DOMINICAN TRANSITION #13: FERNANDEZ TELLS

C O N F I D E N T I A L SECTION 01 OF 03 SANTO DOMINGO 004719

SIPDIS

STATE FOR WHA/CAR AND WHA;NSC FOR SHANNON AND MADISON
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; SOUTHCOM ALSO FOR POLAD

E.O. 12958: DECL: 08/10/2014
TAGS: PREL PGOV ECON EPET MCAP DR VE
SUBJECT: DOMINICAN TRANSITION #13: FERNANDEZ TELLS
AMBASSADOR HE HAS HALF-PRICE OIL FROM VENEZUELA AND
PROMISES OF DOLLAR LOANS

REF: SANTO DOMINGO 4637 STATE 3749

Classified By: Ambassador Hans H. Hertell for Reason 1.4 (b) and (d).


1. (U) This is the amplified and corrected version of ref a,
part of our series on the transition to a new presidential
administration in the Dominican Republic. Ten days before
his inauguration, Leonel Fernandez spoke about his approach
to the economic crisis and commented on his relations with
Venezuela's Hugo Chavez.

Lunch with Leonel

(U) On August 6 the Ambassador and visiting Senator Bill
Nelson (D-FL) attended a lunch hosted by President-elect
Leonel Fernandez (PLD) at the office of his Global Foundation
for Democracy and Development (FUNGLODE). Also present were
Alfonso Fanjul of sugar manufacturer Central Romana
Corporation and Alberto Ibarquen, publisher of the Miami
Herald. The lunch took place just 10 days before Fernandez
was to be installed as President.

Rescuing the Economy

(SBU) The President-elect spent much of the time discussing
the deterioration of the Dominican economy under the Mejia
administration, 2000-2004. Fernandez said that he and his
foundation have been busy while he has been out of office and
that his administration already has mid-term and long-term
plans to bring the country back to prosperity and economic
stability. He said his initial economic plan involves
quickly increasing Central Bank foreign currency reserves
liquidity so it can support the value of the peso, allowing
him to focus on the longer-term health of the economy.

(C) In particular, Fernandez told his guests, he has several
commitments that could generate more than 1 billion dollars
in hard currency inflow for the country. Foremost among
these is USD 500 million in investments in the tourism
industry offered by Spanish companies in return for rolling
back a proposed tax on hotel rooms. In addition, Fernandez
said, he has offers of dollar loans to the Central Bank from
Brazil (USD 250 million),Venezuela (USD 250 million),and
Spain (USD 150 million). Fernandez said he will try to
negotiate additional loans by governments and private
institutions. His goal is to raise confidence in the
Dominican peso, which could then help lower inflation. (Note:
we heard subsequently that the Spanish companies may come
through with considerably less, perhaps in the neighborhood
of USD 200 million.)

(C) In addition, Fernandez said, to provide immediate
improvement in electricity supply and to build credibility
with the Dominican public, he has secured a USD 65 million
loan from a large national bank to purchase fuel and keep
electricity flowing as of August 17. Fernandez admitted this
was only a band-aid treatment but maintained it would buy his
administration time to address the electric sector crisis in
earnest.

(C) When asked, Fernandez said dollarization would eventually
happen in the Dominican republic. In the long run, in his
view, there will only be three world currencies: the US
Dollar in the Western hemisphere, the euro in greater Europe,
and the Japanese or Chinese yen in Asia. Dollarization is
impossible in the short term for the Dominican
administration. He said he would be labeled as "selling the
nation" if he allowed the disappearance of a naional currency
imprinted with portraits of the founding fathers.

Fernandez and Chavez: A Relationship of Dependence

(C) Responding to Senator Nelson's inquiry about relations
with Venezuela, Fernandez said he finds Chavez charismatic
but deplores his autocratic tendencies. He said Chavez had
considered Mejia unresponsive to allegations of
coup-plotting, with the result that Chavez's already
established relationship with Fernandez was further
reinforced.

(C) The Dominican Republic has long been a market for
Venezuelan petroleum. Fernandez noted that one factor in the
current electricity crisis is the rising cost of fuel for
generation; another is the fact that the government has
failed to pay electricity generators and distributors on
time. Fernandez said that during his visit to Caracas in
June, he secured a promise from Chavez of extremely favorable
terms for oil imports -- a credit line for purchases of
Venezuelan oil at half the world price, with no payments due
for six months.

(C) Fernandez said Chavez would face serious problems even if
he won the August 15 recall referendum. He said that he had
told Chavez that this should be Chavez's last term in office.
Fernandez agreed on the need for Chavez to tone down his
rhetoric and to concentrate more on good governance and less
on image. Fernandez indicated that he would communicate this
to Chavez when they next meet. Fernandez did not expect
Chavez to attend the Dominican inauguration because of the
timing of the referendum in Venezuela. Fernandez described
Chavez as wanting to emulate Fidel Castro, both in style and
substance. He says he told Chavez that he must govern for
all Venezuelans, not just for the poor, and he reach out to
business and the economic elites. "Chavez lacks leadership
skills to move implement his agenda, lacks a plan for doing
so, and has transformed nothing in Venezuela. He is Fidel
without talent, but with oil."

(C) Fernandez says he sees his role as that of an
international statesman and he offered to be a bridge between
the world and Venezuela.

The Fragility of a Latin American Mandate

(SBU) Fernandez was keenly aware that he faces problems, even
though he comes to office with a strong mandate. He said
that he understands the high expectations of the people and
knows that his political honeymoon will not be long. He
referred to several other Western Hemisphere presidents
driven from office because of economic or other crises.
Fernandez said that he was coming to the presidency at a
challenging time and that the effort to rebuild the nation's
institutions could take longer to accomplish than his
four-year term in office. He did not expect to not seek
reelection in 2008 - - unless his party asks him to run
again.

(SBU) Senator Nelson mentioned the possibility of a reduction
in Dominican armed forces levels and suggested the United
States might assist in this process. Fernandez expressed
interest in the idea and stressed that the lines of
communication with the U.S. military would be open.

(SBU) The Ambassador and Senator Nelson spoke to Fernandez
about the importance of dealing with corruption, port
security, the U.S. Third Border Initiative, and Dominican
relations with Haiti. Senator Nelson stressed to Fernandez
the importance of naming upstanding diplomats as Ambassador
and Consuls in Haiti, reminding Fernandez of the significant
responsibilites of those individuals for legitimate
cross-border activity.

(C) The Ambassador reiterated his offer for the U.S. Embassy
to vet the names of candidates for Fernandez's key
appointments and encouraged him to fight corruption at all
levels.


2. (U) Drafted by Jay Raman and LtCol Glenn Huber.


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