US embassy cable - 04SANTODOMINGO2722

UNCLAS SECTION 01 OF 03 SANTO DOMINGO 002722 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR WHA/CAR AND WHA EPSC 
NSC FOR SHANNON AND MADISON 
TREASURY FOR OASIA 
USDOC FOR 4322/ITA/MAC/WH/CARIBBEAN BASIN DIVISION 
USDOC FOR 3134/ITA/USFCS/RD/WH 
DHS FOR CIS-CARLOS ITURREGUI 
 
E.O. 12958: N/A 
TAGS: DR, ECON, PGOV 
SUBJECT: DOMINICAN ELECTION SERIES #43: PLD CANDIDATE 
FERNANDEZ LOOKS TO ECONOMIST INTELLIGENCE UNIT FOR POLICY 
PRESCRIPTIONS 
 
REF: SANTO DOMINGO XX AND PREVIOUS 
 
1. (SBU) This is cable # 43 in our series on the Dominican 
elections. 
 
PLD CANDIDATE FERNANDEZ LOOKS TO EIU FOR POLICY PRESCRIPTIONS 
 
Judging from the consultant company he keeps, PLD candidate 
Leonel Fernandez is anything but a radical in economic 
matters.  Rather than rely exclusively on in-house PLD 
economists -- a small group, some of whom are experienced and 
capable -- he turned at the outset of the campaign to the 
thoroughly orthodox "Economist Intelligence Unit" for policy 
prescriptions. 
 
Fernandez recently provided to us a 113-page study entitled 
"The Dominican Republic: Towards a New Development Model." 
The Democracy and Development Global Foundation (FUNDGLODE), 
headed by Fernandez, contracted the Economist Intelligence 
Unit (EIU) to conduct the study, which was completed in 
January.  The document outlines some of the factors that the 
EIU concluded led to the Dominican Republic's recent economic 
crisis, suggests possible measures to ameliorate the 
short-term consequences, and looks at longer-term solutions 
to improve prospects for sustainable development.  The policy 
prescriptions are largely based on case studies of countries 
that have faced similar challenges.  The guidance looks 
similar to principles the International Monetary Fund applies 
in its programs and argues for greater economic 
liberalization.  Leonel has turned to the EIU for advice -- 
and that the advice he has received appears consistent with 
the our broad policy objectives. 
 
Fernandez founded FUNGLODE as a think tank and research 
center following his presidency (1996 to 2000).  Though the 
organization asserts political independence and claims to be 
non-partisan, Fernandez presides and it is closely identified 
with the PLD. In an April 21 speech at an American Chamber of 
Commerce Luncheon, Fernandez cited the EIU study and said 
that he had circulated it among business leaders for comment. 
 He said that if he were elected, in the first 100 days he 
would convene a crisis-management team to design a plan to 
restore confidence and that Columbia University's Jeffrey 
Sachs and other representatives from Columbia and Harvard 
would be part of the team.  (Sachs spoke at a FUNGLODE 
luncheon last spring that Fernandez hosted.) 
 
Fernandez pointed to South Korea's crisis-management plan 
following the 1997-1998 Asian Crisis, which the EIU study 
presented as an example.  Fernandez said he would soon 
publish the study for broader distribution and invite 
business, religious and other community leaders to discuss 
recommendations.  The EIU's conclusions may provide insight 
into what economic policy under a new Fernandez 
administration might look like. 
 
The EIU recommendations for the Dominican Republic covered a 
broad array of issues and included examples of countries that 
managed short-term crises and of others that made long-term 
adjustments.  Some of the study's short-term conclusions for 
the Dominican Republic can be summarized as follows: 
 
-- Adherence to IMF targets increases access to funds, 
supports investor confidence, provides basis for 
macro-economic stability, decreases vulnerability to shocks, 
and strengthens the domestic banking sector; 
 
-- Re-privatization of national assets provides immediate 
revenue but requires sound regulatory framework. 
 
-- Resolution of economic and social problems must be given 
priority over political motivations. 
 
-- Anti-corruption efforts are crucial. 
 
