Document o f The World Bank

FOR OFFICIAL USE ONLY

Report No. 49620-DO

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL FINANCE CORPORATION

COUNTRY PARTNERSHIP STRATEGY

FOR

THE DOMINICAN REPUBLIC

FOR THE PERIOD FY10-FY13

August 12,2009

Caribbean Country Management Unit Latin America and the Caribbean Region

The International Finance Corporation Lat in America and the Caribbean Region

This document has restricted distribution and may be used by recipients only in the performance of their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.

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The last Country Assistance Strategy (CAS) for the Dominican Republic, Report No. 3 1627-DO was discussed by the Board of Executive Directors on May 19,2005. The last CAS Progress Report was dated July 6, 2007.

CURRENCY EQUIVALENTS Currency Units: Dominican Peso (DOM) US$l .O = DOM$35.85 (as o f July 7, 2009)

Fiscal Year January 1 to December 3 1 Weights and Measures

Metric System Abbreviations and Acronyms

Dominican Republic

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World Bank IFC Vice-president Pamela Cox Jyrki Koskelo Country Director/Director Yvonne Tsikata Atul Mehta Task Team Leader Roby Senderowitsch Pierre NadjiiSalem Rohana

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FOR OFFICIAL USE ONLY

ACKNOWLEDGEMENTS

The World Bank Group (WBG) greatly appreciates the close collaboration with the Dominican authorities in the preparation o f this Country Partnership Strategy (CPS). In addition, the Bank recognizes the productive and close coordination achieved with other international development agencies operating in the Dominican Republic.

This Country Partnership Strategy i s a product o f the WBG’s Dominican Republic Country Team led by Roby Senderowitsch and Pierre Nadji under the overall guidance o f Yvonne Tsikata. Numerous staff members and groups provided inputs and feedback during the various stages o f the production o f this strategy, including Catherine Abreu, Marco Arena, Diego Arias, Mark Austin, Pedro Arizti, Ana Bellver, Raja Bentaouet, Benu Bidani, Maurizio Bussolo, Alan Carroll, Juan Miguel Cayo, Rodrigo Chaves, L i ly Chu, Carine Clert, Christian Contin, Erwin De Nys, Laura Elias, Henri Fortin, Samuel Freije-Rodriguez, Francis Ghesquiere, Maria Hermann, Valerie Hermann, Jane Hwang, Joseph Kizito, Enzo de Laurentiis, Jean-Michel Lobet, Christina Malmberg Calvo, Nick Manning, Manuel Marino, Fernando Montenegro, Anna Musakova, Juan Navas-Sabater, Maria Beatriz Orlando, Alejandra de la Paz, Vanessa Paul, Maria Poli, David Reinstein, Maritza Rodriguez, Roberto Tarallo, Cornelia Tesliuc, The0 Thomas, Joao Veiga- Malta, Walter Vergara, Daniel Villar, David Warren and Anders Zeijlon. The team i s especially thankful to Yvonne Tsikata for her strategic guidance and orientation and to Miguel Ceara, Michael Corlett, Afef Haddad, Norman Hicks, and Leritza Monsanto for their valuable contributions and hard work during this process.

Key Government counterparts in developing the partnership strategy were: Juan Temistocles Montas, Secretary o f State o f Economy, Planning and Development; Vicente Bengoa, Secretary o f State o f Finance; Maria Felisa Gutierrez, Undersecretary o f Finance, Ministry o f Finance; Guarocuya Felix, Superintendent o f Securities; Nelson Toca, Undersecretary o f Planning in the Secretary of Economy, Planning and Development, SEEPyD, Susana Gamez, Coordinator o f the Social Cabinet; and Edgar Victoria, Director o f Public Credit, Ministry o f Finance.

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This document has restricted distribution and may be used by recipients only in the performance of their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.

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JOINT IBRD/IFC

THE DOMINICAN REPUBLIC COUNTRY PARTNERSHIP STRATEGY (CPS) FOR

Table o f Contents ExEcurrvE SUMMARY .................................................................................................................................................................................... VI I . MRODUCIION ........................................................................................................................................................................................ 1 II . COUMRY~ANDDEVELOPMENAGENDA ..................................................................................................................... 1

A socIALANDPoLrTIcALcoNTDcT ................................................................................................................................................ 1 B . ~ E c o N o M I c DEVELOPMENTS ......................................................................................................................................... 2

D . P o v m m , ~ u m , AM)~MEMDGS ................................................................................................................................ 12 E . I X v m ~ m ~ m s ~ ~ ~ ~ m m s ............................................................................................................ 16 F . n-IE DOMINICAN RFPUBLICNAT~ONAL W P ~ S m m ~ ............................................................................... 20

III . BANK G R o u p A s s m ~ S ~ Y .......................................................................................................................................... 21 A. LESSONS FROM THE FY6FYC9 CAS AND S T ~ O D ~ CONSULTATION ............................................................ -21 B ~m m W o w BANK GROUP Assrsrm S m m y .............................................................................................. 22 c . IMPLEMENTING THE COUNTRY PAR-rma-UP S m m y .................................................................................................. 33 D . MIGAPRCGRAM ........................................................................................................................................................................... 36 E . WBI PROGRAM .............................................................................................................................................................................. 36 F . M o m m AND EVALUATION (M&E) ................................................................................................................................ 37

N MANAGINGREW ................................................................................................................................................................................ 37

c . GOVERNANCEANDbLIChm0NS:coWANDCHALLENGES ..................................................................... 11

TABLES TME 1 1 DOMINICAN ~ L I C KFt ECONOMIC ~ I C ~ B 2003-2013 ....................................................................................... 4 TABLE 2: EvownON OF FISCAL SllUNlON- JAN-APR 2 0 9 (US$ MILLION) .................................................................................. 8 TABLE 3: FTscaFn tm~ REQuIREMENlSm SOURCES. 2 0 9 ..................................................................................................... 9 TABIG: 4: COW- S O C I A L ~ W E, 2006 ........................................................................................................................ 14 Tmm5:MDGs: ~ ~ A N D R ~ P ~ ........................................................................................................................................ 16 TABLE6.IFCINTHEDRFYO2-FYO8(US$MILLION) .......................................................................................................................... 21 TABLE 8: GO=-, cPs -AM)D~WB .................................................................................................. 36

FIGURES R m l : P o v n n r R ? \ I E s m S I 3 m m m m m D R ................................................................................................. 13 FrcuRE 2: DISTR~BUI~ON LOSSES ................................................................................................................................................................. 17 F i c u ~ ~ 3: CLIEMS PER WORKEREDESDR ........................................................................................................................................... 18 FIGURE~:DR~P~RESULTSCHAIN ........................................................................................................................................................... 26

CAS STANDARD ANNEXES m: DOMINICAN R E P ~ L I c ~ A G ~ A N C E .............. : ................................................................................................................... 39 ANNEX B2: S m Ir\rr>lCATORs OF BANK POKfFOLIO PERFORMANCE AM) IVhNAGEMEN ............................................ -41 ANNMB3: IFCANDMIGAPRCGRAM ..................................................................................................................................................... 43 ANNEX B4: SWY OFNON LEM>ING Smvrm ............................................................................................................................. 44 ANNEX B5 : POVERTY AND socrt\L ~ECTOR hDICAmB ...................................................................................................................... 45 ANNEX B6: DcMNlCAN REPUBLIC KEYECONOMC m1cmRS 2003-201 3 ............................................................................... 46 ANNEX B7: KEYExposuRE h D I C m ................................................................................................................................................. -47 ANNM B8: @ ~ O N S P O ~ U O @€DADA) ............................................................................................................................... 48 ANNEX B8: @ m O N S POmOLIO (TFC) ............................................................................................................................................. -49

iv

CAS ANNEXES

A N N E X 2 : P R o G R E s S O N M U E N N N M ~ G 0 A L S ......................................................................................................... 55

ANNEX4 DRCAS C O M P L E ~ O N ~ K F F Y O ~ - F Y O ~ ................................................................................................................... 59

ANNEX 1 : ~ T S M A l R K F O R T H E ~ ............................................................................................................................................... 50

ANNEX3:LE.SSONSLEARWDFROMlHE~PAST ....................................................................................................................... 56

ANNEX 5: NA~oNALDEVELOPMENT STRATEGY PILLARS, THEMESAND SIRAEGIC OBJEcrrVEs ........................................ 99 ~ ~ A A A M H R K A N D ~ ~ ~ T E M ~ A L ~ ~ ~ R ~ E ~ o F F u N D I N G ................................................................................................... 101 ~ ~ G ~ ~ E R N A N ~ E I N ' I H E D ~ M I N I ~ A N R E P ~ L I ~ .................................................................................................................... 103

~ ~ : C O U N ~ R Y F I N A N ~ G P ~ ..................................................................................................................................... 115 DOMINICAN RFKBLIC MAP .............................................................................................. 117

ANNEX 8: MpilRD( FOR D O N O R ~ O N ~ Z ~ T ~ O N INTHE DOMINICAN REPU3LIC BY S'IRNEGICPILLARS ......................... 108

V

DOMINICAN REPUBLIC COUNTRY PARTNERSHIP STRATEGY FY10-FY 13

EXECUTIVE S U M M A R Y

1. Fo l l ow ing a decade o f r a p i d economic g r o w t h a n d social development, the Domin i can Repub l ic (DR) today faces impor tan t challenges that threaten the prospects f o r cont inued r a p i d progress. Among the main sources o f vulnerability are: (i) a difficult f iscal situation now worsened by the global economic financial crisis; (ii) extremely high levels o f poverty and inequality and limited capacity to implement counter-cyclical social policies; (iii) competitiveness challenges deriving mainly from an inefficient energy sector and low ski l ls levels; and (iv) the negative implications o f climate change for the country’s important tourist industry.

2. T h e DR and the B a n k G r o u p have l o n g main ta ined a close partnership, but the t rad i t i ona l modali t ies o f engagement employed so f a r have yielded on ly m ixed results - suggesting the need f o r new approaches. The Bank has generally been responsive to Government requests for knowledge services and financing, but implementation has been slow - affected by significant effectiveness delays for new operations and slow execution o f the portfolio, largely due to fiscal constraints and capacity limitations. Nonetheless, Government believes that the World Bank Group continues to be well positioned to help in addressing the important development challenges that the country faces, and has been actively partnering with the Bank in exploring the menu o f instruments that could most appropriately respond to the country’s needs.

3. In this context, the DR Government a n d the B a n k have been exp lo r ing new modali t ies f o r cooperat ion - embodied in the present C P S - w h i c h w o u l d enable knowledge a n d f inanc ia l resource transfer, but reduce o r avo id the bottlenecks w h i c h t o date have slowed imp lementa t ion a n d the achievement o f results. The CPS i s fully aligned with the priorities set forth by the Fernandez Administration and the key elements o f the National Development Strategy which i s currently being finalized through a broad, participatory process. Its main objective i s to support the country in reducing i t s vulnerability to internal and external shocks while producing results for its citizens. This new CPS will promote synergies between the work programs o f the entire World Bank Group - the IBRD, the IFC, and MIGA.

4. T h e new Strategy wi l l give special emphasis t o p ro tec t ing the p o o r wh i l e enhancing competitiveness and strengthening pub l ic inst i tu t ions f o r per fo rmance accountabi l i ty in the country. This objective and priority areas wi l l be addressed by implementing actions to achieve 4 strategic objectives: (i) strengthen social cohesion and improve access to and quality o f social services, (ii) promote competitiveness in a sustainable and resil ient economic environment, (iii) enhance quality o f public expenditures and institutional development, and (iv) build capacity and constituencies for reform.

5 . T h e proposed strategy wi l l keep a f lexible approach and b e based o n a combina t ion of investment and policy-based lending, a n d a s t rong emphasis o n AAA w o r k - b o t h in terms o f E S W and Non-Lend ing Technica l Assistance (NLTAs). The proposed strategy wil l support the Government in producing results while strengthening accountability between public sector agencies. By working with non-traditional actors and focusing on strengthening oversight mechanisms in the public sector, the proposed model wi l l also focus on demand-side governance interventions to generate the right incentives for increasing accountability levels to the public while strengthening checks and balances within the public sector. However, should the Government’s reform program stall, macroeconomic conditions deteriorate significantly, or the Bank fails to secure a credible policy matrix to underpin budgetary support lending, the Bank

v i

would rethink the balance between policy-based and investment lending. WBG synergies will enhance this flexible approach allowing for the use o f diverse instruments.

6. IFC’s approach during the upcoming CPS period will be two-fold. First, IFC will continue working with the underserved segments o f the market, the ones having the highest impact on the bottom of the pyramid. Reaching out to microenterprises and small and medium enterprises (SMEs) will be a key objective. Implied areas o f intervention will include access to finance (trade, microfinance and SMEs), improving the business environment (Doing Business Reform, Corporate Governance), access to basic infrastructure, and sustainable tourism development. Opportunities in other growth and income generating sectors (agribusiness, general manufacturing and so on) will be supported when leading to sustainable private sector investment. IFC will also respond to the current financial crisis, with a particular focus on existing clients and shorter term financing (notably trade financing). IFC investment and advisory actions will include climate change mitigation (e.g. energy efficiency and renewable energy), raising sustainability standards (environment, social, and corporate governance), and linkages (e.g. small and medium enterprises).

7. The new CPS will rely on donor coordination. The proposed approach i s ful ly consistent with the principles agreed in the Paris Declaration, o f 2005: (i) ownership, (ii) ,alignment, (iii) harmonization, (iv) managing for results and (v) mutual accountability, In l ine with these principles and according to the concrete recommendations emerging from the Accra meeting in 2008, the proposed strategy provides special emphasis to increasing the scope o f development policy dialogue at the national level, strengthening and taking advantage o f country systems (when possible), welcoming and working with al l the actors involved in development, deepening the working relation with civ i l society, concentrating in achieving results, increasing results’ transparency and accountability, and continuing to base conditionality on the countries’ development strategies.

8. Risks. The main risks to this CPS emerge both from domestic and external factors. Domestic factors include the need to have closer coordination between public sector agencies in order to ensure a multi-sectoral approach to development. External factors are the risk o f major external shocks that may inhibit the undertaking o f policy changes. The Government has made progress over the recent years in mitigating many o f these factors and the proposed CPS will support actions to further strengthening these mitigation actions.

9. Executive Directors may wish to consider the following issues for discussion:

I s the focus given to improving performance and promoting accountability in the social sectors adequate in light of the adverse effects that international financial crisis may have in the DR?

Are the risks well identiped and mitigating factors sufficient for assuring the likelihood of successful implementation?

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FYI0-13 Country Partnership Stratem for the Dominican Republic August 12, 2009

DOMINICAN REPUBLIC COUNTRY PARTNERSHIP STRATEGY

FY10-FY13

I. INTRODUCTION

1. Following a decade of rapid economic growth and social development, the Dominican Republic (DR) today faces important challenges that threaten the prospects for continued rapid progress. Among the main sources o f vulnerability are: (i) a difficult fiscal situation now worsened by the global economic financial crisis; (ii) extremely high levels o f poverty and inequality and limited capacity to implement counter-cyclical social policies; (iii) competitiveness challenges derived mainly from an inefficient energy sector and low ski l ls levels; and (iv) the negative implications o f climate change for the country’s important tourist industry. Moreover, the weakness o f public institutions - particularly with respect to their ability to produce demonstrable results - adds to low levels o f trust in Government.

2. The DR and the Bank Group have long maintained a close partnership, but the traditional modalities o f engagement employed so far have yielded only mixed resul ts - suggesting the need for new approaches. The Bank has generally been responsive to Government requests for knowledge services and financing, but implementation has been slow - affected by significant effectiveness delays for new operations and slow execution o f the portfolio, largely due in part to fiscal constraints and capacity limitations. Nonetheless, Government believes that the World Bank Group continues to be well positioned to help it address the important development challenges that the country faces.

3. In this context, the DR Government and the Bank have been exploring new modalities for cooperation - embodied in the present CPS - which would enable knowledge and financial resource transfer, but reduce o r avoid the bottlenecks which to date have slowed implementation and the achievement o f results. The CPS i s fully aligned with the priorities set forth by the Fernandez Administration and the key elements o f the National Development Strategy which i s currently being finalized through a broad, participatory process. I t s main objective i s to support the country in reducing i t s vulnerability to internal and external shocks while producing results for i t s citizens. This new CPS will promote synergies between the work programs o f the entire World Bank Group - the IBRD, the IFC, and MIGA.

11. COUNTRY CONTEXT AND DEVELOPMENT AGENDA

A. SOCIAL AND POLITICAL CONTEXT

4. The Dominican Republic i s a middle income country (US$3,990 per capita income) and the second largest country in the Caribbean, both by land mass and population, after Cuba. Tourism, mining and light manufacturing are the main exports. The business environment has been improving, foreign direct investment was about 4 percent o f national income in 2007 and remittances were about 10 percent o f GDP. For over a decade the DR has had competitive elections and peaceful transitions o f the party in power.

5. President Fernandez was reelected fo r a second consecutive term in May 2008 with 53.8 per cent of the vote and his party, PLD (Partido de la Liberacion Dominicana), holds a majority in both Chambers o f Congress - this, in turn, provides a unique window o f

FYI 0-13 Countw Purtnershlu Strutem for the Dominican Remblic August 12, 2009

opportunity to move forward on a reform agenda. President Fernandez i s well positioned to implement a reform agenda that focuses on addressing the energy crisis, fighting corruption and building institutions, and improving competitiveness and the investment climate.

6. President Fernandez recently convened a National Summit to define a long-term national development strategy. The process provides a good opportunity for consensus building and for aligning the Bank’s new CPS to the country’s priorities - as reflected in the new national strategy.

7. In the context o f an ongoing Constitutional Reform, President Fernandez has signed an agreement with leaders of the opposition parties. This has helped create consensus among political actors on key issues included in the Constitutional Reform. Important elements include alignment o f the country’s electoral calendar and elimination o f the presidential reelection clause‘ In order to align electoral calendars, those elected for Congress in 2010 will serve for 6 years (instead o f 4). The elimination o f the presidential reelection clause was approved in conjunction with the possibility o f the return o f presidents to office after one period outside Government.

B. RECENT ECONOMIC DEVELOPMENTS

Recent Macroeconomic Developments 8. In the two years prior to the current international financial crisis, the DR enjoyed strong economic growth - 10.7 percent in 2006 and 8.5 percent in 2007 - well above the Latin American and Caribbean Region (LCR) regional average (Table 1). Growth in 2008 was about 5.3 percent, s t i l l above the regional average o f 4.6 percent. Positive internal and external factors supported this economic expansion. Internally, the Government implemented structural reforms to enhance fiscal sustainability : rationalizing spending, improving revenue collection and debt management, institutionalizing the budgetary process, and strengthening the financial system. Fuelled by strong private consumption and investment demand, manufacturing and services - communications, commerce, tourism - grew strongly. Positive external factors included strong global growth and ample foreign exchange inflows from tourism, remittances, and foreign direct investment.

9. During 2005-2007, the DR achieved positive results in terms of fiscal balances, debt and international reserves ratios, and inflation. The primary fiscal surplus reached 1.3 percentage points o f GDP in 2007, up from 0.6 percent and 0.4 percent in 2006 and 2005 respectively (Table 1). This improvement was primarily due to increased revenues, boosted by tax reforms and better revenue administration, as well as increased nickel exports in 2007. Nonetheless, the tax base remained narrow, and public expenditures have been slowly rising as a percentage o f GDP since 2005. Large and poorly targeted subsidy programs (for electricity and liquefied gas) were among the main causes o f increased spending.

For 2008, the overall deficit was 3.0 percent of GDP, and the primary deficit was estimated at about 1.2 percent of GDP, mainly due to increased subsidies starting in early 2008 and to increased spending in the run-up to the May Presidential elections. To avoid the full pass-through o f rising international prices, the Government granted subsidies on food items (bread, milk, rice, beans, eggs, and poultry) in the free trade zones, and on fuel for unionized public transportation and the transportation o f goods. These measures had high fiscal costs and undermined macroeconomic stability. The cost o f energy subsidies almost doubled from 1.7 percent o f GDP in 2007 to an estimated 3 percent in 2008, primarily as a result o f the spike in

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FY10-I3 Country Partnership Stratem for the Dominican Republic August 12, 2009

international o i l prices. Although no precise measure i s available, energy transfers appear to have been regressive and did not benefit the most vulnerable groups because wealthier people consume more fuel.

11. Although public-debt-to-GDP reached a high of 49.3 percent o f GDP in 2003 following the banking crisis, this ratio has since declined significantly. B y 2008, it was down to 32.5 percent, because o f the 2005 restructuring o f sovereign external debt, rapid recent GDP growth, falling real interest rates, and real exchange rate appreciation. Better basic fiscal management only played a modest role. In addition to a lower debt level, the structure o f public debt has improved with lengthening maturities (especially for the certificates o f the Central Bank) and a higher share o f fixed interest rate debt. The Government’s target for the debt to GDP ratio is 25 percent by 201 5, and this seemed readily attainable until the global economic crisis.

12. Inflation declined from 51.5 percent in 2004 to 7.4 percent in 2007 and 8.3 percent in 2008. In the aftermath o f the 2003 banking crisis, inflation was driven by excess liquidity fol lowing the banking collapse and subsequent bailout, and was exacerbated by the peso’s depreciation due to currency substitution. Prudent monetary policy brought the rapid return to single-digit inflation. In contrast with this earlier period, external conditions have been more important for recent inflation. Since late 2007, when international price inflation accelerated, prices in the DR increased more rapidly than the regional average. Besides the pass-through from international prices, the increase in domestic food prices was also related to the tropical storms Noel and Olga that hit the country at the end o f 2007.

13. Market capital inflows in 2003 to mid 2008 were sufficient to finance the current account deficit, which has widened recently, International reserves have improved relative to the period of the banking crisis and the exchange rate has been fairly stable since early 2005. The current account deficit has widened considerably since 2006 because o f the combination o f slowing export growth and rising import bills. Real export growth averaged only around 3 percent between 2003 and 2008, mainly due to declining net exports o f the Free Trade Zones (FTZ). Other exports have become more diversified, as non-traditional products and tourism services have substituted for textiles and other traditional exports. Imports grew rapidly in 2006-07 and early 2008, due to booming investment and consumption demand, along with high international prices. The DR remains heavily dependent on energy imports: o i l imports equaled about ten percent o f GDP in 2007. Assuming fixed imported quantities, a decline o f US$lO in the average price o f a barrel o f o i l saves about U S 4 8 0 mi l l ion in the import bill.

14, After the domestic financial crisis in 2003, foreign direct investment (FDI) made a robust recovery. Inflows went primarily to the tourism, communications, commercial, and real estate sectors, FDI was the most significant component o f the capital account once again in 2008, reaching U S 2 . 9 bi l l ion and covering about three-quarters o f the current account deficit. FDI and other capital inflows compensated for a larger current account deficit, and reserves levels did not suffer. Strong remittance flows (estimated at around ten percent o f GDP in recent years) have also been an important source o f foreign exchange - although they contracted slightly in late 2008.

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FY10-13 Countw Partnership Stratem for the Dominican Republic August 12, 2009

Medium Term Macroeconomic Outlook and Debt Sustainability

15. Growth projections have been revised downwards as a result of the ongoing global economic crisis and the slowdown in the US economy. Government estimates foresee a gradual slowdown to about 2.5 percent GDP growth in 2009, with a recovery to about 3.5-4.5 percent by 2010. However, this scenario may be optimistic as recent data point to a further deterioration o f global growth and trade. The Government i s working on a less optimistic scenario which i s in line with the World Bank staff forecasts reported in Table 1. A more realistic forecast for the DR i s about 0.5 percent growth in 2009 and, conditional on an improved external environment, o f about 2.3 percent for 2010-to be followed by a gradual return to the long term growth potential o f 5-6 percent in the outer years. Preliminary data for the first quarter o f 2009 show growth o f 1 .O percent; however, this growth was achieved by the expansion o f non tradable services which have reached capacity constraints and, given the slowdown in investment activity, may not sustain growth going forward. Activities linked to external demand and investment contracted significantly during first quarter o f 2009: mining was down 74 percent, FTZ manufacturing 13 percent, hotels and restaurants (tourism services) 8 percent, and construction 22 percent.

16. The economy’s performance i s highly dependent on external economic conditions. The country i s very open as imports plus exports equals 87 percent o f GDP (data corresponding to 2007). It depends heavily on food and energy imports. The U.S. i s i t s most important trading partner, i t s main source o f FDI (accounting for a third o f the total), the predominant origin o f remittances, and a major source o f tourism revenues. Consequently, the Dominican Republic growth cycle i s strongly correlated with that o f the U S . World Bank staff estimates suggest that a 1 percent reduction in US growth leads on average to a 0.25 percentage point reduction o f the DR’s growth, with a lag o f about three quarters.

17. External conditions also affect domestic inflation dynamics. Due to the declines in the international prices o f o i l and other commodities, and in contrast to the inflation spike o f the first hal f o f 2008, inflation in the DR i s expected to be in the range o f 5 and 7 percent for 2009-1 1.

18. Going forward, the external environment will probably have more negative than positive effects on the DR’s external balances. Although declining international commodity prices will relieve pressure on import costs, the global economic slowdown and lower demand from North America and Europe will reduce revenues from exports, remittances, and tourism.

19. While the Dominican Republic received large inflows of foreign capital during 2008; lower global growth, tighter international liquidity conditions, and greater risk aversion o f investors may substantially reduce capital inflows in the near future. During the f i rst part o f 2009, the significant reduction o f the value o f imported commodities has counterbalanced the parallel decrease o f foreign exchange inflows and, in recent months, the Dominican peso has maintained a stable course vis-a- vis the US dollar and other currencies. However, given i t s structurally large trade deficits, the country has to rely heavily on capital inflows to balance i t s external accounts. According to official sources, a large investment project in the mining sector i s in the pipeline for 2009. If realized, this investment should help in weathering the global

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FYIO-13 Count? Partnership Stratem for the Dominican ReDublic August 12, 2009

environment. The degree of uncertainty around this investment i s limited given that the 2009 inflows are part of a much larger investment plan: across several years, the mining investment plan amounts to about US$3.6 billion and US$700 million have already been invested in 2008. Nonetheless, uncertainty remains: when compared with the corresponding period of 2008, FDI in the first quarter o f 2009 contracted by 41 percent.

20. T h e external financing needs for 2009 and future years are substantial but they could be met. The situation remains delicate: international liquidity i s s t i l l scarce and borrowing costs for the DR are high; the country i s vulnerable to external price shocks, and fiscal expenditures in excess o f what can be securely financed could create additional pressure. Given the limited amount o f reserves and their current loose monetary policy (adequate to counter the slowdown o f the economy), authorities are aware o f the limits of their current macroeconomic policy stance and are monitoring economic developments closely.

21. Given i t s fiscal situation, the DR has little room for maneuver to counter the international financial cr is is and the global slowdown. For 2009, the Government, in accordance with the IMF Post Program Monitoring mission o f November 2008, has targeted an overall fiscal deficit o f 1.7 percent o f GDP, but the deficit w i l l most likely be larger and in the range o f 2.5-3 percent o f GDP. This deficit i s consistent with: (a) slower economic activity causing lower tax revenues, (b) forecasted lower international commodity prices, (c) forthcoming debt servicing, and (d) the financing available from international financial organizations. Maintaining fiscal discipline should create some space to ease monetary policy. During the first months o f 2009, the Central Bank has already reduced i t s policy rates four times; currently (June 2009) the policy rate (overnight rate) i s at five percent, down from 9.5 percent at the end o f 2008. Additional measures to increase liquidity in the economy include a lower legal reserve amount in banks. This change in the macroeconomic policy mix should provide some countercyclical stimulus, but the effects o f a looser monetary policy come with a lag and private credit, after more than 15 months o f negative growth has just recently (June 2009) shown some positive signs o f expansion. The other main direct consequence o f the more flexible monetary policy has been the reduction o f market interest rates which decreased from around 14 percent at the end o f 2009 to about ten percent by end o f March 2009. Further reductions may be possible but external conditions may limit the policy o f reducing interest rates, especially given the commitment o f the Central Bank to stability o f the peso and control inflation (see also paragraph 20). 22. As expected, given the contraction o f global and domestic economic activity, fiscal revenues decreased in the first months o f 2009; this coupled wi th a larger than budgeted electricity sector deficit has created concerns about a fiscal financing gap. The budget for 2009 was designed with the following assumptions (annual rates for 2009): (i) real GDP growth o f 2.5 percent, (ii) inflation o f 5 to 6 percent, (iii) oil price o f 69.8 US$/barrel, and (iv) US GDP growth o f -0.6 percent. Under these assumptions the overall deficit was projected at 1.7 percent o f GDP. However, the situation has deteriorated and these initial assumptions may need to be revised. As shown in Table 2, revenue flows for the first quarter o f 2009 are well below those o f the same period a year earlier and below what authorities had expected. If current trends continue for the rest o f the year, the gap in total revenues i s estimated to reach about US$400 million (Table 3). On the expenditures side the downside scenario has a larger deficit for the electricity

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FYl0-13 Countw Partnership Stratem for the Dominican Republic August 12, 2009

sector. The Government budget for the electricity sector in 2009 includes about US$350 mi l l ion for current expenditures and US$70 mi l l ion for investment expenditures, totaling about U S 4 2 0 million. The latest estimates put the electricity sector deficit in the range o f US$550 to US$700 million.

