US embassy cable - 04SANTODOMINGO232

C O N F I D E N T I A L SECTION 01 OF 02 SANTO DOMINGO 000232 
 
SIPDIS 
 
STATE FOR WHA AND EB 
TREASURY FOR OASIS: J.TAYLOR, N.LEE, R.TOLOUI AND L.LAMONICA 
NSC FOR K.MADISON AND H.CRUZ 
 
E.O. 12958: DECL: 01/12/2014 
TAGS: EFIN, PREL, DR 
SUBJECT: GODR PRESIDENT MEJIA ON IMF AGREEMENT 
 
REF: A. STATE 6404 
 
     B. GODR PRESIDENT MEJIA,S JANUARY 5 LETTER TO 
        PRESIDENT BUSH 
 
Classified By: DCM Lisa Kubiske for reasons, 1.5 (b) and (d). 
 
1.  (C)  Summary:  In response to Ambassador,s points drawn 
from reftel A, President Mejia expressed strong support for 
staying the course toward resumption of the IMF standby, 
including maintaining a market-based exchange rate policy. 
He seeks greater flexibility on the part of the international 
financial institutions with respect to payment of arrears to 
Cogentrix, a U.S. independent power producer whose investment 
comes from loans backed by a guarantee from the Interamerican 
Development Bank (IDB).  Continued non-payment of arrears by 
the GODR could derail future IDB lending to the Dominican 
government.  Such lending is a key component of the 
international community,s recovery strategy for the 
Dominican economy.  Thus, Washington agencies should 
encourage the IDB and the GODR (and ultimately the GODR and 
Cogentrix,s creditors) to identify a way out of the impasse. 
 End summary. 
 
2.  (C)  Per instructions (ref A), the Ambassador, 
accompanied by DCM Kubiske, called on Dominican Republic 
President Mejia January 12 to respond to Mejia,s January 5 
letter to President Bush (ref B) by encouraging the GODR to 
stay on course toward resumption of an IMF stand-by 
arrangement, which can result in additional lending by the 
Interamerican Development Bank and the World Bank. 
 
3.  (C)  President Mejia responded that the DR was doing 
"everything" to meet the Fund requirements, and that the 
final piece of legislation, the systemic risk law, was due to 
him for signature today. 
 
4.  (C)  Asked about what he meant by the paragraph in his 
letter regarding (quote) taking measures, controversial as 
they might be in financial circles, for the short-term 
stabilization of the economy (unquote), Mejia said he was 
referring to the coming price increases and tax increases 
required by the IMF program.  Everyone would really have to 
tighten their belts now, he said.    Asked specifically about 
his exchange rate policy, Mejia said the GODR is doing what 
the Fund is asking.  He doesn't like it, thinks the peso will 
weaken significantly, and thinks this policy will be damaging 
to the country, he said.  That notwithstanding, he added, he 
is, in fact, doing what the Fund wants. 
 
5.  (C)  The Ambassador asked what he had in mind by 
requesting US help to encourage the international financial 
institutions to show more flexibility.  Mejia said he wanted 
more flexibility regarding Cogentrix, the U.S. independent 
power producer with an investment in the Dominican Republic. 
Mejia said he didn't want to pay Cogentrix,s creditors when 
the plant was not generating.  We reminded Mejia that the 
creditors had legal rights.  Mejia responded by calling it 
morally wrong for the Dominican Republic to have to pay a 
plant that has been closed for a year.  We explained that 
Mejia,s position could jeopardize the flow of IDB funds to 
the country (given that creditors have had the right since 
November to call the sovereign guarantees on IDB and private 
sector lending, amounting to approximately USD 400 million). 
We encouraged him to share his views with IDB - Enrique 
Iglesias. 
 
Comment and Next Steps 
------------------------------- 
Mejia seemed very pleased with the legislative actions 
supporting the Fund program and was emphatic he would 
continue down the path to resumption of the IMF program. He 
left a strong impression that he is still committed to this 
policy path, with all that this implies ) including allowing 
the exchange rate to be determined by the market. 
 
It appears from this conversation that the GODR and 
Cogentrix,s creditors are at an impasse.  The best hope may 
be for a senior representative of the IDB to meet with Mejia 
to discuss the matter, in search of a way forward; otherwise, 
we may be headed for a train wreck of IDB lending, which 
constitutes a pillar of the international community support 
for the Dominican economy,s recovery. 
 
On January 14-15 Washington agencies will have an opportunity 
to talk directly with Carlos Despradel, Mejia,s Technical 
Secretary and key member of the economic team to get more 
 
SIPDIS 
information and share views.  Despradel understands the 
implications of the situation but has told us repeatedly that 
he has been unable to change the President,s mind on this 
issue.  End comment. 
HERTELL