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DE RUEHDG #1024/01 1771335
ZNR UUUUU ZZH
P 251335Z JUN 08
FM AMEMBASSY SANTO DOMINGO
TO RUEHC/SECSTATE WASHDC PRIORITY 0998
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE PRIORITY
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RUEHCV/AMEMBASSY CARACAS PRIORITY 0905
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RUEHPO/AMEMBASSY PARAMARIBO PRIORITY 1208
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RUEHUB/USINT HAVANA PRIORITY 0188
RUEAIIA/CIA WASHINGTON DC PRIORITY
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RUMISTA/CDR USSOUTHCOM MIAMI FL PRIORITY

UNCLAS SANTO DOMINGO 001024 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/CAR 
 
E.O. 12958: N/A 
TAGS: PGOV ECON DR
SUBJECT: AFTER THE ELECTION, WHAT NEXT? 
 
¶1. (SBU) Now that the presidential election is over, 
President Fernandez is turning to plans for his next term, 
the opposition is digging in its heels, and reformers are 
focusing on how to improve the democratic system before the 
congressional election of 2010.  On economic issues, 
Fernandez faces several challenges, including increasing 
inflation caused by rising food and oil prices, and the high 
cost to the government of maintaining energy and food 
subsidies put in place before the election.  The government 
is also concerned about the possible impact the economic 
slowdown in the U.S. may have on the local economy, 
especially on remittances, exports, and tourism.  This 
concern is one of the reasons the government is considering a 
new IMF agreement, which is supported by the private sector 
as a means to control government spending.  The government is 
expected to resume discussions with the IMF later this month. 
 
Constitutional Change 
--------------------- 
 
¶2. (U) Fernandez has not spoken publicly in any detail 
regarding his plans for his next term, except to say that he 
plans to reform the constitution.  We expect to learn more 
from his inauguration speech on August 16. 
 
¶3. (SBU) Fernandez will likely submit a package of 
constitutional amendments to Congress in August or September. 
 This is an initiative that he launched in 2006, but had to 
suspend because of the election campaign.  Fernandez has said 
that the current constitution does not adequately address 
civil rights, electoral supervision, presidential 
prerogatives, and judicial review.  He has also hinted that 
he will submit an amendment providing the government a more 
defensible means to deny citizenship to children born to 
foreigners in the Dominican Republic, a change that could 
have major implications for the Haitian minority.  Finally, 
while Fernandez has not spoken of it, there has been a good 
deal of speculation that he may seek to remove presidential 
term limits.  Fernandez will need to negotiate constitutional 
changes with the opposition, since his PLD party holds the 
required two-thirds majority in the Senate, but not in the 
House. 
 
Cabinet Changes 
--------------- 
 
¶4. (SBU) Regarding changes to the cabinet, one likely 
addition is Francisco Javier Garcia, who in 2007 resigned as 
Minister of Commerce and Industry -- where he worked closely 
with us to bring CAFTA into force -- to be Fernandez's 
campaign manager.  One source told us that Garcia seeks the 
post of Minister of the Presidency (chief of staff), but 
Garcia was coy in a recent meeting with POLOFF.  The 
Ministers of Environment, Commerce and Industry, and Public 
Works and Communications have only been in office for one 
year, making a change in those areas less likely.  The same 
cannot be said for head of the Armed Forces (in office for 
two years) and Police (in his position for one year), given 
the propensity here to rotate positions in the security 
forces frequently. 
 
Fighting Corruption? 
-------------------- 
 
¶5. (SBU) We have seen some initial indications that Fernandez 
will take anti-corruption measures in his next term:  Garcia 
told POLOFF that this was the case; at a recent USAID/GODR 
workshop on transparency, the government unexpectedly brought 
the press in to publicize their efforts; and, the Senate 
leadership has spoken publicly about dismissing the Chamber 
of Accounts (Camara de Cuentas; GAO-equivalent) for poor 
performance.  (Note: While the Fernandez Administration's 
record on corruption is uneven and we have not heard any 
specifics on a possible new initiative, we will be following 
this issue closely given its importance.)  USAID is poised to 
provide significant assistance to strengthen public 
institutions in areas where the government has shown some 
significant advances to date, such as access to information, 
public procurement, and the internal audit function. 
 
