AMBASSADOR MOBILIZES DIPLOMATIC INITIATIVE AGAINST

C O N F I D E N T I A L SECTION 01 OF 03 SANTO DOMINGO 007342 SIPDIS SENSITIVE DEPT FOR WHA, WHA/CAR (MCISAAC),WHA/PPC; DEPT PASS USAID E.O. 12958: DECL: 12/05/2008 TAGS: PGOV PREL EFIN ECON DR SUBJECT: AMBASSADOR MOBILIZES DIPLOMATIC INITIATIVE AGAINST DOMINICAN FRAUD AND CORRUPTION Classified By: DCM LISA KUBISKE. Reason: 1.5 (b) and (d). ¶1. (SBU) Summary. On December 2, the Ambassador urged eight ambassadors of the OECD "Dublin Group" of the need for strong coordinated action against banking fraud and corruption. Ambassadors agreed on the poor state of the economy, the need for free and fair presidential elections, and the ability of the diplomatic community to make an impact. The group decided that joint public calls would draw attention to international concerns and help the Dominicans help themselves. They agreed to call jointly on the Central Election Board (JCE),Friday, December 5. End Summary. ¶2. (SBU) On December 2 the Ambassador hosted a meeting at the Embassy to discuss Dominican bank fraud cases (particularly the Baninter case) and the financial downturn in the Dominican Republic. Ambassadors to the Dominican Republic from Canada, The United Kingdom, Italy, France, Germany, The Netherlands, Spain, and Japan attended, along with the EU ambassador and Embassy Santo Domingo's DCM, USAID Director and EcoPol Chief (hereinafter, Group). The discussion quickly turned to the general state of the economy in the Dominican Republic with all members agreeing that the financial crisis was brought on in large part by the massive bank fraud in the Baninter case as well as other bank failures (Bancredito and the expected failure of Banco Mercantil). Opinions were varied on what, if anything, the Group could do to assist the Dominicans in their plight. -------------- Economic Questions and Comments -------------- ¶3. (C) EU ambassador Miguel Amado inquired about the November 21-22 to Santo Domingo of U.S. Treasury Under Secretary John Taylor. Canadian Ambassador Adam Blackwell SIPDIS gave an account of measures taken that day by President Mejia to stabilize the currency exchange rate (septel) and commented that the underground economy may total 20 per cent of GDP. Spanish Ambassador Maria Jesus Figa Lopez Palop commented that one way to deal with the crisis is simply not to deal with it at all, but to let nature take its course. ¶4. (C) The U.S. delegation provided an overview of U/S Taylor's trip and commented on the status of the IMF negotiations. After some debate and acerbic comment, especially from the French Ambassador Jean Claude Moyret, all members of the Group concluded that the Dominicans are on the path of meeting IMF conditionality and staying on track so as to benefit from IFI financing. The Group is concerned about the possibility of political destabilization during a period of austerity. -------------- Politics and Elections -------------- ¶5. (SBU) The Group agreed that a joint visit to the Elections Board (JCE) would make a strong statement to the GODR and the public that the international community is engaged and will be watchful during the 2004 Presidential elections. First proposals were to do this on December 5; subsequently, due to unidentified scheduling difficulties (and probably because of the unavailability of the U.S. ambassador next week) the call was set for December 15. ¶6. (C) British ambassador Andrew Ashford, seconded by the German ambassador, made the point that individual missions, as well as the Group as a whole, should remain engaged in promoting fair elections throughout the campaign. He proposed that the Group meet each of the three major party candidates to stress this message. Some members hesitated on contacts which might be seen as overtly political, but the Group did agree that continued involvement was key. All favored meeting jointly during the transition period with the eventual winner of the election. -------------- Back to Baninter and the other Banks -------------- ¶7. (C) The Ambassador returned the discussion to fraud and failures at Baninter, Bancredito and Banco Mercantil. German Ambassador Eva Kendeffy said that the Central Bank had guaranteed repayment of USD 20 million that Germany had contracted through Baninter for loans to small and medium sized businesses. The Germans doubt the return of these funds any time soon, given the Central Bank's lack of funds. A number of contact clauses were broken by Baninter in regard to the funds. The USD 20 million was not used in the manner stipulated in the agreement and the Germans were not officially notified when Baninter began liquidation proceedings, also a requirement under the contract. ¶8. (C) Spanish Ambassador Figa Lopez Palop said that Spain had no interest in the bank and, therefore, it was not of any concern to her country. She did comment that "(Arturo) Pellerano now has to be considered, along with a third bank." (Note: Pellerano was the President of Bancredito. Fraud charges against him are being reviewed by the Attorney General's Office (septel). The "third" one is Banco Mercantil. No charges have been made against its executives, but the business community is expecting them. End Note.) Both British Ambassador Andrew Ashcroft and Dutch Ambassador Rasha ter Braack also said that the greater concern is the number of banks that have been or are in trouble. British Ambassador Ashcroft tried to find the bright side in the dismal banking situation: "Without Baninter there would be no IMF (loans and conditionality),so some good has come out of Baninter." -------------- Strikes and Civil Unrest -------------- ¶9. (SBU) The Dutch, Spanish and German ambassadors raised the prospect of further strikes and possible civil unrest if the economic fortunes of the country do not turn around. Press reports on December 2, said that a second general strike toward the end of January is possible. The German ambassador commented that the German press widely covered the last strike (November 11),resulting in hundreds of calls to the German Foreign Ministry about the safety of relatives and friends vacationing here. ("Most of the Germans were probably, "in Punta Cana and did not even know of the strike.") British Ambassador Ashcroft noted the recent floods, increase in the price of gasoline and shortages of propane cooking gas, could prompt further protests. -------------- The Group's Agenda -------------- ¶10. (SBU) Pondering further action, members of the Group proposed other visits in addition to the trip to the JCE: one to the civil society 'Elections Monitoring Group" chaired by Msgr Agripino Nunez to discuss elections; one to the Dominican association of bankers for information on the financial climate; and a separate discussion of bank fraud with Finance Minister Rafael Calderon, Central Bank Governor Lois Malkum, Technical Secretary to the President Carlos Desperdel, and Superintendent of Banks Julio Cross. These visits and meetings have not been scheduled, but the Group seemed to be aiming for after the holiday season. ¶11. (U) Ambassadors of the Group thanked Ambassador Hertell for his initiative in hosting the meeting. They complimented him on the timeliness of discussing the economic and political events currently taking place in the nation. -------------- Comment -------------- ¶12. (SBU) Comment. The response of the senior diplomatic community to the Ambassador's invitation was encouraging, as was the frankness of the discussion. A united diplomatic front of leading developed nations calling on the Electoral Board, the banking sector, and civil society will advance U.S. goals for promoting democracy and good governance. The Dominican press will certainly publicize the initiatives. ¶13. (C) French Ambassador Moyret was by far the most pessimistic of the group -- "There is no way to stop the disaster" and "IMF loans will not be enough, four times the amount of the loans will be needed." Canadian Ambassador Blackwell and EU representative Amado were engaged and verbal, advocating early, visible action. Spanish Ambassador Figa Lopez Palop was outspoken but fatalistic. Japanese Ambassador Okamoto sat stoically through the two hour meeting saying not one word. HERTELL