FOR OFFICIAL USE ONLY - World Banksiteresources.worldbank.org/INTLACREGTOPLABSOCPRO/Resources/... · FOR OFFICIAL USE ONLY ... PARSS2 Health Sector Reform Adaptable Program Loan II

Document of The World Bank

FOR OFFICIAL USE ONLY

Report No. 56835-DO

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

PROGRAM DOCUMENT

FOR A PROPOSED LOAN

IN THE AMOUNT OF US$150.0 MILLION

TO THE

DOMINICAN REPUBLIC

FOR A

SECOND DEVELOPMENT POLICY LOAN ON

PERFORMANCE AND ACCOUNTABILITY OF SOCIAL SECTORS (PASS)

October 18, 2010

Human Development Sector Management Unit Caribbean Country Management Unit Latin America and the Caribbean Region

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

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GOVERNMENT FISCAL YEAR January 1 – December 31

CURRENCY EQUIVALENTS (Exchange Rate Effective as of September 30, 2010)

Currency Unit = Dominican Pesos

US$1.00 36.88

Weights and Measures Metric System

ABBREVIATION AND ACRONYMS

ADESS Administrator of Social Subsidies AECI Spain International Cooperation Agency AF Additional Financing APL Adaptable Program Loan APMAEs Fathers, Mothers and Friends of the School Association (Asociación de

Padres, Madres y Amigos de la Escuela) ATI Access to Information CAF Andean Development Corporation (Corporación Andina de Fomento) CAS Country Assistance Strategy CCSC Civil Society Consultative Council (Consejo Consultivo de la Sociedad Civil) CCT Conditional Cash Transfers CDEEE Dominican Corporation of State Electrical Enterprises CMU Country Management Unit CONARE National Commission for State Reform CPS Country Program Strategy CRAL Social Crisis Response Adjustment Loan CSOs Civil Society Organizations CRI Cost Recovery Index DGII General Tax Directorate DPL Development Policy Loan DR Dominican Republic DSA Debt Sustainability Analysis EC Executive Committee EU European Union ECD Early Childhood Development FDI Foreign Direct Investment FINCR Credit Risk Department in Finance FTZ Free Trade Zones GCPS Office for the Coordination of Social Policy (Gabinete de Coordinación de

Política Social) GDP Gross Domestic Product GNP Gross National Product GoDR Government of the Dominican Republic GPRF Governance and Partnership Facility Grant IADB Inter-American Development Bank

IFIs International Financial Institutions IMF International Monetary Fund LAC Latin American and the Caribbean Region LGP Liquefied Gas from Petroleum LOI Letter of Intent MAP Ministry of Public Administration (Ministerio de Administración Pública) MEPyD Ministry of Economy, Planning and Development (Ministerio de Economía,

Planeamiento y Desarrollo) MH Ministry of Finance (Ministerio de Hacienda) MINERD Ministry of Education (Ministerio de Educación de la República Dominicana) MIS Management Information System MSP Ministry of Public Health (Ministerio de Salud Pública y Asistencia Social) NLTA Non-Lending Technical Assistance OM Operations Manual OREALC Regional Education Office for Latin America & the Caribbean PASS Performance & Accountability of Social Sectors Program PARSS2 Health Sector Reform Adaptable Program Loan II PFM Public Finance Management PFSS Public Finance and Social Sector PROMESE/CAL Essential Medicines Program/National Procurement and Distribution Agency PSIA Poverty and Social Impact Assessment RHSs Regional Health Services SBA Stand-By Agreement SENASA National Health Insurance SERCE Second Regional Comparative and Explanatory Study SGCE School Management System (Sistema de Gestión de Centro Escolar) SIFMUN Municipal Financial Information System (Sistema de Información Financiera

Municipal) SIGEF Financial Management Information System SIUBEN Single Beneficiary Selection System (Sistema Único de Beneficiarios) SMU Sector Management Unit SPIL Social Protection Investment Loan SRS Regional Health Services (Servicios Regionales de Salud) UNAPs Primary Attention Units (Unidades de Atención Primaria) UNESCO United Nations Educational Scientific and Cultural Organization UNICEF United Nations Children’s Fund WB World Bank

Vice President:Country Director:

Sector Director:Sector Manager:

Task Team Leader:

Pamela CoxYvonne Tsikata Keith Hansen Helena Ribe Carine Clert

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DOMINICAN REPUBLIC

SECOND DEVELOPMENT POLICY LOAN ON PERFORMANCE AND ACCOUNTABILITY OF SOCIAL SECTORS

CONTENTS

LOAN AND PROGRAM SUMMARY ..........................................................................................................1 I.  INTRODUCTION .............................................................................................................................4 II.  COUNTRY CONTEXT ....................................................................................................................4 

II.1 RECENT MACROECONOMIC DEVELOPMENTS ...........................................................................4 II.2 MACROECONOMIC OUTLOOK AND RISKS .................................................................................9 

III.  THE GOVERNMENT’S PROGRAM AND PARTICIPATORY PROCESSES ........................13 III.1 POVERTY, SOCIAL SPENDING AND HUMAN CAPITAL: EVOLUTION SINCE 2009 .......................13 III.2 HUMAN CAPITAL PROMOTION FOR THE POOREST ...................................................................19 III.3 IMPROVING EXPENDITURE MANAGEMENT FOR ENHANCED SOCIAL SECTOR PERFORMANCE .25 III.4 ENHANCING TRANSPARENCY AND ACCOUNTABILITY IN SOCIAL SECTORS THROUGH

ENHANCED CIVIL SOCIETY OVERSIGHT ....................................................................................30 III.5 PARTICIPATORY PROCESSES ...................................................................................................32 

IV.  BANK SUPPORT TO THE GOVERNMENT’S PROGRAM ......................................................34 IV.1 LINK TO THE CPS ...................................................................................................................34 IV.2 COLLABORATION WITH IMF ...................................................................................................34 IV.3 COLLABORATION WITH OTHER DONORS ................................................................................34 IV.4 RELATIONSHIP TO OTHER BANK OPERATIONS ........................................................................35 IV.5 LESSONS LEARNED .................................................................................................................35 IV.6 ANALYTICAL UNDERPINNINGS ...............................................................................................36 

V.  THE PROPOSED OPERATION .....................................................................................................37 V.1 POLICY AREA I. ENHANCING THE PERFORMANCE OF SOCIAL SECTOR AGENCIES TO PROMOTE

EQUITABLE ACCESS TO HUMAN CAPITAL .................................................................................39 V.2 POLICY AREA II. IMPROVING BUDGET MANAGEMENT TO SUPPORT THE JOINT PERFORMANCE

OF THE CCT PROGRAM .............................................................................................................42 V.3 POLICY AREA III. SUPPORTING THE GRADUAL INTRODUCTION OF PERFORMANCE

AGREEMENTS IN THE SOCIAL SECTORS .....................................................................................43 V.4 POLICY AREA IV. IMPROVING TRANSPARENCY AND OVERSIGHT ...........................................43 

VI.  OPERATION IMPLEMENTATION ..............................................................................................44 VI.1 POVERTY AND SOCIAL IMPACTS .............................................................................................44 VI.2 ENVIRONMENTAL ASPECTS ....................................................................................................48 VI.3 IMPLEMENTATION, MONITORING AND EVALUATION ..............................................................49 VI.4 FIDUCIARY ASPECTS ........................................................................................................50 VI.5 DISBURSEMENT AND AUDITING ...................................................................................53 VI.6 RISKS AND RISK MITIGATION .................................................................................................53 

ANNEXES

ANNEX 1: PRIOR ACTIONS FOR PASS2 ..................................................................................................57 ANNEX 2: PASS DPL SERIES. OVERALL OPERATION POLICY MATRIX (July 31, 2010) ...........64 ANNEX 3: UPDATED RESULTS FRAMEWORK FOR THE PASS PROGRAM .................................71 ANNEX 4. DOMINICAN REPUBLIC DEBT SUSTAINABILITY ANALYSIS ......................................77 ANNEX 5: LETTER OF DEVELOPMENT POLICY ................................................................................81 ANNEX 6: COUNTRY AT A GLANCE .......................................................................................................106 ANNEX 7: MAP IBRD 33398 .........................................................................................................................109 

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The Second Development Policy Loan of the PASS series was prepared by a IBRD team consisting of Carine Clert (Task Team Leader, Sr. Social Protection Specialist, LCSHS); Catherine Abreu Rojas (Procurement Specialist, LCSPT), Cristian D’Amelj (Counsel, LEGLA), Pedro Arizti (Public Sector Specialist, LCSPS), Maurizio Bussolo (Sr. Economist, LCSPE), Timothy Cheston (Junior Professional Associate, LCSHS), Christian Contin (Consultant, LCCDO), Cynthia Hobbs (Sr. Education Specialist, LCSHE), Patricia de la Fuente Hoyes (Sr. Finance Officer, CTRFC), Javier Luque (Sr. Education Economist, LCSHE), Fernando Montenegro (Sr. Health Economist, LCSHH), Patricia Orna (Program Assistant, LCSHD), Mariana Montiel (Sr. Counsel, LEGLA), Gunars Platais (Senior Environmental Economist, LCSEN), Maria Poli (Civil Society/Transparency Specialist, LCSSO), Maritza Rodriguez de Pichardo (Financial Management Specialist, LCSFM), Maria Concepción Steta (Social Protection Advisor, LCSHS), and Ludovic Subran (Economist, LCSHD).

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LOAN AND PROGRAM SUMMARY

DOMINICAN REPUBLIC

SECOND DEVELOPMENT POLICY LOAN ON PERFORMANCE AND ACCOUNTABILITY OF SOCIAL SECTORS

Borrower Government of the Dominican Republic

Implementing Agency MINISTRY OF FINANCE Financing Data IBRD Loan Amount: US$150 million

Terms: Commitment-linked Fixed-Spread Loan (FSL) with all the conversion options, payable in 22 years, including a 7-year grace period, with a custom repayment schedule with repayments on each March 15th and September 15th respectively.

Operation Type

Second operation of a series of three proposed Programmatic Development Policy Loans.

Main Policy Areas 1. Social Protection2. Health (Primary Healthcare) and Education Policy 3. Quality and Efficiency of Public Spending

Key Outcome Indicators

1. Enhanced performance of social sectors to promote human capital for the poor(*) By end of 2012, at least 90 percent of CCT Solidaridad transfers are paid based on the timely verification of compliance with co-responsibilities. (*) Increased share of CCT beneficiary households who invest in human capital formation, as measured by:

(*) An increase in CCT Solidaridad beneficiary households who comply with health and nutrition co-responsibilities. (*) An increase in the share of students from Solidaridad beneficiary households who are enrolled in and attending pre-primary, basic and secondary education.

2. Improved budget management for enhanced performance of the social sectors linked to the CCT Solidaridad. Specifically: (*) The difference between the allocated budget and the actual budget to cover the supply gaps in health, nutrition, and education services within Solidaridad will be less than or equal to the difference between the approved overall national budget and the actual budget in relative terms. (*) The difference between the quarterly agreed disbursement schedule (Scheduled Quota) to cover the supply gaps in health, education and nutrition, and the actual funds that are received by the social sectors on a quarterly basis will be reduced.

3. Gradual introduction of Performance Agreements in social sectors (*) Increase in the number of priority programs in health, nutrition, and education related to Solidaridad that have successfully developed the log-frame methodology, which implies the development of objectives, baselines, goals and indicators at different levels.

4. Enhanced transparency and civil society oversight (*) An increase in the number of registered users (At least 60 by end of 2012) and annual hits to the online information search program for the national budget, Consulta Amigable (At least 1,500 by end of 2012).

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Program Development Objective(s) and Contribution to CAS

The PASS has four inter-related objectives: (i) to enhance the performance of social sectors to promote human capital (health, nutrition, and education) for the poorest citizens, through a fundamental redesign of the Government’s Conditional Cash Transfers (CCT) program, Solidaridad, and its articulation with critical actions in health and education; (ii) to improve budget management to support the performance of these social sectors within the CCT program; (iii) to support the gradual introduction of Performance Agreements in social sectors; and (iv) to enhance transparency and accountability to users by strengthening the enabling environment for a better informed demand for improved public sector performance in the social domain. The PASS is consistent with the central pillar of the CPS which calls for “reducing vulnerability while producing results for all.” Specifically, it helps preserve and enhance the human assets of the poor (health and education) by supporting a meaningful shift in social policy from social assistance to the protection and promotion of human capital. It also enhances accountability both within government agencies, and between government agencies and the public.

Risks and Risk Mitigation

Economic risk: Actual recovery remains largely dependent on improvements in the volatile external environment (including the notable risk of a potentially widespread global debt crisis). Crisis recoveries in the DR have historically been swift, but highly regressive, with lasting negative impacts on the poor. If the global economic recovery were to be shorter or weaker than expected, the DR could still face a deterioration of growth performance.

Mitigation: While current economic risks remain substantial, mitigating factors include strong, resilient economic growth with positive developments in certain sectors. The Government has also strengthened its macro-management policies, including growth in the size and sophistication of the domestic debt market and improved financial and bank supervision. Risk that in an effort to meet fiscal targets, the Government might cut expenditures in the social areas, which would threaten the timely implementation of critical reforms linked to this PASS DPL series. Mitigation: The World Bank team continues to monitor this risk closely. Some of the policy actions supported by the PASS Program aim at protecting social expenditures targeted to the poor (See Pillar II for example). Risks linked to the Haiti earthquake of January 2010: the contraction of demand from Haiti, the second largest destination market of Dominican exports, as well as unexpected expenses to help Haiti could produce some negative consequences. Mitigation: The Government does not expect major pressures on education services but pressures on the demand for health services have been observed with fiscal consequences, though no figures are currently available. If well-managed, in the medium-term reconstruction efforts could generate additional demand for Dominican goods and services.

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A higher than expected deficit in the electricity sector could potentially affect Government solvency and contribute to a fiscal financing gap.

