President Leonel Fernández: Friend or Foe of Reform?
• The Dominican Republic saw China-like growth during President Leonel Fernández’s first term and the nation was
fiscally secure with low interest rates and a stable 17 Dominican pesos to the U.S. dollar—but was it all a matter of
• Solid corruption manifestations are already beginning to plague the new Fernández administration as the man accused of
stealing millions from a fund created to help poor Dominicans is appointed to a major cabinet post.
• The Dominican Republic will be seeing an administration whose neoliberal goals and campaign promises inexorably will
increase the divide between the country’s rich and poor and between the Caribbean country and its neighbor.
From 1996 to 2000, the Dominican Republic, under President Leonel Fernández, experienced an annual 7.7 percent economic
growth, a drop in unemployment to 14 percent and stable exchange and inflation rates. The successes were short-lived,
however, as the country soon enough dissolved into economic decline and increased poverty beginning toward the end of
Fernández’s term. Economic indicators then plummeted with the advent of Hipólito Mejía’s presidential term from
2000-2004. By 2004, Mejía faced a failing economy that was largely out of his control, especially considering how
closely linked to the Dominican economy is to the United States’—American goods comprised over 85 percent of the
Dominican Republic’s imports and the United States imported over 50 percent of all goods manufactured in the Dominican
Republic. As the economic situation in the United States in 2001 worsened, so did the Dominican economy which was
largely dependent on it, and worsening conditions in that country were compounded by a 2003 bank scandal in the
Dominican Republic that cost its treasury a devastating $2.2 billion. With a depressed economy as well as the burgeoning
corruption scandals wracking his administration, Mejía could not make the improvements Dominicans desperately desired
and lost his re-election bid.
By turning once again to the former conservative president Leonel Fernández in May 2004, the island voters demonstrated
their support for reinstating his successful economic policies but exhibited a fading memory about his vices of
corruption and cronyism. The correlation of economic growth and decline to the records of the two different presidents
begs one to ask whether the nation’s success from 1996-2000 was attributable entirely to Fernández’s policies, and were
Mejía’s failures pre-destined. Not surprisingly, during Fernández’s term, the United States also experienced significant
improvements in its economy, but many of these turned out to be short-lived and faltered in the normal cyclical
readjustment of its performance. Declines were later amplified by a drastic reduction in tourism and decline in buying
power following September 2001. The current upswing in the U.S. economy makes it likely that the Dominican economy will
once again improve and Fernández will once again reap the benefits from this upswing without any particularly brilliant
strategy on his part.
At the start of his second term, Fernández already is displaying well-known traits that he is not necessarily interested
in putting the interests of average Dominicans first as much as he is to prove generous and tolerant of the ethical
weaknesses of his political colleagues. If his past failings and his questionable first month in office are any
indication, the Caribbean nation will once again be ravaged by government corruption and deteriorating conditions for
its working poor and lower middle class.
Cabinet Positions Open: Only friends need inquire
The end of Fernández’s first term in office in 2000 was marred by an embezzlement scandal in which four cabinet members
were accused of stealing $100 million from the Temporary and Minimal Employment Fund (PEME), a monetary fund that aids
the poorest of Dominicans who find themselves caught between jobs or underpaid. All four are currently awaiting trial,
but Fernández and his rightist party, the Dominican Liberation Party (PLD), stand by their claim that the officials are
innocent, citing that the cases have been politicized without merit.
Fernández has now had the temerity of appointing all four of the aforementioned men to positions in his new cabinet,
including Luis Inchausti—allegedly the main culprit of the notorious embezzlement scandal—as the Secretary of State, a
job for which he is brings no experience and for which he is woefully under qualified. Previously, Inchausti served as
the head of the PEME. As for the others accused of embezzlement, Simón Lizardo, the former Administrative Secretary, has
been appointed to serve as the top auditor; Naivanjoe Ng Cortina, formerly an auditor, will now regulate the stock
exchange; and Diandino Peña, the former Public Works Secretary, was chosen to head a new subway construction project. In
addition to the controversial appointments—a den of foxes to guard the chicken coop—one must also question the logic
behind allocating $500 million to build a subway in a country that only has 190 doctors for every 100,000 people, where
a third of all children receive no education past the fifth grade and where the government only spends 2.4 percent of
its GDP on education—compared to 5.6 percent that the United States allocates. Critics insist that surely this $500
million could be better spent.
