#493 – The Expat Files: Economic Shifts, Currency Challenges, and Real Estate Trends 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 I wonder Hello there all you expat wannabes. I'm Johnny Mueller and you're listening to the expat files living in Latin America The show that tells you just what it's like to live work play and or retire down here in Latin America It's a mix of the good the bad the ugly and the great and it's all right here. So let's get started Okay, let's start today by talking about Bolivia. Here's some disturbing news out of La Paz the capital turns out socialist president Iber Morales says unfortunately after unprecedented growth of 5.5 percent in 2014

[00:48] Economic analysts are predicting a slowdown and perhaps a reversal starting at the end of this year and probably into next year, too he said that this week in the wake of unparalleled street demonstrations highlighting large cutbacks in social spending and Proposed new taxes and increases in existing taxes Unfortunately, he says this all came as a result of the 50% reduction in oil tax revenues So he's saying basically that the Bolivian people can only look forward to less government. Wait a minute. Did I hear that right? Did he say less government? What's wrong with that? Let's have a party Huh and in his closing statement says all Bolivianos must get used to tightening their belts in Spanish Ajos tarsi los cintarones now, you know the problem with that is he and those government

[01:39] Functionaries won't be tightening their belts anytime soon. Nope. That's not gonna happen It's always the little guy in the street never the psychopaths in office Though I guess we can always count on the Chinese to come in and save them right just like they did Venezuela You know China just gave Venezuela. What was it a 35 billion dollar loan? They saved their asses from complete collapse for at least six months or so Anyway, of course, the Chinese aren't stupid. They've got the oil fields in Venezuela as collateral Meanwhile, if you've been watching Latin American news, which you probably haven't you'd know that Hugo Chavez's daughter Has been named the second richest woman in all of Latin America. Hey, how'd that happen? Well, that's possible I think she's got a home economics degree or something The okay that said on a somewhat similar note now, you know that there are three Latin American countries that use the US dollar

[02:32] That would be Panama El Salvador and Ecuador. Now, even though the US dollar is an unbacked piece of toilet paper It's funny money, too Latins think it's the gold standard So it always seems to be a bit stronger and more stable than other Latin countries funny money that said even though you occasionally hear a Latin countries currency Appreciating against the dollar. It usually doesn't last long. That's why we're talking about Ecuador now It has the US dollar as its currency and believe me when you're in a Latin country that uses dollars It seems very weird now Ecuador has a border with Colombia and Colombia uses its own funny money called the peso and that's where the problems start now Colombia just Devalued their currency again against the dollar that is when that happens immediately the people in the country that are on a dollar

[03:21] It will be Ecuador again rush into the neighboring country in this case Colombia And they start buying up everything and anything they can in Dallas because suddenly everything's much cheaper and in the case of Colombia It's 27% cheaper now than it was a year ago if you're using dollars So what happens then is that Colombian merchants especially those along border towns suddenly have an influx of dollars making them very happy And momentarily wealthy as everything starts flying off the shelves Meanwhile in Ecuador the country that's on the dollar standard their merchants especially lowest along the border experience a huge drop in sales Meeting right now in the northern sectors of Ecuador. There's a grave financial crisis facing sellers producers and merchants In fact sales are down so much

[04:07] especially in the two border provinces of el Cachi and to Khan that the governor has gone in the media television and press Pleading with the public to act in a more patriotic manner by not going across the border to Colombia and buying their things But to remain in Ecuador and by the national version of the products Yeah, right like up in the states buy American t-shirts and bumper stickers saved the u.s. Rust belt manufacturing Good luck with that Ecuador now in the local Colombian state of a palace the president of the Chamber of Commerce there His name is Nelson Cano He doesn't give a damn about Ecuador and is overjoyed at the prospect of all that new Colombian border town business He says since the peso has been

[04:53] Devaluated 27% over the past year car traffic from other countries into Colombia has increased by 16 to 20,000 cars a day all of them carrying wallets and purses full of US dollars To take advantage of the great exchange rate Which of course should be good news to all the expats and the gonna bees and wannabes who are moving to Colombia and have some kind Of income in dollars pension social security check, whatever and by the way Chile's peso dropped seven point eight percent against the dollar in that period and Argentina's as we know was devalued about 34% in just one year now if you recall many times I've mentioned that international living and a lot of the retirement regs as such have been telling people that go to Colombia and Ecuador

