dominican republic: country strategy with the idb (2004-2008)

DOCUMENT OF THE INTER-AMERICAN DEVELOPMENT BANK

DOMINICAN REPUBLIC

IDB COUNTRY STRATEGY WITH THE DOMINICAN REPUBLIC

This document was prepared by the project team consisting of: Wolfgang Munar (RE2/OD3), Project Team Leader; Moisés Pineda (COF/CDR); Ronan Le Berre (RE2/OD3); Ennio Rodríguez (RE2/OD3); Manuel Agosín (RE2/RE2); Mariana Wettstein (RE2/OD3); Juan Carlos De la Hoz (RE2/SO2); Olver Bernal (RE2/FI2); Carlos Trujillo (RE2/FI2); Martin Chrisney (RE2/FI2); Stephen Doherty (RE2/SC2); Walter Gómez (RE2/EN2), Sara Bojorge-Saénz (RE2/OD3); Aída L. Gómez (RE2/OD3); and Ana Silvia Aguilera (RE2/OD3). The Country Office team consisted of: Oscar Casasco, José M. Lizano, Astrid Wynter, Juan Carlos Páez, Kelvin Suero, Armando Godínez, and Armando Chamorro.

Consultants Alejandra González, Ricardo Gutiérrez, Belinda Pérez and Jaime Silva contributed technical input.

CONTENTS EXECUTIVE SUMMARY STRATEGY MATRIX FOR THE DOMINICAN REPUBLIC INTRODUCTION ............................................................................................................................ 1 I.

THE COUNTRY CONTEXT AND DEVELOPMENT CHALLENGES ............................................ 1 A. B. C. D.

E. F.

The economic context................................................................................................. 1 The social context ....................................................................................................... 2 Institutional and political context ............................................................................... 3 Development challenges............................................................................................. 3 1. Reduce barriers to private investment and sustainable growth......................... 4 2. Make public administration more efficient and transparent ............................. 8 3. Make social spending more efficient ............................................................... 11 The development strategy and government program.............................................. 13 Macroeconomic outlook for the 2005-2008 BCS ................................................... 14

II. LESSONS LEARNED FROM THE PREVIOUS STRATEGY AND PORTFOLIO ............................ 16 A. B. C. D. E. F.

The Bank’s country strategy for 2001-2003............................................................ 16 Portfolio developments and performance 2001-2004 ............................................. 16 Current status of the portfolio................................................................................... 16 Progress and obstacles .............................................................................................. 17 Impact ........................................................................................................................ 18 Lessons learned from the previous BCS.................................................................. 19

III. BANK STRATEGY 2004-2008............................................................................................. 20 A. Objectives .................................................................................................................. 20 B. Competitiveness pillar: reduce barriers to private investment and sustainable growth........................................................................................................................ 20 C. Governance pillar: Make public administration more efficient and transparent.... 23 D. Social pillar: Further human development for the very poor and make social spending more efficient ............................................................................................ 25 E. The operations program: scale, sequencing and instruments.................................. 25 F. Financial effects of resource flows and the Bank’s exposure................................. 28 G. International coordination......................................................................................... 28 H. Strategy implementation risks .................................................................................. 29 I. The results framework and monitoring of the BCS ................................................ 30 J. Country financing parameters .................................................................................. 30 IV. AGENDA FOR COUNTRY DIALOGUE .................................................................................. 30

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ANNEXES

Annex I

Operations Program

ELECTRONIC LINKS TO THE TECHNICAL FILES Annex II Annex III Annex IV Annex V Annex VI Annex VII Annex VIII Annex IX Annex X Annex XI Annex XII Annex XIII Annex XIV Annex XV

Bank instruments for strategy implementation Millennium Development Goals and Targets Active loans in support of the BCS Country Financing Parameters (CFP) Exposure indicators DR-CAFTA Action Plan Debt sustainability analysis Other donor involvement in BCS areas Incorporation of OVE recommendations into the BCS Results framework Areas of work under the PRODEV Initiative Action Plan from the Country Fiduciary Assessment Strategic priorities for private sector development References

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ABBREVIATIONS ATC BCRD BCS CAJIR CFA CFAA CFPs CPAR DR-CAFTA ENCOVI ENFT GDP GEF HIV/AIDS IFMS IMF ITBIS LPG MDG NFP NFPS OVE PBL PDL PLD PNC PRD PRI PRODEV PRS SBA SEE SESPAS SIUBEN SMEs STP SWAp UNDP USAID WB WEF WTO

Agreement on Textiles and Clothing Central Bank of the Dominican Republic The Bank’s country strategy International Rural Youth Advisory Council Country Fiduciary Assessment Country Financial Accountability Assessment Country financing parameters Country Procurement Assessment Report Dominican Republic-Central America Free Trade Agreement National Survey of Living Standards National Labor Force Survey Gross domestic product Global Environmental Facility Human Immunodeficiency Virus/Acquired Immune Deficiency Syndrome Integrated Financial Management System International Monetary Fund Goods and services transfer tax (value-added tax) Liquefied petroleum gas Millennium Development Goals Nonfinancial products Nonfinancial public sector Office of Evaluation and Oversight Policy-based loan Performance-driven loan Partido de la Liberación Dominicana [Dominican Liberation Party] National Competitiveness Plan Partido Revolucionario Dominicano [Dominican Revolutionary Party] Private Sector Department External pillar of the medium-term action plan for development effectiveness Poverty reduction strategy Stand-by arrangement Ministry of Education Ministry of Public Health and Social Assistance Sistema único de beneficiarios [Single system of beneficiary selection] Small and medium-sized enterprises Technical Secretariat of the Office of the President Sector-wide approach United Nations Development Programme United States Agency for International Development World Bank World Economic Forum World Trade Organization

Executive Summary The Bank’s country strategy (BCS) with the Dominican Republic coincides with the new political cycle in the country (2004-2008), which began in August of 2004 with the inauguration of President Leonel Fernández following the elections in May of that year. In terms of economic context, the initial conditions of the new programming cycle are framed by the government’s economic program as agreed with the International Monetary Fund (IMF) in January 2005, which was preceded by policy measures that succeeded in stabilizing the economy after a severe banking crisis. The measures to date must now be consolidated, so that the country can return to a sustained growth path.

The social context is marked by the adverse effects of recent crises and the fiscal adjustment on households. These include a reversal of previous poverty reduction trends and a deterioration in levels of human development. The political context, characterized by the minority position of the governing party in the legislative assembly, requires the executive to seek consensus, since consolidating the macroeconomic framework will require the approval of institutional reforms in fiscal management and in other areas of public administration.

In this context, the main development challenges facing the Dominican Republic are: (i) to reduce barriers to private investment and sustainable growth; (ii) to make public administration more efficient and transparent; and (iii) to make social spending more efficient. The objective of the Bank’s country strategy is to support government efforts to reduce poverty. To achieve this objective, the Bank will support actions focused on three strategic pillars: (i) the competitiveness pillar, the specific objective of which is to reduce critical barriers to private investment and sustainable growth; (ii) the governance pillar, the objective of which is to make public administration more efficient and transparent; and (iii) the social pillar, the objective of which is to further human development for the very poor and make social spending more efficient. The portfolio of active loans is key to achieving the BCS objectives. At 30 April 2005 it comprised 19 projects with an available balance of US$371.1 million: 59% in programs for supporting competitiveness and growth, 43% was focused on the social pillar, and 7% on governance.

The scale of the program was defined in terms of two scenarios that consider the country’s borrowing capacity, the proposed lending instruments, and financing needs linked to the financial position of the public sector in line with the economic program and macroeconomic outlook. The base and high scenarios involve US$611 million and US$941 million in lending, respectively. The triggers for the high scenario are macroeconomic and institutional, and include: (i) a cumulative nonfinancial public sector deficit of 0% of GDP between 2005 and 2006; and (ii) implementation of a new legal framework for financial management in the areas of budget, concessions, government procurement, cash management and public credit. The triggers in the energy sector include: (i) a new system in place for rate calculation, adjustment, and billing; (ii) reform of the system of energy subsidies; and (iii) a reduction in system losses.

The implementation sequencing provides, first, a base scenario that, in the first two years of BCS execution, focuses the operations program on areas critical to strengthening the macroeconomic framework, such as expenditure management reforms and tax administration reforms. The socialsector management reform project would support these reforms in association with the project for modernization of public finance. At the same time, actions to reduce barriers to private investment and competitiveness would be supported by the significant group of pro-growth projects included in the portfolio, as well as new infrastructure projects (integrated management of watersheds and

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coastal areas, and road rehabilitation), legal certainty (consolidation of the real property adjudication and registration system), labor markets (labor intermediation, vocational training and social assistance), and a sector facility for disaster prevention and risk mitigation. In this first stage of BCS implementation, the efforts of the Inter-American Development Bank’s private-sector group will focus on strengthening the regulatory framework for doing business in the country and supporting local export credit. During those two years, the social pillar will focus on deepening the reform of social-sector institutions with an emphasis on subsidy targeting, expanding coverage of community health services, and making job opportunities for the poor more efficient. These reforms will enhance the efficiency of public spending and the quality of social expenditure. The social-sector management reform project would support these reforms in association with the labor intermediation, vocational training and social assistance I projects and the public health protection project. The project for institutional modernization of the National Statistics System, to be prepared in the first year of BCS implementation, would lay the technical groundwork for better monitoring and evaluation of the government policies supported by the BCS. In the last two years, the base scenario calls for three additional programs. They all relate to the second phases of activities that are part of the current portfolio (intermediate education II and equity and basic education II) or for which the first phase would be approved during the first two years of execution of this BCS (labor intermediation, vocational training and social assistance II).

The shift to the high scenario will depend on the extent to which elimination of the nonfinancial public sector deficit improves fiscal capacity, the tax system is reformed, and the financial management reforms are implemented. This scenario entails more ambitious fiscal adjustment targets and swifter implementation of the other structural reforms. Access to the high scenario would be conditional upon achieving greater borrowing capacity as a result of an improved fiscal position through spending and tax reforms. This scenario would build on success with the reforms implemented in 2005-2006 and focus initially on deepening and extending the reforms for strengthening the financial sector and for improving access to credit for small and medium-sized enterprises. This will be achieved through the project for modernization of the financial sector and the global credit loan for productive sector development. Subsequently, if the required regulatory and institutional framework is in place, activities to promote private investment and growth will be supplemented with the program for the consolidation of energy sector reform. The reforms contained in the high scenario triggers, together with the PRODEV initiative, would strengthen capacity to execute loans from multilateral agencies and lay the groundwork for management-for-results, at least in the social sectors. This, in turn, would pave the way for programmatic support through a SWAp for rural poverty reduction.

The operations program uses various types of financial and nonfinancial instruments. Given the institutional reform thrust of the BCS, the proposal is to combine policy-based programs associated with investment loans, systematic policy dialogue, and monitoring of BCS execution. The combination of financial and nonfinancial instruments not only responds to the country’s financing needs and the government’s development objectives, but would also increase the likelihood that the country can access programmatic financing and that the Bank can make increasing use of national public management systems. This would allow new modalities such as sector-wide approaches (SWAps) and instruments such as performance-driven programs to be employed.

The principal risks to the strategy have been identified as problems in securing the backing of certain interest groups for the reform program, and in strengthening the macroeconomic framework, which could limit investment and growth. In addition, natural disasters could jeopardize achievement of the strategy’s objectives. The BCS framework calls for actions to mitigate these risks.

STRATEGY MATRIX FOR THE DOMINICAN REPUBLIC

IDB Objective and Strategy

Country Objective and Strategy

Other Agency Actions

IDB Actions Ongoing*

Performance Indicators

Proposed

IDB**

Country***

20% reduction in quasifiscal deficit in 2007 (3.2% GDP). Baseline 2004: 4% GDP

Cumulative NFPS deficit of 0% of GDP for 2005 and 2006.

Baseline 2004: 2.7% GDP

Central objective: To support poverty reduction Expected performance of macro variables. GDP growth 2008: 4.5%. Baseline 2004: 2%. Extreme poverty 2008: 21.5%. Baseline 2003: 28%.

I. Competitiveness pillar: Reduce barriers to private investment and sustainable growth Growth competitiveness index 4.0 in 2008. Baseline 2004: 3.63.

