US embassy cable - 05SANTODOMINGO3229

UNCLAS SECTION 01 OF 02 SANTO DOMINGO 003229 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR WHA, WHA/CAR, INR, EB/IFD/OMA; 
NSC FOR SHANNON;USCINCSO ALSO FOR POLAD;TREASURY FOR 
OASIA-MAUREEN WAFER; 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, ENRG, ETRD, DR 
SUBJECT: DOMINICAN PRESIDENT ANNOUNCES LPG SUBSIDY TO 
CONTINUE, COUNTER TO AGREEMENT WITH IMF 
 
1.  In a dry presentation broadcast over the government,s 
television station late on June 14, Dominican President 
Leonel Fernandez announced the continuation without change of 
liquid propane gas (LPG) subsidies of 17.29 Dominican pesos 
per gallon (about USD 60 cents).  Those benefiting are 
households and public transport providers, mainly taxis and 
mini buses.  The announcement of the decision came as little 
surprise following several weeks of posturing by all 
concerned, including cabinet members, comments in early June 
that the president himself would be making the decision. 
 
2.  This was a concession to the loud public demands to 
continue the subsidy but it was also an inevitable pragmatic 
choice. Fernandez commented during his short televised 
address that continued use of LPG by public transport offers 
environmental benefits, but the reality of the statistics and 
deliberations he described was that right now there is no 
feasible way of targeting the subsidy more closely.  This is 
because there is no system in place that will stop the 
transport operators from getting hold of LPG distributed for 
household use.   The government has been working to set up on 
a system of  debit cards for the poorest households to 
provide modest subsidies for food, education and cooking gas, 
the project is not yet complete.  Only 75,000 cards have been 
issued of the planned 200,000. 
 
3.  In accordance with the IMF agreement the government had 
eliminated the subsidy for industrial users in November of 
2004.  The agreement was to refocus the LPG subsidy on only 
the poorest families, eliminating it altogether for other 
households and for the transportation sector.  In his 
relation of "discussions" of the topic, Fernandez said that 
the government had achieved some agreement that households 
would suffer unduly from a cutoff of the subsidy at this time 
(he tactfully did not state that the "discussions" had been 
with the IMF staff).   In his speech, Fernandez indicated 
that among government concerns were that the drivers using 
LPG are not passing along the benefit in the form of lower 
fares. Earlier comments by administration officials had 
stressed that the transport sector was absorbing 40 percent 
of the total LPG subsidy.  LPG-fueled vehicles charge the 
same fares as those fueled by gasoline.  A data chart 
presented during Fernandez,s address showed the calculation 
that the subsidy RD Pesos 19,300 per driver per year, or 
about USD 670, based on 40,000 drivers using LPG in their 
vehicles. 
 
4.  Fernandez stated that to prevent cross-use by vehicles of 
LPG destined for households, expensive investment in 
infrastructure would be required, as well as the contracting 
of inspectors.  He indicated that the government has not 
reached a point where this can be implemented. 
 
5.  In addition to the technical problems of limiting 
subsidized-gas distribution to the poorest families, an 
additional condition came to light.  Fernandez said that 
recent studies by a university institute and by UNDP 
indicated that of 182,000 families identified as living in 
conditions of extreme poverty, a large number do not use LPG 
at all but rather burn wood or coal for household fuel.  In 
short, the households receiving the subsidy include the 
middle class -- a reality that Fernandez explicitly 
acknowledged. 
 
6.  IMF Resident Representative Ousmene Mandeng (please 
protect) commented before Fernandez,s Tuesday announcement 
that he was expecting continuation for some period of time of 
the current level of LPG subsidies.  He added that the 
Dominican Republic,s better than expected macroeconomic 
performance this year made the disregard for standby 
commitments on cutting subsidies less damaging than it 
otherwise might have been. 
 
7.  While the Dominicans are probably off the hook with the 
IMF for now, the writing was on the wall during Tuesday,s 
announcement that the days of the LPG subsidy are numbered. 
Fernandez indicated that the government still plans the 
gradual elimination of the LPG subsidy for all but the 
poorest households.  He underlined this by saying that it 
does not make sense for the government to continue 
subsidizing the transport sector or any but the poorest 
households in the long term. 
 
8.   Drafted by Stephen Wheeler 
Hertell