US embassy cable - 05SANTODOMINGO2751

UNCLAS SECTION 01 OF 02 SANTO DOMINGO 002751 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR WHA, WHA/CAR, WHA/EPSC, EB/OMA; NSC FOR SHANNON 
AND MADISON; DEPT PASS USTR (MALITO, VARGO); WHITE HOUSE 
FOR USTR; 
USCINCSO ALSO FOR POLAD;TREASURY FOR OASIA-LCARTER 
USDOC FOR 4322/ITA/MAC/WH/CARIBBEAN BASIN DIVISION 
USDOC FOR 3134/ITA/USFCS/RD/WH; 
 
E.O. 12958: N/A 
TAGS: ETRD, PREL, PGOV, DR, Dominican Politics 
SUBJECT: DOMINICAN POLITICS #26: CHANGE IN THE WIND FOR 
CAFTA-DR 
 
 
1.  (SBU) Following is number 26  in our series on Leonel 
Fernandez's first year in office: 
 
Change in the Wind for CAFTA - DR 
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For the first time Leonel Fernandez,s administration appears 
to be moving to take an active hand in shaping public opinion 
on the free trade agreement and assuming responsibility for 
negotiating the deals that inevitably must be cut in order to 
get to ratification. 
 
It appears to us that the wind has begun to change.  Over 
months we had been following the grindings of the Senate 
Special Commission on the agreement, huddling frequently with 
its president Senator Alexander Santos.  Last week it looked 
as if all of that had turned to dirt: senators voted a 
resolution on Friday urging that compensatory measures for 
industry be presented by the Presidency, and on Tuesday we 
got a copy of the report on CAFTA made to the Senate by 
Santos, committee: seven pages of rambling narrative that 
concluded with generalities without explicitly endorsing 
CAFTA, and with the recommendation that &under these 
circumstances we recommend opening a space of communication 
with the Executive in order to work out the viability of 
fiscal measures that will permit the country to compete in 
the scenario of free trade set up by CAFTA.8 
 
A Propitious Set of Events 
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The apparent turn is tied to a powerful concatenation of 
events.  First, the IMF team headed by Guy Meredith and Jose 
Fagenbaum came two weeks ago for their first formal review of 
the February 1 standby.  They made well-publicized rounds 
with business, the legislature, and the administration.  When 
they called on the Ambassador, IMF resident representative 
Ousmene Mandeng inquired, just to be sure, whether in fact 
the Dominicans would be bound by the obligations of CAFTA as 
soon as they ratified it.   (Taxes on trade constitute almost 
32 peercent of government revenues).  Yes, we replied; 
nothing could be clearer. 
 
In their public comments the IMF team congratulated the 
administration on hitting the quantitative targets. And they 
explicitly insisted, in private and in public, on the 
Dominicans' binding commitment in the standby to propose a 
major tax reform proposal by the end of June. 
 
The IMF insistence took aback some politicians and business 
interests, but it lends the Fernndez administration 
political cover.  A similar forcing play in December 
concerning passage of a 2005 budget complying with the IMF 
pre-conditions allowed Fernndez to obtain repeal of the 
protectionist tax on fructose drinks without ceding fiscal 
favors to sugar. 
 
Second, the USG invited Fernandez and other presidents to 
Washington May 11-12 to endorse the CAFTA and lobby for it. 
The President and his advisor for public affairs and the 
press, sociologist Carlos Dore Cabral, have carefully shaped 
domestic coverage of the event, and local papers have stuck 
closely to the presidential feed for most of their news. 
This opened with their account of Fernandez,s call on Bill 
Clinton, which strongly hinted that the former president 
would go to bat for CAFTA.  Very little was written about 
Fernandez,s erudite Monday speech to business interests, but 
all of the papers repeated the President,s sound bite in 
extemporaneous remarks afterwards that the country would be 
&ruined8 without the benefits of CAFTA and Dominican 
illegal immigration to the United States would increase. 
 
We have learned that Dore Cabral has asked a respected 
independent local consultant to meet with the presidency,s 
public affairs people to outline to them the principal issues 
in the tax reform.  Secretary of Finance Vicente Bengoa met 
formally on May 10 with the affluent Council of Private 
Entrepreneurs (CONEP) and assured them, &Our differences 
with you over compensatory measures mostly concern form, not 
substance.8  And Frederic Emam-Zade, the economist 
provisionally heading Fernndez,s Fundacion Global, turned 
to the Embassy,s Franklin Center Reference Library for 
background material on CAFTA; he was delighted at the 
quantity and quality furnished and commented that he would be 
putting it on a CD &for Leonel.8 
 
A turn with the U.S. leadership 
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Third, and most symbolic for a country so close to the United 
States and so far from God, Leonel Fernandez has now been to 
the Oval Office.  The friendly reception by the United States 
President can give Fernandez the clout and the spiritual lift 
he really needs in order to confront the difficult fiscal and 
political interests tied up in CAFTA, tax reform, and the 
opposed interests of the monied elites and the citizenry. 
Fernandez has done CAFTA proponents in the United States a 
service, and in return he has come away fully recognized as a 
partner in the hemisphere.  Our interest is now in seeing 
Fernndez move, after these many months of generalities, to 
take on this dossier personally and directly after his return 
to Santo Domingo today.  He is unlikely to finish the job 
quickly or before the U.S. Congress finishes its own 
deliberations, but he now has the authority to deal with 
CAFTA. 
 
2. (U)  Drafted by Michael Meigs 
 
3. (U)  This piece and others in our series are available on 
our classified SIPRNET website 
http://www.state.sgov.gov/p/wha/santodomingo< /a>  along with 
extensive other material. 
 
 
 
 
 
 
 
 
2.  Drafted by . 
 
3. (U)  This report and other reporting series are available 
on our SIPNET site at 
http://www.state.sgov.gov/p/wha/santodomingo/   along with 
extensive other material. 
HERTELL