The Opposition 
-------------- 
 
¶6. (SBU) On the night of the election, Fernandez issued a 
call for national unity, inviting the opposition to "work 
together as the Dominican people, without division, (to) 
confront the challenges to come."  The main opposition 
candidate, Miguel Vargas Maldonado of the PRD party, has 
declined the President's offer.  On election night, Vargas 
was responsible in conceding early, saying, "I accept and 
acknowledge the results."  However, he added that, "I accept 
(the results) despite the fact that, in a significant way, 
these results reflect the shameless use of state resources to 
impose (the President's) re-election."  (Note: While the use 
of government funds to favor the incumbent was a serious 
problem, we are not aware of any independent observers who 
believe that this practice determined the result of the 
election, given the 13 percent margin of victory.) 
 
¶7. (SBU) The PRD has held several meetings of its leadership 
to assess the election campaign and map out future strategy. 
To date, there has been little variation from Vargas' message 
on election night, and the party's leaders have said that 
they will not cooperate with government initiatives.  A 
recent party press release, for example, quoted Vargas saying 
that the PRD, "has the responsibility to maintain a firm 
opposition, within the frame work of the democratic system, 
and questions the moral authority of President Leonel 
Fernandez to convoke political parties and different sectors 
of the country to develop a plan of government."  Party 
President Ramon Alburquerque added that the government's use 
of state resources leaves the PLD "victorious legally but 
defeated morally and, above all, corruptors of the people's 
conscience." 
 
¶8. (SBU) Like many opposition parties, the PRD's ability to 
speak with one voice is complicated by the absence of a 
single top leader.  In addition to Vargas and Alburquerque, 
former President Mejia and Secretary General Orlando Jorge 
Mera also command key positions in the party.  We have heard 
conflicting reports of tension between Mejia and Vargas, who 
have been close in the past, over Vargas' supposed interest 
in maintaining a leadership role after the election campaign. 
 All four men are believed to harbor presidential ambitions. 
 
¶9. (SBU) While Vargas and the PRD received a respectable 41 
percent in the election, the third-place finisher -- Amable 
Aristy Castro of the once-dominant PRSC party -- received 
less than 5 percent.  The opposition has now lost three 
consecutive elections by wide margins:  The 2004 presidential 
election, when Fernandez won by 23 points; the 2006 
congressional election, when the PLD swept the PRD out of 
power in both houses (taking a two-thirds majority in the 
powerful Senate); and, the 2008 presidential race, in which 
Fernandez won in the first round of voting. 
 
¶10. (SBU) We note that the U.S. interest is in a constructive 
opposition, irrespective of party, that is able to provide 
checks and balances while also working for the best interests 
of the country.  While it is early yet, the state of the PRD 
and PRSC portends the possibility of very weak opposition 
that is unwilling to work with the government.  Trends that 
we will be keeping an eye on include:  Whether the PRD 
cooperates with government initiatives on a case-by-case 
basis; the role of the PLD-led Congress in providing checks 
and balances; and, factionalism within the PLD, which saw a 
major challenge to Fernandez's leadership in former Minister 
of the Presidency Danilo Medina's presidential primary run in 
¶2007. 
 
Reformers Respond 
----------------- 
 
¶11. (SBU) While the 2008 election demonstrated that 
considerable progress has been made in strengthening 
Dominican democracy -- widespread election day fraud is now a 
thing of the past -- the campaign also showed that there is 
much work yet to be done.  Two of the principal concerns 
expressed by domestic and international observers were the 
use of government resources to aid the incumbent and the 
virtual absence of regulations on campaign contributions. 
 