23. Expenditures have fallen in the first half of 2009, notably in goods and services and public investments (almost 50 percent reduction according to the data reported in Table 2). This reduction in expenditures may have helped to avoid a cash f low problem; however, i t may also act as a pro-cyclical fiscal cut which, in turn, may further hamper economic growth. Financing sources have also changed; the 2009 budget required about US$2 bi l l ion in financing (Table 3), to be covered by domestic borrowing (about US$500 million) and external borrowing from IFIs and bilateral institutions. The external financing from PetroCaribe i s likely to fal l short by an estimated US$65 mi l l ion due to lower than anticipated o i l prices. The cumulative effect o f these changes amounts to a fiscal financing gap o f about US$700 mi l l ion for 2009.

24. The Government has taken some initial steps to fund its financing gap. Nonetheless, there i s short term uncertainty and medium term viability i s yet to be ascertained. The Government’s plan consists o f (i) completion o f the sale o f public assets; the Government has publicly announced that it has entered the final phase o f a negotiation for the sale o f a refinery to the Government o f Venezuela for the price o f US$ 130 million; (ii) implementation o f electricity sector reforms-which the Government estimates to contain the electricity sector’s deficit within US$150 million; (iii) increase in the flows o f bilateral loans; authorities have mentioned a possible agreement with the Government o f Colombia to finance purchases o f coal; and (iv) issuance o f sovereign bonds for an amount o f up to US$1 billion, US$500 mi l l ion to be placed in 2009 and the rest in 2010. The Authorities have indicated that they will consider maturity in the range of 5 to 10 years and that they expect interest rates in the range o f 10 to 15 percent. The current yield for Dominican sovereign bonds i s o f about 11 percent. Latin American and Caribbean countries have issued sovereign bonds in 2009 for a total o f about US$ 7 billion: Colombia (3 issuances in April and January for a total o f US$ 3 bi l l ion at 10 years, at an average interest rate o f 450 basis points above US treasury), Brazil (1 issuance in January for US$ 1 billion, at 10 years, at 370 basis points above UST), Mexico (1 issuance in February for US$ 1.5 billion, at 5 years, at 425 basis points above UST), Peru (1 issuance in March for US$ 1 billion, at 10 years, at 438 basis points above UST) and Panama (1 issuance for US$ 323 million, at 6 years, at an interest rate o f 7.04 percent). Based on this data and according to Bank staff calculations (debt sustainability analysis) issuing $1 bi l l ion in sovereign bonds at 14 per cent interest rate and with maturity from 5 to 10 years i s not destabilizing

25. Table 3 indicates that should the plan envisaged by the Government be implemented successfully-an issue to be determined-the currently projected financing gap could be turned into surplus. According to the authorities, any resulting surplus would be used to reduce financial liabilities.

26. I n terms o f long term sustainability, the viability o f the plan to cover the fiscal financing gap, and in particular the issuance of sovereign bonds will depend on (i) future growth, (ii) further improvements in the quality and control of public spending, and (iii) implementation o f a multi-year budget and macroeconomic framework Debt sustainability would not be seriously compromised by the issuing o f

7

FYIO- 13 Country Partnership Strategy for the Dominican ReDublic August 12, 2009

US$1 bi l l ion bonds (roughly two percent o f GDP), as long as this i s a one-off operation and the public finances go back to generate a reasonable primary surplus. The public debt to GDP ratio i s about 33 percent. If authorities place two percent in bonds, this ratio will go up to 35 -37 percent but it should s t i l l be sustainable (see paragraph 28). Due to increases in future interest payments, further reduction o f poorly targeted subsidies should become even more important. To sustain i t s social and development program under these circumstances, the Government i s taking appropriate steps to improve the quality o f public expenditures. The adoption o f a multi-year formulation o f monetary and fiscal policy i s also being pursued as required by the National Development Strategy.

Table 2: Evolution o f Fiscal Situation - Jan-Apr 2009 (US$ million) Difference

Budget Executed (Exec.d - Budg.t) Total Revenues (excl. Social Sec. and Donations) 2,156 2,054 -102

Tax revenues 1,952 1,839 - 1 13 1nt.l Tax Revenues 508 397 - 1 1 1 Domestic Tax Revenues 1,444 1,442 -2

Other Revenues 204 215 11

Financial Inflows Domestic Borrowing External Borrowing

PetroCari be

Total Expenditures Current Expenditures

Labor Costs Goods and Services Interest Payments

Transfers and other expenditures o f which recapitalization BC ( i t payment)

Current Transfers to the electricity sector Capital Expenditures

Financial Outflows Amortization

Internal Debt External Debt

Reduction o f Arrears

692 349 180 269 512 80 100

2,537 1,867 1,949 1,663

572 558 322 220 361 166 156 694 720 118 589 204

415 402 352 402 96 164

256 239 63

-343 90

-432 Na

-670 -285 -14

-102 -194

Na 25 Na

-385

-12 5 1 68

-17 Na

Financing Gap (-) or Surplus (+) -104 134 Source: LCSPE calculation on Central Bank and Fiscal Authorities data

8

Table 3: Fiscal Financing Requirements and Sources, 2009 (US$ million and GDP percentages)

Re-estimated Estimated Initial budget budget Differences

Millions US% Total Revenues 6,781 6 3 1 1 -270

O f which tax revenues * 6,546 6,146 -400 Exceptional revenues (Assets sales) 130 130

Total Expenditures 7,612 7,762 150 O f which interest payments 1,082 1,082 0

o f which recapitalization BC (int payment) 469 469 0

Amortizations 1,244 1,244 0 o f which external debt repayments 768 768 0

Current Transfers to the electricity sector 359 509 150

Financing requirements 2,075 2,495 420

Domestic Borrowing 539 539 0

External Borrowing 1,537 2,027 490

Bilateral: Bancoldex 40 40

Sovereign Bonds 500 500

Financing Sources 2,075 2,565 490 Financing Gap (-), Surplus (+) 0 70 70

Bilateral: (incl PetroCaribe) 305 240 -65

Multilaterals (WB, IDB) 703 703 0

Investment Projects 543 543 0

Financing Gap (-), Surplus (+) -- Excl. Sovereign Bonds 0 -430 -430

AS 9'0 o f GDP Total Revenues 14.6 -0.6 Total Expenditures 16.4 0.3

Current Transfers to the electricity sector 0.8 0.3 Of which interest payments 2.3 0.0

Amortizations 2.7 0.0 o f which external debt repayments 1.7 0.0

Financing requirements 4.5 0.9

Domestic Borrowing External Borrowing

Of which: Bilateral (PetroCaribe) Multilaterals (WB, IDB)

I .2 3.3 0.7 1.5

0.0 1.1

-0.1 0.0

Financing Sources 4.5 1.1 Financing Gap (-), Surplus (+) 0.0 0.2 Financing Gap (-), Surplus (+) -- Excl. Sovereign Bonds 0.0 -0.9

Source: LCSPE calculation on Central Bank and Fiscal Authorities data

27. In summary, declining revenues, a higher energy sector deficit, and declining funding from PetroCaribe imply a risky situation. The Government understands these risks and recognizes that the control and quality o f spending i s a key tool to prevent a hard landing. However, at least in the recent past, improving the quality o f spending has been a challenge.

9

FYIO-13 Countw Partnership Stratem for the Dominican Reuublic August 12, 2009

28. Debt sustainability analysis (DSA) shows that the DR public debt appears to be on a sustainable path. At about 34 percent in 2008, the public-debt-to-GDP ratio i s not high by regional standards, but the Government aims to continue on a path to bring debt back to pre-2003 crisis levels in the medium run. The DSA assumes that, the public debt to GDP ratio will not be reduced in 2009, a year during which the fiscal stance will be counterbalancing, in a measured manner, the global slowdown. After 2010, however, when global external conditions are projected to improve, the Government should be able to continue reducing the debt ratio towards the 25 percent goal by generating primary surpluses o f close to 1 .O percent o f GDP.

29. In the medium term, external debt will probably decline as a share o f GDP, because the current account should improve as a result o f (a) lower international prices, (b) slower economic activity reducing demand for imports, (c) prudent macroeconomic policies and (d) a stable real exchange rate. Financing from IFIs and FDI should be sufficient to cover the forecasted current account deficit in the next few years.'

30. The domestic financial system i s vulnerable to the possibility o f further deterioration in the domestic o r international environment. The sector was resil ient in 2008, in the face o f rising interest rates from a restrictive monetary policy. With low international reserves, a large fiscal deficit and very high peso interest rates, however, the authorities have l i t t le room to dampen the impact o f the crisis on the country's productive and financial sectors.

The banking system's low-cost funding base does not face a significant threat o f sudden deposit withdrawals, because deposits are mostly small and domestic. However, if the central bank were forced to raise interest rates dramatically in response to an unexpected deterioration in the balance o f payments, the banking system could experience major credit losses and capital flight that would make i t s position unsustainable. Although there i s no real policy remedy or Central Bank management decision that could significantly change this outcome, improving the monitoring and regulation o f banks could reduce the likelihood o f financial sector problems and would give the authorities time to prepare and react.

32, Government authorities are engaged in a dialogue with the IMF on the medium-term macroeconomic situation. An IMF mission was in the country the week of July 27 working with high ranking Government counterparts to assess the current macroeconomic situation and explore the possibilities o f IMF support to the country.

33. Two macroeconomic scenarios can be envisaged for medium-term. A first scenario i s that a positive outcome o f the dialogue mentioned in the above paragraph wil l result into a multiyear support program o f the IMF which will help the country reduce the short-term macroeconomic risks. A second scenario will be one where the authorities will not have negotiated a program with the IMF, but they wil l s t i l l have been able to secure enough financing to cover their fiscal and external needs and thus achieved a medium term sustainable macro balance. In both cases the macro situation will be adequate for the World Bank to support the implementation o f the Government program through this

' 3 1,

' An updated DSA will be provided by staf f before Board presentation.

10

proposed CPS, but the emphasis o f the support o f the CPS and the instruments through which this will be implemented will have to be adapted to the specific case.2

34. I n summary, on the one hand, the country i s facing a downturn and serious short-term risks - including facing liquidity constraints to balance its fiscal and external accounts - associated with the difficult global environment. I t s small open economy, high dependency on commodity imports and strong economic l i n k s with the US make the country particularly vulnerable to a prolonged global recession and swings in commodity prices. Under these circumstances, a challenge for the authorities will consist o f securing financing to cover their fiscal and external needs and that this additional debt will not compromise the medium term macro framework. On the other hand, the DR has recorded growth rates well above the regional average and, as in the recent case o f the banking crisis o f 2003, has been able to quickly regain sustained economic expansion after a downturn. In the recent period, it has been able to greatly reduce i t s debt-to-GDP ratio, to contain inflation, to attract exceptional level o f FDI flows and to maintain a stable currency.

c. GOVERNANCE AND PUBLIC INSTITUTIONS: CONTEXT AND CHALLENGES

35. While progress was made during the last 5 years, the governance environment in the DR i s complex and singled out by many as one o f the country’s main overarching obstacles to achieving sustainable, equitable and inclusive growth. As explained in greater detail in Annex 7, the DR has made good progress in passing important reforms that redefine the role o f the institutions involved in the planning and budgeting process (e.g. 2006 Organic Law on the Public Sector Budget, 2006 Creation o f State Secretariats for Treasury and Economy, Planning and Development, 2007 Financial Administration System o f the State Law, 2006 Public Credit Law, 2006 Planning and Investment Law, 2006 Government Procurement and Contracting Law, 2007 Establishment o f the Internal Control System Law). However, the country i s characterized by a strong Presidential system with few checks and balances on the executive and where critical reforms are being implemented to strengthen the public financial management framework. Congress and the Supreme Audit Institution have limited technical capacity to play their oversight function, media scrutiny i s s t i l l weak, independence o f the judiciary could be strengthened, and c iv i l society (although increasingly active) has limited power to hold the government accountable.

36. The limited capacity of public institutions to produce tangible results - added to a public perception of corruption, in public institutions - may contribute to low levels of trust in Government. While progress has been made, especially in the design of a new institutional architecture for the State, implementation o f these reforms i s s t i l l limited and there are few related tangible benefits for the population. The implementation of many o f these laws has been slow and seems to depend very much on the specific interest o f the concerned Ministry. This situation and a perception by many citizens o f corruption and impunity may be further eroding an already-low trust in Government,

This assessment will need to be confirmed closer to the Board date with particular reference to the implementation results o f the authorities’ plan to close the financing gap - a key element in this judgment.

11

FYIO-13 Countw Partnershiu Stratem for the Dominican Republic August 12, 2009

which has negative implications for tax collection rates and the effectiveness o f Government actions.

37. Pr ior to 2006, public financial management (PFM) did not adequately support the objectives of aggregate fiscal discipline, efficient resource allocation or operational efficiency, but considerable progress i s now apparent in this area. Budgeted revenue and expenditure differed considerably from outturns, with the President exercising a high degree o f discretion over spending, while expenditure control and procurement systems were inadequate, fragmented and enforcement was weak. Recognizing these weaknesses, the DR has undertaken P F M reforms, which inter alia have strengthened the legal and institutional framework for PFM. These have included steps to limit Presidential discretionary spending, and enforcing the implementation o f a financial management information system (SIGEF) - now backed by the law. Other steps have been taken to consolidate budget formulation and treasury management in the Ministry o f Finance, and the creation o f a new Ministry o f Economy, Planning and Development to improve capital budgeting.

38. Another important challenge - and one which i s already receiving substantial Government attention - i s improving the quality of public expenditure. The Secretary o f Economy and Planning (SEEPyD) has published a strategic plan to gradually introduce performance-informed budgeting techniques (Plan Estrate'gico Institucional, 2008-20 12, Secretaria de Estado de Economia Planificacion y Desarrollo: http://www.pro-reforma.gov.do). This includes the introduction o f a national investment system (Sistema Nacional de Inversion Publica - SNIP) designed to enforce more rigorous program planning, monitoring and evaluation standards (Sistema Nacional de PlaniJicacidn, Nuevo Marco Institucional, Secretaria de Estado de Economia Planificacion y Desarrollo: http://www.pro-reforma.gov,do). In addition, 'Results Agreements', which set out strategic plans, objectives and identify performance measuredtargets will be agreed with four priority Ministries during 2009.

39. S E E P y D has organized a taskforce to improve governance indicators, in close collaboration with the Bank and the USAID. Among other indicators, this group i s paying special attention to corruption indexes as they affect the chances o f the Dominican Republic to participate in the Millennium Challenge Account program sponsored by the US Government.

D. POVERTY, INEQUALITY, AND THE MDGS

40. T h e Dominican Republic's sustained decade-long economic growth achieved only a limited reduction in poverty rates. According to the most recent data, by October 2006, moderate income poverty had declined by 7 percentage points and extreme poverty by 3 percentage points. Inequality in the DR i s high, with a Gini coefficient o f 0.483 (based 'on 2007 household per-capita income). As shown in Figure 1, poverty remains wel l above the pre-crisis level-36 o f every 100 Dominicans live in poverty, o f which 13 in 100 live in extreme poverty. While some progress was made in reducing poverty in urban areas, rural poverty showed virtually no decline, reflecting the high level o f inequality and the strong rural-urban divide. For 2006, moderate poverty and extreme poverty in urban areas was 29 per cent and 8 per cent compared to 50.3 per cent and 22 per cent in rural areas.

12

FY10-13 Country Partnership Stratemfor the Dominican Reuublic August 12, 2009

41. In 2007, the Dominican Republic spent about 8.1 per cent o f i t s GDP on human development indicators, far below regional averages. Social expenditure in the DR tends to be pro-cyclical (Figure 1). For certain specific spending categories, such as health, the 2003 crisis and subsequent cuts were equivalent to erasing six years o f cumulative progress. Figure 1 also shows that crises can be particularly damaging in terms o f their longer-term poverty effects.

Figure 1: Poverty Rates and Social Expenditures in the DR

Poverty Rates

50 45 10 35 30 2, 20 15 I O

5 0

2000 2001 2002 2003 2004 2005 1006

"Social" Expenditures as % of GDP, 1995-2008*

9 00 8 50 800 - 7 50 7 00 6 50

861

__ _- n r- c-3 0 . 3 - N r.1 f n "= r x 0 . m m u . o . 0 0 0 0 0 0 0 0 ~ u . u . h G . 0 0 0 0 0 0 0 0 0 3 - - - - - N N N CI N N N N 0

- 4

I

Source: Ministry o f Finance, Central Bank and World Bank staf f estimates

42. Access to public social services remains a challenge for many Dominicans - especially poor households - and the quality o f education and health i s well below comparable countries in the region. The DR has lower levels o f primary and secondary school enrollment when compared to the LCR average (Table 4). The education sector i s characterized by high repetition rates, low retention, and completion rates. As a result, the DR lags behind in average years o f education, despite a high number o f years spent in schools. Improving quality o f primary education and access/quality o f secondary education wil l mean spending more money, not just becoming more efficient with existing spending. However, the DR does better than the average o f lower middle income countries with respect to child and infant mortality rates and water and sanitation. Recent developments in the health sector may provide good opportunities for increasing public investment - especially for the poor - strengthening accountability mechanisms, and improving the quality o f sector expenditures. The sector could benefit from improving strategic purchasing for health care services and procurement o f pharmaceuticals, strengthening the management capacity o f decentralized public sector health care providers networks, and consolidating progress made in the capacity o f the Ministry o f Health for strategic planning, monitoring and evaluation to better exercise i t s stewardship role over the health sector.

13

FYI 0- I 3 Countrv Partnership Stratem for the Dominican Reaublic Aupust 12, 2009

Table 4: Comparative Social Performance, 2006

School enrollment, primary (% gross) School enrollment, primary (% net) School enrollment, secondary (% gross) School enrollment, secondary (% net) Mortality rate, infant (per 1,000 live births) Mortality rate, under-5 (per 1,000) Improved sanitation facilities (% o f population) Improved sanitation facilities, rural (% o f rural population) Improved water source (% o f population with access) Improved water source, rural (% o f rural population)

98 77 69 52 25 29 79 74 95 91

118 1 1 1 94 90 89 65 70 22 41 26 54 78 54 5 1 42 91 88 73 82

Source: World Development Indicators

43. Moreover, while some pro-poor programs are showing good results, social safety nets continue to be pro-cyclical making it difficult to protect the poor during periodic economic downturns. Solidaridad - a Conditional Cash Transfer (CCT) program - has made progress in targeting the poor and has demonstrated value added for providing poor families with targeted subsidies. The program needs to continue strengthening its targeting mechanisms, expand coverage, ensure additional levels o f transparency, and put sound monitoring and evaluation schemes in place. Similarly, the education and health sector need to strengthen their own contribution to the goals o f the program in terms o f the supply o f adequate services and monitoring o f co-responsibility.

44. In social protection, key pending challenges and areas of reform will need to be addressed, if the Government’s social assistance response to the crisis i s to be more inclusive, effective, efficient and transparent. First, the amount and coverage o f existing and new safety nets may be insufficient to mitigate the impact o f the crisis on the poorest and vulnerable and second, the effectiveness, efficiency and transparency o f the social assistance system can be improved. Recent process evaluations from the IDB and UNDP point to a program which i s at risk o f losing i t s focus as a result o f multiple demands suggesting the need to further revamp Solidaridad. The program needs a strategic redefinition o f goals, priorities and a full process o f de-concentration (by providing more autonomy and strengthening coordination mechanisms to service providers at lower levels) to work more effectively at local level.

45. Gender. Problems remain in the inequitable access of men and women to health, education, and labor market participation. Even though the country has adopted a series o f legal and institutional measures aimed at improving the legal status o f women in terms o f labor law, civil law and land reform, as well as protection from domestic violence by special provisions in the criminal law, active programs to enforce and promote these regulations are still very much needed. Much remains to be done in terms o f enhancement o f reproductive and maternal health, especially for young women, as well as more intensive campaigns to prevent and reduce the incidence o f HIV, for both sexes. Special programs are needed to promote the permanence at school o f boys and girls from poor households so that they escape the vicious circle o f early adoption o f

14

FYI 0-13 Countrv Partnersh@ Strategy for the Dominican Republic Aunust 12, 2009

adult activities, scant accumulation o f human capital, and insufficient employment opportunities and poverty.

46. Broadening the current menu of labor-based interventions i s necessary with a strong focus on vulnerable youth. The DR has one o f the most successful youth employment training programs in the region, but more needs to be done. Active labor market responses for vulnerable groups who currently are not targeted are needed (current programs only target youth), as well as the improvement o f intermediation services for employment and placement o f labor. In addition, emergency income generation for low-skilled workers (mostly in the informal economy) who may be hit by the crisis need to be explored. These actions should include a strong emphasis on targeting the youth Unemployment o f those 16 to 24 years old i s 30 per cent compared to an already high national unemployment rate o f 15 per cent. There i s also a gender dimension to labor markets. Labor force participation i s much lower among women (49.6 per cent vs. 84.3 per cent among men) and the unemployment rate among women i s 28.8 per cent.

47. The Government has defined a number of short-term measures to deal with the effects of the international financial crisis. The Government strategy for dealing with the current crisis includes the following actions:

Loosening o f monetary policy: (i) lowering interest rates and (ii) temporarily relaxing banking prudential norms;

0 Increasing competitiveness: (i) reducing air cargo transportation rates, (ii) reducing or eliminating obstacles for exports and tourism promotion, (iii) creating an escrow for export and investment promotion, (iv) financing the development o f the country brand, (v) extending to the end o f 2009 agriculture's tax exemptions, and (iv) implementing tax exemptions to boost consumption and assure 'liquidity o f public enterprises;

Protecting workers: designing and implementing programs to protect jobs at risk and protect industries affected by the decrease in exports;

Strengthening health networks: (i) increasing catastrophic i l lness coverage o f the Health Service Plan (ii) increasing coverage up to 100 per cent o f diagnostic studies, (iii) ensuring drug supply beyond the provisions o f the Health Service Plan, (iv) guaranteeing the coverage o f 1,200 additional procedures in the Health Service Plan, (v) increasing cost coverage up to 100 per cent o f dental services, including 17 new procedures and, (vi) continuing the 15 per cent coverage of hospitalization.

Protecting the poor: (i) enrolling 80,000 private sector pensioners before the implementation o f the Social Security Law, (ii) enrolling 500,000 poor to the Family Health Insurance o f the Subsidiary Regime along 2009, (iii) providing the Family Health Insurance to the pensioners o f the Contributive Regime, (iv) providing health insurance for one year to unemployed workers with earnings lower than DOM$lO,OOO and without coverage, (v) affiliating people with disabilities and HIV to the Subsidiary Regime through the National Health Service (vi) launching a pilot program o f the Contributive Subsidiary Regime, (viii) providing free ambulatory drugs to chronic il lness patients through

0

0

0

0

15

FYIO-I3 Countw Partnership Stratem for the Dominican Reoublic Aunust 12, 2009

Promese-Cal and the Network o f Primary Health o f the Ministry o f Health (ix) increasing the supply o f Promese-Cal drugs in hospitals to reduce costs, and (x) continuing the implementation o f conditional transfers program (Solidaridad) and household gas subsidies.

48. The DR has made substantial progress in meeting the MDGs, particularly during the high growth years since 2000. However, the pace o f future progress depends directly on future growth and the willingness and ability o f the Government to effectively direct resources to address social issues. MDG projections (Table 5) indicate that the country wi l l probably be able to halve the number o f people living under US$1 PPP per day, but it i s unlikely that poverty, as defined by the national poverty line, w i l l also be reduced in half. I t i s also unlikely that the country wi l l be able to achieve all MDGs simultaneously because it would require a sweeping increase in health and education expenditures beyond the current trends in these variables (base scenario). An alternative scenario that assumes a rise in total health expenditures from 1 per cent o f GDP in 2004 to 5.3 percent o f GDP in 2015 would render results very close to the goals in both education and heath, but i t s impact on poverty and economic growth wi l l depend on how the surge in social expenditures i s financed.

Table 5: MDGs: Progress and Prospects

Uni t MDG 1 Headcount rate (Official poverty line) % MDG 1 Headcount rate (US$ I PPP uovem line) %

MDG 4 Under five mortality rate per 1,000 MDG 5 Maternal mortality rate per 100,000 MDG 7 Access to drinking water % MDG 7 Access to basic Sanitation YO

MDG 2 Primary completion rate YO

2004 43.1

3.3 53.1 38.0

178.0 86.0 90.0

Goal 2015 14.3

1.5 100.0

19.0 57.0 91.5 80.0

Base Alternative Scenario Scenario (1)

26.7 23.6 1.5 1.3

87.5 99.0 25.3 19.3 91.7 57.3 91.4 91.5 91.5 91.5

Source: Diaz-Bonilla, C., H. Lofgren and M. Cicowitcz (2008) Capitulo 20. Republica Dominicana in Vos, R. Ganuza, E.Lofgren, H. Sanchez, M. and Diaz-Bonilla C. (eds) Politicas Publicas para e l Desarrollo Humano. iComo lograr 10s objetivos de desarrollo del milenio en America Latina? PNUDJThe World Bank Note: The base scenario assumes GDP growth rates o f 5 . 5 percent per year between 2004 and 2015, and expenditures in health and education at the levels of 2004 (0.87 and 1.22 percent o f GDP, respectively). The alternative scenario assumes a GDP growth rate of 5 . 5 percent and a rise in public health consumption expenditures from 0.87 to 3.87 between 2004 and 2015. Other simulations are available in Diaz-Bonilla, C. et al. (2008).

E. DEVELOPMENT CHALLENGES AND OPPORTUNITIES

49, In addition to the macroeconomic, governance, and poverty and inequality challenges discussed above, the DR faces other significant development challenges.

50. Strengthened financial sector supervision and regulation and what appears at present to be a well capitalized and profitable banking sector are notable achievements. Non-Performing Loans (NPLs) are at modest levels, and are adequately provisioned. Twenty eight application norms o f the Monetary and Financial Law (MFL) have been elaborated and approved. However, important supervisory and regulatory

16

FYI 0-1 3 Country Partnership Stratew-for the Dominican Republic August 12, 2009

40%

issues s t i l l need to be addressed, including the approval o f the amendments to the MFL that will provide a basis for strengthening the supervision o f off-shore banking and making operational the recently-approved norm on consolidated supervision. The FSAP Progress Report (February 2009) provides a complete analysis o f the financial sector.

51. The energy sector continues to pose important challenges to fiscal sustainability and competitiveness. Whi le losses declined between 2004 and 2008 and the cash recovery index o f distribution companies improved from 45 percent to 64 percent over the same period, key aspects o f the power sector deteriorated. Tariffs were frozen in September 2006 and tariff increases were implemented in June and July 2009 amounting to 12.5 percent. However, as o i l prices rose significantly, the gap between the cost o f electricity and what uti l i t ies collected grew from US$600 mi l l ion in 2006 to over US$1.3 bi l l ion in 2008 (3 percent o f GDP). In 2008, Government transferred US$85 mi l l ion per month to electricity utilities to cover the gap between bill collection and generation costs. However, as a result o f the combination o f (i) the spike in oi l prices, (ii) a freeze in tariffs, and (iii) high levels o f losses (Figure 2), and (iv) the inefficiencies in operational levels o f the distribution companies in the sector (Figure 3), the Government had accumulated arrears to generators for a total deficit o f US$440 mi l l ion at end December 2008. Generators in turn cut production, causing massive blackouts throughout the country. A combination o f loans from the IDB, OPEC, and the World Bank for US$120 million i s expected to help improve energy distribution in the country. Working joint ly with the Bank, IFC will support private sector investment.

