Speaking to the American Chamber of Commerce yesterday, PLD Presidential candidate Leonel Fernandez outlined the key challenges his administration will face, if elected. Top on his list are the billions in savings certificates deposited at the Central Bank, the financial sustainability problems of the electric sector, the 100% increase in the nation?s foreign debt and four times increase in the government?s domestic debt in the past three years, and the implementation of fiscal reform within constraints of the agreement signed with the International Monetary Fund, as reported in Hoy newspaper.
Fernandez highlighted he has a team of top-level international consultants (Harvard University, Earth Institute of Columbia University, and The Economist Intelligence Unit) at work at the Fundacion Global. So far among his proposals is one to separate the handling of the short term debt generated by the salvaging of the commercial banks and the assets of these banks from what should be strictly Central Bank monetary policy. He said that monetary policy should be put to work exclusively to recover and maintain exchange stability, strengthen the financial sector and reduce inflation to single digits in a reasonable timeframe. During a question-and-answer period, when asked how long would it take for his administration to get the economy back on track, Fernandez said efforts to take the economy out of stagnation would begin to be felt as of 2005.
Furthermore, regarding power sector matters, he said that his government would need to correct market distortions created by the Mejia administration?s signing of the Madrid Agreement and its buyback of the Union Fenosa distribution companies that led to a US$400-million deficit. The PLD candidate proposes setting up a fund to provide compensation for the sustainability of the electric sector, using as collateral the state shares in the privatized power companies.
Regarding the nation?s foreign debt, he said he would avoid the worse of scenarios, which is default on payments, by stepping up efforts to renegotiate the debt and extend its terms. He said his government would give preference to borrowing from multilateral organizations with soft terms.
As to fiscal reform, Fernandez said this must be undertaken by consensus and within the framework established by the International Moentary Fund. Its main objective should be to replace the distortionary taxes of recent years, while compensating the government for losses in fiscal revenues when the FTA with the United States goes into effect. In his speech, he mentioned that while both Mejia and Bush were elected in the same year, Bush had reduced taxes to stimulate the US economy at a time of crisis, while the Dominican statesman chose to increase the tax burden, with much of the monies generated going to pay for an additional 77,500 government jobs, most of which have been criticized for their unproductiveness.
A copy of the speech in Spanish is at http://dr1.com/news/2004/FernandezAmCham.html