¶12. (SBU) The reformers are responding.  The Central 
Elections Board (JCE) and the government's Council for the 
Reform of the State (CONARE) have both proposed new Electoral 
and Political Party Laws intended to help prevent -- and if 
necessary punish -- these types of abuses.  Among civil 
society, there is widespread support for increased 
regulation.  We note that, while the political parties have 
blocked reforms of this type in the past, there may now be an 
opening, given that the PRD has indicated it would support 
the legislation.  (Note:  In 2007, the PRD joined the other 
major parties in scuttling a set of JCE rules that would have 
restricted campaign activities; however, it is possible that 
the party will reconsider its position given the likelihood 
that it will remain in the opposition for some time to come.) 
 
"Insatiable Profit" 
------------------- 
 
¶13. (SBU) President Fernandez's strong rhetoric in two recent 
speeches shortly after his re-election caught the attention 
of the Dominican press and other observers.  On June 5, at 
the food security summit hosted by the Food and Agriculture 
Organization in Rome, Fernandez called on developed countries 
to provide more assistance to developing countries to combat 
rising food prices.  One paragraph stood out from the rest of 
the speech (which was more mild):  "If the developed 
countries continue to believe that one can only continue 
accumulating wealth and power through the pursuit of 
insatiable profit, speculation, greed, ostentation, 
arrogance, and lack of sensitivity to the problems of others, 
then without a doubt we can foresee that there will be a 
crisis of the model of civilization."  On June 10, at the 
opening ceremony for a meeting of the UN Economic Commission 
for Latin America and the Caribbean, Fernandez made very 
similar remarks. 
 
¶14. (SBU) Fernandez's comments can be viewed two different 
ways.  On the one hand, his speech is problematic in that it 
coincided with unhelpful actions by the GRULAC bloc in Rome. 
According to State's International Organizations bureau, 
GRULAC appears to have done Cuba's bidding in trying to 
embarrass the U.S. and European Union with objectionable 
language in the final declaration.  GRULAC was our most 
formidable opposition, and it was extremely difficult to 
contain their nefarious vocabulary. 
 
¶15. (SBU) On the other hand, aside from the one paragraph, 
Fernandez's speech is a typical call for action to assist 
poor countries who are suffering from a very real food 
crisis.  In the address, he also laid out steps that his 
government is taking to address the food crisis, called on 
developed countries to lower trade barriers on food, and 
proposed the creation of a United Nations working group -- 
all of which are typical statements made by many leaders of 
developing countries.  It should also be noted that these 
leaders are facing a good deal of pressure, from their 
constituents and political opponents, to produce results on 
the problem of rising food prices. 
 
The Economy 
----------- 
 
¶16. (U) After winning reelection based in part on the 
economic growth and stability achieved during his four years 
in office, Fernandez is expected to generally follow the same 
economic policies in his next term.  However, the increase in 
world food and oil prices is putting pressure on the local 
economy, which is also at risk of being affected by the U.S. 
economic slowdown.  Now that Fernandez has returned to the 
country following his overseas visits to the Food Security 
Conference in Rome and to Spain where he met with potential 
investors, he is turning his attention to these pressing 
problems by meeting with his economic team and 
representatives of various sectors to develop an economic 
plan for the country. 
 
¶17. (U) In the first quarter of the year, the government 
reportedly spent more than it received in revenues.  The 
increase in spending went mostly toward salaries and other 
direct transfers such as subsidies.  In the six months 
leading up to the election, the government announced 
subsidies or negotiated price freezes on milk, bread, rice, 
beans, onions, carrots, potatoes, garlic, tomatoes and 
plantains.  The government later promised to review all 
subsidy policies following the election to determine which 
would remain in place.  On June 13, the Secretary of 
Agriculture announced that consumer subsidies on five basic 
food items including, rice, beans, milk, chicken and eggs, 
would remain in effect; however, given the rise in 
fertilizer, gasoline prices, and animal feed (i.e., imported 
corn and soybeans), the producers of these commodities are 
demanding greater credit subsidies and higher producer 
prices. 
 
