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Daily News - 01 December 1998

Government campaigns to gain support for CDE capitalization
President Leonel Fernández and a team of high-level officials yesterday called in a group of executives from newspapers and television stations for a three-hour meeting in the National Palace intended to improve understanding of, and bolster support for, government plans to "capitalize" the Dominican Electricity Company (CDE). President Fernández rejected the use of the term "privatization" for the operation that begins on December 17th. He argued that "capitalization" is more appropriate because his government "never will give away state patrimony." The current 100% state-owned CDE will simply be split and converted into several distinct limited liability companies (or Sociedades Anónimas or SA's as they are known in Spanish). CDE-Hydro, in charge of the nation's hydroelectric plants, will be entirely state-owned. The other parts of the current CDE - in both generation and distribution - will be given to three mixed-capital (public and private) SA's organized along regional lines.
Fernández revealed that, contrary to some press reports, the approximately 2,500 employees that will stay with CDE-Hydro will not be receiving dismissal benefits because they will continue working with the firm, with all the legal rights and benefits they had accumulated during their service with CDE still intact.
The head of the Commission for Reform of Public Enterprise (CREP), Antonio Isa Conde, explained that 700 current CDE workers will be retired before the capitalization, so only 3,800 CDE employees will actually be affected by the process. Labor Minister Rafael Alburquerque explained how workers "dismissed" would be assured their dismissal benefits, and how most would be rehired by the new production and distribution firms.
Isa Conde explained that the capitalization of CDE was necessary because the government could no longer afford to subsidize the company. He noted that the Fernández Government has provided RD$4.8 billion in subsidies in two years. CDE Administrator Radhamés Segura argued that the capitalization was essential if the country's electricity production needs are ever to be met. The current government has installed six units at a cost of US$110 million, yet CDE estimates that another 200 megawatts capacity needs to be installed in order to stop the blackouts, at an estimated cost of US$80 million.

Holiday exemptions for returning Dominicans start today
Starting today thousands of Dominicans returning home for the holidays will enjoy the traditional holiday customs exemptions on items they bring with them. Under Law 9-96, Dominicans living abroad who have not returned to the DR within the last six months can bring in tax-free sweets, clothes, shoes and electro domestic goods (televisions, stereos, kitchen appliances and equipment, etc.) with a total value of less than US$1,000. Regarding appliances and other electro domestics, application of the holiday exemption is restricted to where it involves no more than three such items and it involves only one of each type. Because of Hurricane Georges, the traditional food allowance will be extended to up to 125 pounds. Foods must comply with sanitary and phytosanitary regulations, which primarily affect fresh fruit and meat products. The program lasts until January 7 (i.e., the day after the Epiphany, or "Three Magic Kings Day" as it is known in the DR). Customs Director Miguel Cocco has warned that travelers do not have to offer bribes in order to receive these benefits, and that they should not offer any, not even disguised as a gratuity as many try to do. Any customs agent seeking a bribe should be reported to the Customs headquarters office.

Seizure clauses in CDE-distributor contracts?
The presidents of the National Council of Private Enterprise (CONEP) and the Mining and Petroleum Chamber yesterday called upon the CREP to drop its idea of putting harsh penalty clauses into CDE's contracts with the new regional electricity distribution firms. CONEP's Celso Marranizi and the Chamber's Luis Rafael Pellerano noted that CREP is considering inserting contract clauses with the three distribution firms that will emerge from CDE's capitalization that would allow the government to seize and liquidate the private shares of those companies should they fail to deliver electricity as promised. Marranizi opined that such talk could only harm the process of capitalization and scare off foreign investors. He noted that such delivery guarantees could never have been met by the current government-owned CDE. Pellerano said that while such a clause might be acceptable in a developed market where the electricity system is functioning efficiently, it is unrealistic to impose such demands in the "fragile" Dominican system, especially on the very parties being asked to make major investments to improve electricity distribution in the DR.

