VZCZCXYZ0009
PP RUEHWEB

DE RUEHDG #0766/01 0621716
ZNR UUUUU ZZH
P 031716Z MAR 06
FM AMEMBASSY SANTO DOMINGO
TO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 3836

UNCLAS SANTO DOMINGO 000766 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR WHA/CAR, WHA/EPSC, EB/TPP/BTA/EWH, EB/OFD/OMA; 
TREASURY FOR J LEVINE; DEPT PASS USAID/LAC; DEPT PASS USTR 
(A MALITO) 
 
E.O. 12958: N/A 
TAGS: DR ECON EFIN PGOV ETRD
SUBJECT: DOMINICAN CONGRESS FINALLY APPROVES 2006 BUDGET 
 
 
¶1.  SUMMARY:      On February 15, 2006 the Dominican Congress 
approved the 2006 budget after obtaining minor changes from 
the Executive.  The six-week delay resulted from political 
differences over the administration,s desire to continue a 
levy on exchange commissions, considered by legislators to be 
a tax not authorized by Congress.  Amendments required by 
Congress amounted to a modest increase in expenditures of 
less than half of one percent, to be funded by more effective 
tax collection.  The administration reinstated 
congressionally desired patronage to 900 non-governmental 
organizations.  The budget includes a discretionary fund for 
the President of 5 percent of 2006 revenue, replacing the 
previous practice of allowing the President discretion to 
spend all revenue in excess of projected monthly collections. 
End summary. 
 
- - - - - - - - - - - - 
BACKGROUND 
- - - - - - - - - - - - 
 
¶2. On February 15, 2006 the last day of regular sessions the 
Dominican Congress completed approval of the 2006 budget with 
Senate passage of the amended budget.  The budget is a thick 
document, scrupulously detailed and balanced, drawn up with 
the "Integrated Financial Management System" underwritten in 
part by the Inter-American Development Bank. Delay in 
approving the budget resulted from congressional refusal in 
December 2005 to approve all measures in a tax reform 
package.  The reform package approved by Congress contained 
measures estimated to yield 25 billion pesos, 7 billion pesos 
short of the revenue-neutral budget drawn up by the executive 
upon the assumption of revenue changes with the expected 
entry into force in mid-2006 of the DR-CAFTA trade agreement. 
 
¶3. After its tax reform goals were frustrated, the Fernandez 
administration announced in late December 2005 its intention 
to continue for six months the "exchange rate commission," an 
extra-congressional levy on imports imposed by the Monetary 
Board of the Central Bank.  Senate President Andres Bautista 
insisted at the time that the levy was illegal and 
unacceptable. 
 
¶4. The administration and congressional leadership met 
repeatedly in January and early February 2006 to negotiate 
budget amendments that would satisfy congressional concerns. 
Partisan party politics were an important factor, since the 
opposition PRD and PRSC parties control congress.  All 
parties are preparing candidacies for the May 2006 
congressional and municipal elections. 
 
- - - - - - - - - - - - - - - - - - - - - - - - - - - 
ELEMENTS OF THE AMENDED BUDGET 
- - - - - - - - - - - - - - - - - - - - - - - - - - 
 
¶5. NGOs.  The Dominican budget traditionally includes a long 
list of government subsidies to non-governmental 
organizations of all types across the country, down to the 
level of a chess club in the northern coastal town of Nagua. 
The original Fernandez budget cut 900 NGOs from this list, 
probably with an eye to reducing the patronage of opposition 
congressmen.  The February addendum reinstituted all of these. 
 
¶6. National Election Commission (JCE).  Head of the PRD 
National Election Commission Luis Arias had pressed publicly 
for restoration of modest amounts cut from the JCE budget, 
asserting that without restoration the May elections would be 
at risk.  The revised budget provides an additional 94 
million pesos (USD 2.8 million) for the JCE. 
 
¶7.   CAFTA-DR Duty Changes.  The Tax Reform Bill of December, 
2005, raised a number of domestic taxes at the same time that 
it provided for changes, reductions, and elimination of 
duties on a lengthy, specific list of customs categories, in 
keeping with the obligations of the regional trade agreement. 
 These changes in tariff treatment are to take place upon the 
entry into force of CAFTA-DR.  The budget includes an item of 
"taxes on imports" of 13.4 billion (about USD 400 million). 
Since both in its first and amended proposals the government 
stated that the agreement would enter into force on July 1, 
it appears that a significant proportion of the funds under 
this revenue item represents collections on imports of U.S. 
merchandise during the first six months of the year. 
 
