Bloomberg News

Medina Capitalizes on Gaffes Ahead of Dominican Republic Vote

May 18, 2012

Dominican presidential candidate for the Democratic Liberation Party (PLD), Danilo Medina blows a kiss to supporters during a rally in Santo Domingo on May 17, 2012. Photographer: Juan Barreto/AFP/GettyImages

Dominican presidential candidate for the Democratic Liberation Party (PLD), Danilo Medina blows a kiss to supporters during a rally in Santo Domingo on May 17, 2012. Photographer: Juan Barreto/AFP/GettyImages

Dominican Republic ruling party candidate Danilo Medina is gaining in polls ahead of this weekend’s presidential election after a series of gaffes by his rival prompted voters to embrace his promise of continuity.

Medina chose outgoing first lady Margarita Cedeno as his running mate in a bid to remind voters that his ally President Leonel Fernandez delivered average annual economic growth of 7 percent since 2004. While Medina is still locked in a statistical tie with former President Hipolito Mejia, the latest surveys show Medina gaining an edge ahead of the first round of balloting May 20.

Mejia’s pledge last month to remove Supreme Court justices he viewed as unqualified and a joke about U.S. President Barack Obama’s being born in Africa reminded the Caribbean island’s 10 million citizens of the turmoil that marked his 2000-2004 term, when public debt surged and the country’s second-biggest bank collapsed, said Boris Segura, a Latin America analyst with Nomura Securities International. Even members of his Dominican Revolutionary Party came to the high court’s defense while the Senate condemned Mejia’s remarks about Obama.

“Mejia has behaved extremely erratically,” said Segura in a telephone interview from New York. “That has only added to Medina’s lead.”

Rising Approval

Medina, a 60-year-old former chief of staff to Fernandez who joined the Dominican Liberation Party almost 40 years ago, had 51 percent support compared with 46 percent for Mejia in a survey of 1,022 people taken May 2-7 by pollster Greenberg Quinlan Rosener and Santo Domingo-based newspaper Diario Libre.

The remaining support was spread among the four other candidates, according to the poll whose margin of error was 3.1 percentage points.

Medina, who would be able to count on a majority in Congress for the duration of his four-year term, leads in all regions of the country and has seen his support climb 4 percentage points from 47 percent since late March, with a majority saying he would better manage the economy, the poll said.

As president, Mejia oversaw the country’s only contraction in at least 20 years when the economy shrank in 2003.

While growth in the $57 billion economy slowed to 4.5 percent last year from 7.8 percent in 2010, the mining sector expanded 80 percent, according to the central bank.

Fernandez said further growth is expected in 2012 due to continued extraction of nickel at the Zug, Switzerland-based Xstrata Plc (XTA) Falcondo mine and the beginning of gold production at the Pueblo Viejo mine by Toronto-based Barrick Gold Corp. (ABX)

Chavez Factor

Whoever wins the election will have to rein in electricity subsidies that contributed to the deficit before interest of 0.4 percent of gross domestic product last year.

The dependence on cheap fuel from Venezuela raises investor concern about what will happen if President Hugo Chavez, who is battling cancer while seeking re-election, doesn’t remain in power.

“If something happens in Venezuela and that program disappears, it’s going to be a problem for us,” said Bernardo Vega, a former central bank governor, in an April 23 interview in Washington. “We depend a lot on the financing provided by Chavez.”

More than 40 percent of the electricity produced by the state-run Corporacion Dominicana de Empresas Electricas Estatales, known as CDEEE, incurs a loss because of subsidies that total $900 million a year, or 1.6 percent of GDP, according to Heather Berkman, an analyst at the Eurasia Group, a political risk consultancy in New York.

‘Crux,’ Gaffe

“The power sector is the fundamental crux of the macroeconomic imbalances right now,” Berkman said in a telephone interview from New York. “The country has been wasting so much on propping up an inefficient and poorly run distribution company for a very long time.”

Mejia, who defeated Medina in the 2000 election, has tried to capitalize on frustration with unemployment that, while having fallen from 18.4 percent since Fernandez took office, remains among the highest in Latin America at 14.6 percent.

The 71-year-old has vowed to create over 400,000 jobs and invest 4 percent of GDP in education.

After running in a statistical tie with Medina through early April, Mejia made a misstep on a campaign stop last month in New York, where thousands of Dominicans are expected to vote.

Speaking at a campaign rally, he joked that Obama was “born and raised in Africa.” He further unsettled voters when upon his return home he accused Supreme Court justices of being “shameless and lazy,” earning rebuke from his own party.

‘Problems,’‘Progress’

Mejia has criticized state-run CDEEE throughout his campaign for its excessive losses and poor collection practices and has deemed electricity reform a priority of his administration.

Mejia has also referred to the CDEEE as “bottomless barrel” and that increased electricity subsidies and improved billing measures will accompany the new IMF Stand-By Agreement.

“To resolve the problems of the people of the country, it is imperative that our government rests on two fundamental pillars: macroeconomic stability and a social policy that provides equal benefits to all Dominicans,” he said in a May 9 campaign address posted on his website.

Press officials from the Medina and Mejia campaigns didn’t respond to e-mail and phone messages seeking comment.

“With my administration, change will be safe,” Medina said in a May 10 interview with his campaign’s website. “We’ll assure that the progress that has been made in recent years won’t be threatened.”

IMF Talks

Both Mejia and Medina have vowed to restart negotiations with the IMF after a $1.7 billion credit line to help the nation weather the global financial crisis expired in February and the government resisted raising energy costs.

The yield on the country’s dollar bonds due in 2021 has fallen 80 basis points, or 0.8 percentage points, this year to 6.75 percent, according to data compiled by Bloomberg. The yield on emerging market dollar bonds fell 44 basis points to 5.64 percent over the same period. The country’s peso has declined 1.3 percent to 39.2 per dollar.

To win in the first round of the elections and avoid a June 24 run-off, a candidate must receive more than 50 percent of the ballots cast. Mejia, who had been in a statistical tie with Medina through early April, could still see a rally in support, Berkman said.

“It’s still too close to call,” Berkman said. “The numbers and trends all look to be in Medina’s favor, though my gut feeling is that Mejia still has a chance to take it.”

To contact the reporter on this story: Adam Williams in San Jose, Costa Rica awilliams111@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net


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