Public Finances

I. A. Specific objective

Objective

Consolidate the macroeconomic framework

Restore macroeconomic IMF, WB, EU stability and economic growth and improve living standards within a framework that is credible and inspires the confidence of economic agents

Strategy (i)

(ii)

Support the government's financing strategy and recapitalization of the BCRD

Strategy

Modernize the IT platform for Implement the institutional the payments system strengthening program for the BCRD and the Superintendency of Banks. Revise regulations for BCRD open-market operations and exchange market interventions

Loans

NFP

Consolidation of financial reform PBL (60%)

Analysis of debt sustainability

TC Banking supervision

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IDB Objective and Strategy I. B. Specific objective

Country Objective and Strategy Objective

Other Agency Actions Financial sector

Remedy the institutional weaknesses Restructure the financial IMF, WB system, limiting State of the financial sector involvement in financial and Strategy credit markets and (i) Support the development and strengthening mechanisms for effective implementation of supervision of financial the monetary and financial institutions laws Strategy (ii) Strengthen sector regulation Strengthen banking supervision and oversight and introduce preventive (iii) Transform the mutual savings monitoring to avoid crises in system and the debt market financial institutions. Monitor compliance with prudential (iv) Encourage development of standards for reducing risk. second-tier banking and the Create mechanisms to enforce credit market for the limits on self-lending and avoid productive sectors illiquidity in the financial system. Develop a program for technical and administrative modernization of the sector

IDB Actions Ongoing*

Proposed

Performance Indicators IDB**

Capital adequacy ratio (ratio of equity to riskConsolidation Modernization of the weighted total assets of of the financial financial system (PBL) the banking system) in reform PBL NFP accordance with the (60%) new asset valuation Sector study of capital Strengthening markets regulations, equal to of banking 10% in 2008. Baseline Regional evaluation of supervision payments systems in CA 2003: 8.9% (100%) and DR (IDB/WB/IMF) Pension reform Regional workshop on (100%) integrating means of payment Loans

Loans

Country*** Increase in level of credit from banking system (stock as % GDP) in 2008.

Baseline 2004: 21%

Competitiveness Pillar: Reduce barriers to private investment and sustainable growth Small business:

I. C. Specific objective

Objective

Improve the business climate

Encourage cooperation and EU complementarity to promote harmony between government and markets

Strategy (i)

Improve market functioning and the State's regulatory capacity

Improvement of at least The country's Modernization Consolidation of the real 10 points in the national competitiveness property adjudication and business climate quality index rises to 4.0 of the real subindex. Baseline registration system property Baseline 2004: 3.63 2004: 83 adjudication and registration system (31%) Loans

Loans

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IDB Objective and Strategy (ii)

Country Objective and Strategy

Other Agency Actions

IDB Actions Ongoing*

Proposed

Performance Indicators IDB**

Country***

Time needed for Adoption of international property registration and land surveys audit standards shortened by 30% by Economic development the end of 2008. for the northern region Baseline 2002: Integration of remittances 6 months for lost document duplicates into local economies and 4 months for setting MIF up condominiums Support the business climate initiative

Strengthen the legal certainty Strategy of property ownership Revise the Commercial Code to meet the needs of a democratic, competitive, equitable and transparent society

MIF

Establish the Economic and Social Council as a forum for cooperation among government, the market and civil society Work with the private sector to design and implement legislation to promote SMEs. Support microlender development and create an information mechanism for and about SMEs

Procedural simplification and one-stop window for MSMEs Adoption of best practices in corporate governance Sustainable tourism in Bayahibe NFP Strategic guidelines for IDB group support to the private sector Business climate study Competitiveness

I. D. Specific objective

Objectives

Seize the opportunities offered by DR-CAFTA

Harmonize macroeconomic EU, USAID policy with open markets and Mining investment and promote systemic competitiveness of the EU economy

Strategy (i)

Modernize trade and agricultural policies

Loans

Loans

Promotion of Productive sector competitiveness development (85%) Labor intermediation, External trade vocational training and facility (98%) social assistance

At least 30% of agrifood products meet national and regional sanitary and food safety standards by 2008.

Baseline 2004: 5%

Average annual growth in exports between 2006 and 2008: 2.0%. Baseline 2004: between 20012004 it grew 1.0% annually.

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IDB Objective and Strategy

Country Objective and Strategy

Strengthen phytosanitary and Promote job creation in a framework of greater labor food safety systems flexibility (iii) Enhance the capacity to manage and coordinate export Strategy policy Ensure that the one-stop (ii)

window for export processing is running properly. Create a (v) Create the one-stop window financing fund for exporting firms. Promote productivity and for export processing diversification in the productive (vi) Increase business partnerships sectors. Reduce the technology gap and promote the efficiency (vii) Adopt modern business of exporting firms. Modernize management processes and labor intermediation systems systems (iv)

Prepare a national export promotion program

(viii) Strengthen the labor market

Other Agency Actions

IDB Actions Ongoing*

Proposed

Institutional PRI development for Export trade financing the information (Banco Hipotecario society (98%) Dominicano) Support for the Local export credit transition to operations agrifood (85%) MIF Labor reform Support for the Business and training Climate Initiative (43%) Strengthening competitiveness of the textiles and clothing industry Procedural simplification and one-stop window for MSMEs IIC Operations with businesses in the shipbuilding sector Operations with businesses in the paper sector Other SME financing operations SEP Farmer entrepreneurship project

Performance Indicators IDB** Average export approval time reduced to 80% in 2008.

Baseline: tbd Earnings rise for SMEs that receive credit.

Baseline and target: tbd At least X publicprivate partnerships are created for intermediation of labor supply and demand.

Baseline 2004: 0

Country***

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IDB Objective and Strategy

Country Objective and Strategy

Other Agency Actions

IDB Actions Ongoing*

Proposed

Performance Indicators IDB**

Country***

80% of the basic rural road system is maintained in good condition and is usable at all times as of 2006.

Baseline 2004: 60%

(i) A new system in place for rate calculation, adjustment, and billing; (ii) reform of the system of energy subsidies; and (iii) a reduction in system losses

Business partnership operations for MSMEs NFP Update the action plan for accession to DR-CAFTA Strategic focus for IDB group support to the private sector Business climate study I. E. Specific objective

Objective

Energy

Loans

Loans

Improve basic productive infrastructure

Establish priorities for road works on the basis of the government's development plans and make the electricity industry financially sustainable

WB

Rural roads (53%)

Rehabilitation of road infrastructure

Strategy (i)

Restore the road system

(ii)

Strengthen the road maintenance system

(iii)

Improve access to drinking water and basic sanitation

(iv)

Contribute to recovery in the energy sector

Strategy Coordinate road works with other development programs.

Promote private sector involvement in road and water service concessions. Strengthen the Superintendency of Electricity. Establish electricity and water rates that reflect real costs

Water and sanitation

Modernization Consolidation of energy sector reform of water and sanitation PRI (87%) Public-private Telecommunications PRI partnerships in the WB San Pedro de infrastructure sector MacorĂ­s project WB, EU

% of road system in good condition in 2008.

Baseline and target: tbd Population without sustainable access to Cash recovery index for drinking water in the electricity sector reduced by rises to 75% in 2008. 3 percentage points Baseline 2004: 45% in 2008. Baseline 2002: 14% (MDG)

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IDB Objective and Strategy

Country Objective and Strategy

Other Agency Actions

IDB Actions Ongoing*

Proposed

Performance Indicators IDB**

Country***

The risk management Reduction of 9 percentage points Integrated management of index is at least no UserReduce environmental vulnerability Promote the protection of the in the proportion of worse in 2008.

Baseline watersheds and coastal WB, UNDP USAID, administered environment and natural Strategy land area not covered 2004: 65 areas irrigation resources and guarantee their EU and GEF in forest in 2008. (i) Measures to conserve natural sustainable use The disaster deficit systems (16%) Disaster prevention and Watershed Baseline 1996: resources by creating index for probable risk management management WB, 27.5% (MDG) conditions for protecting water Strategy maximum loss in sources from environmental Incorporate the environmental USAID TC 500 years is at least no Increase of degradation, preventing natural dimension into economic policy worse in 2008. Baseline 7 percentage points Global Environmental disasters, and avoiding misuse and development plans, in proportion of 2000: 5.34 with Facility I and II programs and projects of water resources national territory US$6 billion Design of a solid waste established as Organize the Ministry of (ii) Strengthen institutional The disaster deficit disposal solution protected areas in capacities to mitigate natural Environment and Natural index for probable 2008. Baseline 2002: Resources disasters maximum loss in 100 years is at least no 19% (MDG) Strengthen and develop the worse in 2008. Baseline National System of Protected 2000: 2.45 with Natural Areas, and involve the US$1.36 billion community in their management I. F. Specific objective

Objective

Implement the National Plan for Management and Conservation of Hydrographic Basins and encourage soil and water conservation efforts Reformulate the system for protecting and overseeing Protected Natural Areas

Environmental sustainability

Loans

Loans

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IDB Objective and Strategy

Country Objective and Strategy

Other Agency Actions

IDB Actions Ongoing*

Proposed

Performance Indicators IDB**

Country***

I. Governance Pillar: Increase the efficiency and transparency of public administration Public Administration Effectiveness Index 0.46 in 2008. Baseline 2003: 0.36 100% utilization of Social-sector management SIGEF at central level Integrated Consolidate and deepen reforms in Replace the bureaucratic IMF in 2008. Baseline reform (PBL) financial fiscal management, transparency and management model with a Public 2003:0% modern management model management government oversight Modernization of public Finances/Human 70% of public (15%) finance Resources Strategy Strategy Reform of the Institutional strengthening investments approved (i) Extend the integrated financial Approve the restructuring of the WB, EU through the National executive of the National Statistics Public Investment public administration administration system to Control systems, branch (77%) Office autonomous and decentralized framework System in 2008. transparency and Modernization nonfinancial entities Baseline 2004: 0 Institutional Introduce and reinforce the countering of Congress (ii) Implement integrated financial government's Integrated modernization of the corruption 25% increase in the administration legislation National Statistics Office number of audits Financial Management System WB, EU and USAID (37%) (budgeting, cash management, Improve administrative performed by the Audit TC procurement and public credit) management by rationalizing Decentralization EU Coordination of fiscal and Board (CĂĄmara de and UNDP Cuentas) in 2008. (iii) Modernize the national public and simplifying procedures and social policies Baseline 2004: 70 investment system processes Social oversight, (iv) Modernize customs and Strengthen the human resource transparency and internal revenue administration management system Democracy and the accountability Rule of Law Prepare amendments to the NFP Government Accounting Act USAID Seminar for lawmakers on (Ley de ContralorĂ­a), to provide Mitigation of border management of public public access to all hearings disputes finances conducted by public institutions USAID Public administration Approve legislation governing reform strategy public procurement, contracting II. A. Specific objective

Objective

and concessions

Fiscal policy

Loans

Loans

CFAA update Economic policy aspects of institutional reforms

Evidence that a new legal framework for expenditure management is in force (budget, concessions, government procurement, cash management and public credit) The human resource management index is 20% higher for 2008 User satisfaction with public service delivery is up 20% in 2008 and the bureaucratic development index is up 20%

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IDB Objective and Strategy

Country Objective and Strategy

IDB Actions

Other Agency Actions

Ongoing*

Proposed

Performance Indicators IDB**

Country***

Regional workshop on management-by-results in government III. Social Pillar: Further human development for the very poor and make social spending more efficient At least X% of spending on general subsidies is targeted to the two lowest income quintiles or transferred to education and public health Baseline in 2004: 1.5% of GDP. Target to be determined on the basis of the 2005 poverty study Social safety net

III. A. Specific objective

Objective

Modernize social safety nets, vocational training, and labor intermediation Strategy

Make job markets and WB, PNUD production-oriented opportunities for the poor more efficient

(i)

Strategy

Modernize instruments for targeting and selecting beneficiaries, with an emphasis on inclusion of undocumented women and children. Conduct training and productive development activities for low-income sectors, with an emphasis on bringing women and the rural poor into the workforce

Develop employment policies that exploit opportunities outside the agricultural sector

Loans

20% of population insured by social security system and user satisfaction up by 20% in 2006.

NFP Baseline 1996: 7.6% of households and Analysis of legal and institutional alternatives Coverage of vocational 15% (ESU user satisfaction survey) for reducing access training programs barriers to public Increased percentage targeting the poor subsidies of social spending on increase by X%.

Baseline and target: tbd the poorest quintile Poverty study in 2008. Baseline: to Poverty reduction strategy be determined in the (PRS) update poverty study Workshop on poverty and social exclusion Loans

Moderate and Labor intermediation, vocational training and low-income housing (100%) social assistance I and II

Increased percentage of poor people covered by social safety net programs in 2008.

Baseline and target: to be determined in the poverty study

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IDB Objective and Strategy

Country Objective and Strategy

Other Agency Actions Education

III. B. Specific objective

Objective

Consolidate and deepen reforms in basic and intermediate education Strategy

Make education available to the WB, EU, USAID entire population, reducing inequality and raising quality

(i)

Strategy

(ii)

Consolidate and expand the reforms in rural multigrade education Improve basic education in low-income urban districts

(iii) Strengthen education management (iv)

Ensure universal primary education for children ages 3 to 6 years. Expand and strengthen basic and intermediate education, with an emphasis on rural and low-income urban areas

Expand the intermediate Expand the coverage of education model sponsored by vocational education and the SEE training

IDB Actions Ongoing*

Proposed

Performance Indicators IDB**

Country***

22 percentage point 74% primary school increase in children completion rate (first Equity in basic Equity in basic education, completing primary cycle) in participating phase II education school in 2008. rural multigrade schools (89%) Intermediate education, in 2008. Baseline 2002: Baseline 2002: 53% Intermediate phase II (MDG) 60% education I NFP 49% primary school (65%) completion rate (second Sector note on the financing and quality of cycle) in participating low-income urban intermediate education Preparation of a strategic schools in 2008.

