Dollar goes below 30 pesos

[NALs]

I believe part of it is a matter of people trying to maintain their profits from less and less sales.

Oil's effect trickles throughout the economy but not enough to justify the inflation in the Dominican.

Not at all, if entrepreneurs really wanted to increase their profits all they have to do is lower their prices just below the market average and watch the sales go through the roof since everywhere else its "caro".

There are many things at work in the DR, including the increase of transport costs. You underestimate the oil effect. Remember, everything that is imported comes through ship and/or airplane, the two most expensive modes of transportation for moving material goods. Add to that the extra haul from the port to the store and you got quite a bill to pay just for transporting the thing. Then add the taxes, the profit margin, and voila, high prices.

There are other things at work as well, such as old fashion supply and demand rules and also the fact that many of the materials on the shelves are still the materials that were bought during Hippo's reign, as such, expect the prices to remain high until those material clear out.

When will they clear out? Well, given that inflation is way down where it use to be and that the economy is expect to end in positive number starting the end of this year forward, the old fashion theory will come to play.

What's the theory? Well, when hyperinflation hits, real wages are destroyed over night. However, in the long run as inflation stabalizes (and that is what is happening), wages will catch up to the pricing levels and real wage will increase in the long run.

That is not just a theory in books, that was demonstrated during the last economic meltdown the DR went through in the 1980s. People's real income was destroyed in 1984 when inflation hit a whopping 100% (think about that for a minute because that is NOT a type-o). However, by 1994, the real wage of Dominicans had already caught up to the new price levels. By 1997 the real wage was even higher and by the year 2000, real wages were the highest they have ever been on this island since independence! The average Dominican became wealthier without the price levels dropping at all.

Then, came Hippo who increase government spending (that creates inflation), a few banks went busted and Hippo used public savings to bail the depositors (which further exacerbated the inflation deal and cause the exchange rate destabilization). All of that came in so fast that the population had no time to adjust and real wages collapse and boom, we got a crisis.

The only problem that kept this crisis going for much longer than it should have was Hippo's stupid policies of government spending after the crisis started in addition to his erratic borrowing which turn the Dominican credit rating from near perfect to junk bond status in a 2 year time period! Hippo's excuse was that the economic problems were due to the 9-11 deal and the collapse of the banks, but that was all lies.

Afterall, only a month after Leonel took control the exchange rate dropped and is hovering where it should have been a long time ago. The economy is growing again and real wages will start to grow again.

All that we need is another decade of sound people in the government, another Hippo and that is it for this country.

Now, let me get back to my vacation since I'm vacationing in wonderful Chile right now. I'll respond on Friday, if not Saturday, since by that time I'll be back in my isla hermosa. For now, let me play.

 

[ustelephone]

We must be talking about different figures. These are the ones I questioned (although only in passing, while acknowledging his principal point)

GOLFGUY said:

"In the past year, while YOUR dollar has gone from 20 to 55"

I went back and checked the exchange rate thread here, and in fact a year ago at this time the exchange rate was about 37. It hasn't been 20 for over 2 years. Unless I'm wrong, if it ever made it to 55, it was only for a day or 2. It is currently about 30.

Of course this doesn't change your dilemma, which is real. The only response I would have to that is that I don't know many people who believed the rate was going to stay in the high 40s, especially after the election. Rent seems to be one of the few things that did not go up dramatically with the exchange rate. You were able to take advantage of the high rate for a while, and now are experiencing cruel reality. I hope you are able to work things out.

Go to the Banco Central link under the business section of DR1 or go to Yahoo finance. In July of this year the dollar-peso average was 46, spiking to 48.5. It did peak in the low 50s a year ago. The exchange rate on the Banco Central's web page for this past Friday is 29.3 for cash transactions. Banco Reserva is buying dollars today (Jaragua Casino) for 28 cash.

As far as taking advantage of the 40s, my rent of 12,000 pesos for a one-bedroom apartment is the same as it has been since 2002. I enjoyed the savings of when the rate was 50, but that's not relevant.

