US embassy cable - 05SANTODOMINGO1120

UNCLAS SECTION 01 OF 04 SANTO DOMINGO 001120 
 
SIPDIS 
 
STATE FOR WHA/CAR, WHA/EPSC, WHA/USOAS, EB/TPP/BTA, 
EB/IFD/OMA; 
USCINCSO ALSO FOR POLAD; TREASURY FOR OASIA-LCARTER 
STATE PASS USTR FOR VARGO, RYCKMAN, MALITO, CRONIN 
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: PGOV, EFIN, ECON, ETRD, ENRG, DR 
SUBJECT: DOMINICAN PRESIDENT FERNANDEZ REPORTS TO THE NATION 
 
 
1. In the traditional national day speech to the Dominican 
Congress President Leonel Fernandez claimed credit for 
successful economic stabilization in his first six months in 
office and sought to present himself as a knowledgeable 
leader with a vision for modernization and reform. He did not 
touch on partisan politics except indirectly, in references 
to the financial and economic crisis inherited by his 
administration.  In his highly technical presentation 
Fernandez appeared to target international financial analysts 
more than the Dominican public.  He confirmed the need for 
the IMF standby agreement and justified the free trade 
agreement "with the United States" as the best way to 
maintain the nation's export competitiveness.  The President 
made no mention at all of foreign affairs and scarcely 
touched on corruption, although he did stress the need to 
make government institutions perform.  He focused mainly on 
domestic issues -- restoring financial stability and economic 
growth, investing in human resources through improved 
education and health, providing more reliable electricity and 
revamping the police to fight crime and narcotrafficking. 
 
2.  Embassy comment follows septel and on SIPRNET. 
 
3.  Following is our precis in English of the 18-page speech, 
which took more than an hour to deliver. 
 
(BEGIN PRECIS) 
 
NATIONAL DAY ADDRESS BY PRESIDENT LEONEL FERNANDEZ, FEBRUARY 
27, 2005 
 
It is a great honor to be part of a community of free 
citizens. Six months ago when I took office the Dominican 
Republic was in a dangerous situation, similar to that of a 
patient in intensive care. The patient has moved from the 
emergency room, and today finds himself in the process of 
recovery and improvement. 
 
The country has suffered the worst maladies: the highest 
inflation in Latin America, the greatest devaluation of the 
peso in national history, zero economic growth, a fiscal 
deficit, arrears in the payment of external debt, an 
exorbitant increase in internal debts, and, coupled with 
this, an abrupt fall in international reserves. 
 
In summary: decadence instead of progress, disillusion in 
place of hope, sadness and worry instead of happiness and 
optimism. 
 
CHALLENGES AND SOLUTIONS 
 
Permit me quickly to review the challenges we have faced, and 
with your collaboration, the remedies and solutions we have 
found. 
 
Inflation, for example, rose 33 percent from January to 
August 2004, and was projected to reach 47 percent by year,s 
end.  But as the investment firm of Bear Stearns commented 
two weeks ago, inflation actually fell in the last of the 
year and inflationary pressures are under control. 
 
The exchange rate when I took office had risen to 45 pesos on 
the dollar, and the interest rate earlier in 2004 surpassed 
50 percent.  Now it fluctuates in the 28-30 range, a 
strengthening that was unthinkable at the time we assumed 
office. 
 
The new government had to take measures to correct the 
inherited fiscal deficit.  The tax reform raised the 
value-added tax from 12 to 16 percent. We have adjusted the 
excise tax on fuel to compensate for inflation, as well as to 
focus the subsidies on petroleum gas (GLP) on low-income 
consumers. 
 
The administration has put into practice policies intended to 
reduce the fiscal deficit of the public sector. For the 
internal debt, our government has paid arrears of 2.4 million 
pesos. The unemployment rate when we entered office exceeded 
18 percent, a notable increase from our departure in 2000 
when it was 13.9 percent. The minimum wage declined by 28.4 
percent in real terms over the past four years.  Over that 
period another 1.3 million Dominicans fell below the poverty 
line, so that now 3.3 million are poor. 
 
