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Viewing cable 08SANTODOMINGO1974, DOMINICAN TOURIST DESTINATIONS WARY AS ECONOMIC

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Reference ID Created Released Classification Origin
08SANTODOMINGO1974 2008-12-30 16:47 2011-08-26 00:00 UNCLASSIFIED Embassy Santo Domingo
VZCZCXYZ0038
RR RUEHWEB

DE RUEHDG #1974/01 3651647
ZNR UUUUU ZZH
R 301647Z DEC 08
FM AMEMBASSY SANTO DOMINGO
TO RUEHC/SECSTATE WASHDC 2036
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHLP/AMEMBASSY LA PAZ 0471
UNCLAS SANTO DOMINGO 001974 
 
SIPDIS 
 
LA PAZ FOR A/DCM 
 
E.O. 12958: N/A 
TAGS: EINV EAID DR
SUBJECT: DOMINICAN TOURIST DESTINATIONS WARY AS ECONOMIC 
DOWNTURN HITS 
 
REF: SANTO DOMINGO 1425 
 
 UNCLASSIFIED 
 
1. Summary: The tourist havens of Punta Cana and La Romana in 
the eastern part of the Dominican Republic are beginning to 
feel the effects of the global economic downturn, but the 
impact remains limited and most new development is 
continuing.  However, Cap Cana, a large scale luxury resort 
project, which nearly defaulted on a USD 100 million bridge 
loan in November, has been forced to trim operations and cut 
back on staff.  Early indicators for the high season which 
runs from December to March suggest that occupancy rates will 
be 5 to 10 percent below 2007 levels.  Another threat for the 
tourist developments near Punta Cana is the lack of urban 
planning and public services.  End Summary. 
 
------------------------------ 
Tourist arrivals down about 5% 
------------------------------ 
 
2. The effects of the economic downturn are beginning to 
reverberate in the Dominican Republic's eastern tourist 
destinations, Punta Cana-Bavaro and La Romana-Bayahibe. 
After a decade of rapid growth, both destinations have begun 
to perceive the first decline in passenger traffic since the 
region began to develop 40 years ago, with the exception of 
late 2001.  Juan Carlos Sanchez, executive director of the 
Bavaro Tourism Cluster, told Econoff that some hotel 
occupancy rates in Bavaro fell as low as 20 percent in 
September and October.  While these months are traditionally 
the slowest of the year, he said it was the first time he 
could remember occupancy rates dropping below 30 percent. 
Early indicators of high-season occupancy rates showed a 
small decline compared to last year; Eastern Zone Hotel 
Association President Ernesto Veloz said Christmas week 
occupancy rates of 85-90 percent were about 7 percent below 
2007 rates for this peak occupancy period. 
 
3. Airport records confirmed the drop in passenger volume. 
Nationwide, the arrival of non-resident foreign nationals 
(the group that most often corresponds to tourists) showed 
growth until August, when it began falling slightly.  The 
non-resident foreigner numbers from September through 
November were down 7.5 percent compared to last year.  While 
the arrivals at Punta Cana International Airport (PUJ) were 
slightly stronger than the national trend, down just 4.6 
percent, the smaller La Romana International Airport (LRM) 
saw travel by this group fall 20 percent below 2007 figures. 
PUJ received just under 1.8 million passengers in 2007, 40 
percent of total air arrivals in the Dominican Republic, and 
LRM processed about 212,000 passengers.  Both airports rely 
almost exclusively on tourist travel. 
 
4. PUJ, the country's highest-volume airport and the world's 
largest privately owned airport, is fully owned and operated 
by Grupo Puntacana, established 40 years ago as one of the 
first major tourist developers on the eastern shore.  The 
airport's director of operations, Walter Zemialkowski, who 
previously directed a county-owned airport in Florida, said 
Punta Cana's status as a private facility allows it greater 
agility in responding to changing situations.  He told 
EconOff that although he expects this fiscal year to show a 
drop in passenger volume of about 5 percent, he did not 
foresee any layoffs or a slowdown in the facility's 
investment plans.  In fact, the very day that EconOff visited 
Zemialkowski, the airport was processing its first flight in 
the new Terminal B, which will be used primarily for U.S. 
travelers.  Zemialkowski said that after 20 years of growth 
in passenger traffic (with the exception of fiscal year 
2002), a period of decline represents small concern. 
 