Baseline 2002: 35% framework for the Loans

Loans

education sector Support for policy dialogue and education system management

10% first-grade repetition rate in 2008.

Baseline 2001: 20%

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IDB Objective and Strategy III. C. Specific objective

Country Objective and Strategy Objective

Expand the coverage of community Improve the quality and accessibility of health care in health services public establishments Strategy Support the production of public health goods by expanding the coverage of child vaccination programs, and programs for detecting and controlling communicable diseases

Strategy

Other Agency Actions

IDB Actions Ongoing*

Proposed

Health

Loans

Loans

WB, Global Fund for AIDS, Malaria and TB, USAID and UNDP

Institutional reform of the health sector (16%)

Protection for public health programs

Institutional development program to upgrade infrastructure, train human resources, and reorganize services into efficient regional health networks

TC Efficiency in the production of public health goods NFP Challenges to the production of public health goods

Performance Indicators IDB**

Country***

Tuberculosis detection rate rises to 50% in 2008. Baseline 2003: 30%

Under-5 child mortality rate reduced to 9 per 100,000 live births in 2008. Baseline 2002: 95% measles vaccination coverage in 38 (MDG) 2008. Baseline 2002: Tuberculosis treatment coverage 88.3% rate (DOTS): 80% in 70% children fully 2008. Baseline 2002: vaccinated in 2008.

40% Baseline 2004: 35%

Preparation of a strategic framework for the health sector III. D. Specific objective

Objective

Rural poverty

Improve the quality and WB accessibility of basic public services for rural households, Strategy with an emphasis on extreme Support PRS execution in rural areas poverty through investments in housing Strategy infrastructure, access to water and basic sanitation, and land titling and Set policies to protect the tenure neediest groups in the provinces with the highest poverty indices Expand access to basic public services in rural areas

Loans

Loans

Moderate- and Rural poverty reduction low-income TC Housing Social inclusion (100%) NFP

* In parentheses % pending disbursement. ** To be determined. *** High scenario triggers in bold.

Poverty study Poverty Reduction Strategy (PRS) update Workshop on poverty and social exclusion

At least 300,000 undocumented children and women receiving basic social services.

Baseline 2004: tbd (poverty study)

Rate of rural households with basic sanitation rise to 40% by 2008.

Baseline 2003: 25%

INTRODUCTION The Bank’s country strategy (BCS) with the Dominican Republic coincides with the new political cycle in the country, which began in August 2004 with the inauguration of President Leonel Fernández following the elections in May of that year. The BCS is part of the Bank’s institutional strategy and has as key elements the government program, the poverty reduction strategy (PRS), the Bank’s Country Program Evaluation 1993-2003, the portfolio review reports, previous programming exercises, and the evaluation of progress toward the Millennium Development Goals (MDG). The operations program takes into account the fiscal framework of the country’s macroeconomic program for 2005-2008, the sustainability of the public debt, the value added by Bank actions, and the involvement of other lenders.

The BCS is based on a series of studies by the Bank in the context of the policy dialogue over the course of 2004 that culminated in the policy dialogue document, “Dominican Republic: Challenges and Opportunities for the Return to Stability and Growth” (IDB, 2004) and the policy dialogue meeting that the Bank held with the government in October 2004, with participation by the World Bank and the IMF. During the policy dialogue consultation process, discussions on development challenges and the Bank’s role were held with political parties, the private sector, and civil society organizations. The Bank consulted the priorities of the Government of the Dominican Republic for the next four years. To that end, there were a number of missions to the country in 2004 for preparing the policy dialogue document (leading up to this strategy).

Those missions included discussions with various segments of civil society (the academic community, the private sector, NGOs and government authorities) about the challenges facing the country and the options for addressing them. During the entire process of formulating this strategy, the Bank has maintained standing contact with the IMF, the World Bank, and other donor agencies.

Within the Bank, formulation of the BCS involved the preparation of technical inputs and policy notes from various departments of the Bank group, as well as a series of workshops attended by Bank officials and those of other financing institutions. Meetings were also held with the Office of Evaluation and Oversight (OVE) to share information and assessments about the previous strategy. The strategic priorities for private sector development were the subject of a participatory process of consultation with business and government.

This document has four sections. The first details the context in which the new strategy is to be launched and identifies the development challenges facing the country, describing the government program and the macroeconomic outlook. The second section examines the main outcomes of the previous strategy, portfolio execution, and lessons learned. The third section introduces the proposed new strategy: objectives, strategic areas, operations program, the role of the portfolio, monitoring, and risks. Finally, the fourth section presents the agenda for dialogue. Annex I contains details on the Bank’s 2005-2008 operations program

I.

THE COUNTRY CONTEXT AND DEVELOPMENT CHALLENGES

A.

The economic context

1.1

After a decade of growth and relative stability, the Dominican economy was hit by a series of external and internal shocks that revealed profound institutional weaknesses in many areas of the public sector. These shocks included a slowdown in economic growth beginning in 2001, which was compounded in 2003 by a banking crisis and the worsening of recurrent problems in the electricity sector, further aggravated by ineffective fiscal management in an election year. Although the vulnerabilities of the economy had been present during the 1990s, they were masked by excellent performance with average annual real GDP growth of 6% from 1991 to 2000. With slower growth beginning in 2001 and economic recession in 2003, the weaknesses of the regulatory systems and public finances became evident. Once the crisis erupted, it was deepened by resort to external loans to finance countercyclical policies, management of the energy crisis, and reluctance to take steps to strengthen banking regulation and supervision.

1.2

The crisis began in the second quarter of 2003 with the bailout of three banks that had become insolvent, revealing the shortcomings in regulation and supervision of the financial system. The bailout involved the printing of money equivalent to 21% of GDP, which sparked accelerated inflation (43%) and a currency devaluation (72%) at the end of 2003. To sterilize the expanded liquidity, the Central Bank of the Dominican Republic (BCRD) engaged in open-market operations, issuing bonds at high interest rates to make them competitive, with the result that the quasifiscal deficit rose to 10% of GDP. The maintenance of artificially fixed prices for liquefied petroleum gas and electricity in a context of exchange devaluation and rising international oil prices increased the government’s subsidies burden and expanded the fiscal deficit. Lastly, the rise in the public sector payroll and in other government spending exceeded the commitments in the 2003 stand-by arrangement (SBA) with the IMF. Failure to comply with the SBA produced a high fiscal deficit and led to cancellation. The economy contracted by 0.4%, unemployment reached 17% of the economically active population, and the public sector accumulated substantial arrears with its creditors.

1.3

Shortly after taking office in 2004, the new government undertook a series of measures to correct the fiscal imbalance, including a tax reform, higher prices for energy, targeting of the fuel subsidy, and clearing up arrears in public debt service.

These measures, together with a restrictive monetary policy, served to strengthen confidence and to launch a recovery process. At the end of 2004 the economy recorded GDP growth of 2% (in contrast to the expected contraction), the currency’s slide was significantly slowed, and inflation declined to 28.9%, a rate that, while still high, was lower than forecast. In January 2005, the authorities began to implement an economic program supported by a new 28-month SBA with the IMF. The SBA calls for a substantial fiscal adjustment and implementation of a

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structural reform agenda to address issues in public management, the financial system and the energy sector, all designed to correct the institutional weaknesses revealed by the crisis. Prior to approval of the SBA, the authorities took steps that included approval of a fiscally disciplined budget for 2005, strengthened banking supervision and regulation, and securing the financing necessary to pay the public sector’s accumulated arrears.

1.4

The country’s economic policies have clearly gained credibility as a result of these measures, as reflected by (among other indicators) a reversal of the currency’s devaluation, a reduction in inflation (which could be 9% in 2005, lower than agreed with the IMF), and a return to growth, which was already reflected in 2004 (2%).

Nevertheless, this adjustment and the associated capital movements produced an overvaluation of the currency in the first months of 2005. While this helped to reduce the fiscal deficit (by lowering external debt service payments in local currency) and reduce inflation, there is a risk that, if the situation is not corrected in the coming months, it will make the export sectors of textiles, clothing, and tourism less competitive. It could also affect import substitution industries.

1.5

An exchange-rate policy that prevents overvaluation of the currency is a key consideration in light of the increased competition on domestic markets that will result from planned implementation of the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA), and for preventing a decline in competitiveness in export markets, particularly the United States, especially given China’s rising clothing exports to the U.S. market. Incoming remittances also drive exchange rate appreciation and create an additional economic policy challenge, although they do help stabilize the balance of payments.

B.

The social context

1.6

Economic growth during the 1990s helped to reduce poverty and to improve the country’s human development indicators to such an extent that, at the end of 2002, it was thought that the Millennium Development Goals (MDG) would be met. In 2001 the poverty rate had fallen from 38% in 1986 to 29% in 1998, and extreme poverty had declined to 5% (World Bank, 2001). In contrast, poverty increased and living conditions worsened in all income quintiles during the 2003 crisis. Recent studies1 confirm that income poverty increased by almost 16 percentage points from 2000 to 2004, while extreme income poverty nearly doubled. Nevertheless, in 2003 and 2004 remittances rose to US$2.1 billion and US$2.4 billion (12.9% and 13% of GDP), respectively, which may have softened the social impact of the crisis, especially in its initial stages, since the cumulative devaluation of the Dominican peso exceeded the cumulative inflation rate over the same period. Other data

1

The IDB and World Bank finalized several studies recently, and the findings were used in a Study of Poverty in the Dominican Republic.

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(UNDP, 2004) suggest that the crisis may have sparked a reversal in the trend of some MDG targets. Available data indicate that the goals of eradicating hunger, achieving universal primary education, reducing maternal mortality and securing access to safe drinking water and basic sanitation will not be achieved by 2015.

1.7

Poor Dominicans have larger families, less schooling, and less access to health, water and basic sanitation services. More than twice as many poor households are located in rural areas, where the levels and depth of poverty are greater. Poor people tend to be: (i) children (40% of children under five are poor); (ii) women (about 26% of rural households in the poorest decile are headed by women); and (iii) older adults (27.1% of households in the poorest decile are headed by a person over 60 years of age). The underlying patterns of exclusion and the effects of the economic crises on the poor are exacerbated for some families (including many of Haitian origin) that, apart from being poor, have no identity documentation and thus do not have access to basic social services.

C.

Institutional and political context

1.8

Over the last decade the Dominican Republic has made significant progress in strengthening democracy. Nevertheless, the country’s system of governance still concentrates too much power in the presidency. The effects can be seen in the highly discretionary spending, the lack of transparency in public administration, and little accountability. The domestic causes of the 2003 crisis were aggravated by economic policy decisions, the origins of which can be traced to some extent to institutional weaknesses in the public sector. An additional factor of significance in the political context is the makeup of the legislative assembly. The opposition Dominican Revolutionary Party (PRD) holds a majority in Congress, and, while legislative elections are to be held in 2006, the government will in the meantime need to act sensitively and on the basis of consensus, given the current minority status of the ruling Dominican Liberation Party (PLD).

D.

Development challenges

1.9

To return the Dominican Republic to a sustainable growth path will require steps to address elements of the economic crisis, to deepen governance reform in order to prevent future crises, and to improve pro-poor social policies. With this as the guiding theme, the diagnostic assessment that follows is selective in its analysis of the major challenges facing the country and focuses on three priority areas: (i) reduce barriers to private investment and sustainable growth; (ii) make public administration more efficient and transparent; and (iii) make social spending more efficient.

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1. Reduce barriers to private investment and sustainable growth 1.10

The period of vigorous economic growth during the 1990s coincided with an international integration drive that led to a significant increase in exports and foreign investment, primarily in the export processing zones and tourism development. Yet the favorable environment of the last decade has shifted significantly with growing competition from Asian countries in the Dominican Republic’s principal export markets. The expiration of the Agreement on Textiles and Clothing (ATC) heightened the challenge from Asian competition. The Dominican strategy has been to open its economy more fully by pursuing World Trade Organization (WTO) accords and negotiating accession to the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA). The country faces the following challenges to reducing barriers to sustainable growth: (a) strengthening the macroeconomic framework; (b) addressing institutional weaknesses in the financial sector; (c) improving the business climate; (d) seizing opportunities under the DR-CAFTA; (e) improving basic infrastructure; and (f) reducing environmental vulnerability. a. Strengthening the macroeconomic framework

1.11

While the emergency measures taken by the new administration reversed previous trends and restored confidence, the economic situation remains delicate. The public finances are under pressure from: (i) payment of interest generated by a doubling of the national debt; (5.9% of GDP); (ii) the elimination of the commission on foreignexchange transactions and the decline in revenues from taxes on foreign trade that will come with the trade integration process with the United States and Central America; and (iii) the rising expenditure entailed by the social security reform and growing transfers from the central to the municipios. Moreover, a strategy for financing over the medium term must be consolidated, and reforms pursued in the banking and energy sectors. Finally, the external sector, which in 2005 is feeling the effects of the disappearance of ATC quotas and the recent exchange-rate appreciation, will now have to compete with less protection against Asian producers.