Poll: Peynado, Ortiz Bosch favored presidential candidates
The news daily Hoy continues to trickle out parts of its November 7-12 opinion poll of 1,000 Dominicans conducted in cooperation with the firm Hamilton & Staff. Today's installment regards who the general public (as opposed to just the picks of the party faithful) feel should be the presidential candidates for the Reformista Party (PRSC) and the Dominican Revolutionary Party (PRD). In each case, poll participants were given a long list of possible party candidates and asked to pick who "should be" that party's standard-bearer in the year 2000 elections. Regarding PRSC, 42% picked former Vice President Jacinto Peynado, who was PRSC's presidential candidate in 1996. The runner-up was ex-President Joaquín Balaguer, with 14% of those polled, followed by Carlos Morales Troncoso with 8%.
As for the PRD, 40% chose Milagros Ortiz Bosch, the Senator for the National District (DN), while 38% picked former Agriculture Secretary Hipólito Mejía, 10% former Santo Domingo mayor Fello Suberví, and only 5% PRD Secretary-General Hatuey Decamps. Hoy notes that in a similar poll it published last June, Ortiz Bosch had received 42% while Mejía only garnered only 31% and Suberví only 6%. Thus while support for Ortiz Bosch has remained more or less the same (within statistical margin of error), Mejía's support has leaped and Suberví's risen as well.

Toribio: Neglecting tariff reform would be irresponsible
Finance Minister Daniel Toribio declared yesterday that it might be politically easier for the Fernández government to abandon its tariff reform proposals and seek only a minor adjustment thereof, "but that would be an irresponsible act that the current authorities will not commit." The DR has signed several trade agreements that necessitate the reforms, and the changes are necessary for the country's competitiveness. He reiterated his argument voiced last week that the package the government is proposing is not a net tax increase as its opponents are portraying it. Tariffs are a tax too, he asserted, and the lower tariffs offset the overall tax impact of the proposed increases in the broad Transfer Tax on Industrial Goods and Services (ITBIS) and the Selective Consumption Tax (ISC) on alcoholic beverages and tobacco products. He rejected charges that the requested ITBIS rise from the present 8% to 14% in the year 2000 will affect the average family budget. Most basic items in the diet of average Dominicans are not covered by ITBIS, he asserted.
Meanwhile the Executive Director of the Dominican Association of Exporters (ADOEXPO), Horacio Alvarez, yesterday characterized the reform bill as having less to do with export promotion and more to do with fiscal plans of the current government. For that reason, it does not enjoy the full support of the DR's export sector. He called for the proposal to be amended so that exporters are refunded for ITBIS paid in the course of manufacturing exported products. "We cannot agree to this bill because we cannot export taxes," he declared.

No balance of payment deficit this year
Central Bank Governor Héctor Valdez Albizu told reporters yesterday that the Dominican Republic will be the only country in Latin America to close out the year without a balance of payments deficit. Valdez Albizu pointed out that just before Hurricane Georges the Bank's analysts were projecting a balance of payment deficit of US$12.8 million, and after the hurricane this estimate was revised to a US$6.6 million deficit.
However, revenue has been better than expected, so the Bank now projects a slight surplus by year-end. He noted that the country has managed to build up net reserves of US$61.9 million, while under its target agreed with the International Monetary Fund (IMF) only called for US$30 million. The DR closed out 1997 with reserves of US$255.4 million. Regarding the DR's current account, the Bank now estimates its deficit at about 1.5% of the Gross Domestic Product (GDP), versus current account deficits in the rest of Latin America between 4% and 7.7%.

Municipal workers not paid for November
The Dominican Municipal League (LMD) yesterday denounced the national government for failing to send municipalities RD$70 million they were to receive from the national budget, which municipalities use to issue paychecks to their workers and to pay off bills and fulfill local commitments such as trash collection. Law 17/97 requires the National Treasury to remit funds on the 10th of every month to municipal governments; these funds, which usually actually arrive in municipal government hands on the 20th of each month, are used to pay salaries. LMD Under-Secretary-General Miguel Valenzuela asserted that the nation government's tardiness is hurting some 50,000 municipal workers. The Central Bankís latest report on the Dominican economy, however, says that only municipal employees total only 22,656. Valenzuela says that in the past the funds occasionally arrived a day or two late, but never before has the end of the month arrived without the national government making the payment.

