The Ultimate Guide to......
dominican republic directory
The Dominican Republic

Back To Main Directory Page  |  Send an Email Via Reply Form  |  Residency Banking  |  Purchase Report
We once again interviewed John Schroder of Ascot Advisory Services in June of 2004, in order to ask some very direct and hard hitting questions about the Dominican Republic as a destination choice for business relocation or retirement.  Mr. Schroder has authored The Dominican Republic Report, and has writen a number of popular articles which can be found in various publications.  He is a regular contributor to Roger Gallo's Escape From America on-line magazine.  Ascot Advisory Services provides assistance with regards to business issues, banking, residency & incorporation services.
.

dominican republic expatriate guide

real estate beach property caribbean
  ....2004 Interview  The Dominican Republic.

Question - There are many topics and issues to discuss - for example, the steep devaluation of the Dominican Peso in 2003, recent presidential elections, economic outlook, etc.  To start off with, let me ask a blunt question:  Do you still believe the Dominican Republic is an attractive place for investment and do you still believe the country is attractive for foreigners as a retirement destination?
.
A.  Well, allow me to say that YES, I do believe that the Dominican Republic remains attractive for a number of reasons.  I suppose we can dovetail into the politics and economy as part of that answer, which is to say that I think the last four years were a blip on the radar screen and not a change in the overall long-term fundamentals.  In the case of retirement or relocation options for foreigners, the Dominican Republic still has some of the lowest priced real estate in the Caribbean, when compared with say the Bahamas, St. Martin and many other places.  Also, if you take a look at the cost of living, again, when comparing apartment rental costs and other costs of living, it still remains to be attractive..
Question - But is it not true that real estate prices have gone up and cost of living has gone up because of the currency devaluation?
.
A.  Initially, immediately following the currency devaluation, the country went on sale – at least for foreigners or anyone with savings in US Dollars or Euros.  So, since real estate prices never move in tandem with more liquid currency markets, for foreigners at least, prices were cut in half in US Dollar terms anyway.  Now with that said, that was in 2003.  We are well into mid-year 2004 and real estate is starting to get adjust upward.  But you can still find a brand new 3-bedroom home in many of the residential sections of the city for about US$70,000.  Also, you can find a new apartment, meaning new construction, starting at about US$80,000 and go up from there.  Obviously the so-called luxury areas of the capital, here in Santo Domingo, are going for about US$130,000 or so – but these are very upscale buildings with a doorman, Jacuzzi in the master bedroom, etc. and so on.  As always, it really depends upon what you want, but the range is reasonable.  If you want to buy a building lot and build your own home, a 1,000 square meter building (which is about a quarter of an acre or about 10,000 square feet) will cost anywhere from US$20,000 on up – higher in some of the more upper scale neighborhoods of course.  Again, using these figures, one has to compare apples to apples.  What would a quarter of an acre residential building lot in the capital city of the Bahamas cost?  What about Buenos Aires, New York, Miami, St. Johns, Bay Islands of Honduras - etc.?  To be fair about this, can someone buy property in the jungles of Belize for much less? Of course they can, but I am not talking about farmland or jungles but a residential building lot inside a fairly modern capital city with all the related conveniences (24 hour pharmacies, restaurants, modern medical facilities, shopping malls, movie theaters, etc.)


