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RR RUEHWEB

DE RUEHDG #0003/01 0061405
ZNR UUUUU ZZH
R 061405Z JAN 10
FM AMEMBASSY SANTO DOMINGO
TO RUEHC/SECSTATE WASHDC 0467
INFO RHMFIUU/CDR USSOUTHCOM MIAMI FL
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHBH/AMEMBASSY NASSAU
RUEHC/USAID WASHDC 0005
RUEHCV/AMEMBASSY CARACAS
RUEHDG/AMEMBASSY SANTO DOMINGO
RUEHKG/AMEMBASSY KINGSTON
RUEHPU/AMEMBASSY PORT AU PRINCE
RUEHSP/AMEMBASSY PORT OF SPAIN
RUEHUB/USINT HAVANA 0035
RUEHWN/AMEMBASSY BRIDGETOWN

UNCLAS SANTO DOMINGO 000003 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN EINV DR
SUBJECT: DR BUDGET RAISES MORE QUESTIONS THAN IT ANSWERS 
 
REF: 09 SANTO DOMINGO 1343 
 
¶1. (U) SUMMARY:  The 2010 budget of the Government of the Dominican 
Republic (GoDR) fails to make any significant progress in making 
the budget process more transparent and, equally troubling, misses 
several marks set by the IMF as part of its Standby Agreement.  The 
budget allocates 11.4 percent of its resources to the Office of the 
Presidency, seriously undermining the ability of line ministries to 
prioritize and control resources and failing any international 
standards of budget transparency.  The budget also does not meet 
several benchmarks established by the IMF in the October 2009 
Letter of Intent:  it registers significant increases in primary 
expenses, fails to dedicate five percent of GDP to capital 
expenditures, and misses the primary deficit benchmark of .4 
percent.  It also contains apparent mathematical discrepancies that 
make it difficult to assess year-on-year changes.  END SUMMARY. 
 
 
 
ST. PETER, MEET ST. PAUL:  BORROWING TO FUND THE DEFICIT AND 
SERVICE THE DEBT 
 
 
 
¶2. (U) In 2010, the government expects to run a RD 47.9 billion 
(USD 1.3 billion, at a RD 36.05/USD 1 exchange rate) deficit, 
collecting RD 263 billion (USD 7.3 billion) in income and incurring 
RD 310.9 billion (USD 8.6 billion) in expenses.  Given the GDP 
estimate of RD 1.8 trillion (USD 49.9 billion), the deficit will 
comprise 2.6 percent of GDP, hitting the mark established by the 
IMF Standby Agreement.  However, subtracting out interest payments, 
the primary deficit will be RD 11.4 billion (USD 316 million), or 
.6 percent of GDP, which exceeds the IMF's .4 percent goal.  (NOTE: 
The text actually cites a figure of RD 10.6 billion for the primary 
deficit.  Examining the numbers, it appears this figure was reached 
by not only omitting interest payments in calculating the primary 
deficit but also excluding some RD 800 million worth of legally 
mandated severance payments to officials fired during the GoDR's 
2009 cost-cutting spree.  See the comment in paragraph 6 for a 
discussion of some of the discrepancies within the budget.  END 
NOTE.)  Adding in the RD 68 billion (USD 1.9 billion) in debt 
payments that will be covered by financing (see next paragraph), 
the DR's total 2010 budget will be RD 378.9 billion (USD 10.5 
billion). 
 
 
 
¶3. (U) In order to fund the RD 47.9 billion deficit and to pay its 
debt, the GoDR is expecting to borrow RD 115.9 billion (USD 3.2 
billion). RD 80.9 billion (USD 2.2 billion) will come from external 
sources:  RD 22.7 billion (RD 630 million) in global bonds, RD 9.9 
billion (USD 275 million) from PetroCaribe, RD 21.8 billion (USD 
605 million) from the multilateral development banks (MDBs), and RD 
26.5 billion (USD 735 million) from banks.  Of the borrowed funds, 
RD 68 billion (USD 1.9 billion) will be dedicated to debt payments: 
RD 65 billion (USD 1.8 billion) will go to payments on existing 
debt and RD 3 billion (almost USD 90 million) will go to reducing 
the stock of debt.  The remaining RD 47.9 billion (USD 1.3 billion) 
will cover the fiscal deficit.  One way to look at the DR's planned 
borrowing is that the MDBs and the external banks will fund the 
fiscal deficit - since their inputs total RD 48.3 billion (USD 1.3 
billion) , a little more than the deficit - and the global bonds, 
PetroCaribe funds, and the internal financing will cover paying 
debts - since their inputs total RD 67.6 billion (USD 1.9 billion), 
which is a little less than what they owe in debt payments. 
 
