#241 – The Expat Files: Dollarization, Prostitution, and Economic Uncertainty in Latin America

Automatically transcribed from the original recording; names and wording may contain errors.

[00:00] South of the border down Mexico way That's where I fell in love when the stars above came up to play and now as I wonder My thoughts ever straight Hi everybody I'm Johnny Mueller and you're listening to the expat files Living in Latin America the show that tells you what it's really like to live work play and or retire in Latin America I tell it just like it is so let's get started Let's talk about something we haven't hit on for a while how about Ecuador and what prompted me to talk about Ecuador today is this email coming from Troy and As for our usual policy here at the expat files We won't see his last name because we really advocate whether you're gonna be an expat or not

[00:49] To keep a very low profile in everything you do and that means you should try to vastly minimize your internet footprint And stay well under the radar if you can you'll have less stress live longer And you're guaranteed to get a lot fewer porno and penile implant ads in your inbox and for most of us That should be a good thing, right? So anyway Troy says in his email One of the selling points to moving anywhere offshore is the potential for the economic collapse of the US economy That said one of the selling points for moving to Ecuador Is that they use the US dollar for currency making it easier for expats to buy and sell How is this a selling point for Ecuador if the US dollar fails the economy and Ecuador will collapse, too?

[01:37] Won't it as opposed to let's say Belize a country like Belize has its own dollar They use along with the US dollar so they could easily move away from the US dollar of something untoward happens to our dollar So what contingency plan does Ecuador have if any? Sincerely Troy Okay, let's first hit on what he says is the potential for a collapse in the US economy Well, let's just say anyone out there who thinks there's a quote potential for a collapse You're being hopelessly optimistic because it looks to any unbiased person who studied this thing that there's practically a 100% Certainty that there's gonna be a collapse and it's gonna be massive And if you think I'm wrong about that I'll tell you what send me an email and put your money where your mouth is. Okay, I'll make you a bet

[02:25] All right But it's gonna be in gold because I don't want dead president toilet paper when the feces starts flowing downhill if you know what I mean Now about the fact that Ecuador and a few other Latin countries are using the US dollar like for example Panama and El Salvador and guess what don't think they all don't have their contingency Plans to move back into their own separate national currency when the dollar does hit the skids They're all ready for that. Believe me But what will probably happen when the dollar takes a dump is that all the funny money Latin currencies will take an even bigger dump You think these corrupt Latin governments have any more fiscal prudence than your own corrupt disgusting fat cats up in Washington? No way in the last hundred or so years of Latin American history Nearly every one of their currencies started out on par with the US dollar back when the world was on a gold or silver

[03:15] Standard that is and in that time many of them have added one or two or even three zeros to their currencies or they've been Officially devalued against the dollar over and over again And sometimes inflation will get so out of control that a country will abandon its currency completely and print up a whole new series Giving it an all-new name and an all-new look but with the same dead corrupt ex-presidents and the same very serious looking genocidal dictators and a good example of how Latin American Currencies have dropped like rocks against the US currency over the years is the case of the Guatemalan quetzal Only about 35 or 40 years ago. It was on par with the US dollar at one-to-one and today it's eight to one That's a loss of eight hundred percent of its value against the US dollar

[04:02] And that's not even taking into consideration the inflationary loss of the US dollar over that last 40 years About a 300% loss in the dollars purchasing power and that's the story of every single Latin currency So when the dollar crashes you can bet all the other Latin currencies will take an even bigger dump and for them It's no big deal Latin countries have currency Crises like Lindsay Lohan has court dates In fact every middle-aged Latin adult remembers two or three big bank runs or currency devaluations or government slapping down currency controls Exactly like what's happening in Venezuela and Argentina right now And that's why the average Latino and Latina have no trust in their government, and they never did They certainly aren't sucked in by government promises and propaganda like first world people have been sucked in and made dependent on theirs

[04:53] In fact Latins are so used to government lies that they expect almost nothing from their governments, and they're never disappointed For example the reason why Ecuador moved to the US dollar back in the year 2000 was that their economy was running 400% Inflation a year and their national currency was a joke So when these high inflation countries do adopt us currencies inflation normally drops into the single digits again So why don't all third world countries switch to the dollar then well? That's because of two huge downsides for one if you don't have your own currency You're at the mercy of the countries you adopt which in this case is the US and whatever happens to the US dollar on the world Market happens to you and secondly if you have your own currency like the peso your central bank can buy and sell other

