DR1 Daily News will not be updated again until next Monday, 27 December. The DR1 Daily News staff is taking its Christmas holiday as of tomorrow, 23 December. Top headlines occurring over the 23-26 December period will be compiled for the Monday, 27 December news digest. Important breaking news may appear on the DR1 Forums, however, so please check http://www.dr1.com/forums which is updated 24 hours a day, 7 days a week. Also check out Calendar at http://www.dr1.com/calendar for suggestions to activities for this Christmas that will be constantly updated.
Merry Christmas to all!
After several days of intense lobbying and suspended sessions, the Senate and the government agreed to suspend the 25% tax on soft drinks using High Fructose Corn Syrup (HFCS) imported from the United States from the proposed free trade agreement. The two groups of negotiators also agreed that in January the Senate could take under consideration what compensation may or may not be offered to those groups of the Dominican industrial or agricultural sectors not assisted by the free trade agreement. According to Diario Libre, the Senate rescinded the contentious HFCS tax last evening after the morning negotiations yielded the prospect for talks on compensations between 2 January and 27 February. These new talks will address the tax exemptions to be granted to the nation's industrial and agricultural sectors within what is now being called a "mini-tax reform package." The legislation to remove the HFCS surcharge will now go to the Chamber of Deputies for approval.
The tax on corn syrup created an impasse with the United States Trade Representative Office that had threatened to rescind the docking of the Dominican Republic agreement to the free trade agreement signed with Central American countries (DR-CAFTA).
For every gallon of gasoline that is bought by the general public at RD$79.30, the government takes RD$31.36 (or 39.56%). Premium gasoline has a 42.75% tax and diesel just a 16.83% tax, although the price of a gallon of diesel is not the same as a gallon of regular gasoline, according to El Caribe. Nonetheless, in most part thanks to the stable dollar and slightly lower oil price, the cost of fuels to the public has gone down recently, in spite of increased government taxes. The letter of intent sent to the IMF says that there will be a 10% tax on fuels in order to help assist the government with its debts and lack of cash flow. Article 2 of the Hydrocarbon Law (112-00) says that the price index should be adjusted every three months in accordance with the Central Bank's Consumer Price Index, but these reviews were ignored for four months between December 2003 and March 2004.
Rafael Molina Morillo of Hoy newspaper comments on the report published by German Marte in the newspaper yesterday whereby the government will provide funding for 3,366 non-governmental organizations, "for supposed works of social interest that no one supervises." He points out that with the exception of Rehabilitacion, Corazones Unidos, and a few others, most of these organizations represent free spending of government funds. "The worst is that many of these NGOs are linked to legislators, government officers, businessmen and officials that do not know what ethics is," he writes. He comments that the investigation by Marte revealed that of the 3,366 entities, 60% is not even registered, while another 25% are pending procedures that would make them legitimate. "We are again before a situation of free hand in spending and wasting of government funds. Will we not come to our senses and understand that we are a country that is bankrupt and cannot afford the luxury of throwing out money," he writes.
He says that the best that a responsible and brave government could do, unless it is dreaming of reelection and needs now to add unconditional adepts, is to eliminate by the root all of these subsidies and gifts to the NGO's, leaving only the 10 or 12 (known by all) that truly carry out positive work.
The Association of Commercial Banks of the Dominican Republic (ABA) issued a statement yesterday that called the Rules for Evaluating Assets issued by the Central Bank "rigid and counterproductive, and therefore impractical." The ABA said that they hoped the monetary authorities would review and clean up the rules. Bank representatives are estimating the effects of the new rules, and they have asked the monetary officials for more time to conduct their studies, especially since the rules are meant to go into effect today. According to the statement issued, "The ABA is assured that the monetary authorities will not only listen to the suggestions put forth on the rules, but that it will also find ways to compromise, so that the rigid and counterproductive aspects which make the rule impracticable are removed." The Rules for the Evaluation of Assets is a crucial centerpiece of the requirements being made by the IMF for the banking sector. The content of the regulatory measures has caused some uneasiness among customers using credit facilities from the banks. The ABA says there must be a balance between absorbing credit risks and the flow of loans that a growing economy requires.
Geoff Gottlieb, associate economist for Goldman, Sachs & Co, disagrees with comments made by Finance Minister Vicente Bengoa who this week declared that the DR has cleared its arrears with external creditors after paying off US$362 million in the last four months. Sachs does not believe this is true and writes that the situation is likely more complicated.
He is primarily skeptical that the appreciation of the peso and strong recovery in output that has improved tax collection has provided the sufficient fiscal over-performance to clear arrears at the level mentioned by Bengoa. "Until we see fourth-quarter fiscal numbers, it will be hard to know whether the aforementioned clearing of arrears has a) even occurred or b) has been financed through better fiscal performance rather than an accumulation of other arrears, which is our suspicion," he writes.
