US embassy cable - 03SANTODOMINGO7344

UNCLAS SANTO DOMINGO 007344 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR WHA/CAR, WHA/EPSC, EB/OMA, EB/IFD; TREASURY FOR 
NLEE, RTOLOUI, LLAMONICA 
 
E.O. 12958: N/A 
TAGS: DR, ECON, EFIN 
SUBJECT: DOMINICAN AUTHORITIES REQUEST USG LOAN OF 950M FOR 
CENTRAL BANK DEBT RESTRUCTURING 
 
 
1.  Following is an unofficial Embassy translation of one of 
two letters from Dominican authorities to Treasury Under 
Secretary Taylor requesting USG assistance, received the 
 
SIPDIS 
first week of December.  Copies were faxed directly to 
Treasury and originals have been pouched. 
 
(begin text) 
 
Technical Secretariat of the Presidency 
 
No. 1831       December 5, 2003 
 
Dear Mr. Taylor: 
 
We thank you for the interest that the Government of the 
United States has shown to help us to confront the difficult 
situation the Dominican economy is going through, after the 
fraudulent failure of the largest bank in the system and the 
irregularities at two other banking institutions.  As you 
know, the rescue of the savers (depositors) by the Central 
Bank has had a cost of approximately 20 percent of GDP. 
 
To compensate for credit granted, the Central Bank had to 
emit during this year certificates that reached by the month 
of September the sum of RD$61 billion, that is to say, around 
US$1.97 billion (at the prevailing rate in that month) which 
represents for the year 2004 a quasi-fiscal deficit above 4.0 
percent of GDP. 
 
As we have opportunity to indicate to you on your recent trip 
to our country, we are close to reaching an accord with the 
International Monetary Fund over the measures that we must 
apply to confront this difficult situation, within which is 
found a strong fiscal adjustment to bring the 2004 National 
Budget into surplus, that compensates part of the 
qausi-fiscal deficit of the Central Bank. 
 
Nevertheless, in the Program to which we are agreeing with 
the IMF, the other part of the quasi- fiscal deficit of the 
Central Bank will be financed through the issuance of new 
certificates, since for the moment we cannot commit to 
totally finance this deficit through the National Budget. 
That is to say, the (quasi-fiscal deficit) is larger than 
anticipated in the Program. 
 
As such, even though the Program for 2004 agreed in principle 
with the IMF is financed, it worries us that as of now the 
said financing will be covered through an increase in the 
Central Bank certificates.   By doing this, we are creating a 
snowball.  The problem will get worse with time, and, in 
doing so, the fiscal sacrifice that we will have to make in 
future years will be ever greater. 
 
For these reasons, we repeat our request that the United 
States Government help us structure a long-term international 
economic assistance program in the amount of US$950 million. 
This would allow us to refinance 50 percent of the initial 
amount of the Central Bank certificates, and thus allow the 
fiscal adjustment to be spread out over a longer period of 
time.  This would permit a quick recovery of the national 
economy. 
 
In absence of this long term external financial help, the 
fiscal adjustment that the Dominican Government would have to 
make in the coming years would be of such magnitude that 
would provoke serious economic, social and political 
difficulties. 
 
Sincerely, 
 
(signed) 
 
Rafael Calderon                    Carlos Despradel 
Secretary of State for Finance      Technical Secretary of 
 
SIPDIS 
the Presidency 
 
(end text) 
HERTELL