DOMINICAN PRESIDENT FERNANDEZ REPORTS TO THE NATION

UNCLAS SECTION 01 OF 04 SANTO DOMINGO 001120

SIPDIS

STATE FOR WHA/CAR, WHA/EPSC, WHA/USOAS, EB/TPP/BTA,
EB/IFD/OMA;
USCINCSO ALSO FOR POLAD; TREASURY FOR OASIA-LCARTER
STATE PASS USTR FOR VARGO, RYCKMAN, MALITO, CRONIN
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E.O. 12958: N/A
TAGS: PGOV EFIN ECON ETRD ENRG DR
SUBJECT: DOMINICAN PRESIDENT FERNANDEZ REPORTS TO THE NATION



1. In the traditional national day speech to the Dominican
Congress President Leonel Fernandez claimed credit for
successful economic stabilization in his first six months in
office and sought to present himself as a knowledgeable
leader with a vision for modernization and reform. He did not
touch on partisan politics except indirectly, in references
to the financial and economic crisis inherited by his
administration. In his highly technical presentation
Fernandez appeared to target international financial analysts
more than the Dominican public. He confirmed the need for
the IMF standby agreement and justified the free trade
agreement "with the United States" as the best way to
maintain the nation's export competitiveness. The President
made no mention at all of foreign affairs and scarcely
touched on corruption, although he did stress the need to
make government institutions perform. He focused mainly on
domestic issues -- restoring financial stability and economic
growth, investing in human resources through improved
education and health, providing more reliable electricity and
revamping the police to fight crime and narcotrafficking.


2. Embassy comment follows septel and on SIPRNET.


3. Following is our precis in English of the 18-page speech,
which took more than an hour to deliver.

(BEGIN PRECIS)

NATIONAL DAY ADDRESS BY PRESIDENT LEONEL FERNANDEZ, FEBRUARY
27, 2005

It is a great honor to be part of a community of free
citizens. Six months ago when I took office the Dominican
Republic was in a dangerous situation, similar to that of a
patient in intensive care. The patient has moved from the
emergency room, and today finds himself in the process of
recovery and improvement.

The country has suffered the worst maladies: the highest
inflation in Latin America, the greatest devaluation of the
peso in national history, zero economic growth, a fiscal
deficit, arrears in the payment of external debt, an
exorbitant increase in internal debts, and, coupled with
this, an abrupt fall in international reserves.

In summary: decadence instead of progress, disillusion in
place of hope, sadness and worry instead of happiness and
optimism.

CHALLENGES AND SOLUTIONS

Permit me quickly to review the challenges we have faced, and
with your collaboration, the remedies and solutions we have
found.

Inflation, for example, rose 33 percent from January to
August 2004, and was projected to reach 47 percent by year,s
end. But as the investment firm of Bear Stearns commented
two weeks ago, inflation actually fell in the last of the
year and inflationary pressures are under control.

The exchange rate when I took office had risen to 45 pesos on
the dollar, and the interest rate earlier in 2004 surpassed
50 percent. Now it fluctuates in the 28-30 range, a
strengthening that was unthinkable at the time we assumed
office.

The new government had to take measures to correct the
inherited fiscal deficit. The tax reform raised the
value-added tax from 12 to 16 percent. We have adjusted the
excise tax on fuel to compensate for inflation, as well as to
focus the subsidies on petroleum gas (GLP) on low-income
consumers.

The administration has put into practice policies intended to
reduce the fiscal deficit of the public sector. For the
internal debt, our government has paid arrears of 2.4 million
pesos. The unemployment rate when we entered office exceeded
18 percent, a notable increase from our departure in 2000
when it was 13.9 percent. The minimum wage declined by 28.4
percent in real terms over the past four years. Over that
period another 1.3 million Dominicans fell below the poverty
line, so that now 3.3 million are poor.

