US embassy cable - 04SANTODOMINGO4719

C O N F I D E N T I A L SECTION 01 OF 03 SANTO DOMINGO 004719 
 
SIPDIS 
 
STATE FOR WHA/CAR AND WHA;NSC FOR SHANNON AND MADISON 
TREASURY FOR OASIA-LAMONICA 
USDOC FOR 4322/ITA/MAC/WH/CARIBBEAN BASIN DIVISION 
USDOC FOR 3134/ITA/USFCS/RD/WH 
DHS FOR CIS-CARLOS ITURREGUI; SOUTHCOM ALSO FOR POLAD 
 
E.O. 12958: DECL: 08/10/2014 
TAGS: PREL, PGOV, ECON, EPET, MCAP, DR, VE 
SUBJECT: DOMINICAN TRANSITION #13: FERNANDEZ TELLS 
AMBASSADOR HE HAS HALF-PRICE OIL FROM VENEZUELA AND 
PROMISES OF DOLLAR LOANS 
 
REF: SANTO DOMINGO 4637 STATE 3749 
 
Classified By: Ambassador Hans H. Hertell for Reason 1.4 (b) and (d). 
 
 1. (U) This is the amplified and corrected version of ref a, 
part of our series on the transition to a new presidential 
administration in the Dominican Republic.  Ten days before 
his inauguration, Leonel Fernandez spoke about his approach 
to the economic crisis and commented on his relations with 
Venezuela's Hugo Chavez. 
 
Lunch with Leonel 
 
(U) On August 6 the Ambassador and visiting Senator Bill 
Nelson (D-FL) attended a lunch hosted by President-elect 
Leonel Fernandez (PLD) at the office of his Global Foundation 
for Democracy and Development (FUNGLODE).  Also present were 
Alfonso Fanjul of sugar manufacturer Central Romana 
Corporation and Alberto Ibarquen, publisher of the Miami 
Herald.  The lunch took place just 10 days before Fernandez 
was to be installed as President. 
 
Rescuing the Economy 
 
(SBU) The President-elect spent much of the time discussing 
the deterioration of the Dominican economy under the Mejia 
administration, 2000-2004.  Fernandez said that he and his 
foundation have been busy while he has been out of office and 
that his administration already has mid-term and long-term 
plans to bring the country back to prosperity and economic 
stability.  He said his initial economic plan involves 
quickly increasing Central Bank foreign currency reserves 
liquidity so it can support the value of the peso, allowing 
him to focus on the longer-term health of the economy. 
 
(C) In particular, Fernandez told his guests, he has several 
commitments that could generate more than 1 billion dollars 
in hard currency inflow for the country.  Foremost among 
these is USD 500 million in investments in the tourism 
industry offered by Spanish companies in return for rolling 
back a proposed tax on hotel rooms.  In addition, Fernandez 
said, he has offers of dollar loans to the Central Bank from 
Brazil (USD 250 million), Venezuela (USD 250 million), and 
Spain (USD 150 million).  Fernandez said he will try to 
negotiate additional loans by governments and private 
institutions. His goal is to raise confidence in the 
Dominican peso, which could then help lower inflation. (Note: 
we heard subsequently that the Spanish companies may come 
through with considerably less, perhaps in the neighborhood 
of USD 200 million.) 
 
(C) In addition, Fernandez said, to provide immediate 
improvement in electricity supply and to build credibility 
with the Dominican public,  he has secured a USD 65 million 
loan from a large national bank to purchase fuel and keep 
electricity flowing as of August 17.  Fernandez admitted this 
was only a band-aid treatment but maintained it would buy his 
administration time to address the electric sector crisis in 
earnest. 
 