INFADOMI: Tariff/tax reform bill will harm domestic pharmaceutical producers
The association representing the domestic pharmaceutical industry, INFADOMI, is asking for changes to the tariff/tax reform proposal sent to Congress by President Fernández. INFADOMI's President, César Jiménez, and its Executive Director, Hochi Vega, argued yesterday that the proposal in its current form will favor imports over domestically-produced medicines, harming the local industry. They pointed out that imported pharmaceuticals already enjoy a competitive advantage, in that they are exempt from the Transfer Tax on Industrialized Goods and Services (ITBIS), while local producers must pay ITBIS on locally-sourced inputs. Although imported pharmaceuticals now pay a 5% tariff while local producers only pay 3% on imported production inputs, local companies must pay 20% tariff on the imported equipment they use to make their products. Furthermore, foreign producers are allowed to import without paying tariff on medicine samples, a key promotional tool in the pharmaceutical industry. Instead of correcting this imbalance, asserted Jiménez and Vega, the governmentís tariff/tax reform proposal will make it worse.
Tariffs on imported pharmaceuticals are to be phased out completely, but domestic companies will see tariffs on the machinery they use drop to 14%, while certain key factors of production, such as packaging, will actually rise to 8-14%. Imported medicines will remain exempt from ITBIS, while local producers will see the ITBIS they pay on inputs rise from 8% to 14%. The INFADOMI executives insisted that they are not seeking special privileges or protection for local industry, but rather they want the government or congress to amend the reform proposals in order to level the playing field. Otherwise the domestic industry will steadily lose the 50% market share they currently enjoy in Dominican pharmaceutical consumption.

DR has met all conditions to host PanAm Games
A report prepared by the Pan American Sports Organization (ODEPA) says that the Dominican Republic meets all the requisites to host the 2003 Pan American Games. Santo Domingo is vying with Guadalajara, Mexico, and Medellin, Colombia, to host the Games. A vote on the site may be taken when ODEPA next meets in Panama City on December 6. The ODEPA report notes not only the availability of the necessary sports facilities to hold the competitions, but also the broad domestic political and social support for the DR's bid and factors like low security risk and the quality and proximity of health facilities to treat injured athletes. Also featured are Fernández Government assurances about (1) clearing away any obstacles to tariff-free imports of all necessary materials and equipment needed to mount the Games; (2) providing adequate lodging nearby for athletes participating in the Games. On the latter, the Government has promised to provide near to Santo Domingo's Olympic Complex six 22-story apartment towers providing a total of 7,776 beds. The towers will be built on five hectares of land to be purchased from the private sector.

Orlando case fugitive arrested in NYC; extradition sought
It was confirmed that a key figure in the murder case of journalist Orlando Martínez was arrested last Saturday in New York City and that the Dominican Government has formally requested his extradition. Mariano Durán, a former Dominican Air Force corporal, is accused of being the trigger man in the March 17, 1975 shooting of Orlando Martínez, an outspoken critic of the then-government of Dr. Joaquín Balaguer. The Martínez case recently had its initial hearing and was due to proceed to a second hearing next Monday. The case has brought subpoenas of a number of famous figures, including Dr. Balaguer and several retired generals. It is thought that the judge overseeing the case may now further postpone proceeding with the case until the extradition request for Durán is processed, which may take up to a year. Durán was arrested in the Bronx, where he reportedly has lived for several years and where he owns a liquor store.

Workers occupy mill demanding back pay
Sugar workers have taken to occupying the Montellano mill until State Sugar Council (CEA) Director Oscar Santiago Batista makes good on his promise to pay them 40% of the back-pay due them since early 1998. The CEA owes its workers some RD$17 million in back pay. Sugar workers picketed the National Palace last week to demand their pay, and at that time received promises from the CEA Director. The Montellano mill, located in Puerto Plata province, has hundreds of tons of sugar warehoused whose shipment to markets is being blocked by the workers. An end to the worker blockade may come today when the directors of the National Federation of Sugar Workers (Fenazúcar) meet in Santo Domingo with Labor Minister Rafael Alburquerque.

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