1.12

Overcoming the crisis once and for all will require institutional progress to strengthen fiscal discipline and financial stability, lower risks for private investment, and lay the groundwork for sustainable growth in the medium term. In the immediate future, the fiscal adjustment required to restore confidence will have to ensure sustainability of the entire public-sector debt, which at the end of 2004 stood at more than 50% of GDP. From 2005 onward, the fiscal challenge is to achieve a primary surplus of at least 1.5% of GDP in order to reassert control over the country’s indebtedness (Le Berre, 2005). The measures taken by the government in the 2005 budget, such as freezing the government payroll,

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restraining nonpriority recurrent expenditure, new tax measures,2 and better targeting of subsidies for liquefied petroleum gas (LPG) are steps in this direction.

To meet the public debt management challenges, the government has introduced a successful strategy to restructure its external payments profile through a sovereign bond swap, a reprogramming of debt with commercial banks and with Paris Club creditors, a loan from the government of Venezuela to finance oil imports, and new financing from domestic private banks.

1.13

Additionally, to stabilize prices, the authorities committed themselves in the SBA to maintaining a tight monetary policy within a flexible exchange regime. The SBA calls for reducing the annual inflation rate to between 11% and 13% during 2005 and to 8% in 2006. The challenge for the BCRD is now to reduce its quasi-fiscal deficit and rollover risk. To do so will require lengthening the maturities and reducing the interest rate on securities, a process already underway. The BCRD also faces additional challenges for achieving monetary stability, such as recapitalization. b. Modernizing regulation and strengthening supervision of the financial system

1.14

A return to sustained growth and a reduction in investment barriers will require stronger regulation and supervision of the financial system and sounder financial intermediation. Since the start of the decade the Dominican financial system had shown signs of vulnerability that, although they are improving, still persist. The causes of this vulnerability include insufficient capitalization, low provisioning levels, and elevated risk exposure because of highly concentrated lending, related-party lending, and lending in foreign currency to borrowers that do not generate foreign exchange (IDB, 2004a). This climate is worsened by the weaknesses of the institutions responsible for banking regulation and supervision.

The Superintendency of Banks lacks the independence to conduct its functions in an autonomous manner, nor does it have all the technical capacity and support tools for risk-based supervision. Moreover, the other oversight bodies (the superintendencies of securities, insurance and pensions) are facing similar problems that, as a whole, threaten the stability of the system.

1.15

The approach to the banking crisis has emphasized addressing the challenges of commercial banking and strengthening the government’s regulatory capacity, and has left the reform of other elements of the financial system for the future. Those elements include: (i) the public banks, (ii) the mutual savings and loan system, (iii) the insurance industry, and (iv) other nonbanking financial intermediaries. It is also urgent to introduce strategic management of the public debt, both external and

2

Including an increase of three percentage points in the exchange commission tax, and an average increase of about 10% in the excise tax on various fuels.

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domestic, and to manage the domestic debt of the government and of the BCRD in an integrated manner. c. Improving the business climate 1.16

Investors seeking to do business in the Dominican Republic run risks that stand as barriers to private investment. These risks raise the cost of doing business, create uncertainty, reduce competitiveness, and make it less likely that the country will return to a sustained growth path. The main risk factors for private investment include uncertainty as to the sustainability of the macroeconomic framework, weaknesses in the financial sector, scant diversification in the supply of exportable goods, and high energy costs with little reliability. Attracting new investment will also mean doing away the institutional barriers faced by investors. Specifically, regulations need to be made simpler and more efficient, to raise the quality of the inputs required by investors. Priority measures to enhance the regulatory framework include: (i) simpler, more efficient procedures for starting a new business, which currently are so cumbersome that it takes 60 days to register a business name (more than twice as long as in Mexico and Costa Rica); (ii) fewer export processing requirements and expanded access to one-stop windows (the country has only two); and (iii) further headway in modernizing land titling and registration (despite progress, these processes each take eight months). Additionally, the regulatory framework is in need of amendments to the commercial code, a new legal framework for infrastructure sectors (water, sanitation, and oil and gas), approval of a new law on procurement and concessions, and the strengthening of existing regulatory and oversight institutions for the electricity and financial sectors. d. Seizing opportunities under the DR-CAFTA

1.17

The country’s accession to the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA), the expiration of the ATC, and the adoption of the WTO accords are creating challenges and opportunities for the country to return to the growth path of the 1990s. In particular, the country needs to increase its comparative advantage by promoting investment in new sectors, without overlooking the need to heighten the competitiveness of mature industries that are facing growing competition. This will require updating and implementation of the National Competitiveness Plan (PNC). Accession to the DR-CAFTA and compliance with WTO rules will also require modernizing and bringing Dominican legislation and institutions into line with international standards.

1.18

The labor market also needs to become more efficient, to increase competitiveness in higher value-added activities. This will require worker skills development and a better balance of supply and demand between employers and employees in the new DR-CAFTA production context. The efficiency gain could be facilitated by the creation of employment firms that can make the job search process more effective.

Thus, macroeconomic stability, a sounder and deeper financial system, an enabling

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business climate, adequate infrastructure, the capacity to mitigate and prevent natural disasters, modernization of public management, and investment in human development for the poor must be regarded as essential vectors for taking advantage of DR-CAFTA. e. Upgrading basic infrastructure 1.19

The country’s basic infrastructure presents a paradox. The Dominican Republic has one of the most extensive road systems in the region. Yet the allocation of resources to maintain it has been erratic, and a portion of the road system and its bridges was built to specifications that leave them vulnerable to natural disasters. The country also faces the challenge of continuing to improve its rural road system and reforming the public procurement and concessions system with an emphasis on development of public-private partnerships in the infrastructure sector. The country also faces the challenge of formulating and implementing strategic frameworks for modernization of water and sanitation infrastructure. Given its level of economic development, the country is among those in the worst shape in the region in terms of the coverage and quality of these services. For example, no more than 35% of urban and 25% of rural households have access to basic sanitation.

1.20

The energy reforms introduced in the late 1990s called for separating oversight and regulatory functions from power generation and distribution, and succeeded in stimulating private sector participation. However, the expected benefits of that reform did not materialize. Rising international fuel prices, the inefficient and politicized approach to rate-setting, the untenable policy of subsidies, and energy theft and nonpayment conspired to make this sector as a whole unsustainable. By the end of 2003, high oil prices and currency depreciation associated with the recession had made the situation worse. That year, the private portion of two distribution companies was renationalized, leaving two-thirds of the country’s electric distribution business in government hands.

1.21

In the absence of appropriate corrective measures, the World Bank estimated that the financial deficit of the electricity sector would amount to some US$650 million in 2005. This reflects losses of 35% (including technical losses and theft) and a collection rate of around 75% of receivables. Apart from these problems, energy costs are high by international standards, and this makes local output less competitive. The challenge is to put the reform back on track with an emphasis on restoring the financial stability to the sector, strengthening pricing policy, and (once institutional conditions are improved) modernizing the transmission networks and supporting the private sector’s return to electricity distribution. f. Reducing environmental vulnerability

1.22

Failure to use the country’s natural resource base wisely (soil, water, coastlines and biodiversity) has led to progressive degradation. High water consumption and

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wastage have depleted some watersheds and have produced sedimentation that is already affecting the hydraulic structure in the lower portion of watersheds. In addition, the country’s coastal areas have been affected by water pollution and the degradation of coastal marine ecosystems. This adversely impacts the national productive base and increases vulnerability to natural disasters, while reducing prospects for the development and sustainability of the tourism industry. In the short term, the country faces the challenge of formulating and implementing strategic frameworks to protect and restore the natural resources of watersheds and coastal areas, reduce the risk of sedimentation in reservoirs, help to conserve soil, and cause water to be used more efficiently.

1.23

Moreover, the Dominican Republic is located in one of the most disaster-prone regions of Latin America. In 2003 and 2004 alone, the hurricane season and a major earthquake caused damage that, apart from depressing tourism, was a severe blow to poor people struggling with an economic crisis. Hurricane Georges caused losses equivalent to 14% of GDP in 1998. In 2004, the damage from Hurricane Jeanne amounted to 1.7% of 2003 GDP, 60% in the tourism and agriculture sectors, 33% in road and bridge infrastructure, and the remaining 7% in the social and environment sectors. The environmental degradation and the weakness of risk prevention and management mechanisms described above are such that, far from declining, the country’s vulnerability has grown significantly over recent decades (IDB, Universidad Nacional de Colombia, 2005). The country has yet to put in place the institutional and inter-territorial coordination mechanisms needed to prevent, mitigate and respond to natural hazards.

2. Make public administration more efficient and transparent

1.24

Modernizing government is one of the major development challenges facing the Dominican Republic. The aggregate index of government effectiveness places the country below the regional average, and falls well short of the level of effectiveness expected for a country with its income per capita.3 The government’s long-term vision for modernizing government calls for developing a system of managementfor-results. To make that vision a long-term reality, the challenges to be addressed in the short term include: (a) deepening and consolidating fiscal management reforms; and (b) making government more transparent and modernizing systems of fiscal control. a. Deepening and consolidating fiscal management reforms

1.25

3

Primary spending will be under pressure from the rising public debt in combination with electricity and LPG subsidies (equivalent to 1.7% of GDP in 2004), the

The current index is 0.36; the average for Latin America and the Caribbean is 0.4. Given its economic growth, the expected index for 2003 was 0.46.

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anticipated costs of overhauling the social security system (1.2% of GDP per year) and the growing burden of municipal transfers (0.5% of GDP). At the same time, while the tax ratio in 2004 (15% of GDP) was within the average for the region, revenues are expected to fall as a result of implementing the DR-CAFTA and eliminating certain distorting taxes. Medium-term fiscal sustainability will require measures to deal with the shortcomings in the structure and processes of fiscal management, from both the revenue and expenditure standpoints. (i)

Reforming the tax system

1.26

The reform approved in 2004 focused essentially on increasing rates for the goods and services transfer tax (ITBIS) (from 12% to 16%) and other excise taxes. Fiscal sustainability, renewed growth, and efforts to narrow social gaps will require solutions to structural shortcomings in the Dominican tax system, which include: (i) a high degree of dependence on revenues from foreign trade taxes, and (ii) the many exemptions that lead to tax evasion and avoidance and make the tax administration system complex and inefficient (Giuliani, Jenkins and Kuo, 2004).

In other words, a comprehensive tax reform is needed that would modernize the system, eliminate exemptions, do away with taxes that cause distortions such as the exchange commission and financial transactions tax, and broaden the tax base without raising rates.

1.27

With the advent of DR-CAFTA, revenues will have to be strengthened over the medium term by formulating and implementing a tax reform strategy to offset the decline in revenues associated with the treaty (around 0.8% of GDP). Income tax exemptions for businesses located in the export processing zones will also have to be eliminated under the WTO accord by no later than 2009. This means that corporate income taxes will have to be uniform throughout the country, considering the impact on investment attraction of the income tax structure of other competing countries. The government is also faced with institutional and technological weaknesses in the taxation and customs administrations, which, together with the lack of rules making fraud and tax evasion, criminal offenses reduce tax compliance. (ii)

1.28

Modernizing the government’s financial management system

Defining and implementing a new macro structure for public administration is a long-term challenge. In the short term, the absence of a single, apex fiscal policy body must be addressed. This impedes interagency coordination, leads to duplication of functions, dilutes responsibility for the agencies involved and means that fiscal policies lack continuity and follow-up. The government, then, faces the short-term challenge of defining the powers and responsibilities of the Technical Secretariat of the Office of the President (STP) and the Ministry of Finance.

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1.29

With Bank support, progress has been made in terms of expenditure control and transparency through introduction of the Integrated Financial Management System (IFMS). Yet the Country Financial and Accountability Assessment (World Bank and IDB, 2004) shows the need to consolidate and deepen that progress through a series of measures that would include: (i) approval, regulation and implementation of a legal framework to modernize the Budget Act, in force since 1969, and the regulations governing public credit and the cash management; (ii) extending the IFMS to all agencies of the decentralized and municipal administration; and (iii) introducing measures of rationality, transparency and control over the main components of expenditure: public procurement, human resources, and public investment.

1.30

The 2004 Country Procurement Assessment (World Bank and IDB, 2004) revealed that the current institutional structure for public procurement is lax and obsolete and allows too much discretion in the contracting and purchasing of goods and services.

