As people scurried to fill their tanks last Friday, the nation was hit by the reality imposed by the disaster unleashed by Hurricane Katrina in the Gulf region of the United States. Fuel prices hit record prices, just as predicted by the Minister of Industry and Commerce a week ago. Regular gasoline went up to RD$127.60, premium gasoline was set at RD$138.80 and diesel was put at RD$92.30. Households will not have to pay RD$37.19 per gallon of propane gas for cooking. A large, 100 pound, cylinder of cooking gas will now cost close to RD$1,000.00. The cost of fuels in the Dominican Republic has increased by between 48% and 55% over the course of the year, and crude oil has increased in price by 59%. According to Hoy newspaper, fuel prices have only risen between 10% and 11% when compared to last September 2004. However, the peso has appreciated significantly since then and the cost in dollars has almost doubled.
A report from the Materials Management Service was cited by the Ministry of Industry and Commerce. The report stated that the effects of Katrina on oil production in the Gulf of Mexico has caused a 40% drop in oil supplies, forcing the United States government to release strategic reserves to make up for the loss.
During yesterday's taped television speech, Leonel Fernandez outlined his "National Fuel Saving Plan". This consists of limiting the hours when gasoline is sold to the public, alternating the "public cars" days of work, the elimination of vehicles in really bad shape, removal of speed bumps in most places, the establishment of fixed stops for publicos and dedicated bus lanes. The President also prohibited vehicles with official license plates to circulate on weekends, except under special circumstances, and is asking each government department to save 20% of its fuel costs. As reported in Listin Diario, the presidential plan also included converting OMSA bus engines from gasoline to diesel and the installation of standby diesel generators that will keep the Santo Domingo traffic lights working during blackouts.
According to the Presidential Plan, fuel will not be sold after 8:00 in the evening from Monday through Friday, until noon on Saturday, and never on Sundays or holidays.
The scandal caused by the resignation of one of the most fervent members of the PLD, Gustavo Montalvo, has forced the director of the Presidential Information Technology and Communication Office (OPTIC) to accept the intervention of the National Committee of Ethics (CNE) in the bidding for the government's new website. The fact that Montalvo was considered to be a "white knight" and a non-ambitious member of the PLD who had refused high government posts in order to work at what he knew best, spurred the CNE to "suggest" a revision of the bidding, forcing the head of OPTIC, Domingo Tavarez to accede to their proposal. The Ethics Committee is made up of Francisco Dominguez Brito, Jose Joaquin Bido Medina and Cesar Pina Toribio. Now the Ethics Committee will review all the documents connected with the bidding for the proposed government website, which, according to Montalvo, was overvalued by some US$11 million. The presiding members of the Ethics Committee, Bido Medina, Dominguez Brito and the President's Legal Advisor, Pina Toribio had sent Tavarez an order to suspend the "bidding" back in July, but the OPTIC director had disobeyed the order. This time he had no choice but to pay attention in the face of a widespread complaint following Montalvo's resignation.
President Leonel Fernandez left Santo Domingo on Saturday on the start of a 10-day trip around the United States and Puerto Rico. He will visit Miami, Washington, New York and Puerto Rico. According to Diario Libre, the President took a commercial flight out of Las Americas International airport to Miami where he participated in the Florida Consulting Board (see following story). From Miami, the chief executive will head to Washington to address the American Chamber of Commerce. He will be talking about the DR-CAFTA trade agreement. The following morning, Fernandez is having a breakfast meeting with Bob Portman, the US administrator for the DR-CAFTA agreement. Then it is off to New York City to attend a reception hosted by US President George W. Bush for the World Summit that will meet at the United Nations later this week. The summit will evaluate the fulfillment of the Millennium Objectives. After the reception, President Fernandez will be taking part in a panel discussion hosted by the Clinton Foundation, and later on, he will meet with business leaders. Next Monday, 19 September, the President will fly to Puerto Rico to sign a strategic alliance program with the governor of Puerto Rico Anibal Acevedo Vila before returning to the Dominican Republic.