Furthermore, Gottlieb adds that "the main reason no IMF program is going forward is the lack of a clear plan on financing. In addition to ongoing delays regarding the passage of the budget, the authorities remain unable to articulate what the current size of the financing gap is (2005 shortfall plus current arrears) nor what combination of debt exchanges, new money, and reschedulings will ensure that the gap is closed. An IMF program by end-January remains possible but increasingly difficult."
He explains of a third complication. "If the authorities want an exchange of external debt (which is our base case), there is some question about the likelihood of success. Unlike Uruguay, investors may find the threat of default questionable given sharply rising reserves, 2-3% growth, and very small bonded coupon payments in 05. Furthermore, the need for relief from external creditors may seem strange to investors when a) the gap is solely domestic not external and b) getting domestic creditors to simply maintain exposure would easily fill the gap."
Gottlieb continues: "To date, investors have remained optimistic on the Dominican Republic, partly due to abundant liquidity in emerging market debt. Indeed, this is part of the reason that we now think a 10.5-11% exit yield would be possible on an exchange. But investors should keep in mind that government control of Congress has been weak, government handling of the financing situation including the IMF has been slow, and government needs in terms of participation in a possible exchange may be particularly high (80-90%) for success."
Gottlieb expects surprises, however. He concludes: "Watch for this process to evolve in coming months in possibly unpredictable ways. As we mentioned in our November 4 piece, the government could eventually opt against a debt exchange, meet the 2005 gap via better domestic rollover rates and meet the 2006 bullet maturity by returning to the market. Provided emerging market liquidity remained abundant through the middle of the year and the authorities were able to demonstrate decent performance under the IMF program, such a scenario is not out of the question."
Geoff Gottlieb of Goldman Sachs & Co. issued a 22 December release focusing on the key issues regarding the debt restructuring in the DR. He believes the government and the IMF have still to reach agreement on this issue in January.
His summary of what is pending is:
1) By end 2004, the authorities plan to clear all arrears except for US$60 million to external commercial banks. This is significantly more progress than we expected but it reflects new debt rather than higher than expected fiscal revenues. The primary means of financing these payments are (a) a loan from Banco de Reservas for US$85 million and (b) a US$100 million bridge loan still under discussion that will have a maturity of 2-3 years.
2) This implies that the financing gap for 2005 would be about US$ 250 million. This number includes the US$190 million financing gap expected next year for the non-financial public sector plus the US$60 million in arrears mentioned above. This size financing gap remains broadly consistent with the US$300 million we have been citing for some time.
3) The authorities have no intention at this time of filling the gap by returning to the market. They consider "market access" to have resumed when coupons return to levels at or below those of current bonds which are at 9-9.5%. Currently, rates are in excess of 10% on both bonds. Of course, if the authorities announced a decision not to restructure and liquidity remained abundant, the market could become more affordable but such an approach is not the government's plan at this time.
4) As a result, the authorities plan to fill this gap with domestic and external resources including new money, restructuring, and reprofiling. On the domestic side, the government envisions two new bonds, one to replace a maturing bond and another to cover obligations to suppliers. On the external front, the authorities envision a rescheduling of a portion of commercial bank principle payments and a return to the Paris Club.
5) The authorities have not decided whether to capitalize coupon payments on bonded debt. The preference is to avoid such PIK structures but a decision has not been made. On the margin, capitalization would likely be about 50% of the coupon payments or US$50 million.
6) Regardless of how the authorities fill the gap in 2005, an extension of the bullet maturity on the 2006 via a debt exchange appears to remain an inevitable part of the plan. Note that such an extension in maturity (US$500 million) plus the rescheduling of commercial bank principle in 2005 would likely be adequate to satisfy the Paris Club's comparability requirement.
7) The authorities view the combined restructuring/reprofiling as necessary to avoid default. In their view, a case in which they are unable to achieve such relief is likely to result in an inability to pay. For this reason, the authorities see participation as likely to be high as the incentive to come in to any exchange will be similar to that of Uruguay.
Next steps: First, watch for passage of the 2005 budget with particular attention to the any compromise of the 0.7% deficit target due to tax benefits to industry. Second, the authorities will use the approved budget to work toward finalizing financing plans with the IMF and clear the way for a multilateral program by end of January. And third, the government will likely announce a restructuring offer shortly after according to current plans. Throughout this process, do not forget the coupon payment on January 23rd; the government might use the 30 day grace period again to try and raise investor recognition of the fiscal constraint at hand and help increase participation in any potential exchange.