The immediate short-term objective is the recovery of
macroeconomic stability. Some questioned if a new IMF
agreement was necessary; it certainly is. The agreement
provides more than 2 billion dollars for the Dominican
Republic, and its signature consolidates the confidence of
economic participants. The government now must restructure
its external bonds, reprogram debts to commercial banks and
suppliers, plan for new rescheduling in 2005 with the Paris
Club, and obtain new financing from private local banks.

With respect to monetary policy, we have eliminated excess
liquidity. After an increase of 102 percent in 2003, the
monetary base only rose 1.3 percent last year. We achieved
this by employing open market mechanisms.

One of the major problems facing the economy is the
quasi-fiscal deficit of the Central Bank. To reduce this
deficit, the Central Bank is using not only traditional
instruments, but also an integral strategy including
innovations in monetary policy.

I recognize that these technical themes are very complicated
and difficult for most people to understand, but given their
vital importance to the economy, it is necessary that the
people listen and appreciate the immense efforts of the
government to overcome our problems.

Another advance is that investors in Central Bank instruments
who wish to liquidate their holdings before maturity now can
buy and sell them in the secondary market of Dominican
securities, under the same parameters as in international
financial markets.

This, ladies and gentleman, is advancement. This is progress.
This is modernization.

The government has a consistent and reliable strategy to
solve the problem of mounting Central Bank debt. It has
finally succeeded in applying a tourniquet to the hemorrhage
that was bleeding white the Dominican people.

GLOBALIZATION AND TRADE

Because of the rise of globalization, the world has changed
abruptly and radically. Nations that do not transform and
adapt to these new realities will ultimately fail. John
Maynard Keynes, the brilliant English economist, noted that
the difficulty does not lie in adopting new ideas so much as
discarding the old.

The first great challenge of the 21st century is to construct
an efficient and modern national state. Without such
institutions we simply will not exist as a country for the
international community, or for ourselves. We need a state
whose institutions and capacities will inspire confidence in
our citizens and in foreign governments of the entire world.

We will construct a country with efficient institutions and
responsible officials held to the rule of law. It is also
essential to redefine a new paradigm of economic and social
development. Until now, the development model we have
followed for the past two decades has been characterized by
labor-intensive production of textiles and garments oriented
to the U.S. market.

For this administration, there is no dilemma between choosing
competition or an exchange rate equilibrium. Both are dynamic
concepts. What cannot be accepted is the use of monetary
policy as a mechanism to correct structural problems and the
inability of some sectors of the national economy to compete.

The textile sector should, with the government, work out a
plan of reordering and restructuring, with the goal of
producing locally raw materials and intermediate goods that
are used in the manufacture of finished goods for export. We
must create a process of integration of the free zones with
other sectors of the national economy.

The best way to mitigate the effects of the elimination of
quotas on apparel is to strengthen our competitive position
by ratifying the free trade agreement with the United States.
This commercial agreement will help maintain the employment
levels in free zone manufacturing. All of our economic
sectors will go through profound changes as a result of this
new competition.

MEASURES TO PROMOTE COMPETITIVENSS

Taking this into consideration, we have created the Tourist
Cabinet of officials and private sector representatives,
established the National Council of Health and Tourism
(CONSATUR),and signed a Plan of Tourist Development of the
Southeast to develop the Perdenales and Barahona regions.

The conquest of the market for tourism by Brazilians has
begun, and a new Office of Tourist Promotion in Russia is
targeting Eastern Europe.

The agriculture sector continues to play a fundamental role
in the national economy, as the principal generator of
employment for the country and supplier of food. We propose
to create a permanent Program for the Recovery of Basic Food
Production; to strengthen sanitary and phytosanitary
programs; to establish an organized and transparent system of
farm support to guarantee the proper marketing of products
such as rice, beans and garlic; and to implement in the next
two years a Project of Support for the Transition for
Agricultural Competitiveness.

