Identifier
Created
Classification
Origin
05SANTODOMINGO4210
2005-09-06 20:19:00
UNCLASSIFIED
Embassy Santo Domingo
Cable title:  

DOMINICAN PROJECTS CONSIDERED BY EXIM

Tags:  DR ECON EFIN 
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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 03 SANTO DOMINGO 004210 

SIPDIS

E.O. 12958: N/A
TAGS: DR ECON EFIN
SUBJECT: DOMINICAN PROJECTS CONSIDERED BY EXIM

UNCLAS SECTION 01 OF 03 SANTO DOMINGO 004210

SIPDIS

E.O. 12958: N/A
TAGS: DR ECON EFIN
SUBJECT: DOMINICAN PROJECTS CONSIDERED BY EXIM


1. (SBU) SUMMARY: Just less than one year after their last
visit, Export Import Bank (ExIm) Senior Vice Presidents
Jeffrey Miller and John McAdams traveled to Santo Domingo to
review debt collection and new projects. Prepared for
positive news by optimistic economic reporting in the
international press, ExIm was not surprised by reports by the
Dominicans that the economy is well and reform is on track.
Despite this, ExIm ended the visit only guardedly optimistic,
interested in a $4.5 million deal for patrol boats for the
Navy and considering guarantees on a portion of a low-income
government-housing program. End summary.

The Economy
--------------


2. (SBU) Eleven months after they last came to the Dominican
Republic, ExIm Sr. Vice Presidents Jeffrey Miller and John
McAdams visited Santo Domingo July 25-27 to meet with
government and private sector officials to discuss the status
of debt and ExIm's prospective projects for the Dominican
Republic. Central Bank Governor Valdez Albizu, Finance
Minister Bengoa and Technical Secretary Montas each quoted a
list of positive economic statistics, as if reading from the
same set of notes. High growth, low inflation and the strong
peso, goes the reasoning, mean that the climate is good again
for lending.


3. (SBU) President of Banco Popular Manuel Grullon had a less
optimistic view, commenting that growth is being driven by
the telecommunications sector and that the number of
unemployed today is greater than it was two years ago. (Note:
in fact, according to Central Bank statistics, at 18.4
percent, unemployment is higher than at any time since 1993.)
Grullon said that only wealthy consumers have maintained
their purchasing power, construction and real estate are
flat, and free trade zones are still contracting. He
suggested that government growth figures (released last week
at 5.8 percent for the second quarter) are overstated.


4. (SBU) Grullon said that many sound businesses have
suffered due to currency fluctuations over the past two
years. Many good companies are consequently low-graded for
loans and banks are therefore required to maintain
unreasonably high reserve requirements (up to 50 percent)
when loaning them money. Miller suggested that a possible
fix would involve Dominican banks establishing a relationship
with a correspondent bank in the United States with backing

by ExIm guarantees. Grullon said that Banco Popular would be
interested in pursuing this strategy.

Unexpected Arrears
--------------


5. (SBU) Bengoa and Valdez Albizu indicated that the country
has resolved its debt problems and they were surprised when
McAdams informed them that as of June 30 the government is $9
million in arrears to ExIm. Neither the Finance Ministry nor
the Central Bank seemed aware of the amount outstanding prior
to the meeting with ExIm. Following some discussion, it
appeared that the $9 million figure represents a 2005
installment of rescheduled debt that the Dominican Republic
hopes will be rescheduled during September meetings with the
Paris Club. Miller and McAdams made it clear to both Bengoa
and Valdez Albizu, and later the president, that ExIm would
be unable to enter into any new agreements as long as the
Dominicans remained in arrears.

New Projects
--------------


6. (SBU) President Fernandez prioritized potential ExIm
guaranteed loan projects. He said that a National Police
project ($85 million),Public Employee Housing ($88 million),
Electoral Equipment ($63 million) and a modified, cheaper
transportation system for Santo Domingo (one year ago being
planned as a costly subterranean metro) are tops on the list.



7. (SBU) The National Police project includes provision of a
$24 million digital radio system, for which the Embassy
understood the Dominicans to have already chosen Motorola.
However, Finance Minister Bengoa told ExIm that the entire
project had been returned to his office by Legal Counsel to
The Presidency Cesar Pina Toribio with instructions that it
be put out for public bid. Pina Toribio confirmed this at a
later meeting.


8. (SBU) ExIm said it will go forward with guarantees for a
$4.5 million loan for the Dominicans to purchase four
fourteen-meter fast patrol boats from Louisiana manufacturer
Swift Ships, which built them for a Venezuelan deal that fell
through. The Ambassador and DCM expressed concern over past
experiences with Dominican purchases from the same company of
craft where the Dominicans failed to follow up with proper
training of sailors and maintenance of ships, resulting in
damaged, sometimes unserviceable equipment. ExIm told the
President it would also consider a project to provide
low-income public housing, but only after the contracting
firm breaks it down into smaller, less costly parts. The
project is expected to be spread over three years.