¶18. (U) There is widespread disagreement on how effective the 
subsidies have been given that most of the payments were 
given directly to some producers and industry associations, 
primarily through subsidized credit, gasoline, and fertilizer 
process.  Because of the lag in recuperating the losses of 
the staple products damaged by Tropical Storms Noel and Olga 
at the end of last year and the higher production costs this 
year, there were reports of shortages of many basic food 
commodities in the stores and many of the smaller grocery 
stores said they did not receive them at all during the past 
six months.  Since the election, several private sector 
organizations have called for a change in the government 
policy to direct the subsidies to poor consumers who need 
them most.  Some agricultural associations have recommended 
the lowering of taxes on imported agricultural inputs (e.g., 
fertilizers, agrochemicals, animal feed) and increasing 
subsidized credit in order to encourage more domestic 
production by farmers. 
 
¶19. (U) The Dominican Republic is completely dependent on 
imported fuel and the sky rocketing price of oil has had a 
huge impact on the local economy.  The Dominican Republic 
participates in Petrocaribe, with less than a third of its 
oil coming from Venezuela and only a portion of that coming 
from Petrocaribe.  However, the government claims that one of 
the reasons it is buying out Shell's stake in the sole 
refinery in the country is in order to increase its ability 
to import oil under the Venezuelan program.  There is a high 
usage of diesel and liquid propane as well, in part, due to 
government subsidies for propane.  Liquid propane use has 
dramatically increased because vehicle owners modify cars and 
buses to burn subsidized household cooking gas (LPG). 
Government attempts to end the liquid propane subsidy have 
been met with threats of a national transportation strike, 
although the government recently announced plans to place 
restrictions on who can access the subsidized product. 
 
¶20. (SBU) In addition to the fuel subsidies, the government 
has felt the impact of high fuel costs in the electricity 
sector where large government subsidies are keeping the 
system running and the consumer prices from rising in line 
with the increases in world prices.  In 2007, the government 
spent USD 650 million in energy subsidies and that figure is 
expected to exceed USD 1 billion in 2008 due to the high cost 
of fuel.  The electricity sector is routinely identified as 
the most pressing problem facing the Dominican economy by 
economists.  However, the government has lacked the political 
will to address the problem, including taking measures to 
reduce electricity theft by large consumers.  Immediately 
after the election, the country manager for the largest U.S. 
investor in the electricity sector told the Ambassador that 
electricity generators were worried about possible government 
action against the privately owned generators as a means to 
find a solution to the problem.  The private companies took a 
joint trip to Washington to meet with the international 
financial institutions to express their concerns. 
 
¶21. (U) With the cost of doing business in the Dominican 
Republic rapidly rising and competition increasing due to 
CAFTA-DR, there have been repeated calls by the private 
sector for the government to cut spending before raising 
taxes.  Some in the private sector are concerned that a new 
IMF program could lead to higher taxes as well.  Many 
sectors, including agriculture and tourism among others, are 
calling for reductions in taxes in order to remain 
competitive.  So far the government has not commented on how 
it will raise revenue to meet the cost of the subsidies and 
other public projects that have led to increased government 
spending.  However, President Fernandez has already announced 
plans to expand the metro system, which has not officially 
opened yet, and to build a light rail system between Santo 
Domingo and Santiago, the second largest city. 
 
¶22. (U) The Dominican economy is closely tied to the U.S. 
and, therefore, there is a strong sense of anxiety in the 
local market about the potential impact of the U.S. economic 
slowdown.  The U.S. is the largest market for Dominican 
exports which have fallen over the last few years largely due 
to increased competition in the textile sector.  Remittances 
which were over USD 2 billion in 2007 are expected to 
decrease throughout Latin American in 2008.  On the bright 
side, tourism arrivals are up this year, including from the 
United States.  However, it is not clear whether this trend 
will continue given the high cost of air fares and the 
reduction in air service to the country by U.S. carriers. 
American, Delta and Continental have all announced flight 
reductions starting in September, due in part to the high 
cost of operating in the DR, including a hefty fuel tax, but 
mostly as a result of their larger airline company 
restructuring.  The tourism and export industries are 
extremely concerned about the economic impact of the 
reduction in flights and some are calling for the elimination 
of the airline fuel tax. 
 
(U) Please visit us at 
http://www.state.sgov.gov/p/wha/santodomingo/  
FANNIN