Mitigation: Significant negative consequences are not expected from this risk, unless the deficit increases enough to affect the overall deficit. The Government is currently implementing administrative measures to raise revenues and reduce expenditures, with active IMF support and monitoring in this area. The risk of a possible shift in institutional priorities over time, exacerbated by intersectoral coordination challenges within the Government.

Mitigation: The reforms supported by the PASS programs have benefitted from strong Government ownership at high levels. Regarding the CCT reform, inherent difficulties linked to intersectoral coordination did occur but they have been mitigated, as anticipated, by: (i) the institutionalization of the major committees that now oversee the implementation of the redesigned CCT program, including the CCT Intersectoral and Interagency Committees; (ii) incentives for social agencies to jointly deliver results for the CCT program, through the budget management reform supported by the PASS; and (iii) active donor coordination efforts (especially WB-IADB). Institutional and administrative capacity and financial constraints to implement the targeted reforms.

Mitigation: This risk is being mitigated by the activities and resources of the Programmatic NLTAs on Social Sectors and Quality of Public Expenditures, the Social Protection Investment Loan (SPIL) Project, IADB multi-phase investment loan, and GPF grant financing. Vulnerability to multiple natural disaster risks—particularly floods and hurricanes.

Mitigation: Damages to the major private sector enterprises are partly covered by their own insurance. World Bank assistance covers natural disaster risk mitigation under the US$80 million Emergency Recovery and Disaster Management Loan. The strengthening of the CCT Solidaridad, Program through this loan can also help to mitigate the impact of disasters on the poorest.

Operation ID P121778

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IBRD PROGRAM DOCUMENT FOR A PROPOSED SECOND DEVELOPMENT POLICY LOAN

ON PERFORMANCE AND ACCOUNTABILITY OF SOCIAL SECTORS TO THE DOMINICAN REPUBLIC

I. INTRODUCTION

1. This document describes the proposed program for a Second Development Policy Loan (DPL2) aimed at improving Performance and Accountability of Social Sectors (PASS) in the Dominican Republic (DR). This operation is being proposed as the second of a series of three sequential programmatic operations. The strategic vision of the PASS is to improve results in social sectors (mainly social protection, education and health), preserving in the short term, and enhancing in the medium term, the human capital of the poorest citizens. Consistent with this vision, the PASS has four inter-related objectives: (i) to enhance the performance of social sectors to promote human capital (health, nutrition, and education) for the poorest citizens, through a fundamental redesign of the Government’s Conditional Cash Transfers (CCT) program, Solidaridad, and its articulation with critical actions in health and education; (ii) to improve budget management to support the joint performance of the social sector within the CCT program; (iii) to support the gradual introduction of Performance Agreements in key social sector agencies; and (iv) to enhance transparency and oversight in social sectors.

II. COUNTRY CONTEXT

II.1 RECENT MACROECONOMIC DEVELOPMENTS 2. The political context in the Dominican Republic remains relatively stable given the re-election of President Fernandez of the Dominican Liberation Party (Partido de la Liberación Dominicana, PLD) in May 2008 and the expansion of support for the administration with the PLD gains in the May 2010 Congressional elections. The Fernandez Administration (which served from 1996-2000 and consecutively now since August 2004) has maintained a Congressional majority that has supported its policy reforms and initiatives, including a significant commitment to social cohesion and poverty reduction. 3. The Dominican Republic has shown positive macroeconomic signs in mitigating the effects of the international financial crisis, though a few critical areas of weakness remain. In 2008, the early impact of the crisis reduced economic growth to 5.3 percent, down from 8.5 percent in 2007, though still above the Latin America and Caribbean (LAC) regional average of 4.6 percent for 2008. Economic growth further declined in 2009, to 3.5 percent, with the lowest point occurring in the first quarter of 2009, at 1.0 percent. The second half of 2009 showed mild economic recovery, with quarterly average growth of five percent. Preliminary estimates for the first half of 2010 showed accelerated growth of seven percent (see Figure 1).

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Figure 1: GDP Growth Performance

Source: Dominican Republic Central Bank.

4. Recent growth has been driven by positive developments in some sectors, though other key sectors face longer-term structural problems that will continue to impact growth beyond the crisis. While GDP growth slowed to 3.5 percent in 2009, construction expanded by 19.4 percent, commerce by 15.7 percent, farming by 9.6 percent, energy and water by 9.5 percent, and manufacturing by 9.3 percent. Conversely, structural factors linked to the decline of the mining sector and the end of the Multi-Fiber agreement in 2005 led to significant decreases in employment, particularly in the export processing zones (See Section II.2 on employment issues).

5. A number of improving domestic and external factors have supported economic growth in the DR. An accommodative monetary policy stance led to a significant reduction in commercial bank lending rates. This, in turn, led to an increase of private sector credit. The Stand-By Arrangement (SBA) with the IMF, together with additional budget support from the World Bank and the IADB, facilitated the implementation of a counter-cyclical fiscal policy. This policy–consisting especially of an expansion of the public investment spending–started at the end of 2009 and continued through the first half of 2010. Early global recovery, with its positive effects on remittances, tourism, trade and financial conditions, supported growth in the DR (see Figure 2 and Figure 3).

Figure 2: Growth Rate of Tourist Arrivals in the DR (%)

Source: Dominican Republic Central Bank.

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Figure 3: Exports and Remittances

Source: Dominican Republic Central Bank.

6. Following the acceleration of international prices of commodities in late 2007, inflation increased more rapidly in the DR than in the region on average, from an inflation rate of 6.1 percent in 2007 to 10.6 percent in 2008. However, as a result of decreasing oil and food prices, no noticeable price pressures were observed in 2009 and headline inflation ended the year at 5.7 percent (year-on-year), which falls below the Central Bank target range of 6-7 percent. Core inflation (excluding food and fuel prices) reached 3.2 percent (see Figure 4).

Figure 4: Annual Inflation (%)

Source: Dominican Republic Central Bank.

7. Due to the country’s dependence on imported energy and its inefficient electricity sector, the fiscal situation deteriorated during the spike in energy prices in 2008. The primary deficit reached 1.5 percent of GDP and the overall deficit stood at 3.2 percent of GDP. In 2009, lower import prices were counterbalanced by reduced levels of activity, so the overall deficit was stable at 3.1 percent of GDP. Tax revenues declined rapidly in 2009 due to the deteriorating economic environment. The energy sector, notwithstanding lower oil prices and a

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12 percent increase in the average electricity tariff, still recorded a deficit of 1.3 percent of GDP in 2009.

8. The Government contained the fiscal deficit early in 2009 by reducing investment expenditures. Large, coordinated financing from the WB, IADB, and IMF in the last quarter of 2009 allowed the Government to increase investment expenditures, thus stimulating aggregate demand.

9. A sharp decline in imports helped to reduce the current account deficit to 6.2 percent of GDP in 2009. While the high dependence of DR on imported oil and volatile international prices are key determinants of the volatility of the current account balance the persistent current account deficit is due to structural factors affecting the country’s export performance and competitiveness. Since 2000, the increase in exports has slowed relative to GDP, making the DR the only country in the Central America and Caribbean sub-region that has reduced its degree of economic openness in the last decade. A proximate cause for the DR’s declining competitiveness is the high cost of electricity (on average twice that of other countries in the region), though institutional weaknesses in the implementation of trade policy as well as a still inadequate investment climate have constrained export growth.

10. These structural current account deficits have been financed in recent years by considerable inflows of foreign capital especially in the form of FDI. Year-on-year FDI inflows decreased in 2009, but remained the major component of the capital account (80 percent), and have contributed to cover 92 percent of the current account deficit. FDI has been concentrated in tourism activities, communications, commerce, and real estate sectors. Strong remittance flows (estimated at around 10 percent of GDP in recent years) have also been an important source of foreign exchange, though they contracted in 2008 and 2009. FDI and other capital inflows were sufficient to fund the current account deficit, and foreign exchange reserve levels did not suffer (see Figure 5).

Figure 5: Net International Reserves (US$ millions)

Source: Dominican Republic Central Bank.

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Table 1: Dominican Republic Key Economic Indicators 2003-2013 (Percentage of GDP, unless otherwise indicated)

2004 2005 2006 2007 2008 2009* 2010 2011 2012 2013

Actuals Projections

Income and prices    GDP growth (% change) 1.3 9.3 10.7 8.5 5.3 3.5 5.5 5.5 6.0 6.0 GDP per capita (% change) -0.3 7.6 8.7 6.6 - 1.7 3.7 3.7 4.2 4.2 Inflation (CPI % change) 51.5 4.2 7.6 6.1 10.6 1.5 6.5 5.0 4.0 5.7 Exchange rate (% appreciation - or depr. +) 36.6 -27.8 11.8 0.0 - 3.7 3.3 1.9 1.9 1.8 Investment and savings Gross domestic investment 14.9 16.5 18.4 18.9 18.2 16.8 17.3 18.4 18.4 18.4 Gross domestic savings 18.9 13.4 14.0 11.4 8.5 11.8 11.2 12.9 14.8 14.6 Non Financial Public sector Total revenues and grants 14.1 15.7 16.0 17.4 15.8 14.0 14.5 15.3 15.7 15.7 Total tax revenues 12.9 14.5 14.8 16.0 14.9 13.6 14.1 14.7 15.1 15.1 Total expenditures (incl. interest) 15.7 16.7 16.9 17.4 20.4 17.1 17.1 16.9 16.3 16.3 Current expenditures 12.7 12.9 13.7 12.7 15.4 13.0 12.6 11.9 11.3 11.3 Capital expenditures 3.0 3.9 3.3 4.7 5.0 4.1 4.5 5.0 5.0 5.0 Primary balance 0.1 0.4 0.6 1.7 -1.5 -1.1 -0.4 0.6 1.6 1.6 Interest 1.8 1.3 1.4 1.6 1.7 2.0 2.2 2.2 2.2 2.2 Overall balance -1.8 -0.9 -0.7 0.1 -3.2 -3.1 -2.6 -1.6 -0.6 -0.6 Public debt Total debt 47.4 34.5 36.4 33.4 35.5 39.0 39.8 40.1 38.9 37.6 Balance of payments Current account balance 4.8 -1.4 -3.7 -5.3 -9.7 -6.2 -6.0 -4.8 -4.0 -4.1 Trade balance -9.0 -11.1 -15.6 -15.6 -20.3 -14.6 -15.1 -14.4 -12.6 -12.4 Exports (including FTZ) 43.7 30.0 31.3 28.9 25.6 22.2 20.9 21.1 22.1 21.4 Imports (including FTZ) -42.2 -33.8 -38.5 -37.1 -39.1 -30.2 -29.7 -29.2 -28.2 -27.3 Foreign direct investment 4.2 3.3 4.3 3.8 6.3 4.5 3.8 3.2 3.0 2.9 Remittances 10.3 7.2 7.7 7.3 7.1 6.8 6.7 6.2 5.7 5.2 Memorandum item: Nominal GDP (billions of US dollars) 21.6 33.5 35.2 39.8 45.6 46.7 50.8 55.1 59.7 64.7 Nominal GDP (billions of DR$) 909.0 1020.0 1189.8 1364.2 1576.2 1678.1 1885.5 2084.5 2300.2 2538.2

Source: Ministry of Finance, Central Bank and IMF and World Bank staff estimates. *Note: (1) Authorities are still in a process of revision of some data for 2009; (2) they are considering alternative ways of reaching the overall fiscal deficit for the projection years, and this table may thus be subject to revisions; (3) statistics consider public debt as gross debt, i.e., they do not net out bonds owned by agencies within the government.

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11. The public debt to GDP ratio peaked in 2003 at 49.3 percent during the domestic banking crisis with a steady decline to 33.4 in 2007. This improvement is in part due to the 2005 restructuring of sovereign external debt, high GDP growth and favorable external conditions (i.e., declining real interest rates and appreciating real effective exchange rate). However, in 2009 the public debt to GDP ratio rose to 39 percent, as a result of the economic slowdown and counter-cyclical fiscal stimulus.1 II.2 MACROECONOMIC OUTLOOK AND RISKS 12. The economic growth outlook for the DR has improved, though it remains contingent on adequate macro-management and the external environment. The output gap is still projected to be negative and to close gradually by the end of 2012. Given the strong performance of the economy in the first quarter of 2010 and preliminary estimates for the second quarter indicating a similar expansion, initial projections for GDP growth have been revised upwards. Original growth estimates stood at 3.5 percent in 2010, 6 percent in 2011, and 7-8 percent for 2012-2015. Anticipating the potential stimulus effect of the injection of sovereign bonds funds of US$750 million (issued in early May 2010), and the potential increase in demand related to reconstruction in Haiti, the Central Bank has made significant revisions to 2010 growth estimates, which now stand at 8 percent. The current (September 2010) Bank and IMF staff estimates for the 2010 growth are slightly lower and in the range of 5 to 6 percent, and growth for 2011 and outer years is projected at around 6 percent. 13. For 2010, inflation is expected to remain relatively stable within targeted increases. During the first half of 2010, energy price increases pushed headline inflation upwards, but core inflation remained subdued. The latest available figures (August 2010) show a yearly headline inflation of 5.0 percent and a core inflation of 3.5 percent, within authorities’ targets. Due to the gradual closing of the output gap, a carefully managed monetary policy and tamed international price pressures, the inflation projections are rather benign. 14. Preliminary figures show that the reconstruction effort underway in Haiti after the earthquake may have some positive effects on the DR economy through increased exports. Local export sales in the border regions with Haiti grew by 61 percent in February (compared to the same period last year). Food products have experienced the highest increase in demand. In the coming months, the reconstruction activity will likely materialize in increased sales of construction materials and related manufacturing. 15. Fiscal Policy Outlook. The National Budget Law 2010, approved at the end of 2009, provides for a continued counter-cyclical fiscal stimulus initiated in the last quarter of 2009. The stimulus is designed to derive from increased expenditures in investment projects coupled with constraints on the growth of public wages and transfers. In particular, transfers to the electricity sector are limited to US$380 million (the Government has also agreed with the IMF that no

1 Note that in this paragraph (and in paragraph 25 and in Annex 4) statistics consider public debt as gross debt, i.e., they do not net out bonds owned by agencies within the Government. According to the Government, the net debt to GDP ratio for 2009 was 36.6.