The contracting and procurement system faces two fundamental challenges: (i) promulgation and implementation of a new law governing contracts, purchases, procurement and concessions that will promote transparency, efficiency and quality in contracting and purchasing in line with international standards and best practices; and (ii) establishing an apex oversight body for the system. In human resource management the challenges are many and varied, but one is especially urgent: an accurate understanding of the size and characteristics of the public-sector work force is needed, to establish fiscal control over staff costs. Without a proper understanding of the personnel roster, it would be risky to proceed with measures that under other conditions would be desirable, such as developing and implementing a civil service act. These problems call for a gradual strategy that would gradually introduce the civil service career path as an incentive to better performance in the public sector. Lastly, greater efficiency in government will require modernization of the systems for planning public investment in terms of setting priorities, identifying and preparing projects, and supervising, monitoring and evaluating those projects. It is also important to have a system for the social evaluation of public investment projects, establish more and better linkages between local and national priorities, and enlist the municipal governments in cofinancing local investments. b. Making government more transparent and modernizing control systems

1.31

The coexistence of multiple oversight bodies with insufficient functional clarity and coordination has meant that powers are fragmented and ambiguous and institutional responsibilities are diluted, with the attendant impact on accountability. There is an external oversight body, the Audit Board, and three internal control bodies: the Comptroller General’s Office, the Department for Prevention of Corruption (under the Office of the Prosecutor General) and the Department of Judicial Inspections (under the Supreme Court). Yet the corruption perceptions index produced by

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Transparency International in 2004 gives the country a rating that indicates widespread corruption (Transparency International, 2004). Moreover, weak statistics production and analysis limits the formulation, monitoring and evaluation of public policies. The BCRD has sought to meet this need and has even ventured into areas beyond its sphere. The move to management-for-results requires some statistical underpinnings. The country’s ability to access programmatic forms of lending also depends, in part, on the ability to generate the statistical basis to set program baselines and targets.

3. Make social spending more efficient 1.32

While the Dominican Republic’s rapid growth of the 1990s reduced extreme poverty, it did not decline to levels consistent with that growth. Among the factors contributing to this result are income disparity poor quality of public policies (Suki and Vial, 2004), and barriers that make basic social services inaccessible to undocumented women and children. Poverty reduction policies have traditionally stressed the welfare approach, and there has been little attention given to pro-poor policies that would be sustainable over the long term. In those sectors with the greatest potential to break the vicious circle of poverty, the tendency has been to favor the production of “private goods”, (such as public subsidies for higher education and individual curative care) instead of giving priority to producing “public goods” such as universal basic education or the control of epidemics. This has made government action less effective (IDB, 2004a; World Bank, 2004).

1.33

Traditionally, social spending has been procyclical, and, although it rose from 5.4% to 7.8% of GDP during the economic boom years (1995 to 2002), it has fallen short of the average for Latin America and the Caribbean (6% of GDP). As a result of the recent crisis, social spending fell by 1.4 percentage points of GDP between 2002 and 2004 (Artana, 2005). In the future, meeting the country’s social needs will require more efficient and progressively higher spending. Public spending in the education sector has had a substantial boost in recent years, growing at an average annual rate of 24.6% in 1996-2000. Yet steady growth needs to be locked in. The Ministry of Public Health and Social Assistance (SESPAS) spends 83% of its resources on curative services, drugs, and administrative expenses; and 17% on inspection, oversight, risk management, health promotion, and disease prevention (World Bank, 2004). Additionally, the level of public spending on subsidies is high and poorly targeted. Consequently, the critical factors for reducing poverty and improving income distribution over the short and medium terms have to do with making social spending more efficient. Chief among them are: (a) consolidating and deepening education reforms; (b) expanding the coverage of community health services; and (c) modernizing the systems for labor intermediation, vocational training, and social assistance with special attention to rural areas and excluded populations.

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a. Consolidating and deepening education reforms 1.34

The country has made significant progress, with sustained support from the Bank, in making basic education accessible. Access levels rose from 62% in 1995 to 93% in 2003 (Alvarez, 2004). Yet despite the growth in spending on basic education, there still persists a significant unmet demand, especially in rural areas where schools are frequently unable to offer the full cycle. The resources allocated to secondary education are relatively low, especially when compared with the high levels devoted to university education. This has widened the gap between the country and the rest of the region, jeopardizes achievement of the Millennium Development Goals (MDGs) (Suki, 2004) and makes it difficult to adopt and take advantage of the new technologies required for economic competitiveness (Vial, 2002). Moreover, there are shortcomings in expenditure allocation that reduce the pro-poor impact of higher spending. The regressive nature of spending on secondary and university education is part of this problem: 77% of spending on secondary education and 99% of university spending benefits people who are not poor (World Bank, 2004). This points to the following priorities for the sector: (i) consolidate and deepen the progress made in basic education, raising expenditure progressively until universal primary education is achieved; and (ii) increase the efficiency and effectiveness of spending on secondary education. b. Expanding the coverage of community health services

1.35

The General Health Act of 2001 overhauled the national health system structure and separated the functions of regulation, financing and health service delivery, making SESPAS the lead agency for the sector with responsibility for the specialized tasks of inspection, oversight and risk management that affect public health. In light of the centralization that has characterized SESPAS and its traditional focus on the direct delivery of medical services, an increase in the coverage of local health services will require decentralization of those services, and their integration with primary care services.

1.36

Currently, SESPAS lacks the capacity and resources to deal with the public health causes of premature death that require prevention and control programs. The most advanced programs are in mother and child health (WHO, 2002), and need to be expanded to cover the entire country, especially rural areas. Immunization coverage has improved, but has not yet reached sufficient levels of protection In 2002, for example, polio vaccine coverage was only 44% (ENDESA, 2003). Moreover, SESPAS faces challenges in responding to the public health impact of infectious diseases, in particular tuberculosis. Poor environmental management also contributes to the persistence of vector-borne illnesses such as malaria and dengue fever.

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c. Modernizing social safety nets 1.37

The country lacks a modern social safety net. Instead, there are perhaps 50 separate, uncoordinated agencies, most of them reporting to the Office of the President, that have been providing public subsidies using a welfare approach. The inefficiencies of the system have been offset by remittances that, particularly during periods of crisis, have served as a kind of countercyclical mechanism for individual social protection, although they have tended to benefit the intermediate quintiles rather than the poorest. In recent years the country has made progress in restructuring the existing system. Specifically, the single system of beneficiary selection (SIUBEN) was introduced and the poverty map updated with figures from the 2003 living standards survey and 2002 census. However, the SIUBEN system’s introduction revealed that in some urban areas between 15% and 20% of heads of household lacked identification documents, which means that they would be excluded, together with other family members, from public subsidies.

1.38

Because spending was untargeted, coverage of social assistance programs was essentially universal in early 2004 with neutral distribution across all quintiles. Of all programs studied to date, only the school lunch program and educational transfers (school card) have been shown to benefit the lowest quintiles.

Consequently, the current structure of subsidies needs to be modernized, and targeting tools adopted, so that public funds can be freed up for use in areas of greater effectiveness, especially education and public health. More decisive measures also need to be taken for the newly targeted subsidies and transfers to be rolled into a single system that will guarantee inclusion of undocumented and rural poor people, especially women and children. Finally, successful execution of the poverty reduction strategy (PRS) will require transformation of the current systems of labor intermediation, vocational training, and productive development for the very poor, especially in rural areas.

E.

The development strategy and government program

1.39

The country’s medium-term course of action under the government program, emphasizes the need to strengthen and modernize the institutional framework in key sectors, focusing on four strategic areas: (i) consolidation of democratic governance; (ii) modernization of the economy; (iii) social and geographic cohesion; and (iv) smart positioning of the country internationally. The priority areas and lines of action target governance, democracy and citizenship, State reform, development of physical infrastructure, gains in productivity and competitiveness, meeting basic needs and reducing poverty, investment in human capacity and security, and environmental sustainability.

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F.

Macroeconomic outlook for the 2005-2008 BCS

1.40

The macroeconomic outlook for 2005-2008 depends on: (i) success with the fiscal adjustment program and its impact on confidence; (ii) the speed and success of structural reforms agreed with the IMF and their impact on the business and investment climate; (iii) the external environment and entry into force of DR-CAFTA; and (iv) improvement in the business climate and competitiveness.

The BCS considers two macroeconomic scenarios that differ in terms of progress on the fiscal front and the momentum that can be maintained with structural reforms.

1.41

The base scenario assumes disciplined management of public finances and progress on the reforms called for in the BCS. Under this scenario, the economic recovery that began in the second half of 2004 would continue, and economic growth gradually accelerate as confidence returns, the business climate improves, and domestic demand rises. GDP growth is expected to be 3.5% in 2005, and to reach 4% in 2008. A tight monetary policy and the improved outlook will allow inflation and interest rates to decline. Inflation would fall to 9% at the end of 2005, and to 4% in 2008.

1.42

The key assumption for this scenario is that the various structural reforms contained in the BCS will move forward at different speeds, depending on the government’s ability to overcome opposition and maintain momentum in implementing them. In terms of financing policy, it is assumed that, after a successful bond swap in 2005, negotiations with all Paris Club creditors and renegotiations with banks and suppliers will be promptly and satisfactorily concluded. The assumption is that tax reform will be implemented in 2006 and that, while it is unlikely to offset all the revenue losses associated with implementation of DR-CAFTA or the gradual reduction of the exchange commission and the financial transactions tax, the tax ratio can be maintained at 16% of GDP as of 2006 (one percentage point higher than in 2004). Moreover, prudent management of public expenditure and a reduction in energy subsidies would allow total spending to decline, so as to achieve a primary surplus of 3% of GDP as of 2006. This level of primary surplus would ensure sustainability of the public debt, which would decline to 46% of GDP in 2008.

1.43

The high scenario assumes more ambitious goals for fiscal adjustment and greater momentum in implementing the other structural reforms, as well as greater success in improving the business climate and more vigorous private-sector activity in sectors with greater growth potential. Under this scenario, approval of a structural tax reform in 2006 would produce a tax ratio of 16.5% of GDP as of that year.

Financial management reforms would move forward quickly, and further progress in expenditure efficiency and subsidy reduction would improve the balance of the nonfinancial public sector, which would shift from a deficit of 0.7% of GDP in

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2005 to a surplus of 0.7% in 2006. This fiscal adjustment would be supported by structural reforms to strengthen the financial system and the energy sector.

Table I-1. Economic projections 2005-2008 Macroeconomic indicators Real growth in GDP (%) Inflation (end-of-year, %) Percentage of GDP Tax ratio Total central government expenditure NFPS fiscal balance Public sector primary fiscal balance Total public sector debt Millions of dollars Exports of goods and services BOP current account balance External public debt service Gross international reserves Months of imports Public sector external debt External financing needs* Multilateral lenders* IDB financing*

2002

2003

2004

4.3 10.5

-0.4 42.7

2.0 28.9

15.2 19.2 -2.3 -1.4 26.8

14.8 20.6 -4.8 -3.3 54.3

15.0 19.2 -2.7 -0.9 52.1

2005

2006 2007 2008 2005 2006 2007 2008 Base scenario High scenario 3.5 3.7 3.8 3.9 3.5 4.3 5.0 5.5 9.0 8.0 5.0 4.0 9.0 7.5 4.5 3.0 16.2 17.4 0.3 2.9 46.4

16.2 17.4 0.3 2.9 45.9

16.4 18.7 -0.7 1.9 49.1

16.4 17.2 0.7 3.3 48.3

8,426 8,925 9,316 9,070 9,175 9,347 -798 1036 1071 461 133 -162 819 951 1,132 1,696 1,263 630 279 825 1,257 1,844 2,030 1.2 0.5 1.4 2.1 2.6 2.6 4,636 5,984 6,166 6,942 7,308 7,064

9,621 -774 1,242 2,130 2.7 8,005

9,070 461 1,132 1,257 2.1 6,942

9,267 133 1,696 1,844 2.6 7,229

9,627 10,198 -22 -485 1,252 1,219 2,100 2,274 2.7 2.7 7,012 7,919

n/d n/d 122

994 651 192

2111 654 200

1259 442 210

-399 322 155

114 373 254

16.4 18.7 -0.7 1.9 49.1

994 651 192

16.2 17.3 0.4 3.0 48.6

2111 654 200

1259 442 160

16.6 17.2 0.9 3.4 45.7

(*) In millions of dollars Source: IMF staff report and IDB estimates

1.44

These efforts would be reflected in a better investment climate and renewed investor confidence. This in turn would boost investment and domestic demand, so better advantage can be taken of DR-CAFTA opportunities beginning in 2006, thereby accelerating economic growth. This acceleration would be very important for the banking, electricity, and other sectors strengthened by reforms, the sectors favored by DR-CAFTA, and traditionally dynamic sectors such as tourism and exports, all of which would benefit from institutional modernization, a better regulatory environment, and greater macroeconomic stability. GDP growth may vary between 5% and 5.5% in 2007 and 2008. Debt would decline faster under this scenario to 45% of GDP in 2008, helping to reduce the country risk premium, which fell from 740 basis points before the bond swap to 620 basis points in May 2005 (Table I-1).

