US embassy cable - 04SANTODOMINGO5952

C O N F I D E N T I A L SECTION 01 OF 05 SANTO DOMINGO 005952 
 
SIPDIS 
 
DEPT FOR WHA, WHA/CAR, WHA/EPSC, WHA/OAS; EB, EB/IFD/OMA, 
EB/TPP/BTA; 
WHITE HOUSE FOR USTR; NSC FOR SHANNON AND MADISON 
LABOR FOR ILAB; USCINCSO ALSO FOR POLAD;TREASURY FOR 
OASIA-LCARTER 
USDOC FOR 4322/ITA/MAC/WH/CARIBBEAN BASIN DIVISION 
USDOC FOR 3134/ITA/USFCS/RD/WH; DHS FOR CIS-CARLOS ITURREGUI 
 
E.O. 12958: DECL: 06/04/2014 
TAGS: ETRD, PGOV, EFIN, DR 
SUBJECT: DOMINICAN PRESIDENT ON CORRUPTION, FREE TRADE 
AGREEMENT, REGIONAL POLITICS, FINANCES 
 
REF: SANTO DOMINGO 5779 
 
Classified By: Ambassador Hans H Hertell.  Reason:  1.4 (a) and (d). 
 
1.  (C) Summary.  Dominican President Fernandez asked on 
October 21 for USG help in addressing corruption issues.  He 
told the Ambassador that he remains strongly in favor of the 
free trade agreement (FTA).  He gave the sugar sector an 
opportunity of "only three weeks" (until sometime the week of 
October 25)  to use his letter to President Bush to seek 
review of their complaints. A day later Foreign Minister 
Morales Tronocos said Fernandez would choose one of several 
domestic approaches to persuade sugar interests to drop their 
opposition to the FTA. Fernandez is seeking support for 
former president of El Salvador Francisco Flores for the post 
of OAS Secretary General. Dominicans were about to sign a 
deal in which Venezuela will provide long-term financing for 
25 percent of the value of petroleum purchases.  Fernandez 
sought USG help to design action plans to fight corruption 
and illegal narcotics.   End summary. 
 
Anti-Corruption: the Original Purpose of the Meeting 
 
2.  (C) During a lengthy meeting with the Ambassador and 
senior staff on October 21 Dominican President Fernandez 
touched on free trade, security issues, and the effort to 
choose a new OAS Secretary General.  He had convened the 
meeting to address the general problem of corruption. The 
President discussed at length his analysis of the culture of 
corruption in the Dominican Republic, including contributing 
factors, and asked for USAID help in reinforcing 
administrative systems, putting together a public outreach 
effort, and putting together an action plan to address the 
problem.  He asked USAID Director Elena Brineman to work 
closely with presidental chief of staff Danilo Medina, since 
Medina coordinates cabinet efforts on institutional reform. 
 
3. (C) When the Ambassador raised the issue of the well-known 
military practice of skimming 10 percent or more on 
contracts, Fernandez replied: "That goes beyond my ability to 
intervene.  If a Latin American president interferes 
seriously with those types of military matters, he risks 
getting shot."  Fernandez said that his decree retiring 99 
generals within the first month of the administration had 
already caused him difficulties.  His intelligence services 
had told him of threats of assassination.  He said he 
believes that the recent violence may be due in part by 
agitation by forces hostile to him. 
 
Crime 
 
4.  (C) Fernandez spoke of his concern about the spread of 
narcotics and associated violence, attributed to flows from 
Colombia and Haiti.  The border area had become a "no man's 
land, like Eritrea or Bangladesh, or another galaxy entirely. 
 Seizures had not increased even though trafficking had. 
Worst affected by associated violence were the very poorest 
Dominicans.  Fernandez suggested that he might ask attorney 
"Vincho" Castillo to take a newly created post as Advisor for 
Anti-Narcotics and Anti-Gangs. 
 
5.  (C) The Ambassador expressed strong misgivings about 
Castillo (see reftel), recalling repeated recent accusations 
from "Vincho" that the Ambassador and U.S. government had 
been improperly intervening in the prosecution of Ramon Baez, 
charged of massive fraud in the 2003 Baninter failure. U.S. 
agencies would have to discuss the matter; his initial 
response was that for such an important post the USG would 
need a person not only knowledgeable but also willing to work 
with the Embassy.  The President did not insist on Castillo 
and asked for suggestions of names of candidates with whom 
the Embassy could work. 
 
6.  (C) In this connection Fernandez recalled the case of 
Guido Gomez Mazara, legal advisor to Hipolito Mejia.  The 
administration is watching Gomez closely, he said, and 
Fernandez knows that the Embassy's refusal to work with him 
was justified.  Gomez is provocative and immature, he 
commented, and he does have links with the underworld. 
 