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arrears should be accumulated on generator payments).2 In its letter of intent to the IMF, the Government also agreed that a plan of fiscal consolidation should start in the second part of 2010 and continue in 2011 and further years. The fiscal consolidation aims at reaching a sustainable overall fiscal deficit of about 1.6 percent of GDP by 2011 and reducing it further in later years. In the government medium term macroeconomic framework, this fiscal consolidation stands on two pillars: (i) raising fiscal revenues through a reduction of exemptions and more efficient administration (not through increases in tax rates), and (ii) containing expenditures with specific emphasis on reducing the energy sector deficit.

16. Tax revenues. The dramatic reduction in tax revenues in 2009 has exacerbated the preexisting structural problem of the narrow tax base. Tax revenues in 2009 stood at some 13.6 percent of GDP. After considering the “rigid” components of expenditures (interest payments and the recapitalization of the Central Bank: 2.0 percent of GDP; wages and salaries: 4.2 percent; electricity transfers: 1.3 percent), very little fiscal space remains for social policies. As part of the fiscal adjustment under the IMF program, the government aims to increase tax revenues by about 0.5 percent per year to achieve a ratio of 14.7 percent of GDP by 2011 and higher percentages in the outer years. Moderate efficiency gains can be achieved through improved tax administration, but more can be achieved from the elimination of exemptions. Authorities estimate that tax exemptions may amount to up to almost six percent of GDP. A core policy action supported by the recent WB Public Finance and Social Sector (PFSS) DPL was the publication of an estimate of the foregone revenue from tax exemptions in an Annex of the National Budget Law. Initial data for 2010 shows that revenues are not increasing at the pace of initial projections, especially revenues from direct taxes levied on the low 2009 incomes. However, the Government has also been delayed in its implementation of these structural reforms. 17. Electricity sector. In December 2009, authorities presented a detailed plan for the reform of the electricity sector, consistent with the medium-term budget balances agreed in the IMF program. The main objectives of the electricity sector reforms are to: (i) provide reliable service to all clients; (ii) eliminate untargeted subsidies; (iii) differentiate generation inputs away from its current high dependence on fossil fuels; and (iv) achieve a long term viable energy sector. Specifically, the main reform commitments include: (i) further reform of the tariff mechanism to eliminate the gap between the current (applied) and “indexed” (generation costs included) tariffs through increased flexibility;3 (ii) continued increases in the Cost Recovery Index (CRI) which includes improvements in invoicing, collection and reduction of operational costs (for distribution and holding companies); (iii) completed transition from a geographically inefficient subsidy scheme to a targeted subsidy scheme, Bonoluz4; and (iv) increased investment efforts to

2 The main assumptions underlying the 2010 budget were a real GDP growth of 2.5 percent, an inflation rate of 7 percent, an exchange rate of 37.9 pesos per USD, and an average yearly oil price of US$72.4 per barrel. These assumptions are subject to revisions as the year progresses to provide more accurate projections. 3 In the longer term, a technical tariff, covering the costs of generation, transmission and distribution, should be applied. 4 By May 2010, Bonoluz reached 106,000 clients in former Programa de Reducción de Apagones (PRA) areas and by July 2010 Bonoluz is expected to fully dismantle the former geography-based subsidy scheme PRA, totaling an estimated 196,000 poor families receiving the subsidy equivalent to 100 kWh/month through the Solidaridad card. In the case of the non-poor households beneficiaries of the former PRA areas, improved targeting on the poor will translate into some 600,000 new regular non-poor clients for Electrical Distribution Companies (EDEs), which

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expand and differentiate energy generation and to improve the distribution and transmission systems. 18. In 2010, reforms have not yet resulted in a significantly lower deficit because of increases in fuel prices. Since the presentation of the plan, the new electricity authorities5 have made efforts to eliminate excessive operative costs in CDEEE, cutting payroll at the holding unit of CDEEE and modifying the contracts for power purchase with the hydropower company which reduced the average energy price paid by CDEEE. However, the increase in fuel prices (by 26 percent in the case of fuel oil during the first semester of 2010) has more than compensated these initial savings, widening the deficit of the sector to a projected level of some US$700 million for the end of the current year. In the case of Bonoluz, a total of 196 thousand poor families of former PRA areas are now receiving a targeted cash transfer, while about 300 thousand new regular (i.e., non poor) clients were absorbed by distribution companies. The remaining 800 thousand poor families identified by SIUBEN are yet to be registered in Bonoluz, a process that should be completed within the next 18 months.

19. Continued structural reforms should help close the electricity sector deficit in the near future. New managerial teams of the distribution companies (EDEs) are currently being hired as part of the reforms. The main objective of these new managerial teams consists of reconstructing the commercial and control capabilities of the utilities in order to reduce non-technical losses and increase cash recovery. It is expected that the new teams will be able to increase billing and collection significantly, in particular from large customers that will be subject to tele-metering. Projections of the financial gap of the electricity sector for year 2011 indicate that it would be cut by half to about US$350 million.

20. The World Bank has continued an active dialogue in the energy sector which has helped advance important structural reforms. Past performance in this sector has been disappointing and some of the sector critical vulnerabilities – such as strong dependency on fuels in its energy matrix – have not yet been removed. However, with the implementation of three key reform elements: (i) a new reforming head in CDEEE; (ii) a new professional management in EDEs, and (iii) efficient cost-recovery tariffs to be implemented from 2011 onwards, a US$350 million financial gap of the electricity sector for year 2011, driven mostly by sharp reductions in non-technical losses (electricity theft), seems achievable. 21. The Government’s financing needs of 6.4 percent of GDP are considerable, but are planned to be covered by domestic and external sources. Domestic sources include an increased domestic debt of about two percentage points of GDP. External sources include primarily debt financing of 4.4 percentage points of GDP. The multilateral financing of US$575 million – equivalent to 1.2 percent of GDP – is the sum of the support of the IADB (US$245 million), World Bank (US$150 million), IMF (US$150 million), and CAF (US$30 million).

would increase the potential to increase billings and collection in the next future. The rest of non-PRA poor families that are yet to be registered in Bonoluz total some 806,000 household for inclusion by July 2011. 5 A new Chairman of CDEEE and a new President of the National Energy Commission were appointed in August 2009.

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22. The immediate emergency response by the DR to the Haitian earthquake has increased pressure on its already scarce budgetary resources. A preliminary assessment by UNDP (2010) estimates that the Government spent US$15 million (or three percent of fiscal revenues for January) for an emergency response. Initial expenditures were mainly health related: vaccines and equipment for the hospitals located along the border region to assist earthquake victims. However, the education system has also been under pressure given the temporary accommodations that were provided to Haitian students in Dominican schools. In light of the very low level of social service expenditures in the Dominican Republic, these strains can easily impact the quality of these key public services. 23. At the latest assessment (mid 2010), there are no signs of stress in the banking system. Non-performing loans (NPLs) have remained low. Many banks are reporting a rebound in their profitability and the banking system remains well capitalized. Moreover, there is still plenty of liquidity in the system due to the banks’ previous cautiousness in credit extension. The cut in reserve requirements translated to a reduction in actual reserves, but banks continue to maintain large liquidity buffers at the central bank.

24. Debt Sustainability Analysis (DSA) shows that the DR’s public debt appears to be on a sustainable path.6 At the end of 2008, the public debt to GDP ratio was about 35.5 percent, which was not high by regional standards. Nonetheless, the Government aims to bring debt back to pre-2003 crisis levels in the medium-term. The DSA assumes that the public debt to GDP ratio will not have declined in 2009 and 2010, years during which the fiscal stance has been counterbalancing the global slowdown in a measured manner. After 2011, however, when global external conditions are projected to improve, the Government would continue reducing the debt ratio by generating primary surpluses of 1.5 to 2.2 percent of GDP (See Annex 4 for more details on the DSA). 25. The DR faces improved prospects for economic recovery, though actual recovery remains largely dependent on improvements in the external environment. If the global economic recovery were to be shorter or weaker than expected, the DR could still face a deterioration of growth performance. In the short-term, the potential contraction of demand from Haiti, the second largest destination market of Dominican exports, will most likely produce some negative consequences, though medium-term reconstruction efforts could generate additional demand for Dominican goods and services. Although international financial markets appear more liquid and investors have partially reduced their risk aversion, the DR is still exposed to the risk of worsening international financial conditions (including the notable risk of a potentially widespread global debt crisis).

26. These risks are mitigated by the government’s continued commitment to sound macroeconomic management and through the support of the IMF. Following substantive discussions in late August 2010, a “staff-level agreement” has been reached with the Fund on policies and measures for the remainder of 2010 and 2011. A press release from the IMF concisely describes the agreement as follows: “Further efforts to strengthen government revenues, contain electricity subsidies and moderate other expenditures will be implemented to reach the gradual fiscal consolidation envisioned in the program, and to maintain domestic

6 The DSA is based on the definition of gross debt: please consider footnote 1 for more details.

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demand growth on a sustainable path.” A new letter of intent is expected and the official review of the program should be discussed at the IMF Board in late October 2010. 27. These risks notwithstanding, the macroeconomic policy framework is considered adequate for the purposes of the proposed DPL. Even though the fiscal consolidation will require some sharper adjustments than initially envisaged and there are significant risks to the short-term outlook associated with the difficult global environment, the macroeconomic policy framework is adequate for Bank development policy lending to support the implementation of the government program – provided that this program is effectively implemented.

III. THE GOVERNMENT’S PROGRAM AND PARTICIPATORY PROCESSES

28. As explained in detail in the Program Document (PD) of PASS1, the Government’s reform program to enhance human capital for the poorest citizens centers on enhancing the performance and accountability of key public sector agencies and improving investments in health, nutrition and education by poor families, while ensuring that public resources are more effectively, efficiently, and transparently managed to provide for these entitlements. The strategy includes actions in three broad policy areas that are supported by the PASS series: (i) a shift from the current social assistance model of the safety net program Solidaridad to a full-fledged CCT program focused on the promotion of human capital; (ii) the enhancement of the quality, accountability and efficiency of overall public spending, specifically through enhanced budget management and planning for the redesigned, multi-sectoral CCT and the piloting of performance-based social sector budgeting and management; and (iii) the enhancement of transparency and oversight by creating a better informed demand for improved public sector performance in the social domain.

29. This section first provides an update of key facts and issues linked to poverty, social spending and human capital, especially in light of past crises’ impacts. The remaining sections discuss the development of the Government’s reform program in the three areas outlined above over the past eight months, commenting on the advances achieved and the pending constraints and explaining, when applicable, the changes made to adjust or strengthen the strategy. The final section summarizes the participatory processes that inform the Government’s reforms. III.1 POVERTY, SOCIAL SPENDING AND HUMAN CAPITAL: EVOLUTION SINCE 2009

30. At the time of the PASS DPL1 preparation (May-June 2009), serious concerns arose that the food, fuel and international financial crises would dramatically increase poverty and unemployment and severely diminish social spending for safety nets, education and health. The 2003 domestic banking crisis pushed 1.3 million people into poverty in the DR, resulting in increased poverty levels of 15 percentage points. Unemployment also increased significantly by four percentage points (Figure 7). In terms of social spending, the real growth rate of health spending declined by 36 percent following the 2003 domestic banking crisis, while education spending fell 34 percent compared to 2002 spending (Figure 6). Given the major food and oil price shocks in 2007-2008, the GoDR feared the crisis impacts would disproportionately

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impact the poor, including household decisions to invest in human capital. The structural risks of exacerbating the very low levels of social spending in education and health were high. 31. Public spending on education and health as a share of total public spending has remained steady during the current crisis, but remains low as per regional and historical standards. As indicated in a 2008 ECLAC report, public expenditure on education in the DR, as a share of GDP, was the lowest in the region from 2004 to 2006, while health expenditure was among the lowest of those countries studied. As shown in Figure 6, in 2008, the real growth rate of health spending fell slightly, by 4.6 percent, while education spending grew by 3.1 percent. Expenditures grew for both education and health in 2009, by 5.8 percent and 2.5 percent, respectively. According to the Government and Bank observations, the growth of public spending on education and health in 2009 was the direct result of the counter-cyclical budget measures taken by Government, and the coordinated actions between the Ministry of Finance and Social Agencies to reduce supply-gaps in health and education. The international economic crisis has not translated into a major contraction of social spending in the DR, as with the 2003 crisis, although social sector spending remains below 2002 levels as a share of total public spending.

Figure 6: Public Spending on Health and Education: 2000-2009 Share of Total Public Spending

Source: Ministry of Economy, Planning and Development, 2010. Note: * Preliminary 2009 figures.

32. Positive trends can be observed for poverty levels in the DR, especially for extreme poverty. Contrary to initial concerns a year ago, official Government figures indicate a slight overall decrease in moderate and extreme poverty over 2008-2009 (See Figure 7), due in part, according to MEPyD, to the Conditional Cash Transfer (CCT) program Solidaridad. Between October 2007 and October 2008, moderate poverty increased by two percentage points (from 35.8 to 37.8 percent), due in part to food and fuel price inflation. The latest April 2010 data however shows a poverty rate of 33.2 percent, which falls below the 2007 poverty levels but remains above pre-2003 levels. In contrast, extreme poverty has not increased since October 2007, and stands in April 2010 at 9.6 percent. According to MEPyD, extreme poverty, which is now back to pre-2003 levels, has not risen during the past series of shocks due in part to

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increases in the food allotment of Solidaridad transfers and the number of beneficiaries (See Figure 8 below).7 These CCT trends, in turn, are attributed to the buffer effects of international donor lending. In 2009, fiscal support from the IFIs, including the Bank through the PASS DPL1 and Public Finance DPL, has helped maintain the level of investment in the Solidaridad transfers, which continues to play a pivotal income support function for the poorest in the DR.

Figure 7: Poverty, Extreme Poverty, and Unemployment: 2000-2010

Source: Ministry of Economy, Planning and Development, 2010.

7 The current coverage of Solidaridad (530,000 heads of household) corresponds to approximately 25 percent of the total population benefitting from the flagship social assistance program – relatively broad coverage as per international standards and prevailing poverty levels. However, as supported under this operation, the accuracy of the targeting needs to be improved.