For example:
A pack of Marlboro in July 2004 was an average of 45 pesos. At an exchange of 46 that's 97 cents. Now with the higher taxes the price for a pack of the smokes is an average of 55 pesos. At an exchange of 28 that?s $1.96. 4 rolls of toilet paper ranges from $1.20 USD to $10 USD depending on how much comfort you want for your ***. A T-Bone steak (.88 lb) cost me 80 pesos. Why? No one is buying meat because they can't keep it frozen due to lack of electric. It's cheaper to eat toilet paper and wipe your *** with a T-Bone steak.

Maybe I am a greedy, selfish American. I employ 10 Dominicans and pay a salary of over $30,000 pesos per month. HE IS THINKING ABOUT MOVING AND CLOSING THE BUSINESS. Who's the bad guy here. His payroll has gone up 40% in 3 months as he pays everyone except me in pesos. We are in the call-center business, which pays locals more money than any comparable job. All of the centers earn dollars and pay pesos. Most of us have an office here and in Costa Rica. Guess what, no 40% increase in Costa Rica. Logic dictates that if this continues all of us will move our operations to CR.

I have to think that retires here living on a fixed SS check are considering moving, if they can afford to. I'm certain that people who are calculating and considering moving here are looking elsewhere.

As far as AIs, I don't know. I do know that Jaragua's prices are double what they were 3 months ago. A tower room was 99 USD, now it's 199 USD. I'm sure all hotel operators are raising or considering raising their prices. They pay their employees in pesos, as well as all of their other expenses. They earn their money in foreign currency like USD and Euros. Logic says they must being raising their prices.

I'm not putting down the country, just the thieves that run it.

 

[ustelephone]

Not at all, if entrepreneurs really wanted to increase their profits all they have to do is lower their prices just below the market average and watch the sales go through the roof since everywhere else its "caro".

There are many things at work in the DR, including the increase of transport costs. You underestimate the oil effect. Remember, everything that is imported comes through ship and/or airplane, the two most expensive modes of transportation for moving material goods. Add to that the extra haul from the port to the store and you got quite a bill to pay just for transporting the thing. Then add the taxes, the profit margin, and voila, high prices.

There are other things at work as well, such as old fashion supply and demand rules and also the fact that many of the materials on the shelves are still the materials that were bought during Hippo's reign, as such, expect the prices to remain high until those material clear out.

When will they clear out? Well, given that inflation is way down where it use to be and that the economy is expect to end in positive number starting the end of this year forward, the old fashion theory will come to play.

What's the theory? Well, when hyperinflation hits, real wages are destroyed over night. However, in the long run as inflation stabalizes (and that is what is happening), wages will catch up to the pricing levels and real wage will increase in the long run.

That is not just a theory in books, that was demonstrated during the last economic meltdown the DR went through in the 1980s. People's real income was destroyed in 1984 when inflation hit a whopping 100% (think about that for a minute because that is NOT a type-o). However, by 1994, the real wage of Dominicans had already caught up to the new price levels. By 1997 the real wage was even higher and by the year 2000, real wages were the highest they have ever been on this island since independence!

Then, came Hippo who increase government spending (that creates inflation), a few banks went busted and Hippo used public savings to bail the depositors (which further exacerbated the inflation deal and cause the exchange rate destabilization). All of that came in so fast that the population had no time to adjust and real wages collapse and boom, we got a crisis.

The only problem that kept this crisis going for much longer than it should have was Hippo's stupid policies of government spending after the crisis started in addition to his erratic borrowing which turn the Dominican credit rating from near perfect to junk bond status in a 2 year time period! Hippo's excuse was that the economic problems were due to the 9-11 deal and the collapse of the banks, but that was all lies.

Afterall, only a month after Leonel took control the exchange rate dropped and is hovering where it should have been a long time ago. The economy is growing again and real wages will start to grow again.

All that we need is another decade of sound people in the government, another Hippo and that is it for this country.

Now, let me get back to my vacation since I'm vacationing in wonderful Chile right now. I'll respond on Friday, if not Saturday, since by that time I'll be back in my isla hermosa. For now, let me play.

The rate was plumeting before Leonel took office. Leonel is as corrupt as the next guy. We aren't talking about inflation here, we are talking about the devaluation of the dollar. If Dominican wages go up, great. If the price of things here are the same as Miami, LA, or New York you have a problem. That is unless you think Leonel is going to use all of this money to improve the DR to Miami, LA, or NY standards.