We will strengthen the credit offerings of the Agricultural
Bank, promote a national program to refurbish and build
infrastructure in the rural sector, execute a training
program for technicians and farmers and promote agricultural
exports.

The Dominican Republic,s medium- and long-term strategy for
competitiveness should be oriented toward capital-intensive
production, based on innovation and modern technologies.

THE DIGITAL FUTURE AND EDUCATION

Jeremy Rifkin, in his book "The Era of Access," noted the
significance of the "digital divide." In keeping with this
reality, the administration is working on reviving our
project for a Technology Park in Santo Domingo. We have
concluded an agreement for technology training with the
Stevens Institute of Technology in the United States and the
Pontifical Catholic University Madre y Maestra in the
Dominican Republic.

Considering that the development of human capital is where
the future of the nation lies, we are making education a
priority for this term. We are in process of developing with
teachers, students, and parents a consensus strategy on
curriculum and goals for the Dominican Republic. We aspire
to quality education and are working to install computer
labs, community technological centers, community colleges,
and pilot bilingual education projects in the public school
system. We have also decided to launch a program, the Young
University Student Card, which will help students of limited
means by providing up to 10,000 pesos in
government-guaranteed credit for university students. This
program will immediately cover 25,000 students, and
eventually up to 100,000. The interest rate will be a
preferential 3.5 percent and the minimum payment term 18
months. We will create incentives for the private sector to
hire those students as assistants and interns receiving the
minimum wage.

HEALTH AND WELFARE

In the public health sector, we propose to vaccinate a
million babies under a year old; to cover 85 percent of the
municipalities with high rates of tuberculosis; strictly to
control malaria, dengue fever, rabies and meningitis; to
vaccinate 560,000 students against rubella and measles; and
to provide antiretroviral medications to treat HIV/AIDS.

I am instructing the National Social Security Council to
develop a definitive proposal to provide health insurance
coverage to the families of workers inscribed with Social
Security.

I consider the electricity sector and citizens, security to
be crucial. The government has addressed electricity with a
reform plan designed in consultation with the World Bank and
USAID.

To deal with crime, the government has designed a Plan of
Democratic Security for the Dominican Republic. This includes
the institutional strengthening of the police, the
introduction of community police in areas most affected by
violence, and police training for dealing with extreme
situations such as narcotrafficking and natural disasters.
The police will be provided with vehicles and communication
equipment, bulletproof vests and helmets, and other tools
necessary to increase their street presence.

The process of police recruitment will be modernized, as will
the plans and career programs of the National Police. The
Directorate of Internal Affairs will also be strengthened as
a mechanism of control to combat police corruption, and a
system of evaluation will be established to promote police on
the basis of merit. A professional system of statistics will
be designed, to compile a database and map of crime, to have
real control over criminal activity. A policy of disarming
the citizenry will be designed to regulate and control
weapons.

A SANTO DOMINGO METRO

I am aware of other themes of national interest, including,
for example, the proposal for a Santo Domingo Metro.
Personally, I value all opinions. Similar national efforts
have included Franklin Delano Roosevelt,s New Deal and
France,s Eiffel Tower, both of which were criticized.

In any case, in countries like ours there are two agendas:
one, the satisfaction of the basic needs of the population,
from the pre-modern era; and a modern agenda, according to
which -- as Rifkin says -- we must enter the world of
cyberspace and the digital era.

We are compelled to prepare the way to enter the new economic
world, or we will be condemned indefinitely to remain in
backwardness and underdevelopment.

Let us not fear the challenges of progress, and whatever
decision we make on the Metro, let us all get on board the
train of happiness that will carry us to a future of economic
development and modernity.

Let,s all go ahead together! (E, pa, alante que vamos --
the PLD campaign slogan)

(END PRECIS)


2. This piece and related items can be consulted on our
classified SIPRNET site
http://www.state.sgov.gov/p/wha/santodomingo< /a> along with
extensive other material.
MARSHALL