DOMINICAN POLITICS #9 - CHAVEZ BRINGS GENEROUS

C O N F I D E N T I A L SECTION 01 OF 03 SANTO DOMINGO 006240 SIPDIS STATE FOR WHA/CAR, WHA/EPSC, INL; 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: 11/16/2014 TAGS: PREL ENRG EFIN DR SUBJECT: DOMINICAN POLITICS #9 - CHAVEZ BRINGS GENEROUS FINANCING DEAL TO DOMINICANS REF: A. SANTO DOMINGO 4719 ¶B. SANTO DOMINGO 6119 Classified By: DCM Lisa Kubiske. Reason: 1.4 (b) and (d). ¶1. (C) Summary. Venezuelan president Hugo Chavez made an eight-hour visit to Santo Domingo on November 6, the main event of which was the signature of a bilateral agreement called the "Caracas Accord" to provide generous financing terms for 25 percent of 50,000 barrels a day of Dominican imports of Venezuelan petroleum. Fernandez effusively greeted Chavez, but it is not yet clear whether Chavez will gain any political leverage with the Dominican president. The visit served Fernandez,s purposes in building up his profile as a regional leader, giving him a chance to build up the domestic politics, , and, above all, in securing the USD 200 million or more in fuel payment relief that will help make the IMF negotiations viable. End summary. ¶2. (SBU) Venezuelan president Hugo Chavez made an eight-hour visit to Santo Domingo on November 6, during which he and Dominican president Leonel Fernandez signed a bilateral agreement called the "Caracas Accord" providing generous financing terms for 25 percent of Dominican imports of Venezuelan petroleum. In addition, Fernandez and Chavez dedicated the Plaza Bolivar in downtown Santo Domingo and Chavez presented the President with a replica of Bolivar's sword. ¶3. (SBU) The petroleum financing deal, reported ref b, provides badly needed financial support as the Dominican Republic is negotiating terms for a renewed IMF standby. Venezuela is providing 15-year financing with two years grace, at an interest rate of 2 percent per annum -- concessions which are worth in the neighborhood of USD 200 million in 2005. Since much petroleum is used by electricity generators, the arrangement may help reduce the power sector blackouts characteristic of that mismanaged and undercapitalized sector. ¶4. (SBU) At the televised press conference in the presidential palace Chavez spoke with apparently sorrowful dignity about Venezuela's relations with the United States, alleging U.S. interference at the time of the coup attempt. He emphasized the extent of Venezuelan investment in the U.S. petroleum sector and asserted that "due to agreements signed by the previous government, Venezuela is in fact subsidizing U.S. fuel consumption by several dollars per barrel." He said that a new ambassador (Amb. Brownfield) had assured him of U.S. interest in improving relations. Chavez expressed hope that with his re-election President Bush would constitute a "new government." ¶5. (SBU) Fernandez responded by expressing his government's congratulations on the re-election of the American president. He continued in professorial style, noting that the world had changed, with the Cold War years giving way to a new order after the disappearance of the Soviet bloc and then changing once again as a result of the attacks of September 11, 2001. Both the Dominican Republic and Venezuela deplored the loss of innocent lives and would cooperate to stop terrorism. He recalled his telephone conversation with Chavez on the day of the attempted coup and their agreement to seek help from the Carter Center. This sort of hemispheric cooperation, said Fernandez, was essential to resolving problems. And then -- after all that as preamble -- he made the offer, much reported by the press, to help mediate between the Venezuelan and U.S. governments if that would be helpful. (Fernandez was making publicly the same offer twice made in private to the Ambassador (reftels.)) ¶6. (SBU) Chavez took the lectern again to express his desire to use petroleum to assist the poor of the hemisphere -- in Colombia, in the Dominican Republic, and in Haiti, "where they don't even have the fuel for electricity for hospitals." Venezuelan petroleum, he said, would serve as a modern version of Bolivar's sword, to encourage hemispheric unity. He concluded with a grin, saying that ballplayers Sammy Sosa, Pedro Martinez, and other Dominicans "can teach us how to defeat the Yankees." The assembled dignitaries and press laughed. A Palace View -------------- ¶7. (C) On November 9 the Ambassador, DCM and EcoPol counselor discussed the visit with presidential chief of staff Danilo Medina. Medina said that the oil financing deal was vital to Fernandez as he sought to re-establish financial stability. (Medina and Technical Secretary Temistocles Montas had sought much more generous terms but were eventually told that OPEC obligations barred anything more than what the Dominicans received.) Medina said we should have no doubt that the Dominican Republic counts "100 percent, absolutely 100 percent" on its relationship with the United States. Talk had been only of energy issues, including at the private meeting of the presidents, Venezuelan oil minister and development bank head, and Medina. ¶8. (SBU) Medina said the relation between the two dates back to 1997-1998, when Chavez, as a candidate for the presidency, asked to call on Fernandez and was received. Medinas said Fernandez appreciated Chavez's concern for the disadvantaged and his desire to improve social services. After leaving office in 2000, Fernandez was an associate of the Carter Center and in that role responded to the request of Venezuelan industrialist Gustavo Cisneros to help organize a dialogue between the private sector and the Chavez administration. Fernandez,s View of Chavez ¶9. (C) Another of our sources, long close to Fernandez and an official in the first Fernandez administration, commented recently that in fact, Fernandez "hates" Chavez and once commented to our source that Chavez is a "madman." Our source commented that Fernandez is obliged by financial necessity to welcome Chavez. "Fernandez has felt desperate to find ways to solve all the problems facing the Dominican Republic," he said, "and he feels he is getting help from no one." In our interlocutor,s view, the Venezuelan oil deal keeps electricity flowing, helps close a financing gap in the stand-by program, and provides some leverage against his enemies in the political opposition regarding an approach to the Dominican energy sector -- with little or no political quid pro quo. ¶10. (C) This source,s report of negative feelings about Chavez is consistent with Fernandez,s remarks to the Ambassador and Senator Nelson (FL) back in August, to the effect that Chavez lacks leadership skills to move implement his agenda, lacks a plan for doing so, and "has transformed nothing in Venezuela." Fernandez called Chavez "Fidel without talent, but with oil." Fernandez said then that he had told Chavez that he must govern for all Venezuelans, not just for the poor, and he must reach out to business and the economic elites. ( reftel) On the other hand, when we asked Danilo Medina what Fernandez admires about Chavez, the reply that Medina gave was "his social concern and social programs." Comment - - - - - - ¶11. (C) For this visit, we believe Fernandez was using his embrace of the Venezuelan president for several purposes: for building himself up as regional leader; for domestic politics, pleasing the aged in his party's base by likening Chavez to Caamano, the military officer who supported democratic restoration in 1965; and, above all, for the USD 200 million or more in fuel payment relief that will help make the IMF negotiations viable. As for the longer-term question of the Fernandez-Chavez relationship, there is as yet no verdict regarding its nature and whether Chavez, gift of oil will win him any appreciable degree of political influence over Fernandez. ¶12. (U) Drafted by Michael Meigs, Lisa Kubiske. ¶13. (U) This report and others in the series can be consulted on our SIPRNET site http://www.state.sgov.gov/p/wha/santodomingo/ along with extensive other material. HERTELL