US embassy cable - 05SANTODOMINGO4653

UNCLAS SECTION 01 OF 04 SANTO DOMINGO 004653 
 
SIPDIS 
 
STATE FOR WHA, WHA/CAR, WHA/EPSC, INR/IAA, EB/ESC/IEC/EPC; 
STATE PASS USTR FOR VARGO, MALITO, AND HAUDA; 
NSC FOR LATIN AMERICA ADVISOR; USSOUTHCOM ALSO FOR POLAD; 
TREASURY FOR OASIA-MAUREEN WAFER; USDA FOR FAS; 
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: ECON, ETRD, DR, EPET, EFIN, ENRG, PGOV, Dominican Politics 
SUBJECT: DOMINICAN POLITICS II #1: LEONEL'S GRAND NATIONAL 
CONSULTATION 
 
 
1. This is the first in a series of political reporting on 
the second year of the 
administration of Dominican president Leonel Fernandez. 
 
LEONEL'S GRAND NATIONAL CONSULTATION 
 
Over the weekend of October 9-10, with a hastily organized 
grand national seminar Dominican 
President Leonel Fernndez sought to move the nation's eyes 
from its long economic plight to 
the prospects and requirements of economic recovery based on 
dialogue, consensus and social 
responsibility.  "This has been memorable," he told 
participants at the end of the two days 
of nationally televised sessions.  "This is not a new type of 
academic encounter; it is an 
effort to elaborate a plan, jointly and through consensus." 
 
This was the same approach that the President had used on tax 
reform, electricity reform, 
and anti-corruption: he put himself before a room full of 
eloquent and informed individuals 
with interests to defend and asked them to recognize the 
national interest in addition 
to their own.  He asked them to help the country undertake a 
"titanic transformation." 
 
Opening speaker Technical Secretary Temistocles Monts called 
for "a consensus, not 
conflict, for a social pact" along the lines of Spain's 
Montcloa Pact 28 years ago, an 
accord to pursue the national interest with policies that are 
anti-inflationary, restrictive 
of spending, education-minded and willing to embrace reforms 
of tax structures. 
 
Organization of the event was hasty and slipshod, especially 
considering that the announced 
objective was inclusiveness and consensus.  Fernndez gave 
his staff two weeks to put it 
together. Invitations were dated October 4 but arrived to 
surprise most participants, 
including this Embassy, late on Friday, October 8 for 
sessions opening the next morning. 
The opposition PRD said its leaders had already made plans; 
only President of the House 
of Representatives Alfredo Pacheco appeared, attending the 
Saturday morning session. 
Fernndez's Commissioner of Insurance, venerable PLD leftist 
Euclides Gutierrez, made 
no secret of the fact that senior government officials were 
obliged to be there. 
 
The audience of several hundred represented most of the 
country's political and economic 
elites from government, the private sector, political 
parties, civil society, the 
diplomatic corps and international financial institutions. 
 
The themes that emerged were not new.   Off-the-shelf 
presentations, lectures and Q&A 
sessions outlined macroeconomic and financial problems, the 
Dominican Republic's lack 
of international competitiveness (102 out of 117 ranked by 
the World Economic Forum), 
the overhang of Central Bank debt, the precarious electricity 
sector with its annual 
bill of US$500 million for subsidies, the fiscal hit 
impending with the implementation 
of the CAFTA-DR free trade agreement ("just 50 days from 
now"), the oil shock, and the 
abysmal state of infrastructure, education and health 
services. 
 
Hugo Rivera Santana of the Industry and Commerce Ministry, 
assured the participants 
that the government was already at work on measures required 
for the entry into 
force of the free trade agreement (CAFTA-DR) and told them of 
the possibility that 
the country might eventually qualify for U.S. assistance 
through the Millennium 
Challenge Corporation. 
 