(C) When asked, Fernandez said dollarization would eventually 
happen in the Dominican republic.  In the long run, in his 
view, there will only be three world currencies: the US 
Dollar in the Western hemisphere, the euro in greater Europe, 
and the Japanese or Chinese yen in Asia. Dollarization is 
impossible in the short term for the Dominican 
administration. He said he would be labeled as "selling the 
nation" if he allowed the disappearance of a naional currency 
imprinted with portraits of the founding fathers. 
 
Fernandez and Chavez: A Relationship of Dependence 
 
(C) Responding to Senator Nelson's inquiry about relations 
with Venezuela, Fernandez said he finds Chavez charismatic 
but deplores his autocratic tendencies.  He said Chavez had 
considered Mejia unresponsive to allegations of 
coup-plotting, with the result that Chavez's already 
established relationship with Fernandez was further 
reinforced. 
 
(C) The Dominican Republic has long been a market for 
Venezuelan petroleum.  Fernandez noted that one factor in the 
current electricity crisis is the rising cost of fuel for 
generation; another is the fact that the government has 
failed to pay electricity generators and distributors on 
time.  Fernandez said that during his visit to Caracas in 
June, he secured a promise from Chavez of extremely favorable 
terms for oil imports -- a credit line for purchases of 
Venezuelan oil at half the world price, with no payments due 
for six months. 
 
(C) Fernandez said Chavez would face serious problems even if 
he won the August 15 recall referendum.  He said that he had 
told Chavez that this should be Chavez's last term in office. 
 Fernandez agreed on the need for Chavez to tone down his 
rhetoric and to concentrate more on good governance and less 
on image.  Fernandez indicated that he would communicate this 
to Chavez when they next meet.  Fernandez did not expect 
Chavez to attend the Dominican inauguration because of the 
timing of the referendum in Venezuela.  Fernandez described 
Chavez as wanting to emulate Fidel Castro, both in style and 
substance.  He says he told Chavez that he must govern for 
all Venezuelans, not just for the poor, and he reach out to 
business and the economic elites. "Chavez lacks leadership 
skills to move implement his agenda, lacks a plan for doing 
so, and has transformed nothing in Venezuela.  He is Fidel 
without talent, but with oil." 
 
(C) Fernandez says he sees his role as that of an 
international statesman and he offered to be a bridge between 
the world and Venezuela. 
 
The Fragility of a Latin American Mandate 
 
(SBU) Fernandez was keenly aware that he faces problems, even 
though he comes to office with a strong mandate.  He said 
that he understands the high expectations of the people and 
knows that his political honeymoon will not be long.  He 
referred to several other Western Hemisphere presidents 
driven from office because of economic or other crises. 
Fernandez said that he was coming to the presidency at a 
challenging time and that the effort to rebuild the nation's 
institutions could take longer to accomplish than his 
four-year term in office.  He did not expect to not seek 
reelection in 2008 - - unless his party asks him to run 
again. 
 
(SBU) Senator Nelson mentioned the possibility of a reduction 
in Dominican armed forces levels and suggested the United 
States might assist in this process.  Fernandez expressed 
interest in the idea and stressed that the lines of 
communication with the U.S. military would be open. 
 
(SBU) The Ambassador and Senator Nelson spoke to Fernandez 
about the importance of dealing with corruption, port 
security, the U.S. Third Border Initiative, and Dominican 
relations with Haiti.  Senator Nelson stressed to Fernandez 
the importance of naming upstanding diplomats as Ambassador 
and Consuls in Haiti, reminding Fernandez of the significant 
responsibilites of those individuals for legitimate 
cross-border activity. 
 
(C) The Ambassador reiterated his offer for the U.S. Embassy 
to vet the names of candidates for Fernandez's key 
appointments and encouraged him to fight corruption at all 
levels. 
 
2. (U) Drafted by Jay Raman and LtCol Glenn Huber. 
 
3. (U) This report and others in our election and transition 
series can be read on the SIPRNET at 
http://www.state.sgov.gov/p/wha/santodomingo/ index.cfm along 
with extensive other current material. 
HERTELL