AUGUST 1980 - VOLUME 1 - NUMBER 7
Calm After the Storm
G&W, Dominican Republic Come to Terms
With the help of an influential friend from the U.S. foreign policy establishment, Gulf and Western recently settled its sugar trading dispute with the Dominican Republic, but not before the blustering tactics of the U.S., agribusiness company created an uproar in the Caribbean country.
Both the conflict and recent agreement come in the context of Gulf and Western's dominance of the Dominican economy. The company produces 30 percent of the country's sugar crop and controls virtually every major tourist spot. In addition, Gulf and Western is the largest corporate landowner, employer, and taxpayer in the country.
The roots of the controversy stretch back to 1974. According to the U.S. Securities and Exchange Commission, currently engaged in a court battle with Gulf and Western over the company's practices in the Dominican Republic, Gulf and Western's Charles Bludhorn made an oral agreement with then Dominican president, Joaquin Balaguer, to undertake trading in sugar futures on behalf of the Dominican government. The government and the company were to split the profits earned during fiscal 1975 on a 60-40 basis. That year, Gulf and Western gained- U.S.$64.5 million in the sugar trading operation. The Dominican Republic, however, never received its share, amounting to S38.7 million.
Details of the arrangement only came to light two years ago, after Balaguer had left office. His successor, President Antonio Guzman, chose to take a conciliatory approach to the company, attempting to negotiate an out-of-court settlement of the matter. Early efforts failed to achieve results, so in August Guzman sent two aides to meet Bludhorn at the chairman's Connecticut home to see if the impasse could be resolved.
The talks with Bludhorn appear to have been anything but cordial. He "threatened to 'destabilize' the Dominican Republic and prevent North American tourists from visiting the country" if the Dominican Republic refused to back down, reported the leading Dominican paper, El Sol. Gulf and Western refused to confirm or deny the reports.
Soon after the meeting, Gulf and Western ran a menacing advertisement in every major Dominican paper. "Let there be no doubt about this," the ad stated. "We don't have the least fear about defending our interests and more important, our honor. If any legal proceedings are initiated against us, we are prepared to fight vigorously in any court or forum for our cause."
Guzman responded forcefully to these challenges. "There has been talk of the existence of grave threats to destroy the prestige of the current government and country," he said the day after the ads appeared. "I want to affirm that this government has an historic mission that no one or nothing can impede."
Demonstrating his resolve, Guzman sent the attorney general and comptroller of the Dominican Republic to Washington to examine SEC documents relating to Gulf and Western-a first step in taking legal proceedings against the company.
For his firm moves, Guzman received an outpouring of support from the Dominican people, as labor unions, merchants, peasants, students and civic groups all rallied around the President in a display of nationalist fervor. Virtually every day for two weeks, one organization after another took out ads in the papers, denouncing Gulf and Western and backing Guzman's efforts to obtain payment of the debt.
Enter Cyrus Vance, presently employed by the Wall Street law , firm, Simpson, Thatcher and Bartlett, Gulf and Western's legal counsel of long standing.
Vance, who according to one State Department official, "has been a personal friend of Guzman," headed Gulf and Western's delegation to the Dominican Republic in early September to work out an arrangement. Vance's meeting with Guzman evidently went well; "It was the decisive factor," says Arturo Calventi, first secretary to the Dominican Republic embassy in the U.S.
As a result of Vance's mission, the parties reached an agreement whereby Gulf and Western will pay $39 million over the next seven years to fund a nonprofit corporation that will provide social and economic services in the eastern region of the Dominican Republic. The specific projects the new corporation will undertake are to be decided upon by a five-member board, with two representatives from the government, two from Gulf and Western, and the bishop of the eastern region presiding. Priority will be given to projects the technical secretary of the Dominican Republic recommends.
The agreement registers some concessions on the part of Gulf and Western, which previously had offered to fund public service operations that it would control-worth approximately $24 million-or to give tax deductible donations to the government amounting to less than $38.7 million.
President Guzman also yielded ground, and leftists in the Dominican Republic-including former President Juan Boche-accuse Guzman of settling too soon. They believe that he could have obtained more money, and that the government should have insisted on more control of the nonprofit corporation.
Gulf and Western's extraordinary control of the Dominican Republic obviously circumscribed Guzman's range of actions. Nevertheless, Gulf and Western did not want to press its luck too far. "Gulf and Western could not afford to further alienate the public for fear of nationalization," says Roberto Alvarez, a Dominican lawyer now doing graduate research at Johns Hopkins School of Advanced International Studies.
As for Guzman, he may have had his own political ambitions in mind when he signed the agreement. "He did not want to ~ alienate too much his main supports-foreign investment, especially U.S.-at a time when he is considering running for reelection," Alvarez says. Still, Guzman had to win some concessions to placate domestic nationalists. Alvarez notes: "The government was boxed in. They could not settle for less than $38.7 million, but they didn't want to go further."
Such speculation about Guzman's motivations appear to be borne out by the President's speech of September 4 announcing the agreement. "The accord signed is palpable proof that the government respects private initiative and foreign investment and defends at the same time the dignity and the interests of the country and national sovereignty," Guzman proclaimed.