This isn't one persons fault. If you think Leonel is a saint, you're very wrong my friend. He claims to be with his people, and yet I always bump into him in First-class. If he is with his people, why doesn't he sit with them in coach instead of with a bunch of foreigners in FC. This was before he was re-elected by the way (No sitting president should be put in coach).

 

[NALs]

The rate was plumeting before Leonel took office. Leonel is as corrupt as the next guy. We aren't talking about inflation here, we are talking about the devaluation of the dollar. If Dominican wages go up, great. If the price of things here are the same as Miami, LA, or New York you have a problem. That is unless you think Leonel is going to use all of this money to improve the DR to Miami, LA, or NY standards.

This isn't one persons fault. If you think Leonel is a saint, you're very wrong my friend. He claims to be with his people, and yet I always bump into him in First-class. If he is with his people, why doesn't he sit with them in coach instead of with a bunch of foreigners in FC. This was before he was re-elected by the way (No sitting president should be put in coach).

It was dropping a little bit, right after it was bound to go up since during Hippo, that's all we saw. First the Peso shoot to the 40s, then it dropped to the 20s, then it shooted to the 50s, then it dropped to the 40s, then it shoot up again and then it started to fall, oh but wait, change of government.

The new government puts more fiscal resposibility, stops printing peso (aw, there goes the hyperinflation), is now trying to follow up with the IMF step by step to get the assistance to keep the country afloat and is trying to sort out the mess that was handed down to him from Hippo, contrary to what Hippo received from Leonel four years ago.

Is Leonel a saint? Of course not, the only saits are those in stone on the facade of the Cathedral de Santa Maria la Menor in the Colonial Zone. Not even the pope or the cardinals (especially the one from Santo Domingo) is a saint.

Is Leonel a politician, yes he is. As such, answer me this question. What leader of what country flies in coach with "his people?

Was Bush in the first infantry division that invaded Iraq? Um, no. So much for supporting the troops!

Was Saddam fighting for the Iraqis when he was cought? Um, no. He wanted to "negociate"!

Was Aristide helping his starving people in Haiti during his "democratic" rule? Um, no. He basically commited fraud in the elections and plundered the coffers of the country.

Now, which leader hang around with their "people"? Which one because I sure don't see any!

Even Bush, when he goes on vacation, he heads to his ranch in Crawford Texas, he hardly meets the population (except for publicity motives) and the same thing occurs with Tony Blair, King Carlos of Spain, Vicente Fox of Mexico, Silvio Berlusconi of Italy and the rest of this world.

 

[Malibook]

Not at all, if entrepreneurs really wanted to increase their profits all they have to do is lower their prices just below the market average and watch the sales go through the roof since everywhere else its "caro"

Makes sense to me but there is the old inventory issue which you mention plus perhaps many of them are not business savvy entrepreneurs.

 

[ustelephone]

It was dropping a little bit, right after it was bound to go up since during Hippo, that's all we saw. First the Peso shoot to the 40s, then it dropped to the 20s, then it shooted to the 50s, then it dropped to the 40s, then it shoot up again and then it started to fall, oh but wait, change of government.

The new government puts more fiscal resposibility, stops printing peso (aw, there goes the hyperinflation), is now trying to follow up with the IMF step by step to get the assistance to keep the country afloat and is trying to sort out the mess that was handed down to him from Hippo, contrary to what Hippo received from Leonel four years ago.

Is Leonel a saint? Of course not, the only saits are those in stone on the facade of the Cathedral de Santa Maria la Menor in the Colonial Zone. Not even the pope or the cardinals (especially the one from Santo Domingo) is a saint.

Is Leonel a politician, yes he is. As such, answer me this question. What leader of what country flies in coach with "his people?

Was Bush in the first infantry division that invaded Iraq? Um, no. So much for supporting the troops!

Was Saddam fighting for the Iraqis when he was cought? Um, no. He wanted to "negociate"!

Was Aristide helping his starving people in Haiti during his "democratic" rule? Um, no. He basically commited fraud in the elections and plundered the coffers of the country.

Now, which leader hang around with their "people"? Which one because I sure don't see any!

Even Bush, when he goes on vacation, he heads to his ranch in Crawford Texas, he hardly meets the population (except for publicity motives) and the same thing occurs with Tony Blair, King Carlos of Spain, Vicente Fox of Mexico, Silvio Berlusconi of Italy and the rest of this world.