5. The passenger reductions at LRM, however, a small airport 
located roughly equidistant between PUJ and the Dominican 
Republic's second largest airport, Las Americas International 
Airport in Santo Domingo (SDQ), are part of a long-term 
trend.  Since receiving 300,000 international travelers in 
2004, the airport processed just 220,000 last year and is 
looking at even slimmer arrivals this year.  But Luis Emilio 
Rodriguez Amiama, who directs the airport as well as the 
nearby port and duty-free zone (all three are owned by the 
sugar and tourism giant Central Romana Corporation), is 
unfazed by the pattern.  He noted that LRM makes more money 
per passenger in terms of fees than any other airport in the 
country and remains a money-maker for Central Romana as well 
as a key component of its tourism operation, which includes 
the Casa de Campo resort and a cruise ship terminal. 
 
--------------------------------------------- ------- 
 
Cap Cana: country's first victim to financial crisis 
--------------------------------------------- ------- 
 
6. While the economic downturn represents a slight 
contraction in tourist volume for most players in the tourism 
sector in the Dominican Republic, it has taken a greater toll 
on Cap Cana, a 46-square-mile luxury golf and beach 
development south of Punta Cana.  More than any other tourist 
development in the Dominican Republic, Cap Cana is fully 
integrated in global financial markets, the company's CEO and 
Executive Vice President, George Spence, explained to 
EconOff.  Seeking USD 100 million in financing, Cap Cana 
hired Morgan Stanley and Deutsche Bank to issue bonds in 
December 2007.  But when the investment banks advised Cap 
Cana that the bond market was poor, Cap Cana instead opted 
for a bridge loan with those same institutions, which they 
intended to refinance within the next year through a bond 
issue.  The climate never improved for bonds, however, and 
when the bridge loan came due in November 2008, Cap Cana 
sought refinancing from Lehman Brothers.  That attempt fell 
through when Lehman Brothers collapsed three days before the 
bridge loan matured.  With no credit available, Cap Cana 
negotiated to settle with its creditors, a group of 
cash-starved hedge funds that had acquired the loan and on 
December 7, the company settled its debt for cash and a large 
chunk of its property. 
 
7. With its financing run dry, Cap Cana has laid off more 
than half of its 1500-person staff, ceased all construction 
(except for projects near completion), and settled debts to 
local creditors with in-kind payments of property and 
building supplies.  Cap Cana now owes USD 200 million, 
compared to USD 500 million a few months ago, and is aiming 
to cut that amount to USD 100 million.  On December 23, the 
company solicited consent from its bond holders to extend the 
maturation date on a series of notes by up to 45 days.  Now, 
Spence explained to EconOff, Cap Cana is in a holding 
pattern, waiting for the credit climate to improve so the 
company can continue its development plans. 
 
--------------------------------------------- ----------- 
Economic downturn just a speed bump for new developments 
--------------------------------------------- ----------- 
 
8. While the Cap Cana experience might be expected throughout 
the sector, most large luxury development projects are 
proceeding as planned, albeit with lower sales.  EconOff 
visited the construction site of the multibillion-dollar Roco 
Ki beach and golf residential development in Macao, north of 
Bavaro.  The anchor of Phase I of the 2700-acre development 
will be two luxury hotels, Westin and Fairmont, and a Nick 
Faldo-designed golf course, which opened to outstanding 
reviews on December 12.  Although none of the residences or 
hotels are completed, the golf course opened early as a draw 
for prospective buyers.  Construction is proceeding as 
planned, Roco Ki CEO Nicholas Tawil told EconOff.  Tawil 
noted that a few buyers have backed out because of the global 
economic situation, but overall sales remain strong. 
 