The Supreme Court of the Dominican Republic has removed another judge for poor performance. This time the figure involved Judge Francisco Antonio Inoa Bisono of Santiago de los Caballeros who was found guilty of serious faults in the exercise of his functions. According to Diario Libre, the nation's highest court accepted the opinion rendered by the Attorney General's Office, which asked the court to fire the magistrate in question. The Supreme Court found that to accept the activities of the judge of the Instructional Chamber who imposed punishments in a highly irregular manner would be to ignore the responsibility he held to protect and defend the people. The court referred to the questionable decision of ordering house arrest for Jeffry Bencosme Pena, accused of killing National Police Sergeant Santiago Sebastian Fortuna Sanchez in cold blood. This slap on the wrist was given in spite of the fact the prosecutor had warned the magistrate that the accused was a flight risk, since he was a United States citizen. The high court said that the fired magistrate had acted unjustly in saying that "the Prosecutor had not demonstrated that the accused was a flight risk." The judge's verdict even mentioned that the murder weapon had been found on the accused, and that it was an illegal weapon. As was reported in all of the papers, Bencosme fled the country hours after the judge placed him under "house arrest." Inoa Bisono's is the second firing in as many weeks for the Supreme Court.
Major General Manuel de Jesus Perez Sanchez, the chief of the National Police, told reporters from the Diario Libre that the police colonel arrested in connection with the truck filled with 1,387 kilos (one and a half tons) of cocaine had been scrutinized back in 1989 following a complaint by a Pedernales parish priest. No hard evidence emerged to make the charges stick, however. In Hoy, reporter Elias Ruiz Matuk writes that at least 21 officers and 80 enlisted personnel were allowed to re-enter the Armed Forces after 16 August, 2000, despite the fact that they had been discharged for criminal activities that included robbery and drug trafficking. At around the same time, seven civilians entered into the services despite having committed felonies. This situation was known to the former authorities and Hipolito Mejia's administration. In fact, former Armed Forces Minister Jose Miguel Soto Jimenez assembled a commission to investigate the problem. The results of that inquiry are in the archives of Hoy newspaper. In the Army, they found one colonel, two lieutenant colonels, three majors, three captains, one first lieutenant and three second lieutenants who were returned to service before 18 August 2003. The Army also had 77 sergeants, privates, and corporals implicated in crimes ranging from rapes to homicides among its members. The commission found that in the Navy there were seven high-ranking officers found guilty of serious breaches of conduct, including the organization of illegal migration voyages. There were 33 sailors of varying ranks who held prior serious legal problems. The same commission learned that an Air Force technical captain was registered in the archives of the National Investigation Department (DNI) as an Army sergeant and had been discharged for his role in the transport of 399 kilos of cocaine, according to the DNCD. The case took place in 1990 and involved an American Airlines flight from Santo Domingo to Miami.
The Listin Diario leads with the ongoing investigation into ex-Army Captain Quirino E Paulino Castillo, the alleged ringleader of a local drug smuggling operation with international implications. Paulino Castillo was arrested on Sunday, along with three others, in connection with the discovery of a truck carrying 1,387 kilos of cocaine whose estimated value was put at RD$900 million. According to the report, the Attorney General's Office, the DNCD (National Drug Control Agency) and the Ministry of Agriculture are working together to classify and coordinate the former military man's billion-peso assets that are being seized as part of the investigation. These assets are said to include luxury vehicles, helicopters, warehouses, gas stations, bank accounts, factories, night clubs and farmland. Government sources informed that Attorney General Francisco Dominguez Brito has sought the help of agronomist Amilcar Romero in safeguarding the agricultural assets being confiscated, valued at millions of pesos and involving farmland, a rice production plant and agricultural implements. The Ministry of Agriculture expressed concern for the situation of hundreds of soya, sorghum and corn farmers operating in a system of tenancy overseen entirely by Paulino Castillo. The ex-captain had financed a reported 84,000 tareas (over 13,000 acres) of arable land worth RD$375 million, with "his own money," says the Listin Diario. Paulino Castillo had a company set up with his wife, Belkis Elizabeth Ubri Medrano, who was also arrested but is free on bail. The newspaper says they had plans to broadly extend their agricultural operations into the provinces of Barahona, Pedernales and Bahoruco and were working in conjunction with the Sorghum Commission to obtain permission to cultivate 28,000 tareas (over 4,000 acres) in various projects. On top of those operations, Paulino Castillo managed 208,000 tareas of soya, corn and sorghum production, 2,700 cattle, and other produce such as beans (habichuelas), green pidgeon peas (guandules), and sweet potato (batata). Under the new statute of the public ministry, control and protection of assets seized by the DNCD is overseen by the Office of the Attorney General, says the Listin Diario.