-- Authorities must educate the public on benefits of cutting 
the public sector and privatizing state assets. 
 
-- A stable and proactive debt-management program should be 
implemented. 
 
-- Energy issues can be tackled through emergency measures, 
increased private sector participation, and establishment of 
strong regulatory framework. 
 
-- The country should strengthen weakened banking systems and 
take advantage of technical assistance to meet international 
standards. 
 
-- A new administration should adopt measures to stimulate 
private sector development to restart the economy. 
 
-- Public relations are important -- a new government must 
establish strong communication channels and a public 
relations strategy for dealing with investors and keeping 
them informed. 
 
The EIU study presents a blueprint for a longer term economic 
model also.  Some of the recommendations include: 
 
-- Encourage competition and phase out subsidies in the 
energy sector; 
 
-- Avoid excessive reliance on free zones and tourism 
enclaves that can distort the economy and concentrate 
benefits that don't help with broader development of 
communities or the country. 
 
-- Liberalize trade and competition by reducing import duties; 
 
-- Diversify crops and adopt country/sector branding; 
 
-- Increase competition and regulatory supervision in banking 
and financial sector and establish risk-based early-warning 
system to identify vulnerable institutions;and 
 
-- Support small and medium-sized enterprises (SMEs). 
 
The report addresses other long-term issues such as 
investment in human capital through improved healthcare and 
social security, poverty reduction, and investment in 
information technologies.  It notes that the Dominican 
Republic has performed poorly in each of those areas. 
 
Compared with the PLD platform -- 
 
The PLD's economic platform, introduced last month, largely 
mirrors the EIU study, while explicitly blaming the ruling 
PRD for upsetting the economic stability and sustained growth 
achieved while Fernandez was President.  The PLD asserts that 
under the PRD there has been increased unemployment, 
accelerated government spending, an unchecked policy of 
internal and external borrowing, and mismanagement of the 
banking crisis, all of which led to "negative performance 
during these last years."  The Party platform lists ambitious 
objectives in broad terms and delineates strategies -- which 
are stated as 
broad objectives themselves, in most instances lacking 
specifics.  The economic platform 
covers macroeconomic policy, the industrial sector, tourism, 
agriculture, and sugar. 
 
Although the PLD macroeconomic policy calls for fiscal 
austerity, tax reform, sustainable 
debt, strict monetary policy, and a market-based exchange 
rate, it makes only veiled 
reference to the International Monetary Fund standby 
agreement. 
 
On trade, the PLD calls for increased competitiveness and 
continuation of the 
competitiveness program initiated under Mejia.  Similarly, on 
tariffs, the platform sets an objective of establishing a 
tariff regimen "adjusted to the situation of openness." 
 
Of possible concern for the multilateral trade agenda, the 
platform calls for renewing the strategic alliances and 
guarding the interests of small economies in all of the trade 
negotiating forums, and reintegrating the country into 
CARICOM's "regional negotiating machinery." 
 
Brain and Heart 
 
Throughout the campaign, Fernandez has sought to convince 
prospective voters through his measured, rational analysis of 
the country's problems. He is thoughtful but not necessarily 
a deep thinker - - rather, a man ready to listen to expert 
advice.  Recent radio spots have sought to rouse more 
emotion, featuring particularly a recording of his 
back-and-forth dialogue with a rally blaming Hipolito for the 
rise in prices of meat, electricity, fuel and transport.  His 
slogan promises that "Progress is returning."  In his 
regional journeys Fernandez has met separately with gathering 
from economic sectors, promising improvements but warning 
them that he will need a year or more to put the government's 
house in order. 
 
Assuming that Fernandez eventually wins the foreshadowed 
victory, he will need both brain and heart -- that is, 
convincing charisma -- to hold the people's faith long enough 
for the orthodox prescriptions to work. 
 
2. (U)  Drafted by Thomas Pierce. 
 
3. (U)  This report and others in our elections series can be 
consulted on our SIPRNET site 
http://www.state.sgov.gov/p/wha/santodomingo/   along with 
extensive other material. 
 
 
 
 
 
 
 
 
 
 
 
HERTELL