DOMINICAN POLITICS II #1: LEONEL'S GRAND NATIONAL

UNCLAS SECTION 01 OF 04 SANTO DOMINGO 004653

SIPDIS

STATE FOR WHA, WHA/CAR, WHA/EPSC, INR/IAA, EB/ESC/IEC/EPC;
STATE PASS USTR FOR VARGO, MALITO, AND HAUDA;
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TREASURY FOR OASIA-MAUREEN WAFER; USDA FOR FAS;
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USDOC FOR 3134/ITA/USFCS/RD/WH; DHS FOR CIS-CARLOS ITURREGUI

E.O. 12958: N/A
TAGS: ECON ETRD DR EPET EFIN ENRG PGOV
SUBJECT: DOMINICAN POLITICS II #1: LEONEL'S GRAND NATIONAL
CONSULTATION



1. This is the first in a series of political reporting on
the second year of the
administration of Dominican president Leonel Fernandez.

LEONEL'S GRAND NATIONAL CONSULTATION

Over the weekend of October 9-10, with a hastily organized
grand national seminar Dominican
President Leonel Fernndez sought to move the nation's eyes
from its long economic plight to
the prospects and requirements of economic recovery based on
dialogue, consensus and social
responsibility. "This has been memorable," he told
participants at the end of the two days
of nationally televised sessions. "This is not a new type of
academic encounter; it is an
effort to elaborate a plan, jointly and through consensus."

This was the same approach that the President had used on tax
reform, electricity reform,
and anti-corruption: he put himself before a room full of
eloquent and informed individuals
with interests to defend and asked them to recognize the
national interest in addition
to their own. He asked them to help the country undertake a
"titanic transformation."

Opening speaker Technical Secretary Temistocles Monts called
for "a consensus, not
conflict, for a social pact" along the lines of Spain's
Montcloa Pact 28 years ago, an
accord to pursue the national interest with policies that are
anti-inflationary, restrictive
of spending, education-minded and willing to embrace reforms
of tax structures.

Organization of the event was hasty and slipshod, especially
considering that the announced
objective was inclusiveness and consensus. Fernndez gave
his staff two weeks to put it
together. Invitations were dated October 4 but arrived to
surprise most participants,
including this Embassy, late on Friday, October 8 for
sessions opening the next morning.
The opposition PRD said its leaders had already made plans;
only President of the House
of Representatives Alfredo Pacheco appeared, attending the
Saturday morning session.
Fernndez's Commissioner of Insurance, venerable PLD leftist
Euclides Gutierrez, made
no secret of the fact that senior government officials were
obliged to be there.

The audience of several hundred represented most of the
country's political and economic
elites from government, the private sector, political
parties, civil society, the
diplomatic corps and international financial institutions.

The themes that emerged were not new. Off-the-shelf
presentations, lectures and Q&A
sessions outlined macroeconomic and financial problems, the
Dominican Republic's lack
of international competitiveness (102 out of 117 ranked by
the World Economic Forum),
the overhang of Central Bank debt, the precarious electricity
sector with its annual
bill of US$500 million for subsidies, the fiscal hit
impending with the implementation
of the CAFTA-DR free trade agreement ("just 50 days from
now"),the oil shock, and the
abysmal state of infrastructure, education and health
services.

Hugo Rivera Santana of the Industry and Commerce Ministry,
assured the participants
that the government was already at work on measures required
for the entry into
force of the free trade agreement (CAFTA-DR) and told them of
the possibility that
the country might eventually qualify for U.S. assistance
through the Millennium
Challenge Corporation.

- - - - - - - -
The Summing Up
- - - - - - - -

Fernndez presented some bills and outlined his intentions
with his hour-long closing
talk on Sunday. He picked up the metaphor from his 2004
inaugural speech: the
Dominican Republic is no longer a critically ill patient in
intensive care but
rather one in the recovery room; now the country must
understand the origins of
its tragic illness. "This crisis was the result of
mismanagement of fiscal, monetary
and exchange policies that raised the public debt to the
equivalent of more than
55 percent of GDP. In the previous administration the
national debt almost quadrupled.
There lies the origin of the nation's ills."

Acknowledging the minority status of his party, Fernandez
thanked congressional
representatives for helping formulate the 2004 tax package,
praised the approach
of dialogue and asked for support in carrying out fiscal
reform. This one would
be a transformation of the tax system, shifting great
responsibilities from Customs
to Internal Revenue. "I reject the misguided assertion that
the tax reform is
for 9 billion pesos too much."

The exchange rate will be determined by the market.
Fernandez acknowledged the
difficulties faced by free zone manufacturers and the tourism
sector due to the
prevailing rate.

The free trade agreement offers great opportunities and might
lead to a
hemisphere-wide agreement. The country needs to think in
addition of an agreement
with the European Union and to strengthen its links with
Spain.

Solving the problems of electricity supply once and for all
was crucial for
improving competitiveness. The approach of partial
privatization adopted in
his 1996-2000 administration was valid and had succeeded
elsewhere in Latin
America. "Privatization was not invented by the Dominicans."
Facing a probable
deficit in generation capacity in 2007, he said, "We have
been calling for a
public request for tenders for new investment in generation."
A Spanish firm
will be setting up a wind farm in the southwestern area of
Bani and the Mexican
has invited Dominican officials for next week to discuss a
possible petroleum
agreement that could include Central American countries. The
government has
begun international contacts to look at the possibilities of
developing ethanol
as an alternative fuel. Fernandez said that Santo Domingo
needs mass public
transport using new energy sources, such as a Metro.

Many electricity generation contracts were not negotiated
openly or transparently.
"We should not have to pay for electricity that is not
delivered. This must be
reconsidered, renegotiated and redistributed." Electricity
must be available to
users at reasonable rates, which "is not possible according
the terms of some of
these contracts. So that, here and now, I put on the table
my definite intention
to call a meeting to set up the renegotiation of energy
contracts." (Strong applause.)
He called on energy distribution companies to install meters
and improve supervision
over collections -- "which should not be difficult, since as
the World Bank
representative said, 85 percent of those who do not pay do
have the means to do so."
He pledged that the government would demonstrate the
political will to carry this
out. (Renewed applause.)

The country cannot achieve its Millennium Development Goals
without help, he said.
"This will cost US$ 29 billion, compared with the US$ 18
million of our entire
Gross Domestic Product." He asked for the active and dynamic
participation of
international organizations and suggested that rich countries
follow the suggestion
expected from Spain at this week's Ibero-American summit:
canceling debt in
exchange for investment in education. "Such a measure is not
charity or
philanthropy, but rather an investment by the rich countries
to assure that
poverty does not reach their shores."

Among the principal challenges are education, health, and the
improvement of
phyto-sanitary standards, along with other conditions in
keeping with human dignity.
Justice must be totally depoliticized and there must be real
transparency in
the handling of public funds.

The two-day seminar had been a success, he said, and he
announced that he would
be appointing commissions to meet monthly to continue the
work; participants would
be called together anew at the end of 2005.

2. (U) Drafted by Michael Meigs

3. (U) This piece and others in our series can be consulted
at our SIPRNET web site,
http://www.state.sgov.gov/p/wha/santodomingo< /a> along with
extensive other material.

MINIMIZED CONSIDERED
HERTELL