Questions & Answers About Living in The Dominican Republic

Many people have written in asking about the current situation in the Dominican Republic. What is the Dominican republic real estate market like? Is the country safe for foreigners? Are the banks safe and insured? How have any economic or political changes affected the country? Is the Dominican Republic still a good place to consider for retirement or relocation? To provide a very honest and profound answer to these and many, many other questions - we have decided to put this section together. Hopefully you will find some questions that you may have had with the corresponding answers as well, not to mention answers or replies to even some rumors you may have heard also. Quite honestly, information is great providing it is the correct information. Which is to say, there are always rumors and stereotypes often ingrained in the minds of the general public about a particular place or country. Some rumors may be true while others may be sort of true (but not exactly as was conveyed or interpreted), and some of course very false. Again, the idea behind this section is to provide come very candid answers to some of the questions and comments we have heard over the past six months or so.
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Question. The exchange rate for the Dominican Peso versus the US Dollar has gone from about 17 to 1 in 2000, up to 52 to 1 in 2004 - and now it has gone back down to about 28 as of March, 2005. What is going on?
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Answer. This is a very good and interesting Question. Historically the Peso, as a weaker currency in comparison to the US Dollar, has pretty much steadily devalued by about 5 percent per year against the Dollar. If you check the exchange rate statistics for the 10 years or so prior to the year 2000, you will see that this is so. What happened in 2000?
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The PLD or conservative political party lost the 2000 Presidential Election to the PRD or what can be called the liberal-socialist party (in terms of political leanings). As a result, different economic policies were implemented than what were in place before, and some key elements included an increase in taxes, an increase in government debt, government spending and various social programs (which many would say are still in disarray). The short version or result was a drastic devaluation of the currency, as local inflation went from a single digit in 2000 to about 45 percent in 2004 (this is the official inflation rate reported by the Central Bank, although many would say the number was actually higher).

In any event, the tide had turned once again back to the PLD or conservative party in 2004 but there was, and still are, many problems to be fixed. Ironically, the current President of the country - Dr. Leonel Fernandez Reyna (PLD or conservative party) was the same gentleman who was President from 1996-2000, when the country had some of the lowest inflation rates and the highest rates of economic growth in all of Latin America. His campaign strategy was very simple in that he in essence told people, you knew what things were like when I was President before, you know what things are like now with the other guy (the period from 2000 to 2004) - you decide which is better. And so they did, giving Dr. Fernandez roughly 75 percent of the vote in 2004.
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However, while the election took place in May of 2004, the new President did not take office until August (which is normal as elections are held in May, and the actual change in power takes place about 3 months later). So, the current President, as of March 2005, has really only been in office for about 6 months. Even so, in that short time, through various economic policies instituted immediately, inflation has been brought down to about 14 percent at the moment and the goal once again is a single digit. Apart from this, the goals of the current party include payment of foreign debt (denominated in US Dollars) and other unpaid debt from the last administration as quickly as possible. However, this involves some bitter medicine, one of which has been a strengthening of the Dominican Peso versus other currencies via a number of economic measures. Incredibly enough, the US Dollar has been in a free fall against all other major currencies in the world, and so this is part of the equation as well.
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The currency exchange rates for the Dominican Peso versus other currencies has stabilized and is currently about 28 Pesos to One US Dollar. However, many do believe it is now too low (that it has strengthened too much versus the US Dollar) and that the correct market rate should be somewhere in the thirties (35, for example). So, we will have to wait and see. Interestingly enough, the fallout has been a drop in US Dollar interest rates in the local banks, but this has happened more so because in the past (when things were going in the other direction) Dominicans ran out to exchange all their liquid assets into US Dollars or Euros. So, the reality is that the banks have been flush with US Dollar deposits, and possibly for the first time have not had enough local Dominican Peso deposits. Therefore, while interest saving accounts or CD rates for US Dollar deposits have generally dropped below 3 percent, time deposits (90 Day CD) for Pesos remains in the 15 to 20 percent range. For this reason, for anyone living or retired in the Dominican Republic, it is still very possible to live off interest earned from banking deposits (in Pesos).
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As always, a sound plan or hedge in terms of some funds denominated in Pesos, some funds in US Dollars, some in Euros in addition to other things, such as Gold or Real Estate offers the best opportunity to ride whatever economic situations unfold - and this is true no matter where you might be living.