These appointments contradict a main commitment made during the president’s election campaign, which was to curb
government corruption. Given their past behavior, it is doubtful that Fernández and his colleagues will be overly
concerned about the impact that these insulting appointments will have upon Dominicans as these rogues inevitably move
to repeat their past derelictions. Fernández’s economic team is also laced with cronyism as he brings in a tidal wave of
tainted former government officials and untalented party loyalists. The head of the team is Vicente Bengoa, the former
banking superintendent, who is being joined by Miguel Cocco, former head of the customs service who also served on
Fernández’s governing team during the latter’s first term. Other reappointments include Héctor Valdéz Albizu, the
governor of the central bank, and Temistiocles Montás, the technical advisor to the presidency. Fernández has also
appointed Daniel Toribio, the former finance minister, to the position of the chief executive of a new quasi-central
bank, the Banco de Reservas. With his team of advisors and ministers—some of whom are world-class crooks—Fernández’s
appointees are otherwise technocrats, party loyalists and close personal friends. The new president has given political
positions to veritable hacks that he wanted to reward, rather than seek out the most qualified for the job. Obviously
Fernández does not even begin to comprehend the concept of meritocracy.
While campaigning, Fernández also promised to reduce spending, stabilize the economy and possibly further privatize the
energy sector, but in order to implement these neoliberal goals, the government must cut spending on “non-essential”
sectors, which traditionally help the impoverished but are generally expensive to maintain. In an interview that COHA
had with Hector Santos, an outgoing executive director of the Inter-American Development Bank and a member of the
Dominican Revolutionary Party (PRD), the official noted that in order to reduce spending, Fernández will have to
eliminate the gas subsidy to the poor and lower the number of governmental workers. Were these actions to be
implemented, the chasm between the rich and the poor will greatly increase.
Chasm or not, Fernández has already begun to initiate so-called tax reforms. The first plan, recently passed by both the
Senate and the Chamber of Deputies and signed by the President, is actually a holdover from the Mejía administration and
seeks to satisfy an agreement the Dominican Republic made with the International Monetary Fund (IMF) to generate more
revenue. It aims to raise $500 million a year in new taxes, cut the tax rate on house rentals from 20 percent to 10,
grant a tax break to the middle class by increasing the threshold for tax on luxury properties from a value of $66,000
to over $100,000, and deliver a 30 percent increase in wages. In addition, the tax reform contains a 25 percent levy on
corn syrup imported from the United States. On September 13, the U.S. Deputy Trade Representative Peter Allgeier told
Hugo Guiliani, the Dominican Ambassador to the United States, that if the Dominican Republic actually implemented the 25
percent tax, the United States would discard the Central American Free Trade Agreement (CAFTA) signed on August 5,
shortly before Mejía left office. After just a month, Washington’s probe proves that, until the United States offers a
better plan, Fernández is trying to demonstrate that his loyalties lie with his people; however, the Dominican President
did concede that he is still considering introducing another measure to end the corn syrup tariff.
The final element of the Fernández election platform proposed the privatization of energy as a quick-fix for the
country’s pitifully inadequate power electrical grid and as a means to attract foreign investment to help to pay off the
government’s enormous foreign debt. However, it is most likely that privatization will create a large economic burden on
the government. In other Caribbean nations with privatized energy, successor foreign companies that are involved usually
have no vested interest in serving the welfare of the local inhabitants and will gingerly mark up energy prices to
unreasonable levels in order to turn a huge profit. In the Dominican Republic, the slightest drop in the economy could
lead to colossal energy bills and compound an already weak economy.
What can Fernández do for you?
In the upcoming months, foreign observers will be anxiously waiting to see how the Fernández government handles the
country’s current economic problems: a $6 billion debt, a 32 percent inflation rate and a 33 percent unemployment rate;
national blackouts that can last 20 hours a day; and the 2003 bank scandal from which the Dominican Republic’s GDP is
still reeling. If his first term is any indicator for what is to come, Fernández’s administration will flounder and his
governance will worsen until it can ride an adventitious economic upswing in the U.S. that will bring about a
substantiate improvement at home. If Fernández is unable to revive the economy, Dominicans can only hope that the
country can be spared the corruption and cronyism which are the traditional hallmarks of his service to the nation, and
that his ineptitude does not permanently injure their country.
This analysis was prepared by Claudia Patterson, COHA Research Associate.