US embassy cable - 03SANTODOMINGO7342

C O N F I D E N T I A L SECTION 01 OF 03 SANTO DOMINGO 007342 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR WHA, WHA/CAR (MCISAAC), WHA/PPC; DEPT PASS USAID 
 
E.O. 12958: DECL: 12/05/2008 
TAGS: PGOV, PREL, EFIN, ECON, DR 
SUBJECT: AMBASSADOR MOBILIZES DIPLOMATIC INITIATIVE AGAINST 
DOMINICAN FRAUD AND CORRUPTION 
 
 
Classified By: DCM LISA KUBISKE.  Reason: 1.5 (b) and (d). 
 
1.  (SBU) Summary.  On December 2, the Ambassador urged eight 
ambassadors of the OECD "Dublin Group" of the need for strong 
coordinated action against banking fraud and corruption. 
Ambassadors agreed on the poor state of the economy, the need 
for free and fair presidential elections, and the ability of 
the diplomatic community to make an impact.  The group 
decided that joint public calls would draw attention to 
international concerns and help the Dominicans help 
themselves.  They agreed to call jointly on the Central 
Election Board (JCE), Friday, December 5.  End Summary. 
 
2.  (SBU) On December 2 the Ambassador hosted a meeting at 
the Embassy to discuss Dominican bank fraud cases 
(particularly the Baninter case) and the financial downturn 
in the Dominican Republic.  Ambassadors to the Dominican 
Republic from Canada, The United Kingdom, Italy, France, 
Germany, The Netherlands, Spain, and Japan attended, along 
with the EU ambassador and Embassy Santo Domingo's DCM, USAID 
Director and EcoPol Chief (hereinafter, Group).  The 
discussion quickly turned to the general state of the economy 
in the Dominican Republic with all members agreeing that the 
financial crisis was brought on in large part by the massive 
bank fraud in the Baninter case as well as other bank 
failures (Bancredito and the expected failure of Banco 
Mercantil).  Opinions were varied on what, if anything, the 
Group could do to assist the Dominicans in their plight. 
 
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Economic Questions and Comments 
-------------------------------- 
 
3.  (C) EU ambassador Miguel Amado inquired about the 
November 21-22 to Santo Domingo  of U.S. Treasury Under 
Secretary John Taylor. Canadian Ambassador Adam Blackwell 
 
SIPDIS 
gave an account of measures taken that day by President Mejia 
to stabilize the currency exchange rate (septel) and 
commented that the underground economy may total 20 per cent 
of GDP. Spanish Ambassador Maria Jesus Figa Lopez Palop 
commented that one way to deal with the crisis is simply not 
to deal with it at all, but to let nature take its course. 
 
4.  (C) The U.S. delegation provided an overview of U/S 
Taylor's trip and commented on the status of the IMF 
negotiations.  After some debate and acerbic comment, 
especially from the French Ambassador Jean Claude Moyret, all 
members of the Group concluded that the Dominicans are on the 
path of meeting IMF conditionality and staying on track so as 
to benefit from IFI financing. The Group is concerned about 
the possibility of political destabilization during a period 
of austerity. 
 
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Politics and Elections 
------------------------ 
 
5.  (SBU) The Group agreed that a joint visit to the 
Elections Board (JCE)  would make a strong statement to the 
GODR and the public that the international community is 
engaged and will be watchful during the 2004 Presidential 
elections.  First proposals were to do this on December 5; 
subsequently, due to unidentified scheduling difficulties 
(and probably because of the unavailability of the U.S. 
ambassador next week) the call was set for December 15. 
 
6.  (C) British ambassador Andrew Ashford, seconded by the 
German ambassador, made the point that individual missions, 
as well as the Group as a whole, should remain engaged in 
promoting fair elections throughout the  campaign.  He 
proposed that the Group meet each of the three major party 
candidates to stress this message. Some members hesitated on 
contacts which might be seen as overtly political, but the 
Group did agree that continued involvement was key. All 
favored meeting jointly during the transition period with the 
eventual winner of the election. 
 