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Figure 8: Number of Beneficiaries of the CCT Solidaridad Program: 2003-2009

Source: Ministry of Economy, Planning and Development, 2010. Note: Figures are from December of each year.

33. The decline of the creation of formal employment remains a challenge exacerbated by the international financial crisis, with no mitigating structures in place. Structural factors linked to the decline of the mining sector and the end of the Multi-fiber agreement in 2005 have led to significant decreases in employment, particularly in the free-trade textile zones near Santiago. The decline became even more severe since the economic crisis hit the DR in 2008. The growth rate in the number of social security contributors, a proxy for formal employment, has been declining dramatically since mid-2008. Since the CCT Solidaridad is mainly targeted to the extremely poor, the economic crisis has manifested a void in the social protection system in the inexistence of contingent instruments to respond to the employment challenges of a large covariate shock. This void is not addressed at present by the PASS DPL series, but, at the Government’s request, the Bank is currently supporting the broadening of the social protection base beyond social transfers, through a restructuring of the Youth Employment project to pilot a temporary employment program for the transitory poor. The Bank will also be working with the Government to analyze policy options to improve the country’s resiliency to current and external shocks in the context of the Social Sectors NLTA (Section IV.6). 34. While poverty and social spending trends in education and health demonstrate a strong Governmental response to the crisis, structural issues linked to access to and quality of education and health services, especially for the poorest, remain. As described in the PD of PASS1, these issues hinder the Government’s objective of promoting, and not just preserving, human capital for the poorest of its citizens. 35. The performance of the education sector is a serious concern. Despite progress in coverage in basic education, access to pre-school and secondary school is low, and among the lowest in Latin America (See Figure 9). The DR’s enrollment performance reflects sustained improvements since the 1990s. Minimal differences exist in net enrollment related to gender or rural-urban disparities, but differences in enrollment by socio-economic conditions still persist. Major inefficiencies in the education system are also reflected by substantial disparities in education attainment despite the high enrollment rates, related to high repetition and drop-out rates. For example, by age 12, a three year gap in attainment exists between the lowest quarter of

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students’ attainment and the highest quarter (Figure 10). Students attend on average 3.9 days of school a week with lower attendance in 8th grade and secondary education (Figure 11). Finally, education quality falls below regional and international standards in nearly all measures. According to UNESCO’s Latin American Laboratory for Evaluation of the Quality in the regional 2008 UNESCO Latin America/OREALC assessment, students in the Dominican Republic scored the lowest of seventeen participating LAC countries. At the same time, the Government’s program has suffered from major knowledge gaps to uncover the driving factors behind this low performance and has requested the Bank to assist in filling these gaps as part of the Social Sectors NLTA (see III.2 and V.6). Early findings from the latter point to basic deficiencies in flows of resources, information-sharing and decision-making (Box 1).

Figure 9: Gross Enrollment in LAC: 2008 (%)

Source: UNESCO, 2009.

Figure 10: Average Grade Attainment by Age

Source: 2006 National Household Survey. Note: Differentiated lines reflect overall attainment.

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Figure 11: Weekly Days of School Attendance by Grade

Source: 2006 National Household Survey.

Box 1: Institutional Analysis of Flows the Education Sector in the Dominican Republic

The simultaneous operation of the public education system in the DR demands the coordinated intervention of a wide set of actors. The institutional set-up of the Ministry of Education (MINERD) must therefore be designed to ensure a smooth flow of resources and information to guarantee the full functioning of the education sector up to its potential. Flaws in the institutional design can reduce the speed of these flows, or create unplanned, inefficient hindrances. As a result of inefficient flows, students can be without textbooks for several months at the beginning of the school year or teachers may receive training unrelated to their particular development needs.

Initial activities undertaken by the Social Sectors NLTA have found inefficiencies in several aspects of the education sector in the DR. For example, the team has identified a high level of informality in the process to provide school supplies. The official procedure mandates that as needs are identified by school principals, a request (not standardized) should be created. The request needs to then be approved by the district and regional director, before it reaches the ministry officials. No formal procedure exists for follow-up on requests. Principals commonly will travel to central MINERD offices to ascertain the status of their request. At the same time, some principals take shortcuts by submitting request directly to MINERD. Once the request becomes available, no formal mechanism exists to inform all involved parties of the final delivery; rather, MINERD can send it directly to the school or to district or regional directorates.

The NLTA activities have identified, through an analysis of the Constitution, the Organic Law of the Education Sector, and associated legal documents, the de jure structure of the main resources and information in the education sector. On the other hand, through interviews with parents, teachers, principals, district and regional directors, and ministry officials, the team has identified the de facto structure of those flows (as the one described above). Based on the collected information, the team has identified critical deviations between planning and execution. The NLTA will provide policy recommendations to MINERD on how to revise and streamline their processes. A strong potential for efficiency gains exists in the education sector from improvements in process design.

Source: WB PASS team, based on preliminary DR Social Sectors NLTA results.

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36. The coverage and quality of healthcare delivery need to be strengthened with an emphasis on the first level of care. Health data show no significant barriers exist in accessing basic health services; however, access to services at the first level of care, as envisioned by the primary health care model that the Government aspires to develop as part of the health sector reform, shows important coverage gaps. The last Demographic and Health Survey carried out in 2007 shows 97.8 percent of pregnant women from the poorest quintile had prenatal controls provided by a physician and roughly half with a obstetrician/gynecologist; 94.2 percent had more than four prenatal controls, and 95 percent of children were delivered by physicians. On the other hand, only 44.1 percent of children from poorest quintile households receive all of their vaccinations according to national protocols and for 55.5 percent of children living in rural areas. The first level of care (health centers) of Regional Health Services (public provider networks) shows important weaknesses for providing key basic health services with adequate levels of quality. The public network of healthcare providers is going through a transitional decentralization process that the Government aims to accelerate in the next two years as part of the plan to improve the overall quality of services, particularly at the first level of care. III.2 HUMAN CAPITAL PROMOTION FOR THE POOREST 37. Compared to the 2003-2004 domestic banking crisis, the Government’s current safety net program has been more effective at mitigating the effects of the recent wave of crises, particularly in the protection of the income of the poorest. The launch of the Solidaridad program in 2005, along with the development of a new targeting system, Sistema Único de Beneficiarios (Single Beneficiary Selection System or SIUBEN), in 2004, has facilitated the Government’s ability to respond to the recent wave of crises through a strong social safety net. Previously, social policy in the DR relied on a traditional, clientelistic model of assistance. The institutionalization of SIUBEN therefore represented a marked change in the selection of program beneficiaries based on geographic and household variables to specifically identify and include the extreme poor. The Government is currently undertaking another significant shift in social assistance from using the Solidaridad program as a traditional income protection mechanism, to providing a full-fledged CCT program focusing on the promotion of human capital. This sub-section discusses advances and pending critical steps in the Government’s efforts to promote investments in health, nutrition and education by the poorest families through the overhaul of the CCT program Solidaridad and its improved alignment with supply-side responses in health and education. III.2.1 Toward a Full-Fledged CCT: Overhauling the Solidaridad program 38. Despite the recent redesign of Solidaridad as a CCT program, the Government decided to create and improve well-recognized institutional features and systems consistent with best practice from “mature” CCT programs, such as Mexico and Jamaica. As a CCT, Solidaridad is a young program. While launched in September 2005 as a conditional cash transfer program, in practice, it has operated as an unconditional cash transfer program, with serious gaps in the definition, verification of compliance with and enforcement of co-responsibilities, i.e., households’ investments in health, nutrition and education. To achieve human capital promotion goals for the poorest citizens, the Government seized the momentum of the 2009 international crisis to modernize social assistance and initiate the overhaul of the

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program. It is within this context that reform progress must be analyzed and understood. While reform implementation has unsurprisingly taken considerable time and effort, the Government has taken some bold steps to make progress on the set-up and improvement of the major necessary key features of a CCT program: a strong institutional framework; eligibility and enrollment mechanisms; the payment mechanism and the overall quality of service to beneficiaries; a strong monitoring and evaluation system; and the institutional means to monitor compliance with co-responsibilities and coordinate actions among the several institutions involved in operating the program.8 Progress and pending steps since Board Approval of PASS1 in November 2009 are summarized below. 39. The Government has created an entirely new institutional framework for the CCT Solidaridad Program leading to collaborative, inter-agency and inter-sectoral decision-making, which marks a point of departure from the fragmentation of previous DR social policy. In 2009, operating rules of the redesigned CCT program were approved along with the formal creation of two important committees: the Interagency CCT Committee, which brings together the Social Cabinet agencies in charge of targeting (SIUBEN), operations (Solidaridad Program), and payment of transfers (Administrator of Social Subsidies, ADESS); and the Intersectoral CCT Committee, which brings together the Solidaridad program with Health and Education Ministries, as well as Planning and Finance Ministries when planning and budgeting issues are discussed. As a result, the redesigned CCT Solidaridad is becoming a truly collaborative effort and concrete coordination outcomes can be seen. For example, the Intersectoral Committee has advanced with the programming, budgeting, and bidding of the actions necessary to close the supply gaps in education and health in order to guarantee an effective supply of services for Solidaridad households (See Section III.3 below and Section V on Pillar 2 of the Matrix). The Intersectoral Committee also took the necessary decisions for the training of regional and/or district directors of the Ministries of Education and Health and the Solidaridad program with regard to the new operations manual for the program. The main pending challenge is the need for sustained intersectoral coordination. Based on the new experience of collaborative interactions and decision-making, the Government has developed a process to design and approve regulations governing the Interagency and Intersectoral Committees, which will further clarify roles and responsibilities, and rules of interaction.9 40. The Government has also taken the bold decision to reorganize the structure of the Solidaridad program itself. Initially focused on the regional deconcentration agenda as the first priority, the Government determined through practice that the structure and the staff profiles of the Solidaridad Program must first be aligned with the new goals and operating rules of the redesigned CCT. The organizational structure of the program still reflects previous roles for Solidaridad as a platform responsible for both conditional and unconditional transfers such as targeted subsidies (Bonogas, Bonoluz), whereas the redesigned CCT management and staff should dedicate themselves exclusively to human capital promotion. With support from the Bank, the Government has hired a consultant to support the design and implementation of the

8 See Section III.2 and Annex 3 of PASS 1 PD for a detailed description of the CCT evolution and planned overhaul. 9 Regarding the deconcentration of the program, the Government postponed the formalization of the Regional Intersectoral Committees until 2011 in order to first consolidate the functional rules of the two national committees and to continue to learn from the day-to-day interactions of the pilot Regional Intersectoral Committees that are being created.

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organizational revamp, and recommendations have been welcomed by the Vice-President, who is responsible for the coordination of social policy and programs. 41. The new socio-economic census needed to update the CCT beneficiary database through the targeting instrument SIUBEN has been delayed, although targeting and eligibility rules have significantly improved. The approval of new inter-agency rules between Solidaridad, SIUBEN and ADESS has improved the process for determining eligibility. SIUBEN is now the only responsible agency for maintaining and updating the registry of CCT beneficiaries. Previous rules placed both SIUBEN and Solidaridad in charge of maintaining the database without clear delegation of responsibilities. Furthermore, the Government is working on the development of an integral information system to be shared between SIUBEN, ADESS and Solidaridad, which aims to generate a single registry of beneficiaries for non-conditional (subsidies) and conditional transfers. Delays in the implementation of the census risk affecting the quality of the registry of eligible beneficiaries (the last SIUBEN census took place in 2005 with on-demand household surveys since then). The delay has been due to delays in the Congressional ratification and subsequent effectiveness of the Additional Financing (AF) for the World Bank Social Protection Investment Loan (SPIL), which includes a significant proportion of the financing for the new SIUBEN census. The AF is now ratified. All the while, however, the Government had begun census preparation10 and expects that the full-fledged census will be launched by March 2011, with plans to include 1.8 million households. 42. The redesigned Solidaridad program is building a system to effectively and efficiently monitor compliance with co-responsibilities (and enforcing sanctions). Breaking with past practice and following the lessons learned from countries with “mature” CCT programs, the Government decided to avoid entrusting the process of verification of co-responsibilities11 to the CCT program staff, instead holding the health and education service providers responsible for data collection related to school attendance and health visits. This ambitious policy direction avoids diverting attention of program staff away from quality control and allows for the reduction of operating costs in the medium-term. In the short-term, this policy choice requires the development and/or adjustment of extensive, rapid information flows among numerous actors, along with the development of processes to produce a routine exchange of large volumes of data.12 In this context, the verification process has been constrained by, among other factors, the initial challenges of developing the new education management information system (Section III.2) and adjusting the health information system. Faced with this situation, the Government decided to continue working on the alignment of health and education information systems, while the CCT Intersectoral Committee designed and started the implementation of an emergency set of measures (Operativo de Emergencia) that should allow for the development of a database of compliance with program co-responsibilities by the end of 2010 (See Section V).

10 Bidding for the purchasing of handheld devices and digitalization of mapping, creation of operations and training manuals, and a census pilot have all been completed. 11 By the last quarter of 2010, the starting point for the verification of co-responsibilities will be as follows: in education, a registry of Solidaridad students (becarios) will have been generated; in health, Solidaridad beneficiaries will be registered to a health center (UNAP). 12 Fiszbein, A., F. Ferreira, M. Grosh, N. Schady, and N. Kelleher. 2009. Conditional Cash Transfers: Reducing Present and Future Poverty. World Bank Policy Research Report. Washington D.C.

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43. The Government continues to show its commitment to the development of a comprehensive Monitoring and Evaluation system for the redesigned CCT, even though the complexity of information system management and linkages related to the verification of compliance with co-responsibilities admittedly takes time to develop. The Intersectoral CCT Committee designed and agreed on a shared results framework in the Operations Manual of the redesigned CCT program. Given delays in the process of monitoring compliance with co-responsibilities, some baseline data have not been collected and therefore some impact indicators may not be fully available until the end of 2010 (See Section V). However, the Government’s commitment to results remains firm. Despite the various implementation hurdles, Solidaridad started data collection of the baseline study for the quantitative impact evaluation of the redesigned CCT and results for the latter, with subsequent baselines for key indicators, are expected to be available by November 2010.

