- The Washington Times - Monday, March 15, 2004

NEWS ANALYSIS: SANTO DOMINGO, Dominican Republic — As the May 16 presidential elections approach, campaigning is getting personal and nasty, and what should be the central issues — the country’s worst banking scandal and the national economic crisis it triggered — are barely on the agenda.

This reflects the deep dependence of this country’s two main parties on corruption and widespread public acceptance that this is inevitable.

The issue is being soft-pedaled because of the uncomfortable fact that whoever forms the next government will have to impose tough austerity measures on a population already riled by a punishing plunge in living standards, analysts say.

The election pits President Hipolito Mejia of the Dominican Revolutionary Party (PRD) against Leonel A. Fernandez of the Dominican Liberation Party (PLD), a Bronx-raised lawyer who was president from 1996 to 2000 and enjoys a strong lead in the polls.

The country’s worst economic crisis in decades already has ignited street clashes between protesters and security forces, whom Amnesty International criticized in a March 1 report for using excessive force that left more than a dozen dead and hundreds arrested.

Sinking economy

The downturn has been dramatic, and the economic pain is far from over.

“Until two years ago, this country was considered an economic miracle by major international agencies. Now it’s like living in a different country,” said Jose Oviedo, director of a public-administration program at Madre y Maestra Catholic University.

“There will have to be an austerity plan, which will probably be unpopular, and I think any government is going to have many difficulties over the next two years,” he said.

Dominican central bank officials are scrambling to renegotiate bilateral debt owed to Paris Club countries and are trying to stave off defaulting on sovereign bonds of $1.1 billion this week, Reuters reported March 9.

Mindful of the charged atmosphere, international donors have kept the aid spigot open — with a recent infusion of $250 million by the Inter-American Development Bank. This has helped cover the fuel imports needed to keep the lights on — what wags here call “political electricity.”

Mr. Mejia gets most of the blame here and abroad for the current mess because of his erratic and often inept economic policies. Many Dominicans also complain that the president’s populism has led to a marked deterioration in government, now stacked with Mejia supporters of dubious qualifications.

The country’s economy took a nose dive after the September 11, 2001, terrorist attacks on New York and suburban Washington, as American tourism dried up, and during the U.S. economic slowdown that ensued. Americans buy 87 percent of the Dominican Republic’s exports.

Mr. Mejia’s policies are blamed for aggravating the outcome, especially his response to the banking scandal, in which one of the country’s largest private banks, Banco Internacional (BANINTER), collapsed in April 2003 amid evidence of massive fraud.

Bucking international advice, the president decided on a full bailout, contravening domestic banking law, which limits deposit coverage. This generosity cost taxpayers $2.2 billion, roughly two-thirds of the government’s annual budget. The $2.2 billion also represents 15 percent of the country’s gross domestic product — a loss that later grew to 20 percent because of two subsequent bank failures.

This ended confidence in the Dominican peso, whose value fell by 50 percent, sending inflation soaring.

“This case has battered the whole of Dominican society,” said Elena Viyella De Paliza, president of the country’s largest business association, the Consejo Nacional de la Empresa Privadad.

She told Latin Trade, a regional business publication: “The private-enterprise community demands [prosecution of those responsible] with transparency and strict adherence to the letter of the law.”

Few Dominicans think changes will happen.

“In this country, justice is sold,” observed a taxi driver.

Rampant corruption

U.S. diplomats have been browbeating Dominicans that this is a critical test case of judicial independence against corruption.

“I remind you that the performance of the executive and of the judicial institution is being watched closely, across the world, to see whether it will meet the challenge of the BANINTER case,” U.S. Ambassador Hans Hertell cautioned a business group last month.

Privately, U.S. diplomats wonder whether the issue would not already have been swept under the national rug, if they had not been keeping a spotlight on the issue.

A Judge of Instruction — serving as a kind of grand jury — should have produced a legal brief establishing probable cause last summer; instead, the Supreme Court is bogged down considering a defense motion to dismiss him.

Meanwhile, Ramon “Ramoncito” Baez, the banking scion who masterminded BANINTER’s shadow bank that for years had been cultivating virtually the entire political class with easy money and paying for a massive media empire, was released on Christmas Eve on $3 million bail.

Most Dominicans are convinced that those few months in jail is the only time he will serve. They are equally adamant that a different government — including a return to power by Mr. Fernandez — would not make much difference.

Mr. Fernandez served as BANINTER’s legal counsel, and the modern office building that houses Mr. Fernandez’s Foundation for Global Democracy and Development reportedly was donated by Mr. Baez.

Few choices

Such self-serving politicians have more Dominicans worried that the country is headed in the same direction as Venezuela — where public disgust led to the regime of military populist Hugo Chavez.

This possibility is still remote. Parties retain strong loyalties, and the military long has accepted civilian control, a hierarchy Mr. Fernandez helped consolidate.

Mr. Mejia, on the other hand, has been flirting with the military, including allowing the current defense chief, Lt. Gen. Miguel Soto Jimenez, to stay beyond his two-year statutory term limit.

Both main parties are pro-United States and support the free-trade agreement that is expected to be completed any day. The main differences arise from their core support bases: the PLD from the middle and professional classes, while the PRD is more populist.

A recent Gallup poll found 63 percent support for Mr. Fernandez’s PLD, whose previous administration was blessed by strong inflows of foreign investment and soaring tourism and is now nostalgically remembered for its price stability.

Mr. Mejia registered a paltry 15 percent support. Still, no one is counting him out. There is no mistaking his determination to fight to stay in office. He amended the constitution to allow himself to run for a second term. (The ban had prevented Mr. Fernandez from seeking a second term, which he probably could have won).

He also surmounted intense intraparty opposition to his candidacy, later persuading one of his most-intense internal rivals to become his vice-presidential partner — a sign of a rallying party.

The PRD has 1.4 million members, compared with the PLD’s 700,000. That is roughly 45 percent of the 3.2 million voters expected to cast ballots, although many poorer Dominicans apparently join multiple parties to maximize their trickle-down income.

An alliance with the next-largest party would give Mr. Mejia only about a third of the total vote — a difficult gap to close in two months. Given the country’s volatile electoral history though, no one — especially Mr. Fernandez — is ruling out last-minute shenanigans.

A battalion of international observers expected to be on hand — as well as procedural improvements — make massive fraud unlikely.

Many Dominicans also insist that their countrymen would no longer tolerate blatant electoral subversion. Only 4 percent, though, cited corruption as a major concern in a recent poll.

The normally restrained Mr. Fernandez stunned some with a personal attack, slighting Mr. Mejia’s intelligence, and there is concern televised debates — as advocated by the U.S. ambassador — might stoke political tensions.

If Mr. Fernandez does prevail, he can be expected to restore economic stability, but no one should expect any fundamental challenge to corruption or commitment to social-justice issues, such as economic redistribution, say sources who have known him for decades.

The country suffers from marked income inequality. The poorest half of the population receives less than one-fifth of gross national product, while the richest 10 percent enjoy nearly 40 percent of national income, and even before the crisis, one in four Dominicans was living in poverty.

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