LETTER TO (SANITIZED) FROM WILLIAM J. CASEY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86M00886R001300060001-4
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 9
• Document Creation Date: December 21, 2016
• Document Release Date: September 4, 2008
• Sequence Number: 1
• Publication Date: October 11, 1984
• Content Type: LETTER

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The Director of Central Intelligence
Washington. D. C. 20505
I just wanted you to know that I read your piece
about the economic crisis in the Dominican Republic
with interest. I have discussed the matter with
He, too, is concerned about the situation
STAT
STAT
STAT
STAT
I'm told State is following STAT
this closely.
I return herewith the papers you left with me.
Warm regards.
Yours,
William J. Casey
STAT
c,j.?,
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THE -DOMINICAN REPUBL- IC
--------------------
I. The Current Crisis
Last April more than 60 Dominicans were killed and
scores injured as the Police and Army quelled a mass
protest against sharp increases in the price of food,
medicine and other necessities. Whether this uprising was
orchestrated and fueled by the radical Left as a "dress
rehearsal" or was a popular demonstration against the
Government's economic austerity policy that ran out of
control -- or both -- underscores again the fragile
situation in this vital Caribbean nation.
Last week the Government took protective military
measures to assure that there would be no repetition of the
April violence when it announced that oil and gasoline
prices would also be sharply increased. Because of the
enormous distortions in the Dominican economy -- brought
about typically by low prices for its principal exports
such as sugar and high imported oiI costs -- the Jorge
Blanco Government has been preoccupied for months in
attempting to work out a rescue plan with the IMF.
Political considerations have taken precedence over eco-
nomic considerations accounting for a virtual paralysis in
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the nation's economy, already beset even in better times by
high unemployment and a burgeoning population.
Reports concluding that a radical Leftist takeover
"cannot be ruled out" such as that issued by the First
Boston Corporation to a group of potential Dominican
investors (see Enclosure #1) are not realistic, according
to the State Department. But again they illustrate that
the fabric of the Dominican political system is not sturdy
and that any future course of events, if the economic
contraction continues, cannot be taken for granted.
If. Foreign Investment as a Stabilizer
Central to the revival of the Dominican economy and the consequent strengthening of the political fabric is the retention and development of foreign investment.
This fact is at the core of President Reagan's Caribbean
Basin Initiative. With the departure of Alcoa and the
imminent phase-out of Falconbridge, the last major foreign
investor is Gulf+Western. But that company, in a stream-
lining move announced last June, has stated it is getting
out of the sugar business both in the Dominican and
Florida, a decision accelerated, as will-be explained
below, by the actions of the Dominican Government.
Unless properly filled, the departure of Gulf+
Western may leave a huge void in the economy. The company
has been for the past seventeen years the Dominican's
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largest taxpayer, employer and developer of agricultural
technology, and pioneers in the new tourism industry. As
the owner and operator of the most efficient sugar mill
perhaps anywhere in the world, it has become a main source
of foreign exchange for the nation. Recent articles in The
New York Times, the Miami Herald and just last week in the
Chicago Tribune (see Enclosure #2) have highlighted the
impact of this move.
III. The Issues
Caught up in the current economic squeeze, the
Dominican Government has reacted in unpredictable and
arbitrary ways.
They retroactively impaired the value of
Gulf+Western's and other U.S firms'divi-
Bends which had been earned in prior
years and which ironically were never re-
mitted at the request of the Dominican
Government. As a result, Gulf+Western
lost $22 million, has had to file an in-
convertibility claim with OPIC and sue
the Dominican Government in local cot'irts.
They imposed an artificial exchange rate
on sugar, which is crippling their main
source of foreign exchange.
Against this scenario, the question is what can be
done to restore confidence in foreign investment and help
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stabilize the economy. Because of the clouded situation,
Gulf+Western is experiencing difficulty in selling its
Dominican operationsto a responsible and suitable buyer,
creating a great deal of uncertainty in the Dominican.
IV. Six-.Steps to Stability
1. Impress on the Dominican Republic Government the
need to clean up their remittance policy. State (Motley)
has taken a pro-active role in this and has been most
supportive.
2. Impress on the Dominican Republic Government the
absolute necessity of linking the sugar exchange rate
(largest export item) to the oil exchange rate (largest
import item). This is the IMF strategy, but the Dominican
Republic Government is dragging its feet.
3. Assure the passage of the Farm Bill, which will
provide the mechanism for continued U.S. quotas for
Dominican sugar(Quota price: 214; World price: 54).