You missed the point. Also, flying coach, although it's rough, should not be compared to going in on the front line of an invasion. I say that being a frequent flyer of American Airlines, maybe the others are that bad.

My point was that the poor really believed this guy is on their side, as he preached. Answer me this question, how is all of this is helping the "people" of this country. It's not helping me. It's not helping Dominican employees of companies earning dollars. It's not helping companies earning in dollars. It's even helping people earning in pesos considering he raised the sales tax 33% and there has been no deflation (and there won't be).

When I said he's not a saint, I meant he is no better than the last guy. Most people judge Hippo on his speaking skills. At least we know he didn't have someone preparing his speeches. A president that actually said what he was thinking, what a concept.

 

[duhtree]

Least we forget when speaking of the economic value of the tourist business to the Dominican Republic IT DOES NOT EXIST!. there is hardly any value gained thru tourism $'s in this country. Those monies are paid in the tourists home country and never enters the DR's economy. That which is spent at the resorts stays in the resorts to pay operating costs. Profits are transferred to the parent co's home country. I think.

John

 

[Simon & Nicky]

Funny how some people just don't see the point

Look, moving the thread along again, here's an example of why life is not as easy as it was. I bought my car in Moca with Rocky. It was not cheap, for a second hand Honda I paid around 12000 dollars but their prices are (or were) all in pesos. Therefore, if we assume the dollar has dropped half it's value since then, does that mean that today the same well-used 6 year old Honda CRV would cost me 24000 dollars! Consequently, either car prices have dropped (an example of future price tolerance) or anyone buying a used car right now is nuts!

Let's here from some used car experts shall we?

 

[Escott]

My insurance comes due this month on my car. 2001 Isuzu which I paid 10,000 US for they want to insure for 800,000 and the dollar is now at about 27 to 1 so this makes my car worth 27,000?

This country is freaking nuts. Economy is in the toilet and their money gets stronger. This is the only place in the Universe where a car is a good investment. Hell I have made more on the car than I have on Real Estate or investments!

Please help me understand this crap because using any knowledge from previous lives it really doesn't make any sense. Hell you can drink and drive but hell with you if you talk on the cell phone while driving!

Ok, I think I am going to go back to bed, wake up and see if things seem different.

Escottisdizzy

 

[Jimmydr]

From my very limited observations, it would seem that many tourists spend very little money outside of their resort (not that they spend any inside either) and thus would not really be much affected by the exchange.

I spend most of my time away from the resort and I found this trip was way more expensive than any of my previous 4.
Many of the prices are outrageously high even just compared to last year.

True but there are 100's of us that do not use Resorts, they tend to be rip offs.

 

[NALs]

!

You missed the point. Also, flying coach, although it's rough, should not be compared to going in on the front line of an invasion. I say that being a frequent flyer of American Airlines, maybe the others are that bad.

My point was that the poor really believed this guy is on their side, as he preached. Answer me this question, how is all of this is helping the "people" of this country. It's not helping me. It's not helping Dominican employees of companies earning dollars. It's not helping companies earning in dollars. It's even helping people earning in pesos considering he raised the sales tax 33% and there has been no deflation (and there won't be).

When I said he's not a saint, I meant he is no better than the last guy. Most people judge Hippo on his speaking skills. At least we know he didn't have someone preparing his speeches. A president that actually said what he was thinking, what a concept.

I know I said I wasn't going to respond till Saturday, but I just couldn't help.

Damn it, there goes my vacation!

1. I did not missed your point. All I was saying was that politicians will always be politicians regardless what country they govern. You should know that.

2. Learn to see things in long term mind set. The strengthening of the Peso puts more confidence in the economy for those with a lot of cash to loot. Those who moved their cash abroad during the turmoil after Baninter would be tempted to move it back to the DR since the dollar is dropping or at least to convert some part of their wealth into Pesos again.

Sure, in the short run its a little rough for those who are living on the edge, but in the long run it will work well. Wages will start to pick up, the economy is finally growing again, and quite frankly this is the beginning. Beginnings are always hard to swallow, but once the initiative behind the actions becomes clear, things will smooth out.