[05:41] Specifically those are the latest big Latin American retirement hotspots Or they're supposed to be and of course if you've been listening to the expat files for any length of time You'll know I've said that real estate has gone way up in those two countries Simply because they're on the international retirement map now and gringos are flooding in with their dollars and Europeans with the euro And it's true in the last year Colombian real estate has gone up from 15 to 20 percent That's for both sales and rentals, but remember we're talking about in the local funny money the peso Meaning if you're bringing in dollars and in the last year their funny money currency the peso in turn took a 27 percent dive Against the dollar in the end It doesn't matter if Colombian real estate has gone up 20 percent to people who have dollars real estate in Colombia is actually

[06:30] Cheaper this year by five to seven percent, but that's only if you're paying in dollars by the way much of Colombian's real estate is priced in dollars though if they want pesos you could always go to the bank and get the best rate and By the way in 2014 the Colombian peso was the world's fourth worst performing currency Right behind the Russian ruble the Brazilian rail and of course the Venezuelan Bolivar That said for now Colombia could be a very nice place to work play and or retire as long as you've got Dollars coming in from an outside source as one long-term expat gringo living in Colombia told me he's got a bar restaurant and hotel Unfortunately, he says he has a local business that depends mostly on the peso

[07:18] He's just been killed this year by currency inflation Like he said, what am I supposed to do raise my prices by 30% year-over-year, for example He said if someone's booked his hotel four to six months in advance He's automatically lost ten or fifteen percent because he's got to guarantee the price and he said his repeat customers are very pissed off Ones that stayed in his hotel a year or so ago come back to find out the prices are a third to fifty percent more Well, you think that's gonna make them happy. Nope. He said because of the devaluation of the peso He's lost a lot of repeat business Remember he says the majority of his business is from locals who pay in pesos now He said that doesn't matter a bit to people coming from outside the country paying in dollars

[08:05] They're always on the winning side of that equation But unfortunately, he says only about five percent of his customers are gringos coming from the US and paying in dollars So the foreigners are happy but the locals are all pissed off So then you might think why aren't there more first world gringos if Columbia is such a hot spot with first worlders now Well, he says Columbia may be popular with gringos But not as pure tourists flying to Columbia for a week or two's vacation is not at all Like flying to Mexico or Costa Rica where you can get a package deal air included for under a grand That's how he explains it He says most of the gringos and Europeans he sees come down are actually looking to buy or rent Not your typical tourists. He adds unlike Costa Rica and Mexico

[08:51] Columbia is not a weekend or a week-long tourist destination for gringos Just way too expensive and he said you always lose a whole day at the front and the back end of the trip Because you've got layovers and connection flights, etc Oh and by the way currency analysts are saying that the Colombian peso has got a ways to go before it levels out In other words, they're predicting a couple of more percent drop at least this year So what does that mean for you? Expect gonna bees and wannabes. It's a good time to get your boots on the ground in Colombia It's cheap right now. And here's a suggestion if you're actually thinking of becoming an expat there Rent first for at least six months even up to a year then wait for that real estate bubble to pop However to hedge your bets in case it doesn't pop for a couple of years

[09:38] When you make that deal with your landlord when you pay six months or a year ahead That's how you get your rent knocked down or get a free month or two. Remember? Anyway, be sure when you pay ahead that you write into the contract that you're locking in the payment for a couple of years So whether you're gonna stay on or not, at least you've got the rent locked in they'll do that In other words, you're locking in a no rent increase clause at the very moment. You sign the contract That way when the Colombian peso gets further De-valuated you won't get hit either way whether you're paying in dollars or pesos and believe me all throughout Latin America Landlords are more than willing to put a no rent escalation clause in especially for gringos because they consider us valued even golden tenants We're the only ones who pay in advance like that

[10:24] In fact get ready to see your prospective landlords eyes bug out when you pull out that cash and offer to pay six months or a Now I've had emails here and there from people thinking that I must be Exaggerating this point a bit because that kind of stuff is unheard of up in the States Just to tap that point home just a little harder. Allow me to read this email I just received recently from our friend captain mango Who you probably remember from the last show was having his banking issues being that he speaks almost no Spanish And he's not a resident in his country of choice in Latin America yet So the banks treat him like well like a perspective international money launderer who wears a superhero's cape And of course, that's due to all that pressure from government jerks up in the States