9. On December 11, President Fernandez was on the eastern 
shores to help break ground for the Vista Cana Resort and 
Country Club, a USD 6 billion-dollar development away from 
the shore featuring townhouses and condominiums for retiring 
baby boomers with prices starting below USD 150,000.  The 
project, backed by Venezuelan financiers, is being built by 
New Jersey-based Hill International.  President Fernandez 
returned to the region on December 29 to break ground at 
Punta Perla, a USD 1.2 billion marina and golf resort aimed 
at the European market.  Prince Albert of Monaco, one of the 
project's investors, also wielded a shovel at the 
groundbreaking. 
 
------------------------------------- 
Rapid growth with no central planning 
------------------------------------- 
 
10. Punta Cana-Bavaro has grown into the country's primary 
tourist haven with expansion occurring primarily over the 
past decade, as U.S., Canadian and European tour operators 
and hotels have turned it into one of the Caribbean's top 
all-inclusive destinations.  But the growth has been 
haphazard and insular.  Lacking zoning or regularly enforced 
local ordinances, Punta Cana's more than 40 hotels have 
sprouted up without adequate public services.  Furthermore, 
the 30,000 hotel rooms in the region are almost entirely 
located in all-inclusive resorts from which guests rarely 
stray so there has been little impetus for infrastructure 
development.  The difference in organization between Bavaro, 
north of the airport and home to the highest concentration of 
 
all-inclusive hotels, and Punta Cana, south of the airport 
and developed by Club Med, Puntacana Resort and Club and Cap 
Cana, is striking.  Whereas Punta Cana is orderly and has 
well-paved roadways with good lighting and signage, roads in 
Bavaro are confusing, cluttered, slow and bumpy.  The hotels 
in Punta Cana have invested in the local infrastructure 
themselves rather than depending on the government which has 
not given priority to infrastructure development, even in the 
tourist areas. 
 
11. The Bavaro-Punta Cana Tourism Cluster has developed an 
Ordinance Plan to address this issue.  The more recent influx 
of second home owners and retirees, as well as the growing 
community of local tourism workers, has led to more support 
for this plan.  A few years ago, Bavaro became its own 
municipality, splitting off from Higuey, a sugar cane and 
cattle ranching center about 60 kilometers inland. 
Fundamental to this plan is the completion of the Tourist 
Boulevard, a wide road from Punta Cana to Macao.  Parts of 
the boulevard are already complete and will vastly shorten 
the distance between the locales along the shore.  But the 
most pressing component of the plan is water management; 
dropping water tables indicate that current usage is 
unsustainable. Sanchez, the tourism cluster's director, told 
EconOff that if this situation is not addressed, Punta Cana's 
popularity could wane, as happened in Puerto Plata and 
Acapulco.  The cluster is seeking GoDR assistance to 
construct a wastewater management facility as well as an 
aqueduct to bring water from inland areas where there is less 
demand.  Sanchez said that the municipality and private 
sector support the plan but the project is only feasible with 
government financing. 
 
12. According to Sanchez, the cluster aims to become the 
voice of sustainable tourism for the region, addressing 
public goods such as destination marketing, park oversight 
and solid waste and water management.  He noted that some of 
these areas can become revenue generators for the cluster. 
For example, if the cluster manages to build the water 
management facility, it will be able to charge users. 
Likewise, park management generates revenue and the cluster 
intends to charge users for solid waste pickups as well as to 
generate electricity from the organic garbage.  One of the 
backers of the nationwide cluster program is USAID's 
Dominican Sustainable Tourism Alliance (DSTA). 
 
13. Sanchez and hotel association president Ernesto Veloz 
both told Econoff that they detect a different attitude from 
new Tourism Minister Francisco Javier Garcia, who replaced 
Felix Jimenez in August.  Veloz commented that while Jimenez 
ignored the region's infrastructure needs to concentrate 
state investments in areas where he had a personal stake, 
Javier seems like a more professional official and has 
expressed interest in Bavaro's needs. 
FANNIN