you take their collateral which is usually real estate (which has done very well over the past several years-personal experience) or vehicles (only place I know where cars are sold for more than they are bought after being used=appreciation=unreal).

Oh well, where's the flaw or fault in the math &/or logic. Please someone talk me out of this.

Lee

 

[Bartolomeo67]

Oh well, where's the flaw or fault in the math &/or logic. Please someone talk me out of this.

Hi Lee,
I don't want to talk you out of this but imho you cannot relate an 'average depreciation rate' of the peso over the last 20 years to a return on a 1 year investment in CDs to calculate a 'worst case' scenario. In an era where the DR governments manipulate the exchange rate, your 'average' has no value at all.
If I would be living in the DR, I would buy put some money in CDs too I think.
Bartolomeo

 

[leekirkpatrick]

Hi Lee,
I don't want to talk you out of this but imho you cannot relate an 'average depreciation rate' of the peso over the last 20 years to a return on a 1 year investment in CDs to calculate a 'worst case' scenario. In an era where the DR governments manipulate the exchange rate, your 'average' has no value at all.
If I would be living in the DR, I would buy put some money in CDs too I think.
Bartolomeo

This brings my next question.

How does the DR government manipulate the exchange rate of the peso?

I'm not questioning whether the DR government does or not, just how is this accomplished.

I've got to work my way into that "inner-circle", at least on the fringe of the outer part of the inner-circle, to get the advance (insider) notices.

I've lived & visited the DR enough to understand there is corruption. I'm not surprised by the corruption, just how the corruptions seems to increase expontentially there. The corruption is also what attracts me to the DR.

That and the people!

Oh, and we're waiting to invest in DR CD's, for the exchange rate to go back to 37-40:1.

Lee

 

[iluvdr]

We Have Two Other Winner's !

Hi Lee, Bart
Either way you put it, I congradulate both of you on your courage and wisdom.
These CD's are to good to pass up... like in any investment,I always recommend caution. Don't be fooled by those US CD's at 2-3%... after taxes and inflation you will prolably have lost a point or two, besides, the dollar on the world market is dropping like there is no tomorrow... When you have to chose between the devil and his brother, the choice seems obvious!

Good Luck guys...

 

[leekirkpatrick]

Hi Lee, Bart
Either way you put it, I congradulate both of you on your courage and wisdom.
These CD's are to good to pass up... like in any investment,I always recommend caution. Don't be fooled by those US CD's at 2-3%... after taxes and inflation you will prolably have lost a point or two, besides, the dollar on the world market is dropping like there is no tomorrow... When you have to chose between the devil and his brother, the choice seems obvious!

Good Luck guys...

I agree, the choice is obvious. My choice is the devil's sister!

Lee

 

[AlaninDR]

I agree, the choice is obvious. My choice is the devil's sister!

Lee

From all appearances, Lee will fit right in.

 

[jerryme]

So how does the average tourist go about buying these CDs? Do you have to go to santiago? Do you need to be a resident? Do you have to habla pretty good?

Please expalin in detail.

Also, If you get a CD interest rate for say 1 year and the interest drops on say 30 day Cds, will the Bank keep your original rates or will they drop yours too ?

 

[iluvdr]

Easy as 1 2 3 !

So how does the average tourist go about buying these CDs? Do you have to go to santiago? Do you need to be a resident? Do you have to habla pretty good?

Please expalin in detail.

Also, If you get a CD interest rate for say 1 year and the interest drops on say 30 day Cds, will the Bank keep your original rates or will they drop yours too ?

If you speak good enough spanish you can go directly to the Central Bank
there is more info and there adresse at;
http://www.bancentral.gov.do/
Or PM me and I will send you to my lawyer, she can have it all done for you, No problemo!
No you don't need to be a resident, and the rate is fix for 1 year regardless if the 30 days CD drops...

 

[Lurch]

Common Lurch...who cares that the pesos should have been 40:1...
The fact is: You predicted that the pesos would have considerably devaluated by April 2005 and you called me uneducated and foolish to think differently 3 month ago!
?YOU WHERE WRONG!!!? Stop looking for lame excuses....

Government manipulation of the peso that is both illegal and directly crippling to the Dominican economy for the purpose of continuing the status quo of corruption and political greed fostered under Hipolito. If this is a lame reason well so be it.

You where wrong then and probably will be wrong again. Members on this forum who are smart enough to research your previous posts will see that you are an egocentric, pompous, arrogant no it all..

If people research your postings they will find half-truths, poorly reasoned conclusions, deceptions and honestly someone who appears to be nothing more than stock tip spammer.