[05:40] Currencies with your peso and thus have some flexibility to make it stronger or weaker against the US dollar or the euro Thus you can make your local currency have a competitive edge against some of your neighbors currencies in other words you have some degree of Flexibility in making your imports or exports a little cheaper or a little more expensive than the neighboring Currencies and all third world countries juggle their currencies a bit that way to try to get that import export competitive edge But if you adopt the US dollar like Ecuador Salvador or Panama You've got no control over that at all and another problem with dollarizing your country is that there's almost always a Physical dollar shortage in your country forevermore since unlike the US they can't print money when they feel like it

[06:26] They either have to earn their US dollars number one with a positive balance of exports number two obtain dollars through first world tourism number three borrow or get grants from the IMF or World Bank or borrow in the usual way governments finance their deficits by floating government bonds on the open market which is one of the reasons why dollarized countries have such huge deficits and By the way, you should know that when governments do float bonds It's usually the too big to fail Wall Street banks like Bank of America city Goldman Sachs JP Morgan Chase Morgan Stanley Wells Fargo, etc You know the usual suspects and they put those big bond deals together and they take big points on the deal Which is always in the high millions or billions of dollars after all we're talking about entire governments floating bond

[07:16] Issues here. So what about this shortage of dollars in those countries? Well, let me tell you that's why if you go to Ecuador or Salvador, you can almost never get changed for a hundred dollar bill unless you're buying like $98.20 worth of goods then they might have the change on hand and the same goes for 50s too if you walk into a grocery store, for example, and you buy $11 worth of goods with a 50 You'll never get change. In fact about 75% of the mom-and-pop stores in Ecuador Don't even have change for a 20 again Unless you're buying eighteen dollars and twenty six cents worth of goods and forget about the banks only about one in five banks will Change a hundred and only if you've got an account there or if you're thick on the tourist trail Then the banks there are used to gringos coming in for a couple weeks on vacation

[08:03] And they're pretty well prepared with a lot of change because the local businesses depend on that small change that trickles down from gringos To the locals, but of course the banks are gonna take their cut So know this if you go to the ATM machines and they always spit out 20s, right? Well, you're in for a lot of frustration If you're the least bit off the tourist trail and let me tell you you can look at this a different way You could look at it as a great expat business opportunity Suppose you set up a bunch of tiny little kiosks Just a tiny little booth like the old photo mats used to be in the States Remember those in grocery store parking lots where you could drop off your rolls to get developed. Am I showing my age or what? anyway why doesn't an astute expat set up little kiosks where you could change a 20 or a 50 or 100 for small bills ones fives and

[08:50] Tens because it's those ones fives and tens that grease the Ecuadorian economy then of course you take your two or three percent whatever you want and believe me there are Thousands of frustrated tourists stuck with hundreds fifties and twenties that would be glad to pay a couple points for a handful of small Bills and sure everyone takes credit cards But remember almost all the credit cards charge a fee when you use them outside of the country of issue So if you use one they might be charging you two or three points anyway And besides that I'm against using credit cards unless you absolutely have to anyway Like when you're renting a car and you're forced to give them an imprint That's basically the deposit in case you crashed a car it gets stolen and also a credit card imprint is pretty much mandatory in hotels However, you can get around that I do all the time

[09:37] You just say you don't have your credit card with you And you ask how much cash they need for a deposit and nearly always they'll give you a figure usually a hundred or two hundred bucks And one of the problems when you use a credit card way down in the third world Is that when you get back home and you look at your statement? How are you gonna fight it out with a credit card company if you find an error and believe me you'll find an error And I'll tell you what when I meet tourists down here ones that don't like to carry cash and use credit cards almost all the time it's not unusual for them to rack up 50 or a hundred different charges over a two or three week trip and If you're in Panama or Ecuador, and it's all in US currency It's a little bit easier, but in the other 15 or so countries of Latin America They've got their own national currency and most tourists and visitors don't speak Spanish So they rarely understand the bill completely and all the extra charges that might show up later