Structural Reforms
--------------


9. (U) Technical Secretary Montas said that the IMF
obligation receiving the most attention is structural reform,
specifically, centralization of budget planning, a process
now in the hands of the Technical Secretary. A long-term
characteristic of Dominican government has been that the
President has discretionary power to spend budget surplus
funds. IMF has argued that use by the President of surplus
funds should be restricted. A bill intended to limit the
President,s discretionary spending ability will be sent to
Congress in September. Montas said that the bill will create
a new ministry responsible for budget planning and will also
define broader budgetary strategies.

Baninter-related obligations
--------------


10. (SBU) ExIm seeks repayment for two loans (about $10
million total) for which it had received secondary guarantees
from Baninter, the largest of three banks to fail in the 2003
crisis. McAdams told the Central Bank Governor that he had
understood that the Government would stand behind Baninter
correspondent banking relationships, and cited examples where
it had paid Baninter debts to European banks. He said he was
surprised that it was not honoring similar responsibilities
to ExIm. Valdez Albizu responded that the Central Bank
"wants to honor past government promises," then added, "but
you deserve the truth. There is no legal obligation of the
state (to pay),only a moral one." Valdez Albizu said that
the only way to meet the obligations was by selling assets, a
limitation placed on the Dominicans by the IMF. Valdez
Albizu stressed that the Dominicans need to keep doors open
to foreign development financing; he understood that if the
government does not pay, it cannot expect to receive new
loans in the future. He asked for understanding that he has
been involved in "a very difficult bank salvage operation"
(Baninter) and that he is "surrounded by cannibals wanting my
head."


11. (SBU) President Fernandez was somewhat more thoughtful
when addressing the Baninter debt to ExIm. Looking at the
two loans separately, he said that in one case the borrower,
as a still economically sound individual, should be held
responsible, and in the other the Government should make good
on Baninter,s obligation.


12. (SBU) ExIm suggested that it recoup its position by
identifying and re-claiming equipment bought with the
ExIm-backed money for these projects. Valdez Albizu said
that if they proceeded that way, the proceeds would have to
be shared with the Central Bank, which had also suffered.
ExIm found this not very satisfactory, given that the Central
Bank has unconditionally honored Baninter's debt to some
European banks. Valdez Albizu noted that the difference was
that the European banks had secured loans, and insisted that
it was the IMF requirement that was preventing the Central
Bank from honoring its ExIm obligations. It was agreed that
ExIm would provide the Central Bank with a detailed list of
items financed under the Baninter guarantee. ExIm stressed
that it would condition new projects on fair treatment with
regard to Baninter, as it did with regard to arrears.

Inefficient Loan Approval Process
--------------


13. (SBU) In a meeting with Presidential Legal Advisor Pina
Toribio, Miller expressed ExIm's frustration with two
projects it had agreed to back, earlier approved by the
Dominican Congress and then subsequently returned to Congress
by the Technical Advisor for new approval after ExIm signed
on. Pina Toribio said the problem was that companies had
submitted projects to Congress before ExIm was included in
the proposals. Not until approval from Congress had been
secured did ExIm sign on as guarantor and only then was it
specified in the proposal. The proposal as modified to
include ExIm had to be returned to Congress for final review.



14. (SBU) This is an ongoing problem, Pina Toribio
explained, and there is no alternative to the time-consuming
procedure unless ExIm is included in the original project
proposal submitted to Congress. Miller said that the glitch
keeps the system from working efficiently and vowed to work
with the Technical Secretary to resolve the problem, possibly
by having ExIm included provisionally by companies in the
draft project proposal.

Multiuso Sports Facilities
--------------


15. (SBU) An ExIm-guaranteed project initiated under the
Mejia administration to build 115 sports/community centers
dubbed "multiusos" was never completed and is now under
investigation. The ExIm guarantee is for $54 million, and
the Dominican Secretary of Sports indicates that much of the
project is incomplete, equipment is missing and he is having
a difficult time documenting what work has been done and what
should be paid for.


16. (SBU) The Dominican Attorney General recently appointed
an investigator to assess the status of the multiuso project
and to look for illegal activity. The first payment for the
loan was due in late July. When asked whether the Dominican
government would repay in light of the problems that have
surfaced, Central Bank Governor Valdez Albizu responded that
the Central Bank would pay when it received instruction from
the Finance Ministry to do so. Given the ongoing
investigation, however, the order to pay might not happen any
time soon. (Note: The Secretary of Sports told economic
officer on August 7 that his ministry needs more time to sort
out the status of the project before it can move forward on
approving payments).

17. (SBU) Comment: The message ExIm took away from the visit
was reflected in its decision to proceed with caution on new
commitments. Arriving in Santo Domingo with a portfolio of
potential new projects amounting to more than $800 million,
Miller and McAdams left with a commitment to the $4.5 million
patrol boat project and plans to consider supporting other
projects worth less than $200 million broken down into
segments spread over several years and contingent upon
arrears being resolved.

18. (U) This cable was cleared by Eximbank.
HERTELL