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Back to Baninter and the other Banks 
------------------------------------- 
 
7.  (C) The Ambassador returned the discussion to fraud and 
failures at Baninter, Bancredito and Banco Mercantil.  German 
Ambassador Eva Kendeffy said that the Central Bank had 
guaranteed repayment of USD 20 million that Germany had 
contracted through Baninter for loans to small and medium 
sized businesses.  The Germans doubt the return of these 
funds any time soon, given the Central Bank's lack of funds. 
A number of contact clauses were broken by Baninter in regard 
to the funds.  The USD 20 million was not used in the manner 
stipulated in the agreement and the Germans were not 
officially notified when Baninter began liquidation 
proceedings, also a requirement under the contract. 
 
8.  (C) Spanish Ambassador Figa Lopez Palop said that Spain 
had no interest in the bank and, therefore, it was not of any 
concern to her country.  She did comment that "(Arturo) 
Pellerano now has to be considered, along with a third bank." 
(Note: Pellerano was the President of Bancredito. Fraud 
charges against him are being reviewed by the Attorney 
General's Office (septel).  The "third" one is Banco 
Mercantil. No charges have been made against its executives, 
but the business community is expecting them.  End Note.) 
Both British Ambassador Andrew Ashcroft and Dutch Ambassador 
Rasha ter Braack also said that the greater concern is the 
number of banks that have been or are in trouble.  British 
Ambassador Ashcroft tried to find the bright side in the 
dismal banking situation: "Without Baninter there would be no 
IMF (loans and conditionality), so some good has come out of 
Baninter." 
 
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Strikes and Civil Unrest 
-------------------------- 
 
9.  (SBU) The Dutch, Spanish and German ambassadors raised 
the prospect of further strikes and possible civil unrest if 
the economic fortunes of the country do not turn around. 
Press reports on December 2, said that a second general 
strike toward the end of January is possible.  The German 
ambassador commented that the German press widely covered the 
last strike (November 11), resulting in hundreds of calls to 
the German Foreign Ministry about the safety of relatives and 
friends vacationing here.  ("Most of the Germans were 
probably, "in Punta Cana and did not even know of the 
strike.")  British Ambassador Ashcroft noted the recent 
floods, increase in the price of gasoline and shortages of 
propane cooking gas, could prompt further protests. 
 
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The Group's Agenda 
------------------------------- 
 
10. (SBU) Pondering further action, members of the Group 
proposed other visits in addition to the trip to the JCE: one 
to the civil society 'Elections Monitoring Group" chaired by 
Msgr Agripino Nunez to discuss elections; one to the 
Dominican association of bankers for information on the 
financial climate; and a separate discussion of bank fraud 
with Finance Minister Rafael Calderon, Central Bank Governor 
Lois Malkum, Technical Secretary to the President Carlos 
Desperdel, and Superintendent of Banks Julio Cross.  These 
visits and meetings have not been scheduled, but the Group 
seemed to be aiming for after the holiday season. 
 
 
11.  (U) Ambassadors of the Group thanked Ambassador Hertell 
for his initiative in hosting the meeting.  They complimented 
him on the timeliness of discussing the economic and 
political events currently taking place in the nation. 
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Comment 
------------------------------- 
 
12.  (SBU) Comment.  The response of the senior diplomatic 
community to the Ambassador's invitation was encouraging, as 
was the frankness of the discussion.  A united diplomatic 
front of leading developed nations calling on the Electoral 
Board, the banking sector, and  civil society will advance 
U.S. goals for promoting democracy and good governance. The 
Dominican press will certainly publicize the initiatives. 
 
13.  (C) French Ambassador Moyret was by far the most 
pessimistic of the group -- "There is no way to stop the 
disaster" and "IMF loans will not be enough, four times the 
amount of the loans will be needed."  Canadian Ambassador 
Blackwell and EU representative Amado were engaged and 
verbal, advocating early, visible action. Spanish Ambassador 
Figa Lopez Palop was outspoken but  fatalistic.  Japanese 
Ambassador Okamoto sat stoically through the two hour meeting 
saying not one word. 
HERTELL