Dominican Republic President Hipólito Mejía

02.35

For Immediate Release Tuesday, October 01, 2002

WELCOME BACK, Mr. DOMINICAN REPUBLIC PRESIDENT HIPÓLITO MEJÍA, AND FORMER DOMINICAN PRESIDENT LEONEL FERNÁNDEZ

* Sr. Mejía, you were in Washington September 26 to celebrate "Dominican Republic" week, which is an entirely manufactured public relations concept that has nothing to do with the country's people, and in fact would be better titled, "Dominican Republic Elite" week.

* After two years in office, your exceptional achievements, Sr. Mejía, are flawed by one major factor - your systematic avoidance of the subject of your predecessor's appalling venality and the de facto amnesty you nevertheless have granted to the non-stop corruption that garnished his entire presidency. As for you, Sr. Fernández, your visit to Washington should mark a shameful moment for a hemisphere that should no longer tolerate corruption. Common decency suggests that you should no longer feel free to visit Washington given the White House's putative war against corruption for which you rightfully should be one of its main targets. The region must be fully appraised of the endemic corrupt practices, which disgraced your presidency.

* Your transparency, Sr. Mejía, and your efforts to convert the Dominican Republic into one of Latin America's more prosperous countries are outstanding achievements. For this process to have any continuity and integrity, the issue of the Fernández administration's corruption must be confronted, something you have been reluctant to do during the first two years of your presidency, even though you had nothing to do with it's squalid history.

* Your main task at this time, Sr. Mejía, is to retain the confidence that international and local public opinion have had regarding your bona fides and your high ethical standards. But many difficulties are unavoidably heading your way. As for you, Sr.

Fernández, any attempt by you to run again for the presidency would be an insult to your nation and could bitterly divide your people, once the full disclosure of your compromised presidency is made known to most Dominicans.

* Economic, political and social problems are now having a growing impact on the stability of the country, Sr. Mejía.

Resolving these matters will create the historical imprint for your administration in the collective memory of your fellow citizens. But for the country to move ahead, the purported fraudulent actions of the Fernández presidency must be fully investigated and if a basis for prosecution exists, your attitude must be to let the process begin so justice can be done.

Following a squalid history, which ended only on August 16, 2000, when current President Hipólito Mejía took office, the nation responded with high expectations. After a decisive victory over former president Leonel Fernández, Mejía, receiving around 50% of the votes in a multi-candidate race, pledged to reduce corruption, increase social investment and restore the country's economy.

The Mejía administration has operated with a very high level of transparency of more than 50% according to an objective poll. However, after two years in office, many problems have emerged that must be confronted with determination and promptness, if they are not to corrode the Mejía presidency. The president's popularity is being threatened by setbacks in the economic, social and political arenas. But, without question, the most important remaining issues are the unresolved fight against the corruption
of the Fernández years (1996-2000), and the grim prospect that he may once again run for office. Mejía, because of budgetary constraints, will be hard put to prevent the present reduction in social investment (especially as it affects the poor), and to deal with the energy crisis that the country has been facing for a number of years and under a succession of governments.

The (Minimum) Fight Against Corruption

After many years of endemic corruption, Dominicans have had scandal after scandal pushed into their faces and now fully realize that not enough has been done to eliminate this scourge. Repeated pledges have been made to the public by presidential candidates that they would halt dishonest practices like those implemented by such tyrants as the members of the Trujillo dynasty, which did significant damage to the country's democratic institutions during its 30-year rule, and by such authoritarian figures as Joaquin Balaguer, Fernández's corrupt predecessor. Although corruption is personally repugnant to Mejía and he has tried to keep his own administration to a very high standard of ethical deportment, and acting with dispatch when evidence convinces him that one of his party colleagues has compromised himself, the Dominican president has tended to deal gently with the questionable activities of his immediate predecessor, Leonel Fernández. Until Mejía confronts the repeated, alleged involvement of Fernández and his circle in corrupt behavior, he invites his reputation to be tarnished by inaction.

Former President Fernández, now in Washington to participate in the meetings at the conservative Center for Strategic and International Studies, is seeing his administration going down in Dominican history as putatively one of the most corrupt in the country's modern epoch. In order to rule, he had entered into a cynical alliance with Balaguer to rule the country, thus sealing his pact with the devil. At least 25 public officials from Fernández's administration have been accused of corrupt practices and Fernández himself has been implicated for the massive misuse of public resources, including defalcating millions of Dominican pesos from the budget, in addition to the bribes paid by foreign suppliers.

