This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 02 SANTO DOMINGO 005998 
 
SIPDIS 
 
NSC FOR TOM SHANNON; TREASURY FOR U/S TAYLOR, N LEE, L 
LAMONICA; DEPT PASS AID 
 
E.O. 12958: DECL: 10/24/2005 
TAGS: EFIN PREL ETRD DR
SUBJECT: DOMINICAN FINANCE OFFICIALS ACKNOWLEDGE NEED TO 
WORK WITH IMF 
 
REF: A) STATE 299908 B) LAMONICA/URS/KUBISKE E-MAIL 
 
     10-24 
 
Classified By: Charge d'affaires Lisa Kubiske.  Reason: 1.5 b & d. 
 
¶1.  (C) Summary. On Oct 24, in reply to delivery by Charge of 
ref A demarche on the importance of GODR fulfillment of 
obligations unders its IMF standby agreement, Dominican 
Secretary of Finances Calderon and Central Bank Governor 
 
SIPDIS 
Malkun each confided separately that the GODR has been taking 
the standby agreement seriously and continues to work, with 
unofficial consultative help from the IMF, to meet its 
program obligations.  Indeed, Malkun said, the GODR's drastic 
cut in spending has met IMF targets, although raising 
revenues in ways permitted by Dominican law remains a 
problem.  Calderon asked for help in obtaining release of the 
IDB social sector loan disbursement of USD 100 million.  End 
summary. 
 
FINANCES 
 
¶2.  (C) On October 24 Charge presented talking points from 
reftel a to Finance Secretary Calderon, explaining that this 
formal approach was evidence of deep USG concern about the 
GODR situation.  Calderon replied that he had already spent 
half an hour on the telephone with Treasury U/S Taylor, who 
had expressed grave concern about Dominican economic figures 
and had noted the market's increasing discount of Dominican 
debt.  Calderon said that IMF staff are still in country, on 
an unofficial basis, and working closely with the Government. 
 He asserted that the GODR had managed to fulfill most of the 
performance criteria, but stressed that the delay of 
disbursements from the IDB and the World Bank was a major 
difficulty.  Calderon disagreed with the assertion that the 
debt ratio had risen above 50 percent of GDP.  The debt ratio 
was at 49 percent, following the conclusion of the IMF 
program, but the Union Fenosa buy-back would have "minimal 
impact."  Initial evaluations in the press of the transaction 
had not taken into account the fact that the GODR was already 
a 50 percent shareholder in the enterprise; once its takeover 
of the assets is taken into account, there is a net decrease 
of USD 5 million in GODR exposure (sic). 
 
¶3.  (C) Calderon expects that the private evaluators of the 
electricity sector will finish their work "by next week" 
(Oct. 27-31) "or by November 10 at the latest."  He expects 
that the IMF will be back to review the situation around 
November 15, with a view to recommending an adjusted 
agreement to the Board for approval on December 15. 
 
¶4.  (C) Revenue levels are the greatest concern for the GODR, 
particularly with the Supreme Court's overturning of the 
presidential decree imposing taxes on imports (the Dominican 
constitution does not provide for taxation by decree).  The 
Monetary Board has just raised the levy on exchange rate 
transactions for importers from 4.75 percent to 10.0 percent, 
effective over the next 14 months -- a measure which requires 
no congressional action.  Calderon said that private sector 
leaders argued last week with the GODR over draft legislation 
to tax exports, and the sides traded legal opinions on the 
matter.  Elena de Viyella, president of the leading 
manufacturers' association CONEP, has told him that CONEP 
will provide "alternative proposals" next week. 
 
¶5.  (C) The Charge expressed concern that measures for new 
taxes on imports might affect broader trade relations. 
Calderon believed that "across the board" increases limited 
in time would not be problematic, since they would not 
discriminate among traded items.  Looking to the mid-term, he 
said, the GODR and the IDB are preparing projects for 
fundamental reforms of the taxation system, to be instituted 
in mid- or late 2004 ("by the next government, which we 
expect to be this one!"). 
 
¶6.  (C) The Finance Secretary pressed emboffs on the GODR's 
urgent need for funds and twice asked for help in obtaining 
disbursement of the USD 200m IDB social sector loan ahead of 
the IMF decision -- "with the IMF's tacit approval." The 
Charge stressed that multilateral development banks and the 
IMF work very close together.  She again urged the need to 
come to terms with the IMF. 
 
CENTRAL BANK 
 
¶7.  (C) That same morning Central Bank Governor Jose Lois 
Malkun received Emboffs in his shirtsleeves, seated at his 
worktable piled with folders.  He listened attentively to the 
presentation and scanned the text of talking points.  The 
situation is difficult, he acknowledged, but the GODR is 
working very closely with IMF staff who are in country on an 
unofficial basis.  The financial impact of the Union Fenosa 
transaction is not clear, and interpretations differ. 
 
¶8.  (SBU) The Bank has withdrawn liquidity by issuing 
certificates of deposit, but the exchange market is being 
driven 90 percent by psychology, Malkun said.. 
 
¶9.  (SBU) Though the GODR has accumulated various arrears, 
generally of 20 to 30 days, Malkun hopes to be able to get 
current in debt service by early December. 
 
¶10.  (SBU) Malkun emphasized that the GODR's problem is 
revenue, not expenditures.  Malkun pulled out an IMF table 
from a folder in front of him and pointed to figures showing 
that third-term public consumption was down 4.6 percent, with 
third-term public investment down 57.7 percent (in comparison 
to one year earlier).  Malkun said that the GODR is meeting 
and in some cases surpassing its other fiscal targets. 
 
¶11.  (C) The President is aware of the IMF requirements, 
Malkun said, and is very unhappy that he can't carry out 
intended projects. This dilemma is a sort of "political 
suicide" for him.  Congress does not help, because of its 
reluctance to approve revenue measures. He does not like the 
new measures to tax exchange transactions for imports; the 
IMF permits levies in the range of 2 to 3 percent, but 7 to 
10 percent is excessive. 
 
COMMENT 
 
¶12.  (C)  These same GODR officials received the Ambassador 
and EXIMBANK officials earlier this week and discussed some 
of the same concerns.  Their immediate availability is an 
indication of the seriousness with which they take USG views. 
 Our impression is that they do indeed understand IMF 
concerns and requirements, and that they are giving straight 
advice to a president who understands it, even if he is not 
pleased by it. 
KUBISKE