Identifier
Created
Classification
Origin
04SANTODOMINGO5952
2004-10-28 19:16:00
CONFIDENTIAL
Embassy Santo Domingo
Cable title:  

DOMINICAN PRESIDENT ON CORRUPTION, FREE TRADE

Tags:  ETRD PGOV EFIN DR 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L SECTION 01 OF 05 SANTO DOMINGO 005952 

SIPDIS

DEPT FOR WHA, WHA/CAR, WHA/EPSC, WHA/OAS; EB, EB/IFD/OMA,
EB/TPP/BTA;
WHITE HOUSE FOR USTR; NSC FOR SHANNON AND MADISON
LABOR FOR ILAB; USCINCSO ALSO FOR POLAD;TREASURY FOR
OASIA-LCARTER
USDOC FOR 4322/ITA/MAC/WH/CARIBBEAN BASIN DIVISION
USDOC FOR 3134/ITA/USFCS/RD/WH; DHS FOR CIS-CARLOS ITURREGUI

E.O. 12958: DECL: 06/04/2014
TAGS: ETRD PGOV EFIN DR
SUBJECT: DOMINICAN PRESIDENT ON CORRUPTION, FREE TRADE
AGREEMENT, REGIONAL POLITICS, FINANCES

REF: SANTO DOMINGO 5779

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

C O N F I D E N T I A L SECTION 01 OF 05 SANTO DOMINGO 005952

SIPDIS

DEPT FOR WHA, WHA/CAR, WHA/EPSC, WHA/OAS; EB, EB/IFD/OMA,
EB/TPP/BTA;
WHITE HOUSE FOR USTR; NSC FOR SHANNON AND MADISON
LABOR FOR ILAB; USCINCSO ALSO FOR POLAD;TREASURY FOR
OASIA-LCARTER
USDOC FOR 4322/ITA/MAC/WH/CARIBBEAN BASIN DIVISION
USDOC FOR 3134/ITA/USFCS/RD/WH; DHS FOR CIS-CARLOS ITURREGUI

E.O. 12958: DECL: 06/04/2014
TAGS: ETRD PGOV EFIN DR
SUBJECT: DOMINICAN PRESIDENT ON CORRUPTION, FREE TRADE
AGREEMENT, REGIONAL POLITICS, FINANCES

REF: SANTO DOMINGO 5779

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


1. (C) Summary. Dominican President Fernandez asked on
October 21 for USG help in addressing corruption issues. He
told the Ambassador that he remains strongly in favor of the
free trade agreement (FTA). He gave the sugar sector an
opportunity of "only three weeks" (until sometime the week of
October 25) to use his letter to President Bush to seek
review of their complaints. A day later Foreign Minister
Morales Tronocos said Fernandez would choose one of several
domestic approaches to persuade sugar interests to drop their
opposition to the FTA. Fernandez is seeking support for
former president of El Salvador Francisco Flores for the post
of OAS Secretary General. Dominicans were about to sign a
deal in which Venezuela will provide long-term financing for
25 percent of the value of petroleum purchases. Fernandez
sought USG help to design action plans to fight corruption
and illegal narcotics. End summary.

Anti-Corruption: the Original Purpose of the Meeting


2. (C) During a lengthy meeting with the Ambassador and
senior staff on October 21 Dominican President Fernandez
touched on free trade, security issues, and the effort to
choose a new OAS Secretary General. He had convened the
meeting to address the general problem of corruption. The
President discussed at length his analysis of the culture of
corruption in the Dominican Republic, including contributing
factors, and asked for USAID help in reinforcing
administrative systems, putting together a public outreach
effort, and putting together an action plan to address the
problem. He asked USAID Director Elena Brineman to work
closely with presidental chief of staff Danilo Medina, since
Medina coordinates cabinet efforts on institutional reform.



3. (C) When the Ambassador raised the issue of the well-known
military practice of skimming 10 percent or more on
contracts, Fernandez replied: "That goes beyond my ability to
intervene. If a Latin American president interferes
seriously with those types of military matters, he risks
getting shot." Fernandez said that his decree retiring 99
generals within the first month of the administration had
already caused him difficulties. His intelligence services
had told him of threats of assassination. He said he
believes that the recent violence may be due in part by
agitation by forces hostile to him.

Crime


4. (C) Fernandez spoke of his concern about the spread of
narcotics and associated violence, attributed to flows from
Colombia and Haiti. The border area had become a "no man's
land, like Eritrea or Bangladesh, or another galaxy entirely.
Seizures had not increased even though trafficking had.
Worst affected by associated violence were the very poorest
Dominicans. Fernandez suggested that he might ask attorney
"Vincho" Castillo to take a newly created post as Advisor for
Anti-Narcotics and Anti-Gangs.