44. Despite political economy issues and legal constraints, the Government is taking critical steps to improve the quality of service to CCT beneficiaries by enhancing the transfer payment mechanism. As explained in the PASS1 PD, unlike other CCTs, Solidaridad operates with a near-cash payment mechanism: Solidaridad debit cards for use at participating corner grocery stores, or colmados. The Government explains this policy decision as being based on the need to reduce the risks of misuse of cash by beneficiaries and the intention to stimulate the local economy and social capital in remote areas. According to technical experts, the mechanism can also prevent an optimal service for beneficiaries in terms of price, quality and transparency.13 The Government is not willing to immediately move to a cash payment mechanism but is showing commitment to mitigate the downsides of the payment mechanism within the political economy constraints of its contract with commercial banks. First, the agency in charge of payments, ADESS, is complying with the 2009 policy decision to amplify the number of affiliated colmados in the Red de Abasto Social (RAS) for the use of Solidaridad program payments. RAS currently has 2,335 affiliated institutions, which represents an increase of 347 institutions, or 18 percent over the past year. The Government is also implementing a pilot to map out the supply of colmados to be compared to the disaggregated demand from beneficiary households as part of a larger analysis of the RAS system to improve program coverage and the quality of services. Second, ADESS has prepared an action plan to improve beneficiaries’ access to information on their entitlements, specifically on transactions made with the Solidaridad debit card and the remaining balance on their account. Among other benefits, this plan will allow beneficiaries to be informed about the total amount of transfers received and the monthly balance on their cards via telephone before the end of this year. Currently, beneficiaries do not have access to this critical information. The Government is also working with financial institution paying partners to develop new contracts and systems that allow users to have real time access to account balances. III.2.2 Ensuring Alignment and Synergies with Health and Education Sectors 45. The shift of the social assistance model towards human capital promotion for the poor has raised implications for priorities of the health and education sectors. Despite inherent difficulties with intersectoral coordination, these two sectors continue to rise to the

13 Transparency International. 2008. “Informe Monitoreo Ciudadano al Programa Solidaridad.” Dominican Chapter of Transparency International, Santo Domingo.

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challenge of playing a major role in ensuring that a growing demand for education and health services spurred by the redesigned CCT can be met. 46. Health. The new transformation in social assistance holds important implications for the health sector. The Government program aims to strengthen the first level of care (health centers) to ensure that the poor households have timely access to preventive and essential health care services of adequate quality to ensure that the human capital impact of complying with Solidaridad co-responsibilities achieve their full effect. The Ministry of Health (MoH) has started to bridge the supply gaps to meet the new demands of the beneficiaries of the redesigned Solidaridad program that includes specific health co-responsibilities such as regular visits to health centers (first level of care). As discussed in Section III.3.2, new management agreements between the MoH and the Regional Health Service Networks have also introduced a new mechanism of results-adjusted financing for the first level of care (See Box 3, Section III3.2). 47. The MoH has additionally launched an investment program in infrastructure, equipment and human resources at the first level of care within the framework of a primary healthcare approach, as recommended by the World Health Organization (WHO). Part of the primary healthcare strategy includes the introduction of improved protocols for the promotion of good health practices and preventive and healthcare services known to improve mother and child health outcomes. In this context, there is a strong need to strengthen coordination among public agencies to exploit synergies and enhance the results of poverty reduction interventions by prioritizing the poorest groups. In an effort to enhance prevention and promote best practices in maternal and child care, the Government has developed custom-tailored tools for the first level of care including new manuals and training materials that allow for the assignment of beneficiaries to the closest health centers based on corresponding catchment areas.

48. Existing administrative data collection instruments have also been redesigned to accommodate the specific health information needs for the verification of the new health co-responsibilities of Solidaridad beneficiaries at the first level of care. These efforts in the health sector are meant to complement the redesigned Solidaridad Program, which now includes co-responsibilities related to the use of prevention methods and care services by mothers and children. The Government carried out a consultative process to overhaul the most critical healthcare protocols for the first level of care, particularly for improved mother and child care. This process emphasized building a broad consensus among stakeholders, including medical boards and nationwide health program leadership. Key health sector organizations including the Ministry of Health and SENASA agree that an important challenge to strengthen the supply-side is for health care providers to be adequately trained in the new tools and manuals focusing on mother and child health services at the first level of care. This training can contribute to leapfrog the new primary health care approach to deliver basic services at the first level of care and meet the increased demand that the new Solidaridad program will generate. 49. Education. As discussed in the PASS1 PD, specific education actions to enhance synergies with a redesigned CCT are in-line with the country’s 2007 10-year strategic plan (Plan Decenal de la Educación). The Plan outlines ten policy areas addressing equity in access, quality, and the reorganization of the education system, all of which require a sustainable

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increase in the level and efficiency of public expenditures on primary and secondary education. Since PASS1 Board approval, the Government has advanced efforts to address the four main challenge areas for integrated action between the education sector and the redesigned CCT Solidaridad.

First, the Ministry of Education (MINERD) has developed its school-based management information system (Sistema de Gestión de Centro Escolar, SGCE) which aims to enhance its capacity to collect, monitor and update student, teacher and school data at the school-level.14 MINERD and the Solidaridad program have used this opportunity to allow for the systematic monitoring of beneficiary compliance with program co-responsibilities and education outcomes. System developers have progressed on the interconnectivity between MINERD’s system, and those of SIUBEN and Solidaridad, to track the administrative, socioeconomic and education performance data of Solidaridad beneficiaries in the education system. However, as discussed above, this type of process takes time. As it is now, the SGCE is able to produce reports about enrollment, repetition, and attendance, among other topics. This is a notable first step for the systematization of information in the sector. However, both MINERD and the Social Cabinet have recognized the difficulties in merging the database with those of Solidaridad and SENASA due to differences in the designs of personal identification codes. Another issue has been the non-institutionalized means of reporting data (use of cyber cafes for data reporting) which has affected the overall quality of information in some cases. A recent IADB-financed system audit has helped to identify deficiencies, which are currently being corrected. School directors have been entrusted with confirming student beneficiaries of Solidaridad, along with their program code in order to verify enrollment and attendance. MINERD has also started delivering laptop computers to each school director along with securing internet connections to ensure a permanent, timely transfer of information.

Second, MINERD has worked with the CCT Intersectoral Committee to calculate supply gaps linked to the CCT in education services and has started to progressively reduce these gaps through a targeted approach (including the provision of teaching materials, school rehabilitation, classroom construction and/or conversion). This represents significant progress given that MINERD data show that 70 percent of the student population is clustered in 30 percent of the existing public schools. Thanks to the agreements reached with the Ministry of Finance (see Section III.3), MINERD has been able to start reducing these supply constraints in 2010 through a targeted, step-by-step approach. Three areas of intervention, with significant gains for disadvantaged groups, have been pursued: (i) increasing pre-school access amongst the poorest segments of the population; (ii) increasing access to the second cycle of basic education (5th to 8th grades) especially in rural areas; and (iii) expanding access to secondary education, particularly 9th and 10th grades. Infrastructure investments have also been prioritized for schools located in regions with high poverty rates and high concentrations of Solidaridad households, where under-provision and crowding are most prevalent.

Third, the Government continues to advance its plan to conduct a pilot test for the new transfer structure, which is now planned for the 2010-2011 school year. This effort

14 For a full discussion of the School Management System, see p. 27 and box 1 of the PD of PASS1.

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addresses the need to differentiate responses to attendance problems for different grades, as opportunity costs of school attendance increase with age (see the discussion in Section III.1 above). Based on pilot results and evaluation of the institutional feasibility of a differentiated scheme, policy decisions should be taken in the second half of 2011.

Finally, the Government has been on track in its commitment to monitor student learning outcomes through the validation of education standards and the implementation of national exams (See Section V and Annex 1 for specific status progress). MINERD and the National Education Council have continued to make progress in establishing basic competency standards in elementary, secondary and, most recently, pre-primary education (PASS1). These standards will serve as the basis for the development of a national student evaluation system to measure student learning outcomes in elementary (at 4th and 8th grades) and secondary (at 10th and 12th grades) education levels. Test results at grades 4, 8 and 10 will help monitor student performance before they finish compulsory education. This systematic collection of data on student learning outcomes will serve both the need to confront quality issues in the DR and help prepare the redesigned CCT to overcome its next phase of challenges. As a first-generation CCT, Solidaridad focuses on increasing access to education, but will have to confront more complex quality issues (as the CCT Oportunidades in Mexico is currently addressing) in the future.

50. A possible broadening of the Government strategy that was not described in the PASS1 PD would be the development of specific efforts to improve not only the level but also the efficiency of education expenditures. Based on the forthcoming NLTA results described in Box 1 above (Section III.1), MINERD will have access to solid analysis to make a more informed decision on how to overcome basic inefficiencies in resource and information flows to enhance overall performance. The dialogue for reform would fit well with the current Government discussion on the reorganization of the education system through an enhanced deconcentration process. III.3 IMPROVING EXPENDITURE MANAGEMENT FOR ENHANCED SOCIAL SECTOR

PERFORMANCE 51. Following a discussion of social policy reform, this section turns to advances and pending challenges for the second area of reform targeted by the PASS program: the enhancement of the quality, accountability and efficiency of public spending, specifically through: (i) short-term improvements in the budget process to protect and support desired improvements in the CCT program and the related supply of education and health services; and (ii) the gradual introduction of more medium-term instruments to enhance and institutionalize the performance orientation of social sectors, with the piloting of performance agreements in social sectors—specifically health and education. III.3.1 IMPROVED BUDGET MANAGEMENT TO SUPPORT THE JOINT PERFORMANCE OF SOCIAL SECTOR AGENCIES WITHIN THE REDESIGNED CCT PROGRAM 52. As explained in the PD of PASS1, past harmful reductions in social sector spending in crisis contexts have partly resulted from the Government’s failure to adequately

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prioritize and plan social sector spending, due to weak budgetary processes (including lack of planning systems) and the lack of a clear focus (and accountability) on results. The CCT Solidaridad provides a particular case in point. The Government had neither developed an integrated framework for performance targets in health and education nor ensured that proper budget arrangements are in place to prioritize budget allocations in health and education in order to ensure the timely disbursements of those funds to cover supply-side gaps linked to the CCT. 53. With the redesign of the CCT as an integrated program covering health and education related services, and the risk of further cuts in social sectors linked to the crisis, the Government has made significant progress in improving planning and budget management for the CCT and its associated provision of health, nutrition and education services. In accordance with the policy actions targeted by PASS1, the CCT Intersectoral Committee presented an assessment to the Ministry of Finance quantifying the estimated costs of covering supply-gaps linked to the redesigned Solidaridad program (education services and related inputs—didactic materials; primary health care services, including access to essential medicines; and micronutrients prioritizing pregnant women and children under two years-old). The assessment also included a proposed three-year chronogram to progressively reduce supply-gaps according to select criteria: number of students in primary school, poverty level, expected increases in Solidaridad households, etc. As per the PASS DPL2 trigger commitment, the Ministry of Finance (MoF) took the necessary measures to ensure that sufficient funds were included in the 2010 Budget Law to cover the supply-gaps linked to the redesign of the CCT Solidaridad Program, as planned for the first year of the chronogram. These new budgeting processes represent significant progress in the coordination and planning of policy actions.15 54. An important challenge for the Government is now to ensure the institutionalization and sustainability of these developments. To this effect, the Social Sector agencies have been working closely with the Ministry of Economy, Planning and Development (MEPyD) to reflect CCT projections of entitlements, supply-gaps, and required medium-term budget envelopes into the Multi-Annual National Plan for the Public Sector 2010-2013. The Multi-Annual National Plan for the Public Sector 2010-2013 is the first multi-year budget planning exercise in the DR. The development of the Plan has been led by the Ministry of Economy, Planning and Development with close collaboration with the Ministry of Finance and sector ministries to develop projections of budget envelopes, entitlements, including protected programs, and financing sources by sector, through 2013. The Plan represents a significant advance by the Government to increase predictability, transparency, and rationalization of the budget, as the first step to developing a Medium-Term Expenditure Framework with clear linkages to budget appropriations. Box 2 provides more specifics on these enhanced budget management processes, including measurement issues.

55. Looking ahead, the Government will also need to pay close attention to the actual execution of the budgeted allocations dedicated to the bridging of supply-gaps. Given the anticipation of a highly complicated appropriations process for budget funds to cover supply gaps last year in developing PASS1, GoDR strategy mainly focused on the process of ensuring

15 The Government refers to the new process as “unlocking the budgetary gridlock” through direct incorporation into the National Budget appropriations, as well as a specific article in the National Budget Law to prevent the modification of funds or their use for other purposes, as approved by the National Congress.

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the funds’ allocation, while underestimating the need for monitoring processes for the actual execution of these funds in the case of a smooth allocation process, as experienced. While the execution of nutrition and health allocations shows reasonable progress, education’s actions are taking more time to materialize (see Box 2). According to recent Government analysis, bottlenecks in education are largely due to difficulties with land acquisition for the building of new schools (especially for secondary education) and lengthy bidding processes due to cumbersome procurement processes. In this context, the Government recently decided to monitor the execution of the funds dedicated to the progressive closing of supply-gaps on a quarterly basis; agree on realistic execution targets, identifying bottlenecks behind delays; and agree on corrective actions. These discussions will take place during the meetings of the Intersectoral Committee for the CCT program.

Box 2: Improved Budget Management to Address Supply-Gaps Linked to Solidaridad Given the new verification of co-responsibilities in health, education, and nutrition (including regular health visits and school attendance) under the organizational restructuring of Solidaridad, the GoDR has made three major advances to improve budget management to estimate and progressively reduce supply gaps. By covering these supply gaps, the GoDR is complying with its co-responsibility to ensure Solidaridad beneficiaries have access to the services required under beneficiary co-responsibilities.