Without this support, the most effective direct form of
U.S. economic assistance, the already depressed Dominican
economy will go into a tailspin. The Farm Bill runs
through this coming and the next U.S. Government fiscal
year but will expire unless Congress acts later in the 1985
session.
4. Try to see that sugar quota shortfalls of other
nations are allocated to the Dominican Republic or the
Caribbean Basin. (Agriculture/State STR)
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5. Stop the flow of Canadien blended sugars coming
into the U.S. which are limiting the growth of any quota
from countries like the Dominican Republic (State/
Agriculture).
6. Press the Dominican Republic Government to
complete its negotiations with the U.S. on the tax exchange
information agreement, allowing U.S. tax deductions for
conventions held, in the Dominican Republic. This is a key
provision of the Caribbean Basin Initiative and will help
boost Dominican tourism.
# # #
September 10, 1984
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Memorandum
First Boston
4. The Outlook
August 1. 1984
The Dominican Republic is a deeply troubled country. Even after a
compromise stand-by arrangement is ruched with the IMP, likely to be
accomplished in the near future, it will take a long time for economic
conditions to improve, and to achieve significant gains in real per capita
income.
Because of the precarious: economic situation, political
instability will continue and political tensions are likely to intensify.
An overthrow of the present Government and a take-over by radical political
forces cannot be ruled out. Such a take-over could lead to full-scale
civil strife and would most likely lead to the nationalization of all major
private enterprises and foreign investment.
Attachment: Statistical Tables 1 to 6
1.
Total Export Earnings and Major Export Commodities
2.
Current
Account and Balance of Payiiients
3.
National
Accounts by Major Components
4.
External
Public or Publicly Guaranteed Debt
5.
External
Claims of Commercial Banks in G-10 Countries, Switzerland,
Austria, Denmark and Ireland on the Dominican Republic
6.
Amounts Owed to U.S. Bank by the Dominican Republic
-4-
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NWG31 384
Gulf & Western Industries' sugar mill in La Romana, has been a good multinational." a local business execul.,/e
Dominican Republic. "It is a strange multinational in that it said. "Dominicans are very fond of La Gulf."
Town losing amigo in 'La Gulf
chief market. Corn syrup Produced
in the U.S. already accounts for
nearly 40 percent of American con-
sumption, and that figure is expect-
ed to increase within a few years.
analysts say.
Throw in European beet sugar
_4,pd the growth of artificial
sweeteners, and the outlook for
cane sugar dims further. It is not
surprising then that G&W an-
nounced it was putting its Florida
sugar operations up for sale as well.
FOR LA ROMANA. La Gulf has
been a way of life ever since it
bought the sugar operation here in
1967 from the South Puerto Rico
Sugar Co., which left a bittersweet
legacy of foreign domination since
it came to town at the turn of the
century.
Expanding rapidly, G&W set up a
free zone here with more than 8,600
workers in 21 different plants. It
built the picturesque 350-room Casa
de Campo resort. one of the finest
of its kind in the region. with two
golf courses, horseback riding, ten-
nis, a shooting range. swimming,
deep sea fishing, elegant restau-
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_..t.._ .,
By George de Lame
Chicago Tribune Spotlight
LA ROMANA. Domieka^ Republic.-
This is the land of sugar and La Gulf, a' As the Dominican Republic's chief
sweet combination that turned this cash crop, sugar accounts for about 40
seaside city into a symbol of forward- percent of all export earnings and direct-
looking, enlightened foreign investment ly or indirectly provides work for an
in an age-old Caribbean commerce. estimated 500,000 people. By any stand-
Now, however, the U.S. firm with the and. La Romana has the world's largest
good-guy image is thinking of pulling sugar mill operation.
out, and this worried company town is Even in these days of low world prices
wondering what happens when the corn- and slackening demand, that operation
pany leaves town. still maintains a modest profit, thanks to
In a larger sense observers across the a preferential U.S. quota price and aboli-
Caribbean are tfirrking. hard about what tion of a U.S. import tax under the
the.: planned move; :;might _say about Carftbean Basin InCtivt..ir ry ana-
sugar. = the. region's traditional economic lysts say' -
lifeblood '', NONETHELESS. ?a Just 14
La Gulf," as it`is kno n here, is Gulf & Martin S. Davis, G&W chief execa-
Western Industries Inc., one of the most tive officer, announced in New York
unusual,,U:S:;corporate entities operaRing that the firm was putting its La
in Latin:Arnerica. Roman sugar operation up for sale
"It isaastrange multinational in that it because "sugar no longer fits in
has been' .a. good multinational; said with the company's long-term stra-
Frank Moya Pons, executive diector of tegr c plan."
the Fund for the Advancement of the some analysts say the bombahell
Social Sciences. "It has created a lot of worries Dominicans, who know that
employment and put in ear a good low world prices, the advent Of
program of support for social advances. sugar substitutes and new medics
Dominicans are very fond of Ls GaU" concern about the effects of sugar
AT ITS SUGAR mW here is this cky O make the industry a dubious bet VW
100.000. some 75 miles emAt of Santo the future.