Brooke/620Q Arrears and USG sanctions 
 
7.  (C) The Ambassador advised the President that as of 
October 15 the Dominican Republic is more than one year in 
arrears on certain bilateral debt payments, a situation which 
under U.S. law is the basis for suspension of most bilateral 
assistance programs.  The Embassy notified Technical 
Secretary Temistocles Montas of this in writing on October 
 
SIPDIS 
18, providing a detail of unpaid payments triggering arrears. 
 The cumulative amount through the end of 2004 will be 
approximately USD 23 million.  Fernandez was dismayed and 
said he would consult with the Technical Secretary. 
 
"I'll Go 100 Percent to Keep DR in CAFTA" 
 
8.  (C) When the Ambassador raised with Fernandez the lack of 
congressional response to the President's request to repeal 
the 25 percent protectionist tax on fructose-sweetened 
drinks, Fernandez reaffirmed his intention to overcome sugar 
sector opposition. 
 
9. (C) The Ambassador began by describing to the President 
Washington's great concern that the 25 percent tax had not 
yet been repealed. All knew this tax was a tactic used by the 
Dominican sugar interests to preserve their privileged 
position in the economy, dating back 450 years.  The 
Ambassador warned the president that it was a losers' 
initiative -- akin to a protectionist measure barring 
computers as a means of protecting, say, typewriters.  Worse, 
the uncertainty about Dominican intentions caused 
postponement of a CAFTA-DR ministerial meeting on the 
environment and now meant that the country is not included in 
other activities designed to prepare for CAFTA coordination 
and implementation, such as some trade capacity building 
programs.  The challenge to Fernandez was how to turn this 
situation around and show leadership.  When, he asked, was 
the last time before August that the Dominican Republic had 
signed an agreement at the White House? 
 
10. (C) Fernandez replied emphatically, in English, "You 
don't have to convince me.  You are preaching to the 
converted." He acknowledged making a mistake of inattention 
in sending the repeal proposal to the Senate, where the tax 
package had just been approved despite sharp debate over the 
25 percent tax.  (Senate President Andres) "Bautista does not 
control the Senate on this issue. (Sugar concern) Central 
Romana has it blocked.  They and their Washington lawyers are 
telling senators that Congress has until March to 
reconsider." 
 
11.  (C) The Ambassador strongly dismissed that 
interpretation.  Fernandez continued, "I gave them three 
weeks -- told them that I would not back them, but I would 
sign their letter, so they could try one last effort to have 
their case heard, but that three weeks runs out next week." 
He outlined the sector representatives' argument that they'd 
been excluded in the last hours of negotiations, despite 
earlier assurances that sugar would not be included in the 
agreement.  "The U.S. should have the flexibility at least to 
listen to them -- not to make any promises, but at least to 
listen."  He warned that sugar interests were moneyed and 
powerful -- employing "the man with the suitcase" (bribery) 
to influence congressmen. 
 
12. (C)  The Ambassador stressed that the U.S. interest is 
exactly the same as Fernandez's and the same as that of the 
Dominican Republic. Fernandez replied, "I know that.  My 
position has not changed.  I said it in Santiago -- I will 
not allow the interests of the country as a whole to be held 
hostage to a single sector.  But this is a democracy, and I 
am president of the whole country.  I cannot simply exclude 
the sugar interests.  All I am asking is for them to be given 
an opportunity to present their case.  That would not 
endanger the agreement.  They are saying that a technical 
error was made.  I will reactivate our efforts next week. 
There is no ambiguity or ambivalence in my view. I will 
defend the free trade agreement and serve as a channel of 
communication.  That is what a president should do." 
 
13.  (C) The DCM commented that the Embassy had heard the 
sugar sector's arguments, which held nothing new; USTR's 
account of the talks differed from their allegations. The 
Ambassador stressed that the sides had spent more than 18 
months mutually clarifying views.  "Listening is important," 
replied the President.  "If one doesn't listen, the people 
will go into the streets." 
 
14.  (C) The Ambassador challenged him:  "How far would you 
be willing to go to save this agreement?"  Fernandez replied, 
"One hundred percent.  This is the top priority for the 
country and for the government.  Sara Lee Corporation called 
on me -- they told me they were holding up an investment of 
USD 80 million because of the uncertainty about the 
agreement.  And how can we obtain technology transfers 
without an agreement?  If you know, tell me!" He said that 
lawyers for Central Romana were saying that USTR Zoellick 
would be leaving in January and was no longer part of the 
equation. 
 