[11:10] so just listen to this and judge for yourself if what I'm saying about the real estate bubble is exaggeration or not and along the way You'll get an idea how difficult it can be to do banking down here in Latin America if you're not a permanent resident Thanks, of course to the malignant US government and their banking system So anyway, this email kind of kills two birds with one stone the joys of being at the very end of a real estate bubble and What it's like to do banking if you're a non-resident and he starts by saying hey Johnny Here we go again with more banking fun I had managed to get my landlord to reduce my rent from $650 a month to $600 a month by paying two months at a time now that was a little over a year ago

[11:55] Then was further able to get the rent reduced to five hundred dollars after announcing I wish to relocate somewhere on a less busy street then about six months later I got him down to 300 a month by insisting I was unhappy at this location and wish to find a place where I would be able to do Some gardening and I threw in the fact that I was struggling a bit financially at the time now Because I'm a handy gringo. I'm the kind who will replace a faucet if need be I won't call the landlord which goes a long way with a landlord when you're trying to haggle a price down I also must note my landlord is truly a wonderful guy who holds gringos in high esteem And then when the year was up I thought to myself why not try to tighten the screws a bit more

[12:41] And I said to him would you accept three grand for the whole year if I pay it all at once now to me? This represents savings of a cool six hundred bucks more it reduces my rate to about 250 bucks a month now remember at first I was paying 650 and with that offer hanging in the air he said yes, that would be wonderful So I wrote a check for three grand and we proceeded to the bank. I went with him to cash it I know I'm saving him much grief by doing that as the bank is very picky about anyone trying to cash my checks Now my landlord has had issues with these imbeciles too to add further excitement to the mix He unwittingly requested at the bank that approximately half of the cash be converted to the local funny money and the rest in dollars

[13:32] Though inwardly I'm thinking oh, no you dick Cheney head Well never get out of this frickin bank But I remain calm and decide to ride this out because you know he does speak Spanish He's a Latin and I don't of course I have my passport handy and I'm asked to sign the bank of my check Then the teller does some math for the split and figures so-and-so amount in us funny money dollars and so-and-so amount in the local funny money That's when a red flag went up my mind Remembering a US dollar check has to remain in their bank for 15 days before I have access to it Which makes my money stock in dollars only until that time runs out Well now we are at the desk of another bank official She views my passport has me sign at the check a third time

[14:20] Photocopies my passport along with my driver's license from the US and my landlord's ID too of course She can't authorize this gargantuan Transaction without having another someone else at the bank type in a secret password after all this is accomplished a phone call must be Made to the main office to clear this national debt-sized transaction Meanwhile my landlord takes a call on his cell phone Contrary to all the warning signs in and out of the bank now. I'm thinking oh myerda now. We're screwed Predictably an armed guard rushed over all the while. I'm thinking of saying to my landlord. What are you doing you live here? You should know better. You can't use cell phones in these banks if this guy starts shooting. I can't help you You're on your own

[15:05] I've got my bulletproof superhero suit and all you've got is that pirated Nike sweatsuit That's when my mangle vision alerted me to the fact that it was a rusty gun and he had no bullets So I kept my cool and said nothing Meanwhile an entire hour had passed then the lady at the desk has given us a paper That will enable us to do the transaction as requested She gave me a genuine smile and laid a few dozen Unintelligible Spanish words on me followed by those two quasi-english words that all latin seem to know don't worry Which generally means the exact opposite then we were directed back to the original teller Unfortunately, there was a lot of people waiting to see that teller again So as we stood in line another 15 or 20 minutes our teller gets relieved by another brand new unknown teller

[15:56] So we are faced with an unknown teller not quite as bad as starting over But close the teller needs to see my passport driver's permit the paper Authorizing the transaction that came from the desk ten feet away and the check She then takes all this paperwork back to the desk where we just left Both bank employees returned to give us the stink eye. We have now passed the 90-minute mark Money is counted in front of us four times and handed to my landlord who counts it a fifth time Slowly he counts it. Oh so slowly as he is in no hurry For of course, he is latin too and has been programmed to accept appreciate and maybe even enjoy multiple lines and endless weights and mindless Redundancies since birth but wait in this case miracle of miracles a done deal