¶8.  The Exchange Commission.  An addendum to the budget 
states that the Monetary Board will derogate completely the 
decrees that established the exchange commission.  This levy 
on the CIF value of imports was created in 1991 and increased 
to 13 percent in January, 2004.   The WTO Dispute Settlement 
Body found in May 2005 that the levy was prohibited under 
Article 3 of the GATT, and in August 2005 plaintiff country 
Honduras agreed to grant the Dominicans 24 months to end it. 
As of March 3 the Monetary Board has not yet announced this 
action. 
 
¶9.  The Transitory Tariff.  In place of that WTO-prohibited 
levy the budget law enacts a transitory six-month tariff of 
13 percent of CIF value of imported goods (on the face of it, 
a measure equally incompatible with WTO obligations.) 
Collections from this levy appear to be included in the 
revenue line of 12.7 billion (USD 384 million) from "other 
taxes on foreign trade," virtually identical with the yield 
from "taxes on imports."  Considering that by far the 
greatest amount of dutiable imports originates in the United 
States, by continuing duties for half a year and at the same 
time applying the transitory tariff, the budget is loading 
the equivalent of a full year of customs duties into six 
months.   If entry into force is achieved on July 1, the 
authorities will still face the need for serious 
restructuring for 2007, either in expenditures or in 
revenues.  If the implementation date should slip, as seems 
entirely possible given the Dominican Republic's trailing 
place in the implementation queue, the government will 
continue to collect regular customs duties on U.S. goods -- a 
clear "bonus"  for every month of delay. 
 
¶8. Millennium Challenge Goals.  The Embassy,s very 
preliminary estimates of 2006 GDP suggest that amounts 
programmed for primary level public education are roughly 2.5 
percent of GDP and amounts for public health care 
approximately 3 percent of GDP.  If so, this could mean that 
the Dominicans might meet MC Corporation criteria for 
education and have moved significantly toward the mid-point 
for MCC criteria for public health. 
 
¶9.  Presidential Discretionary Spending. Earlier budgets 
authorized the President to allocate at his discretion 
revenues exceeding estimates for monthly collections. 
Following IMF advice, the new budget eliminates Presidential 
discretion over monthly revenue in excess of budget, 
replacing it with a fixed Presidential Discretionary Fund of 
5 percent of the budget (9.878 billion pesos, or about USD 
291 million.).  The budget also specifies a fund of 1 percent 
(USD 50 million) for national emergencies.  The addendum 
stipulates that amounts in the discretionary fund not 
expended during the calendar year may be held over to 
subsequent fiscal years. 
 
- - - - - - - - - 
COMMENT 
- - - - - - - - - 
 
¶10.   Budget discussions were generally businesslike, aimed 
at solving the impasses.  The technicians and congressional 
leadership generally did not take partisan positions on the 
issues.  In contrast, Fernandez,s chief of staff Danilo 
Medina and PRD president Ramon Albuquerque regularly made 
assertions aimed at the coming political campaign.  Both 
sides demonstrated firmness, budget numbers budged hardly at 
all and the package was approved on the last day of the 
regular legislative session, February 15, thereby fulfilling 
a key requirement for IMF Board review in March of the 
revised terms of the standby agreement. 
 
¶11.  Following is a summary chart of the budget as approved, 
expressed in billions of Dominican pesos.  One billion pesos 
is approximately equal to USD 29 million. 
 
Budget                                          Amount 
pct GDP 
 
            pesos billions             (est.) 
 
Total                                     190.806     24.46 
 
Senate                                          1.106 
0.14 
House of Representatives                        2.580 
0.33 
Presidency                                18.802 
2.46 
President,s Discretionary Fund                 9.878 
1.27 
        NOTE:  above 2 items include: 
        Office of the President       7.7 
         258 public works proj.       2.4 
          Transport Reform              3.0 
           --incl for Metro 1.8 
          contributions to NGOs     2.8 
         Social Programs                4.1 
         Technical Svcs                  4.4 
 
Interior & Police                         5.938       0.82 
Armed Forces                                    8.450 
1.11 
Foreign Relations                         2.242       0.30 
Finance                                   4.481       1.01 
Education                                 18.627 
2.45 
Public Health & Social Assistance               18.018 
3.03 
Sports, Physical Education & Recreation         1.498 
0.22 
Labor                                     0.732       0.17 
Agriculture                               4.546       0.69 
Publications & Communications             4.031       0.71 
Industry & Commerce                             .827 
0.11 
Tourism                                   .583        0.07 
General Procurement                             1.512 
0.19 
Women                               0.224       0.03 
Culture                                   0.879       0.11 
Youth                                     0.186       0.02 
Environment & Natural Resources                 2.041 
0.36 
Education, Science & Technology                 2.711 
0.36 
Justice                                         3.166 
0.41 
Junta Central Elections                   1.800       0.24 
Accounting Office                         0.357       0.05 
Public Debt                               19.139 
4.53 
Subsidies and Pensions                    17.054 
3.00 
Independent Governmental Agencies         0.930       0.17 
KUBISKE