Scandal After Scandal

One of the more notorious scandals that took place during the Fernández presidency was the misappropriation of funds that had been assigned, without Congressional approval, for an executive branch social program called the Temporary and Minimal Employment Program (PEME). This program was ostensibly created by Fernández to provide monthly assistance payments to low income families. Investigations by the Mejia's attorney general's office led to a finding that a large segment of PEME's funds had been put into the hands of high officials of Fernández's Dominican Liberation Party (PLD), or those close to him, through the creation of their virtually unlimited access to its funds without any accountability, and subsequently funneling these monies into personal accounts of loyal Fernández activists.

Under Dominican law, any public funds needed to cover the operating costs of a government program can only be transferred to bank accounts opened under the aegis of the national Department of the Treasury. This was clearly not the case regarding PEME, where funds were transferred with checks signed by Fernández himself to the personal account of the sister of PEME's director, Luis Inchausti. Additionally, another investigation by the attorney general's office, which unfortunately was later halted by President Mejía, revealed that a majority of the supposed beneficiaries under PEME had never seen a centavo from the fund. Their names and addresses, though, were being used by corrupt officials and associates to steal the program's assets.

This fraud was confirmed when the personal identification numbers of supposed beneficiaries provided by the PEME were cross referenced with similar data in the official voter's list of the Electoral Central Council (JCE). The result was that the numbers simply didn't match! This was an indication that officials had falsified these numbers for the PEME records in order to facilitate the looting of funds.

Another major scandal of the Fernández administration involved many state-funded construction programs. Not only were these public work projects often assigned to companies owned by friends of Fernández, but also their costs were frequently significantly overvalued. Among these public work projects involving huge overruns in terms of construction costs were tunnels in Santo Domingo and Santiago, intercity highways, and one maternity hospital in Santo Domingo.

Providing the Spark of Corruption

What was perhaps the worst case of fraud committed during the Fernández era was the privatization of the state-owned Dominican Electricity Corporation (CDE). Relatively speaking, the fate of this once public corporation was comparable to the massive theft of assets from the Enron corporation in the United States. Before the sale of this state giant into private hands, there were three independent assessments of the CDE's value. One conducted by the U.S.-based Price Waterhouse auditing company resulted in an appraisal of US $1.6 billion. Another one, carried out by the CDE's own management, appraised the company at US $2.5 billion. A final evaluation was done by an Arthur Andersen subsidiary in the Dominican Republic, which, not surprisingly (given the subsequent reputation of the parent company), valued the company at the shocking figure of only US $ 530 million in an obvious act of conspiracy. Fernández, of course, authorized the sale of the CDE at this last, almost pathetic price, even after the CDE's executive manager Radhamés Segura stated publicly that the sale of the company at such a low figure was contrary to the best interests of the nation. The results from this sale, which was manipulated from the president's office, were comparable to the California energy crisis experience, with its faulty and inadequate services, and higher prices, which later turned out to be brought about by fraud and price dealing.

It is now evident that Fernández decided on such a low price because he and his cronies were on both sides of the privatization deal. An artificially low selling price meant bad news for the Dominican people, but extremely beneficial for the buyers. A number of former government electricity officials still work for the privatized companies. Most recently, Marcos Cochón, former Superintendent of Electricity for the Fernández administration, was apprehended for wrongdoing at a private electricity facility. Fernández evidently has a number of associates at many of the newly privatized companies, which resulted from the break up and privatization of the generation, transmission, and distribution sectors of the CDE. The Spanish energy firm Unión Fenosa has also been implicated in the murky dealings surrounding the sale of the CDE, hired by the government as an independent consultant on how to best carry out the privatization of the distribution sector, and ended up being an owner. Fenosa, in a classical conflict-of-interest situation where by the consultant ended up buying the company at a privileged price, devised a plan to break up the company into separate ones, and ultimately opted to buy the two most profitable thirds of the sale, after carefully not including a clause in its plan which stated that Fenosa, as a consultant, could not purchase any parts of the CDE.