The immediate short-term objective is the recovery of 
macroeconomic stability. Some questioned if a new IMF 
agreement was necessary; it certainly is. The agreement 
provides more than 2 billion dollars for the Dominican 
Republic, and its signature consolidates the confidence of 
economic participants. The government now must restructure 
its external bonds, reprogram debts to commercial banks and 
suppliers, plan for new rescheduling in 2005 with the Paris 
Club, and obtain new financing from private local banks. 
 
With respect to monetary policy, we have eliminated excess 
liquidity. After an increase of 102 percent in 2003, the 
monetary base only rose 1.3 percent last year.  We achieved 
this by employing open market mechanisms. 
 
One of the major problems facing the economy is the 
quasi-fiscal deficit of the Central Bank.  To reduce this 
deficit, the Central Bank is using not only traditional 
instruments, but also an integral strategy including 
innovations in monetary policy. 
 
I recognize that these technical themes are very complicated 
and difficult for most people to understand, but given their 
vital importance to the economy, it is necessary that the 
people listen and appreciate the immense efforts of the 
government to overcome our problems. 
 
Another advance is that investors in Central Bank instruments 
who wish to liquidate their holdings before maturity now can 
buy and sell them in the secondary market of Dominican 
securities, under the same parameters as in international 
financial markets. 
 
This, ladies and gentleman, is advancement. This is progress. 
This is modernization. 
 
The government has a consistent and reliable strategy to 
solve the problem of mounting Central Bank debt. It has 
finally succeeded in applying a tourniquet to the hemorrhage 
that was bleeding white the Dominican people. 
 
GLOBALIZATION AND TRADE 
 
Because of the rise of globalization, the world has changed 
abruptly and radically. Nations that do not transform and 
adapt to these new realities will ultimately fail. John 
Maynard Keynes, the brilliant English economist, noted that 
the difficulty does not lie in adopting new ideas so much as 
discarding the old. 
 
The first great challenge of the 21st century is to construct 
an efficient and modern national state. Without such 
institutions we simply will not exist as a country for the 
international community, or for ourselves. We need a state 
whose institutions and capacities will inspire confidence in 
our citizens and in foreign governments of the entire world. 
 
We will construct a country with efficient institutions and 
responsible officials held to the rule of law. It is also 
essential to redefine a new paradigm of economic and social 
development. Until now, the development model we have 
followed for the past two decades has been characterized by 
labor-intensive production of textiles and garments oriented 
to the U.S. market. 
 
For this administration, there is no dilemma between choosing 
competition or an exchange rate equilibrium. Both are dynamic 
concepts. What cannot be accepted is the use of monetary 
policy as a mechanism to correct structural problems and the 
inability of some sectors of the national economy to compete. 
 
The textile sector should, with the government, work out a 
plan of reordering and restructuring, with the goal of 
producing locally raw materials and intermediate goods that 
are used in the manufacture of finished goods for export.  We 
must create a process of integration of the free zones with 
other sectors of the national economy. 
 
The best way to mitigate the effects of the elimination of 
quotas on apparel is to strengthen our competitive position 
by ratifying the free trade agreement with the United States. 
This commercial agreement will help maintain the employment 
levels in free zone manufacturing. All of our economic 
sectors will go through profound changes as a result of this 
new competition. 
 
MEASURES TO PROMOTE COMPETITIVENSS 
 
Taking this into consideration, we have created the Tourist 
Cabinet of officials and private sector representatives, 
established the National Council of Health and Tourism 
(CONSATUR), and signed a Plan of Tourist Development of the 
Southeast to develop the Perdenales and Barahona regions. 
 
The conquest of the market for tourism by Brazilians has 
begun, and a new Office of Tourist Promotion in Russia is 
targeting Eastern Europe. 
 
The agriculture sector continues to play a fundamental role 
in the national economy, as the principal generator of 
employment for the country and supplier of food. We propose 
to create a permanent Program for the Recovery of Basic Food 
Production; to strengthen sanitary and phytosanitary 
programs; to establish an organized and transparent system of 
farm support to guarantee the proper marketing of products 
such as rice, beans and garlic; and to implement in the next 
two years a Project of Support for the Transition for 
Agricultural Competitiveness. 
 