5. (C) The Ambassador expressed strong misgivings about
Castillo (see reftel),recalling repeated recent accusations
from "Vincho" that the Ambassador and U.S. government had
been improperly intervening in the prosecution of Ramon Baez,
charged of massive fraud in the 2003 Baninter failure. U.S.
agencies would have to discuss the matter; his initial
response was that for such an important post the USG would
need a person not only knowledgeable but also willing to work
with the Embassy. The President did not insist on Castillo
and asked for suggestions of names of candidates with whom
the Embassy could work.


6. (C) In this connection Fernandez recalled the case of
Guido Gomez Mazara, legal advisor to Hipolito Mejia. The
administration is watching Gomez closely, he said, and
Fernandez knows that the Embassy's refusal to work with him
was justified. Gomez is provocative and immature, he
commented, and he does have links with the underworld.

Brooke/620Q Arrears and USG sanctions


7. (C) The Ambassador advised the President that as of
October 15 the Dominican Republic is more than one year in
arrears on certain bilateral debt payments, a situation which
under U.S. law is the basis for suspension of most bilateral
assistance programs. The Embassy notified Technical
Secretary Temistocles Montas of this in writing on October

SIPDIS
18, providing a detail of unpaid payments triggering arrears.
The cumulative amount through the end of 2004 will be
approximately USD 23 million. Fernandez was dismayed and
said he would consult with the Technical Secretary.

"I'll Go 100 Percent to Keep DR in CAFTA"


8. (C) When the Ambassador raised with Fernandez the lack of
congressional response to the President's request to repeal
the 25 percent protectionist tax on fructose-sweetened
drinks, Fernandez reaffirmed his intention to overcome sugar
sector opposition.


9. (C) The Ambassador began by describing to the President
Washington's great concern that the 25 percent tax had not
yet been repealed. All knew this tax was a tactic used by the
Dominican sugar interests to preserve their privileged
position in the economy, dating back 450 years. The
Ambassador warned the president that it was a losers'
initiative -- akin to a protectionist measure barring
computers as a means of protecting, say, typewriters. Worse,
the uncertainty about Dominican intentions caused
postponement of a CAFTA-DR ministerial meeting on the
environment and now meant that the country is not included in
other activities designed to prepare for CAFTA coordination
and implementation, such as some trade capacity building
programs. The challenge to Fernandez was how to turn this
situation around and show leadership. When, he asked, was
the last time before August that the Dominican Republic had
signed an agreement at the White House?


10. (C) Fernandez replied emphatically, in English, "You
don't have to convince me. You are preaching to the
converted." He acknowledged making a mistake of inattention
in sending the repeal proposal to the Senate, where the tax
package had just been approved despite sharp debate over the
25 percent tax. (Senate President Andres) "Bautista does not
control the Senate on this issue. (Sugar concern) Central
Romana has it blocked. They and their Washington lawyers are
telling senators that Congress has until March to
reconsider."


11. (C) The Ambassador strongly dismissed that
interpretation. Fernandez continued, "I gave them three
weeks -- told them that I would not back them, but I would
sign their letter, so they could try one last effort to have
their case heard, but that three weeks runs out next week."
He outlined the sector representatives' argument that they'd
been excluded in the last hours of negotiations, despite
earlier assurances that sugar would not be included in the
agreement. "The U.S. should have the flexibility at least to
listen to them -- not to make any promises, but at least to
listen." He warned that sugar interests were moneyed and
powerful -- employing "the man with the suitcase" (bribery)
to influence congressmen.


12. (C) The Ambassador stressed that the U.S. interest is
exactly the same as Fernandez's and the same as that of the
Dominican Republic. Fernandez replied, "I know that. My
position has not changed. I said it in Santiago -- I will
not allow the interests of the country as a whole to be held
hostage to a single sector. But this is a democracy, and I
am president of the whole country. I cannot simply exclude
the sugar interests. All I am asking is for them to be given
an opportunity to present their case. That would not
endanger the agreement. They are saying that a technical
error was made. I will reactivate our efforts next week.
There is no ambiguity or ambivalence in my view. I will
defend the free trade agreement and serve as a channel of
communication. That is what a president should do."


13. (C) The DCM commented that the Embassy had heard the
sugar sector's arguments, which held nothing new; USTR's
account of the talks differed from their allegations. The
Ambassador stressed that the sides had spent more than 18
months mutually clarifying views. "Listening is important,"
replied the President. "If one doesn't listen, the people
will go into the streets."


