Dominican president begins new term under pressure

By Manuel Jimenez

SANTO DOMINGO, Aug 16 (Reuters) - President Leonel Fernandez will be sworn in for a third term on Saturday, facing mounting pressure to steer the Dominican Republic clear of a deep economic slump threatening much of the Caribbean.

Analysts say Fernandez's deft handling of the economy, and his ability to pull it out of the severe crisis he inherited in 2004, were key to the victory of the New York-raised lawyer and academic in his re-election in May.

But Fernandez has since been coping with fallout from the stumbling U.S. economy and high global oil and food prices.

As a result, economic growth is expected to slow sharply this year as the import-dependent country is buffeted by problems including the soaring cost of energy subsidies, budget strains and a return to double-digit inflation.

A drop in remittances from the United States, which is home to most of the Dominicans sending money back from abroad, is another problem undermining the domestic economy.

"I think his honeymoon is likely to be short. I think it's probably over," said Dan Erikson, a Caribbean expert at the Inter-American Dialogue policy group in Washington.

"I think this is going to be a real difficult period for Fernandez to navigate."

The Dominican Republic is far wealthier than Haiti, its poor neighbor on the island of Hispaniola. But many Dominicans struggle to satisfy basic needs despite a tourism and real estate boom.

PACT TO ADDRESS POVERTY

Fernandez and his centrist Dominican Liberation Party vowed on the campaign trail to come up with a "social pact" to address poverty and expand government programs if he won re-election, Recently announced fiscal belt-tightening measures, including controls on spending, don't augur well for poverty reduction, however.

"It limits your capacity to act if you go from buying oil at $60 per barrel on average to buying it at $110 per barrel," Deputy Planning Minister Guarocuya Felix told Reuters.

"You might have been able to use that difference to finance social needs ... It affects people's well-being," he said.

Fernandez inherited a crumbling economy in 2004 when he became president for the second time. The collapse of a major bank in 2003 had sent inflation soaring, plunging the government deep into the red and provoking a sharp economic recession.

Fernandez managed to turn things around with the help of loans from the International Monetary Fund. This time, however, the country's problems stem largely from external conditions that are outside his control.

"This is something that has affected the Caribbean as a whole," said Erikson. "Most of these countries are net importers and net fuel importers."

Fernandez, 54, was first president from 1996 to 2000 before winning office again in 2004. (Writing by Tom Brown; Editing by Michael Christie and Cynthia Osterman)