Dominican President Leonel Fernandez, speaking at a gathering of Dominican residents in Miami at the inauguration of the Consulting Commission there, told his audience that he would ask the United Nations to sponsor a World Oil Summit to propose solutions the aggressive rise in oil prices over the last few weeks. Fernandez said that he would tell the General Assembly that rising oil prices are going to ruin the world economy. According to Diario Libre, Fernandez will "ask the industrialized nations to urgently push for a summit meeting on the oil issue." He said he would be presenting his proposal during his speech before the 60th United Nations General Assembly that gets under way in New York City this week.
Monsignor Agripino Nunez Collado, the head of the National Dialogue and rector of the Pontifical Catholic University Madre y Maestra, has asked the government to avoid an inflationary spiral resulting from the continual increases in the price of fuel. The prelate's request comes at a time when the Alternative Social Forum and other community groups are calling for protests against the economic policies being implemented by President Fernandez. According to Listin Diario, Nunez Collado suggested that with the savings contained within the conditions set forth in the "Petrocaribe Agreement", the government could soften the impact of higher oil prices. The paper also reports that Nunez Collado was responding to requests from community organizations, transport unions and others to intervene in the congressional debates over the new tax reform bill and to consider stemming the continual increases in the price of gasoline. In another comment, the monsignor said that he felt confident that the government would be able to fulfill its goal of increasing social expenditure from 0.7% to 1.0% of GDP.
A new export advocacy group, Lobby Exportador - Accion Dominicana (LEAD) has issued its Punta Cana Declaration, calling for a 10-year pro-export plan. The group seeks an agenda of specific measures that would enable Dominican exporters of goods and services to compete with the onset of DR-CAFTA, which was recently ratified by the Dominican Congress. LEAD calls for the gradual extension of most-favored-nation treatment, the commitment to extend to other countries the lowest tariff rates it applied to any third country, at the pace of DR-CAFTA to other countries with which trade agreements have been reached. Furthermore, it advocates zero tax on exports until 2010 and calls for the abolition of all taxes on capital goods and raw materials. It calls for a reduction in the luxury tax on housing (IVSS) to 0.5% and that it should be made income tax deductible, and the annual depreciation of goods at 20%. It also seeks that improvements and repairs can be up to 25% of capital assets and be deductible from income tax. LEAD seeks that all export production (goods and services) that has already paid VAT (ITBIS) taxes can compensate these payments made to third parties or the Dominican government. Regarding specific sectors, LEAD seeks a differentiated ITBIS tax of 8% on tourism services, the elimination of the luxury tax on inputs used by the hotel sector and complementary tourism services and the removal of taxes on tourism promotion. As for the agriculture sector, LEAD seeks that support programs similar to those that benefit DR-CAFTA partners be implemented. For the productive sector in general, LEAD emphasizes the fulfillment by the government of laws already in place. The informal organization also supports the drawing up of a medium and long term sustainable plan, and expresses its deep concern about the lack of promotion of development.
The Dominican ratification and Presidential publication of the bill will now force Dominican customs officials to move faster to process containers entering the nation's harbors. This, according to the Committee on Expediting Commerce, a part of the American Chamber of Commerce in Santo Domingo, is what is needed in order for the country to compete in the new DR-CAFTA free trade area. Shipper Jeffrey Rannik, the head of the Committee, told Hoy economic writers that the private sector is working with the government in order to expedite the movement of containers in and out of Dominican ports. Currently, it takes an average of 12 days to get a container out of a Dominican port of entry, and this takes into account those containers heading for the industrial free zones. If these containers are taken out of the equation, the number of days, on average, increases to 15, and the DR-CAFTA agreement stipulates release of containers within 48 hours. Currently in Central America, it takes between three and four days to get a container out of customs, and in more developed nations, just 24 hours. Rannik said that for the DR to maintain its competitiveness, it needed to move containers much faster. He also pointed out that it was not just the customs officials that needed to be spurred on, since there are also officials from the Port Authority, port operators, and sanitary officials who need to work faster.