Domino. the ca ital. G W has its The Dominican Republic pro-
g P due~ex only 11 vercenf of annual
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Thicago tribune
CORPORATE COMMUNICATIONS
rants and flawless service.
Nearby is the famed Altos de
Chavon, a recreated 16th Century
stone town affiliated with New
York's Parson School of Design.
There, poor Dominican children and
rich foreigners learn the basics of
silk screening, fashion design and
ceramics while tourists by the
droves admire the architecture and
ambience.
ALL THIS WAS brought about by
the vision of one man, G&W founder
Charles Bludhorn. Bludhorn "saw
this corner of the Caribbean and
wanted to turn it into a paradise a
monument to the place he loves"
said Eduardo Fernandez, former
president of the Central Bank, who
was an executive at G&W in its
early years.
Besides La Romana, G&W owns
two plush hotels in the capital, a
cattle ranching business, real estate
interests and other tourist ventures.
No Dominican private companyy
comes close to its extent of ho-
dings.
The announcement of the sale
came little more than a year after
Bludhorn died of a heart attack. To
most observers, the clock started
ticking the day he died.
With Mr. Bludhorn gone, the
new management has different con-
cepts, independent of whether sugar
has a future," said Hatuey de
Camps, the senior aide to President
Salvador Jorge Blanco. "It is basi-
cally , an internal company deci-
sion."
For now, G&W said, it will re-
main in La Romana until a new
buyer can be found. The consensus
is that it will have to be another
multinational that is willing and
able to pick up the entire package
of G&W holdings here.
De Camps said French, Japanese
and Canadian firms had expressed
interest, though earlier reports here
that Mitsubishi of Japan was the
likely buyer are discounted by other
sources.
WHOEVER THE eventual buyer
is it will f i n d a tough act to
follow. Part of its positive image
stems from a concerted plan to
Dominicanize its management
team, picking up in the IT 1960s
where the pprevious owners left off
and virt uall completing the pro-
cess a decade later.
"That went a long way towards
eliminating resentment of them as
a U.S. imperialist company and
that sort of thing," said a foreign
economist. ' The Harvard Business
School should really come in here
and do a case study on Gulf &
Western. I've never seen anything
like what they ve done here.'
Today, G&W's good standing is
more solidly based on the simple
fact that its sugar operation here
pays its 16,000 permanent em-
ployees better than any other sugar
concern in the country and provides
them with a wide range of social
services.
IN CENTRAL La Romano. the
G&W mill here, any prospective
buyer would be getting a power-
house. In 1961-82, the plant crushed
4.09 million tons of cane and pro-
duced a single-mill world record of
480,086 tons of sugar, an amazing
sugar-to-cane yield of 11.74 percent.
The mill refines sugar at a cost of
14 to 17 cents per pound, better than
any other cane operation in the
world. Unfortunately, sugar sells
for about 6 cents a pound on the
world market.
There are other problems for po-
tential buyers, too, besides meeting
high expectations amid the sugar
industry s uncertain future. For one
thing, new peso exchange re-
strictions on revenues have put a
damper on large foreign corporate
investment.
At the behest of the International
government
Monetary Hind, the g
changed the exchange rate govern-
ing multinational remittances, obli-
ging foreign firms to repatriate
dividends at the parallel rate of
almost three pesos to the dollar
i
f~ 3
iAUG ~
instead of at the official rate of one.
G&W said the move accelerated its
decision to sell.
ONE WAY OR another, the sale
of La Romana's sugar operation
and a new awareness of the limits
of sugar as the nation's economic
mainstay signal an end to an era.
The Dominican government is be-
ginning to embark on an ambitious,
politically touchy program of diver-
sifying its economy. converting old
sugar fields to more profitable
crops like pineapple, and slowly
trying to modernize its equipment.
Now, with the government caught
in the midst of a crippling financial
crisis that includes a huge foreign
debt and trade imbalance, the last
thing it needs is for its largest
investor to indicate a lack of confi-
dence in its chief industry and in
the country's future as a favorable
investment site.
Asked about the political implica-
tions of G&W's planned departure.
de camps answered slowly. "It re
mains to be seen," he said.
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