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Multiple problems afflicting the D.R.

President Leonel Fernández in the hot seat as his long honeymoon appears to be winding down


April 7, 2005
Copyright © 2005 CARIBBEAN BUSINESS. All Rights Reserved.

SANTO DOMINGO, Dominican Republic–When Listín Diario, the leading newspaper in the Dominican Republic (D.R.), editorially bluntly calls on President Leonel Fernández to cancel his forthcoming 10-day trip to Asia, long-time observers of this troubled land are indicating the chief executive is in for rough sledding.

It was unofficially reported Fernández was originally scheduled to depart April 8 for Singapore, Taiwan, and Japan. Subsequently, it was cut back to just Taiwan and Japan.

Citing the prolonged drought, the stagnating economy, layoffs in the free-trade zones, and other issues, Listín Diario said all these issues require the president’s attention at home. Columnist Francisco Álvarez Castellanos, writing in the newspaper Hoy, asked the president "to forget about traveling until the country has recovered at least its economic stability."

The criticism comes on the heels of a number of official trips the president has made recently including visits to New York, Boston, Chicago, and Madrid. Fernández defends his travel as necessary to develop his plans to reverse the slump in the economy.

As if a chronic crime wave and prolonged power outages weren’t enough, this year, wide sections of the country have been hit with devastating forest fires that have consumed an estimated 50% of the reserves in the central mountains. Venezuela has sent large Cougar helicopters to drop water on the blazes, but their personnel indicate their work is made more difficult because of the unpredictable wind currents and the mountainous terrain. Water to fight the fires has to be obtained from the La Ciénaga River.

The apparel sector in the free-trade zones of the D.R. continue to be adversely impacted by the fallout from the end of the quota system in the U.S. as they turn to producers in Asia and in China in particular.

Big layoffs in the apparel sector

The most recent example is Dos Sportswear in the Esperanza free-trade zone (FTZ), which closed, laying off 1,400 workers. These job losses bring the total this year alone in the FTZs to almost 20,000. According to Pedro Manuel García, the head of the Esperanza FTZ, the reason for the closing isn’t the lack of demand for their products but rather the high cost of production.

Another problem contributing to the increases in cost of production is mounting transportation charges. According to Arturo Peguero, the president of the national association of FTZs (called Adozona in Spanish), the loss of jobs in the FTZs stands at 17,000 while Julio Ortega, economic adviser to President Fernández, estimates the number of jobs lost at 19,000.

Meanwhile, the financial crisis in the central government continued as the Senate majority, controlled by the opposition Dominican Revolutionary Party, approved a smaller bond issue and authorized the government to renegotiate the two sovereign bond issues totaling $1.1 billion.

The passage of the bill clears the way for the government to announce the terms of the debt swap, according to Beat Siegenthaler of the Commerezbank Emerging Strategy Team. "The government is keen to do so before the next Paris Club meeting in mid-April to have a chance for the rescheduling to be discussed at that meeting," he said.

Cited as another deadline by the financial expert is April 27 when the grace period for the $23.7 million coupon payment on the 2006 debt expires. "It is our understanding that the government’s intention is to conclude the debt swap by that time rather than pay the amount," he said.

In spite of the short-term problems, Siegenthaler maintains a positive view on the credit as the economic story continues to look strong, but he cautioned the main risk–as extensively demonstrated over the past few weeks–is the political stalemate between the government and the opposition.

Further complicating the economic situation is the continuing impasse surrounding the pending D.R.-Central American Free Trade Agreement. Already being criticized by representatives of the interests of labor and the environment in the U.S. as well as in the D.R. and the Central American nations, the current forest fires in the D.R. are being cited as another factor bringing unwelcome attention to the pact.

The agreement requires signatory nations to preserve their environment and their forest reserves. "This will be very difficult to do when there are laws on the books reducing the areas of protected forests and industrial contamination is evident in every river and stream," comments the newspaper El Caribe editorially.

Noting the pact stipulates "it is inappropriate to promote commerce or investments by weakening or reducing the protection contemplated in internal environmental legislation," El Caribe deplored the recent action of the D.R. Supreme Court ratifying a much-debated law on so-called Protected Areas. The move involves turning over a valuable part of the nation’s natural reserves to tourism investors.

"There will be economic sanctions for those countries that reduce their protected areas," warned Hugo Rivera, coordinator of the Coalition for Support of the FTA.

This Caribbean Business article appears courtesy of Casiano Communications.
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