The first concerted advance in improved budget management has been the estimation of the supply gaps through an iterative process led by the Social Cabinet on behalf of the CCT Intersectoral Committee. The estimates include existing supply gaps and anticipated supply constraints related to the increased demand for services by program beneficiaries. The methodology used reflects a significant advance for its detailed geographical planning of Solidaridad program growth and associated costs of social sector services. Table B2.1 summarizes the results of this multi-year planning exercise, which is planned to be replicated across the years and with other GoDR programs. In education, GoDR estimates of existing and potential demand for education services reveal serious supply constraints in the system, as 70 percent of the student population is clustered in 30 percent of the existing public schools.

Table B2.1: Cost to Cover Supply-Gaps in Education, Health and Nutrition for 2010-2012 (US$)

2010 2011 2012

Total 2010-2012

Share of Total Costs (%)

Education 94,504,597 94,504,597 94,504,597 283,513,790 88.0

Health 12,567,096 12,567,096 12,567,096 37,701,289 11.7

Nutrition 315,137 315,137 315,137 945,412 0.3

Total 107,386,830 107,386,830 107,386,830 322,160,491 100.0

Source: Social Cabinet, as of April 2010.

The second advance has been the integration of these estimates into planning instruments to progressively reduce supply gaps. MINERD developed estimates for the construction of new classrooms, rehabilitation of existing classrooms, and purchase of classroom furniture and teaching materials, through a step-by-step approach targeting three priority areas: (i) increasing pre-school access among the poorest segments of the population; (ii) increasing access to the second cycle of basic education (5th to 8th grades) especially in rural areas; and (iii) expanding access to secondary education (particularly 9th and 10th grades). MSP developed similar estimates for the infrastructure, human resources, and equipment at the first level of care necessary to cover the population of their respective catchment area, prioritizing the areas where the largest concentrations of the poorest households are found.

As part of a tripartite effort between Social Cabinet and the Ministries of Finance and Economy, the necessary funds to cover these supply gaps were thereby designated for that exclusive purpose in the 2010 National Budget

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Law. Following resources allocation, the CCT Intersectoral Committee has also been instrumental to facilitate communication across ministries to closely monitor the timely quarterly disbursement of the funds. These monitoring mechanisms are also being used to ensure the social sectors execute the funds. As analyzed in Table B2.2, budget allocations for 2010 in health and nutrition actually exceed the estimated costs to cover supply gaps. As of August 2010, all of the nutrition funds had been executed compared to 67 percent for health and 37 percent for education. All of the funds have been committed and are progressing through lengthy public bidding processes, after completing the complex task of identifying locally the schools and health centers in need of construction, repair, and/or equipment, acquiring the necessary land, etc.

Table B2.2: Total Budget Allocation and Execution for Supply Gaps: 2010

Estimated Cost 2010 (US$)

Budget Appropriation

2010 (US$)

Budget Allocation

2010 (US$)

Execution of Allocated

Funds 20101 (US$)

Executed/ Allocated

(%) Education 94,504,597 94,504,597 94,504,597   

Under budget line 1 15,563,847 2,188,292 14.1

Under budget line 2 78,940,750 NA NA

Health 12,567,096 14,459,103 14,459,103 10,290,488 71

Nutrition 315,137 854,881 854,881 854,881 100

Total 107,386,830 109,818,581 109,818,581    Source: Social Cabinet and National Budget Office of the Treasury. 1 Latest figures available: September 1st, 2010. 2 Additional information has been requested to Treasury.

Finally, the sustainability of these planning mechanisms has been further enhanced by the inclusion of supply gaps funds in the multi-year planning instrument, Multi-Annual National Plan for the Public Sector 2010-2013. The Plan provides inter alia medium-term guidelines for results-based investment in a series of protected and priority programs, mainly in education, health and social protection. The projected costs of covering supply gaps linked to Solidaridad have been included in the Plan, as presented to the President for approval.

III.3.2 SUPPORTING THE GRADUAL INTRODUCTION OF PERFORMANCE AGREEMENTS IN SOCIAL SECTORS

56. The Government has achieved significant advances in the development of Performance Agreements to encourage a performance orientation in budget management and accountability.16 In compliance with commitments, the results agreements, which present strategic plans and objectives, and identify performance measures and targets, were agreed to among four priority ministries in 2009. In addition, the Education and Health sectors have continued to collaborate to complete the diagnostic of basic conditions for the implementation of Performance Agreements, as well as the institutional strengthening plans. Since the quality of these diagnostics has been relatively weak, especially for education, the Government is committed to accompany the forthcoming institutional strengthening plans with enhanced diagnostics. These strengthened diagnostics were presented together with the institutional strengthening plans in late August and included specific prioritized actions/projects focused on

16 These Performance Agreements (“Contratos por Resultados y Desempeño”) are intended to provide a flexible managerial link between the budget resources provided and the desired improvements in the sector’s performance. The process for their development and implementation is described in detail in section III.3 of the PD of PASS1.

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the planning units in the health and education ministries. Given the technical challenges involved, the Government has benefited from extensive financial resources from the IADB PRODEV program to advance the reform efforts in this regard and from just-in-time assistance from the Bank17 to MEPyD to advance in this area. The Bank is particularly focused on helping avoid the mechanistic approaches associated with performance-based budgeting through close follow-up to customize plans to the DR reality. Another encouraging sign includes the creation of a dedicated coordination unit in MEPyD as opposed to the start-up approach or "incubator unit" used over the past months as financed by the PRODEV funds from the IADB. The only adjustment in the Government’s strategy has been the delaying of the incorporation of the Solidaridad Program for the creation of diagnostics evaluating basic conditions for Performance Agreements. This is due to the Government’s decision to develop a comprehensive organizational restructuring of the Solidaridad program, as discussed above (III.2). 57. Progress in the generation of a results-based culture is also noteworthy in the health sector, where the Government has fulfilled its commitment to introduce results-based management agreements between the MoH and all Regional Health Services (RHSs) (see Box 3). The management agreements seek to foster incentives for health care providers to improve timeliness and quality at the first level of care focusing on mother and child care and other key prevention methods and care services needed to address the bulk of the burden of illness and disease on the poor. At the time of the PASS1 preparation, only two of these agreements had been signed. At present, agreements have been signed with all RHSs.

58. The reform on the gradual introduction of Performance Agreements fits within a broader Government strategy to move away from a current budget management focus on financial and human inputs to prioritize programs based on outputs and outcomes, particularly for critical social programs. The Government has made substantial progress in passing important reforms that redefine the role of the institutions involved in the planning and budgeting process, and public financial management (PFM).18 In February 2010, important reforms were endorsed at the highest level of Government and approved in line with precepts of the new Constitution. MEPyD has published a strategic plan to gradually introduce performance-informed budgeting techniques.19 This includes the introduction of the national public investment system (Sistema Nacional de Inversión Pública, SNIP), which is designed to enforce more rigorous program planning, monitoring, and evaluation standards.20 The Government has also recently completed the draft National Development Strategy and the first Multi-Annual National

17 See “Improving the Quality of Public Expenditure in the Dominican Republic” Programmatic Non-Lending Technical Assistance (NLTA) (P119206). 18 Progress in the Dominican Republic includes the 2006 Organic Law on the Public Sector Budget; 2006 Creation of State Secretariats for Treasury and Economy, Planning, and Development; 2006 Creation of the State Secretariat of Hacienda; 2008 Creation of the State Secretariat of Public Administration; 2007 Financial Administration System of the State Law; 2006 Public Credit Law; 2006 Planning and Investment Law; 2006 Government Procurement and Contracting Law; 2007 Establishment of the Internal Control System Law; 2009 Launch of National Procurement Strategy; 2007 Law of Participative Budget for Municipalities; 2004 Dominican Republic Chamber of Accounts Law; and 2004 Access to Public Information Law. 19 Plan Estratégico Institucional, 2008-2012, Ministerio de Economía, Planificación, y Desarrollo: http://www.pro-reforma.gov.do. 20 Sistema Nacional de Planificación, Nuevo Marco Institucional, Ministerio de Economía Planificación y Desarrollo: http://www.pro-reforma.gov.do.

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Plan for the Public Sector 2010-2013, a medium-term planning instrument that contains priority policy actions, projected performance indicators, and required budget envelopes.

Box 3: Results-Based Regional Health Management Agreements

The GoDR, nearly a decade ago, embarked on an ambitious health sector reform program aimed at improving health system responsiveness. The reforms envisioned financial and organizational arrangement changes, including the separation of functions and decentralization, to foster efficiency and accountability in the provision of public healthcare services, while enhancing financial protection for the poor. The regional management agreements between the MoH and the eight Regional Health Services (RHSs) introduce a results-based mechanism for financing the first level of care at the regional level, while also establishing new instruments to align incentives and monitor compliance with performance targets. The management agreements establish, in a formal and explicit way, specific indicators and targets for health outputs/intermediary outcomes linked to the delivery of the mandatory package of health services. The review of the achievement of targets is also linked to budgetary allocation processes. The management agreements seek to create a culture whereby explicit mechanisms to enhance accountability, monitor results and more efficiently allocate resources provide the necessary incentives to improve health outcomes. Action plans have been developed to introduce new information management systems to monitor results, and a new National Monitoring Unit has been established to coordinate the implementation of the integrated information system that also facilitates cross-referencing with the CCT Solidaridad Program. The gradual advancement of these regional management agreements envisions a full roll-out nationwide of the results-adjusted capitation system, whereby resources are allocated for the delivery of care on a per-capita basis adjusted for the achievement of performance indicators for priority services. In addition, plans are currently in development to introduce the same results-based mechanisms and targets for the National Health Insurance, SENASA, with WB support under the PARSS2 program. Currently, the RHSs in El Valle (RHS IV) and Cibao Central (RHS VIII) have established advanced management agreements to include the additional allocation of financial resources on a per-capita basis, while half of all capitation transfers remain based on results. This results-based capitation system has been recently introduced in several countries across the region, including Argentina and Panama, to align providers’ incentives for improving coverage and quality of primary health care services.

59. Many challenges remain, however, particularly at the institutional level. These complex reforms require, by definition, time, leadership and coordination. Leadership is present, but requires strengthening in the coordination between MEPyD and the Ministry of Finance, with positive signs of progress made recently. Also, other critical actors like the Ministry of Public Administration and the sector Ministries need to be actively involved throughout the process. The Government has asked the Bank to continue scaling up its roles as neutral convener of actors and provider of technical inputs and best practices from similar experiences in other countries. This support has crystallized in the Programmatic NLTA21 to improve the quality of public expenditures (Section IV Analytical Underpinnings). III.4 ENHANCING TRANSPARENCY AND ACCOUNTABILITY IN SOCIAL SECTORS THROUGH

ENHANCED CIVIL SOCIETY OVERSIGHT 60. The Government has taken landmark steps to address critical constraints hindering a more informed demand for improved public sector performance in social sectors. As discussed in

21 “Improving the Quality of Public Expenditure in the Dominican Republic”, Programmatic Non-Lending Technical Assistance (NLTA), (P119206) FY11-12.

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the PD of PASS1, the PASS-supported reforms focus on two levels, the national budget, and the redesigned CCT combining the provision of health, nutrition and education services. 61. The Government has progressed in the development of the Consulta Amigable (Friendly Consult, CA), a web-based, user-friendly tool that will provide public access to budget information fed by the Financial Management Information System (SIGEF). Users of the Consulta Amigable tool are expected to include Civil Society Organizations, Non-Governmental Organizations, private firms, media, professors, researchers, and members of the general public. Technical assistance will also be provided to these users to train them in using the online tool to better allow them to obtain the information they desire from the tool. Based on a fruitful knowledge exchange with the Peruvian Ministry of Finance, the DR MoF prepared a proposal on the resources needed and timeframe for the definition, development, testing and full implementation of the CA webpage. This proposal was harmonized within the broader public resources management modernization program (Programa de Modernización de la Administración de los Recursos Públicos) led by the MoF and funded by IADB, which envisages a range of reforms to improve SIGEF, including its accessibility via the internet. In the meantime, the MoF will publish online budget execution reports to demonstrate its commitment to enhanced budget transparency. The MoF and MEPyD have also signed an administrative agreement for collaborating on the inclusion of a module within the CA that will enable users to link budget expenditures to performance indicators. 62. The success and credibility of the CA as a truly open, comprehensive and reliable tool for budget analysis and monitoring will be dependent on the Government’s commitment to ensuring that coverage applies to all centralized agencies using SIGEF, and that it gradually expands to other decentralized agencies. Critical steps in this direction will be: (i) piloting CA’s web application and portal in 2–3 sectors possibly health, education and Solidaridad; (ii) expanding coverage to all centralized agencies using SIGEF; (iii) Gradual inclusion of new decentralized agencies and municipal governments as they are incorporated into SIGEF; and (iv) piloting CA’s results module by including performance indicators as defined in the Performance Agreements signed by health, education and Solidaridad.

63. At the CCT program level, significant progress has also been made in terms of transparency, civic participation and oversight. Regarding transparency, the Government pursued its commitment to publish information on the supply gaps in health and education linked to the redesigned CCT on the Solidaridad’s website, as well as the list of beneficiaries. In fact, Solidaridad’s compliance with the Access to Information law has been recognized by civil society organizations as a good practice in the agile and understandable proactive provision of public information.22 In terms of civic participation, Solidaridad has continued to stimulate the participation and involvement of beneficiary families by supporting their organization in nuclei, as successfully done in Mexico and Colombia. Significant progress has also been made towards strengthening the CCT community’s oversight and performance accountability at the service provider level, through the preparation of a pilot community scorecard (CSC) process, scheduled to initiate implementation by October 1st, 2010 (See Section V, Policy Action IV which includes this operation).

22 See “Centro Juan Montalvo reconoce eficiencia de la Oficina de Libre Acceso a la Información”, available online at www.Solidaridad.gov.do (accessed June 6, 2010).