Figure 2: Distribution Losses

Source: World Bank Staff Calculations

17

FYI 0-13 Countrv Partnership Stratem for the Dominican Republic Auaust 12. 2009

Figure 3: Clients per Worker EDEs DR

2m 2270

2m *

1486 1327 1500

1000 934

500

2 2 1

0 m HIDRANDINA CHILECTRA EDELNOR (Lima) ELECTROPAZ (La EDENOR (8s As) EEQ(Quito) EDEs (OR) (None Peru) (Santiago) k Z )

Source: OSINERGMIN - Energy Regulator o f Peru

52. Looking forward, recently, progress has been made in implementing a series of key reforms in the context of a high-level dialogue with the President, the IDB and the World Bank. In addition to the adjustment in tariffs, the regionally defined subsidy (PRA) was eliminated and the Government i s creating a targeted subsidy for the poor. However, challenges remain. Only 38 per cent o f the consumers are “typical” payers - while 62 per cent o f them either are heavily subsidized or use electricity without paying for it. Action i s needed in key areas, notably to ensure the financial sustainability o f all agents in the power chain - from generation to distribution - by: (i) rationalizing the tariff scheme to promote efficiency, improving cost recovery, and providing revenues to finance investments; (ii) consolidating and deepening loss reduction and efficiency gains in distribution companies; and (iii) promoting investment in lower cost generation in order to reduce oi l dependency. Improving the investment climate and the DR’s ability to attract new investments wi l l be important. A comprehensive action plan to reform the electricity sector in the DR i s currently being discussed with Government counterparts. This plan includes actions in seven areas: (i) tariffs, (ii) subsidies, (iii) loses, (iv) uti l i t ies efficiency, (v) institutional design to improve governance o f the sector, (vi) a new payment mechanism for the country’s electricity bill (escrow mechanism) to increase levels o f transparency, and (vii) supply-side investments.

53: The fiscal position o f the Government has suffered for years from the cost o f subsidies to the energy sector, and the policies supported by a Public Finance and Social Sectors DPL will help reduce those costs. Electricity subsidies in recent years took five-to-ten percent o f public spending (close to 3 percent o f GDP), and the latest reforms wi l l reduce the cost by half. Subsidies for liquid gas were costing over 0.6 percent o f GDP, and projected down to 0.2 percent in 2009 with the latest reforms. Specifically, this loan supports measures in electricity tariffs and subsidies aiming at

18

FYIO-13 Countw Partnership Stratepv for the Dominican Republic August 12, 2009

reducing the size o f the deficit o f the electricity sector by supporting four key actions: (i) increase tariffs to reduce the gap between retail prices and the current costs o f service; (ii) simplify the tariff structure; (iii) reduce the consumption threshold for tariff subsidy; and (iv) return to a flexible tari f f system in which prices reflect changing costs. An increase in tariffs o f around 12.5 percent accompanied by the actions proposed in terms o f simplification o f tariff blocks and reduction in the consumption threshold for tariff subsidy, should generate additional revenues for system o f around US$ 120 mi l l ion a year (some US$60 million for the second hal f o f 2009). In addition, the improvement in the Cash Recovery Index (CRI) represents US$ 15 mi l l ion for each point in CRI increase. Hence, 3 additional CRI points before the end o f the year, would result in a reduction o f the deficit o f about US$45 million. In addition, this DPL supports reforms to administration o f internal revenues (including the l i n k s with Customs) will also have a modest positive impact on the fiscal picture, although in the short term this i s being overwhelmed by the decline in overall taxable activity, due to the economic crisis. Over the medium term the positive effect will show, with a r ise both in revenue as a share o f GDP and in absolute revenues, as improved administrative efficiency facilitates economic growth.

54. Improving trade facilitation and logistics i s another key challenge if the DR i s to take full advantage o f the recent DR-CAFTA agreement and improve the country’s overall competitiveness. Logistics perception indices demonstrate that DR falls behind many Caribbean and Central American countries in terms o f customs, infrastructure, ease o f entry and monitoring. Economic analysis confirms the reality o f this perception. A comparative analysis has shown that given i t s level o f economic development, DR performs below i t s expected performance level in terms o f logistics (in “Connecting to Compete” - Jean-Francois Arvis et al, The World Bank, 2007). This translates into high logistics costs, larger inventories, a higher percentage o f goods that do not arrive at their destined markets and lower overall connectivity. This, in turn, leads to price distortion o f goods and shipping costs and ultimately affects the demand for goods.

55. The Dominican Republic i s considered a hotspot for natural disasters and one o f the top high-risk countries in the world, ranking second in terms o f vulnerability o f i t s GDP to three or more hazards (96.5 percent o f the country’s GDP i s located in areas at risk. The DR i s also among the top five countries at risk in terms o f population exposed to three or more hazards: 71, l percent o f the population lives in areas o f high risk3. I t s geographic location, in the center o f the Antillean archipelago below the Tropic o f Cancer, places i t in the pathway o f hydro meteorological phenomena (hurricanes, tropical storms, tropical depressions) that sweep across the Atlantic Ocean and Caribbean Sea. Furthermore, the country i s exposed to earthquakes, landslides, flooding (particularly in the low-lying areas o f the country) drought, and tidal waves on the coast. Whi le the Dominican Republic i s advancing towards a proactive disaster risk management (DRh4). approach, further efforts are needed to improve: coordination and capacity; disaster prevention and mitigation investments; information-sharing among responsible agencies; and harmonization o f methodologies and approaches used for local disaster risk assessments and management plans.

World Bank, Natural Disaster Hotspots, 2005, Table 7.3: Countries at Relatively High Economic Risk from Multiple Hazards, p. 89.).

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FYI 0-13 Countw Partnershiu Stratem for the Dominican Reuublic August 12.2009

56. Climate change i s increasing vulnerability, affecting one o f the country’s main engines for growth. The Dominican Republic’s relatively weak watershed management contributes to this exposure and amplifies the potential damages, The tourism industry has already le f t a large environmental footprint, mostly on coastal ecosystems and aquifers, through dumping o f untreated waste water and solid waste, over exploitation o f groundwater, destruction o f forest cover, and overfishing o f coral and marine species. These unsustainable practices reduce the response capacity o f ecosystems to anticipated impacts from climate change. Given i t s large dependency on tourism and the precarious living conditions o f i t s rural population, the DR would benefit from having a sound strategy to deal with these issues.

57. The contribution of agriculture, the fourth-largest sector, has fallen in the current decade to 6.5 percent o f GDP in 2006, down from 13.3 percent of GDP in 1993. Since the agricultural sector employs over 15 percent o f the economically active population, the decline in production has affected small farmers and rural workers’ income and i s considered one o f the structural causes o f rural poverty. Traditional agriculture has been declining since the early 1980s, hampered by high real interest rates, price controls, underinvestment, the subsidised sale by the Government o f imported agricultural and livestock products, and foreign competition. Strengthening competitiveness i s a priority for the sector.

F. THE DOMINICAN REPUBLIC NATIONAL DEVELOPMENT STRATEGY

58. The Government i s preparing a National Development Strategy for which it convened a broad-based national dialogue, led by SEEPyD with a variety o f actors from civ i l society, the private sector and the political spectrum. The process for the definition o f this Strategy was structured in two phases. The first phase discussed proposals targeting short-term issues with emphasis on the economy, social services, public administration, and institutional strengthening. The discussions were organized in six thematic tables. The second phase o f this process has produced a 20-year framework to be presented to Congress in September 2009. This includes in-depth analysis o f technical proposals, the organization o f a series o f thematic workshops with key stakeholders, and the discussion o f policy notes to be presented by international organizations, including the World Bank. The National Development Strategy includes 32 main development areas that can be grouped in the following 5 general pillars: (i) social development, (ii) competitiveness and productive development, (iii) growth and sustainability, (iv) institutional development, and (v) territorial development and the environment. A detailed table describing the pillars, main themes, and strategic objectives o f the National Development Strategy i s included in Annex 5.

59. The Government strategy also includes 4 horizontal dimensions mainstreamed across all other pillars: (i) gender equity, (ii) environmental sustainability and climate change, (iii) democratic governance, and (iv) knowledge and communications.

20

111. BANK GROUP ASSISTANCE STRATEGY

IFC Committed Balance 131.5 146.3 IFC Outstanding Balance 5 1.2 108.2

60. The FY05-FY09 CAS had an “overarching focus on improving governance and strengthening institutions” to help restore confidence in the country and restore growth. The IBRD lending program was US$260 mi l l ion in the base case (plus US$15 mi l l ion from GEF, not including a Carbon Finance proposal). Through FY08, the Bank had lent US$166.4 million, and the composition o f the lending differed significantly from that proposed in the CAS. Planned and actual CAS lending for FY06-FY09 and detailed information about this period i s included in the CAS Completion Report (Annex 4). IFC committed a total o f U S 1 9 9 million, and secured an additional mobilization o f US$99 mi l l ion from commercial banks and an official export finance agency (Table 6). These investments supported 12 projects; as o f May 3 1, 2009, IFC’s outstanding and committed portfolio stands at US$182 mi l l ion and US$183 mi l l ion respectively. MIGA’s exposure in the Dominican Republic fe l l slightly over the CAS period (from US$157.3 mi l l ion in FY06 to US$124.7 mi l l ion currently). Since FY06, MIGA has been guaranteeing the Santo Domingo-Samana tol l road and exploring other projects in the transportation sector which have yet to materialize.

181.6 270.7 269.9 257.1 190.9 135.8 21 1.1 223.9 230.9 232.4

Table 6: IFC in the DR FY02-FY08 (US$ million) I FY02 I FY03 I FY04 I FY05 1 FY06 I FY07 1 FY08 1

1 IFC Commitments I 80.0 I 20.0 1 44.0 1 101.4 I 18.0 I 45.5 1 34.5 I

A. LESSONS FROM THE FY06-FY09 CAS AND STAKEHOLDER CONSULTATION

61. Several lessons may be derived from the Bank’s engagement in the DR, notably from the CAS Completion Report, the Country Portfolio Performance Review (CPPR), the consultative process with civ i l society and private sector leaders, and the ongoing dialogue with other international development agencies. W h i l e Annex 3 presents a broader analysis o f these lessons, the following key messages emerge.

60. The lessons that emerge from the CAS Completion Report include the need to: (i) focus on a few key sectors where there i s potential for success and where Bank advice i s appreciated; (ii) set realistic and measurable objectives and targets; (iii) focus public sector reform on maintaining accountability and transparency in Government operations, including budget formulation and execution, and increasing the voice o f c iv i l society; (iv) adopt a comprehensive approach and include political economy dimensions when dealing with the energy sector, (v) use ESW to focus on intractable problems l i ke corruption, drugs, money laundering, crime and violence, and public sector reform; (vi) conduct ESW cooperatively with partners in country, so as to build ownership and local capacity, (vii) strengthen civ i l society capacity to build a constituency for reforms and strengthen the Bank engagement with Congress to deal with complex development challenges in the country; and (viii) strengthen donor coordination by mapping donor’s interventions and priority areas as well as aligning efforts for policy reform. During this period the Government has particularly recognized Bank support in the following areas: (i) the role played by the Bank during the 2003 financial crisis and in the implementation o f the Public Information Law and, (ii) the support given to Government in the preparation o f

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FYIO-13 Country Partnership Stratem for the Dominican Republic Aupust 12, 2009

the development strategy through the delivery o f 9 policy notes and the identification and training on methodologies for prioritizing policy options.

61. In February 2008, the Bank and the Government engaged in a joint (CPPR). This exercise highlighted clearly implementation issues, such as delays in effectiveness and disbursement. The CPPR also identified ways to address issues related to investment operations. Specifically, a taskforce was created comprising representatives o f Finance, Economy and Planning, the Bank - and as needed - from individual executing agencies. This taskforce i s now mapping both Government and Bank procedures and wi l l propose recommendations to streamline these procedures where possible. The group i s also exploring ways to increase the technical capacity o f project implementation units and to reduce personnel turnover. Looking forward, given their strategic value in the context o f the new CPS, the next CPPR wi l l incorporate A A A as part o f the review.

62. A series o f consultations wi th civil society on the CPS took place in the DR, in January 2009. Over 200 organizations participated in 4 country-wide consultations that were held in La Romana, Santiago, Santo Domingo, and Barahona. The main messages emerging from these consultations include: (i) civil society organizations recognized the value added o f the Bank in the DR as a strategic partner for development; (ii) strong interest in partnering with the Bank; (iii) shared understanding o f the current development challenges to be addressed in the next 4 years. In addition a Client Survey was administered to 300 key stakeholders in the DR in early 2009. I t s results point to the need to continue the Bank’s focus on poverty reduction and to strengthen the Bank’s focus on education and governance.

63. Finally, a special coordination meeting with other international development agencies operating in the DR was held in November, 2008. Most participants agreed that donor actions in the DR should be guided by the need to strengthen institutions and improve governance in the country given the importance o f these areas in addressing the country’s development challenges. At a follow up meeting held in February 2009, over 15 agencies engaged in an exercise to identify the most relevant policy reforms and conduct a harmonization exercise (Annex 8).

B PROPOSED WORLD BANK GROUP ASSISTANCE STRATEGY

World Bank Group Assistance Strategy Overview

64. The strategic focus of this C P S i s derived f rom the National Development Strategy and complements the w o r k o f other development agencies in the country as the CPS cannot address a l l development challenges included in the Government strategy. Important issues such as climate change and the environment are included as part o f the CPS. Annex 8 presents a table resulting from a donor harmonization exercise led by the World Bank in the DR.

65. Uncertainties related to the international financial crisis require a flexible approach. The proposed program has some built-in flexibility to allow the Bank and Government to make adjustments as the economic, political, and social environment evolves. Should the Government’s reform program stall, macroeconomic conditions deteriorate significantly, or the Bank fail to secure a credible policy matrix to underpin budgetary support lending, the Bank would revisit the balance between investment and

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FYI 0-13 Country Partnership Stratem for the Dominican Remblic August 12, 2009

policy-based lending. WBG synergies wi l l enhance this flexible approach allowing for the use o f diverse instruments.

66. The new strategy places a stronger emphasis on strengthening social cohesion and improving access and quality of social services. Given that growth has not resulted in commensurate gains on the social front, the new CPS pays special attention to increasing the human capital o f the poor and facilitates their access to finance and basic services - both as a mitigation factor during the crisis and as a medium-term strategic investment for addressing development challenges in the country. The previous CAS showed that having strong social safety nets in place i s critical for mitigating the negative effects o f a crisis, as witnessed during the 2003 financial crisis. In addition, the new CPS wi l l support the country in generating more inclusive growth, that can translate into lower levels o f poverty and inequality. Finally, special attention wi l l be given to gender issues, by including this dimension in lending operations, AAA, and policy dialogue at al l levels.

67. Based on lessons from the previous period, the new CPS will tackle governance and institutional development issues from the “Quality and Efficiency of Public Expenditures” angle. The approach o f the previous CAS with respect to governance issues yielded mixed results. Given the progress made in the design and implementation o f a new institutional model for planning and budgeting, clear entry points now exist to address governance issues. Specifically, the new CPS wil l support SEEPyD, the Secretary o f Finance, selected spending ministries and Congress on issues related to quality and efficiency o f public expenditures. The Bank i s already supporting the Government on performance informed budgeting, providing technical assistance to the Ministries o f Education and Health on results-based management, and strengthening Congress’s oversight capacity on budget execution. Civil society and other donors have expressed strong demand for the Bank’s support to this agenda, which in turn may help address underlying governance issues.

68. Past Bank engagement in the energy sector in the DR highlights the need to do things differently. Recent efforts have not improved the sector’s financial sustainability, due principally to the confluence o f an unfavorable external environment and o f Government’s failure to fully reflect higher generation costs in retail tariffs and to further reduce losses. Additional efforts are needed to consolidate the modest gains achieved during the last CAS period and launch reforms which wi l l put the sector on a sound footing and foster more rapid economic growth and greater competitiveness. The new CPS supports a new joint Bank/IFC approach to the energy sector by (i) conducting an analysis o f lessons from energy sector reform over the past period (including the political economy dynamics), and (ii) supporting additional reforms in the sector. Three prongs wil l guide the Bank Group’s work: (a) an intensive engagement with stakeholders to establish a new “energy equation”, (b) a comprehensive approach to energy sector reform, and (c) support o f private sector investments. In addition, special attention wil l be given to reducing external vulnerability, access to electricity by the poor, and the development o f a clean energy matrix.

69. The DR and the Bank Group have long maintained a close partnership, but the traditional modalities o f engagement employed so far have yielded only mixed results - suggesting the need for new approaches. Rather than having a number o f stand-alone activities, the proposed strategy would be based on a proprammatic approach that wi l l provide continuity and direction to the Government reform agenda. This wil l

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FYI 0-13 Countrv PartnershtD Stratem-for the Dominican Republic August 12, 2009

include a combination o f investment and policy-based lending, and a strong emphasis on analytical work - both in terms o f ESW and Non-Lending Technical Assistance (NLTAs). Whi le policy based lending wi l l support the country’s continuing implementation o f the reform agenda and provide the Government with liquidity during the international financial crisis, a combination o f investment lending and AAA wil l help strengthen capacity to addressing development issues in the country. These A A A products are included as activities to support the four strategic objectives o f the CPS. Annex 6 presents a comprehensive l i s t o f the identified AAA for each o f the strategic objectives o f the proposed CPS and their existing and potential sources o f funding. Whi le experience in the DR shows that a more programmatic approach towards policy-based lending and knowledge sharing i s needed, experience in the region shows that investing in a strong knowledge agenda i s necessary for sustaining innovation and making policy- based lending more effective. By providing a more flexible approach and investing heavily in capacity building o f Government counterparts, this strategy wi l l help avoid the identified “bottlenecks” in terms o f effectiveness and disbursement delays.

70. IFC’s strategy during the upcoming CPS period will be two-fold:

Priority areas wil l be the underserved segments o f the market, the ones having the highest impact on the bottom o f the pyramid. Reaching out to Microenterprises and SMEs wil l be a key objective. Implied areas o f intervention wil l include access to finance (trade, microfinance and SMEs), improving the business environment (Doing Business Reform, Corporate Governance), access to basic infrastructure, and sustainable tourism development. Additional resources wi l l support opportunities arising in other growth and income generating sectors (agribusiness, general manufacturing, and so on.) when leading to sustainable private sector investment.

Responding to the current financial crisis, IFC wi l l place a particular focus on existing clients and shorter term financing (notably trade financing) and wi l l keep a particular attention to priority areas (microfinance, SMEs, and infrastructure services). The concern wi l l be to maintain the latest development gains among the underserved.

71, Within the above strategic framework, IFC investment and advisory actions are expected to include climate change mitigation (e.g. energy efficiency and renewable energy), raising sustainability standards (environment, social, and corporate governance), and linkages (e.g. SMEs, and so on).

0

0

Strategic Objectives and Results Areas

World Bank Group Assistance Strategy Overview 72. The main objective o f the Country Partnership Strategy for the DR for FY10- FYI3 i s to support the country in reducing i t s vulnerability to internal and external factors while producing results for i t s citizens. Among the main sources o f vulnerability are: (i) a difficult fiscal situation now worsened by the global economic financial crisis; (ii) extremely high levels o f poverty and inequality and limited capacity to implement counter-cyclical social policies; (iii) competitiveness challenges deriving mainly from an inefficient energy sector and low ski l ls levels; and (iv) the negative implications o f

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FYI 0-13 Countw Partnership Stratem for the Dominican Republic Aunust 12, 2009

climate change for the country’s important tourist industry. The new strategy will give special emphasis to protecting the poor while enhancing competitiveness and strengthening public institutions for performance accountability in the country.

73. As reflected in Figure 4, this objective and priority areas will be addressed by a combination o f analytical work, technical assistance, and investment and policy-based lending to achieve 4 strategic objectives: (i) strengthen social cohesion and improve access to and quality o f social services, (ii) promote competitiveness in a sustainable and resil ient economic environment, (iii) enhance quality o f public expenditures and institutional development, and (iv) build capacity and constituencies for reform.

74. The IBRD country envelope for the DR i s s t i l l under discussion within the Bank. Once the envelope i s determined, the lending plans over the partnership period will remain indicative as has been the case in past practice. The Bank’s capacity to lend can change over time and there i s a higher degree o f certainty that lending plans indicated for the earlier years o f the CPS period can be delivered than for the outer years. The proposed pipeline i s predicated on an indicative envelope o f US$500 million.

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FYI0-13 Country Partnership Straten for the Dominican ReDublic August 12, 2009

Figure 4: DR CPS Results Chain

Constituencies

1 Ongoing: Health Sector 1

[Reform I (FY03) - $30M 1

(FYlO,FYIl,FY12,

Investment Program

New: AF Social Sector In\estment Program i (FYIO’, - $10M

Ongoing: Youth Development Project

- Avian and Huinan Influenza IDF (FY09) $1 M - partner IlCA. - Programmatic Social Sectors (FY 10)

1 New: Water and Sanitation in Tourist Areas Project APLl (FY09) - $27,.5M

I

Ongoing: Electricity Distribution Rehabilitation project (FY08) - $42M)

Ongoing: Public Finance and Social Sector DPL (FYl0) -$ l jOM) I Ongoing: Emergency Recover) Loan (FY08)

T i \

- KLTA Treasury’s Countq Banking Serb ices - NLTA Competitiveness - NLTA Hispaniola CEM (FY 10) - NLTA Energy Sector (partner IDB) - NLTA Adaptation to Climdte Change and Disaster Risk Mgt NLTA (partners UNDP. SpainiAECI) - Avian Flu (FY09) partner IICA

IFC - Advisory and l f Investment Services IFC - Support to private university outreach to midilow income families) (Doing Business

Reform, Energy, Transport and Logistics), Tourism. clean sustainable energy and financial sector

AAA: - NLTA Qualit) of Public Expenditures (FY 10) (partners IDB. EU) Strengthening - ESW Institutional and Governance Revieu - NLTA strengthening - Included in NLTA Safeguards Capacib Activities

- NLTA Institutional Development Fund foi

Congressional 01 ersight

c1\ 11 S 0 C l C t ) -

1 ./

~ F C - corporate 1 governance for private I sector.

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FY10-13 County Partnersh@ Stratem for the Dominican Republic August 12, 2009

Strategic Objective I : Strengthen Social Cohesion and Improve Access to and Quality of Social Services

75. This first strategic objective o f the CPS supports the DR in protecting the vulnerable segments of the population from the effects o f the international financial crisis and producing better social outcomes, especially for the poorest Dominican citizens. This objective i s fully aligned with the National Development Strategy that calls for broadening good-quality employment opportunities, reducing poverty, protecting vulnerable populations with adequate safety nets- including the CCT program Solidaridad, and providing better education quality and universal access to health services. WBG actions included under this strategic objective will support the Government in achieving four main strategic outcomes: (i) improved effectiveness o f the social protection system in preserving and promoting human capital for the poorest Dominicans; (ii) improved quality o f mother and chi ld healthcare services; (iii) increased access to and quality o f education; and (iv) improved employability o f the poor-at-risk youth. The Government program will require additional resources to achieve these objectives and other international agencies (e.g. IDB) are supporting the internal revenue service to bolster tax collection.

76. In line with the international financial crisis context and long overdue reforms, the CPS takes a broad-based approach to social protection. I t will assist the Government in strengthening the effectiveness o f the CCT program Solidaridad - a program that was covered by the past CPS - by working on both the demand and supply-side for needed investments in human capital. Through a combination o f instruments and in strong coordination with the IDB and other donors, the CPS will work to expand the capacity o f the CCT program and equip it with the design features o f best practice CCTs in the region. This will include ensuring additional levels o f transparency, developing a sounds system o f social accountability, effectively conditioning payments to pre-specified investments in health and education by families, developing a comprehensive system o f process and impact evaluation. At the same time, the CPS will support complementary actions to adapt and/or improve the supply o f health and education services. Within this first strategic objective, the CPS will give special attention to gender issues, migration, and rural poverty. Specific objectives and outcomes o f this and the next three strategic objectives are included in the Results Matrix presented in Annex 1.

77. The Bank wil l engage in this area through lending which could include (i) strengthening the existing social protection loan through additional financing to improve Solidaridad performance; (ii) provided that a sound medium-term macroeconomic framework exists, delivering a new programmatic D P L for the social sectors (Performance and Accountability o f Social Sectors - PASS); and (iii) implementing the Health Sector Reform - Adaptable Program Loan (PARSS 11) - to contribute to the strategic plan o f the Government to improve quality o f public expenditures in the health sector and (iv) continued support for the implementation o f the Youth Development Project, which provides opportunities for young poor at risk to strengthen their ski l ls and employability and conclude secondary education. To support the Government’s response to the crisis, the CPS may consider a restructuring o f this project to enable the piloting o f a program to provide temporary employment and/or ski l ls development opportunities to young adults and other workers-formal and informal affected by the economic downturn.

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FYIO-13 Countw Partnership Stratem for the Dominican Republic August 12, 2009

78. In addition, two AAAs will be considered to underpin the Bank's support towards attainment o f this strategic objective: (i) a Social Cohesion Programmatic NLTA, which will include (a) a Programmatic Social Sectors technical assistance, which will closely support the design and implementation o f the PASS DPL; (b) activities to continue the support given to SEEPyD on evidence-based policy making for the formulation o f the National Development Strategy - with a focus on providing technical support on measuring the results o f distributional impacts o f policies, and (c) support to improve the performance o f DR's community-based citizen security program (Barrio Seguro). This NLTA will help improve the performance o f DRs community-based citizen security program (Barrio Seguro) through strengthening i t s approach to local public private partnerships, particularly the engagement o f the private sector in prevention activities. Trust fund resources are available for this work to start in FY 10 - along with potential contributions o f other donors in the field; and there i s an ongoing Avian Influenza Prevention N L T A (a US$I mi l l ion grant) which i s coordinated in partnership with the Inter-American Institute for Agriculture Cooperation (IICA). The Bank i s also closely coordinating these actions with other donors in these areas. For example the European Commission and the International Development Agency o f Spain are focusing their budget support on the education and health sectors. The IDB i s providing support to education (Multiphase Program for Education Equality) and promoting the strengthening o f the National Employment System (Strengthening o f the National Employment System). The European Commission i s also providing budget support to the Ministry o f Education (€38.5 million).

79. IFC will also play a role in leveraging private sector resources to enhance the DR's human capital base. One envisaged area i s supporting private university outreach to students from l o w and middle income families.

Strategic Objective II: Promote Competitiveness in a Sustainable and Resilient Economic Environment

80. The second strategic objective o f the CPS focuses on helping to create the necessary conditions for equitable economic growth and private sector development. Activities aimed at achieving this strategic objective will support the Government in promoting competitiveness in a sustainable and resil ient economic environment. These activities are fully aligned with the National Development Strategy, which calls for equitable growth, macro-economic sustainability, productive development and competitiveness, reliable provision o f energy, the implementation o f a strategy for mitigation and adaptation to climate change, and developing an efficient risk management scheme for disaster management. Actions included under this strategic objective will support the Government in achieving four main outcomes: (i) broader information base for informing policy decisions on macro-financial stability, competitiveness, and economic relations with Haiti; and (ii) improved performance o f water and sanitation corporations in tourist areas; (iii) increased efficiency in power distribution and generation to improve quality o f services; and (iv) disaster risk management mainstreamed into the planning process and strengthened institutional capacity for risk management in specific sectors. By focusing on achieving equitable growth, activities under this strategic objective will support the Government in defining

28

FYI 0-13 Countrv Partnership Stratem for the Dominican Republic Auaust 12, 2009

policies that would allow broad segments o f the population to benefit from relatively high growth rates.

