Some curiousities about the DR economy

[Onions&carrots]

I understand how the Fed acts to help stimulate or depress the US economy. Also how they indirectly affect these including mtg rates by buying/selling their paper on the open market.


1)Does the DR central bank do the same thing?
2) What is the prime rate in the DR?
3)The lending environment and progress is greatly constricted with mtg rates around 17-22% just like the US in the 80's. So why isn't the DR central bank unable to maintain interest rates like those in the US?
4) Besides the endemic corruption, why is the DR unable to provide a US style life for all its people? Is it that the money supply is insufficient to accomodate all? Or is it the dollar factor?

[Escott]

While the US has that ability to lend money out at a cheap price simply by lowering rates, the DR cannot do the same without devaluing their peso to nothing.

[Onions&carrots]

The peso is 17 to 1. What does that matter? The economy is based in pesos. If this is an internal decision affecting the national economy, why would they have to devalue it to nothing?

[Escott]

Originally posted by Onions&carrots
The peso is 17 to 1. What does that matter? The economy is based in pesos. If this is an internal decision affecting the national economy, why would they have to devalue it to nothing?

While the economy in the DR is basically based on the peso the DR needs dollars to pay their foreign trade. NO COUNTRY would take DR Pesos as payment. The DR relies on imports to exist. If they didn't they would be in the straights of Cuba almost. Would you take pesos for your carrots and onions in Miami?

In order to get the Dollars they need a high interest rate or else the dollars will go somewhere else. If you look to 1993 the Peso was approx. 13.50 now it is 17.50. If it wasn't for the high interest rate it would be 22.00 to the dollar where it will probably go in the next 2 years anyway.

Risk vs. rewards is the name of the game. It was truly amazing when the US dropped the interest rate to a similar rate as under the mattress that the dollar did NOT drop in value. I think it was because of world troubles that money seeks safe havens hence the dollar held up. NO one thinks that the PESO is a reliable currency. Well no one that counts in the International Banking community anyway.

Hope this helped. Parts were oversimplified, other parts are just my opinion.

Regards
Escott

[Onions&carrots]

what about way back when the peso and the dollar where equal. I think it occurred during Trujillo's time.
Wasn't the country better off back then? Also Trujillo paid off the external debt completely. No debt and equal parity with the dollar.

Isn't that better for the DR instead of all this debt and a crummy valued peso?

[Tony C]

Originally posted by Onions&carrots
what about way back when the peso and the dollar where equal. I think it occurred during Trujillo's time.
Wasn't the country better off back then? Also Trujillo paid off the external debt completely. No debt and equal parity with the dollar.

Isn't that better for the DR instead of all this debt and a crummy valued peso?

That was a different time. Sugar was king and it brought in tons of Dollars. Also imports were limited by the fact that only a small select few consumed them.
Now the DR is a country where the Gov. Takes out a loan from a Miami bank to build a hospital for its congressmen. Just about every Gov. project has to be financed by an outside lender. And where does all the monies collected in taxes and duties go. It goes to pay of the debt of all those loans. Can you see wht is going to happen? All you Dominicans better strap in you seat belts. There is going to be a crash!

Tony C.

[Onions&carrots]

What does that have to do with those astronomical mtg rates. What does that have to do with luring dollars the fact that most people can't afford a mtg?

[Escott]

Originally posted by Onions&carrots
What does that have to do with those astronomical mtg rates. What does that have to do with luring dollars the fact that most people can't afford a mtg?

Jesus man. I put money in the bank to get the high interest. If they don't get higher interest loaning the money out what good is giving me high %? They use my dollars to pay their bills.

People ARE affording the mtg. Or else they won't get it. Mortgage companies are loaning money to the people with crappy credit at higher rates that are closer to 30%. I invest money with them also.

Look at all the dollars that come into the country from Doms living in the US. If it wasn't for those expat Dominicans in the US the DR would probably become another state of the US.

[sjh]

Its just as simple as supply and demand. As a commodity trader you should know that?

The supply in this case is limited by money supply, the risk of the investment due to bad credit rating overall, Bad credit rating of individuals, alternate investment avenues, and the currency risk.

The demand is huge, because there are lots of people who want to take out loans, the government, businesses, and home buyers....

huge demand, lots of risk, low supply of lenders

[Onions&carrots]

what you just stated is Eco 101 the basics. I don't know what I was thinking. I think I was in a dummy state or something.I guess I was thinking the bogeyman controlled the DR economy. Oh brother!! I read all this in my freshman year in school. Thanx guys!

So the function of the DR central bank differs from the Fed insofar that they are primarily concerned with their dollar reserves. TRUE or FALSE.
Then the DR could never do anything to give its people a US lifestyle as long as the peso is subservient to the dollar. Only in the twilight zone, if people were to believe in the peso over the dollar. hahahaha!

Or maybe get rid of the peso and just have the dollar, have the DR become more self-sufficient to produce nationally the items it imports, eliminate corruption etc, cut back substantially on its loans.

Funny thing is if you hear Frank Guerrero-Prats Dr central bank chief talking he says the loans being only a small% of GDP doesn't affect the DR. Yet it is those loans that creates this whole mess.

Dr gets a loans-high rates-cental bank has a high prime rate to attract the dollars to service the debt. Avicious cycle that just exploits the poor countries to be enslaved to the IMF and World Bank.