- - - - - - - - 
The Summing Up 
- - - - - - - - 
 
Fernndez presented some bills and outlined his intentions 
with his hour-long closing 
talk on Sunday.  He picked up the metaphor from his 2004 
inaugural speech: the 
Dominican Republic is no longer a critically ill patient in 
intensive care but 
rather one in the recovery room; now the country must 
understand the origins of 
its tragic illness.  "This crisis was the result of 
mismanagement of fiscal, monetary 
and exchange policies that raised the public debt to the 
equivalent of more than 
55 percent of GDP.  In the previous administration the 
national debt almost quadrupled. 
There lies the origin of the nation's ills." 
 
Acknowledging the minority status of his party, Fernandez 
thanked congressional 
representatives for helping formulate the 2004 tax package, 
praised the approach 
of dialogue and asked for support in carrying out fiscal 
reform.  This one would 
be a transformation of the tax system, shifting great 
responsibilities from Customs 
to Internal Revenue.  "I reject the misguided assertion that 
the tax reform is 
for 9 billion pesos too much." 
 
The exchange rate will be determined by the market. 
Fernandez acknowledged the 
difficulties faced by free zone manufacturers and the tourism 
sector due to the 
prevailing rate. 
 
The free trade agreement offers great opportunities and might 
lead to a 
hemisphere-wide agreement.  The country needs to think in 
addition of an agreement 
with the European Union and to strengthen its links with 
Spain. 
 
Solving the problems of electricity supply once and for all 
was crucial for 
improving competitiveness.  The approach of partial 
privatization adopted in 
his 1996-2000 administration was valid and had succeeded 
elsewhere in Latin 
America.  "Privatization was not invented by the Dominicans." 
 Facing a probable 
deficit in generation capacity in 2007, he said, "We have 
been calling for a 
public request for tenders for new investment in generation." 
 A Spanish firm 
will be setting up a wind farm in the southwestern area of 
Bani and the Mexican 
has invited Dominican officials for next week to discuss a 
possible petroleum 
agreement that could include Central American countries.  The 
government has 
begun international contacts to look at the possibilities of 
developing ethanol 
as an alternative fuel.  Fernandez said that Santo Domingo 
needs mass public 
transport using new energy sources, such as a Metro. 
 
Many electricity generation contracts were not negotiated 
openly or transparently. 
"We should not have to pay for electricity that is not 
delivered.  This must be 
reconsidered, renegotiated and redistributed."  Electricity 
must be available to 
users at reasonable rates, which "is not possible according 
the terms of some of 
these contracts.  So that, here and now, I put on the table 
my definite intention 
to call a meeting to set up the renegotiation of energy 
contracts."  (Strong applause.) 
He called on energy distribution companies to install meters 
and improve supervision 
over collections -- "which should not be difficult, since as 
the World Bank 
representative said, 85 percent of those who do not pay do 
have the means to do so." 
He pledged that the government would demonstrate the 
political will to carry this 
out.  (Renewed applause.) 
 
The country cannot achieve its Millennium Development Goals 
without help, he said. 
"This will cost US$ 29 billion, compared with the US$ 18 
million of our entire 
Gross Domestic Product." He asked for the active and dynamic 
participation of 
international organizations and suggested that rich countries 
follow the suggestion 
expected from Spain at this week's Ibero-American summit: 
canceling debt in 
exchange for investment in education.  "Such a measure is not 
charity or 
philanthropy, but rather an investment by the rich countries 
to assure that 
poverty does not reach their shores." 
 
Among the principal challenges are education, health, and the 
improvement of 
phyto-sanitary standards, along with other conditions in 
keeping with human dignity. 
Justice must be totally depoliticized and there must be real 
transparency in 
the handling of public funds. 
 
The two-day seminar had been a success, he said, and he 
announced that he would 
be appointing commissions to meet monthly to continue the 
work; participants would 
be called together anew at the end of 2005. 
2. (U) Drafted by Michael Meigs 
3. (U) This piece and others in our series can be consulted 
at our SIPRNET web site, 
http://www.state.sgov.gov/p/wha/santodomingo< /a>   along with 
extensive other material. 
 
MINIMIZED CONSIDERED 
HERTELL