81. The Bank will support this objective through continued implementation o f the (i) Electricity Distribution and Rehabilitation Loan, (ii) Power Sector Technical Assistance Loan, (iii) Emergency Recovery Loan, (iv) Water and Sanitation Loan, and (v) Financial Sector Technical Assistance Loan to continue supporting the country in addressing the challenges of the financial sector, added to the work conducted by the IDB in this front through a policy-based type o f operation. In addition, the implementation o f the Programmatic DPL on Performance and Accountability o f Social Sectors will also contribute to this strategic objective as it will require the existence o f a sound medium- term macroeconomic framework. Other donors are well positioned to support rural productivity. USAID i s implementing a number o f rural activities under i t s competitiveness pillar and the IDB implementing an investment loan to support small and medium producers - Apoyo a la Transicion Competitiva Agro-Aleimentaria (PAC)

82. The CPS wil l consider five AAAs to achieve this strategic objective, as follows: (i) At the request o f the Government, “La Hispaniola” Country Economic Memorandum, which will explore the potential opportunities o f joint growth and poverty reduction derived essentially from fostering deeper economic relationship among the two nations, (ii) a Treasury Country Banking Service NLTA, to support the Government in closely monitoring public debt and facilitate WBG engagement in on-going policy dialogue and prevent debt from becoming a source o f macroeconomic vulnerability; (iii) a Competitiveness NLTA, which will include (a) a regional DR-CAFTA ESW, (b) technical assistance on logistics, (c) fostering gender equity in selected firms, (d) supporting the implementation o f doing business reforms with IFC, (e) strengthening agricultural productivity (in close coordination with current activities conducted by IDB and IICA); ( f ) strengthening regional connectivity and investments to support the Government in developing i t s I C T sector strategic plan: “e-Dominicana”; (iv) an Adaptation to Climate Change and Disaster Risk Management NLTA, which will focus on the assessment o f climate impacts on the surface hydrology o f the country , and will support the incorporation o f risk reduction in national, sectoral and territorial planning. These actions will be closely coordinated with the Special Climate Change Fund. Together with the Bank, and potential donors, IFC will seek to involve the private sector in disaster risk management should opportunities arise. The Bank i s closely working with the UNDP’s Disaster Prevention and Preparedness program (programa de Prevencion y Preparacidn a Desastres -PPD) and the Spanish International Cooperation Agency which wil l support the Fondo para la Prevencion y Respuesta a las Emergencias with €8 million; and (v) an Energy Sector NLTA and Investments (which includes a strong emphasis on political economy issues) - to support the development o f a comprehensive strategy for the reform o f the energy sector in the DR in collaboration with the IDB and IFC’s efforts to promote additional private sector investments in energy efficiency, and in cleaner and renewable energy. There are good opportunities for additional donor coordination in these areas, The IDB has operations to improve the management and design o f fiscal policy, to mitigate disasters and to improve water and sanitation (Consolidation Program for the Reform and Modernization o f Water and Sanitation). The UNDP and the European Commission are joining efforts to mitigate disasters through the

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FYI0-13 Country Partnership Strateav for the Dominican Republic Aunust 12, 2009

UN International Strategy for Disaster Reduction and EU Strategy for Supporting Disaster Risk Reduction in Developing Countries.

83. In addition, with the objective o f promoting the competitiveness o f local industries, I F C will continue i t s activities in transport and logistics. IFC’s past investments have positively impacted the tourism industry (ports and airports). Further investments could facilitate market access for agricultural and manufacturing products, including export. IFC will support opportunities in the real sectors when leading to sustainable private sector investment. Bank work under the C E M will facilitate IFC’s selection o f areas o f focus. As noted above most o f IFC’s program will help improve the competitiveness o f the real sectors. Concerning tourism, IFC has developed a more integrated approach involving investments in transport and logistics, energy efficiency, cleaner energy and renewables. This i s part o f the Corporation Caribbean region overall objective o f promoting the expansion o f commercial lending programs by local financial institutions targeting local hoteliers to: improve efficiency o f energy consumption, reducing carbon emissions, reducing dependency on imported oil, and supporting the use o f cleaner technologies and renewables.

84. Finally, the financial sector i s a priority for IFC’s strategy in the Dominican Republic. IFC will be focusing on: (i) enhancing access to finance by supporting the portfolio growth o f banks as well as other financial intermediaries, especially with respect to microfinance and SME lending with an emphasis on lending to women in rural areas and, (ii) contributing to strengthening the financial sector through equity ’

investments in banks and potentially the creation o f a secondary market mortgage company. Such efforts consist primarily o f investment products and, when relevant, advisory services.

Strategic Objective 111: Enhance Quality of Public Expenditures and Institutional Development

85. The third strategic objective o f this CPS i s to enhance the quality and efficiency o f public expenditures and promote institutional development o f the Dominican public administration. Activities included in the CPS to achieve this objective are aligned with the National Development Strategy that calls for strengthening institutions at the national and regional levels, better quality o f public expenditures, public security, good governance, and the development o f a results culture within the public administration. Actions included under this strategic objective will support the Government in achieving three main strategic outcomes: (i) improved budget management; (ii) significant progress towards performance-informed budget management; and (iii) increased rural poor municipalities’ management capacity. The CPS will support the Government in strengthening public institutions’ accountability and their capacity to plan and deliver results. Activities under this strategic objective will include the implementation o f sound public financial management systems, the consolidation o f transparent and efficient procurement mechanisms, the strengthening o f audit schemes, and the implementation o f results-based management techniques.

86. Finally the Government i s closely coordinating efforts with other donors in these areas. For example the IDB has two operations for institutional strengthening and the implementation o f a performance agenda (Social Management Reform Program and the

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FY10-13 Countrv Partnershtu Stratem for the Dominican Reuublic Auaust 12, 2009

Support o f the Instrumentation o f Performance-based management) and the UNDP has various governance related projects to strengthen the Junta Central Electoral and the Lower Chamber.

87. In addition, given that it lies at the core o f the DR’s development challenges, governance wil l be mainstreamed as a fundamental element o f the activities defined to achieve the other 3 strategic objectives o f the CPS. For example, institutional analysis will be conducted for critical sectors (e.g. energy, health) and specially designed mechanisms will be financed for increased accountability in service delivery. Special emphasis will be given to support Congress in i t s oversight capacity and accountability between Government agencies and civ i l society.

88. This third strategic objective will be supported by the implementation o f the Programmatic D P L on Performance and Accountability o f Social Sectors (provided that there i s a sound medium-term macroeconomic framework in place) - which includes a component to support a series o f reforms to build a culture o f results in public administration, by the Municipal Development Investment Loan, which will include institutional development activities to strengthening capacity o f local Governments and by the second Health Sector Reform Loan (PARSS 11) - which includes a series o f actions to support performance based management within the health sector.

89. In order to help achieve this strategic objective, the CPS will consider two AAAs: (i) Quality o f Public Expenditures NLTA, which wil l focus on improving the quality o f public expenditures in the DR by strengthening financial management and procurement mechanisms and strengthening the oversight capacity o f various actors. This multisectoral NLTA includes the development o f a National Procurement Strategy, the application o f the OECD Indicators on procurement, technical assistance to SEEPyD, Finance and Public Administration, and the support to the DR Supreme Audit Institution. Activities on this front are closely coordinated with the IDB, the UNDP, and the European Commission, which i s already supporting the Secretary o f Public Administration with €8 million; and (ii) Institutional and Governance Review (ESW) which will focus on underlying political economy and governance issues that prevent the country from addressing fundamental development challenges in key sectors like education, health, and energy. A set o f safeguards capacity building activities will help achieve this strategic objective by offering assistance to the Dominican Republic to manage social and environmental opportunities and risks at a strategic level. Analytical work and technical assistance wil l support the Dominican Republic in strengthening i t s norms and institutions to incorporate management o f the Bank’s safeguards policies as well as other international good practice frameworks in a coordinated manner.

Strategic Objective IV: Build Capaciq and Constituencies for Reform

90. The fourth strategic objective o f the CPS i s to help build capacity and constituencies for reform. Activities aimed at achieving this objective are aligned with the National Development Strategy that calls for strengthening democratic governance and active participation o f c iv i l society and the private sector. Actions included in the CPS will support the Government in achieving three main outcomes: (i) strengthening congressional budget oversight capacity; (ii) strengthened civil society capacity for

3 1

FYIO-13 Countw Partnershir, Stratem for the Dominican Republic Auaust 12, 2009

budget analysis and monitoring; and (iii) enhanced participatory planning at the local level.

91. In response to the demand identified during the consultations with civ i l society and Government officials, the CPS includes a fourth strategic objective to help build capacity and constituencies for reform, including Congress, c iv i l society, and the private sector. Addressing development challenges in the DR requires the collaboration o f a number of actors beyond the Government. As learned during the previous CAS, promoting, implementing, and sustaining reforms requires a strong constituency with enough capacity to mobilize critical stakeholders and resources. Working with civ i l society i s at the core o f other international agencies. For example, USAID has a program that promotes the participation o f Civ i l Society to fight corruption and the UNDP has various projects to strengthen civ i l society capability to interact and influence policy making process at the national and municipal level.

92. Civ i l society has played a major role in raising awareness about the problems o f corruption, weak governance and accountability. Since the early 1990s, c iv i l society has progressively strengthened i t s voice in the policymaking process, particularly by fostering public debate and influencing decision-making through concrete policy proposals around key public interest issues such as poverty reduction, state reforms and transparency. However, c iv i l society organizations s t i l l lack the capacity to mobilize grassroots movements throughout the country. The reach o f c iv i l society organizations i s strong both at the national and the sub-national levels, but only a few have been able to develop the capacity to monitor Government performance and transparency.

93. In terms o f lending, both policy-based and investment loans will include work with these stakeholders and a number o f non-lending technical assistance activities and analytical pieces wil l focus on capacity building actions. For example, the Social Protection Loan includes the participation o f c iv i l society organizations in monitoring the implementation o f the program and the Programmatic D P L on Performance and Accountability o f Social Sectors helps build the necessary conditions for the establishment o f social accountability mechanisms around budget formulation and execution. 94. Finally, this strategic objective will consider 2 AAAs, as follows: (i) an Institutional Development Fund for Strengthening Congressional Oversight, to help improve accountability o f public sector performance in the DR by strengthening the institutional capacity o f Congress to conduct i t s oversight role within the new public financial management (PFM) framework; and (ii) a NLTA for Strengthening Civ i l Society, which will support activities to strengthen the capacity o f c iv i l society to be an effective stakeholder to promote change and an effective development partner - and capacity building o f c iv i l society actors for engaging in participatory policy formulation, monitoring and evaluation. This will include the definition o f a medium term capacity building program for civil society organizations - including community-based groups (in collaboration with US AID), and the establishment o f social observatories for increasing accountability o f the social sectors. This NLTA will also include the establishment o f a Corporate Governance Institute, supported by IFC’s work with private sector representatives including leading corporate, major banks, chamber o f commerce, and other financial institutions.

32

FYI 0-13 Countw Partnershir, Stratew for the Dominican Rer,ublic August 12, 2009

C. IMPLEMENTING THE COUNTRY PARTNERSHIP STRATEGY

95. The CPS wil l be based on a flexible approach given the existing uncertainty - derived from the international financial crisis - over the medium-term macroeconomic framework. The strategy calls for a combination o f policy-based and investment lending, which wi l l provide enough flexibility for i t s implementation. However, if the macroeconomic situation deteriorates, the CPS wi l l shift towards alternative instruments to support the Government. Instead o f relying on a combination o f policy-based and investment lending, the CPS may emphasize the increased use o f investment lending.

96. For Bank operations, as reflected in Table 7, the new CPS will be based on the implementation o f 9 existing investment loans and 3 new investment loans currently under preparation, a programmatic series o f AAA, and a programmatic single-tranche series o f DPLs aimed at reducing the existing vulnerabilities facing the DR today and increasing Government's accountability for results. In view o f the innovative nature o f this type o f operation for the DR, this Programmatic DPL wi l l be implemented on a pilot basis. An evaluation wi l l be conducted after the implementation o f the f i r s t loan included in this series. The results o f this evaluation wi l l inform the design o f subsequent loans in the series or the adoption o f alternative lending modalities.

Table 7: Proposed Indicative Lending Program (US$M) and AAA" FY10-FY13

FYlO DO (AF) Social Sectors Investment Program I O

30 DO (APL2) Health Reform I1 DO Municipal Development Project 20

150 Total LENDING FYlO 210

DO-1 st Performance & Accountability in Social Sectors DPL

AA A

FYl l D O M T H isparuola CEM

- - -_ DO-2nd Performance & Accountability i n Social Sectors DPL 1 50

Total LENDING Fnl 150 AAA

DO Avian Influenza Prevention NLTA DO Program Institutional & Governance Review DO Adaptation to Climate Change and Disaster Risk Management NLTA

FYl2 DO-3rd Performance & Accountability i n Social Sectors DPL 70

Total LENDING FYI2 70 AA A

DO Institutional Development Fund for Strengthening Congressional Oversight DO Energy Sector and Investment NLTA DO Competitiveness NLTA Treasury's Country Banking Services NLTA

DO (U) Quality & Efficiency of Public Expend NLTA (Multisector) DO Social Cohesion Programmatic NLTA DO Strengthening C i w l Society NLTA DO-4th Performance & Accountabilitv in Social Sectors DPL 70

FY13

Total LENDING FYl3 70 TotalLENDING FYlQFYIZ I 500

* as o f completion date

33

FYIO-13 Country Partnership Stratem-for the Dominican Republic August 12, 2009

97. NLTA activities will be combined with analytical work (ESW) and existing and new investment operations while keeping a close linkage with the programmatic DPL series. Building on the successful results o f the AAA included in the previous CAS period, the new CPS will support a number o f strategically defined programmatic AAA products, including non-lending technical assistance, policy dialogue, and economic and sector work (ESW). This, in turn, will support participating agencies in achieving policy commitments and outcomes included in the Programmatic D P L series. This new series o f AAA will be closely coordinated - and where possible co-financed - with other international agencies operating in the DR.

98. NLTAs and other AAA will be financed with Bank budget, donor contributions (in the form o f externally-funded outputs - EFOs), and with the use o f trust funds (e.g. Institutional Development Funds - IDFs - for institutional development; FIRST initiative funds for developing professional certification o f auditors; Japan Social Development Fund (JSDF) for enhancing the chances for social inclusion and citizen participation, and other). On selected products, the Bank will explore possibilities for engaging the Government in fee-based services.

Country Financing Parameters

99. Changes in responsibilities emerged from the implementation o f the public debt law, budget law, and the creation o f the Ministry o f Economy, Planning, and Development and the new Ministry o f Finance (2006), resulted in a Government request to change the Country Financing Parameters (CFP) to adjust Bank financing cost-share up to 100 percent (see Annex 9). These changes were introduced after the Country Portfolio Performance Review conducted in 2007.

Improving Porrfolio Performance

100. As o f June 30th, 2009, the Dominican Republic’s portfolio consisted o f 9 investment projects under implementation for a net commitment o f US$285.7 million, o f which US$2 17 mi l l ion remained undisbursed. The l o w disbursement i s explained by the fact that more than 50 per cent (US$122 million) o f the undisbursed amount belongs to 2 projects that became effective in the last quarter o f FY09. In addition, 4 grants are under implementation equivalent to US$3.7 million, o f which US$2.7 remained undisbursed. B y the end o f FY09, there was one project at risk whose net commitment was equal to 11 per cent o f the total commitment amount.

Alignment with the Paris Declaration - Moving Towards Greater Ownership and Focus on Results

101, Donor coordination and harmonization efforts have increased, especially since the establishment of a Bank office in Santo Domingo in 1999. The Bank chairs the monthly donor meeting and i s in close contact with the Inter-American Development Bank (IDB), the European Union (EU), and the United Nations (UN) agencies as well as with bilateral agencies and international NGOs. Examples o f collaboration include coordination around the implementation o f HIV/AIDS projects (Global Fund), the 2006 Poverty Assessment (IDB), participation in each other’s missions (IDB social protection), and the

34

FYI 0-1 3 Count? Partnership Strateqfor the Dominican Republic Auaust 12, 2009

Public Expenditure and Financial Accountability assessment (EU). Another example i s the strong partnership formed for the 2006 Youth Development Marketplace which included the EU, IDB, UN agencies, bilateral agencies and NGOs as well as both private and public sector partners. Whi le there are no SWAps at present, a SWAP in the health sector i s being discussed in order to better coordinate assistance.

102. The proposed approach i s fully consistent with the principles agreed in the Paris Declaration, in 2005 : (i) ownership, (ii) alignment, (iii) harmonization, (iv) managing for results and (v) mutual accountability. In l ine with these principles and according to the concrete recommendations emerging from the Accra meeting in 2008, the proposed strategy places special emphasis on increasing the scope o f development policy dialogue at the national level, strengthening and taking advantage o f country systems (when possible), welcoming and working with al l the actors involved in development, deepening the working relation with c iv i l society, concentrating in achieving results, increasing results’ transparency and accountability, and continuing to base conditionality on the countries’ development strategies. The proposed strategy will also focus on strengthening the capacity o f Government counterparts, with the objective that in the medium term, projects could be managed without the creation o f project implementation units.

103. The IDB i s currently defining i t s own strategy for the DR. I t s current portfolio includes projects in education, labor markets, quality o f public expenditures, transport, rural development, and energy. In 2009, the IDB i s expected to have new commitments for US$255 mi l l ion in i t s regular portfolio and a US$500 million in emergency loans to support the DR during the international financial crisis. The European Commission (EC) i s another important player in the DR. The EC focuses on the following 3 main l ines o f work, making i t a strong potential partner for the Bank in the country: (i) governance, (ii) poverty, and (iii) bilateral relationships between the DR and Haiti. I t s operations consist mainly o f budgetary support, estimated at €200 mi l l ion for the next 5 years.

104. There i s an initial agreement with the European Union and the Spanish International Development agency to align efforts and come up with “convergent” matrices to guide these institutions’ budget support programs and find complementarities on technical assistance interventions. A memorandum o f understanding between these agencies and the Bank i s now being drafted. USAID and the French Development Agency have also expressed their willingness to provide technical assistance in a coordinated way. For this, a series o f key policy reforms and expected outcomes are being discussed among agencies and agreed with Government counterparts. Table 8 illustrates the main efforts o f the international agencies in supporting the Government’s strategy.

35

FY10-13 Count? Partnership Stratem for the Dominican Republic August 12. 2009

Table 8: Government Themes, CPS Objectives and Donors

Social Development

Competitiveness and Industrial Development

CPS Strategic Objective Government’s Strategy Pillars

Strategic Objective I : Strengthen Social Cohesion and Improve Access to and Quality o f Social Services

Development and the Environment

Institutional Development (includes

Strategic Objective 11: Promote Competitiveness in a Sustainable Growth and

Strategic Objective 111: Enhance Quality of Public Expenditures and Institutional Development

and Resilient Economic Environment Territorial

Strategic Objective IV: Build Capacity and Constituencies for

Governance and Participation)

I I Reform

D. MIGA PROGRAM

Donors

Spain (AECID), France (AFD), United States (USAID), Japan (JICA), Europe (EC), IDB, UNDP, UNICEF, WB

Spain (AECID), France (AFD), United States (USAID), Japan (JICA), Europe (EC), IDB, UNDP, WB

France (AFD), IDB, WB

Spain (AECID), France (AFD), Germany (GTZ), United States (USAID), Japan (JICA), Europe (EC), UNDP, UNICEF, IDB, WB

Spain (AECID), United States (USAID), Europe (EC), IDB, UNDP, UNCEF, IDB, WB

United States (USAID), Europe (EC), UNDP, IDB, WB, UNICEF,

105. Currently, M IGA i s working with the sponsors o f another transportation project in the DR which, if i t can achieve financing, would double MIGA’s exposure in the country. Furthermore, MIGA has been approached by investors in agricultural and tourism to discuss potential support for other operations. However, the current global financial crisis seems to be delaying the larger projects, so i t i s unclear if or when these potential transactions wil l come to fruition.

E. WBIPROGRAM

106. At the time o f CPS preparation, WBI was undergoing a comprehensive renewal process with the aim o f increasing impact and outreach and placing greater emphasis on innovation, learning and knowledge sharing. The scope and content o f the Institute’s future offerings for DR participants wi l l be determined together with the LCR Region once WBI’s new medium term strategy i s in place. I t i s envisaged, however, that the shift away from country specific towards multi-country learning programs wi l l continue. The thematic composition o f the future programs are likely to be determined in light o f the governance oriented activities that have been delivered in the past (informatiodmedia, youth, support to Congress) as well as the priority themes identified in LCR’s Region wide strategy (Le. trade/competitiveness, climate change, energy, social opportunities and

36

FYl0-13 Country Partnershiu Stratem for the Dominican Republic August 12, 2009

governance). Finally the Gobierno Abierto y Participativo (GAP) that focuses on strengthening local governance will begin i t s implementation in the DR in FY 10.

F. MONITORING AND EVALUATION (M&E)

107. The CPS wil l rely on a combination o f M&E mechanisms. First, the CPS will contribute to strengthening the existing M&E systems existing in the DR. The Bank has already approved an IDF grant to help strengthen this capacity within the National Statistical Office in close coordination with SEEPyD. In addition, the CPS wil l support participatory M&E mechanisms led by c iv i l society organization - including, but not limited to, citizen report cards, community scorecards, and participatory councils. Finally, Bank staff wil l continue to conduct systematic supervision o f the Bank-financed projects and the implementation o f performance contracts.

IV. MANAGING R I S K S

108. Implementation Risks. The new CPS will require close coordination between the Ministries o f Finance, Planning, and Public Administration on the one hand, and the spending ministries on the other. While this situation exists in other countries as well, i t constitutes a particular risk in the DR because these ministries are key for the implementation o f the Investment and Planning Law, on which the new D P L series i s based. I t i s expected that this risk will be mitigated by providing systematic technical assistance to these agencies and by the strong incentive to cooperate in order to access Bank funds. In addition, the fact that World Bank loans require congressional ratification may create effectiveness delays. The Bank i s already working with members o f Congress - in close coordination with counterparts in Government - to increase awareness o f the W B G program and how i t helps address development challenges in the DR.

109. Economic Risks. Conditioning further Bank support on a number o f critical reforms that the country needs could produce lasting results and i s predicated on firm Government commitment to the reform process. Policy actions need to be carefully defined and monitored. This process should provide adequate flexibility to make the necessary adjustments over time and provide the client with a reasonable level o f confidence that targets could be met and therefore, funds will be disbursed. In addition, having a balanced approach and ensuring that investment operations are strategically designed will help mitigate this risk. 110. An additional economic risk i s a major external shock that inhibits the Government from undertaking policy changes, or diverts i t s attention to more day-to-day issues. Such shocks could include tropical storm damage, significantly higher o i l prices, or the denial o f access to external credit markets because o f creditworthiness concerns. In this case, the Bank might have to develop a lending program that i s more focused on emergency response. In fact the current portfolio has a number o f operations already under implementation that could be scaled-up to help the country cope with the shocks identified above and the proposed CPS includes specific interventions that may help mitigate this risk. 11 1. Finally, since the CPS contemplates the possibility o f supporting the Government with a series o f DPLs, having a sound medium-term macroeconomic framework i s

37

FYI 0-1 3 Countrv Partnership Strateav for the Dominican Retwblic August 12, 2009

necessary. The Bank will closely work with other international agencies to support the Government in maintaining a sound macroeconomic framework including addressing potential financing gaps. In addition, the CPS will retain a flexible approach, to enable it to shift more strongly towards investment lending if necessary.

112. Operational Risks. The proposed model requires the full adoption o f a multi- sectoral approach, both within the Bank and in Government. The model can be effective in reducing transaction costs in Bank operations while addressing development challenges at the country level. To mitigate this, a system for monitoring and evaluating the new scheme will be put in place, based on systematic portfolio monitoring and a robust CPS Progress Report. In addition, the Bank will continue the implementation o f i t s capacity building program on fiduciary areas - especially on financial management and procurement - and the series o f training sessions to Government counterparts on operational issues associated with Bank-financed projects.

38

FYIO-I3 Countv Partnersh@ Stratertyfor the Dominican Republic Aupust 12, 2009

Annex A2: Dominican Republic a t a Glance

Dominican Republic a t a glance 9/24/03

Key Development Indicators

(2007)

Pcpulabon mid-year (millims) S u f E e areaittuusa-d sa k m i Pcpulaton goMh (Oh) Urban pcpuistion(% of tdal population)

GNI (Atlas mdhod US$ billons) GNI percapita(Atlasmetiod US$) GNI per capita( PPP intematonal $)

GDP growth(%) GDP per capita growth ( O h )

(most Rcent est~mate, 2000-2007)

Pwerty headcourt ratio a $1 25 aday(PPP Oh) Pwertv headcourt ratio a $2 00 adav iPPP %) Life expectancy at biiih (years) lnbnt moilahty(per 1 000Iwe brths) Child mdnutntion (Oh of children urder 5)

A s ! t e r m was. ' /oofaaes '5a ioo36 A s ' ieraq fenas /A 0' 2gaS 15 a-3 m e r Gcsspnrar, enro..rran' ma e :. oiaga gro-p Gcss p ima3 enm wen: fern36 Yo a age groo,

Access to an mproved water source(% ofpoputation) A c c e s to irrprovedsenitaton faaiites (%of pcpuiation)

Dominica- Repubkc

9 8 43 1 4 68

34 6 3,550 5 053

85 7 0

72 25 4

87 87

1M 93

95 79

Latin Amerca &Canb

563 20 42 1

1 2 78

3118 5540 9320

5 7 4 5

8 18 73 22

5

91 89

120 116

91 78

Lowr mddle inmme

3 437 35 510

1 0 42

6,485 1887 4 544

9 7 8 6

69 41 25

93 85

112 109

88 54

Age distribution, 2037 1 Mas Female

lzrcent I ' j ' O 'O ' 5

Under4 mortality rate (per 1,000)

80

60

40

20

0

3980 is95 2mo a105

ODomn tan Repro ic UIabnAmnca an , Caribbean

Net Aid Flows

(US% miirmsi Net OUA am3 official ad Top ddonors (ifl2009

European Canmisson UnAed States Germany

A d (%of GNI) A d per caplta (US$)

Long-Term Economic Trends

Consumer pnces (anual Oh charge) GDP irrplcl def$tor(annual% cha-ge)

Exchange rate(mnua1 avaag3 Iccal per US$) Terms d t r d e ndex (PO0 = 100)

Pcpulabon mid-year (millims) GDP (US$ milors)

Aynukure lndistry

SWVlC.?S

Househoid fnal amsumpton expendture Genera gov't fnai consurnpbon erpa-ditue Grcss captal formatlon

Exports of gods a-d SSWCBS Imporb of p o d s and SeNceS Grcsssavirgs

Nsnufadunrg

1980

125

0 36 13

1 9 21

9 2 11 7

1 0 175

5 9 6 631

20 1 20 3 15 3 51 6

77 0 7 6

25 1

19 2 28 9 15 0

1990 2000

IQ 56

10 13 -1 9 25

9 12

1 5 0 3 14 6

45 4 7 7 50 5 7 7

8 5 16 4 93 100

7 3 8 7 7074 19772

of GDP) 134 11 1 31 4 33 9 180 16 8 552 54 6

80 4 77 8 4 3 8 4

25 1 23 8

33 8 44 9 43 7 54 9 22 0 18 1

2007

53

49 30 23

0 2 6

7 4 5 7

33 3 95

9 8 36 686

12 0 27 7 13 2 60 3

79 7 6 5

21 9

34 5 41 4 19 9

Growth ofGDPand GDP per c q i t a ( O h ) I 95 OB

IEBO-90 iso-2om 2000-07 (average anlxiai q M h %)

2 1 18 1 6 2 8 60 4 8

0 4 39 4 7 3 3 70 2 2 2 5 4 9 2 3 3 1 60 6 1

4 2 53 4 0 0 8 5 2 5 1 3 6 104 1 2

4 2 9 1 4 2 3 2 9 4 1 2

Note FQUDS in dales are for yearsother thanthose speiiied 2007 &ta are prekmnaly a A d 6 t a are for 2006

Developlien! Econanics DevebpmentUata G r o q (DECDG)

irdicatesdata a e rot amitable

39

FYIO-13 Countw Partnership Stratem for the Dominican Remblic Aupust 12, 2009

.'3 -1 P t i

40

FYIO-13 Country PurtnershlD Strategy for the Dominican ReDublic August 12, 2009

Annex B2: Selected Indicators of Bank Portfolio Performance and Management

Dominican Republic As Of Date 06/23/2009

Indicator 2006 2007 2008 2009 Porffolio Assessment Number of Projects Under Implementation 8 Average Implementation Period (years) 3.1 Percent of Problem Projects by Number 50.0 Percent of Problem Projects by Amount 69.8 Percent of Projects at Risk by Number 50.0 Percent of Projects at Risk by Amount 69.8 Disbursement Ratio (%) 11.7 Porffolio Management CPPR during the year (yesho) Supervision Resources (total US$) Average Supervision (US$/project)

7 3.6

14.3 8.6

14.3 8.6

15.8

9 2.9

22.2 10.9 22.2 10.9 24.6

9 3.5

11.1 8.8

11.1 8.8 9.1

Memorandum Item Since FY 80 Last Five FYs

Proj Eva1 by OED by Amt (US$ millions) 879.0 142.3 35.7 20.0

% of OED Proiects Rated U or HU bv Amt 32.7 15.6

Proj Eva1 by OED by Number 29 5

% of OED Projects Rated U or HU by Number

a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) andlor implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the

beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio,

which includes all active projects as well as projects which exited during the fiscal year.