[10:27] Like a 10 to 16 percent Eva charge which is VAT and those idiotic tourist taxes Which show up occasionally on hotel and restaurant bills especially in those high-volume tourist areas like Costa Rica and Panama Now just one more thing about Panama Yes They do use the US dollar and since they've got so many gringos down there and it's well on the tourist track and since they've got So many casinos bars nightclubs and huge international hotels if you pop in they'll be glad to change your 50s or hundreds Especially in the casinos and by the way down here in Latin America Don't ever get into a cab and say please take me to a nice nightclub Unless you are expecting to go to a strip club slash pole dance joint slash bordello Because down here in Latin America the word nightclub means house of prostitution and you should know this

[11:19] Prostitution is technically illegal But as you might have guessed the laws about as flexible as a slinky Now you'd think that because down here if you swung a dead cat you'd kill an army of devout Catholics In other words, you could predict that those laws would be strictly enforced. Well in a word fat chance Okay, that's two words. Anyway, what's up with that? Well, that's because a good percentage of these nightclub brothels are owned by medium and high-level Politicians not owned in their real names, of course, but through SA corporations naturally In fact a gringo friend of mine in Panama a casino and nightclub owner himself He tells me that some of these high-level politicians in Latin America actually own Nightclub brothels that are not open to the public. They're for their own private use and for their own buddies and friends

[12:09] Fact is it's a very common practice here in Latin America And of course the politicians wives are clueless about all this because they're enjoying the largess of public office, too The beachfront homes the trips to miami shopping the bodyguards Meanwhile their hubby works so hard and is away so often on trips that he rarely has time to come home and sleep at night Ah the thankless life of a politician hmm So anyway, that's just the way things are down here and just a word to lady expat wannabes up there That's just one more nail in the coffin for you First were ladies coming down here thinking you're gonna find love and romance with your own personal antonio bandettis Now you will find that guy, but you're just never gonna stop him from straying

[12:56] It's just that macho tradition down here and you either accept it or you remain in denial like latin wives do so again prostitution though basically illegal is tolerated and even secretly encouraged by latin governments after all latin Legislatures are about 90 percent male. So that explains it, right? Anyway to give you a bit more proof of that in panama where prostitution is technically illegal The government even issues health certificates to the prostitutes that must be certified by a panamanian doctor on a monthly basis Now that gringo friend of mine in panama who owns one or two of these places along with a couple of casinos He told me that there are nearly 2 000 independent prostitutes in panama city alone

[13:43] And these are girls who don't work at an established nightclub or strip joint. They're the street girls, you know And he says there are an equal number about two thousand other girls that work in established clubs like his Mostly columbian girls that come in on a special visa called an alternatora visa, which basically means an entertainers visa Anyway, those nightclubs and strip clubs actually advertise for girls in columbian newspapers The ads say they'll set these girls up with lodging and visas And the health certificates and the deal they make with the nightclub owner is that they'll sign a contract for six months And deduct her visa travel and clothing expenses a bit at a time from her pay And she is free to quit and go back to columbia

[14:30] Only after she's paid her debt to the club owner And like my gringo friend says there's no shortage of beautiful columbian girls that want to get in on the program And he admits that very few panamanian girls will work at that trade in their own country instead They'll do a reciprocation thing and go over to columbian work And my friend says that often after they've worked a year or two and accumulated a nice little nest egg They'll go back to their home country columbia and start a nice little business A beauty parlor a nail place a flower shop, which was their intention all along But on a regular salary like a secretary's they'd never be able to pull it off like my expat friend said nearly 100 of these girls are single mothers and have a kid and

[15:18] Maybe a mother and a couple of brothers and sisters to support back home That's the pressure that makes them go into that business And the fact is they never let on back home that they were in that business at all They always tell their friends and family they're working in tourism or as a dealer in a casino or as a dancer in a floor show that's how they explain away the money they send back to support the family and If and when they get back home how they saved enough cash to start a little business And another thing my expat friend by the way who's 86 years old. So he's been in the business a long time He tells me that 10 percent of the girls end up marrying stupid gringos who met them at the strip club Gringos with savior complexes, you know They see a fresh young beautiful girl and they think that's a nice girl who's had a really bad break

