VZCZCXYZ0002
PP RUEHWEB

DE RUEHDG #2987 2612028
ZNR UUUUU ZZH
P 182028Z SEP 06
FM AMEMBASSY SANTO DOMINGO
TO RUEHC/SECSTATE WASHDC PRIORITY 6140
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHWN/AMEMBASSY BRIDGETOWN 1958
RUEHCV/AMEMBASSY CARACAS 0651
RUEHGE/AMEMBASSY GEORGETOWN 0890
RUEHKG/AMEMBASSY KINGSTON 2633
RUEHPO/AMEMBASSY PARAMARIBO 1030
RUEHPU/AMEMBASSY PORT AU PRINCE 4345
RUEHSP/AMEMBASSY PORT OF SPAIN 1710
RHEHNSC/NSC WASHDC
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 1556
RUEAHLC/HQS DHS WASHDC
RUCOWCV/CUSTOMS CARIBBEAN ATTACHE MIAMI FL
RUMISTA/CDR USSOUTHCOM MIAMI FL

UNCLAS SANTO DOMINGO 002987 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR WHA, WHA/CAR, WHA/AND, INR, EB/ESC/IEC/EPC; 
TREASURY FOR OASIA-JLEVINE; DEPT PASS USDA FOR FAS; USDOC 
FOR 4322/ITA/MAC/WH/CARIBBEAN BASIN DIVISION 
USDOC FOR 3134/ITA/USFCS/RD/WH; 
 
E.O. 12958: N/A 
TAGS: ETRD EFIN DR
SUBJECT: IMF: DOMINICANS MISSING FISCAL TARGETS 
 
¶1. (U) Summary: IMF resrep Erik Offerdal told the Ambassador 
on September 13 that the Dominican government has failed to 
meet fiscal targets so far this year and that the IMF told 
the Dominicans it expects the problem to be alleviated to 
keep the standby on track.  The Dominican Republic missed its 
June 2006 target by 0.4  percent of GDP and is expected to 
miss the year-end target as well.  Continuing problems with 
the electricity sector, the government,s overspending before 
May congressional elections and other government spending are 
the reported causes.  A recent visit by IMF management 
resulted in a commitment by the Dominican government to 
present an initial plan at the September IMF/World Bank 
meetings in Singapore explaining steps the government intends 
to take to resolve the fiscal problem and to meet remaining 
standby commitments in the coming year.  End summary. 
 
¶2. (SBU) On September 13, IMF resrep Erik Offerdal told the 
Ambassador that the Dominican Republic is not meeting its 
fiscal goals under the standby agreement, which began last 
year.  The Dominican Republic missed its June ,06 target by 
0.4 percent of GDP and the IMF expects that it will miss its 
year-end target by about 0.2 percent of GDP. 
 
 ¶3. (SBU) The primary cause of the fiscal problem is 
subsidies for the troubled electricity sector, long plagued 
by theft and fraud.  This year the government is expected to 
spend over $600 million, up from  $505 million last year.  A 
second cause is rampant spending on publicity, projects, and 
other handouts ahead of the May congressional elections, a 
fact the Fernndez administration readily acknowledged in its 
discussions with IMF management earlier this year.  Offerdal 
also pointed to spending on capital projects, the largest 
being the new subway system ("Metro"), as cause for the 
fiscal difficulties. 
 
¶4.  (SBU) IMF management will meet with the Dominican 
monetary team on the fringe of the IMF/World Bank meetings in 
Singapore September 19-20.  Offerdal said the team faces "an 
uphill battle" to convince the IMF that it can meet future 
standby targets.  The Dominicans must work on a new fiscal 
reform package as part of the long-term fix.  The base for 
the value-added tax must be broadened and excise taxes 
expanded.  Offerdal acknowledged that immediate cuts in 
capital expenditures are all that reasonably can be expected 
to improve the situation this year.  It is unlikely that the 
President will cut his cherished Metro project, however. 
 
¶5.  (SBU) Offerdal said that Fernndez faces tough decisions 
in the coming months, adding that the President realizes that 
if he allows the standby agreement to fail, he could lose 
credibility gained from economic stability in the last two 
years.  Another IMF team is expected to visit Santo Domingo 
in October and in January to present a combined 5th and 6th 
review to the IMF board. 
 
¶6. (U) Drafted by Stephen Wheeler 
 
¶7. This piece and others in our series can be consulted at 
our SIPRNET site 
http://www.state.sgov.gov/p/wha/santodomingo/  
along with extensive other material. 
BULLEN