41

FYIO-13 Country Partnership Stratem.for the Dominican Republic August 12. 2009

Annex B3: IBRD/IDA Program Summary

Dominican Republic As Of Date 06/23/2009

Proposed IBRDllDA Lending Program a Strategic lmplernentation

Fiscal Year Proi ID. US%(M) Rewards b b Risks - 1 I

(H/M/L) (H/M/L)

L 10.0 H DO (AF) Social Sectors Investment Progr 201 0

DO (APLP) Health Ref II 30.0 H L

DO Municipal Development Project 20.0 H L

L 150.0 H DO-1 st Perform.&Accbilty SocSctrs DPL Result DO-2nd Perform.&Accbilty SocSctrs DPL 201 1

Result DO-3rd Perform.&Accbilty SocSctrs DPL 2012

Result DO-4th Perform.&Accbilty SocSctrs DPL 201 3

Result Overall Result

210.0

150.0

150.0

150.0

70.0

70.0

70.0

500.0

M

M

42

FYIO-13 Countrv Partnershtu Stratem for the Dominican ReDublic August 12, 2009

Annex B3: IFC and MIGA program Dominican Republic: IFC Investment Operations Program*

2006 2007 2008 2009

Commitments (US$m) Gross Net"

21.75 45.51 34.48 1.07 18.00 45.51 34.48 1.07

Net Commitments bv Sector (%I Transportation and Warehousing 78.16 46.14 Nonmetallic Mineral Product Manufacturing 17.24 Finance 4.60 9.91 100 100 Electric Power 43.95

Total 100 100 100 100

Net Commitments bv Investment Instrument (%) Equity 5.56 95.65 Guarantee Loan Quasi loan Risk product Total

9.9 4.35 100 83.33 72.52

17.58 11.11

100 100 100 100

* Year end data as of June ** IFC's Own Account only

2006 2007 through

MIGA's Guarantee Program 1/31/07 Sectoral Distribution

Finance 0.0 0.0 Infrastructure 129.8 107.6 Mining 0.0 0.0 Oi l & Gas 0.0 0.0 Agri business/Manufacturing/Services/Tourism 27.5 27.3

157.3 134.9

Transfer Restriction 140.1 134.9 Expropriation 157.3 134.9 War & Civil Disturbance 137.6 134.9 Breach o f Contract 107.6 107.6

MIGA's Risk Profile

MIGA's Gross Exposure in Country 157.3 134.9

M I G A Net Exposure in Country 128.9 117.6 % Share of MIGA's Net Exposure 3.9% 3.8%

% Share of MIGA 's Gross Exposure 2.9% 2.7%

43

FYIO-13 Countw Partnershlu Stratem for the Dominican Republic Auaust 12, 2009

Annex B4: Summary of Non Lending Services

Dominican Republic

Product Completion F Y Cost (US$OOO) Audiencea Objectiveb

As Of Date 06/23/2009

Recent completions DO Agric Sector Work Dominican Republic ROSC DO Poverty Assessment DO Trade and Competitiveness DO Growth Study CEM DO - Urban Transport DO Informality and poverty FSAP update Dominican Republic

Underway DO Improving the Perform. of Reg. Hlth S DO Support to the National Dev. Strategy DO Policy Notes

Planned DO/HT Hispaniola CEM

DO Avian Influenza Prevention NLTA

DO Program Institutional & Governance Review DO Adaptation to Climate Change and Disaster

Risk Management NLTA

DO Institutional Development Fund for Strengthening Congressional Oversight.

DO Energy Sector and Investment NLTA DO Competitiveness NLTA Treasury's Country Banking Services NLTA DO (U) Quality & Effic Pub Expend NLTA

DO Social Cohesion Programmatic NLTA DO Strengthening Civil Society NLTA

(Multisector)

FY05 FY05 FY05 FY05 FY06 FY06 FYOQ FYOQ

FYOQ FYOQ FYOQ

FYI0

FYI 1

F Y l l

F Y l l

FYI2

FYI2 FYI2 FYI2

FYI3

FYI3 FYI3

a4 203 21 1 0

21 1 31 93 147

All Govt All All All All All

Govt

Knowledge P. Solving

Kn., debate Kn., debate Kn., debate Kn., debate

All Kn. , P. solving

Govt P. solving Govt All Govt All

All Kn., debate

Govt Kn. , P solving

Govt Kn. , P. solving

Govt All

All All

Govt All Govt All Govt All

Govt Kn. , P solving

Govt Kn. , P. solving All All

a. Government, donor, Bank, public dissemination. b. Knowledge generation, public debate, problem-solving .

44

FYI 0-13 Country Partnership Strategy for the Dominican ReDublic August 12, 2009

Annex B5: Poverty and Social Sector Indicators

Dominican Republic Social Indicators

POPULATION Total population, mid-year (millions)

Urban population (% of population) Total fertility rate (births per woman)

POVERTY (% of populahon) National headcount index

Urban headcount index Rural headcount index

Growth rate (% annual average for period)

INCOME GNI per capita (US$) Consumer price index (2000=100) Food price index (2000=100)

INCOMElCONSUMPTlON DISTRIBUTION Gini index Lowest quintile (% of income or consumption) Highest quintile (YO of income or consumption) SOCIAL INDICATORS Public expenditure

Health (% of GDP) Education (% of GDP)

Net primary school enrollment rate 1% of age group)

Male Female

Access to an improved water source (% of population)

Urban Rural

Total

Total

Immunization rate (% of children ages 12-23 months)

Measles DPT

Child malnutrition (% under 5 years) Life expectancy at birth (years)

Total Male Female

Mortality Infant (per 1,000 live births) Under 5 (per 1,000) Adult (15-59)

Male (per 1,000 population) Female (per 1,000 population)

Births attended by skilled health staff (%) Maternal (modeled, per 100,000 live births)

Latest single year

1980-85

6.6 2.2

53.9 3.7

1,020 10 9

1.5

54 39

65 63 68

60 76

1990-95

8 0 1 9

57 8 3 1

1,400 73 79

51 4 4 3

56 5

1 9

88 97 75

96 72

8

70 67 73

41 45

93

2001-07

9 7 1 5

68 3 2 4

42 2 34 7 55 7

3,560 263 140

50 0 4 0

54 5

2 1 2 4

82 82 83

95 97 91

96 79 4

72 69 75

31 38

21 9 131 150 98

Same regionlincome group

Latin America B Carib.

560 6 1 3

78 3 2 4

5,801 158

3 4 3 5

94 94 94

91 97 73

93 92 4

73 70 76

22 26

196 107 130 89

Lower- middle- income

3 434 5 1 1

41 6 2 3

1905 142

2 0 3 2

90 91 89

88 96 62

62 79 25

69 67 71

38 50

197 125 300

69

Note: 0 or 0.0 means zero or less than half the unit shown. Net enrollment rate: break in series between 1997 and 1998 due to change from ISCED76 to ISCED97. Immunization: refers to children ages 12-23 months who received vaccinations before one year of age or at any time before the survey.

World Development Indicators database, World Bank ~ 27 April 2009

45

0 - 7 " w - i w m

" ' ? P o ? o y m t

- + i

8 t j

s

ii rr! t m

R t

" 0 t

0 2 4 ( 9 m

r

h .d z v) .- E

FYIO-13 Countrv Partnership Stratem for the Dominican Republic Auaust 12, 2009

Annex B7: Key Exposure Indicators

CAS Annex B7 - Key Exposure Indicators - Dominican Republic As Of Date 07/16/2009

Total debt outstanding and disbursed (TDO) (US$m)"

Net disbursements (US$m)a

Total debt service (TDS) (US$mIa

Debt and debt service indicators (%I

TDOIXGS~ TDOIGDP TDWXGS ConcessionaVTDO

IBRD exposure indicators (%) IBRD DS/public DS / h Preferred creditor DS/public DS IBRD DS/XGS /h IBRD TDO (US$m)d

Of which present value of guarantees (US$m)

Share of IBRD portfolio (%) IDA TDO (us$m)d

IFC (US$m) Loans Equity and quasi-equity

MlGA

I 0,706.8

-370.2

969.7

110.6 47.4 10.3

n.a n.a

n.a n.a

181.6 142.5 39.1

11,660.5

45.6

1 , I 68.0

116.7 34.5 11.6

n.a n.a

n.a 392.4

11

270.7 212.3 58.4

13,050.6

609.2

1,563.6

11 7.2 36.4 14.0

2.4 7.6

0.8 396.3

10.4

269.9 211.3 58.7

13,778 1

21 5

1,721 8

1158 33 4 14 4

3 1 14 0

0 9 428 5

9 7

275 6

62 8 212 a

15,530.1

902.0

1,783.0

131.8 34.0 15.0

2.7 11.6

0.9 462. a

9.1

257.1 171.8 85.3

17,1182

264 5

i ,890 5

143 5 36 7 15 9

3 8 13 7

2 9 434 0

a 4

i a i 4 102 a 78 6

19,169.7

-39.0

1,571.4

161.6 39.4 13.2

n.a n.a

n.a 380.9

7.7

n.a

20,459 1

n a

1,325 8

190 0

12 3 38 a

n a n a

n a 318 7

7 1

n a

21 9732

n a

1,213 7

202 2 37 6 11 2

n a n a

n a 264 3

6 4

n a

n a

23501 8

n a

1,237 6

210 1 36 2 11 1

n a n a

n a 214 9

5 7

n a

MlGA warantees (US$m) /i n.a n.a 157.3 134.9 n.a n.a n.a n.a n a

a. External and domestic public debt net of net foreign assets of the central bank and of central bank owned government securities b. "XGS" denotes exports of goods and services, including workers' remittances. c Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the

Bank for International Settlements. d. Includes present value of guarantees e Includes guarantees and risk management, as of June 30, 2009 f Includes equity and quasi-equity types of both loan and equity instruments, as of June 30, 2009 g Preliminary figures (2007-2009), Central Bank h Preliminary figures and for 2009 as of 03/31/09, Public Debt Department I MlGA data for 2007 as of 01/31/07

47

UI

.- B e n I

o o o o o o o m o o o o 2

1 w

0 0 b ~ 0 0 0 0 0 0 0 0 pl %/ P

3 m

o o o o o o o m o o o o z 0 0 b ~ 0 0 0 0 0 0 0 0

03 o e

D e

D e D

e e

e e e

m Ici

v; 2

m u

0 c

FYI 0-13 Countni Partnershi-p Stratem for the Dominican Republic August 12, 2009

700

75

50

25

0

Annex 2: Progress on Millennium Development Goals

80

SO

40

20

0

Millennium Development Goals Dominican Republic

With selected targets to achieve between 1990 and 2015 (estimate ciosest to date shown +/- 2 yearsj

Goal 1: halve the rates for extreme poverty and malnutrition 1990 1995 2000 2007 Poverty headcount ratio at $1 25 a day (PPP Oh of population) Poverty headcount ratio at national poverty line (% of population) 27 7 42 2 Share of income or consumption to the poorest qunitile (Oh) 4 2 4 1 3 5 4 1 Prevalence of malnutrition (Oh of children under 5) 8 4 4 7 3 5

__ Goal 2: ensure that children are able to complete primary schooling ~ _ _ - _ - - _ _ _ Primary school enrollment (net Oh) 56 84 77 Primary completion rate (% of relevant age group) 61 80 83

Youth literacy rate (% of people ages 15-24) Secondary school enroilment (gross %) 61 69

94

Goal 3: eliminate gender disparity in education and emeower women Ratio of girls to boys in primary and secondary education (Oh) Women empioyed in the nonagricultural sector (Oh of nonagricultural employment) Proportion of seats held by women in national parliament (Oh)

Goal 4:reduce under-5 mortality by two-thirds - Under-5 mortality rate (per 1 000) Infant mortality rate (per 1 000 live births) Measles immunization (proportion of one-year olds immunized %)

___ - . ~- 104 104

36 37 39 38 8 12 16 20

_ - 65 53 40 29 50 42 33 25 96 96 86 99

Goal 5: reducg_m_aternal mortality by three-fourths -~ __ ~_I

Maternal mortality ratio (modeled estimate per 100 000 live births) 150 Births attended by skilled health staff (Oh of total) 93 96 98 96 Contraceptive prevalence (Oh of women ages 15-49) 56 64 65 61

Goal 6: hait and begin to reverse the spread of HIV/AIDS and other maLor diseases ~- ~ __ Prevalence of HIV (Oh of population ages 15-49) 1 3 1 1 Incidence of tuberculosis (per 100 000 people) 138 120 105 89 Tuberculosis cases detected under DOTS (%) 6 66

___ __.__-__- Goal 7 : halve the proportion of people without sustainable access to basic needs -~ Access to an improved water source (% of population) 84 88 92 95 Access to improved sanitation facilities ( O h of population) 68 71 74 79 Forest area (Oh of total land area) 28 4 28 4 28 4

C02 emissions (metric tons per capita) 1 3 2 0 2 3 2 1 Nationally protected areas ( O h of total land area) 24 6

GDP per unit of energy use (constant 2005 PPP $ per kg of oil equivalent) 4 7 4 0 4 4 5 6

Goal 8: develop a global partnership for development Telephone mainlines (per 100 people) Mobile phone subscribers [per 100 people) lniernet users (per 100 people) Personal compulers (per 100 people)

I I Education indicators (Oh)

: 5 25 r 2000 2002 2004 2006

-9- Pnmary net enrollment ratio

-Ratio of gill8 to boys in primary &secondary

I Measles immunization (% of I-year olds)

4 7 7 3 102 9 3 0 0 0 7 8 1 56 5 0 0 0 0 3 7 17 2

1 9 2 2

ICT indicators (per 1,000 people) 1

I990 1995 2000 2006 1 ODominican Republic OLabn America &the Csrlbbsin

2000 2002 2004 2006

O F w d + mobile subscribnrn minternet user8 I Note Figures in italics are for years other than those specified

Development Economics Developmenl Data Group (DECDG)

indicates data are not available 9/24/08

55

FYI 0- I 3 Count? Partnershtu Stratem for the Dominican Reuub[ic August 12. 2009

Annex 3: Lessons Learned from the Recent Past

Lessons from CAS Completion Report 1. A comprehensive CAS Completion Report i s now being finalize. The report focuses on the implementation o f the CAS FY06-09, for which analysis o f secondary data was made and over 24 o f interviews with task team leaders, sector leaders, and sector managers were held. A draft document was shared and benefited from the feedback o f members o f the DR Country Team.

2. The CAS Completion Report concludes that the DR i s a challenging country in which to work. Often Government signals about what i s needed from the Bank are not followed up with the appropriate actions. I t is, at times, even hard to know who speaks for “the Government”. Any future strategy wi l l have to decide where the Bank’s comparative advantage lies, particularly given that i t i s not the biggest or most important donor/source o f finance. The lessons that seem to emerge from this CAS completion review are:

Keep focused on a few key sectors where there i s some potential for success and where Bank advice i s appreciated (if not always followed): education, health, safety nets, and perhaps power. Set realistic objectives and targets that can be measured, The focus o f public sector reform should be on maintaining accountability and transparency in Government operations, including budget formulation and execution, and improving the voice o f civil society, Adopt a comprehensive approach and include political economy dimensions when dealing with the energy sector, Use ESW to focus on untraceable problems like corruption, drugs, money laundering, crime and violence, public sector reform. Conduct ES W cooperatively with partners in country, so as to build ownership and local capacity, Strengthen Civil Society capacity to build constituency for the reform and engage with Congress for dealing with complex development challenges in the country; and Strengthen donor coordination by mapping donor’s interventions and priority areas as well as aligning efforts for Policy Reform.

Lessons from Country Assistance Evaluation 3. Some o f the conclusions o f the 2003 Country Assistance Evaluation (CAE) conducted by the Independent Evaluation Group o f the Bank are s t i l l relevant today. First, the report concluded that above all, the Bank should work to continue to improve i t s dialogue with the country. Second, the CAE emphasized the need to continue the strategic engagement in the energy sector, with a strong emphasis on i t s regulatory regime and issues o f efficiency and effectiveness o f the service.

56

FYIO- I 3 Countw Partnership Stratew for the Dominican Republic August 12. 2009

Lessons from Consultations with Civil Society

4. A series o f consultations with civil society actors for the definition o f the CPS took place in the DR, in January 2009. Over 200 organizations participated in 4 consultations that were held in L a Romana, Santiago, Santo Domingo, and Barahona

Imulications of the M C Reuort

In 2006, the Development Committee of the IMF and the World Bank produced a paper to “Strengthening the World Bank’s Engagement with IBRD Partner Countries.” The report presents a number of recommendations applicable to 79 middle-income countries (MICs) on how the IBRD can become more effective in delivering flexible, high quality and cost -effective menu o f services for achieving development results

services to be improved for MICs should cover the following five areas: (i) strategy and coordination services, by reflecting country- specific needs and priorities and accelerating the responsiveness o f the Bank to client demands; (ii) financial services, by making Bank financial services more competitive, developing approaches to help catalyze market-based solutions, and streamlining Bank procedures, (iii) knowledge services, with a strong focus on building on the Bank’s comparative advantages, strengthening linkages between research and operational work and eliminating barriers for the delivery of global expertise, (iv) WBG synergies, making sure that IBRD, IFC and MIGA could strengthen their collaboration for development results, and (v) ensuring coordination among international cooperation agencies and fostering partnerships for development.

The report concluded that key

- covering all regions o f the country.

5. These meetings were highly productive and the process was successful in achieving i t s objectives. Civil society participants provided important inputs to the Bank and i t was a good way for the Bank to reach-out to a number o f nontraditional partners. The following are a sample o f the main messages we heard during these 4 sessions.

0 Civil society organizations recognized the value added o f the Bank in the DR as a strategic partner for development and requested the Bank to provide channels for a sustained and systematic dialogue with CSOs;

0 Participants requested the Bank to help keep the Government accountable. They seem to trust the Bank over their own authorities.

There i s strong demand for the Bank to deepening i ts direct engagement with civil society, through capacity building activities and when possible, through funding;

0 There i s a pending agenda on territorial development with a strong emphasis on local and participatory planning;

0 Support micro, medium and small producers with technical knowledge and access to markets;

0 Eco-tourism was mentioned as an important priority a number o f times;

0 Increasing the quality o f education and health i s a priority and addressing institutional issues within these sectors i s important (e.g. corruption); and

officials need to be accountable to their constituencies;

0

0 Rule o f law i s weak and Government

57

FYIO-13 Countw Partnership Stratem for the Dominican ReDublic August 12, 2009

6. In addition to these 4 consultations, additional consultations will be held with civ i l society and business sector groups in New York City and a Client Survey - administrated to 300 key stakeholders in the DR i s now being implemented.

Lessons from other International Development Agencies Operating in the DR 7 . A special coordination. meeting with other international agencies operating in the DR was held in November, 2008. There was some level o f skepticism among donors triggered by recent political developments and the lack o f results in the different agencies’ projects portfolios. However, most participants agreed that our actions in the DR should be guided by strengthening institutions and improving governance in the country. As summarized by one o f the participants, “governance i s at the core o f the development challenges o f this country and the multilateral organization could help in providing transparency and discipline to public administration.”

5 8

FYIO-13 Countw Partnership Stratem for the Dominican Republic August 12. 2009

Annex 4: DR CAS Completion Report - FY05-FY09

1. This CAS Completion Report (CAS-CR) evaluates the effectiveness o f the Bank’s 2005 Country Assistance Strategy (CAS) for the Dominican Republic (DR). W h i l e the CAS period covered FY06-09, this review also includes some o f the progress made in FY04 and earlier for background information. This report reviews the Bank’s strategic objectives, program o f support and their relevance to the Government’s development goals. The report also assesses to what extent the Bank was successful in meeting these objectives and draws lessons to guide the design o f the new country strategy for FY10-13. The methodology for the production o f this report includes the analysis o f secondary data, a number o f interviews with Bank staff working on the DR program, and a number o f interviews with high ranked Dominican Government officials and members o f the civil society and the private sector.

I. The CAS Strategy and Objectives

1.1 Country Context and Background to the CAS 2. After a financial cr is is in the early 1990s, the Government adopted a series o f economic reforms which resulted in a strong rebound. Growth during the 1990s averaged about 6 per cent per year, fueled by tourism, telecommunications and the free-trade zones, al l beneficiaries o f the reform program. Social indicators improved, and poverty declined, but distortions s t i l l persisted in many areas, especially in agriculture and industry.

3. The role o f the Bank during this period was modest. The IDB had a much bigger influence, with 2-3 times the amount o f the Bank’s lending. The Bank had a strong voice in the policy dialogue on structural reforms, but the dialogue was difficult and discontinuous. Whi le structural adjustment lending was included in the country strategies o f that time, such lending did not materialize through the mid 1990s’ because o f the country’s sensitivity to external interference and because o f the uncertainty with regards to the country’s commitment to reform5. An IEG review o f this period noted that completed projects during this time were below average in terms o f outcomes, institutional development impact and sustainability. Whi le projects in the basic education sector were highly successful, those in such areas as energy and transport sectors experienced major implementation difficulties and had l i t t le institutional development impact6.

4. The period o f strong growth came to an end in 2003, when the Dominican economy was plunged into a crisis with revelation o f a major bank fraud, and the collapse o f several o f i t s major banks. Government deficits widened, growth slowed, inflation accelerated, and the Government could not reach agreement with the IMF on a stabilization program.

5 . After two years o f deep economic crisis, a new Government under President Leone1 Fernandez was elected in 2004. The. program o f the new President was

’ For a review o f this period, see World BanWOED(IEG), Dominican Republic: Countiy Assistance Evaluation, July 3 1, 2003, Report No. 26483-DO.

Country Assistance Evaluation (CAE), p. iii. 59

FY10-13 Country Partnership Stratem for the Dominican Republic August 12, 2009

contained in his party (PLD) platform. This can be summarized under four main pillars:

0

0

Restore macroeconomic stability to reengage in growth;

Consolidate democratic governance by strengthening key public institutions;

Engender a greater level o f social and territorial cohesion in Dominican society; and

Improve the competitiveness o f the Dominican economy.

6. As a result, the new Government initiated a strong stabilization program immediately on assuming office, including agreement on a program with the IMF. The banking sector was strengthened, inflation was brought under control, and initiatives were introduced to control corruption and waste. One negative aspect o f the program in terms o f Bank lending was a “freeze” or limit on new external borrowing, designed to control the expansion o f foreign debt. This “freeze” during 2006 meant delays or postponements in several proposed Bank projects, as well as those o f the IDB and other donors.

0

1.2 The Political Economy Context

7 . The DR i s a country characterized by a high degree o f politicalization o f the Government process, resulting in a climate o f political favors, rent-seeking and allocation decisions based on non-economic criteria. In a paper written in 2002,7 Philip Keefer noted that his interviews in the DR revealed a strong element o f clientelism in the country. One consequence o f this, Keefer pointed out, i s a bias in public spending toward goods and services that are easy to target to specific voters, such as jobs, buildings and highways, and not such more difficult to target items such as teacher salaries, improved school curricula or regulatory predictability. Keefer relates this to a number o f factors, including the absence o f national political organizations capable o f making credible policy promises to voters, the disproportionate representation o f rural areas in Congress and Senate, and the past legacy o f personalized and de-institutionalized decision making.

8. In the last several years, while there has been a major change in the ruling political party, the pattern o f clientelism and political influence over economic decision making might continue. W h i l e the Constitution lays out a system o f checks and balances, and limitations on the power o f the President, the institutional arrangements to enforce these limitations might be very weak. As a result, the budget might be weakened by subsidies to special groups, and/or discounted prices o f public services (e.g. electricity). Attempts to tighten laws and regulations, such as bank regulation and public procurement, may often be resisted by those with a vested interest in preserving the present system. In addition, c iv i l society organizations while numerous and important in social sectors, have limited capacity to hold Government officials accountable.

’ Keefer, Philip. “The Political Economy o f Public Spending Decisions in the Dominican Republic: Credibility, Clientelism and Political Institutions”, Report prepared for the Public Expenditure and Institutional Review (World Bank), March 28, 2002.

60

FYI 0-13 County Partnership Stratea, for the Dominican Remblic August 12, 2009

1.3 The CAS Strategy 9. The CAS o f 2005 developed a program o f support for the program o f the new Government, focused on a number o f key areas. I t s stated main objective was an “overarching focus on improving governance and strengthening institutions”’. This was seen at that time as necessary to restore confidence in the country and restore growth. Changes in governance were seen to occur both through a frontal attack on public sector reform and through financial management reforms in sector operations. Two main pillars supported this focus:

Stabilizing the economy, improving competitiveness, and restoring economic growth; and

Achieving greater social equity through human development and increased coverage and quality o f basic public services.

10. The f i rst o f these pillars i s clearly aligned with the overall strategy laid out in the P L D party platform, noted above. The second supports the strategy o f “social and territorial cohesion”, which includes the desire to reduce poverty and improve the delivery o f social services.

1.4 Progress in Meeting CAS Objectives 11. The FY05 CAS was not “results oriented”, and there were no explicit targets for performance or results given.g Instead the “CAS Monitoring Framework” was cast in terms o f policy actions required, and the indicators that could be used to measure progress, but no baseline data or targets are given for these indicators. The matrix was revised at the time o f the CAS Progress Report in 2007, and more indicators and targets were added at that time, particularly in education and health (see Annex Table I, which updates this matrix). However, many other areas lacked indicators or targets at the time o f the Progress Report, and it was noted that “efforts to determine benchmark and/or target values are ongoing”, despite the fact that the progress report was completed in 2007, at the mid-point o f the CAS period. Thus, it i s s t i l l difficult to judge progress in meeting CAS objectives in many areas.

A. The Overarching Objective - Public Sector Reform

12. The 2006 CAS considered governance and institutional reform in the public sector the “over-arching” objective. Upon assuming power in August 2004, the new Government started many initiatives in this area, but once growth revived there seems to have been a lack o f attention to this agenda. Overall governance indicators o f the Bank’s WBI for the period 2003 to 2007 shows improvements in such areas as “Voice and Accountability”, “Political Stability” and “Regulatory Quality”. However, other areas such as “Government Effectiveness”, “Rule o f Law”, and “Control o f Corruption” all show deterioration over the same period.

* Country Assistance Strategy for Dominican Republic, May 19, 2005, p. 1

CAS. It should be noted that the CAS was written before the introduction in the Bank o f the results-oriented

61

FYI 0-1 3 Country Partnersh@ Stratem-for the Dominican Republic August 12, 2009

13. The Government created a National Commission on Ethics and Anti- corruption in 2004, and an Anti-Corruption Agency was created in the Attorney- General’s Office”. The Bank supported this work with an IDF grant. However, l i t t le was accomplished by the Commission. A program for the reporting o f assets by public servants, for instance, was never enforced, and the Commission i t s e l f proved weak and ineffective.

14. The Government did pass major legislation covering many key areas of public financial management, including a new budget and treasury law, and a law on transparency (public access). Also approved were a new procurement law, an audit law, and the creation o f a stronger Finance ministry (Hacienda) which combined finance, budget, external debt and procurement functions, as well as a strengthened Ministry o f Economy, Planning and Development (Economia). These reforms represent an attempt to limit Presidential discretionality over budget execution, strengthen checks and balances, and enhance accountability for the management o f public funds. However the implementation o f many o f these laws varies across ministries. The Ministry o f Health and the Attorney General’s Office, for instance, have made significant progress implementing these reforms (access to information, procurement, financial mana ement), but this i s not duplicated in most other ministries. The Camara de Cuentas , which i s in charge o f auditing, remains weak and largely ineffective, in part because it lacks resources. The law on transparency was passed, but no agency created to implement it, and as a result few ministries grant real access to information. The procurement law i s far reaching, but progress in implementation has been slow. Thus, there has been only limited progress in increasing procurement efficiency and transparency.