Question - OK, so you feel real estate is still reasonable when compared to elsewhere, but what about cost of living?  I have heard that the cost of living has gone up tremendously for the Dominican People, and in fact one reason they voted out the last president in the recent May 2004 elections?
.
A. Well, to be sure cost of living has gone up for anyone that has not have the bulk of their savings in another currency, such as the US Dollar or Euro.  Plus, keep in mind that salaries have not increased to keep pace either.  So, where as foreigners with cash in Dollars or Euros have not been hurt at all really - in terms of their purchasing power as each time they convert in Pesos, they are getting more and more Pesos for their money – local Dominicans have not faired out so well.  Consider an architect, branch manager of a bank or whatever other professional that was and is still earning about RD$25,000 Pesos per month as salary – and keep in mind this is a professional level salary in the Dominican Republic.  Before, such an amount was equal to about US$1,000 or so per month.  Now that same salary is equal to about half in US Dollar terms.  So, yes, the local population has been hurt very badly by the currency devaluation and higher prices for gasoline, groceries, etc.
.
However, another very important point to consider though, when discussing real estate or whatever is that this situation is perhaps one reason there is a cap on prices as well to some extent.  Meaning, professionals still earn what I said and they have to live somewhere.  If you are a builder, you can either sell your real estate to only the very wealthy or try and accept a lower profit margin to make such homes or apartments affordable.  On a similar note, I have noticed that the price for 2-liter bottles of Coca-Cola has dropped in the supermarkets not too long ago, and I heard that the reason was no one was buying Coca-Cola because of the price.  So, in any product, regardless of what happens in the outside world, in terms of the local market you cannot price something out of reach – or otherwise, you will not have any customers, or very few.  So, the question of whether or not your product or service is priced so the vast majority of the local population can afford it is an important point in terms of keeping a lid on price increases.  Obviously prices have gone up, let us be fair and honest about that.  But, how high can they go?  The choice for business is accept lower profit margins or simply go out of business in such a situation.
Question - What about the Banking Sector?  What are the current interest rates?  There were rumors or talk once again about using the US Dollar – True or False?
.
A.  First and foremost, I can say in terms of the banking sector, one major bank was taken over by the Superintendent of Banking, but none of the depositors lost any money – due in part to the Government Banking Insurance Fund that exists (somewhat similar in nature to FDIC insurance in the US) and in part due to the intervention of the Central Bank as well.  Now, with that said, there have been some mergers, and very good ones I might add that have actually strengthened the capital of some larger banks.  So, all in all, I am positive about the banking sector in general and most of our clients have been pleased with their banking capabilities so far. 
.
Interest rates for US Dollar savings account will vary between 2.5 percent and 5 percent, all depending upon the bank.  US Dollar CD or 90-day time deposit rates have come down slightly to a range of 6 percent to 7.5 percent at the moment.  Pesos savings accounts pay anywhere from 7 to 10 percent, depending upon the bank and CD or time deposit rates go up to about 20% or so all depending upon how much of a deposit you make.
.
On the idea of scrapping the local currency, I honestly think this is an uphill battle, especially with the new administration coming in.  First of all, you have a sovereignty issue whereby Dominicans do not want to be subject to a foreign government with respect to their currency.  Secondly, most business people I spoke with are against the idea - as it would kill off the competitive price advantage this country has in terms of exports.  But, every once in a while, the idea is battered about in the press.  However, there was a very interesting political cartoon in one of the newspapers recently.  The point of the cartoon was the idea of getting rid of the Peso in favor of the Dollar because the Peso has declined in value.  The punch line was – So what do we do when the US Dollar starts loosing it value – go to the Euro??  A good point considering the US Dollar has been on a tumbling trend lately - a trend that I tend to think will continue long-term for a number of reasons.  So, we talking about exchanging a black cat for a brown cat – what is the point?  If anything the answer is going back to the gold standard, but that is not easy to do, however certainly more sensible than switching from one weak currency to another.