Price levels will not drop too much, instead nominal wages (and to some extent) real wages will increase as well. The increase in taxes, that is part of the IMF economic reform deal. Remember, behind every unpopular economic move (like raising taxes) comes aboard, usually the IMF is behind the scenes directing the play. They just never get blame because they are behind the scenes, that's all.

3. I know what you meant with your "saint". So, what did I meant by my response? That if you are waiting for the perfect politician who is 100% honest, 100% loving, and 100% for the people to come than you have quite some time to wait, if it ever happens.

Look, even Bush gets his speeches written for him or partially written and even when they are written down, that guy still gags while he talks to the people! How he won the election? Beats me!

And why do I constantly use Bush as an example here? Because Dominicans look up to Americans (believe it or not) and if the American presidency is filled with liars, corrupt, gagging politicians (including the Clintons and the Bushes in this), what would make anyone think that the DR would be any better? After all, our "democracy" is based on the American system!

I'm not blaming the Americans for the DR problem, but those who we look up to are not quite giving a good example to follow either, so what exactly is to be expected?

 

[ustelephone]

Look, moving the thread along again, here's an example of why life is not as easy as it was. I bought my car in Moca with Rocky. It was not cheap, for a second hand Honda I paid around 12000 dollars but their prices are (or were) all in pesos. Therefore, if we assume the dollar has dropped half it's value since then, does that mean that today the same well-used 6 year old Honda CRV would cost me 24000 dollars! Consequently, either car prices have dropped (an example of future price tolerance) or anyone buying a used car right now is nuts!

My employee just bought a used Volkswagen for 180,000 pesos. When I told him that was 6K USD he said "No". I showed him that it is now over 6K USD and he is in shock. This guy is studying here and has wanted to move to Miami for over a year; he is a US born citizen. 6K USD is enough to fly to Miami, rent a studio, buy a used car, and pay the first semester?s tuition.

Imagine how many people with calculators, unlike my employee, have made the ladder decision.

 

[ustelephone]

I know I said I wasn't going to respond till Saturday, but I just couldn't help.

Damn it, there goes my vacation!

1. I did not missed your point. All I was saying was that politicians will always be politicians regardless what country they govern. You should know that.

2. Learn to see things in long term mind set. The strengthening of the Peso puts more confidence in the economy for those with a lot of cash to loot. Those who moved their cash abroad during the turmoil after Baninter would be tempted to move it back to the DR since the dollar is dropping or at least to convert some part of their wealth into Pesos again.

Sure, in the short run its a little rough for those who are living on the edge, but in the long run it will work well. Wages will start to pick up, the economy is finally growing again, and quite frankly this is the beginning. Beginnings are always hard to swallow, but once the initiative behind the actions becomes clear, things will smooth out.

Price levels will not drop too much, instead nominal wages (and to some extent) real wages will increase as well. The increase in taxes, that is part of the IMF economic reform deal. Remember, behind every unpopular economic move (like raising taxes) comes aboard, usually the IMF is behind the scenes directing the play. They just never get blame because they are behind the scenes, that's all.

3. I know what you meant with your "saint". So, what did I meant by my response? That if you are waiting for the perfect politician who is 100% honest, 100% loving, and 100% for the people to come than you have quite some time to wait, if it ever happens.

Look, even Bush gets his speeches written for him or partially written and even when they are written down, that guy still gags while he talks to the people! How he won the election? Beats me!

And why do I constantly use Bush as an example here? Because Dominicans look up to Americans (believe it or not) and if the American presidency is filled with liars, corrupt, gagging politicians (including the Clintons and the Bushes in this), what would make anyone think that the DR would be any better? After all, our "democracy" is based on the American system!

I'm not blaming the Americans for the DR problem, but those who we look up to are not quite giving a good example to follow either, so what exactly is to be expected?

We haven't seen this kind of economic disaster in the US since the Great Depression. The US system, along with most European and modernized systems are night and day to the politics and corruption here.

Bottom line, people will leave, and so will their money, regardless of the currency.

 

[ustelephone]

Least we forget when speaking of the economic value of the tourist business to the Dominican Republic IT DOES NOT EXIST!. there is hardly any value gained thru tourism $'s in this country. Those monies are paid in the tourists home country and never enters the DR's economy. That which is spent at the resorts stays in the resorts to pay operating costs. Profits are transferred to the parent co's home country. I think.