15. (C) "The best for your country," said the Ambassador, 
"would be to seize the moment and ratify now.  Get ahead of 
the Central Americans."  Fernandez replied that in a 
democracy, a leader cannot do just what he likes; he first 
must lead public opinion. 
 
OAS Secretary General 
 
16.  (C) Reviewing the search underway for a new OAS 
secretary general, President Fernandez said that he had told 
 
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Francisco Flores of El Salvador to visit the CARICOM 
countries for support.  Fernandez had already spoken to 
several CARICOM heads of state or government on his behalf. 
CARICOM wil meet in November.  Venezuela was violently 
anti-Flores, he commented, because Flores had recognized 
Carmona in the short-lived overthrow of the Chavez 
government.  Venezuela was pressing the CARICOM states, but 
the Venezuelans had not approached the Dominicans on the 
subject. 
 
17.  (C) Brazilian ex-president Cardoso might be a candidate, 
said Fernandez, although Brazil had recently held the 
Secretary General position; and perhaps "Lula" might like to 
 
SIPDIS 
have Cardoso out of the country.  Fernandez's second choice, 
after Flores, would be Insulza of Chile, who was prestigious, 
a known academic, and former foreign minister.  Fernandez 
considers that Central America, as a block, will not support 
Flores because of border differences with Honduras. 
 
18.  (C) As for Flores, Fernandez knows him well, considers 
him a good candidate, serious and intelligent. 
 
IMF and IFIs 
 
19.  (C) Fernandez expects to sign a letter of intention with 
the IMF in November.  "Then," he said, "It will be like 
dominos, each one falling into place -- the IMF, the Paris 
Club, and the rescheduling of the sovereign bonds." 
Bondholders have already formed a committee, with the 
assistance of Morgan Stanley.  Venezuela will provide 
long-term financing for 25 percent of petroleum sales, an 
arrangement that will help meet the problems in the 
electricity sector. 
 
20.  (C) As for electricity, he said, contracts wth 
generators must be reviewed and revised.  He spoke with some 
annoyance about the continuing obligation to pay COGENTRIX 
some "USD 5 million a month" whether or not it was 
generating.  He has asked for contractors to do a study of 
the prices of electricity generation across Latin America; he 
says that due to bad contracts, the Dominican Republic faces 
higher rates than anywhere else in the hemisphere.  He is 
well aware that the COGENTRIX financing package is structured 
so that default by the government would trigger up to USD 400 
million in sovereign loan guarantees. 
 
21.  (C) USAID Director Brineman mentioned the plan for the 
electricity sector currently in development, shortly to go to 
Fernandez.  "We need to find USD 20 million a month, just to 
survive," the President commented.  "Tariff rates cannot go 
up; that would just encourage more theft and evasion. 
Generators say, 'raise the tariffs' -- we need to restructure 
the grid."  Fernandez finds that the eastern region (EDESTE) 
has excess capacity, while the north (EDENORTE) is 
underserved by "monopoly" Smith and Enron near Puerto Plata, 
which "charges for 180 megawatts, even though they don't 
produce more than 135 megawatts."  Fernandez said he is very 
interested in getting a brief on the USAID plan -- "because 
USAID is the most independent advisor we have." 
 
22.  (C) The cooking gas supply situation is acceptable, 
Fernandez said.  Subsidies have been reduced by 3 percent so 
far by eliminating subsidies on deliveries to industry.  The 
cut should be 25 percent, said Fernandez, as we work our way 
through the chain and target them correctly.  The project to 
issue cards to qualified household consumers is moving and 
wide distribution should be underway by December, with the 
prospect of finishing it by March. 
 
23.  (C) Fernandez said that further possibilities to help 
restructure the electricity sector could include the two new 
coal-fired generating plants available in Houston.  Mergers 
of distribution companies might be a possibility, and there 
are three pilot projects now for wind-powered generation. 
 
COMMENT 
24.  (C) Fernandez was solo as he met the Ambassador, DCM, 
USAID Director and EcoPol counselor.  At one point he stepped 
out of the room to get a pad with which to make notes.  As 
always, he was thoughtful, well spoken, and conceptual in his 
aproach.  He left some stark uncertainties, however -- not 
specifying, for example, just what he intends to do to 
promote the free trade agreement once the apparently 
arbitrary three-week delay for sugar action is finished.  He 
described the sugar sector's ability to block but did not 
suggest how this could be overcome.  (The next day in 
conversation with the Ambassador, Foreign Minister Carlos 
Morales Troncoso, himself an ally of the sector, suggested 
that there were "three approaches, all domestic" that might 
persuade sugar interests to drop their opposition to 
repealing the protectionist tax.  Morales declined the 
Ambassador's invitation to be more specific.) 
HERTELL