[16:07] And i'm gonna save her from this terrible life In fact, he said it happens often enough that when a new crop of girls comes in from columbia The old girls the ones that have been there a while always pump up the new girl spirits by telling them That there's a good chance to end up with a nice rich gringo with blue green or gray eyes They always throw that in because blue green or gray eyes are the absolute gold standard in the mind of every latin woman But I believe I spoke about that on a past show didn't I? Sorry, I got sidetracked there, but I do get emails about that kind of stuff. So where was I? Oh, yeah I was talking about dollarized countries like ecuador Anyway, if you're going to panama ecuador solvador load up on fives and tens Now there is another little advantage to living or traveling through a dollarized country

[16:53] Almost everyone will accept damaged and mutilated bills unlike in countries that have their own currencies like for example costa rica When there if a u.s Bill has one ink stain or a little rip or it's been crumpled one too many times people just won't accept them And neither will banks which like I said in a past show is another great expat opportunity You open up a tiny kiosk in a big shopping center And you put up a big sign that says you'll accept marked or mutilated u.s Money and you'll be literally raking in the cash and of course you take a few points every time you do the trade naturally Now I have to warn you throughout latin america. There's been a lot of reports of atm credit card cloning going on Nearly always on the tourist trail I did a show on this some months ago and every once in a while I hear a new story

[17:41] But they all have one or two things in common They go to an atm machine that withdraws some money and generally it doesn't work Then a few days later. They realize that someone cleaned their account out Now it turns out that about 90 percent of the cloning that's done down here in latin america Has happened with a machine from a particular latin bank It's a machine that has the initials bac on it, which means banco di america sentral It's a real chain of banks that operates out of panama guaramala el salvera hungers, nikaragu The caimans the bahamas a lot of places in latin america and in the caribbean And it is a real legitimate large chain bank However, it seems like for the last year or so now some of their machines Especially in the tourist areas have been hacked and no one seems to be doing anything about it

[18:28] So stay away from those atm machines that say bac on them and it's all in red letters big red letters So they're easy to spot and if you do get your card cloned and you're a tourist on vacation You're going to have a hell of a hard time getting your money back Especially if you don't speak spanish, which is why I always recommend if you go to an atm machine always go to one That's located actually inside of a bank Then you know it can't be tampered with don't go to an atm Even if it's right outside of a bank always use one That's actually inside the bank and go ahead and use one of those bac machines with the red letters if it's in a bank too Because of all the cloning cases so far it's only gone on with atms outside of the bank Now i've also had people send me emails about cases

[19:16] They've heard of were an atm machine in latin america specifically in this case guadamala had actually stole their card In other words, they shoved their card in the slot and it never came back out And of course shortly after their account got wiped out I know years ago when you went to an atm machine It would always suck your card in for a while and then spit it back out But 95 of all the machines down here in latin america and throughout the world don't operate that way anymore You can stick the card into the slot But you never have to let go And my advice to you if you ever run into an atm machine that looks like it's going to suck your card in Don't even give it a chance hold on to your card never let go of it And i'd say it's a very dumb move to let a machine suck your card in anyway And it's a really stupid move if you let it happen in a foreign country because if it doesn't come out

[20:06] How are you going to get it back? You're going to wait around for a maintenance guy? You're going to come back the next day. Who are you going to complain to? You probably don't even speak spanish And in fact a lot of atm machines down here actually have a sticker on them that says in spanish Of course this machine will not take your card But how are you going to know that if you don't speak spanish, right? And you know, that's why I never use an atm machine unless it's an absolute emergency You should always carry an emergency cash stash in your zipper belt or in your hidden secret pouch Which I spoke about in detail on a past show But we were talking about ecuador now, weren't we? Well, did you know around february 20th? president korea announced strict price controls on 46 different food items like eggs and butter and milk and the basics now historically price controls are always a prequel

[20:57] To a big round of inflation or some very big dislocations in an economy Just look up price controls on the web and you'll see what I mean always a sign of very bad things to come And naturally as these things go all of korea's cabinet his ministers Insiders and his buddies and family and friends Knew this was coming down weeks if not months before it happened So they all positioned themselves to make money in the market classic insider information. It's always like that down here And as you might expect right now, there's a buying frenzy going on and as usual economists and everyone else predict Shortages to come in those basic items and by the way price controls always foster gray and black markets too Which already exists in a big way in ecuador because they have huge gas and oil subsidies within the country

[21:47] Therefore huge gas and oil black market maneuvers going on between adjacent countries who are stuck with paying the world spot price And the reason for those price controls Well, the government gives the standard answer that every government's always given when they've slapped down price controls They say it's to eliminate price speculation, which in fact is exactly what it fosters in the end Now you'd think korea would be smarter than that He's a trained economist But like they say only one out of a hundred economists knows how to balance his own checkbook, which is why? 99 percent of all economists either teach or work for government agencies like expat eddie says Economists are about as useless as a condom in a nursing home But the question again is what about ecuador and the us dollar?