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III.5 PARTICIPATORY PROCESSES 64. PASS-supported reforms continue to address the main concerns expressed by civil society organizations, as demonstrated in continued Government and Bank-led consultations, as summarized below. As described in Section V, the PASS devotes an entire pillar to promoting reforms to improve transparency, citizen participation and community oversight of social programs. Government-led participatory processes 65. Between January and July 2010, the Government held nationwide consultations with civil society, entrepreneur associations, the media, international development organizations, youth and academia on the draft National Development Strategy (NDS) 2010-2030. The revised draft of the NDS will thus be presented to the new Congress before the end of the year. According to informal talks with civil society and academia attendees, the consultations reiterated the need to enhance the distributive effects of growth and to increase the human capital of the country by means of better social protection policies and improved Government accountability. 66. The first phase of the Government-Private Sector-Civil Society Anti-Corruption Initiative (IPAC) sponsored by ten international development agencies between December 2009-July 2010, has concluded with concrete recommendations to the Presidency to improve transparency and accountability of key sectors, such as health, education, access to information, and water, among others. Recommendations included many PASS-related areas, such as improved budget oversight by Civil Society. Among other results, the Government has planned for the development of the information needs assessment for the Consulta Amigable budget transparency tool, to be developed as part of the PASS reforms, with civil society groups. The recommendations will be publicly discussed in October 2010 and concrete actions are expected to be taken. This multi-stakeholder initiative has witnessed the participation of key high-ranking government officials and is therefore expected to have a high degree of Government ownership.

Bank-managed participatory processes

67. To minimize political and social risks, during the identification and preparation of the second DPL, consultations have been undertaken with Civil Society on the rationale and strategies to be supported by the Operation. During the identification mission, the PASS team had important consultations with the Civil Society Consultative Council (Consejo Consultivo de la Sociedad Civil, CCSC), a consortium of Civil Society Organizations (CSOs) that monitors social policies.23 CCSC representatives underscored the urgent need to strengthen

23 The GCPS is permanently advised by the Civil Society Consultative Council (CCSC), created by presidential decree, as an advisory and consultation body with the objective of collaborating in the definition, formulation, execution, and monitoring of social programs in the DR. The Council is made up of 32 CSOs, including networks and umbrella organizations that represent diverse sectors (religious, academic, NGOs, health, etc.) The seven-member Executive Committee meets every two weeks, and participates in the meetings organized by the GCPS, as well as by the Director of Solidaridad.

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the Council’s technical capacities for an effective civic monitoring of social policies. They also expressed their interest in benefiting from the technical assistance and knowledge-generation activities that are being produced under the Social Sectors NLTA. The Council underlined the importance of having a nationwide system to monitor the achievement of the indicators of social protection policies. 68. The PASS team has also initiated informal technical discussions with experts from CSOs, academia, citizens, and beneficiaries during all stages of implementation of the first phase. These discussions reiterated the need to protect and increase critical social spending, even if the worst period of the crisis may be over. Critical to the success of large policy-based lending, they argued, is an enabling environment to support both the supply and the demand for easy-to-understand budgetary information. In coordination with the PASS-supported budget transparency reform through the financial management system’s “Consulta Amigable” tool, two ongoing initiatives target improvements in civil society’s budget analysis and monitoring capacities (through Centro Juan Montalvo Public Budget Observatory) and Congress’ budget oversight functions (IDF for the Budget Planning Office).

69. The DR CPS (2010-2013) includes a Strategic Objective specifically aiming at building constituencies for reform. As such, PASS participatory consultations have been mainstreamed into the PASS series. Meetings with more than 300 community-based organizations, universities, and think-tanks have been held in four provinces (April–June, 2010) to present the CPS and discuss ways for improvement and increased alliances. With regard to the social protection sector, the following plan was advanced:

In all provinces, organizations demanded improvements in the targeting of the social protection programs such as Solidaridad;

In all provinces, organizations discussed the need to improve the quality of health and education services by increasing the decentralization of services to better respond to the actual needs of the specific localities;

Organizations also demanded an increase in the transparency of public spending in general, while demanding resources for strengthening the capacity of local associations, CBOs, NGOs, in social auditing and budget oversight.

70. Finally, and as a result of the increased demand by civil society for support, the Bank framed a new civil society NLTA to mainstream available funding through several initiatives to focus on strengthening civil society's capacities for monitoring governance and accountability across the overall portfolio.

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IV. BANK SUPPORT TO THE GOVERNMENT’S PROGRAM IV.1 LINK TO THE CPS 71. As discussed in the PD for PASS1, the PASS program—including this second proposed operation is consistent with the CPS, which calls for “reducing vulnerability while producing results for all.” The PASS helps to preserve and enhance the human assets of the poor through a major shift from social assistance to the protection and promotion of human capital in social policy. Accountability also forms a central pillar of the PASS, both within government agencies, and between government agencies and the public. Specifically, the reforms targeted by the PASS specifically align with the following CPS pillars: (a) the reform of the safety net framework is in line with the pillar on Social Cohesion and Services, which calls for producing better results in education, health and social protection; (b) the pillar on the Quality of Public Expenditures and Institutional Development benefits from the contributions of the PASS through: (i) measures to improve budget management to support the joint performance of social sectors in delivering the CCT performance targets; and (ii) its overall approach to performance orientation; and (c) the pillar on Capacity-building of Non-traditional Actors (including civil society) benefits from a better informed demand for improved public budget performance as well as from a strengthened demand regarding social service delivery. IV.2 COLLABORATION WITH IMF 72. A new 28-month Stand-By Arrangement (SBA) was approved by the IMF Board in November 2009 in an amount equivalent to SDR 1,095 million or 500 percent of quota (about US$1,700 million). The main objective of the program is to “boost economic recovery in an environment of macroeconomic stability and strengthen the country’s growth prospects by conducting a counter-cyclical policy in the short-run, while achieving sustainability over the medium-term.” 73. A forthcoming review of the program was originally planned for August 2010, but after some delays a staff-level agreement on this review has been reached at the beginning of September 2010 and the IMF Board is expected in late October (see Annex 6).

IV.3 COLLABORATION WITH OTHER DONORS 74. The PASS has been well aligned with donor coordination efforts that are taking place in the Dominican Republic. The Bank has maintained continuous dialogue with the IADB on the reform of the CCT program, Solidaridad. Coordination with the IADB has been intersectoral, including education actions, as the IADB provides technical assistance to the Ministries of Economy, Education, and Finance, to support, among other issues, the Government’s performance agenda. The IADB second investment loan to Solidaridad, to be submitted to the IADB Board this year, will also complement the Bank Health project PARSS2 (Section IV.4 below) by supporting the strengthening of primary healthcare services. As explained further above, IADB has also agreed to collaborate with the Bank in advancing

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funding planned under the Programa de Modernizacion de la Administración de los Recursos Públicos (PAFI II) for upgrading the SIGEF into a web-based, publicly accessible tool. 75. The Bank has continued communication with the European Union (EU) and the International Development Agency of Spain (AECI) to align budget support with some of the policy actions and/or outcomes identified in the matrix. UNICEF has also been an important partner in its efforts to complement the performance and accountability approach by strengthening the legislative function of the congressional budget oversight office. IV.4 RELATIONSHIP TO OTHER BANK OPERATIONS 76. The PASS program’s contribution to the revamp of the new CCT Solidaridad program complements the activities undertaken by the Social Protection Investment Loan (SPIL) (under implementation) and its corresponding Additional Financing (AF, approved by the Board in September 2009 and ratified in May 2010). The SPIL assists poor, undocumented Dominicans in obtaining national identity documents as an essential first step to integration into the social protection programs such as Solidaridad. The SPIL and its AF also help finance institutional strengthening of the targeting organization to develop a new socioeconomic census that will improve the coverage and effectiveness of the CCT program, Solidaridad. The SPIL and AF also develop the managerial and staff capacity of the Solidaridad program to adapt to their new roles and responsibilities given the redesign of the operational rules of the CCT and support the development of a comprehensive monitoring and evaluation system, in coordination with the IADB. Neither the SPIL nor the AF finances the payment of transfers to households. 77. The PASS program also plays an important role in complementing the second phase of the Adaptable Program Loan (APL) for the support to the Health Sector Reform (PARSS2). Specifically, PASS provides a framework for exploiting synergies regarding better intersectoral coordination for human capital investment and advancing the improved accountability framework for the social sector. PARSS2 focuses on improving the delivery of health services at the first level of care by introducing results-adjusted financing mechanisms (capitations) for the first level of care and improvements in the quality of spending in the health sector. The health-related co-responsibilities of the Solidaridad program rely on the supply of health services at the first level of care.

78. The PASS programs’ education actions complement the implementation of the Dominican Republic Early Childhood Education Project (7144–DO), which increases access to Early Childhood Education, and the Dominican Republic Youth Development Project, which provides poor and vulnerable youth with a second chance to complete their secondary education.

IV.5 LESSONS LEARNED 79. The results of the 2003 DR Crisis Response Adjustment Loan (SCRAL) hold important lessons for the PASS. In particular, the SCRAL Implementation Completion Report (ICR) states that “Bank lending can effectively achieve short-term crisis alleviation along with modest advances on medium-term policy actions.” In following the major ICR recommendations, the PASS program has given careful attention to the selection of policy

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action, the consensus reached with Government on these actions, and inter-sectoral and donor coordination. 80. The Programmatic DPL Series on social sectors (REACT) in Peru also offers important insights relevant to the PASS. The REACT series highlights the need to fully involve social sector ministries in the gradual implementation of performance-informed budgeting, while supporting an enabling environment for a better informed demand for enhanced performance of social sectors. The REACT series also underscores the importance of focusing on a few critical policy reforms and related results, while leveraging synergies with other Bank operations in social sectors. IV.6 ANALYTICAL UNDERPINNINGS

81. As described in detail in the PD of PASS1, the PASS program builds on a series of analytical and advisory reports from within and outside the Bank. Furthermore, the Programmatic Social Sectors NLTA provides pivotal support to the PASS program to build knowledge and capacity to enact the reforms targeted by the PASS program. The NLTA supports the assessment and monitoring of the social impacts of the PASS-supported reforms. In addition, the NLTA addresses knowledge and advisory gaps beyond the reforms targeted by the PASS DPL to help strengthen the performance and quality of social services—specifically education—and build resiliency to the effects of the economic crisis through unveiling issues and options for a broadened social protection base, including active labor market policies, and an integrated social protection system.

82. The PASS program is also receiving important support from a second NLTA product that aims at improving the quality of public expenditure.24 The NLTA on public expenditure is the result of a concerted effort from the GoDR to improve the overall performance of the public sector, particularly the quality of public expenditure. The NLTA is supporting major government-led initiatives under the reform program for the strengthening of financial management and procurement mechanisms, and the introduction and institutionalization of performance information by key actors in the budget cycle as well as the implementation of the performance contracts between actors. The NLTA is contributing to government efforts in addressing challenges posed by new (and renewed) planning instruments, information systems, and other initiatives. The reforms have set out to explicitly address, among several problems, a weak strategic orientation of resource allocation processes, the lack of integration and harmonization between budgeting and planning exercises, and the absence of capacities and tools to measure and report on both financial and physical results. In that regard, there are several new (and renewed) planning instruments, information systems, and other initiatives, including the National Development Strategy, the Multi-Annual National Public Sector Plans (and regional plans), the Medium-Term Sector and Institutional Strategic Plans, the Multi-Annual Public Investment Plans, the Project Portfolio Monitoring System, performance contracts, and the integrated financial management system (SIGEF).

24 “Improving the Quality of Public Expenditure in the Dominican Republic”, Programmatic Non-Lending Technical Assistance (NLTA), (P119206) FY11-12.

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V. THE PROPOSED OPERATION 83. The proposed PASS DPL2 operation is the second of a programmatic series of three DPLs, envisaged to span over three years, to improve results in social sectors (mainly social protection, education and health), preserving in the short-term and enhancing in the medium-term the human capital of the poorest citizens. The PASS program’s four inter-related objectives remain consistent in the proposed second operation: (i) to enhance the performance of social sectors to promote human capital (health, nutrition, and education) for the poorest citizens, through a fundamental redesign of the Government’s CCT) program, Solidaridad, and its articulation with critical actions in health and education (Pillar I); (ii) to improve budget management to support the joint performance of social sector agencies within the CCT program, as part of the interim measures to protect critical aspects of social spending and support the required improvements in the supply of health, nutrition and education services (Pillar II); (iii) to support the gradual introduction of Performance Agreements in the key social sector agencies (Pillar III); and (iv) to enhance transparency and oversight in social sectors (Pillar IV). 84. Expected Results. The social and public sector policy reforms supported by the PASS are harmonious with the Government’s long-term goal of improving major human development indicators in education and health, especially for the poorest citizens.25 The PD of DPL1 presented specific results expected by the end of the PASS series (around the end of 2012), selected monitoring indicators, baselines (when available) and targets. Annex 3 presents an update of this results framework, which is divided in two parts: the overall expected results/final outcomes of the PASS series package (the four policy pillars combined), and specific expected results for each of the policy pillars. As a whole, the PASS is expected to increase the share of CCT beneficiary households who invest in their human capital development, as measured by: (i) an increase in the share of CCT beneficiary households who comply with health and nutrition co-responsibilities (e.g., increased share of pregnant women in the Solidaridad program receiving prenatal checks); and (ii) an increase in the share of students from CCT beneficiary families who are enrolled in, attending and completing basic education, and who are enrolled in and attending secondary school. Specific expected results for each of the pillars is described below with specifics included in Annex 3. 85. The Government has made progress on collecting and defining previously missing baselines and subsequent target indicators linked to the reforms targeted by the PASS program, despite significant obstacles. As explained in Section III.2, the development of an integral monitoring and evaluation (M&E) system for the Solidaridad Program only started recently. When the initial indicators and targets for the M&E system were determined, the Government estimated that each sectors’ respective information system was designed to be able to easily register the co-responsibilities of Solidaridad beneficiaries (e.g., school attendance and daily health consult registries). In attempting to actually cross-check the Ministry of Education

25 Specific long-term results expected in education include increased educational attainment of extremely poor children, particularly in Early Childhood Development (ECD) (children 4-6 years old) enrollment, basic education completion, and secondary school enrollment. In health, key long-term results include better Government performance in the delivery of critical nutrition, child and prenatal health care services for the poorest citizens.