 
 
IT'S GOOD TO BE KING:  OFFICE OF THE PRESIDENCY RECEIVES OVER 11 
PERCENT OF THE BUDGET 
 
 
 
¶4. (U) The RD 378.9 billion (USD 10.5 billion) budget will fund a 
number of departments, agencies, and entities.  The top five 
recipients will be: 
 
--  the Office of the Presidency:  RD 43.2 billion (USD 1.2 
billion), or 11.4 percent of the budget; 
 
 
 
-- the Secretary of State for Education:  RD 37.4 billion (USD 1.04 
billion), or 9.8 percent of the budget; 
 
 
 
-- the Secretary of State for Public Health:  RD 36 billion (USD 
999 million), or 9.5 percent of the budget; 
 
 
 
-- the Secretary of State for Public Works and Communications:  RD 
29.7 billion (USD 823 million), or 7.8 percent of the budget; and 
 
 
 
-- the Secretary of State for the Interior and Police:  RD 23.9 
billion (USD 663 million), or 6.3 percent of the budget. 
 
 
 
¶5. (SBU) The dedication of over 11 percent of the budget to the 
Office of the Presidency raises several transparency and efficiency 
concerns.  First, it undermines the cohesion of the budget process 
and centrality of decision making by placing similar projects in 
different places.  For example, the Presidency's Office of the 
Supervisor of State Works has a budget of RD 3.7 billion (USD 102 
million), with most of its projects focused on the construction of 
schools, hospitals, and clinics.  Moving these projects from the 
Presidency to the responsible line ministries would improve 
transparency, streamline bureaucracy, and improve efficiency. 
However, given the political impact of these projects, the 
Presidency is unlikely to cede control.  Moreover, although the 
items above appear specifically in the budget, large sections of 
the Presidency's allocation have no description:  over RD 8.2 
billion (USD 227.5 million) is dedicated to "Administration of 
Special Contributions," but no further details are provided. 
Finally, the Presidency is also clearly using the budget to keep 
control over key parts of the government bureaucracy.  The Central 
Electoral Board (JCE) recently told us that their budget allocation 
remained the same from last year despite the fact they will be 
running the 2010 Congressional and municipal elections.  When asked 
how they planned on running the elections without sufficient 
funding, the JCE officials responded that they expected to get the 
funding they needed from the Presidency (Reftel). 
 
 
 
COMMENT 
 
 
 
¶6. (SBU)  The 2010 budget has some improvements over previous 
years.  It includes two new reports, one detailing the assumptions 
used in drafting the budget and the other describing the framework 
for the 2011-2012 financial program the GoDR negotiated with the 
IMF.  Moreover, the Office of Public Credit succeeded in getting 
the details of projects financed by its office included as specific 
items in the budget.  The government also followed the advice of 
the IMF to control overall spending, hitting the mark set for the 
overall fiscal deficit.  However, a careful examination of the 
budget poses more questions than it answers.  The budget claimed 
that 2010 primary expenses will be cut by 24.1 percent over 2009 
levels, but that figure seems to be based on an erroneously 
inflated 2009 aggregate.  When comparing the components and not 
aggregates, it actually appears that primary expenses will increase 
by 4.4 percent.  Focusing on the components also shows that the 
GODR is missing targets set by the IMF in the primary expenses 
category.  In the Letter of Intent, the IMF called on the GoDR to 
limit growth in wages and salaries as well as goods and services. 
Instead, these items appear to increase by 4.3 percent and 20.6 
 
percent, respectively, over 2009 levels.  The GoDR also missed the 
mark of dedicating five percent of GDP to capital expenditures; in 
the current budget, only 4.7 percent of GDP will be so dedicated. 
Post plans to meet with GoDR budget officials to gather more 
information, including plans to meet mandatory education spending 
targets.  However, even without the mathematical discrepancies, the 
budget falls short of international standards of fiscal 
transparency and the moderate goals outlined by the IMF Agreement. 
END COMMENT. 
Lambert