Question  - What do most Dominicans feel about the current economic and political situation?
.
A. Well, to be sure, they have had their taste of recent food offerings and very much want to change the chef.  Stated perhaps even better, they at least want to eat, regardless of who is cooking.  Let’s face it, politicians are the same the world over and promises are one thing and reality another.  Anytime you get a politician that promises the moon, the stars and some undiscovered distant galaxy – the first question you MUST ask is how?  Who is going to pay for it?  During the last Presidential campaign James Carville came down to work with Hipolito Mejia and what was instituted was a basic James Carville campaign.  You know, soak the rich, let’s get those corporate fat cats, vote for us – we will give you free everything, yada, yada, yada.  No one ever asks – how?  They promised national government medical insurance, social security, and so on.  If the US government Social Security system is bankrupt, or very soon to be, how can an emerging economy such as the Dominican Republic pull it off?  Where is the money coming from? The Dominican people soon found out in 2000 and 2001.  Higher sales taxes, which jumped from 8 percent to 12 percent overnight, an incredible amount of US Dollar foreign loans (government bonds), higher government fees and taxes of other kinds across the board.  And not to mention a devaluation of their national currency because the international financial community quickly realized what all this would mean.  So, in the least, I guess the idea that there really is no such thing as a free lunch has finally sunk in.  You know, all these things and ideas are great, meaning free government healthcare, etc., etc. but just like everywhere else in the world – politicians often side step the issue of who and how it will be paid for.  After the reality sets in, the general public soon understands nothing is for free and the question of is all this really worth it??
Question - So, bank deposit interest rates are still very attractive for US Dollar deposits in comparison to US dollar interest rates elsewhere.  Why have the rates pulled back?
.
A.
 Well, you must understand that most Dominicans panicked and started moving their cash or savings out of Pesos and into US Dollars.  In fact, according to Central Bank statistics, there are now more US Dollar deposits in the local banks then there are Pesos based deposits.  So, the result is, the banks are now flush with US Dollars.  Interest rates are a function of supply and demand, and now there is a large supply.  However, while interest rates have come down, as you pointed out, they are still very attractive when compared to what you earn with a bank in Europe or the US.  Also, it is important to note that interest rates for bank loans, car loans, mortgages, etc., have not come down.  So, if you want to borrow money in Pesos, expect to pay anywhere from about 30 percent up to 42 percent in Pesos and from 12 percent up to 15 percent in US Dollars.  So, this is not a place to borrow money, but save money – Yes..


Question - Now that the PLD or conservative party has won the Presidential Elections, what changes do you see in store for the country under Dr. Leonel Fernandez, the new President?
.
A. Well, certainly based upon my own previous experience when Dr. Fernandez was President during 1996 – 2000 and due to conservations I have had recently, their main priority is to undue the financial mess and return the country to both fiscal responsibility and economic growth.  Not an easy task to be sure, and one that I am sure will take at least 18 months or more to show signs of achievement, or at least some achievement.  But in the least, you must understand that when Dr. Fernandez was President during his previous term, he paid down the IMF loans and canceled the drawing rights.  In effect, he wanted to kick the IMF out, which is a very good thing in my opinion.  In addition, any public works projects were financed internally from banks inside the country (in Pesos).  So, under the previous PLD administration, the country had very manageable foreign debt and in fact had one of the best economies in Latin America.  Of course, that was then and this is now.  The best way I can sum it up or illustrate it is, most people seem to feel that the Doctor (no pun intended but it fits), the nurses and the medicine has arrived to cure the patient.  However, the patient was fairly healthy the last time around.  Now it is the case of try to cure him, get him on his feet securely, and only after that is done, plan on entering him into a marathon race once again.  I hope you understand the analogy, but the point is, the population seems to want a change and new direction in government.  That is how I sum it up, and how most people I have talked to feel about the situation. 
Question  - My question really is pointed towards the social aspect, crime and related topics?
.
A.  Well. I can tell you it never ceases to amaze me – in terms of the resiliency of the Dominican people.  Despite it all, they are fairly peaceful and very religious people, and they have a great deal of tolerance.  Some people in the past have asked me to make a comparison to Argentina, but this is not really fair because they are not equal, neither in the scope of what happened and neither in the nature of the people either. In other words, you had a very large and fairly prosperous middle-class in Argentina that has been somewhat prosperous for some time.  The idea of a large middle-class and all the trappings of it were fairly new in the Dominican Republic.  So, you had a population that was just starting to see the economic benefits before in terms of the DR.  Let me explain it another way.
.
Let us say you loan a Mercedes Benz to a guy for one week, and then you take it away and he has to ride the bus again.  He is going to be unhappy, but he only had one week with the Mercedes, so it is not such a shock.  Now let us talk about a guy that has been driving a Mercedes Benz for 5 or 10 years, and all of a sudden he looses it.  He is going to be highly ticked off – no??  He is going to be angry because he has gotten accustomed to driving a Mercedes for quite some time.  This has become his new standard or norm, and he lost it.  I do not know if you understand what I am saying or not, but the first case is the new middle-class in the Dominican Republic and the second or last example is Argentina.
.
In any event, most of my clients have been very pleased with their decision to live in the Dominican Republic and have noted many cultural differences, including this sort of acceptance or tolerance I just mentioned.  Do not misinterpret what I am saying.  The Dominican People are highly concerned about the economy, their future and probably why they voted out the last government.  But, they have not gone amok, looting bank branches and holding massive and sometimes violent demonstrations, as was the case in Argentina.  But understand the differences as well.