14. (C) The Ambassador challenged him: "How far would you
be willing to go to save this agreement?" Fernandez replied,
"One hundred percent. This is the top priority for the
country and for the government. Sara Lee Corporation called
on me -- they told me they were holding up an investment of
USD 80 million because of the uncertainty about the
agreement. And how can we obtain technology transfers
without an agreement? If you know, tell me!" He said that
lawyers for Central Romana were saying that USTR Zoellick
would be leaving in January and was no longer part of the
equation.


15. (C) "The best for your country," said the Ambassador,
"would be to seize the moment and ratify now. Get ahead of
the Central Americans." Fernandez replied that in a
democracy, a leader cannot do just what he likes; he first
must lead public opinion.

OAS Secretary General


16. (C) Reviewing the search underway for a new OAS
secretary general, President Fernandez said that he had told

SIPDIS
Francisco Flores of El Salvador to visit the CARICOM
countries for support. Fernandez had already spoken to
several CARICOM heads of state or government on his behalf.
CARICOM wil meet in November. Venezuela was violently
anti-Flores, he commented, because Flores had recognized
Carmona in the short-lived overthrow of the Chavez
government. Venezuela was pressing the CARICOM states, but
the Venezuelans had not approached the Dominicans on the
subject.


17. (C) Brazilian ex-president Cardoso might be a candidate,
said Fernandez, although Brazil had recently held the
Secretary General position; and perhaps "Lula" might like to

SIPDIS
have Cardoso out of the country. Fernandez's second choice,
after Flores, would be Insulza of Chile, who was prestigious,
a known academic, and former foreign minister. Fernandez
considers that Central America, as a block, will not support
Flores because of border differences with Honduras.


18. (C) As for Flores, Fernandez knows him well, considers
him a good candidate, serious and intelligent.

IMF and IFIs


19. (C) Fernandez expects to sign a letter of intention with
the IMF in November. "Then," he said, "It will be like
dominos, each one falling into place -- the IMF, the Paris
Club, and the rescheduling of the sovereign bonds."
Bondholders have already formed a committee, with the
assistance of Morgan Stanley. Venezuela will provide
long-term financing for 25 percent of petroleum sales, an
arrangement that will help meet the problems in the
electricity sector.


20. (C) As for electricity, he said, contracts wth
generators must be reviewed and revised. He spoke with some
annoyance about the continuing obligation to pay COGENTRIX
some "USD 5 million a month" whether or not it was
generating. He has asked for contractors to do a study of
the prices of electricity generation across Latin America; he
says that due to bad contracts, the Dominican Republic faces
higher rates than anywhere else in the hemisphere. He is
well aware that the COGENTRIX financing package is structured
so that default by the government would trigger up to USD 400
million in sovereign loan guarantees.


21. (C) USAID Director Brineman mentioned the plan for the
electricity sector currently in development, shortly to go to
Fernandez. "We need to find USD 20 million a month, just to
survive," the President commented. "Tariff rates cannot go
up; that would just encourage more theft and evasion.
Generators say, 'raise the tariffs' -- we need to restructure
the grid." Fernandez finds that the eastern region (EDESTE)
has excess capacity, while the north (EDENORTE) is
underserved by "monopoly" Smith and Enron near Puerto Plata,
which "charges for 180 megawatts, even though they don't
produce more than 135 megawatts." Fernandez said he is very
interested in getting a brief on the USAID plan -- "because
USAID is the most independent advisor we have."


22. (C) The cooking gas supply situation is acceptable,
Fernandez said. Subsidies have been reduced by 3 percent so
far by eliminating subsidies on deliveries to industry. The
cut should be 25 percent, said Fernandez, as we work our way
through the chain and target them correctly. The project to
issue cards to qualified household consumers is moving and
wide distribution should be underway by December, with the
prospect of finishing it by March.


23. (C) Fernandez said that further possibilities to help
restructure the electricity sector could include the two new
coal-fired generating plants available in Houston. Mergers
of distribution companies might be a possibility, and there
are three pilot projects now for wind-powered generation.

COMMENT

24. (C) Fernandez was solo as he met the Ambassador, DCM,
USAID Director and EcoPol counselor. At one point he stepped
out of the room to get a pad with which to make notes. As
always, he was thoughtful, well spoken, and conceptual in his
aproach. He left some stark uncertainties, however -- not
specifying, for example, just what he intends to do to
promote the free trade agreement once the apparently
arbitrary three-week delay for sugar action is finished. He
described the sugar sector's ability to block but did not
suggest how this could be overcome. (The next day in
conversation with the Ambassador, Foreign Minister Carlos
Morales Troncoso, himself an ally of the sector, suggested
that there were "three approaches, all domestic" that might
persuade sugar interests to drop their opposition to
repealing the protectionist tax. Morales declined the
Ambassador's invitation to be more specific.)
HERTELL