15. There has been some limited progress in the reform of the public financial management (PFM) system. Prior to 2006, public financial management (PFM) did not adequately support the objectives o f aggregate fiscal discipline, efficient resource allocation or operational efficiency. Budgeted revenue and expenditure differed considerably from outturns, with the President exercising a high degree o f discretion over spending, while expenditure control and procurement systems were inadequate and fragmented and enforcement was weak. Recognizing these weaknesses, the Dominican Republic has made some progress in P F M reform, which inter alia has strengthened the legal and institutional framework for PFM. These have included steps to limit Presidential discretionary spending, and introducing a new financial management information system (SIGEF). Other steps have been taken to consolidate budget formulation and treasury management in the Ministry o f Finance, and the creation o f a new Ministry o f Economy, Planning and Development to improve capital budgeting.

16. The Government i s also focusing on improving the quality of public expenditure. The Secretary o f Economy and Planning (SEEPYD) has published a strategic plan to gradually introduce performance-informed budgeting techniques. ’*

7,

“.Direccidn Nacional de Persecucidn de la Corrupcidn Administrativa. Chamber o f Accounts, formerly called the Cdmara de Cuentas, i s the supreme public audit

institution in the country. ’‘ Plan Estratdgico Institucional, 2008-2012, Secretaria de Estado de Economia Planificacion y Desarrollo: http://www.pro-reforma.gov.do/

II

62

FYIO-13 Count? Partnership Stratem for the Dominican Republic August 12, 2009

This includes the introduction o f a national investment system (Sistema Nacional de Inversion Publica - SNIP) designed to enforce more rigorous program planning, monitoring and evaluation standard^.'^ The first stage, a project registry, i s expected to be completed by mid-2009. In addition, ‘Results Agreements’, that set out strategic plans, objectives and identify performance measuredtargets wil l be agreed with four priority Ministr ies during 2009: health, education, agriculture and natural resources and environment. These f i rst agreements wi l l be published as an annex in the 2010 Budget.

17. Bank Support for public sector reform had limited success. The Bank was not able to provide the kind o f support for public sector reform that was envisaged in the CAS. A $10 million technical assistance loan, proposed for FY05, was dropped by the Government during the “freeze” and given a low priority. It would have supplemented the work o f the IDB in the public sector, with a focus on the implementation of the Transparency Law, and extend public sector reforms to the sector level. The proposed project had l i n k s to the Health APL. A DPL for Public Sector Reform has never been initiated due to lack o f Government interest. The Bank did support the development o f the Transparency Law through t rus t funds. The IDB had a major role in public sector reform, providing support in a number o f areas, including financial rnanagementl4. The Government considered the IDB as taking the lead on this issue, and did not see the need to involve the World Bank as well. In addition, the Congress had a bias against borrowing money to fund technical assistance, and the Bank also lacked the resources to mount an effective dialogue on sector issues, or identify a clear comparative advantage.

18. However, the CAS strategy suggested that public sector reform would also be part o f sector operations, with the objective o f making the general reforms (such as procurement, transparency) operational at the sector level. This appears to have happened only in the case o f health, through the Bank’s Health APL. The Bank did undertake a Country Fiduciary Assessment in FY05, which pointed to the many problems in public sector financial operations, particularly the weaknesses o f the procurement system.

19. The Bank i s providing technical support for the development o f the National Development Strategy, which will define priorities for the public sector, and set the frame for the production of the MTEF. How effective these instruments wi l l be in improving the efficiency o f Government spending has yet to be seen. Allocations and contract awards may be heavily politicized while public investment in schools, health, roads and power lag behind and hinder economic growth.

20. During the CAS period, the Government seemed to have lost focus in reducing corruption and reforming the public sector once growth revived. As a result, Government corruption remains a problem. On Transparency International’s Corruption Perception Index, Dominican Republic ranks 102 out o f 180 countries,

Sistema Nacional de Planijkacidn, Nuevo Marco Institucional, Secretaria de Estado de Economia Planificaci6n y Desarrollo: http://www,pro-reforma,gov,do/ l4 However, a $21 million IDB technical assistance loan approved in November of 2006 still has not been approved by Congress.

13

63

FYI 0-13 Count? Partnership Stratem for the Dominican Remiblic August 12, 2009

tied with Mongolia, Djibouti, Bol ivia and Rwanda. I t s absolute ranking has increased slightly from 2.9 in 2004 to 3.0 in 2008, but countries scoring below 5.0 are considered to have serious corruption problems. l5

B. Stabilizing the Economy and Promoting Growth

21. The Government has been very successful in stabilizing the economy and restoring growth. Real growth has averaged over 9 per cent per annum for 3 years (2005-2007), double what the CAS envisaged (see Table 1). Inflation has been contained to single digits, and the fiscal position has shifted from primary deficits to primary surpluses. At the same time, public debt ratio to GDP has declined significantly and the reserve position o f the Central Bank has improved.

22. and food over

Conditions in 2008 worsened somewhat, as a result o f the impact o f higher oil food prices and a slowdown in the world economy. Subsidies for energy and raised the budget deficit, and despite tighter monetary policy, inflation rose to 10 per cent. Growth i s estimated to have been about 5.3 per cent in 2008, and i s

likely to be lower in 2009, as the world recession affects tourism and other export industries. The recession has also reduced access by the Government to foreign borrowing.

23. There has been a significant increase in private investment, reflecting the better macroeconomic condition and improved investment climate. The IFC’s “Doing Business 2009” put Dominican Republic in the top 10 reformers in the world. Reforms cited included a reduction in the corporate income tax, and reductions in taxes on transfers and registry o f property, and improvements in trade administration. In addition, the Government has taken steps to improve the banking system, including improved bank supervision.

24. Foreign direct investment has been robust, leading to a rise in fixed capital formation and a significant appreciation o f the peso. Net direct investment flows rose from $612 mi l l ion in 2003 to $1.2 bi l l ion in 2007. Other important inflows include remittances (peaking at almost $3 billionI6 in 2007), and unreported flows that may come from drug trading profits and money 1a~nder ing. l~ As a result, the index o f the real effective exchange rate rose 27 per cent between 2004 and 2007. Much o f these inflows have been invested in real estate, and are responsible in large part for the boom in construction.

l5 see Transparency International, Corruption Perceptions Index 2008 on http://www . infoplease.com/world/statistics/2008-transparency-intemational-cormption- perceptions.htm1 l6 Dominican Today, Jan 9,2009 at: httu://www.dominicantodav.com/dr/econom~/2008/1/9/26637/Domincan-Rewblics-remittances- reach-a-record-US2B-in-2007.

http://www. westindies-realestate.com/dominican-republic-real-estate- blog/index.cfm/2008/7/28/Monev-Launderinq; and World Bank, Dominican Republic, Country Economic Memorandum - The Foundations o f Growth and Competitiveness, Report No. 3573 I-DO (September 2006), p.32,197-199. For evidence o f on-going money laundering, see “ ICE agents Dismantle Money Laundering Organization” US Immigration and Customs Enforcement Press Release, May 23, 2008, at: http://www.ice.gov/pi/news/newsreleases/articles/080523saniuan.h~

Dominican Republic Real Estate Bloq “Money Laundering”, July 28,2008 at 17

64

FY10-13 County Partnership Straten for the Dominican Republic August 12, 2009

25. The financial sector has regained its health, and Central Bank supervision o f commercial banks has improved. A Bank technical assistance loan (FTAL) has provided assistance to the Government to improve the financial sector regulatory and supervisory framework, and raise compliance with international standardsI8. Improvements were also made in the payments system for clearing checks between banks, the supervision o f securities, pension regulation and the public debt management system. One part o f the financial sector that has not improved i s the insurance industry, which opted out o f the FTAL. The financial sector also i s weak on money laundering, and the DR remains attractive for i l l ic i t financial transactions for the illegal drug trade.”

26. Significant impediments to growth and private investment st i l l exist. Electricity i s relatively expensive compared to other Lat in American countries, and extremely unreliable. In September 2006, with the price o f o i l about $60 per barrel, the Government put a freeze on electricity prices, in an attempt to buffer the economy from the high cost o f o i l imports, the dominant fue l for electricity generation. The Government intended to cover the losses o f the generation companies, but as world prices rose, i t f e l l into arrears on these payments. This has effectively bankrupted the electricity companies, and reduced their ability to provide power to the grid. The result has been periodic black-outs. In addition, the cost o f electricity i s high because o f theft, illegal connections, technical inefficiencies and a culture o f non-payment o f bills. Government agencies often do not pay their electricity bills, and enjoy a status o f being protected from being cut o f f from supplies. Politically wel l connected large industrial and commercial users also can escape payment. Special pricing arrangements reduce the cost o f electricity for special groups and areas.

’* W h i l e the FTAL was approved in February 2004, it did not become effective until August 2005. CIA, World Factbook, “Dominican Republic”, update of November 6, 2008.

65

FYI 0- I3 Countw Partnershlu Stratem for the Dominican Reuublic August 12, 2009

Table 1: Selected Macroeconomic Indicators

Source: IMF and World Bank, World Development Indicators

1-5 B a n k Support for Growth - t h e Power Sector

27. The power sector in the DR has traditionally been problematic, suffering from unreliable service and high electricity prices compared to neighboring countries. The Bank has a long history o f involvement in the sector, going back to the 1980s, mostly as investment operations. In this sector, the Government clearly seeks the Bank’s technical leadership, and the Bank enjoys a predominant position over other donors. The performance o f the sector, however, has been spotty at best.

28. The inefficiencies of the past were the result o f a heavily politicized public sector utility and the failure to take corrective actions. Beginning in the 1990s, the Government launched a reform program that broke up the state monopoly into generation and transmission companies, some o f which were privatized. Two o f the three privatized transmission companies became unprofitable, and reverted to

66

FYIO-13 Countw Partnersh@ Strategy for the Dominican Republic August 12. 2009

Government ownership. During the CAS period, the Bank provided assistance through a variety o f means, including a Power Sector T A loan (FY05), a Power Sector Program Loan (DPL, FY05), and an Electricity Distribution Rehabilitation Project (FY08). I t should be noted that the DPL did not become effective until December, 2006.

29. The objective o f the Technical Assistance (TA) loan was to provide assistance to the Government to help improve the transmission network and restore financial sustainability o f the sector, as well as to increase attention to environmental, poverty and consumer protection aspects. An updated Power Sector Strategy was developed and adopted by the Government, and a number o f studies undertaken that have helped contribute to the strengthening o f sector institutions.

30. In terms o f Project Development Objectives, the main PDO o f the DPL was to raise the cost recovery index CRI), or the ratio o f electricity generated and put into the system to the amount o f electricity for which payments have been received2'. The initial level o f 45 per cent in 2004 was expected to rise to 60 per cent under the DPL by June 2008. The actual level was 62 per cent indicating that this part o f the reform program i s on track (see Annex VI). The Power TA also included the CRI target, along with a goal o f developing a power sector strategy. Whi le the power sector strategy was adopted by the Government, and thus the PDO was attained, it has not been effectively implemented. The Electricity Distribution Rehabilitation Project includes cost recovery indexes as PDOs for each o f the three major generation companies. However, recent ISRs do not report the current status o f these CRIs.

3 1. The DPL was a three tranche operation targeting key policy areas. I t included conditions designed to ensure that: i) major agencies o f the Government have paid their electricity bills, ii) Government subsidies have been transferred from the budget, iii) the Government initiate private sector participation in i t s distribution companies, and iv) the targets for the CRI have been met. The Government froze electricity prices in September o f 2006, rather than make a required upward adjustment o f 18 per cent in prices, under grounds that such an increase would only increase theft and non-payment. As petroleum prices continued to rise, the Government budget for paying subsidies to the electricity providers was insufficient. Rather than make the necessary payments, the Government accumulated arrears with the generating companies. The result i s an accumulated deficit o f over $400 million owed to these companies, and the companies being unable to provide sufficient power for the grid, and periodically imposing blackouts.

32. The release o f the first and second tranches was undertaken with waivers because o f non-compliance with the tariff formula. The last tranche o f the loan was cancelled in 2009 because o f failure to reach agreement on outstanding issues on tariffs, plus the non-payment o f Government arrears to generators, and a failure to move further on privatization.

33. The power sector continues to face major problems. A large number o f subsidies continue to exist for small and medium size consumers that could be reduced or focused on the poor. Theft and illegal connections, as well as a culture o f

2o The ratio measures the level o f both technical and commercial loses. 67

FYIO-13 Countrv Partnershcp Strategy for the Dominican Republic August 12. 2009

“non-payment”, continue to plague the system. The Government passed an Anti-Theft Law, but the law i s not being fully enforced because the required implementing regulations have never been produced. Because o f these problems, and the uncertain and quixotic nature o f Government regulation, private investors have pulled out o f the transmissioddistribution, and are unlikely to return unless regulation improves. One chronic problem remains the lack o f an Energy Ministry and a single clear entity making energy policy. As a result, a host o f actors are involved and chaos results.

C. Achieving Greater Social Equity

34. Poverty remains high despite rapid growth, and inequality remains entrenched due to insufficient progress on the social agenda. Poverty rates were s t i l l above the pre-crisis levels when measured in 2006. Overall poverty has declined 7 percentage points (2004-06), but s t i l l 36 per cent o f Dominicans were found to be l iving in poverty in 2006, and 13 percent in extreme poverty.

Table 2. Progress on Poverty and Social Indicators

Poverty headcount ratio, national poverty line (% o f pop.) Poverty headcount ratio, rural poverty (% o f rural population) Poverty headcount ratio, urban (% o f urban population)

G N index (income distribution)

School enrollment, primary (YO gross) School enrollment, primary (YO net) School enrollment, secondary (% gross) School enrollment, secondary (% net) Mortality rate, infant (per 1,000 live births) Mortality rate, under-5 (per 1,000) Improved sanitation facilities (% o f population with access) Improved sanitation facilities, rural (% ) Improved water source (% of population with access) Improved water source, rural (% )

Source: WDI, poverty estimate for 2006 from M. Bussolo.

28 45 18

52 114 84 61 41 33 40 74 67 92 84

42 .. 36 56 .. 3 5 .. 52 50 .. 104 104 98 80 80 77 70 71 69 50 53 52 ,. 26 25 .. 3 1 29

.. 79

.. 74 * . 95 ., 91

35. The DR does not perform well on many social indicators, particularly when compared to the LCR average, or to the average of lower middle income countries (see Tables 2 and 3). The DR has lower levels o f school enrollment, primary and secondary, when compared to the LCR average or the average of lower middle income countries. Primary school enrollment (net), at 77 per cent in 2006 i s wel l below the LCR average o f 94 per cent, and secondary school enrollment at 52 per cent i s well below the L C R average o f 70 per cent. Even more worrisome i s the decline in school enrollment since the crisis. Child and infant mortality i s slightly above the L C R average, but this might be explained by the fact that DR has lower than average income. Compared to other lower middle income countries, the DR does comparatively well on child and infant mortality. On water and sanitation, however,

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FYI 0-13 County Partnership Stratem-for the Dominican Republic August 12, 2009

i t does better than even the LCR average, with access to improved water source at 95% and 77% o f the population having access to improved sanitation facilities. This improved performance in infrastructure does not seem to be reflected in above average health statistics. Public spending on health care and education has increased slightly but remains far below regional averages.

Table 3. Comparative Social Performance, 2006

School enrollment, primary (% gross) School enrollment, primary (% net) School enrollment, secondary (% gross) School enrollment, secondary (YO net) Mortality rate, infant (per 1,000 live births) Mortality rate, under-5 (per 1,000) Improved sanitation facilities (% of population) Improved sanitation facilities, rural (% o f rural population) Improved water source (% o f population with access) Improved water source, rural (% of rural population) GNI per capita, Atlas method (current US$) GNI per capita, PPP (current international $)

Source: World Development Indicators

98 77 69 52 25 29 79 74 95 91

2890 5750

118 94 89 70 22 26 78 51 91 73

4756 8663

111 90 65

41 54 54 42 88 82

1617 4073

36. A ten-year plan for Health Sector Reform and a mid-term reform agenda to improve health service quality and accelerate the implementation of the General Health and Social Security Laws were put in place in 2006. Rigorous implementation o f these laudable reforms should result in improvements in service quality, reductions in out-of-pocket expenditure, and increased consumer satisfaction. The Bank’s Health APL (FY04) initially focused on providing support to meet the MDGs in health, namely reduced child and infant mortality. The project underwent a major restructuring in 2006 that refocused the project on funding health services in poor areas, decentralizing services to the provinces, and an increasing the enrollment o f the poor in health services. The loan has been instrumental in improving financial management, public access to information, and procurement procedures in the Ministry o f Health. I t generally has been rated satisfactory or moderately satisfactory in i t s ability to reach i t s development objectives. The Ministry o f Health has generally been more willing than other ministries to implement the national legislation on public sector reform, including the introduction o f improved monitoring and evaluation.

37. In terms o f project PDOs, the percent o f primary health facilities in prioritized areas was projected to go from 0% in 2007 to 50% by the end o f 2008. The other PDOs are under discussion or data i s not yet available.

38. In addition, parts o f a $25 million HIV/AIDS project from FYOl were disbursed during the CAS period; this project closed at the end o f FY08. The project

69

FYI 0-1 3 Country Partnership Strateq.for the Dominican Republic Auaust 12, 2009

supported the Government’s national H IV /A IDS awareness and treatment program, and was considered moderately satisfactory in reaching i t s development objectives, which included increased coverage o f testing and treatment. Procurement, however, was moderately unsatisfactory. However, i t met or exceeded al l five o f i t s PDOs, including those for increased coverage and treatment.

39. In addition, the Region manages the Global Alliance Food Fortification Project (GAIN DR), a recipient executed grant o f $1.8 mi l l ion in which the Ministry o f Health, in collaboration with the private sector and other public agencies, receives assistance to fortify staple foods with key vitamins and oligoelements (such as iron and Vitamin A). The Bank also provides non-lending technical assistance to help introduce results based financing for the public regional networks o f health care providers.

40. Dominican primary school enrollment rates are high but retention and completion are low. Throughout the system, the quality o f education i s very low -well below regional and international standards. Despite almost universal coverage in primary education, secondary school enrollment represents a real “bottleneck “ in the system as enrollment rates drop drastically at the secondary level. The l o w enrollment in secondary school education hampers the ability o f the DR to produce a labor force with the necessary ski l ls to compete in a global economy, The Youth Development Project (FY06) provides support for improving the employability o f poor at-risk youth by building their work experience and l i f e skills, and expanding second change education programs to complete their formal education. The project has faced serious delays due to insufficient allocations o f local funds in the budget, and difficulties in arranging procurement for the j ob training centers, including difficulties in ensuring that bidding documents and procurement followed Bank guidelines. Consequently the project has been rated moderately unsatisfactory in both implementation progress and development objectives.

41. The Early Childhood Education project seeks to improve both access and quality o f pre-school education and ensure that the poor benefit from this opportunity. The project has experienced lower than expected disbursements and slow implementation progress, particularly in the area o f c iv i l works. As o f June 2008 (the original closing date), the project had disbursed only $18 mi l l ion o f a total o f $42 million, and the closing date has been extended to December 200921 . In order to enable the project to adapt to unforeseen cost increases, improve project monitoring, and permit flexibility in procurement and financial management to facilitate the achievement o f project goals, an amendment to the Loan Agreement was completed, and the project underwent a first-order restructuring (approved by the board on October 10, 2008). Despite the slow implementation progress, the project development objectives are thought to remain achievable. PDO indicators show substantial progress in meeting most PDOs, suggesting that the project wil l reach i t s PDOs by the time i t closes.

42. I n 2005, the Government launched a new conditional cash transfer social assistance program, Solidaridad. I t aims to transfer cash to 300,000 poor Dominicans, conditioned on households sending their children to school and bringing

2 ’ As o f December 2008, $21 million has been disbursed. 70

FYIO-13 Countrv Partnership Stratem for the Dominican Republic August 12, 2009

them to health clinics for vaccinations and check-ups. The money i s distributed via a debit card, or tarjeta. Solidaridad represents an important shift away from universal social assistance programs but requires a rigorous monitoring system to be effective. Whi le designed as a conditional cash transfer program, in fact the program runs as an unconditional transfer, because the Government lacks the ability to check on compliance with conditions

43. The Bank i s helping improve the coverage o f the program through its Social Protection Investment Project (FY07). This project i s designed to help improve the targeting, coverage o f the country’s social protection programs, including the Solidaridad program. This project’s major expenditures are to provide identity papers for up to 200,000 Dominicans who lack birth certificates, and are therefore not eligible for the Solidaridad program, for subsidized health care, or for public education beyond the seventh grade. This project was approved in August 2007, but only became effective in December 2008. The latest ISR does not report progress on PDO indicators. A remaining problem, outside the scope o f this project, i s the large number o f illegal Haitian immigrants working in the bateyes (sugar plantations).

44. The Government’s subsidy o f electricity and propane gas consumption, estimated at 2.5 percent o f GDP in 200522 continues to benefit the non-poor disproportionately, as do subsidies for pharmaceuticals and food di~tr ibution~~. Overall, both social assistance programs and tax structure, including a wide range o f exemptions, remain regressive despite the fiscal reforms of 2005 and 2006.

11. The Bank Contribution Toward CAS Objectives

Overview 45. The CAS proposed to support the attainment o f i t s objectives with a lending program o f $260 million in the base case (plus $15 million from GEF)24, and with a low case o f $1 10 million and a high case o f $360 million. Through FY09, the Bank lent $194 million, somewhere between the low case and the base case, and the composition o f the lending differed significantly from that proposed in the CAS (see Table 4)25. In addition, this total includes $80 million for the Emergency Recovery and Disaster Management Project (ERL), which was not included in the original CAS program. Without the ERL, the total for lending would be $1 14 million, roughly equal to the original CAS low case (see Fig. 1).

22 This includes both direct subsidies (e.g., for propane gas and the Programa para la Reduccidn de Apagones, or PRA) as well as Government transfers to cover electricity sector deficits. 23 The subsidy on propane gas was eliminated in the latter half o f 2008. . 24 Not including a Carbon Finance proposal. 25 None o f the GEF operations were approved.

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FYIO-13 Countrv Partnership Stratern, for the Dominican Republic August 12, 2009

1.5 Fig 1. Proposed and Actual Bank Support ($ millions, includes GE I 6

400

350

300

250

200

150

100

50

0 +- - 1 "" 7 --- "1----

................ ........ +e.*...-. " ...... .... .....I" ..... ". ....................

high case base case low case actual actual w/o ERL

46. The lending program was severely impacted by the freeze imposed by the Government on new lending, required by the IMF limit on new debt. Thus, only one loan was made in FY05, and none in FY06. The proposed Social Sector investment Loan was divided into two operations, the Youth and Development Project (FY06) and the Social Protection Investment Loan (FY08). The Institutional Development TA, which was to support public sector reforms, was dropped (although a substitute project called Governance and Competitiveness has been proposed to replace it). The GEF and the carbon finance operations never went forward due to lack o f Government interest and the lack o f Bank resources to do the preparation work.

47. The Water and Sanitation APL-1, originally proposed for FY07, was finally approved in FY09. Thus, while the CAS had a proposed base case lending program o f 10 projects, only five projects were actually approved. However, o f the 10 operations proposed in the CAS, only three came about as planned, since one project was an emergency project (ERL), and another proposed project was divided into two.

72

FYlO-13 Count? Partnership Stratem for the Dominican Republic August 12, 2009

Table 4. Proposed and Actual CAS Lending, FY06-09 I

Proposed, Additional Actual Base Case in High

Case 2006 Institutional Development TA 10

Social Sector Investment 50 Watershed Management in Border Areas(GEF) 10 Youth and Development Project 25

Subtotal FY06 70 25 2007 Community Development 30

Water and Sanitation APL 1 20 Power Sector DPL 100 Carbon Finance N/A National Park System (GEF) 5

Subtotal FY07 155 0 2008 Energy Investment Project 30

Public Sector Modernization and Competitiveness 50 DPL Electricity Distribution-Rehabilitation 42 Social Protection Investment 19.4 Emergency Recovery & Disaster Mgmt 80

Subtotal FYO8 30 141.4

27.5 2009 Local Development* (formerly Urban Territorial) 20

Water and Sanitation APL 1 Waste Water and Sanitation Investment APL2 50

Subtotal FY09 20 27.5

Total FY06-09 275 375 193.9 Total without GEF 260 360 193.9

Note: the table shows the changes from the original CAS lending program. For more details about new projects in the lending program, see Annex Table 11.

* Sometimes called Community Driven Development.

48. The “freeze” made clear Government priorities; there was interest in an operation focused on youth development, because o f a serious youth unemployment problem recognized by the Government, but not for borrowing for technical assistance to further public sector reform. The Emergency Recovery and Disaster Management Project ($80 million, FY08) fulfilled a special request to provide assistance to repair the infrastructure damages from two tropical storms which struck the island in the Fall o f 2007. Despite the supposed urgency o f the loan, which was approved in May 2008, it became effective a year later (May, 2009) after the Congressional approval was obtained in March 2009. At the same time, important progress was made in some sectors using operations that carried over from the previous CAS. The most important o f these was the Health APL from FY03, the Power Sector DPL (FY 05 $150 million), and a Power Sector Technical Assistance Loan (FY05 $7.3 million). ’These last two loans became effective during the CAS

73

FYI0-13 Country Partnership Stratem for the Dominican Reuublic August 12, 2009

period, because o f the long delay common in DR between loan approval and effectiveness.

Country Relations

49. As noted in the 2003 CAE, the level o f country relations between the Bank and the Dominican Republic has always been somewhat problematic. The Government values the quality o f Bank advice on technical matters, such as electricity/power, but i s less open to advice in areas that are politically sensitive, such as public sector accountability and transparency. The opening o f a World Bank office in Santo Domingo in 1999 has helped the dialogue process, and the Bank made unique contributions explicitly supporting the outcry for a prosecution o f the principals in the 2003 bank fraud case, and in helping to implement the Public Information Law. Some works o f ESW received high marks from the authorities, particularly the 2005 Poverty Assessment. The latter’s success stemmed from willingness by the Bank to take a collaborative effort with local academics and Government officials, and to avoid debates over numbers by focusing on policy issues.

1.7 Civil Society

50. Civ i l society organizations are numerous in the Dominican Republic, and are active in such areas as health, education, micro-credit, and environment. They have been useful in the implementation o f the Transparency Law, and in monitoring elections. They have been effective partners in implementing projects, such as the HIVIAIDS and the Early Childhood Education projects. However, they have been less effective as a force pushing for accountability and transparency in Government operations, or exposing corruption. Except for business groups, Dominican CSOs have only a limited involvement in economic policy making, at either the executive or legislative level. W h i l e CSOs are stronger now than in the past, they s t i l l have weaknesses in terms o f internal management and administration, do not coordinate well between themselves, and often lack democratic structures.26

1.8 Implementation Issues

5 1. Project implementation continues to be an issue. Projects in the Dominican Republic have unusually long effectiveness delays, averaging 17 months for current projects (see Table 5)27. Part o f the problem stems from the requirement that new debt obligations be ratified by the Dominican Congress before they can become effective (i.e. they are treated as international treaties). However, often the Government i t se l f i s very slow in sending new projects to the Congress, and the Congress i s not always in session.

26 Pimentel, Juan Luis, “Mapeo de Organizaciones de la Sociedad Civil en la Republica Domincana ” Inter-American Development Bank, Dec. 3 1, 1997. ’’ Note that standard Bank calculations of effectiveness delays are misleading, since they include the delays ofprojects that are not yet effective. On this basis the effectiveness delay for DR would be only 14 months, compared to 6.4 months for LCR as a whole calculated on the same basis.

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FYIO-13 Country Partnership Stratem for the Dominican ReDublic August 12. 2009

Project Approval Date Effectiveness Effectiveness Disbursement Date Delay Lag (%)*

1 (months) Early Childhood I 0912002 I 1212003 1 15 I 47

. Ed&. Health APL 612003 112005 19 45

Source: ISRs, most current as o f May 2009. *disbursement lag = (actual disbursements to date) - (planned disbursements to date)/

(planned disbursements to date). Disbursement lags here are based on the original disbursement schedule. NIA = not applicable.