Hoy newspaper reports today that former Army captain, Quirino Ernesto Paulino Castillo (alias "El Don") who was arrested for complicity in the trafficking of 1,387 kilos of cocaine, had been sworn in as a member of the PRD party when he was an active military member. The newspaper publishes a photo showing Paulino raising his hand in what Hoy newspaper describes as the actual swearing-in by Sergio Grullon, then Secretary of the Presidency, and Hipolito Mejia's brother-in-law. Paulino was appointed chief of the PRD re-election campaign in Elias Pina, one of the few provinces in which Mejia took a majority in May's election. "El Don" invested millions in Mejia's political campaigning in the impoverished southern area of the country. Paulino's induction as a PRD activist took place during a campaign event headed by Grullon.
In an interview with El Nacional, Sergio Grullon denied knowledge that Paulino was involved in drug smuggling matters. He said that he represented the President at the drug department meetings (DNCD) and says that the case of Paulino was never brought up. He said that the photograph is of a meeting with businessmen on occasion of a donation of RD$2.5 million made by Paulino for the reconstruction of a public school in Comendador, capital of Elias Pina province. Grullon also denied in the El Nacional interview knowledge that Paulino was a military, given that military cannot participate in politics.
Diario Libre's popular back-page editorial, De buena tinta, asks today why so many eyeglasses were needed to see what was so obvious? The writer is referring to the drug smuggling case involving Quirino Paulino Castillo. He says that the DR is an interesting country, where people see the foam but not the chocolate. He comments that Paulino displayed wealth that did not come with his social origin and the province of Elias Pina on the impoverished border with Haiti, "but nobody suspected, considering it all very natural." Furthermore, no one was suspicious of his admission to the Army.
"Why would a person with so much money want to be a military? For a childhood dream?" He comments that not only did he enter into service, but he did so from the upper ranks, beginning as a lieutenant and receiving two consecutive promotions, until ascending to the rank of captain and assistant to a chief of staff.
The writer mentions that he was removed for political reasons during a purging of the military took place with the change of government. "But the DEA had to come to take part in a joint operation in order to uncover involvement with drug traffickers," he writes.
At least a dozen houses have fallen into the ravine that follows the Luperon Touristic Highway between Santiago and Puerto Plata. Several more structures are also damaged and threatened by more landslides, with hundreds at risk for possible disaster. The area known as La Cumbre, the highest point along the highway that marks the division between the provinces of Santiago and Puerto Plata provinces, is reporting more than 200 houses damaged by landslides, and hundreds of small crops affected. Specialists are warning that more rains could provoke even more problems due to the increased amount of water in the local aquifers and the geological condition of the mountains. In an extensive report, El Caribe says that a study is underway to devise a new route for the highway that is one of the nation's oldest. Coincidentally, just yesterday the regional office of CODIA, the engineering association, asked for a new route to be built across the mountains, one that would be further removed from the geological fault lines. Geologist Luis Pena warned that the area around Los Quemados was unstable, and more rains would certainly cause more landslides, which opinion is shared by renowned expert Orlando Franco who noted that the current roadway was in a process of "gravitation," similar to what happened in 1988 when a huge chunk of the mountain slid off and killed eight people. Between Saturday and Monday, 15 houses in that area were swallowed by the ravine.
DR1 Daily News yesterday pointed out the dangers of fireworks and their proliferation in the streets of most of the cities, especially Santo Domingo, during this holiday season. No sooner had the news brief been circulated than one of the kiosks dedicated to the sale of fireworks along 27 February Avenue in Ensanche Quisqueya was blown apart, injuring one person and smashing several large windows in the area. According to Hoy, the cause of the explosion and fire was related to a welder doing work on the kiosk. (Truly, a surreal situation - welding in a kiosk filled with fireworks!) The owner of the kiosk, Melvin Montero, was arrested by police, who emerged on the scene with officials from Civil Defense and the Fire Department.
Santiago, home base of league leading Aguilas Cibaenas, received a Christmas gift in the form of Baltimore Orioles slugger Miguel Tejada, Montreal Expos third baseman Tony Batista and St Louis Cardinals pitcher Julian Tavarez, who will take to the field in the last week of the regular season. They will be there to match the Leones del Escogido in their final quest to make nab fourth place in order to make the playoffs. The American League's MVP, Vladimir Guerrero, as well as Jose Guillen and Ramon Ortiz, are already playing for the Tigres del Licey. Consult the schedule here to catch a game: http://www.licey.com/articulo.asp?did=504
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