John

There are thousands of people who earn money in the tourism industry here. Hotel employees, taxi drivers, concession operators, restaurants, etc.

In 2002 I visited here 14 times, usually staying for 7-10 days. I stayed at an AI 1 time and hated it. Every other trip I stayed at Jaragua or the Intercontinental. Not all of the tourism here is based on AIs.

If you think a slowdown in tourism won't affect locals, you are mistaken.

 

[liam1]

i think i know what leonel's plan is. here is the deal: he figures that sooner that later switcherland will join the EU and scrap the frank, so he's setting up the peso to replace the frank as one of the world's strongest and safest currencies.

ps. if you have a swiss bank account i suggest you close it immidietly and convert all your money into pesos.

 

[badpiece33]

There are thousands of people who earn money in the tourism industry here. Hotel employees, taxi drivers, concession operators, restaurants, etc.

In 2002 I visited here 14 times, usually staying for 7-10 days. I stayed at an AI 1 time and hated it. Every other trip I stayed at Jaragua or the Intercontinental. Not all of the tourism here is based on AIs.

If you think a slowdown in tourism won't affect locals, you are mistaken.

If prices aren't rolled back or the Peso doesn't go up, Then myself and at least a dozen other people I know personally won't be travelling to DR for sometime ,As much as I hate to do this it is just not feasible to continue to fly to DR to pay NY prices.

 

[gjsuk]

If prices aren't rolled back or the Peso doesn't go up, Then myself and at least a dozen other people I know personally won't be travelling to DR for sometime ,As much as I hate to do this it is just not feasible to continue to fly to DR to pay NY prices.

that is exactly the point.

Ex-pats, including myself, relocated here to take advantage of the relatively cheaper cost of day-to-day living compared to their respective costs in their countries of origin.

As this cost competitiveness is now removed on most day-to-day living expenses guess what?

The people here will undoubtably review their situations and some may depart along with their capital investments here and others such as Badpiece will visit less.

There ain't nothing in this scenario that is going to help the country or it's people.

 

[mike775103]

Thanks

The real origin of the word gringo

Thanks for the authoritative response. I have been the victim of a long term urban legend. I even repeated it publically on this forum. I am chastised.

 

[ustelephone]

If prices aren't rolled back or the Peso doesn't go up, Then myself and at least a dozen other people I know personally won't be travelling to DR for sometime ,As much as I hate to do this it is just not feasible to continue to fly to DR to pay NY prices.

Thank you.

 

[ebonyjeff]

I'm not a financial expert, but I find it hard to believe that a small country of 9 million mostly poor people can control it's currency. Things in the DR have not changed much since Hipolito left office. The government is still borrowing money and from everything I read it has to be the world's most open democracy or totally corrupt. With the dollar dropping like a rock the only place to point the finger is Washington. It's the Bush administration,s payoff for the DR's UN vote authorizing the Iraq debacle and for sending troops as part of the coalition of the bribed and coerced. The US is providing a free flow of dollars at a rate set by the Dominican central bank. The problem is Lionel is accellerating the peso way too quickly. It could be he's taking this route because there's a expiration date on US help. Probably has six months to fleece everything he can out of expats, both foriegn and Dominicans in NY, and tourists.

Anyone who believes this is good for the average dominican is totally naive. The Dominican people have been sacraficed to pay off foriegn creditors. Prices aren't coming down because nobody in his right mind believes this can last nor can believe moving prices down 10-15% will improve their customer base. The buying power of Dominicans has been further deteriorated by the devaluation of foriegn remittances from expats. Finally anyone who believes tourism doesn't bring money to the DR is denying reality. I've been there 16 times in the last 2.5 years and I've never stayed at a AI. I know dozens of others who won't step foot in an AI. I have no doubt that non-AI tourist contribute millions of dollars to the local economy. Even Al guests contribute millions of dollars to the country. I think I read over 1,000,000 tourists visited the country last year. That would mean from the airport tax alone $100,000,000 and another $20,000,000 from the arrival and departure taxes. We've been visiting the island in large numbers because it was a relative bargin. If the current economic situation continues more and more of us will decide to go to other destinations or stay home. Might as well go to NY or LA if I have to pay NY/LA prices. In the long run this will just make life for the normal Dominican that much worse.