52. Some o f these effectiveness delays can be traced to the freeze on new lending during 2006, and the run up to the 2008 elections. However, at the same time the Government froze new lending from the Bank and others, it was proceeding with i t s Santo Domingo Metro project. Thus, it would seem that Bank projects had a low priority. Effectiveness delays also were common before the freeze, as well as after. The Emergency Recovery and Disaster Management Project, which was supposed to respond to emergency reconstruction for the hurricanes in October-November o f 2007, was declared effective on May 6th, 2009 (although 40% can be used to cover retroactive payments). Projects take longer than expected to become effective. The result i s a portfolio o f projects with major implementation delays. For instance, the Social Protection Investment Loan was approved by the Board in August o f 2007. The project assumed that the loan would begin disbursing in the first quarter o f FY2008, but the loan only became effective in December 2008, 16 months after approval.

53. In addition to effectiveness delays, Bank projects in the Dominican Republic experience disbursement delays, both compared with project expectations and with L C R Regional averages. The disbursement ratio (October 2008) was 3.2% o f the portfolio, compared to a L C R average o f 8.3%28. As shown in Table 5, the average project has a disbursement delay o f about 50% -- that is, current disbursements are only ha l f o f what was expected.

54. However, few projects are considered “at risk”. The portfolio as o f October 2008 consisted o f 9 projects for $408 million, o f which only one, with a value o f 5% o f the total portfolio, was considered “at risk”. This i s better performance that the

** Source Business Warehouse, Nov 10,2008. 75

FYIO-13 Country Partnership Stratem for the Dominican Republic August 12, 2009

L C R average which shows 19% o f commitments at risk. The combination o f slow disbursement and l o w numbers o f projects at risk, in an otherwise risky environment, may reflect greater care exercised by Bank staff in identifying problems and enforcing Bank procurement and financial management guidelines.

55. The combination of effectiveness and disbursement delays results in the need to extend projects past their anticipated closing date. The average project extension i s about 13 months, and few projects are completed without an extension29. In contrast, Bank norms suggest that extensions should be given only in exceptional circumstance^^^. I

56. Procurement problems are common, and include inadequate project contracting and supervision (Early Childhood), delays occasioned by the need to conform bidding documents to Bank standards (Youth Development), lack o f capacity o f bidders to comply with Bank requirements (Health APL), delays in submitting procurement documents for no objection (Youth Development), misprocurement (HIV/AIDS) and problems developing TORS for studies (Power TA). Other problems include weak HR management (Health APL), and inadequate budget resources (Youth Development).

57. A recent review of the Bank's portfolio undertaken with Dominican counterparts identified a number of issues in project implernentati~n~~. These include: a need to communicate better with Congress the urgency o f project approval, including project purposes and goals; the need for better monitoring o f projects by Government authorities with the objective o f identifying bottlenecks; taking steps to reduce the turnover o f staff in PIUs; improvements in the coordination between Treasury (Hacienda) and the Ministry o f Economy, Planning and Development, particularly in the assignment o f budgetary counterpart funds to support projects. The review noted that some delays were caused by having small public works elements in human resource projects, which were not suitable for competitive bidding, and that some Bank projects had multiple execution units, which causes problems o f coordination o f procurement. Other problems were identified, including the need for training o f P I U staff in Bank procurement procedures. There i s also a need for a better realism in rating project performance.

1.9 Economic and Sector Work

58. During the CAS period, the Bank delivered several important ESW reports, including a Poverty Assessment ('joint with IDB), a Country Fiduciary Assessment ('joint with IDB), and a CEM. Annex table V I gives details on the dissemination efforts attached to ESW produced during 2007-2009. Most major reports have been translated into Spanish and 'disseminated via the press, and through meetings with Government officials and in academic circles. The C E M was one o f the few reports not translated into Spanish. The Poverty Report was widely disseminated throughout

Source: Ayuda Memoria, Country Project Portfolio Review (CPPR), February 2009. 29

30 The problems of effectiveness and disbursement delays have been clearly identified in periodic Country Project Portfolio Reviews, but l i t t le progress has yet been made. See Ayuda Memoria, CPPR, Feb. 2009, which repeats many o f the problems noted in the CPPR in 2007. 3 ' CPPR, Aide Memoire, Feb. 3,2009.

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FYI 0-13 Countr?, Partnership Stratem for the Dominican Republic Auaust 12, 2009

Growth Study CEM Social Protection Strategy (Caribbean) Crime and Violence in the Caribbean

the country, including a meeting with 80 grassroots leaders. The 2005 CAS was disseminated via the press, and discussed with a group o f leaders from Congress (See Annex V I for details).

59. A set o f Policy Notes covering key sectors i s under preparation and expected to be delivered in FY09. A new CEM covering the island o f Hispanola would be delivered in FY10. The Bank i s also providing important non-lending support o f a more informal nature to assist in the national strategic planning effort, and in the past has provided support for urban transport analysis, agriculture, and a rural assessment. The Dominican Republic was also included in two regional efforts: one on Growth, Trade and Competiveness (FY05), and another on Crime and Violence in the Carib bean (FY 0 7).

2006 2006 2006

2007 2007

Accountability GAM - Global Alliance Grant 1 2006 I 2006

IFC Activities 60. During the FYOS-FYOS CAS period, IFC’s strategy focused on enhancing the competitiveness o f the private sector, supporting projects generating growth, and contributing towards greater social equity. IFC’s interventions concentrated in areas where the country has a competitive advantage or that are hard currency earners o f the economy-tourism, and free trade zone (notably developing inward linkages towards the local economy); and human resources development (health and education). Other important areas included infrastructure and renewable energy. During the financial crisis in the DR, IFC’s program focused on restoring confidence in the private sector in order to improve the country’s competitiveness and contribute towards greater social equity.

77

FYIO-13 Country Partnership Stratem for the Dominican Republic August 12, 2009

FY02 FY03 FY04 FY05 FY06 IFC Commitments 80.0 20.0 44.0 101.4 18.0 IFC Committed Balance 131.5 146.3 181.6 270.7 269.9 IFC Outstanding Balance 51.2 108.2 135.8 211.1 223.9

61. As the country made headways in accessing capital markets, and liquidity increased, IFC emphasized long-tenor financing, difficult to access for most private sector companies. IFC built long-term partnerships and helped improve market access for micro, small and medium scale entrepreneurs and leading companies using both investment and advisory products: i) at the country level by working on key sectors-improving the business climate, strengthening infrastructure, improving access to finance and promoting sustainability; and ii) at the company level by understanding client needs, ensuring efficient delivery, imparting global knowledge/best practices and innovation.

62. In FY05-FY08, IFC committed a total o f US$200 mi l l ion for i t s own account, and mobilized additional US$59 mi l l ion in B loans from commercial banks and US$40 mi l l ion from Export Development Canada (EDC) - for an overall total o f US$299 mi l l ion in mandated financing. These investments supported 12 projects: 3 in the financial sector (US$40 mi l l ion - US$6 million in trade financing, US$1 mi l l ion in microfinance, and US$33 mi l l ion in commercial banking), 2 in electricity (US$43 mi l l ion - US$20 mi l l ion in power transmission, and US$23 million in wind power), 4 in infrastructure (US$138 mi l l ion - U S $ l l 7 mi l l ion in airports, and US$21 mi l l ion in ports), and 3 in general manufacturing and services (US$78 million - US$7.5 mi l l ion in cement, and US$70 mi l l ion in tourism).

63. As o f June 30, 2008, IFC's committed and outstanding portfolio was US$257.1 mi l l ion and US$232.4 million respectively (see Table 7).

FY07 FY08 45.5 34.7

275.6 257.1 230.9 232.4

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FYI 0-13 Country Partnership Stratem for the Dominican Reuublic August 12, 2009

significant development impact: providing diversified financial services (retail banking, insurance, and SME finance), and serving nascent market niches (housing finance and microfinance). Impact indicators include increasing BHD’s SME portfolio (target o f 15% p.a. through 2012), population access to insurance, and geographical outreach o f financial services.

66. Advisory work under Doing Business has stimulated resolute actions by the Dominican Competitiveness Council-for example, the number o f days to start a business in the country was reduced from 73 to 22 days in 2007. As a result, the DR was among the top ten reformers in the Doing Business 2009 report, out o f a total o f 18 1 countries.

M I G A Activities

67. MIGA’s exposure in the Dominican Republic has fallen slightly since end- 2006 when it stood at US$157.3 mi l l ion (equivalent to 2.9% o f MIGA’s portfolio) to US$124.7 million (equivalent to 1.9% o f MIGA’s portfolio) as o f December 3 1, 2009 (see Table 8). Over the late 1990’s and early 2000’s MIGA was active in the DR in both the tourism and the power sector through the provision o f guarantees to financiers in these two sectors. As a result o f the amortization o f the loans to support those projects, MIGA’s exposure gradually began to decline. However, since FY06 MIGA has been guaranteeing the Santo Domingo-Samana tol l road (which accounts for the increase in exposure from FY05 to FY06), as well as exploring other projects in the transportation sector which have yet to materialize.

Table 8. MIGA Guarantee Program Outstanding Exposure (Gross Exposure, $ million)

As o f end o f fiscal year FY2003 FY2004 FY2OO5 FY2006 FY2007 FY2008 FY2009* Sectoral Distribution: Infrastructure 145.3 53.0 49.9 129.8 107.6 107.6 107.6 Oil & Gas 6.5 6.5 Ag.lManuf.lServ.lTour. 3 1.9 31.8 28.9 27.5 20.3 18.2 17.1

183.7 91.3 78.7 157.3 127.9 125.8 124.7 MIGA’s Risk Profile Transfer Restriction Expropriation War & Civil Disturbance Breach of Contract MIGA’s Gross Exposure in Country % Share o f MIGA’s Gross Exp. MIGA Net Exposure in Country YO Share o f MIGA’s Net Exposure

*Through 1213 1/08

59.1 66.7 54.1 140.1 127.9 125.8 72.1 81.9 71.7 157.3 127.9 125.8

71.1 80.9 70.7 137.6 127.9 125.8 107.6 107.6 107.6

83.7 91.3 78.7 157.3 127.9 125.8

24.7 24.7

24.7 07.6

24.7

3.6% 1.8% 1.5% 2.9% 2.4% 1.9% 1.9%

109.6 63.3 52.3 128.9 111.8 109.7 108.6

3.4% 1.9% 1.7% 3.7% 3.5% 3.1% 3 .o%

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FYIO-13 Country Partnershiu Stratem.for the Dominican Reuublic Auaust 12, 2009

Donor Coordination

68. Donor coordination and harmonization efforts have increased, especially since

Box 1

Messages o f the 2003 CAE

“Four lessons emerge from this evaluation.

First, above all, the Bankshould work to continue to improve its dialogue with the count ry....

Second, while project lending in the most recent CAS period has been supportive of the MDGs, the Bank’s program needs to continue this emphasis ... Third, the Bank should help the country broaden its structural reform agenda to encompass . agriculture, including trade, land and price reform, and remove barriers to entry and competition in domestic activities

Finally! in the power sector, there is a need for improvements in the effective ness of the regulatory regime, reform of retail tariff and disconnection policy and the performance of CDE, as well as addressing transmission bottlenecks, “

OED, Dominican Republic, Country Assistance Evaluation, 2003, p. iv.

the establishment o f a Bank office in Santo Domingo in 1999. The Bank i s in close contact with the Inter-American Development Bank (IDB), the European Commision (EC), and the United Nations (UN) agencies as well as with bilateral agencies and international NGOs, and chairs the monthly donor meeting. Examples o f collaboration include joint management o f HIV/AIDS projects (Global Fund), the 2006 Poverty Assessment (IDB), Country Fiduciary Assessment report (IDB), participation in each other’s missions (IDB social protection), and the Public Expenditure and Financial Accountability assessment (EC). Another example i s the strong partnership formed for the 2006 Youth Development Marketplace which included the EU, IDB, UN agencies, bilateral agencies and NGOs as well as both private and public sector partners. While there are no SWAPS at present, some discussion has been undertaken toward creating a SWAP in the Health sector in order to better coordinate assistance.

Conclusions

69. had three objectives:

climate for growth;

corruption; and

targeted to the poor.

To recapitulate and recast, the CAS

Economic stability and promoting a

Public sector reform and reduction in

0

0

0 Improvements in social services

On the first objective, the country succeeded in restoring economic stability, and growth reached record levels. While the Bank played some role in helping to restore the health o f the banking system, i t s influence overall was marginal.

70. Public sector reform was considered the “overarching” objective, but again the Bank’s contribution was marginal, particularly when compared to the emphasis this was given in the CAS. The Government enacted some reforms, but they did not support fundamental reforms, and failed to implement much o f the new legislation that was passed. In hindsight, the Bank did probably as much as it could under the

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FY10-13 Countw Partnershiu Stratem for the Dominican Reuublic August 12, 2009

circumstances; the window o f opportunity seen at the time o f drafting the CAS was not available. In the power sector, which i s both growth and public sector oriented, some reforms were carried out, but fundamental problems s t i l l remain. On the third, Government has proven to be reluctant to accept fundamental reforms which go against i t s political instincts. In the social services, the Bank has been more successful. Its operations in education and health seem relatively successful, both in terms o f improving services but also in terms o f improved public sector administration.

71. Another criterion would be to judge to what degree it addressed the problems laid out in the 2003 C A E (see box 1). The C A E suggested four areas for focus:

0 Improving country dialogue;

Focusing on the MDGs;

Improving the power sector,

72. The Bank has made an attempt to improve country dialogue, and i t s influence i s stronger now than before 1999. The Bank has focused on meeting the MDGs, particularly in health, education, and HIV/AIDs. I t has not had much success broadening the sectoral reform agenda, and given i t s limited resources i s probably better o f f focusing on those areas having a clear comparative advantage. Finally, it has made a major effort to address the policy and capacity constraints in the power sector, but with limited results. Whi le capacity has increased through the TA project, there i s s t i l l lack o f Government commitment to fol low recommendations based on international experiences.

Broadening the structural reform agenda;

1.1 1 Lessons for a Future Country Strategy

73. Any future strategy will have to decide where the Bank’s comparative advantage lies, particularly given that it i s not the biggest or most important donor/source o f finance. The following are some key lessons that seem to emerge from this CAS completion review:

Keep focused on a few key sectors where there i s some potential for success and where Bank advice i s appreciated (if not always followed): education, health, safety nets, and power.

Set realistic objectives, and avoid objectives that are unrealistic in the country context even if they are ideologically noble or current (e.g. privatization o f power utilities). Don’t confuse passage o f laws with Government commitment and real change on the ground.

Chose targets that are realistic and can be measured, and insure that there i s monitoring o f these targets and periodic reporting. Make sure that projects also monitor progress toward results and report these in ISRs.

Rethink the approach for dealing with the Energy Sector challenges, ensuring that additional analysis includes Political Economy dimension and work with other donors on this agenda.

0

0

0

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FYI 0-13 County Partnership Stratem for the Dominican Reuublic August 12, 2009

W h i l e governance issues remain paramount, i t i s important to recognize that public sector reform i s going to be difficult, and that progress in this area i s apt to be limited to those ministries (such as Health, Attorney-General) where officials are already convinced o f the need and willing to undertake reforms (so called “champions”). The focus should be on maintaining accountability and transparency in Government operations, including budget formulation and execution, and improving the voice o f c iv i l society. Performance-based management and budgeting may be good entry points to foster this agenda.

Use ESW to focus on intractable problems like corruption, drugs, money laundering, crime and violence, public sector reform. Conduct ESW cooperatively with partners in country, so as to build ownership and local capacity. Translate all ESW into Spanish and disseminate as widely as possible.

B e realistic about projecting disbursements, and recognize that major effectiveness delays are to be expected - and plan accordingly. Be more candid in ISR ratings.

Strengthen Civ i l Society capacity to build constituency for the reform.

Engage with Congress for dealing with complex development challenges in the country.

Strengthen donor coordination by mapping donor’s interventions and priority areas as well as aligning efforts for Policy Reform.

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FYIO-13 Country Partnersh@ Stratem for the Dominican Republic August 12, 2009

AAA APL BHD CAS CAE

CEM CDB DffD DPR DPL DO DR EC ESW EU ERL FSAP FTAL ICA IDB IEG IFC IP ISR MDGs MTEF NLS OED CIDA ICR ISR PEFA PER QAG TA USAID VAT

CAS-CR

ACRONYMS

Analytic and Advisory Services Adaptable Program Loan Banco Hipotecario Dominican0 Country Assistance Strategy Country Assistance Evaluation (OEDAEG) CAS Completion Report Country Economic Memorandum Caribbean Development Bank Department for International Development (UK) Development Policy Review Development Policy Loan Development Objectives Dominican Republic European Community Economic and Sector Work (part o f AAA) European Union Emergency Recovery and Disaster Management Loan Financial Sector Assessment Program Financial Technical Assistance Loan Investment Climate Assessment Inter-American Development Bank Independent Evaluation Group International Finance Corporation Implementation Progress Implementation Status Report Millennium Development Goals Medium Term Expenditure Framework Non-Lending Services Operations Evaluation Dept (now IEG) Canadian International Development Agency Implementation Completion Report Implementation Status and Results Report Public Expenditure and Financial Accountability Assessment Public Expenditure Review Quality Assurance Group (World Bank) Technical Assistance United States Agency for International Development Value Added Tax

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FYIO-I3 Country Partnership Stratem-for the Dominican ReDublic August 12, 2009

I.

11.

111.

IV.

V.

VI.

VII.

VIII.

Annex Tables of the CAS Completion Report

CAS Results Summary 2006-2009

Planned and Actual Lending FY05-09, Base Case Scenario

Planned and Actual Non-Lending Services, FY05-09

Portfolio Status Indicators, FY05-09

Implementation Performance Ratings, June 2008

Dissemination o f ES W

Planned and Actual Lending FY05-09, Base Case Scenario

IEG Project Ratings for Dominican Republic, Exit FY05-09

84

ul - m s

U L 0 P a

v1 A C

a

H

6 C u m - -

0 W 0

U L 0 a a v, A E

a

i

U

I L 0 P e

c / ) .% E

a

I

v1 I m s I E ai

E 0 ai - t P cl

I E 3

6

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FYIO-13 Country Partnershcu Stratem-for the Dominican Reuublic August 12, 2009

CAS Completion Report: Annex Table 11: Planned and Actual Lending FY05-09, Base Case Scenario

(in US$ million)

F Y Planned Amount Approved Amoun 2005 Power Sector Program Loan’ 150 150

2006 Institutional Development T A (Pushed to FY09)2 10 Subtotal FY05 150

~ o c i a ~ Sector Investment Loan’ 50 Biodiversity Conservation (Las Neblinas) Youth and Development Project (See note 3) 25 25

0 15

Subtotal FY06 60.75 2007 Community Development Project (Pushed to FY09)4 30

Water and Sanitation APL 1 (Pushed to FY09) ’ Development o f Border Areas I O 2”d Power Sector Program DPL (Pushed to F Y I O ) * National Park System 5

20

100 NIA

Subtotal FY07 165 2008 Power Sector Investment Loan 30

50

Carbon Finance Sites (TBD) (Pushed to FY09)

Public Sector Modernization and Competitiveness DPL (Pushed to FY09) Electricity Distribution-Rehabilitation 40 42 Social Protection Investment Loan (See note 3) 19.2 19.4

80 DO Emergency Recovery & Disaster M g m t Subtotal FY08 80

2009 Community Driven Development (See note 4) 20 Water and Sanitation A P L l (See note 5) 27 5 27.5 Waste Water and Sanitation Investment APL2‘ 50

11 Public Sector Modernization and Competitiveness DPL7 50 Health Sector APL 2 30 Carbon Finance Sites (TBD) N I A

Governance and Competitiveness (See note 1)

2010 Pd Power Sector Program DPL I Subtotal FY09 70 100

2005-10 Total FY05-10* 375.75 343.9

Source Dominican Republic CAS (FY05-09), CASPR (FY07), Business Warehouse (BW)- September 2008 *The total planned amount does not include the approved amounts

’ The project was presented to the Board on May 2005 as part o f the 2004 CAS PR High Case Scenario ’The project was renamed “Governance and Competitiveness” with a planned amount o f US$I I m ? Social Sector Investment Loan (US$SOm) was split into two investment projects-Youth Development (US$25 million) and Social Protection (origmally U S 1 9 2 million Approved amount US$19 4 million) ‘In the CASPR (FY07) the project was re-named “Local Development” and the planned amount was reduced to US$20m As o f September 9,2008 (BW) the project’s name changed to Community Driven Development (CDD)

In the CASPR (FY07) the project was pushed to FY08 with an amount increased up to US$26m As o f September 9, 2008 (BW) the project was pushed further on to FY09 with an amount increased up to US$27 5m

As o f September 9,2008 (BW) do not show this project ’ As o f September 9,2008 (BW) do not show t h s project ’ In the CASPR (FY07) the DPL was pushed to FY09 As o f September 9,2008 (BW) the DPL was pushed further on to FY I O

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FYIO- 13 Country Partnershir, Strateav for the Dominican Republic August 12, 2009

CAS Completion Report: Annex Table 111: DR- Planned Non-lending Services and Actual Deliveries, FY05-09

Delivered tc Proposed FY Cl ient FY

2005 2005

Product

Review on the Observance o f Standard and Codes (ROSC) A&A Trade and Labor Competitiveness 2005 2005 Rural Assessment 2005 2005 Country Assistance Strategy 2005 2005 Poverty Assessment (with the IDB) 2005 2005 Agricultural Sector Work 2005 2005 Growth, Trade and Competitiveness (Caribbean) 2005 2005

Urban Transport 2006 2006 IDF Public Expenditure Management and Financial Accountability 2006 2006 GAIN - Global Alliance Grant 2006 2006 Growth Study CEM 2006 2006 Social Protection Strategy (Caribbean) 2006

Crime and Violence in the Caribbean 2007 2007 SEMs, Employment and Structural Change 2007 Money Laundering 2007 Review o f Country Regulatory Framework 2007 Migration, Remittances and the Diaspora (Regional Study) 2007 Financial Sector Assessment Program (FSAP) (Moved to FY08) 2007 Youth at Risk 2007

Policy Notes (incl Expenditure EFFY) 2008 Human Development Governance Framework 2008 Financial Sector Assessment Program (FSAP)’ 2008 Informality and Poverty (Moved to FY09) 2008 ROSC Follow UO (Moved to FY09) 2008

Informality and Poverty’ 2009 ICR ROSC’ 2009 Secondary Education Quality 2009 DWHT Hispaniola CEM (Moved to FYIO) 2009 Integrated PEWCFMCPAR 2009 Use of Country System Diagnostic Study 2009 Operations Research in the DR 2009 Improving the Perform O f Reg Health Sector 2009 Support to the National Development Strategy 2009

DR/HT Hispaniola CEM4 2010 I I

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Annex Table IV: Portfolio Status Indicators FY05-09

# ProJ # Proj At Risk YO At Risk Net Comm Amt YO Commit at Risk LCR # Proj # Proj At Risk YO At Risk Net Comm Amt

9 5

56 382.5 45.7

303 62 20

18,990.6

8 7 9 9 4 1 2 1

50 14 22 11 304.1 291.8 408.2 408.2

69.8 8.6 10.9 4.8

289 280 295 310 47 61 63 64 16 22 21 21

16.628.1 16.874.7 18,890.6 21,271.3 YO Commit at Risk 20 4 15 7 21 4 I 9 7 1 9 4

Source Morld Bank - Busmeis Warehouse (October 27,2008)

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FYIO-13 Countrv Partnership Stratem for the Dominican Republic August 12. 2009

Highly Satisfactory Satisfactory Moderately Satisfactory Moderately Unsatisfactory Unsatisfactory Not Applicable

Project

DO = Development Objective IP= Implementation Progress

Early Childhood Educ. Health APL Financial Sector TA Power Sector TA Power Sector DPL Youth Development Social Protection Investment Emerg. Recovery & Disaster Mgmt. Electricity Distribution KEY: H S S MS MU U NIA Source: latest

CAS Completion Report: Annex Table V Implementation Performance Ratings of Active Projects

(June 2008) Summary DO

S

S MS

MS

MS

MS

S

S

S

Overall IP

MS

S MS

MS

MU

MU

MU

S

S

Financial Management

MS

S S

S

N/A

U

S

Project Management

MS

S MS

S

MS

MU

S

Counterpart Funding

S

S S

S

N/A

MU

S

S

S

Procurement

MS

S S

MS

N/A

MU

S

Monitoring and Evaluation S

S S

MS

MS

S

MS

S

S

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CAS Completion Report: Annex Table V I ESW and CAS Dissemination Efforts 2007-2009

DR CAS

Dominican Republic - Report on Observance of Standards and Codes [ROSC) DR Fiduciary Report

The Competitiveness Study

Poverty Assessment Launch

Country Economic Memorandum

DR CAS 2005 dissemination - Translation into Spanish. Ample dissemination via direct copies to media editors, Spanish and English versions posting in local web, copies sent o to stakeholders via email. A Spanish press release was also amply disseminated in country resulting in a simultaneous record coverage in HOY, Diario Libre, Listin Diario, Clave Digital, El Caribe and El Nacional. A special article on the DR CAS in leading Listin Diario newspaper was published. Congressional dissemination - With the participation o f 6 senators and 5 deputies. Rural dissemination among youth groups in northern provinces via the Santiago Deputy Youth Minister Josue Arbaje. - PIC - Copies of the CAS was made available at the PIC.

December 2004 - Disseminated in English and Spanish via the Webpage.

May 2005 - Translated into Spanish. Major launch event by Bank and IDB at the Presidential Palace. A national press release was disseminated among media. The report was timely loaded at web resulting in considerable press coverage including leading HOY and Listin Diario newspapers. At the launch the document was given to over 300 people.

2005- The review o f Trade and Labor Competitiveness Study was translated into Spanish, launched at the PIC (around 90 copies were distributed to audience of over 150). Posted in Web.

June 06- Launch DR POVERTY STUDY WB-IDB i s probably the most well-known study in the DR second to UNPD Human Development Report. For the launch, a press conference in country office was held and attended by a record number of journalists. I t was hosted by and the reps o f WB, IDB, Government agencies and authors. A presentation was also organized at leading grassroots Centro Juan Montalvo for 80 grassroots leaders. A panel reacted and comments were posted in Centro Montalvo’s Web page.

Youth - A presentation for the bank youth contacts, was also very productive and inclusive.

Dissemination in general- Translated into Spanish, direct copies to editors were sent, Spanish version posted on our web site , the PIC and sending copies to stakeholders via email. A live TV interview was held at UNO MAS UNO TV program with authors.

PIC - A presentation at PIC for over 300 people was held, and a local press release was disseminated resulting in a simultaneous record coverage in HOY, Diario Libre, Listin Diario, Clave Digital, El Caribe and El Nacional. The study had having enormous media reaction and numerous articles over several months. November 06 - The CEM required a more specialized audience therefore a radio live interview was held with expert editor Ramon Colombo, and a technical presentation to 10 top economists on the methodology used was offered by author. PIC - Elizabeth Ruppert, the author offered an official presentation for a broader audience (80) at PUCMM Auditorium with the reaction o f a fine panel o f economists (Andres Vanderhorst, Miguel Ceara Hatton and Father Jose Luis

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FYI 0-13 Countw Partnershiu Straten for the Dominican Reuublic August 12, 2009

10 Things Brochure

Poverty Assessment Road Show

Crime and Violence Study (regional) Source: A. De la Paz, World

Aleman). The CEM was also disseminated via our web page. The CEM was the top item in the DR media mentions for November 06, and it was singled out in the LCR regional monthly summary.

Feb 07- Creation o f this brochure resulted in wide (free) distribution. It was successhlly launched at the PIC by the Country Manager and highlighted in the media.

March 2007 - A Media Tour for Omar Arias (PREM) and IDB co author o f the DR Poverty Study was coordinated to follow momentum for the June 06 launch. Worth to highlight i s the interviews with leading Clave Digital newspapers and CDN Radio which produced many comments and articles. A first time ever presentation at UASD, the “anti-Gringo” state university, for over 100 economy professors and students was sponsored by the Dean o f Economy. Another presentation was held for PUCMM economy students sponsored by Dean Father Aleman and the school of economy. “Quehaceres “ magazine, the leading gender magazine in the DR, wrote an article based on gender and poverty information as shown in the poverty study. New prints o f the report were strategically disseminated again, before October 17, the International Day for the Eradication of Poverty Day 2007. Therefore several editorials and opinion articles commented about it.

