Identifier
Created
Classification
Origin
05SANTODOMINGO3229
2005-06-16 23:02:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Santo Domingo
Cable title:  

DOMINICAN PRESIDENT ANNOUNCES LPG SUBSIDY TO

Tags:  PGOV ENRG ETRD 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.
UNCLAS SECTION 01 OF 02 SANTO DOMINGO 003229 

SIPDIS

SENSITIVE

DEPT FOR WHA, WHA/CAR, INR, EB/IFD/OMA;
NSC FOR SHANNON;USCINCSO ALSO FOR POLAD;TREASURY FOR
OASIA-MAUREEN WAFER; 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 ENRG ETRD DR
SUBJECT: DOMINICAN PRESIDENT ANNOUNCES LPG SUBSIDY TO
CONTINUE, COUNTER TO AGREEMENT WITH IMF

UNCLAS SECTION 01 OF 02 SANTO DOMINGO 003229

SIPDIS

SENSITIVE

DEPT FOR WHA, WHA/CAR, INR, EB/IFD/OMA;
NSC FOR SHANNON;USCINCSO ALSO FOR POLAD;TREASURY FOR
OASIA-MAUREEN WAFER; 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 ENRG ETRD DR
SUBJECT: DOMINICAN PRESIDENT ANNOUNCES LPG SUBSIDY TO
CONTINUE, COUNTER TO AGREEMENT WITH IMF


1. In a dry presentation broadcast over the government,s
television station late on June 14, Dominican President
Leonel Fernandez announced the continuation without change of
liquid propane gas (LPG) subsidies of 17.29 Dominican pesos
per gallon (about USD 60 cents). Those benefiting are
households and public transport providers, mainly taxis and
mini buses. The announcement of the decision came as little
surprise following several weeks of posturing by all
concerned, including cabinet members, comments in early June
that the president himself would be making the decision.


2. This was a concession to the loud public demands to
continue the subsidy but it was also an inevitable pragmatic
choice. Fernandez commented during his short televised
address that continued use of LPG by public transport offers
environmental benefits, but the reality of the statistics and
deliberations he described was that right now there is no
feasible way of targeting the subsidy more closely. This is
because there is no system in place that will stop the
transport operators from getting hold of LPG distributed for
household use. The government has been working to set up on
a system of debit cards for the poorest households to
provide modest subsidies for food, education and cooking gas,
the project is not yet complete. Only 75,000 cards have been
issued of the planned 200,000.


3. In accordance with the IMF agreement the government had
eliminated the subsidy for industrial users in November of

2004. The agreement was to refocus the LPG subsidy on only
the poorest families, eliminating it altogether for other
households and for the transportation sector. In his
relation of "discussions" of the topic, Fernandez said that
the government had achieved some agreement that households
would suffer unduly from a cutoff of the subsidy at this time
(he tactfully did not state that the "discussions" had been
with the IMF staff). In his speech, Fernandez indicated
that among government concerns were that the drivers using
LPG are not passing along the benefit in the form of lower
fares. Earlier comments by administration officials had
stressed that the transport sector was absorbing 40 percent
of the total LPG subsidy. LPG-fueled vehicles charge the
same fares as those fueled by gasoline. A data chart
presented during Fernandez,s address showed the calculation
that the subsidy RD Pesos 19,300 per driver per year, or
about USD 670, based on 40,000 drivers using LPG in their
vehicles.


4. Fernandez stated that to prevent cross-use by vehicles of
LPG destined for households, expensive investment in
infrastructure would be required, as well as the contracting
of inspectors. He indicated that the government has not
reached a point where this can be implemented.


5. In addition to the technical problems of limiting
subsidized-gas distribution to the poorest families, an
additional condition came to light. Fernandez said that
recent studies by a university institute and by UNDP
indicated that of 182,000 families identified as living in
conditions of extreme poverty, a large number do not use LPG
at all but rather burn wood or coal for household fuel. In
short, the households receiving the subsidy include the
middle class -- a reality that Fernandez explicitly
acknowledged.


6. IMF Resident Representative Ousmene Mandeng (please
protect) commented before Fernandez,s Tuesday announcement
that he was expecting continuation for some period of time of
the current level of LPG subsidies. He added that the
Dominican Republic,s better than expected macroeconomic
performance this year made the disregard for standby
commitments on cutting subsidies less damaging than it
otherwise might have been.


7. While the Dominicans are probably off the hook with the
IMF for now, the writing was on the wall during Tuesday,s
announcement that the days of the LPG subsidy are numbered.
Fernandez indicated that the government still plans the
gradual elimination of the LPG subsidy for all but the
poorest households. He underlined this by saying that it
does not make sense for the government to continue
subsidizing the transport sector or any but the poorest
households in the long term.


8. Drafted by Stephen Wheeler
Hertell