16.6 17.2 0.9 3.4 44.8

n/d n/d 195

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II. LESSONS LEARNED FROM THE PREVIOUS STRATEGY AND PORTFOLIO A.

The Bank’s country strategy for 2001-2003

2.1

The Bank’s Board of Executive Directors approved the country strategy for 2001-2003 on 25 July 2001 (document GN-2153-3). It reflected government priorities and the Bank’s institutional strategy through activities aimed at the following strategic objectives: (i) overcome persistent macroeconomic and financial weaknesses; (ii) improve the delivery of social services; (iii) remove the bottlenecks that are now holding up development of the productive sectors; (iv) strengthen the capacity to protect the environment and to prevent, mitigate and respond to natural disasters; and (v) expand the capacity of administrative and political institutions to respond to social demands (IDB, 2001). The strategy set out a base scenario of US$465 million with seven new operations, and a high scenario of US$835 million with seven additional operations, preparation of which would be contingent on achieving a primary surplus and better execution of the existing portfolio.

B.

Portfolio developments and performance 2001-2004

2.2

When execution of the Bank’s previous country strategy began, the portfolio consisted of 18 loans with an undisbursed balance of US$437 million. Between the beginning of 2001 and the end of 2004 the portfolio rose from US$771.9 million to US$944.5 million: undisbursed amounts declined from 52.8% to 35.5% (excluding PBLs), and the number of projects rose from 18 to 22. Between 2001 and 2004 the Bank approved a total of 12 new operations for US$707.8 million, including approvals for US$500 million (70%) for two PBLs and an emergency loan. The portfolio review reports highlighted three challenges in executing the portfolio: (i) delays in ratifying the loans and in eligibility; (ii) the unpredictability of counterpart resources; and (iii) institutional weaknesses at executing agencies.

Nevertheless, overall performance of the portfolio improved: whereas there were five problem projects at the beginning of the programming cycle in 2001, by the end of 2004 no projects were in that status, and the entire portfolio was rated as highly probable to achieve its development objectives.

C.

Current status of the portfolio

2.3

The portfolio in execution at 30 April 2005 consisted of: (i) 19 loans in the amount of US$650.3 million; (ii) 20 nonreimbursable technical cooperation operations in the amount of US$5.3 million; (iii) three Social Entrepreneurship Program (SEP) loans totaling US$1.5 million and parallel nonreimbursable technical cooperation funding for US$800,000; and (iv) eight Multilateral Investment Fund (MIF) operations for US$6.4 million. The amount available in the loan portfolio was US$371.2 million, representing 43.2% of the amount approved. Moreover, the country has one guarantee operation from the Private Sector Department (PRI) for

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US$144 million. There are four operations that have not yet come into force and are pending ratification by the legislative assembly, representing US$53.4 million (12% of the available amount): institutional development for the information society (1494/OC-DR); strengthening of the banking system, supervision and regulation (1498/OC-DR); foreign trade sector facility (1511/OC-DR); and housing program (1538/OC-DR). The amounts available in the portfolio are important for achieving the government’s objectives and those of this strategy: 13 of the 19 active projects (59% of available resources) are intended to achieve strategic objectives for growth and private investment; four projects (43%) focus on human development and social spending; and two projects (7%) address governance issues.

D.

Progress and obstacles

2.4

Despite the crisis situation in which the Bank’s country strategy (BCS) was executed, the Bank’s activities in the country have become more relevant and consistent, and progress has been made in evaluating its activities. Annex X describes how the OVE recommendations have been incorporated into the new BCS.

2.5

At the time the 2001-2003 strategy was formulated, the country did not have multiyear strategic frameworks or a long-term development roadmap. It was necessary therefore to support the policy dialogue by preparing a document entitled “Towards a Development Strategy in the Dominican Republic,” to align government priorities and the Bank’s institutional strategy more closely. To enhance the Bank’s relevance, the BCS encouraged formulation of the National Competitiveness Plan (PNC) in 2002 and the poverty reduction strategy (PRS) in 2003. For the immediate future, the Bank’s relevance will be enhanced to the extent that these strategic frameworks, together with reforms in public management, can open opportunities for the country to access sector-wide approaches (SWAp).

2.6

The fit between challenges and instruments has improved in areas that are key to implementing institutional reforms in expenditure management and in the social sectors, particularly through the use of political feasibility analysis of institutional reforms at the operation design stage (Gonzalez, 2003; IDB, 2004a). While the Bank had tended to rely on investment programs in these sectors in the past, between 2001 and 2004 it took a more strategic approach in which it combined fastdisbursing instruments (PBLs and emergency loans) with the portfolio and with other financial and analytical instruments. Despite this, the Bank still encountered difficulties in areas where its toolkit was insufficient to promote structural change.

Experience shows that in some areas the underlying challenges were so great that, in the absence of an IMF program, the instruments made available to the country could not achieve all their proposed goals within the BCS execution period. This highlights the need to look more closely at institutional and political viability, execution risks, and the sequencing of institutional reforms, to pursue greater

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harmonization with other multilateral agencies, to combine instruments and approaches and to gradually move to programmatic lending approaches.

2.7

Finally, while the evaluability of the programming exercise and of individual activities improved, there is still some distance to be covered in two respects. First, as noted earlier, there is the need to use viability and sequencing criteria to set realistic goals for the BCS. Second, there is a need to improve the quality of measurement, analysis and statistical reporting in the Dominican public administration, so as to have the baselines and statistical systems necessary for monitoring and evaluating activities in support of the country. Apart from serving long-term development objectives, modernizing the national statistics system would give the country access to performance-driven loans (PDL).

E.

Impact

2.8

The most notable impact of Bank activities has to do with institutional reforms. For example, introduction of the integrated financial management system (IFMS) in all central government departments has improved expenditure management and made spending less discretionary, causing extrabudgetary spending to drop from 12% in 2000 to 1% in 2003. Moreover, as a consequence of the financial reforms in the education and health sectors, social spending has been brought under better management, and allocation and execution levels have improved. Between 2002 and 2004 there were real increases in budgetary programming at the Ministry of Education (SEE) and Ministry of Public Health and Social Assistance (SESPAS) of 8% and 13% respectively. Moreover, between 2001 and 2003 SESPAS executed 99% of program spending, and SEE 92%. The reforms allowed the government to protect recurrent (nonpayroll) social spending during the crisis, and at the end of 2004 the priority social programs in education and health had achieved overall physical and financial execution of more than 85%.

2.9

The Bank’s sustained efforts in education have not only improved service delivery but have begun to show a real impact. The Bank program helped to consolidate the progress that the country has been making in this sector since the early 1990s: access to basic education rose from 62% in 1995 to 93% in 2003; as well, average expenditure on basic education per student rose from US$105 to US$242 between 1997 and 2003, the dropout rate fell from 11% to 5%, and the elementary school graduation rate rose from 25% to 60% (IDB, 2004c, Alvarez 2004). Other institutional outputs include approval and implementation of: (i) the Monetary and Financial Code; (ii) the Anti-money-laundering Act; (iii) the Systemic Risks Act; and (iv) the Public Accounting Act. In the social sectors: (i) the Dominican Social Security System Act; (ii) the General Health Act; (iii) the Land Registry Act; (iv) the poverty reduction strategy (PRS); (v) the National Competitiveness Strategy and the PNC; and (vi) the Regulations Governing the Status of Teachers (IDB, 2004a; IDB, 2004b).

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F.

Lessons learned from the previous BCS

2.10

Formulation and execution of the previous BCS showed that achieving strategic selectivity in the country requires factors to be identified that can increase the value added by the Bank. The main determinants have included: (i) the scale and scope of the strategic approach; (ii) the presence of integrating elements; and (iii) selectivity through the linkage of institutional reforms. The Bank’s strategic approach must be realistic and must recognize the incremental scale needed to address the country’s institutional problems, giving priority to activities with previously demonstrated effectiveness, taking a gradualist approach to reduce execution risks in the less viable areas, defining strategic objectives more clearly, employing explicit criteria of institutional and political viability in selecting instruments and sequencing actions, and coordinating more effectively with other multilateral agencies. At the same time, because the institutional reforms that have shown themselves most effective are those with integrating elements, the Bank must give priority to activities that will promote “virtuous circles” and that will also produce demonstrable results in the short term. Experience in the country would suggest that, to make institutional reforms more effective (IDB, 2004a), they should be linked through programmatic approaches that employ more than one project and encourage long-term strategic frameworks.

2.11

When it comes to execution, the lessons learned have shown that the portfolio’s value added increases with: (i) identification of incentives for achieving PBL reform targets; (ii) adjustments made during execution; and (iii) the use of analytical products. Experience has shown that including conditions in PBLs to protect social expenditure significantly increased the allocation and spending of funds in the social-sector ministries, and that this encouraged institutional reforms in those ministries and induced the economic authorities to pay more attention to social policy (IDB, 2004a). It was also learned that making adjustments to programs in execution can be useful in responding to a shifting environment, and that nonfinancial products can be useful tools of policy dialogue, the formulation of strategic frameworks that are critical for development, and the dissemination of experience relevant to the country (IDB, 2004f and 2005). Execution of the Bank’s private-sector portfolio showed that the design of such operations must take account of the risks that institutional constraints in such areas as market regulation and legal certainty can pose for private investment.

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III. BANK STRATEGY 2004-2008 A.

Objectives

3.1

The central objective of the Bank’s country strategy (BCS) is to support the government’s efforts to reduce poverty. To achieve this objective, the Bank will support activities around three strategic pillars: (i) the competitiveness pillar, the specific objective of which is to reduce barriers to private investment and sustainable growth; (ii) the governance pillar, the objective of which is to make public administration more efficient and transparent; and (iii) the social pillar, the objective of which is to further human development for the very poor and make social spending more efficient.

B.

Competitiveness pillar: reduce barriers to private investment and sustainable growth

3.2

The return to a sustainable growth path is a necessary condition for reducing poverty in the country. To do so, the Dominican Republic needs to improve competitiveness and lower barriers to private investment by: (i) consolidating the macroeconomic framework; (ii) addressing institutional weaknesses in the financial sector; (iii) improving the business climate; (iv) seizing the opportunities offered by DR-CAFTA; (v) making labor markets more efficient; (vi) improving basic productive infrastructure; and (vii) reducing environmental vulnerability. A key factor in setting these objectives was the IDB group’s identification of a set of strategic priorities for private sector development with the central goal of lowering barriers to investment (Table III-1, Annex XIV) to help meet the country’s competitiveness challenges.

Box III-1. Strategic priorities for private sector support The IDB’s strategy for private sector support in the Dominican Republic in coming years will emphasize elimination of the barriers to private investment that result from a lack of reliable institutions, weaknesses in the rule of law, high production costs, and macroeconomic instability. The IDB group will give priority to the following activities: (i) promotion of macroeconomic stability; (ii) support for effective implementation of the Monetary and Financial Act; (iii) support for effective implementation of legal and regulatory frameworks for private investment in infrastructure projects; (iv) greater legal certainty for investors and creditors, lower business transaction costs, narrower discretionary authority and more transparent rules for interaction between the public and private sector; and (v) support for adapting the productive base to trade integration in the DR-CAFTA context with an emphasis on SMEs. Strategy implementation will be supported by the IDB group using all financial and nonfinancial instruments at its disposal, including activities under the Business Climate Initiative (signed in April 2005) and specific operations with PRI, the IIC, the MIF, the SEP, and RE2. Additionally, the Bank’s Country Office and private sector advisory council will support monitoring and evaluation of strategy implementation.

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3.3

The BCS will support consolidation of the macroeconomic framework in coordination with the World Bank, and in accordance with the main lines of the economic program agreed upon by the government with the IMF. The Bank’s country portfolio will support the government’s 2005 financing strategy, the recapitalization of the Central Bank of the Dominican Republic, and modernization of the IT platform for the payments system through the PBL for consolidation of financial reform and the banking supervision project. At the same time, BCS activities in conjunction with the World Bank under the governance pillar will support public management reforms on both the revenue and expenditure sides, so as to promote fiscal sustainability.

3.4

The Bank strategy in the financial sector will focus on supporting the development and effective implementation of the Monetary and Financial Act as a means of restoring financial sustainability. This will mean concentrating Bank efforts on modernizing monetary, financial and exchange policies and on strengthening regulation and supervision of the sector. Simultaneously, with a longer-term outlook, the strategy will help to make social security reform financially feasible, and the country’s financial markets more efficient.

