wikileaks ico  Home papers ico  Cables mirror and Afghan War Diary privacy policy  Privacy
IdentifierCreatedClassificationOrigin
04SANTODOMINGO2525 2004-04-26 13:02:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Santo Domingo
Cable title:  

DOMINICAN ELECTIONS #41: FERNANDEZ AND ESTRELLA

Tags:   PGOV ECON EFIN ENRG DR 
pdf how-to read a cable
This record is a partial extract of the original cable. The full text of the original cable is not available.
					  UNCLAS SECTION 01 OF 02 SANTO DOMINGO 002525 

SIPDIS

SENSITIVE

STATE FOR WHA AND DRL; NSC FOR SHANNON AND MADISON
LABOR FOR ILAB; USCINCSO ALSO FOR POLAD
TREASURY FOR OASIA-LAMONICA
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 ECON EFIN ENRG DR
SUBJECT: DOMINICAN ELECTIONS #41: FERNANDEZ AND ESTRELLA
BOTH CALL FOR ECONOMIC AUSTERITY




1. (SBU) This is no. 41 in our series on the Dominican
presidential election:

Fernandez and Estrella Attack Mejia's Economics, Preach
Austerity

Leonel's Paradoxical Proposals

PLD presidential candidate Leonel Fernandez, spoke April 21
before the American Chamber of Commerce (full text available
on our SIPRNET site). He proposed creation of an economic
"crisis management team" for the first 100 days of his
presidency to restore the public's confidence in the economy
and overcome a "leadership credibility problem." The team
would draw on experts from Harvard University and the Earth
Institute of Columbia University (economist Jeffrey Sachs)
and a study by the Economist Intelligence Unit -- entities
sometimes critical of U.S. economic policies and the IMF. The
proposed make-up of the crisis team fits awkwardly with his
track record of energy sector privatization in the late 1990s
and his promises to respect the nation's IMF accord.
Nonetheless, most of his policy prescriptions emphasized
austerity, fiscal responsibility and attracting private
investment, and he would involve business and civil society
groups in discussions with the team.

If elected, Fernandez said, he would separate handling of
short-term debt created by the Central Bank's massive bailout
of depositors in three failed commercial banks last year from
the Central Bank,s monetary policy. He blamed domestic
mismanagement, not external shocks, for the country's
"enormous crisis." This mismanagement included:

---Mejia,s campaign rhetoric in the 2000 presidential
election debunking the prosperity and achievements of the
previous administration and sowing public distrust;

---Deficit spending and tax increases, due to expansion of
the public payroll (Fernandez noted that President Bush had
cut taxes at the start of this term; Mejia had raised them);

---Government's inability to regulate the banking and private
sectors;

---Soaring public debt and government competition with
private firms for credit; and

---Lack of coordination among fiscal, monetary and exchange
rate policy.

Fernandez promised a quick start for the country's economic
recovery. He would stabilize the exchange rate, lower
interest rates, and stimulate job creation. He acknowledged
he would face many obstacles:

---Excessive savings certificates at the Central Bank
(quasi-fiscal deficit);

---Financial sustainability problems of the energy sector;

---The recent doubling of the country's foreign debt and
quadrupling of domestic debt; and

---A need for fiscal reform, in accordance with the IMF
agreement, to balance public finances and modernize the tax
structure.

Resolving the Energy Crisis

Fernandez blamed the nation's frequent electrical blackouts
on two Mejia decisions: the Madrid Agreement and the buyback
of electricity distribution companies (EDE-Norte and EDE-Sur)
from private Spanish firm Union Fenosa. The Madrid Agreement
to lower contracted electricity generation tariffs in
exchange for substantial one-time payments violated Dominican
law according to Fernandez, and the purchase of the EDEs led
to suspension of the IMF standby agreement for four months,
until it was revised and renewed in February. Fernandez
proposed setting up a compensation fund to sustain the energy
sector and make it financially viable, using state shares in
the EDEs as collateral. Financing would come from the
utility companies, consumers and international financial
institutions .

The candidate called for the government to redefine its role
with regard to energy. Authorities should adopt a spirit of
reform, regulate the sector's activities in accordance with
the law and modernize regulations. These steps in turn would
attract more private investment and reduce state involvement
as an owner and operator.

Stabilization and Tax Reform

A PLD government, Leonel said, would prefer to borrow from
multilateral organizations on soft terms rather than from
private international banks. He would eventually renegotiate
the debt and extend the terms, but would never default on the
payments. He would proceed with tax reform according to the
IMF guidelines, suspending the "distorted taxes" of the Mejia
administration and compensating for a loss of tariff revenues
expected upon implementation of the U.S.-Dominican free trade
agreement. With this and the other measures, Fernandez
promises to put the country back on the path of progress and
modernization by 2005.

Estrella Sings Similar Tune

The same day, PRSC presidential candidate Eduardo Estrella
spoke to the prominent National Council of Private Enterprise
(CONEP), promising to reduce public expenditures, promote
investments, and provide assistance to small businesses, and
adopt development plans looking out 20 years instead of only
four. Estrella expressed determination to pursue his election
campaign, regardless of disappointing poll numbers and the
recent defection to Fernandez of PRSC leader former vice
president Jacinto Peynado and various of the PRSC "old guard."



2. (U) Drafted by Leticia Cantu.



3. (U) This report and others in this series can be read on
the SIPRNET at
http://www.state.sgov.gov/p/wha/santodomingo/ index.cfm along
with extensive current material.
HERTELL