[16:44] The only redeeming factor I have is knowing I will not have to endure any more of this shit with him for another 364 days and then 364 days from now. My goal is to learn 364 Spanish words nice pleasant words, too I mean come on that's only one a day how hard could that be easy back in Cleveland I knew kids in junior college who didn't know that many American words. How hard could it be yours truly? Captain mango. Well, thanks for that captain. I'm sure there'll be more to come now my take on bank situations When Gringo's are involved is that there are two different rule books for Gringo's and expats one rule book Which is ever so strict and takes ever so long and is ever so frustrating

[17:33] And that's when you're not a resident yet of the Latin country You're doing banking in like for example in the case of captain mango And there's a completely other much more lenient rule book when you're a resident meaning you went through a long drawn-out Process and have that little resident ID card Which pretty much allows you all the rights and privileges of a regular citizen except you can't vote big deal who wants to vote anyway Just like in the states if you vote what you're doing is you're giving the thumbs up to a very corrupt system And I have always preferred to vote with my feet. Thank you very much For example, if you have a permanent or temporary residency card in a Latin country You can go to a bank open a bank account instantly. Well, maybe it will take 45 minutes and

[18:20] Then let's say you deposit 500 US dollars Well since they have multiple currency accounts in most Latin American banks You can leave it in dollars or the local funny money or divide it up your choice Then for example suppose at the end of the month you need some local funny money to pay your water bill or electric bill Whatever now remember unlike the US Latin America is a cash based society So if you're out and about and on the street Little kiosks in Tien Des and stores will mostly take cash and since you're off the gringo tourist trail The local grocery store the Tien Des doesn't take dollars Well in that case you could go to your bank and let's say you want to convert 500 US dollars cash to the local funny money There'll be no 15 day holding period because you are a resident therefore different internal banking rules

[19:07] However, if you do deposit a check from outside the country, there will be a waiting period could be up to 15 days Anyway, if you're a resident and you've got an account and you want to change Let's say $500 into the local funny money You can't just walk up to the teller with the u.s. Do hand them your passport or your residency card and your bank book and say hey Give me this in local funny money Now it used to be that easy up till about a year and a half ago Now what you have to do is hand them the $500 fill out a deposit slip You'll deposit that $500 into your own bank account Passbook checking whatever then you'll have to fill out a retier. Oh, which is a withdrawal slip Calculate the amount of funny money you want to withdraw and yes

[19:53] They'll give it to you right away kind of because an operation like that will take about 10 or 15 minutes Then you'll get your bank book back and you'll see you've deposited $500 and you withdrawn $500 in the local funny money pretty stupid, huh? But that's what you have to go through down here in Latin America now Since the US government and first world banks have forced all third world banks and third world governments to sign FEDCA And know your customer laws in fact down here in Latin America right now There are fewer and fewer banks allowing gringos who are not residents That means you don't have a residence card to open bank accounts even with a lawyer as your co-signer though Luckily, there are still some banks that will allow you to do that Not many though like for example in the case of Captain Mango often

[20:40] You just feel like strangling somebody and by the way a lawyer once told me if you do strangle someone make sure it's someone Who doesn't have a nice car? Because you know the courts in Latin America treat wealthy people with a different set of rules than they do with the poor ones Okay, enough said about that now a few odds and ends here remember I was mentioning Brazil before as a country whose currency took a big dump this year the second least stable currency in the world for 2014 well according to Latin economic analysts Brazil is in its worst economic downturn since the 2008 financial crisis that added with the problem that the country's stock exchange has fallen 26% in the last year the Brazilian real has plummeted 36% against the US dollar in the past year to Brazil has the seventh largest economy

[21:30] And it's the second largest iron ore producer and the world price of iron ore has plummeted 70% since it's high in 2012 need more reasons to scratch Brazil off your list Okay, here's an article that's of great interest that no one's talking about says Bank of America stops wire transfers and US dollar bank drafts to Belize This process has ended Bank of Americans association with a number of Caribbean and Latin American banking institutions The move caught US expats in Belize by surprise and threatens to derail many real estate transactions that involved wire transfers So many foreigners in Belize are scrambling to change banks However, the fear is that soon all US bank branches there will follow suit in other words