Although privatizations are supposed to improve the efficiency of companies and cut costly government subsidies from their budgets, the Dominican Republic still pays prodigious sums of money in order to maintain the retail price for consumers at an affordable level. The government only sold off the profitable generation and distribution sections of electricity and retains the money losing transmission sector. Rather than make their operations more efficient, the generation sector, now run by private companies, relies on government subsidies to ultimately make power affordable to consumers. Being subsidized by public authorities, the generation sector, where many of Fernández's interests and cronies are strategically placed, obtains its handsome profits and the people's tax dollars pay for the subsidy. In fact, if the price of an electricity production input rises for any reason-e.g., a petroleum price increase-the government will cover the costs of that increase for the private firms, so that the consumer end price doesn't have to go up. A decrease in petroleum prices will not reduce once again those subsidies that have been put in place and the private firms will make even higher profits. This extraordinary sweetheart deal is how the "private" electric system works in the Dominican Republic, and how former government officials, most certainly including Fernández, continue to get rich off of public funds. And they will no doubt use some of these funds to pay for upcoming election campaigns, where if their selected candidates win in well-financed races, the electricity utility will have even more influence. Clearly, Enron could have learned from this gang.

He Wasn't Done Yet

Other controversial policies of the Fernández administration, which also have come under close scrutiny, were further neoliberal economic reforms that he had initiated, and the privatizing of other state-owned companies at pennies on the dollar, "with the take" always at hand. Not being happy with all the hundreds of millions that were apparently swindled as a result of the electricity fraud, Fernández decided to go after other profitable projects. Reminiscent of the manner that Nicaraguan president Somoza arrantly stole millions of dollars in earthquake welfare funds which had poured into his nation in the form of international donations after a killer tremor hit Nicaragua in the 1970's, Fernández appeared to be similarly inspired after Hurricane George wreaked havoc on large parts of the Dominican Republic in 1998. Shortly afterwards, millions of dollars in relief aid disappeared. Fernández and his partisans took the foreign assistance given by countries as provisions and food stock and distributed the rations mainly among the members of his party, the PLD, who later were awarded the nick name "come-solos" (people who eat alone). Only these relatively few had access to the food that was given secretly at late hours, usually after midnight by party members, leaving a considerable part of the population in need and without sufficient supplies to easily survive. In fact, the government's failure to distribute a large portion of perishable supplies caused them to spoil before being delivered into the hands of the needy. Fernández believed this maneuver would reward his lively supporters for his upcoming reelection, however, if anything, it worked against him.

The more than three quarters of the population which didn't have access to the donated supplies became the future voters who helped bring about Fernández's defeat in the 2000 elections.

The People Want Action At the moment, more than 60% of the Dominican population is convinced that the Fernández administration was very corrupt. A separate study made by Transparency International awarded the Dominican Republic a score of 3.1 for the year 2000 (with 10 being the best score and 1 the worst) when Fernández finished his term, and ranked the government as among one of the most corrupt in the hemisphere. One can thus understand the public's attitude when it provided Mejía with a decisive electoral victory, and why it had every reason to expect that he would not only make the fight against corruption a priority for his new government, but that he would make similar demands for accountability on the part of the preceding Fernández administration, by calling for the prosecution of all cases of wrongdoing which his officials could verify. In his electoral campaign, Mejía also promised to challenge the neoliberal reforms initiated by Fernández, if need be, in order to increase social investment initiatives, while simultaneously launching his attack against corruption. Many of these commitments have yet to be achieved.

First of all, Mejía has maintained in place many of the same neoliberal ideas from the last administration that had been authored by Fernández.

Privatizations of public facilities are still on the roster and people are well aware of the increasing gap between the rich and the poor, even though the GDP is growing at a brisk rate of 7.7% annually, making the country one of the faster growing economies in the region and it being catalogued as the ninth ranking economy in Latin America and the Caribbean in terms of favorable indicators. Mejía, in a recent address promised to amend the privatization processes, but there is growing dissatisfaction among the population as it experiences an electric crisis that has been brought about by the outrageous rip-off carried out by Fernández and his venal confederates. The Mejía administration has not squarely addressed the scandalous electricity privatization process and, as a result of this, people are now paying inflated energy prices after the new president was forced by circumstances to consent to a new rate increase at the same time that the newly privatized company continues to provide inferior service.

This level of performance could cost Mejía's popularity dearly, even though he is looking around for procedures whereby there could be a comprehensive inquiry into the controversial aspects of the privatization of the CDE, and Fernández's role in the process.

Mejía's fight against corruption hasn't shown the result that the population was expecting. The new president launched the Prevention and Fight Against Corruption National Plan (Plan Nacional de Prevención y Lucha Contra la Corrupción) in June, 2001 to create multiple capacities inside the government where anti-corruption strategies could be developed to prevent and eliminate venal practices. Some of the key points embraced by the plan were the elaboration and subsequent adoption of new norms and practices to encourage public rectitude within the civil service, as well as the promotion of transparency throughout society. Even though this plan was conceptualized with the best of intentions in order to eliminate corruption, it turned out to be long on idealism and short on practicality. Neither did the plan do much to change the political culture, nor to construct a strict strategy to punish those who clearly had violated moral and ethical rules, as was the case in the previous Fernández administration.