The topic of my arrogance, well its well earned.

If I had a dollar for every time you where wrong , I would be $86.00 richer today?
Start by scoring a few points and being right a few times, before you can get any credibility on this forum, for now, no one in there right mind should bother listening to your BS ? Mr. WRONG!!! ?

Now only if I had 1 USD for each time I had to correct an outright lie or incorrect statement of yours my earnings would certainly be in triple digits. As for creditability you have never been able to even remotely argue your position other than hoping the PLD will continue manipulating the peso.

I do pose a question if these bonds are such a great investment why cannot the CB sell out of them? Usually 40%+ are left over at each auction, would not have the large worldwide investment houses pounced on this cant lose proposition? Or perhaps you are just too smart for all of us :tired: .

 

[iluvdr]

Lets get ready to RUMBLE...

Government manipulation of the peso that is both illegal and directly crippling to the Dominican economy for the purpose of continuing the status quo of corruption and political greed fostered under Hipolito. If this is a lame reason well so be it..

I have to make you one compliment Lurch, you do know your politics and even to a certain extend your economics as well. You always comme up with some solid statements to back up your BS. Kinds of reminds me of Bush when he had to convince the world that Irak had Weapons of mass destruction, he build a pretty solid case... That's why they call it BS, you see, BS is hard on top but soft at the bottom. It's got no consistence! All your political criticizim still does not change the fact that the pesos has hardly moved since Christmas... I am yet to hear from you a " I was wrong..." this must be the american way!

If people research your postings they will find half-truths, poorly reasoned conclusions, deceptions and honestly someone who appears to be nothing more than stock tip spammer.

The topic of my arrogance, well its well earned. ..

Lets be real Lurch, you know you don't want any one to do that exercise...It would make you look even more like a fool. I may not use big words in my post or try to act educated. The truth is, I am not. I berely have a college degree... But I have got something you don't. It's called street smart, this is the kind of degree that you don't earn, you deserve it! And for your information, I actually have a lot of very educated people working for me!
If ever you need a job feel free to apply (you can PM me).

Now only if I had 1 USD for each time I had to correct an outright lie or incorrect statement of yours my earnings would certainly be in triple digits. As for creditability you have never been able to even remotely argue your position other than hoping the PLD will continue manipulating the peso..

Now, I can't even began to answer your post since it makes no kind of sense...
You have only made 86 post and they where not all targeted at critisizing my opinions.Now, how would your earnings be in triple digits? Even an uneducated, street usler as myself can do the math...

I do pose a question if these bonds are such a great investment why cannot the CB sell out of them? Usually 40%+ are left over at each auction, would not have the large worldwide investment houses pounced on this cant lose proposition? Or perhaps you are just too smart for all of us :tired: .

Finally, some light at the end of the tunnel! Smart question, deserves a smart answer.
There is an old saying in Real Estate: "Buy when everyone is selling, sell when every one is buying..."
Don't you get it Lurch, if all the investment houses where jumping in on this deal then it would not be at 26%. The potential risk does not permit institutionalize investors to come in at this time. What the CB is doing by giving CD's at High yield is bringing money into the country, therefore stabilizing the pesos and creating confidence, as that level of confidence rises, they will lower the interest rates and pay back the high yield loans with the new lower interest rates CD's until they reach a standard rate. This strategy seems to be working. The real winners will obviously be those who got in early on. There is no conspiracy or pyramid scheme here. I tip my hat to the genius at CB that put this all together! (Not bad for a stock pimp!)

 

[MommC]

okay.....I guess I've really mis-understood this one but......

it is my understanding that these CD's were and are being issed to remove pesos from circulation in the DR economy thus stabilizing the value of the peso against the $$ making it easier for the gov't to meet debt payments at lower interest rates.
I seriously can't see ANY foreign investor investing $$, or Pounds Sterling, or Euros to earn pesos. That doesn't make any sense unless you are a foreigner who has moved permanently to the island and wish to convert all your liquid assets into pesos in one fell swoop! :cross-eye Which in my books also doesn't make any sense as you would be leaving yourself over-exposed to a serious devaluation of the peso such as happened in the last year of Mejia's gov't.
so.........correct me please if I have it wrong!!

 

[Lambada]

No correction needed, MommC. I am a foreigner living here & I have only converted a minimum amount to pesos, sufficient to produce peso interest which I actually use up each month. I'd prefer to keep the rest in dollars & sterling, even though it produces less interest. Preserving my capital is more important to me than getting the highest rate I can, interest wise.