SANTO DOMINGO ECONOMIC-POLITICAL ROUNDUP, JULY 22,

UNCLAS SANTO DOMINGO 001184

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STATE FOR WHA/CAR

E.O. 12958: N/A
TAGS: PGOV ECON ENRG KJUS DR
SUBJECT: SANTO DOMINGO ECONOMIC-POLITICAL ROUNDUP, JULY 22,
2008

(U) In this edition of the roundup:


1. Government,s Plan to Address Economic Crisis

2. Fernandez Focused on Constitutional Reform

3. Subsidy Must Keep Pace with Oil Prices or Lights Will Go
Out

4. Astwood Extradition Controversy


1. (SBU) Government,s Plan to Address Economic Crisis

In a speech on July 17, President Fernandez announced the
government,s plan to address the economic crisis, created by
the rising cost of food and oil, by cutting back on
government spending, although most government salaries will
be increased, and by better targeting some subsidies for the
poor. The Finance Ministry is expected to send a
supplementary budget to the Congress soon. According to
Fernandez, government spending in the last quarter of the
year will be cut by 20 percent, with no funding going toward
new infrastructure projects. Fernandez announced a 15
percent increase in government salaries for employees earning
less than 30,000 pesos (USD 882) a month, which includes 97
percent of public employees. Salaries of more than 200,000
pesos (USD 5,882) a month would be cut by 10 percent and
those between 150,000 (USD 4,411) and 200,000 pesos would be
cut by 5 percent.

Fernandez acknowledged that subsidies in the energy sector
are unsustainable given the high international oil prices.
He outlined a detailed plan to reduce Liquefied Petroleum Gas
(LPG) subsidies which are currently provided to all sales of
LPG with no restriction. The GoDR will only permit 24,000
drivers of collective taxis and 800,000 poor households to
obtain limited amounts of subsidized LPG. Although the new
subsidy will be USD 1 per gallon, double the current subsidy,
Fernandez said targeting the subsidy would save the
government USD 185 million on a yearly basis. Fernandez
offered a vague plan for the electricity sector, including
unspecified measures to reduce the cost of energy generation,
new limitations to the Blackout Reduction Program and the
deployment of 10 million fluorescent light bulbs to replace
incandescent bulbs. He added that the government would
increase its efforts to promote the production of renewable
energy and biofuels. Regarding agriculture, Fernandez called
for increased production and the strengthening of research on
innovative technologies. COMMENT: The speech lacked many
details of how the measures would be implemented. Some
members of the opposition parties commented in the media that
the proposals are not new and that Fernandez has previously
said he would cut government spending but has not followed
through. Critics in the agriculture sector said they had
hoped for new financing for production and subsidies for
gasoline to address the high cost of transporting their goods.


2. (SBU) Fernandez Focused on Constitutional Reform

There are strong indications that constitutional reform will
be a key priority of the next administration of Leonel
Fernandez and his ruling PLD party. In a meeting with
POLOFF, Alejandro Montas, a member of the PLD leadership in
the House, said that it was likely that Fernandez would
submit his proposed amendments to Congress on August 16 --
the same day that he is inaugurated. In comments to the
media, the leadership of the opposition PRD party said that
they planned to submit a rival package of amendments, and
repeated their call for a Constituent Assembly to be elected
to consider the changes. COMMENT: The big question is
whether Fernandez will seek to eliminate term limits on the
presidency. POLOFF asked Montas how the PLD planned to
obtain the two-thirds majority in the house that they require
to amend the constitution. Montas replied that there was the
possibility that Fernandez and former President Mejia would
strike a deal in which term limits would be eliminated
(favoring both men) and Mejia would deliver the necessary PRD
votes. In a sign that the PLD has a unity issue to manage,
Montas added that he supports term limits, noting that he is
a supporter of Danilo Medina, a Fernandez rival within the

PLD who has his eyes on another run for the presidency.


3. (SBU) Subsidy Must Keep Pace with Oil Prices or Lights
Will Go Out

Energy company executives told EconOff that they are worried
of a possible fiscal crisis if the government proves unable
to maintain its high level of subsidies that are necessary to
keep the grid from going dark. Economy, Planning and
Development Secretary Temistocles Montas told the press July
21 that the government will not fully cover the
under-budgeted deficit in the sector, offering figures that
suggest a shortfall of about USD 300 million. If this
happens, the grid will go dark, said AES Dominicana President
Marco de la Rosa. He noted, however, that GoDR energy
officials have assured him that the subsidy will continue and
acknowledged an internal dispute regarding how the government
will handle the subsidy in light of high oil prices.
Dominican Corporation of State Electricity Companies (CDEEE)
Radhames Segura told de la Rosa that the government may seek
to renegotiate the power purchasing agreements, noting that
the generators, profit margins have grown with the increase
in oil prices. De la Rosa said that AES may be amenable to
this request if the state pays off frozen debt from 2004, but
with two months, arrears to the sector adding up to more
than USD 100 million, he doubts that the GoDR will entertain
this offer. On July 18, The CDEEE announced the payment of
April,s invoice and Segura told energy generators that the
government intends to remain two months behind in payments,
which at current prices is about USD 100 million. De la Rosa
told EconOff that while this amount is manageable, any
further delays could inhibit AES, bimonthly purchases of USD
40-million natural gas shipments.


4. (SBU) Astwood Extradition Controversy:

On July 8, the five judges of the Penal Chamber of the
Dominican Supreme Court wrote to the Ambassador expressing
indignation over our June 20 diplomatic note protesting the
misapplication of the Dominican statute of limitations in the
extradition case of Juan Astwood Burgos, who is wanted in the
United States for the murder of a policeman. The Supreme
Court also asserted in its letter (incorrectly, we believe)
that the U.S. has not carried out any extraditions to the DR
in 100 years. Several Dominican newspapers carried the story
on July 22, as the media had obtained copies of the Supreme
Court,s letter and our original diplomatic note. Our press
guidance is that we maintain excellent working relations with
all levels of the Dominican judicial system and do not
comment on diplomatic communications, which are private.

(U) Please visit us at
http://www.state.sgov.gov/p/wha/santodomingo/
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