[22:33] Well, I can tell you this right now ecuador has a real currency crisis brewing They just do not have enough us dollars even though they have big oil reserves and somewhat of a petroleum based economy Which does bring in us dollars, but they still don't have nearly enough us dollars in circulation In fact, did you know that ecuador has a 5 tax if you send any us dollars out of the country? For example, if you sell a house and wear that money to panama You get to pay 5 right off the top and they've just jacked up their import taxes, too Which is why some imported products like cars and refrigerators and washing machines and tvs and computers and stuff can cost up to twice As much as what they'd cost up in the first world. So what's going to happen in ecuador in the next five years?

[23:19] Well, the quality and quantity of locally produced products will go down as the government slaps on more price controls Secondly, the economy is going to really stagnate because local businesses are going to tighten their belt due to tax hikes And foreign businesses are not going to move in when there's a history of price controls In fact right now a lot of ecuadorian businesses are moving to colombian peru for just those reasons So basically my advice is don't buy any real estate in ecuador Just rent because anything you buy and might sell later could be subject to that 5 us currency exit tax And it's only going to get worse And another thing don't put much money at all into ecuadorian banks if you move there Keep your money offshore offshore meaning not in the united states either

[24:05] And by the way, as far as taxes a medium-sized corporation in ecuador pays about 35 percent in corporate taxes Just to give you an idea now one thing I do have to mention just a year or so ago International living had listed quenca ecuador as the number one retirement haven in the world And since international living is pretty big and influential in the expat retirement and relocation business Cuenca and many places in ecuador are being overrun by gringos now So is it going to be the next costa rica and all those negatives we talk about that went along with it? Well due to the sudden influx of gringos and their money It's starting to get contaminated with gringos and the gringo dollar and one of the sad things I have to report on

[24:51] Is that crime is really on the increase? So now i'm reading this directly from a news article It says the three cities in latin america that are most affected by street crime and delinquency Are number one? Quito ecuador number two to gusigalpa honduras and number three Guatemala city so I ask you why does everybody always pick on central america when they're talking about violence when quito? Is number one go figure anyway now it also goes on to say in this article and this is important. It says 37 percent of the population of quito have in the last 12 months been victims of either robbery Extortion or fraud and I always have to qualify these statistics by saying in any big city in latin america

[25:39] 90 of all the crime Happens in certain designated areas of the city the poor scruffy areas where people are scraping out of living and the gangs hang out And these are not by any means places us expats hang out or live But still the information's necessary when planning your move And guess what now like so much of latin america They even have their own version of a housing bubble now with all the builders and contractors So sure that the gringos are going to come down and snap that stuff up Thank you international living Which is another reason to rent for a while until the bubble pops so bottom line if international living says That's the number one retirement place in the world That's exactly where you don't want to go and if you think it's a ground floor opportunity for the next costa rica

[26:27] Just remember costa rica grew on gringo dollars unabated for about 30 years Not much affected by any crisis that was happening up in the first world because costa rica was always a pretty cheap tourist destination But you see there are no more ground floor opportunities like there were in costa rica Sure, your best bet of all is to leave the states and come to latin america But unfortunately international living is always about five years behind the curve And when they do recommend a place it always ends up being well gringoized and expensive Now before I close out today's show I like to remind you that me and the gang at expat wisdom are thinking about putting together some one-day fast track seminars Specifically designed to jump start your perspective move to becoming an expat down here in latin america

[27:13] Just go to expat wisdom.com and sign up for the info or email me at seminars at expat wisdom.com And be sure to tell me the big city that's nearest to you And that includes all you guys who are sick of living in europe, too So there's a chance that some expat wisdom folks will be landing in a city near you You've been listening to the expat files living in latin america Coming to you each week from somewhere south of the border And don't forget you can email me on anything at all about latin america the expat files at gmail.com See you next time Ah