Up to now, the action taken by Mejía against pre-existing corruption has not been very encouraging. The Corruption Prevention Department (DEPRECO), an organism in charge of managing the before-mentioned anti-corruption plan, has called fewer than 15 public officials, including former President Fernández, before it in order to explain the fate of large amounts of public funds embezzled during his administration, yet it yielded scant results.

No official accusations have been promulgated against these influenced peddlers and a widespread feeling is developing among many Dominicans that the Mejía government lacks the political will or energy to tackle what has to be seen as the raging malfeasance in office under Fernández. This lack of action has opened a window for the ex-president to entertain thoughts of running again for the Presidency in the 2004 elections and undoubtedly also opens the door for further corruption to take place.

On top of that, President Mejía hasn't called for the investigation or indictment of Fernández even when existing evidence has been damning enough to implicate the former president in several notorious cases of fraud.

The excuse has been that to do this would bring on an impasse, ending with Fernández gaining impunity for his world-class record of questionable transactions in which he was allegedly involved.

Blackouts and the dimming of Mejía's Popularity After a relatively peaceful administration with few setbacks, Mejía is now entering perhaps the most critical phase of his term in office, with many of the problems having been inherited from the Fernández era. The energy problem that the Dominican Republic is now facing is generating more difficulties than anyone could have anticipated. Daily blackouts for more than 10 hours at a time are not just diminishing the President's popularity, but are also creating economic problems for all Dominicans. Mejía must fix the problem as it will be just that more difficult for him to blame such blackouts on Fernández in the 2004 campaign, four years after he has been out of office.

The final solution announced by Mejía on Tuesday, September 17, was the imposing of a price increase, which will hit middle class families and the private business sector particularly hard, after the government decided that it couldn't go on paying subsidies for this service. In terms of Dominican entrepreneurs, the country's new laws already had imposed an increase in the minimum wage, and now they have to face the additional burden of higher electricity rates. The president of the Association of Industrial Enterprises informed President Mejía that the competitiveness of the industrial sector is being undermined by these decisions, and that in the end, it will be the consumer who is going to be the most effected after the increases in production costs are absorbed by them. Workers are now asking for increases in wages to compensate for the increases in prices.

Resulting dissatisfaction among the population is already generating anti-government resentment, and labor organizations are already formulating strike plans to protest increased electricity bills and blackouts.

Challenges to be Faced by Mejía in the Last Two Years of His Administration President Mejía will have to face many formidable challenges in his last two years in office. There will not be a free ride. At the same time, the public is well aware of some of his many accomplishments since assuming the Presidency. These include helping to build economic stability, promoting a very active foreign policy, improving relations with Haiti and more equitable treatment of Haitian refugees in the country, and securing enhanced investment in social welfare activities. However, negative aspects of contemporary life in the Dominican Republic are still proving to be very unsettling to the economy and to voters. Many low-income families still feel that more has to be done in spite of the initial surge of public expenditure for education and public health, and the fact that unlike his predecessor Mejía could not be further removed from being a sleaze.

Due to the recent economic downturn, investment this year in the welfare of the poor is relatively decreasing, and even though the economy has improved, the present gap between the rich and the poor is widening. Another big problem that is generating considerable criticism in the country is a surge in international loans, further adding to an already burdensome foreign debt. Now that the economy has seen some improvement and the international lending agencies are of the mind to provide the country with more external resources, foreign investors feel that the government has to be careful in the policies that it follows and the discipline that it is exercising.

Most of the money that the country is borrowing is in foreign currency, especially dollars, but the Dominican peso, which has been devaluated by 7% during the last year, faces additional discounts while the country services a large amount of its international financial obligations now coming due, including those to the United States.

This analysis was prepared by Research Associates John Galante, Jovana Garzón, Paula Neira, and Alonso Sánchez of the COHA research group.

The Council on Hemispheric Affairs, founded in 1975, is an independent, non-profit, non-partisan, tax-exempt research and information organization.

It has been described on the Senate floor as being "one of the nation's most respected bodies of scholars and policy makers." For more information, please see our web page at www.coha.org; or contact our Washington offices by phone (202) 216-9261, fax (202) 216-9193, or email coha@coha.org.

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