Translated into Spanish and timely posted on the Web for public availability.

ink office, Santo Doming0

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CAS PLANS (FY05) FY 1 Project IBRD

CAS Completion Report Table Annex Table VII: Planned and Actual Lending FY05-09,

Base Case Scenario (in US$ million)

(FY05-09) Status 1 IBRD

CAS COMPLETION

2005 (US$M) (US$M)

Power Sector Program Loan’ 150 Completed in 150

Subtotal FY05 150 150 FY09

2006

2007

Youth and Development Project 25 25 (planned as Social Sector Investment Loan) Active

Subtotal FY06 25 25

2008 Subtotal FY07 0 0

Electricity Distribution- 40 42 Rehabilitation Active Social Protection Investment Loan 19.2 19.4 (planned as Social Sector Investment Loan) Active

Disaster Mgmt Active D O Emergency Recovery & None 80

2009 Subtotal FY08 59.2 141.4

Water and Sanitation A P L l (See 27.5 27.5

Note.: The following projects identified at the beginning of the CAS period were not delivered: Institutional Development TA, Biodiversity Conservation (Las Neblinas), Community Development Project, Development of Border Areas, 2nd Power Sector Program DPL, National Park System, Power Sector Investment Loan, Public Sector Modernization and Competitiveness DPL

note 5) Subtotal FY09

97

Active 27.5 27.5

~~

2005- Total FY06-09* 261.7 343.9

FYIO-13 Countw Partnership Stratem for the Dominican Republic August 12, 2009

Project DO IRRIG LAND & WATERSH (SIM) DO: Telecom Regulatory Reform DO WASTEWTR DISPOSAL IN TSM CNTERS

DO- Global Distance

DO Social Crisis Response Adjustment Loa Source: WB Business

Learning Network

CAS Completion Report Table Annex VIII: IEG Project Ratings for Dominican Republic, Exit FY05-09

Approval FY

1995

2000

2000

2001

2004

Exit FY

2005

2007

IEG Outcome

UNSATISFACTORY

SATISFACTORY

2005 1 SATISFACTORY

2006 SATISFACTORY

2006 SATISFACTORY

MODERATELY

IEG Sustainability

UNLIKELY

#

IEG Institutional Development Impact

MODEST

#

LIKELY I SUBSTANTIAL 1

98

. . e e .

s .I 3

e e . .

a, V

E

FYIO-13 Countw PartnershiD Strate= for the Dominican ReDublic August 12, 2009

Annex 6: AAA Matrix and Potential Sources of Funding

Strategic Objective

Strategic Objective I: Strengthen Social Cohesion and Improve Access to and Quality of Social Services

Strategic Objective 11: Promote Competitiveness in a Sustainable and Resilient Economic Environment

AAA

Social Cohesion Programmatic NLTA

Avian Influenza Prevention NLTA “La Hispaniola” Country Economic Memorandum Treasury’s Country Banking Service NLTA

Competitiveness NLTA

Adaptation to

. Potential Sources o f Funding

The Japan Social Development Fund (JSDF) Policy and Human Resources Development Fund (PHRD).

0 Knowledge for change program (KCP) Health Results Innovation Trust Fund

0 Strengthening Human Resources for Health 0 Institutional Development Funds 0 Spanish Impact Evaluation Fund (SIEF) or Trust

Fund or Impact Evaluation and Results Based- Managed in Human Development. TF for Statistical capacity Building

0 Diagnostic Facility for Shared Growth. 0 Poverty Reduction Support Trust Funds

0 Avian and Human Influenza (AH1) facility

0 BankBudget

0 Institutional Development Funds 0 Gender Trust Funds

Knowledge for Change Program. 0 Transparency and Competitiveness Trust Fund. 0 Multi Donor Trust Fund for Market, Job

Creation and Economic Growth: Scaling Up Research, Capacity Building and Action on the Ground.

0 Multi trust fund for Trade and Development

0 Consultative Group on International Agricultural 0 Public - Private Infrastructure Advisory Facility. 0 Information for Development Program

(INFODEV) 0 Infrastructure Development Collaboration

(DEVCO)

(MDTF-TD).

o GlobalFacilitv for Disaster Reduction and

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FYIO-13 Countw Partnership Stratem for the Dominican Republic August 12, 2009

Strategic Objective 111: Enhance Quality of Public Expenditures and Institutional Development

Strategic Objective IV: Build Capacity and Constituencies for Reform

Climate Change and Disaster Risk Management NLTA Energy Sector NLTA and Investments Quality o f Public Expenditures NLTA

Institutional and Governance Review (ES W) Institutional Development Fund for Strengthening Congressional Oversight Strengthening Civil Society NLTA

Recovery 0 Special Climate Change Fund

0 Energy Sector Management Assistance Program (ESMAP).

Institutional Development Funds (Congress; Camara de Cuentas)

0 Public Expenditure and Financial Accountability (PEFA)

0 Spanish Impact Evaluation Fund (SIEF) or Trust Fund or Impact Evaluation and Results Based- Managed in Human Development

0 BankBudget

BankBudget 0 Governance Partnership Fund

0

0 Institutional Development Funds

0 The Japan Social Development Fund (JSDF) 0 Alliance o f communicators for Sustainable

development. BankBudget

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FYI 0-13 Country Partnership Strateav for the Dominican ReDublic August 12. 2009

Annex 7: Governance in the Dominican Republic

I. GOVERNANCE ACCOUNTABILITY FRAMEWORK The governance environment in the Dominican Republic (DR) i s complex and singled out by many as one o f the country’s main overarching obstacles for achieving a sustainable, equitable and inclusive growth. The latest U S A I D assessment on democracy and governance in the DR (April 2007) concluded that the country faces a problem o f good governance, one o f i t s main causes being an “overly powerful executive branch confronted by too few checks and balances.” Similar findings are underscored in the UNDP’s 2008 Dominican Republic Human Development Report, pointing to weaknesses in the ru le o f law, l ow levels o f transparency and access to public information, access to opportunities determined by personal and group power and the predominance o f patronage relations in politics. Many argue that the issue o f Dominican corruption represents one o f the greatest obstacles to a more participatory and representative democracy. Since the bank failures and economic crises that began in 2002, Dominican society i s more acutely aware o f the issue and the gravity o f the problem

I n Dominican Republic the President exercises great influence over the other branches and levels o f Government. The Truj i l lo regime that lasted 30 years has le f t a strong legacy o f personalized and de-institutionalized Government decision making32. Dominican presidentialism not only rests on the powers given by the Constitution, but also on the tradition o f paternalism. Formally, the Congress does have i t s own constitutional source o f independent authority that could provide certain fundamental checks on executive power. However, most analysts o f executive-legislative relations concur that in practice, as it happens in other countries o f the region, Congress does not exercise i t s role as a check and balance to executive power.

Despite recent modernization efforts, the effectiveness of the country’s accountability institutions -including Congress, the Anticorruption Office, the Chamber o f Accounts and Regulatory Agencies- i s still very low. Law 423-06 increased the type and detail o f budget information that the Executive i s mandated to present before Congress in i t s budget proposal. For instance, a preliminary report on the macro-economic and fiscal forecasts and the expected economic and financial results as well as a multi-annual forecast must be included (PEFA 2007). According to the 2007 PEFA, “there are no predetermined procedures for the budget review performed by the legislative branch, but Congress’ Planning and Budget Commission analyses the budget from a geographical perspective and makes recommendations to the plenary session”. The DR has scores 11 out o f 100 points in the 2008 Open Budget Index developed by the International Budget Partnership (IBP), amongst the countries providing “scant or no” information on the budget to the public. Although the Executive’s budget proposal must be submitted during the second legislature (August 16 th - November 13 th), in practice, the Executive’s budget proposal arrives in the last week o f December. Therefore, the document i s not known by the public until i t s approval.

32 Keefer, P. (2002), “The political economy o f public spending decisions in the Dominican Republic: credibility, clientelism and political institutions”, mimeo, World Bank.

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Congress has embarked in a modernization process that includes management reforms aimed at streamlining its organizational design, bylaws, personnel system, and communications, as well as institutional reforms for improving its capacity for budget analysis and tracking. During 2007-2008, U N D P has supported the House o f Representatives in setting up a Division for Budget Analysis and Design, which i s currently operational (with personnel being hired through a merit-based system) and offering technical advice to four House committees (Budget, Public Debt, Fiscal, and Accounts Committees). The Senate’s (art. 5) and the House’s (art. 7) bylaws, however, mandate the creation o f a bicameral office with the purpose o f providing sound legislative analysis to both chambers. This office has yet to be created. The development o f legislative analytical capacities, particularly referred to financial management and budget performance, as well as the streamlining o f Congress’s information system would enable better compliance by Congress o f i t s oversight mandate in an appropriate manner.

The Chamber of Accounts (Chmara de Cuentus) has undergone through a prolonged legitimacy crisis. In order for the Chamber to fulfill i t s mandate, the PEFA report says that i t needs to be strengthened at two levels: first, by improving their capacity to produce special audits (called “financial audits” in the DR, and “compliance audits” internationally) that truly assess financial transactions beyond mere accounting reviews; and second, since the recommendations o f the Chamber o f Accounts in the final reports are o f mandatory compliance (Law 10-04, Art. 39) by the audited agency, other stakeholders such as Congress and civ i l society organizations should develop capacities to ensure that these recommendations are really followed. The Executive’s Anticorruption Office (Direccion de Persecucion de la Corrupcion Administrativa) under the Attorney General’s Office has been elevated in i t s administrative hierarchy and i t s mandate has been delimited to the investigation o f corruption and the control o f public officials’ assets declarations. This, however, has not been supported sufficient budgetary allocations.

Civil society has played a major role in raising awareness about the problems of corruption, weak governance and accountability. Since the early 1990s, civ i l society has progressively strengthened i t s voice in the policymaking process, particularly by fostering public debate and influencing decision-making through concrete policy proposals around key public interest issues such as poverty reduction, state reforms and transparency. However, c iv i l society organizations are s t i l l lacking the capacity to mobilize grassroots movements thought out the country. The weave o f c iv i l society organizations i s strong both at the national and the sub-national levels, but only a few have been able to develop capacities for monitoring Government performance and transparency. An Access to Information law was enacted in 2006 although it has not been ful ly implemented for the lack o f demand-side involvement. Nevertheless, in the last few years some coalitions have been formed aimed at strengthening their voice and influence in public affairs. The Civ i l Society Consultative Council -representing a wide range o f CSOs- i s currently monitoring social policies -which account for 44 percent o f the country’s expenditures- and regularly interacts with the Government’s “social cabinet”. These organizations are also part o f the “Citizen Forum” (Foro Ciudadano) which comprises more than 200 CSOs spread out through the country. The Forum has publicly denounced the impunity o f several corruption cases, and has also put forward proposals for increasing transparency and access to information. Some CSOs have lately started to

104

focus on monitoring the public budget, particularly the national budget and the allocations to social expenditures.

All of the above hamper development effectiveness of Government interventions resulting in suboptimal policy outcomes. A Congress relatively weak, especially in term o f i t s oversight capacity, undermines representation on the allocation o f resources and allows expenditure deviations from what was originally in the public budget. The presence o f a not well articulated civ i l society with technical weaknesses add to the uncertainty o f the policy making process which tend to be dominated by the interest o f the presidency. The Bank’s portfolio performance i s hampered by these weaknesses, especially in the area o f disbursement due to lack o f coordination between planning and budgeting.

11. RECENT PROGRESS AND THE GOVERNMENT’S REFORM AGENDA.

Partly as a result of the mounting concerns raised during the electoral campaign, but also accelerated by the worsening of economic conditions due to the financial crisis, the Fernandez administration convened a national dialogue aimed at reaching consensus on a National Development Strategy. Despite signs o f skepticism around the Government’s real commitment to change, the dialogue convened broad participation from dozens o f public, nonprofit and private organizations and umbrella groups. The roundtables convened around a broad l i s t o f topics concluded their work with a l i s t o f proposals which had to be approved by the Executive’s representatives that were part o f each roundtable. Institutional strengthening and transparency were transversal issues that emerged as central concerns in al l the roundtables as indicated by the final Rapporteur’s summary. Among the transparency measures included in the proposal, i t i s noteworthy to mention: increasing budget transparency and expenditures’ publication according to their classification and components; increasing the transparency o f the Chamber o f Accounts (Camara de Cuentas) by creating the access to information office and strengthening the mechanisms for the implementation o f the Access to Information Law.

I n the last few years the Government has passed important reforms33 that redefine the role of the institutions involved in the planning and budgeting process. The Ministry o f Finance and the Ministry o f Economy, Planning and Development - SEEPYD- have been established with a stronger mandate to regulate and manage resource allocation and budget flows in detriment o f the Presidential Office. The 1401 fund o f the Presidency34 has been eliminated, the discretional use o f revenue surpluses has been regulated and the implementation o f a financial management information system has been enforced. SEEPYD, SEH and the Secretary o f Public Service are s i ning result agreements with the Secretary o f Labor, Agriculture, Education and Health for the 2010 Budget.

f 5

Examples of these laws are: 2006 Organic law on the Public Sector Budget, 2006 Creation o f State Secretariats for Treasury and Economy, Planning and Development, 2007 Financial Administration System o f the State law, 2006 Public credit law, 2006 Planning and Investment law, 2006 Government Procurement and Contracting law, 2007 Establishment o f the Internal Control System law 34 The 1401 Fund was a discretionary spending h n d fed by revenue surpluses creating the incentive to underestimate revenue as a way to increase discretionary expenditure.

These secretaries were picked on the basis o f their technical and infrastructure capacity to define and follow up performance indicators.

33

35

105

FYI 0-13 Country Partnershlu Stratem.for the Dominican Reuublic August 12, 2009

This new public financial management framework paves the way for the adoption o f a medium-term expenditure framework and the use o f performance information to improve the quality o f public spending. Progress made in the implementation o f the 2006 Organic law i s already improving the budget’s credibility, predictability and control fueled by recent tax reforms and the positive performance o f the economy in the period 2005-2007. The budget now identifies transfers and projects o f decentralized agencies and the deviation between what i s in the budget and what i s financed by it has been reduced. The Debt Law has improved debt managing and transparency. In the past, l ine ministries would go directly to Congress to introduce loan without any consideration for debt sustainability. The investment and planning-related laws have strengthened control o f Government investment and it i s improving i t s allocation on the basis o f technical criteria, investment information i s being systematized in the Public Investment National System and investment i s being prioritized following institutional plans and territorial need. The Government i s preparing the National Development Strategy and the Multi- Annual Public Investment Plan.

Nevertheless, many o f these reforms are still too recent and support i s needed to avoid backtracks in the light o f the international financial crisis. Several challenges lay ahead and further improvements in public financial management are s t i l l needed such as the presentation o f financial information, non-financial data for the public sector level, and improved financial statements, the development o f an operational efficiency capacity beyond legal compliance, encompassing performance accountability in the provision o f services and measurable improvements in budget transparency (PEFA 2007). With assistance from the Bank and the USAID, the Government has put in place a task force to address the governance challenges.

Challenges and Opportunities

Nevertheless, many of these reforms are still too recent and support i s needed to avoid backtracks in the light o f the international financial crisis. Several challenges lay ahead and further improvements in public financial management are s t i l l needed such as the presentation o f financial information, non-financial data for the public sector level, and improved financial statements, the development o f an operational efficiency capacity beyond legal compliance, encompassing performance accountability in the provision o f services and measurable improvements in budget transparency (PEFA 2007). With assistance from the Bank and the USAID, the Government has put in place a task force to address the governance challenges.

This present few risks as - in principle- the executive i s somewhat unconstraint and unaccountable- however, it also provides some opportunities in the short term to improve the quality o f public spending and service delivery as there are fewer veto points and a growing social demand for this. Specifically, in education, health, agriculture and labor, the pi lot Ministries that have agreed to sign performance agreements, there i s an opportunity to move towards some more explicit contractual relationships between the line departments and the fundinghegulating central agencies. This would enhance performance accountability with more explicit understandings about funding and deliverables in order to improve efficiency and service delivery in key areas, while

106

FYI0-I3 Count? Partnersh@ Stratem for the Dominican Republic August 12. 2009

moving gradually the attention to strengthening the capacity o f Congress, the SA1 and the public at large to use performance information to undertake their oversight function.

The Bank strategy i s aligned with the National Development Strategy that calls for strengthening institutions at the national and regional levels, better quality o f public expenditures, public security, good governance, and the development o f a culture o f results within the public administration. From the lending side the Bank has: (i) a Programmatic DPL on Performance and Accountability o f Social Sectors - which includes a component to support a series o f reforms to build a culture o f results in public administration, (ii) a Municipal Development Investment Loan, which wil l include institutional development activities to strengthening capacity o f local Governments and a (iii) Health Sector Reform Loan (PARSS 11) - which includes a series o f actions to support performance based management within the health sector. From the AAA side the Bank has (i) Quality o f Public Expenditures NLTA, which will focus on improving the quality o f public expenditures in the DR by strengthening financial management and procurement mechanisms and strengthening the oversight capacity o f various actors36; (ii) an Institutional and Governance Review (ESW) which wi l l focus on underlying political economy and governance issues that prevent the country from addressing fundamental development challenges in key sectors like education, health, and energy; and (iii) A set o f safeguards capacity building activities, to offer assistance to the Dominican Republic to manage social and environmental opportunities and risks at a strategic level, for which analytical work and technical assistance wi l l support the Dominican Republic in strengthening its norms and institutions to incorporate management o f the Bank’s safeguards policies as well as other international good practice frameworks in a coordinated manner.

In sum, the proposed approach for Bank engagement in Dominican Republic focuses on two lines of activity- building on the recent improvements within the executive while improving governance constraints on the executive. This means, leveraging on the recently approved reforms and ongoing initiatives to enhance performance accountability between the l ine departments and the fundinghegulating central agencies in the short term. Similarly, it i s important to continue providing Bank’s support to strengthen the wider governance environment in the long term, in the areas o f access to information, external audit and Congress

36 This multisectoral NLTA includes the development o f a National Procurement Strategy, the application o f the OECD Indicators on procurement, technical assistance to SEEPyD, Finance and Public Administration, and the support to the DR Supreme Audit Institution. Activities on this front are closely coordinated with the IDB, the UNDP, and the European Commission, which i s already supporting the Secretary o f Public Administration with 8 million Euros.

107

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Annex 9: Country Financing Parameters

Country Financing Parameters

During the 2007 Country Portfolio Performance Review (CPPR), the Government requested amendment o f the Country Financing Parameters (CFP) for the Dominican Republic to raise the Bank’s financing cost-share from 90 to 100 percent. The impetus for this change stems from a series o f new laws that establish a framework o f efficient resource management and accountability in the Government’s budgeting process.37 Within this new framework, the Government intends to align current budgeting standards on programming, budgeting, and administration with international standards. These new laws wi l l also, among other measures, limit discretionary presidential and extra- budgetary spending, and eventually engender a multi-year perspective in fiscal planning, expenditure policy and budgeting.

In the past two years there has been a track record o f adequate and timely allocation o f counterpart funds. In addition, a very positive outcome from the implementation o f the new Treasury Law reduced the time it took for the cycle o f transferring Bank proceeds from the Central Bank to the projects’ own operating accounts from 45 to 9 days. Based on improvements in this cycle, which have effectively sped up project execution, the Bank authorized, in May 2007, using advances as another disbursement method for new projects and now the borrower i s allowed to open Designated Accounts.

In the 2005 CAS, the Government and the Bank agreed to limit the Bank’s financing share to 90 percent o f project costs, the rationale being to provide additional safeguards for Bank resources in light o f inefficient and opaque budget management processes in place at the time, as well as to provide a signal o f Government ownership and commitment. It was expected that, over time, the Bank’s average financing share would increase as budget mechanisms improved with the passing and implementation o f the new laws and a track record o f adequate and timely allocation o f counterpart funds was established.

The newly strengthened budget processes obviate the need for these safeguards (Le., less than 100 percent Bank financing), and the lending program proposed in this CAS Progress Report reflects close consultation with the Government on their priorities and includes project-specific triggers designed to ensure Government commitment. Raising the CFP to 100 percent would also alleviate existing constraints to implementing Bank projects. The new budget laws have in effect eliminated the previous flexibility to incorporate a budget l ine item for contingencies that was used for counterpart funds. As a result, the deadline for including projects in the annual budget i s September 30th, and the deadline for reviewing the budgets for active projects i s July 15th; with no line item for contingency, and the additional restriction o f including only approved projects in the budget, there i s l i t t le flexibility to integrate counterpart funding for projects pending approval, This means that all projects ratified by Congress after July 15th in any given year stand l i t t le chance o f receiving counterpart funding until a new budget i s prepared 12 months later, effectively delaying implementation by 1 8 months.

37 The three laws promulgated in November and December 2006 that affect the budgeting process are: i) Law 498-06 on Public Planning and Investment, ii) Law 496-06 creating the State Secretariat o f Economy, Planning and Development, and iii) Law 423-06 on Organic Budget for the Public Sector.

115

F Y I 0-13 Countw Partnership Stratem for the Dominican Remiblic August 12, 2009

In addition to accelerating project implementation, the resulting increased flexibility would allow for more efficient project administration; with the phasing out o f the traditional pari passu approach, cost sharing needs are no longer determined at the level o f individual expenditures, thus enabling project teams to focus more on technical aspects o f projects rather than on financing categories.

There i s no expected impact o f the change in CFP on the portfolio. Projects under execution will not be affected as the Government has indicated that it will continue considering counterpart allocations on projects under execution a first priority in the budget process. Potential impact on the pipeline i s positive for some projects, nil for others. Projects under preparation will benefit from this flexibility and any counterpart contribution will be applied on a selective and case-by-case merit/justification.

With the exception o f Cost Sharing, other themes on the CFP, such as Recurrent Cost Financing and Local Cost Financing, remain unchanged from the original DR CAS o f May 2005. The composition o f taxes and duties remains largely unchanged, with the exception o f lower projected tariff revenues in conjunction with the Dominican Republic- Central American Free Trade Agreement which became effective in March 2007.

Item A. Cost Sharing Limit on the proportion o f individual project costs that the Bank may finance

B. Recurrent Cost Financing. Any limits that would apply to the overall amount o f recurrent expenditures that the Bank may finance. The two requirements for Bank financing o f local expenditures are met. Therefore. the Bank can finance local C. Local Cost Financing. Financing met: (i) financing requirements for the country’s development program would exceed the public sector’s own resources (e.g., from taxation and other revenues) and expected domestic borrowing; and (ii) the financing o f foreign expenditures alone would not enable the Bank to assist in the financing of individual projects. D. Taxes and Duties. Are there any taxes and duties that the Bank would not finance?

Parameter Jp to 100%

N o country level limit

Yes

None

Explanation/Remark Some individual projects may be financed up to 100%. Financing up to 100% will be applied on a selective and case-by-case meriVjustification.

The two requirements for Bank financing o f local expenditures are met. Therefore, the Bank can finance local costs in proportions needed in individual projects

The two requirements for the Bank financing o f local expenditure are met. Therefore, the Bank can finance local costs in the proportion needed in individual projects.

No taxes or duties are currently Identified as unreasonable or discriminatory. At the project level, the Bank would consider whether taxes and duties constitute excessively high share o f eroiect exeenditures.

116

MAP SECTION

PepilloSalcedo Villa Vásquez

Rincón

Pimental

Cabrera

Sánchez

Miches

Boca de YumaBocaChica

El Macao

Sabana de la Mar

GasparHernández

Luperón

Bonao

Cabral

Oviedo

VicenteNoble

Duverge

El Cercado

ImbertSousúa

Rio SanJuan

Fantino

Sabana Grandede Boya

Yamasa Bayaguana

Nigua

VillaAltagracia

Constanza

Polo

Punta Palenque

Restauración

Monte Cristi

Mao

Sabaneta

Elías PiñaSan Juan

SantigoMoca

Puerto Plata

Salcedo

La Vega

Cotuí

San Cristóbal

Baní

San Franciscode Macorís

Nagua

Samaná

El Seibo

Higüey

La RomanaSan Pedrode Macorís

HatoMayor

Neiba

Barahona

Jimaní

Pedernales

Azua

Dajabón

MontePlata

San Josede las Matas

Jánico

San Josede Ocoa

SANTODOMINGO

S A N T I A G O

L A V E G AHATO

MAYOR

LA ROMANADISTRITO NACIONAL

LAALTAGRACIA

5

6

9 1 0

S A M A N Á

ESPAILLAT

4

MARÍATRINIDADSÁNCHEZ

EL SEIBO

DUARTE

PUERTO PLATA

B A O R U C OA Z U A

BARAHONA

1

MONTECRISTI

S A N J U A N

2

3

ELÍA

S PIÑ

A

MONTE PLATA

PERAVIA

7

8

PEDERNALES

INDEPENDENCIA

Co rd i l l e r a Cen t r a l

Cordillera Oriental

Cordillera Septentrional

Cordillera Neiba

Sierra de Baoruco

IslaSaona

IslaBeata

Pico Duarte(3175 m)

Monte Mijo(2266 m)

Monte Tina(2830 m)

H A I T I

To Fort Liberté

To Lascahobas

To Port au Prince

PepilloSalcedo Villa Vásquez

Rincón

Pimental

Cabrera

Sánchez

Miches

Boca de YumaBocaChica

El Macao

Sabana de la Mar

GasparHernández

Luperón

Bonao

Cabral

Oviedo

VicenteNoble

Duverge

El Cercado

ImbertSousúa

Rio SanJuan

Fantino

Sabana Grandede Boya

Yamasa Bayaguana

Nigua

VillaAltagracia

Constanza

Polo

Punta Palenque

Restauración

Monte Cristi

Mao

Sabaneta

Elías PiñaSan Juan

SantigoMoca

Puerto Plata

Salcedo

La Vega

Cotuí

San Cristóbal

Baní

San Franciscode Macorís

Nagua

Samaná

El Seibo

Higüey

La RomanaSan Pedrode Macorís

HatoMayor

Neiba

Barahona

Jimaní

Pedernales

Azua

Dajabón

MontePlata

San Josede las Matas

Jánico

San Josede Ocoa

SANTODOMINGO

1. DAJABÓN2. SANTIAGO RODRÍGUEZ3. VALVERDE4. HERMANAS MIRABAL5. SÁNCHEZ RAMÍREZ6. MONSEÑOR NOUEL7. SAN JOSÉ DE OCOA 8. SAN CRISTÓBAL9. SANTO DOMINGO10. SAN PEDRO DE MACORÍS

S A N T I A G O

L A V E G AHATO

MAYOR

LA ROMANADISTRITO NACIONAL

LAALTAGRACIA

5

6

9 1 0

S A M A N Á

ESPAILLAT

4

MARÍATRINIDADSÁNCHEZ

EL SEIBO

DUARTE

PUERTO PLATA

B A O R U C OA Z U A

BARAHONA

1

MONTECRISTI

S A N J U A N

2

3

ELÍA

S PIÑ

A

MONTE PLATA

PERAVIA

7

8

PEDERNALES

INDEPENDENCIA

H A I T I

LagoEnriquillo

Yaque del Norte

Yaque

del S

ur

Camu

Yuna

Bahíade Ocoa

Bahía de Neiba

Ozama

ATLANTIC OCEAN

Caribbean Sea

To Fort-Liberté

To Lascahobas

To Port-au-Prince

To Grand-Gosier

Co rd i l l e r a Cen t r a l

Cordillera Oriental

Cordillera Septentrional

Cordillera Neiba

Sierra de Baoruco

IslaSaona

IslaBeata

Pico Duarte(3175 m)

Monte Mijo(2266 m)

Monte Tina(2830 m)

72º W 71º W 70º W

72º W 71º W 70º W 69º W

18º N

19º N

20º N

18º N

19º N

20º N

DOMINICANREPUBLIC

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

0 20

0 20 40 Miles

40 Kilometers IBRD 33398R

MAY 2009

DOMINICANREPUBLIC

SELECTED CITIES AND TOWNS

PROVINCE CAPITALS

NATIONAL CAPITAL

RIVERS

MAIN ROADS

RAILROADS

PROVINCE BOUNDARIES

INTERNATIONAL BOUNDARIES