[22:18] No more wire transfers to and from Belize. How do you like that? Bank of America calls this action part of a process of quote de-risking unquote Believing that a lot of money that flows in and out of Latin America and Caribbean regions is tainted money So the US Treasury Department along with the Caribbean financial task force Can and do arbitrarily cut off banks they feel might be involved in money laundering now The US Justice Department maintains that the action is not targeting US citizens living overseas necessarily It's just targeting banks that handle tainted money. So the question is who's next, huh? When here's a little piece of an email I got a while back and neglected to read now

[23:07] This is from a guy who has been going to and from Colombia quite a bit He says Johnny. I've seen a few places boom over the last 20 years Vancouver for instance They start out cheap, but in the end they're very expensive I see the same thing happening here in Medellin right now and all the big cities in Colombia part of how you find that out if you're not there for a long time is By people you run into completely by accident who tell you certain things For example, one of the persons I ran into was an employee of Microsoft He says he's scouted Medellin out and he knows just the right places That'll boom and he's certain to return with all his friends who will bring a ton of capital with them And I know Medellin will boom because of other things that are happening there

[23:55] for example There's a new four season hotel and intercontinental and a number of four and five star hotels in the works High rollers need only apply of course all I could say and you'd see it for yourself If you were down here a long time is that the big money has found Medellin the big international money and I'm not talking about drug money and if you're here right now this minute in the country and have Dollars to invest because the peso has taken a big hit this year You can buy in on what's left of the upward slope of the curve, but beware in a couple years It'll be so expensive. It'll be priced out. So I guess that's when to sell Though no one really ever knows where the top of the markets gonna be or if there'll be a quick blowout It's a good bet. It's time to get out if you can make 25 50% or if you're really lucky a hundred percent of your money

[24:45] But is that where you really want to live when prices double? Anyway, if you come on down with dollars now buy and hold you'll surely do well But look out don't put your money on today's cost of living. That's not gonna last just look at Costa Rica It's the blueprint for what's happening down here right now. Love your show signed Larry the loco Okay, Lawrence. Thanks for that on a lighter side. Remember in a show a long time ago I mentioned that there are tons and tons of Chinese restaurants down here, but nobody has fortune cookies Well, I have to take that back now because I actually went to a Chinese restaurant Now I'm talking off the gringo tourist trail now and surprise surprise that restaurant served fortune cookies But get this you don't get them at the end of the meal with your bill and a couple of mints

[25:33] You got to pay for them two stale fortune cookies for a buck now when you open them up They're in a hermetically sealed clear plastic wrap and being it's the third world. There's no expiration date So who knows maybe they're months or even years old You never know and surprise surprise again the fortunes in Spanish on one side and English on the other So they took my advice after all I must have mentioned that four years ago now and finally someone's done it But like I said, they've yet to give them away free like they do in the rest of the world I don't get it But that is a good marketing opportunity for expat gonna bees and wannabes now It's not like there aren't any commonly used particular products down here in Latin America that don't have fortunes attached Remember I mentioned that there's a company called Saba SAB a that produces feminine hygiene napkins that have

[26:23] Fortunes on them. Well predictably I got some emails after that show and people said come on Johnny You're down in Latin America, and we're not how do we know you're not pulling our leg this time anyway? What are you doing messing around with feminine napkins hmm? I guess you got me there well just to back up that story I've got my hot little hands on one of those fortunes right now Did I say hot little hands bad choice of words anyway? When you pull the plastic tab on one of these things underneath is your fortune I can only guess when a Latin lady is ready to use one of these things She could use a little good news or some upbeat humor. Let me read one for you It says and it's all in Spanish of course you understand much more than you appear to

[27:14] Be careful your body language tells all Take nothing, but warm baths this week, and you'll see the difference the next time You're out try going to the bathroom alone and not with a friend yep ladies going pears down here, too Must be a gene for that You've been listening to the expat files living in Latin America coming to you twice a week from somewhere south of the border Email me the expat files at gmail.com and don't forget to check out expat wisdom com To sign up for your free reports on Latin America. See you next time nos vemos