3.5

To support the government in resolving the institutional weaknesses of the financial sector, the BCS will support policies of the following areas: (i) operating the money market (developing market instruments and strengthening the payments system); (ii) developing the exchange market (interbank market and retail market, information systems); (iii) developing the market for public debt (term and interest rate structure, global indebtedness strategy); (iv) developing the market for stocks, bonds, and derivatives (transfer of financial savings and risk diversification); (v) developing institutional investors (especially in the context of reforms to the pension system); and (vi) developing the market for credit to the productive sectors.

3.6

To achieve this, the Bank will continue to support regulatory modernization and stronger financial system supervision, as part of the IMF economic program and in coordination with the World Bank, through an active portfolio that includes projects for the consolidation of financial reforms, strengthening of bank supervision, and pension reform. The operations program will also support the government in implementing these reforms through a policy reform program for modernization of the financial sector.

3.7

To enhance the competitiveness of the sectors with greatest potential for penetrating international markets and seize the opportunities offered by DR-CAFTA, the Bank strategy will concentrate on: (i) modernizing trade and agricultural policies; (ii) strengthening phytosanitary and food safety systems; (iii) strengthening the capacity to manage and coordinate export policy; (iv) preparing the national export promotion program; and (v) increasing access to the one-stop window for export processing. In addition, Bank activities will be guided by the updating and execution of the National Competitiveness Plan (PNC) with the emphasis on:

- 22 -

(i) increasing business partnerships; and (ii) adopting modern processes, systems and tools of business management that will increase export value added and diversification in the priority sectors of tourism, the export processing zones, manufacturing (including SMEs) and agroindustry.

3.8

The Bank’s country portfolio supports these objectives through projects to promote competitiveness, the foreign trade facility, institutional development for the information society, and support for the agrifood transition. The BCS also includes a global credit loan for productive sector development, to expand SME access to credit, and two local export credit operations supported by PRI. One of the first beneficiaries of this facility will be the Banco Hipotecario Dominicano. The Multilateral Investment Fund (MIF) will finance projects along the same lines to enhance the competitiveness of the textiles and clothing industry and to simplify procedures for SME startup and operation, The Inter-American Investment Corporation (IIC) will support medium-sized enterprises in the shipbuilding and paper sectors. The SEP will support business partnership projects for farmers, microenterprises, and small businesses.

3.9

The IDB group strategy to improve the business climate will focus on greater legal certainty for investors and creditors, lower business transaction costs, and more transparent rules for interaction between the public and private sectors.

Specifically, the operations program includes a second stage of institutional reforms to enhance legal certainty in land ownership through consolidation of the real property adjudication and registration system, which will build on progress under the project for modernization of the real property adjudication and registration system now in its final stages of execution. Through its Business Climate Initiative, the IDB group will also support amendment of the commercial code to broaden the use of financial instruments, to improve contract performance and the adoption of best practices in corporate governance, accounting and auditing, and to simplify the processes for new business startup and operation, especially for SMEs. The Bank will also support dialgue between the public and private sectors for a consensusbased, long-term vision for sector development through additional technicalcooperation operations in conjunction with the MIF.4

3.10

To make the labor market more efficient, the BCS will support the government in actions to: (i) modernize labor mediation processes through public-private initiatives that make the job search process more effective and balance employment supply and demand; and (ii) promote public-private partnerships that create opportunities for vocational training in higher value-added activities. The

4

The MIF will support the following projects: (i) generation of renewable energy sources in tourism companies; (ii) integration of worker remittances into local economies; (iii) adoption of international audit and accounting standards; (iv) sustainable tourism in Bayahibe; and (v) adoption of best practices in corporate governance.

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operations program will support these actions through the two-phase project on labor intermediation, vocational training and social assistance. The labor reform and training project now in execution will also contribute.

3.11

The IDB group’s strategy in the infrastructure sector will concentrate on developing productive infrastructure in the following priority areas: (i) restoring the road system and strengthening maintenance systems; (ii) improving access to drinking water and basic sanitation; and (iii) contributing to recovery in the energy sector. In support of these objectives, the portfolio includes projects for rural roads and for reform and modernization of water and sanitation. The operations program also includes the project for rehabilitation of road infrastructure, to improve the quality of maintenance for the road system. In the energy sector, the Bank’s strategy will focus initially on supporting the government in policy dialogue in conjunction with the World Bank as it executes a reform program to strengthen sector institutions. The proposed operations program also calls for a PDL for consolidation of energy sector reform, designed to enhance the financial sustainability of the sector and to modernize distribution and transmission networks. To the extent that the institutional framework for public contracting and concessions improves and barriers to business come down, PRI will explore support options for public-private partnership development in the infrastructure sector.

3.12

To reduce environmental vulnerability, the BCS calls for helping the government conserve natural resources by creating the conditions to protect water sources from environmental degradation, to prevent natural disasters, and to avoid the misuse of water resources. The portfolio includes the project for user administration of irrigation systems that will improve water use and irrigation systems. The proposed operations program includes a sector facility for disaster prevention and risk management to develop and strengthen institutional capacities to prevent and mitigate natural disasters, as well as the two-phase project for integral management of watersheds and coastal areas, which will be supplemented by two nonreimbursable operations under the Global Environment Facility (GEF). The technical cooperation program also includes a project for design of a solid waste disposal solution. Mitigation of environmental vulnerability is directly linked to the sustainability and enhanced competitiveness of tourism activities, especially the new actions in the proposed operations program.

C.

Governance pillar: Make public administration more efficient and transparent

3.13

Promoting sustainable economic growth requires a public administration that can deliver basic public goods and services efficiently. Public policy management must also help to prevent economic crises and to cushion the impact of external shocks.

To this end, the BCS will concentrate on consolidating and deepening reforms with respect to fiscal management, transparency and government oversight.

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3.14

To make public administration more efficient and transparent, the BCS will support activities to make the financial management reforms launched in 2001 a permanent feature of the social sectors. The principal governance reforms include: (i) extending the integrated financial management system to autonomous and decentralized nonfinancial agencies; (ii) implementing new legislation governing integrated financial management (budgeting, cash management, concessions, procurement, and public credit); (iii) modernizing the national public investment system; and (iv) modernizing customs and internal revenue administration.

3.15

At the central government level, this set of actions will contribute to fiscal discipline and a sounder macroeconomic framework. With the law on concessions and procurement in particular, it will help to expand infrastructure investments through public-private partnerships, and to improve indices of government effectiveness. In the social sector, these reforms will be reflected in the introduction of a system for results-driven budgeting and enhanced efficiency and targeting in the social safety net system. This set of actions will help to make spending more efficient by facilitating future resource allocations to actions that contribute in a quantifiable way to poverty reduction and greater human development of the population.

3.16

This set of activities reflects implementation of the action plan in the Country Fiduciary Assessment (CFA), and will be supported by the BCS through a PBL for social-sector management reform and a project for the modernization of public finances, which will be supplemented in the procurement area by a World Bank project. The active portfolio supports these objectives through the integrated financial management project, which is in the final stages of execution. In addition to the foregoing, the strategy will support the country’s actions under this pillar through implementation of the PRODEV initiative, which was signed in April 2005 at the Bank’s Annual Meeting in Okinawa. This initiative will strengthen institutional capacity for management-by-results, with a view to eligibility for the Bank’s new and more flexible financial instruments (Annex XI).

3.17

To strengthen institutional capacity for the formulation, monitoring and evaluation of public policies, the BCS includes a project for institutional strengthening of the National Statistics System. Operations in the active portfolio will also help improve the quality of internal and external control through projects for reform of the executive branch and modernization of Congress, respectively. The nonreimbursable technical-cooperation program proposed for this pillar includes two operations: Support for fiscal and social policy coordination, and Social oversight, transparency and accountability.

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D.

Social pillar: Further human development for the very poor and make social spending more efficient

3.18

In the effort to achieve pro-poor growth, it is important that the transition to stability and sustained growth be accompanied by social policies that will improve income distribution, promote social inclusion, and allow a risk-focused response to the demands of vulnerable groups, particularly undocumented women and children and the rural poor. To this end, the BCS will concentrate on: (i) consolidating and deepening education reforms; (ii) expanding the coverage of community health services; (iii) modernizing the systems for social assistance, labor intermediation, and vocational training; and (iv) supporting rural poverty reduction. All these actions are part of the PRS and contribute toward the MDGs.

3.19

The Bank’s strategy in the education sector seeks to consolidate education reforms through the expansion of rural multigrade education, improvements in basic education in low-income urban districts, and strengthened education management and intermediate education. In line with this strategy, the operations program includes the second phases of two projects, now in execution, for equity in basic and intermediate education. The BCS also calls for Bank participation in an education SWAp, jointly with the World Bank and the European Union.

3.20

The Bank’s strategy in the health sector will be to support the decentralization and integration of community health services into primary care services, so as to improve the coverage of child immunization programs and detection and control rates for infectious and vector-borne diseases. In line with this strategy, the BCS includes a performance-driven program to protect public health programs, and the portfolio includes a project on institutional reform of the health sector, now at a late stage of execution.

3.21

The modernization of social safety nets and labor intermediation systems will be supported by a two-phase project on labor intermediation, vocational training and social assistance. The project seeks to modernize instruments for targeting expenditures and selecting beneficiaries, and includes training and productive development activities for low-income sectors with an emphasis on bringing poor young people and women and the rural population into the workforce. To buttress the government’s efforts to address rural poverty and social exclusion, the Bank’s country strategy will also support PRS implementation in rural areas through a rural poverty reduction SWAp. Complementing actions by the Bank and other donors in the social sector, this SWAp will foster investment to improve basic household infrastructure, access to basic sanitation services, and land titling and registration.

E.

The operations program: scale, sequencing and instruments

3.22

The BCS program has two scenarios: the base scenario for US$611 million with 12 operations, and the high scenario for US$941 million with four additional

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operations. The scenarios correspond to the base and high macroeconomic scenarios described in Table I.2, Economic Projections 2005-2008.

3.23

The implementation sequencing provides, first, a base scenario that, in the first two years of BCS execution, focuses on areas critical to strengthening the macroeconomic framework, such as expenditure management reforms and tax administration reforms. The PBL for social-sector management reform would support these reforms in association with the project for modernization of public finance. At the same time, actions to reduce barriers to private investment and competitiveness would be supported by the significant group of pro-growth projects in the portfolio, as well as new infrastructure projects (integrated management of watersheds and coastal areas, and road rehabilitation), legal certainty (consolidation of the real property adjudication and registration system), labor markets (labor intermediation, vocational training and social assistance), and a sector facility for disaster prevention and risk mitigation.

3.24

In this first stage of BCS implementation, the IDB group’s efforts to improve the climate for private investment will focus on strengthening the regulatory framework for doing business in the country and supporting local export credit.

During those two years, the social pillar will focus on deepening the reform of social-sector institutions with an emphasis on the targeting of subsidies and transfers, expanding coverage of community health services, and making the labor market more efficient for the poor. These reforms will enhance the efficiency of public spending and the quality of social expenditure. The PBL for social-sector management reform would support these reforms in association with the labor intermediation, vocational training and social assistance I projects and the performance-driven program to protect public health programs. The project for modernization of the National Statistics System, to be prepared in the first year of BCS implementation, will lay the technical groundwork for better monitoring and evaluation of the government policies supported by the BCS. In the last two years of BCS implementation, the base scenario contains three additional programs.

They all relate to the second phases of activities that are either in the current portfolio (intermediate education II and equity and basic education II) or the first phase of which would be approved during the first two years of this BCS (labor intermediation, vocational training and social assistance II).

3.25

The shift to the high scenario will depend on the extent to which elimination of the nonfinancial public-sector deficit improves fiscal capacity, the tax system is reformed, and government financial management and energy sector reforms are implemented. This scenario entails more ambitious fiscal adjustment targets and swifter implementation of the other structural reforms. It presupposes that government efforts, supported by the Bank, will improve the institutional infrastructure and the investment climate, that the tax reform is successfully implemented, and that these contribute to greater economic growth and to a fiscal position that allows greater borrowing capacity. Thus, the triggers for the high

-27

scenario would be: (i) a cumulative NFPS deficit of 0% of GDP for 2005 and 2006;5 and (ii) a new legal framework for financial management in the areas of budgeting, government procurement and concessions, cash management, and public credit. The triggers in the energy sector include: (i) having a new system in place for calculating, adjusting and collecting electricity rates; (ii) reforms to the energy subsidies system; and (iii) evidence of substantial improvement in reducing losses.6 3.26

The high scenario would build on success with the structural reforms undertaken in 2005 and 2006, and would concentrate initially on extending the reforms in the financial sector to enhance its soundness while improving access to credit for the productive sectors, especially for SMEs. This will be achieved through the PBL for modernization of the financial sector and the global credit loan for productive sector development. Subsequently, activities to promote private investment and growth will be supplemented with the PDL for the consolidation of energy sector reform. The modernization of public management systems, the PRODEV initiative, and more efficient social spending would combine to strengthen execution capacity for loans from multilateral agencies and lay the groundwork for management-byresults, at least in the social sectors. These activities would culminate in targeted actions to reduce rural poverty and improve income distribution through a rural poverty reduction SWAp.