We will strengthen the credit offerings of the Agricultural 
Bank, promote a national program to refurbish and build 
infrastructure in the rural sector, execute a training 
program for technicians and farmers and promote agricultural 
exports. 
 
The Dominican Republic,s medium- and long-term strategy for 
competitiveness should be oriented toward capital-intensive 
production, based on innovation and modern technologies. 
 
THE DIGITAL FUTURE AND EDUCATION 
 
Jeremy Rifkin, in his book "The Era of Access," noted the 
significance of the "digital divide."  In keeping with this 
reality, the administration is working on reviving our 
project for a Technology Park in Santo Domingo. We have 
concluded an agreement for technology training with the 
Stevens Institute of Technology in the United States and the 
Pontifical Catholic University Madre y Maestra in the 
Dominican Republic. 
 
Considering that the development of human capital is where 
the future of the nation lies, we are making education a 
priority for this term.  We are in process of developing with 
teachers, students, and parents a consensus strategy on 
curriculum and goals for the Dominican Republic.  We aspire 
to quality education and are working to install computer 
labs, community technological centers, community colleges, 
and pilot bilingual education projects in the public school 
system. We have also decided to launch a program, the Young 
University Student Card, which will help students of limited 
means by providing up to 10,000 pesos in 
government-guaranteed credit for university students. This 
program will immediately cover 25,000 students, and 
eventually up to 100,000. The interest rate will be a 
preferential 3.5 percent and the minimum payment term 18 
months. We will create incentives for the private sector to 
hire those students as assistants and interns receiving the 
minimum wage. 
 
HEALTH AND WELFARE 
 
In the public health sector, we propose to vaccinate a 
million babies under a year old; to cover 85 percent of the 
municipalities with high rates of tuberculosis; strictly to 
control malaria, dengue fever, rabies and meningitis; to 
vaccinate 560,000 students against rubella and measles; and 
to provide antiretroviral medications to treat HIV/AIDS. 
 
I am instructing the National Social Security Council to 
develop a definitive proposal to provide health insurance 
coverage to the families of workers inscribed with Social 
Security. 
 
I consider the electricity sector and citizens, security to 
be crucial. The government has addressed electricity with a 
reform plan designed in consultation with the World Bank and 
USAID. 
 
To deal with crime, the government has designed a Plan of 
Democratic Security for the Dominican Republic. This includes 
the institutional strengthening of the police, the 
introduction of community police in areas most affected by 
violence, and police training for dealing with extreme 
situations such as narcotrafficking and natural disasters. 
The police will be provided with vehicles and communication 
equipment, bulletproof vests and helmets, and other tools 
necessary to increase their street presence. 
 
The process of police recruitment will be modernized, as will 
the plans and career programs of the National Police. The 
Directorate of Internal Affairs will also be strengthened as 
a mechanism of control to combat police corruption, and a 
system of evaluation will be established to promote police on 
the basis of merit. A professional system of statistics will 
be designed, to compile a database and map of crime, to have 
real control over criminal activity. A policy of disarming 
the citizenry will be designed to regulate and control 
weapons. 
 
A SANTO DOMINGO METRO 
 
I am aware of other themes of national interest, including, 
for example, the proposal for a Santo Domingo Metro. 
Personally, I value all opinions.  Similar national efforts 
have included Franklin Delano Roosevelt,s New Deal and 
France,s Eiffel Tower, both of which were criticized. 
 
In any case, in countries like ours there are two agendas: 
one, the satisfaction of the basic needs of the population, 
from the pre-modern era; and a modern agenda, according to 
which -- as Rifkin says -- we must enter the world of 
cyberspace and the digital era. 
 
We are compelled to prepare the way to enter the new economic 
world, or we will be condemned indefinitely to remain in 
backwardness and underdevelopment. 
 
Let us not fear the challenges of progress, and whatever 
decision we make on the Metro, let us all get on board the 
train of happiness that will carry us to a future of economic 
development and modernity. 
 
Let,s all go ahead together!  (E, pa, alante que vamos -- 
the PLD campaign slogan) 
 
(END PRECIS) 
 
2. This piece and related items can be consulted on our 
classified SIPRNET site 
http://www.state.sgov.gov/p/wha/santodomingo< /a>       along with 
extensive other material. 
MARSHALL