Furthermore, the team from Am-Cham - Rannik, Jose Nelton Gonzalez, Gustavo Tavarez and William Malamud - pointed out that customs officials were working out a set of risk profiles for major exporters and importers, in order to assess the risk and thus permitting less physical verifications of contents and more random checking. One of the steps to be taken is the modernization of the computer systems now being used by the Director General of Customs, which are very outdated. These steps will contribute to the swifter movement of cargo.
The Shell Company's resident director and a vice-president of the Dominican Refinery, Rafael Maradiaga, revealed that the REFIDOMSA had increased its demand for dollars by 34% over the first eight months of the year. The refinery bought US$1.202 billion dollars on the local market. At the same time Maradiaga estimated that to cover its needs for the last four months of the year the refinery would have to purchase an additional US$1.5 billion. And all this while the total number of barrels decreased by 4% over the first eight months of the year. According to Diario Libre, Maradiaga was very pleased that the Central Bank and the Reserve Bank of the Dominican Republic had obtained credit line that will allow the refinery to purchase dollars without putting more pressure on the internal exchange rate.
The Federation of Dominican Traders (FDC) has announced that they will not accept the application of ITBIS (VAT) of 16% on coffee, sugar, cooking oils and 50 other products that make up the basic foodstuffs for Dominican consumers. As a counter-proposal, the FDC suggests that the government begin a program that will allow greater efficiency in tax collection. All this comes at a time when the Chamber of Deputies will be looking at the formal governmental proposal for tax reforms needed to compensate for the removal of taxes and tariffs on incoming goods and services as a result of the approval of DR-CAFTA. Ivan Garcia, the president of the FDC, told Listin Diario reporters that an increase of 10% in corporate taxes (from 25% to 35%) would produce RD$7.0 billion for the government. Garcia also said that the government could raise another RD$2.0 billion by applying a 5% tax on interest earned on CDs and together with the increased corporate taxes, this would more than compensate the treasury for excluding basic foodstuffs from the VAT list. The FDC president also criticized the proposed tax on assets, which he considers just another step backwards while the government talks about the need to become competitive.
Former Central Bank governor and Reformist party official, Luis Toral has said that he hopes that the Dominican Congress would examine the proposed tax reform package recently sent to Congress, very carefully. It is Toral's opinion that it may not be necessary for the government to impose a new tax package on the population. According to Toral, the tax package is not a "national necessity" as said by President Fernandez, but rather it is an "instrument by which the government can continue spending the money it takes from the people through the high taxes that they are paying." The politician suggested that the senators and deputies look at the figures generated by the government itself, through the Central Bank, the Director General of Customs and the Internal Revenue Service, and see if it is really true that there will be a RD$31 billion shortfall as a result of DR-CAFTA.
Toral said that he could prove that the government had an RD$88 billion surplus that would make it unnecessary to impose new taxes. Ever since the government announced its intention to introduce new tax reforms, Toral has been a highly visible critic of the proposals, insisting that there is a large surplus available to the government.
The current issue of Dominican tourist trade magazine Resumen Turistico quotes a report in Hoy newspaper about what it describes as the unprecedented decision by several major hotels to close their doors for the low season. The newspaper says that this is being done in order to reduce losses brought about by increasing costs, combined with the lower occupancy and prices at that time of the year. It is suggested that as many as eight large hotels have announced temporary closures, but the official reason being given is that they are undergoing renovation work. However, the report points out that all these hotels were repaired less than a year ago, after suffering damage as a result of Hurricane Jeanne in September 2004. An unnamed source from the hotel industry is suggesting that this official reason is being put forward because to reveal the real reason would send "a very negative signal to the tourist market, especially investors who in recent months have frozen their projects or left the DR for Mexico or Jamaica, or to explore possibilities in Central America". Hoteliers association ASONAHORES has been saying for some time that the Dominican tourist industry is facing a 40% increase in operational costs due to recent tax increases, and that this, combined with the overvaluation of the peso, has led to a major decrease in income for the sector. Occupancy is down compared to the equivalent period last year, and compared to the country's main competitors like the Mexican Mayan Riviera.
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