3.27

The proposed operations program uses various types of financial and nonfinancial instruments (Annex I). The PBLs will support the policy reforms to consolidate the macroeconomic framework, improve fiscal discipline, enhance the transparency of public expenditure, increase the soundness of the financial sector, and make social spending more efficient. This will not only respond to the country’s financing needs, but will also increase the overall impact of the investment program to improve competitiveness and reduce barriers to private investment. In addition, progress on reforms during the first few years of BCS execution would increase the likelihood that the country can access programmatic financing and that the Bank can make greater use of national public management systems. This would allow the use of new approaches such as SWAps and new instruments such as PDLs. A set of nonfinancial activities spanning all three pillars of the BCS has been identified that will contribute to a deeper understanding of the country and support policy dialogue.

5

This figure will be adjusted to be consistent with the economic program agreed upon by the government and the IMF.

6

In May 2005 the World Bank approved a programmatic operation of US$150 million in support of these reforms.

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F.

Financial effects of resource flows and the Bank’s exposure

3.28

In gross terms, IDB financing flows represent 19% of the country’s financing needs for 2005, slightly under 10% for 2006, and 13% and 17% in the base and high scenarios, respectively, for 2007. While IDB financing constitutes significant support for the country’s financing policy, these amounts represent moderate levels of, respectively, 16%, 12%, 13% and 17% of external public debt service. The Bank’s exposure will remain consistent with standard prudential criteria under both scenarios. Service on the IDB debt, which will stay at around 10% of total debt service in the first two years, will rise temporarily to 21% in 2008, but will remain below the 30% ceiling.

3.29

In net terms, IDB flows will remain positive by about US$50 million in the first two years of the BCS, becoming negative in the following two years (Table III.1, detailed information in Annex VI). This is a temporary phenomenon that will diminish sharply in the following two years, and then disappear entirely. Moreover, while these negative flows would represent about 10% of debt service, they are small in comparison with total debt (1.4% of external debt or 0.4% of GDP under the base scenario). Consolidation of the public debt will proceed satisfactorily even under the base scenario, according to which public debt as a proportion of GDP falls by six percentage points between 2003 and 2007 to a level of 46% for total public debt, and 30% for external public debt. Under the high scenario, the country will have the opportunity to strengthen its indebtedness situation still further, as the authorities will be able to use the additional financing to retire more costly debt or to finance a portion of expenditure at lower cost.

Table III.1 Net Flow of Resources by Scenario Scenario

2000

2001

2002

2003

2004

2005

2006

2007

2008

Base

-20.6

60.2

17

-8.3

126.8

53.7

49.8

-89.2

-113.6

High

-20.6

60.2

17

-8.3

126.8

53.7

49.8

-40.3

-44.6

G.

International coordination

3.30

Programmatic and operational coordination among the IDB, the World Bank and the IMF has been on the rise since 2003. As the lead multilateral financing agency in the country, the IDB has succeeded in generating synergy to encourage convergence of development agendas with other donor agencies and to improve the quality of policy dialogue with the government. Especially noteworthy are the Bank’s efforts at harmonization to foster a common policy dialogue with the World Bank and the IMF, a joint dialogue meeting with the government in October 2004, and joint analytical products such as the 2004 CFA and the poverty study in 2005.

3.31

The current BCS, the SBA and the World Bank’s strategy for 2005-2009 encourage interagency coordination through support for the following reforms: (i) the financial

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sector (in which the IMF and the IDB play a preponderant role, with technical support from the World Bank and USAID); (ii) fiscal management (in which the IDB will continue to lead, in association with the World Bank and the IMF); (iii) the social sector (in which the IDB and the World Bank have been coordinating their activities since the mid-1990s); and (iv) the energy sector (in which the World Bank will play the leading role, with support from the IDB). Annex IX provides a more detailed description of the role of the various international agencies in areas of the BCS. The strategy will promote coordination of external financing through: (i) support for the preparation of strategic frameworks for institutional reform; (ii) coordinated support for fiscal management reform; (iii) joint production of analytical and other nonfinancial products; (iv) cofinancing; (v) joint policy dialogue; and (vi) SWAps in the social sectors.

H.

Strategy implementation risks

3.32

Institutional and political risks. The political climate, extensive institutional shortcomings, the minority position of the governing party in the Legislative Assembly, and the pressure of interest groups opposed to the reforms called for in the BCS could make it more difficult to implement some of those reforms. In response, the BCS takes a selective approach to supporting reforms in areas: (i) of demonstrated effectiveness; (ii) in which previous activities have demonstrated political will; and (iii) in which Bank action can create synergy with the IMF and World Bank. This will enhance the institutional and political viability of the reforms contained in the base scenario, and will open the way for progress in this context to trigger access not only to the high scenario but to programmatic approaches.

3.33

Economic risks. The main economic risks to strategy implementation are: (i) failure to make progress in the public sector’s financial position; (ii) a new banking shock; (iii) a new oil shock, which would also jeopardize reform in the energy sector and worsen the external position; and (iv) little response from the private sector to the new opportunities offered by the economic climate. To a large extent, these risks are common to the BCS, the government’s strategy and the SBA, each of which contains numerous mitigation measures. The SBA and the BCS will help to reduce these risks by focusing much of their support to the country on developing modern institutions for fiscal management and strengthening the capacity for supervision and regulation of the financial sector. At the same time, the relative weight of BCS operations under the competitiveness pillar, and concerted efforts with the World Bank in the energy sector, will help to reduce the risk of an inadequate private response to the economic framework.

3.34

Risks of natural disasters. The vulnerability of the Island of Hispaniola to natural disasters constitutes an exogenous risk to BCS implementation. While the operations program addresses this issue as a development challenge and calls for specific actions, the fact remains that large-scale disasters could have the effect of

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shifting the operations program and the portfolio towards emergency relief operations. While the operations program does propose actions to reduce vulnerability to disasters, the Bank’s ability to mitigate this risk is limited.

I.

The results framework and monitoring of the BCS

3.35

The BCS is guided by a long-term view of outcomes that is consistent with the government program, as well as the multiyear frameworks for the poverty reduction and competitiveness strategies, and the Millennium Development Goals. Annex XI presents the framework for monitoring and evaluating outcomes. The Bank will monitor the results framework for the strategy: (i) continuously, by tracking portfolio execution; (ii) annually, through programming and portfolio missions; (iii) at the end of 2006, through a midterm evaluation; and (iv) at the end of the programming cycle in 2008, through a BSC self-evaluation exercise in conjunction with the government. The findings will be reflected in annual country strategy updates, in the midterm evaluation report, and in a country program evaluation.

These reports will be used for policy dialogue with the government, for adjustments to the BCS, and for preparing the next programming exercise.

J.

Country financing parameters

3.36

In November 2004, the Board of Executive Directors approved a policy to change the use of Bank resources in investment loans and established country financing parameters (CFPs, Table III-2). Thus, in recognition of the social commitment demonstrated by the government through such measures as protecting priority spending with a major impact on poverty reduction and deepening reforms to make social spending more efficient and effective, the Bank may finance up to 100% of the cost of the social projects included in this strategy, and up to 90% of the cost of projects in other sectors. Annex V provides greater detail.

Table III-2. Country financing parameters (CFPs) Category

Parameter

Financing matrix

Up to 100%

Financing of recurrent costs

Yes

Financing of local costs

Up to 100%

Taxes and charges

Yes

IV. AGENDA FOR COUNTRY DIALOGUE 4.1

The Bank’s country strategy (BCS) expands the level and scope of policy dialogue with the country. The intent is to seek convergence between the country’s development agenda and the Bank’s institutional strategy and to enhance the value

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added from Bank activities. The most important dialogue issues are: (i) monitoring the economic policy aspects of the reforms called for in the BCS; (ii) monitoring the action plan for implementing the DR-CAFTA; and (iii) implementing the PRODEV initiative.

Annex I Page 1 of 4

TENTATIVE LENDING PROGRAM 2005-2008 (IN MILLIONS OF US$) Projects

Scenarios Base

High

Modernization of public finance (investment)

25

25

Institutional modernization of the National Statistics System (investment)

10

10

150

150

10

10

5

5

200

200

100

100

Integrated management of watersheds and coastal areas I (multiphase)

50

50

Consolidation of real property adjudication and registration system

10

10

Protection of public health programs (performance-driven)

40

40

200

200

Modernization of the financial sector (policy-based)

0

100

Consolidation of energy sector reforms (performance-driven)

0

100

Productive sector development (global credit loan)

0

80

81

81

81

361

0

50

30

30

100

100

130

180

611

941

2005

Social-sector management reform (policy-based) Labor intermediation, vocational training and social assistance I (multiphase) Disaster prevention and risk management (sector facility) Subtotal 2005 2006 Road infrastructure rehabilitation

Subtotal 2006 2007

Intermediate education II (multiphase) Subtotal 2007 2008 Rural poverty reduction (SWAp) Labor intermediation, vocational training and social assistance II (multiphase) Equity in basic education II (multiphase) Subtotal 2008 Total

Annex I Page 2 of 4

TECHNICAL COOPERATION PROGRAM (IN THOUSANDS OF US$) Number

Project

Amount

Pillar 1. Reduce barriers to sustainable growth DR-T1012

Design of a solid waste disposal solution

630

DR-X1001

Integrated management of the coastal-marine zone of Samanรก (GEF)

--

Project preparation facility for integrated management of the coastal-marine zone of Samanรก (GEF)

3,000

Total Pillar 1

250 3,880

Pillar 2. Make more efficiency and transparent public administration DR-T1004

Support for fiscal and social policy coordination (approved)

440

--

Social oversight, transparency and accountability

250 Total Pillar 2

690

Pillar 3. Further human development for the very poor and make social spending more efficient --

Social inclusion

350

--

Efficiency in the production of public health goods

150 Total Pillar 3

Total

500 5,070

Annex I Page 3 of 4

PRIVATE SECTOR GROUP 2005-2006 (IN MILLIONS OF US$) Project

Amount

Multilateral Investment Fund (MIF) Adoption of international audit and accounting standards

0.6

Sustainable tourism in Bayahibe

1.0

Business Climate Initiative (*)

n/d

Competitiveness of the textiles and clothing industry

0.5

Generation of renewable energy sources (*)

n/d

Adoption of best practices in corporate governance (*)

n/d

Procedural simplification for MSME startup and operation

n/d Total MIF

1.75

Inter-American Investment Corporation (IIC) Operation with businesses in the shipbuilding sector (*)

n/d

Operation with businesses in the paper sector (*)

n/d

Other SME financing operations (*)

n/d Total IIC

n/d

Social Entrepreneurship Program (SEP) Farmer entrepreneurship project (*)

n/d

Business partnership operations for MSMEs

n/d Total SEP

n/d

Private Sector Department (PRI) Export trade financing (Banco Hipotecario Dominicano)

15.0

Local export credit operations (*)

n/d

Public-private partnerships in the infrastructure sector (*)

n/d Total PRI

n/d.: not determined – (*) Projects in the initial identification stages.

15.0

Annex I Page 4 of 4

NONFINANCIAL AND ANALYTICAL PRODUCTS – FINALIZED Studies and Documents

Unit Responsible

Debt sustainability study

OD3

Building social capital through fiscal reform

RE2

Strategic priorities for IDB group support for private sector development

FI2

Guidelines for public administration reform

OD3

NONFINANCIAL AND ANALYTICAL PRODUCTS – 2005-2008 Studies and Documents

Year

Unit Responsible

Poverty study (preliminary version finalized)

2005

SO2

Alternative exchange rate regimes in support of exports and economic growth

2005

OD3

Conditions of access to DR-CAFTA and impact on agricultural products

2005

OD3-CDR

Evaluation of supply chain competitiveness in the tourism, textiles, and agroindustry sectors

2005

FI2

Sector note on financing of intermediate education and education quality

2006

SO2

Sector note on alternative dispute settlement procedures

2006

SC2

2006-2007

FI2

2008

SC2

Update of the PRS

2005

SO2-OD3

Analysis of legal and institutional alternatives for reducing access barriers to public subsidies

2005

OD3

2006-2008

OD3

2007

FI2

Workshop on poverty and social exclusion

2005

SO2

Seminar for lawmakers on management of public finances

2005

RE2

Workshop on State reform

2006

SC2

Workshop on new IDB group lending instruments

2006

OD3

Evaluation of payment systems in Central America and Dominican Republic (IDB/WB/IMF) Update of the Country Fiduciary Assessment (IDB,WB) Technical support

Economic policy implications of reforming public administration Development of the debt market Workshops and policy dialogue meetings

Workshops in support of policy dialogue and management of the education system

2005-2008

SO2

Policy dialogue meeting for the BCS midterm evaluation

2007

OD3

Regional workshop on integrating means of payment

2007

FI2

Policy dialogue meeting on changeover of new administration

2008

OD3