.
Question - Overall you are still positive on the country and about the future prospects with the new government coming in?
.
A.  The Dominican Republic still has a number of good things going for it.  Its geographic location is one, there is some petroleum and natural gas reserves recently discovered (although not enough to get them into OPEC), they are self sufficient in food production and are in fact net exporters or rice and other agricultural products.  The labor costs are still low enough for foreign firms to consider manufacturing facilities, the free zone programs and taxation still fairly attractive in comparison to elsewhere.  The country still has large tracts of land for resort and other kinds of development – enough in fact that I would say they have not scratched the surface just yet.  It remains to be an attractive destination for US Dollar and now Euro banking.  In addition, real estate prices and cost of living is still very attractive for foreign retirees or expatriates.  So, all in all, I would say the long-term diagnostic is positive. 
.
The new government taking office does have some work cut out for them. Plus the opposition party still controls the Congress – at least until the next congressional elections in 2006, so we will have to wait and see what happens there.
.
Question  - What is your advice for anyone considering relocating to or retiring in the Dominican Republic?
.
A.  Well, I think the lesson to be learned from previous events both inside the country and elsewhere is to think globally and long-term.  This is not always an easy thing to do.  But, for example, perhaps it is the case you are attracted to the Dominican Republic because of real estate prices or cost of living.  Perhaps its proximity to North America is appealing or whatever the case might be.  However, while you take advantage of these benefits, remember we live in a world whereby both local and foreign politicians can do things to effect our own financial welfare.  So, perhaps it makes sense to diversify investments in a number of places.  Perhaps consider a wide variety of choices and that includes planning our your financial affairs also.  Dominicans and citizens of Argentina that held some assets in other currencies, even outside the country in the case of Argentina, offered protection against the devaluation of their currency, and in the case of Argentina, a safety net in terms of the prohibition of withdrawing funds from one’s bank account.  Of course this was not the case in the Dominican Republic, so the lesson is you cannot paint the world with the same broad brush.  Stated another way, each country is unique and has a different way of handling a problem even though the problem might be similar to what has occurred in another country.  Personally I think the Dominican Government handled the banking issue correctly, making sure confidence and access to banking as normal was the order of the day.
.
In any event I do think people who are considering retirement or expatriation to the Dominican Republic should of course do so with their eyes open and consider all the positives and negatives.  All depending upon your own personal preferences and issues of importance, you will develop a sense of if the DR is right for you personally.  I say this not to sound negative, but to offer a hint of realism.  You know that many of our clients love the Dominican Republic for a variety of reasons, but some people do not and they are certainly entitled to their own opinions and feelings accordingly.  So, I am fair and realistic in the sense that I do encourage people to explore the country and make up their own mind.
Interested in hearing more about Residency or How you can move your business to a tax-free zone or earn high tax-free interest in a US Dollar account?  Contact Ascot Advisory... info@ascotadvisory.com    Tel. 809-334-5387   or   809-756-1917