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and Solidaridad databases for student enrollment, however, serious problems were discovered in the incompatibility of the unique identifying variables across databases. The Government launched a special emergency operation to produce the necessary adjustments. Measures taken under this operation include orientation for the 528,000 Solidaridad heads of households on the means of registering at their designated health center (UNAP) and the validation of a uniform variable to monitor Solidaridad student attendance integrated into the Ministry of Education registry system (SGCE). As a result of this special operation, the necessary baselines have now all been calculated, along with targets for future years, with the exception of school attendance due to inability to monitor data over the summer recess (to be completed in November 2010, see Annex 3). The baseline study for the quantitative impact evaluation of the redesigned CCT has also begun information collection, with results expected by November 2010 that will further strengthen baseline estimates and indicator targets. With regard to indicators on Solidaridad beneficiary satisfaction, the related baseline survey has faced delays in financing related to the delayed Congressional ratification of the Additional Financing (AF) of the Social Protection Investment Loan (SPIL); the AF finances key components of the integral M&E system, including the process evaluation, qualitative evaluation and beneficiary surveys. Despite having faced several obstacles in operationalizing the systems and surveys necessary to develop the baselines and indicator targets, the Government has demonstrated consistent commitment to advancing with a full M&E system for the Solidaridad program. 86. Reforms supported by the first PASS operation, combined with other instruments, were able to preserve the human capital of the poor in the short-term, mitigating the historically negative impact of crises on the human capital of the poor and vulnerable. The redesign of the safety net framework, especially the Solidaridad program, has been combined with improved targeting of the fiscal resources dedicated to social transfers for extremely poor families and the progressive coverage of supply-gaps in education, health and nutrition. Critical steps have also been taken to initiate major reforms in social protection and quality of public expenditure. Consistent with the Government’s national priorities and the PASS program vision, PASS2 aims to further institutionalize these gains to ensure the sustainability of progress and move beyond preservation of human capital during the crisis to enhance the human capital assets of the poorest citizens. To do this, PASS2 advances deeper into new processes and areas of reform that had received less attention in PASS1. 87. The first operation was approved in November 2009; this second operation is slated for a Board date of November 2010, and the subsequent operation would proceed when the GoDR has completed the agreed policy benchmarks (provisionally late 2011). 88. Policy Areas. Consistent with the policy context analyzed in Section III, this section describes the selected prior actions for PASS2 under the four policy areas that correspond to the four objectives of the Program. Annex 1 provides a detailed comparison of these prior actions with the initial formulation of triggers as provided in the PD of PASS1, an explanation the rationale for changes when applicable, and an assessment of the status of each action. Annex 2 provides an updated version of the operation’s policy matrix of prior actions and triggers for the whole PASS program.

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89. There have been only minor changes in the formulation and presentation of the prior actions for this proposed PASS2. These prior actions remain consistent and on track with the original program as presented in the PD of PASS1:

Of the 18 original triggers for the second operation, only two reform aspects have suffered delays: (i) under Policy Area I on the CCT reform, the sub-component on developing the baselines for the verification of compliance with co-responsibilities has been delayed due to complexities of developing full-fledged nationwide information systems that are able to be cross-referenced across regions and sectoral programs on a regular basis (see above); and (ii) under Policy Area IV, the development of the Consulta Amigable tool, which is now scheduled to be completed by June 2011. Delays are mainly attributable to difficulties in funding the development of the web-based tool for budget transparency, which has now been resolved. As a sign of its commitment to increase budget transparency, however, the GoDR agreed to publish online budget execution reports in the interim.

Out of concern for selectivity, the Bank-client team decided to reduce the number of policy actions that are criteria for disbursement (10 prior actions instead of the original 18 triggers), focusing on critical measures that are needed for reaching the full potential of the PASS series objectives at this stage of the reform process. In this context, although some original policy actions have already been implemented, they are no longer considered as criteria for disbursement. For example, under Policy Area I.4 Quality of Service to CCT Beneficiaries, the GoDR fulfilled its commitment to enhance competition of neighborhood shops by expanding the number of affiliated colmados by 18 percent, which will be considered by the PASS3 trigger calling for an even greater expansion. In consolidating actions, the prior action in this area, therefore, focuses on the more difficult transparency issues regarding access to account balance information for the Solidaridad debit card as the criterion for disbursement. Along the same lines, the education management information system (Policy Area 1.3) is up and running, but has been regrouped under a newly formulated trigger on the verification of co-responsibilities, which requires the use of the system.

Finally, certain policy actions were reformulated to reflect achievements beyond expectations for PASS2 prior actions. Under Policy Area 1.1, for example, the prior action reflects the bold decision made by the Government to undertake a process of updating Solidaridad’s organizational structure and personnel roles to better meet the needs of the redesigned program, a reform item that had not been initially considered. Another example is the Government’s concerted effort to go beyond developing an independent “Policy Paper” (initial formulation) on projections on medium-term budget envelopes for supply-gaps related to the CCT to both develop these projections and ensure their timely incorporation into a new Government planning instrument, the Multi-Annual National Plan for the Public Sector 2010-2013 (originally a DPL3 trigger).

V.1 POLICY AREA I. ENHANCING THE PERFORMANCE OF SOCIAL SECTOR AGENCIES TO

PROMOTE EQUITABLE ACCESS TO HUMAN CAPITAL 90. As explained in the PD for PASS1, the first area of policy reform involves a fundamental shift in the current social assistance model of the Solidaridad program to develop a full-fledged CCT program focused on the human capital promotion of the

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poorest citizens. This policy area therefore involves the institutional and operational redesign of the Solidaridad program and its articulation with critical actions in health and education. The overall service quality and targeting issues related to the Solidaridad program are also addressed under the pillar in order to improve the accuracy of beneficiary selection, while enhancing the competition and transparency of the use of the payment mechanism, the Solidaridad card. Expected results include improvements in governance and operative rules of the redesigned CCT such that, for example, verification of compliance with health co-responsibilities by CCT beneficiary households would reach 90 percent by the end of the PASS series (December 2012) and 80 percent by the end of this second operation (November 2011). 91. Policy Area I.1: Conceptual, Institutional and Operative Revamp of the CCT Solidaridad. The reforms of the Solidaridad program target the conceptual, institutional, and operative revamp of the Solidaridad program to be exclusively dedicated to providing transfers to poor families conditional on investments in health, nutrition, and education. Specifically, and consistent with the Government’s program and context described in Section III, PASS 2 will:

Institutionalize gains in intersectoral and interagency coordination by supporting the approval of the regulations governing the day-to-day functioning of the CCT Interagency Committee (composed of ADESS, SIUBEN, and Solidaridad) and CCT Intersectoral Committee (Solidaridad, Health and Education).

Ensure the alignment of Solidaridad’s institutional structure and personnel roles with the CCT reform by supporting the implementation of the organizational development plan for Solidaridad.

Promote a sustainable agreement within the CCT Intersectoral Committee on the procedures and timeline for the systematic verification of co-responsibilities starting in January 2011, based on the results and lessons learned from the Special Operation that is currently being undertaken for this purpose. This agreement will include planned and existing actions being taken to continually improve and enhance the compatibility of the education and health sector information systems with the Solidaridad information system.

92. Policy Area I.2: Additional Health Actions. The PASS Program—including this proposed second operation—supports important reforms related to the articulation of the CCT reform with the health sector. However, these health actions are difficult to isolate in a single sub-set of actions. For example, improvements in the articulation with the health sector are reflected in Policy Area I.1 on the verification of co-responsibilities (Prior Action 2). Other areas of reform include: (i) improved budget management to bridge supply-gaps (which benefits both health and education, see Policy Area II); and (ii) improved quality of strategic planning through the reform supporting the introduction of performance-informed budgeting (Policy Area III) –including the signing of management agreements between regional health services and the Ministry of Public Health. The latter will make a significant contribution to strengthen the provision of primary health care services required under the new Solidaridad co-responsibilities. These co-responsibilities aim to address the low quality of mother and child health care services at the first level of care (See Section III.2). Looking ahead, PASS3 will improve the knowledge and practices of health staff on maternal-infant care, according to new national protocol by promoting the mandatory training of health staff on the new protocol of the Government’s action plan for maternal-infant care. As highlighted in Section III.2, this training is a necessary

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condition for launching the new approach to improve the quality of maternal and child care delivery. PASS3 could also support the development of a national evaluation system to evaluate health staff adherence to this training and the enhancement of record keeping and monitoring of primary health care activities, through the development of an informational tool for the daily registry of primary level care activities (PASS3). 93. Policy Area I.3: Additional Education Actions. The additional education actions are not meant to support broader education reforms linked to quality enhancement, but to enhance the articulation between the revamped CCT program Solidaridad and the supply of education services. In this context, this line of action will continue to address three main issues: (i) the lack of an information system owned by the Ministry of Education to verify the compliance of co-responsibilities—while the information system is up and running, the initial trigger for this issue has been absorbed under the prior action above (Policy Area I.1) on the verification of co-responsibilities; (ii) the lack of differentiated financial incentives in education programs to offset the opportunity costs of schooling (mainly addressed in PASS3); and (iii) the inability of the Ministry of Education to monitor student learning outcomes, including students from CCT families. Specifically, PASS2 will:

Continue to improve monitoring of student outcomes to allow for the development of a second-generation CCT Program, specifically supporting: (i) the administration of student learning outcome tests for the first cycle of Basic Education (4th grade) and the validation of student evaluation standards for the second cycle of Basic Education. PASS3 would support the administration of the adjusted student learning outcome tests for the second cycle of Basic Education (8th grade) and the validation of student evaluation standards for secondary education.

94. As discussed in Sections III.1 and III.2, PASS3 could address new areas of reform in education linked to improvements in resource and information flows, which would in turn improve the efficiency of the newly assigned resources for education to close supply-gaps for CCT-related services. These new elements of the PASS program would take place subject to the interest and buy-in of the Government in the results and recommendations of the Bank-sponsored analytical and advisory activities that are currently under way. 95. Policy Area I.4: Enhanced Quality of Service to CCT Beneficiaries. The quality of the Solidaridad payment mechanism has been a crosscutting issue recognized as having room for improvement (See Section III.2). PASS2 will launch efforts to address the lack of beneficiary access to basic account information. Specifically, PASS2 supports the implementation of actions allowing beneficiaries to be informed of the total amount of the transfers and the available account balance on their cards through the use of a free telephone line starting December 1st, 2010. PASS3 would deepen the reform by allowing beneficiaries to conveniently access real-time account information free of charge, among other advances. As discussed in section III.2, the Government has also started to expand the number of affiliated neighborhood shops as agreed in the context of the PASS program. PASS3 should see the completion of this vast expansion that should help enhance competition among providers, and therefore price and quality.

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96. Policy Area I.5: Improved Targeting Performance. This line of action addresses the need to reduce targeting errors of inclusion and exclusion in the list of eligible CCT beneficiaries. Major problems include: (i) an outdated database, as the last SIUBEN census was carried out in 2004-2005; and (ii) the lack of clear oversight over the list of eligible CCT beneficiaries, as both SIUBEN and Solidaridad maintain the list of eligible beneficiaries for the Solidaridad program (SIUBEN for household heads, and the CCT Solidaridad for all household members). The latter issue was addressed by the revision of operative rules for the CCT Interagency Committee (PASS2 prior action for Policy Area I.1). SIUBEN has now been given the unique institutional responsibility as the only agency accountable for maintaining and updating the registry of Solidaridad beneficiaries. PASS3 would support the implementation of a new SIUBEN census and subsequent updating of its database as a means of improving targeting accuracy and expanding coverage into new geographic areas. V.2 POLICY AREA II. IMPROVING BUDGET MANAGEMENT TO SUPPORT THE JOINT

PERFORMANCE OF THE CCT PROGRAM 97. This program’s area of reform addresses the need to both increase budget allocations to meet the entitlements envisioned under the redesigned CCT Solidaridad program and related health and education programs, and ensure that the budget for the integrated CCT (combining transfers and supply-side services) is programmed and executed. Expected (measurable) results focus on a better management of budget projections for social sectors, with a reduction in the difference between the proposed appropriations and their actual allocation in order to cover the supply-gaps linked to the Solidaridad program (Annex 3, Policy Area II). 98. As discussed in Section III.1 and III.3, this area has been critical to protect social spending levels in the short-term in light of the financial crisis and support improvements in the redesigned Solidaridad program execution and the related supply of education and health services. The challenge for this area is now to move from temporary protection of budget entitlements to develop medium-term policy instruments to increase the predictability and efficiency of the financial management and budget processes across sectors as they relate to the execution of the Solidaridad program. Specifically, PASS2 will:

Include sufficient resources in the 2010 National Budget Law to meet the output targets of the Solidaridad program, along with strengthened procedures to ensure the execution of these resources (PASS2). These monitoring procedures include developing quarterly reviews of the progress in executing the allocated funds.

Enhance the sustainability of planning and budgeting for the Solidaridad program and associated supply-side gaps by reflecting, in the Multi-Annual National Plan for the Public Sector 2010-2013 (multi-year planning instrument), the medium-term guidelines for social protection policy with projections as to the coverage, estimated budget, and financing bases, including the quantification of the service coverage gaps in education and health linked to the Solidaridad program. For PASS2, the 2011 Budget Project will include these cost projections in its formal presentation to the Dominican Congress. Originally a PASS3 trigger, the inclusion of these projections in the multi-year Plan represents a significant advance in improving intersectoral planning, predictability, and

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sustainability for the CCT. PASS3 would also ensure that the annual budget is firmly linked to the rolling multi-year CCT projections.

V.3 POLICY AREA III. SUPPORTING THE GRADUAL INTRODUCTION OF PERFORMANCE

AGREEMENTS IN THE SOCIAL SECTORS 99. This area of policy reform supports the Government strategy to shift away from its current budget management focus on financial and human inputs to prioritize flexible, performance-informed budgeting allocation (See Section III.4). Expected measurable results would include the development of strategic plans for priority programs in health, nutrition, and education related to the Solidaridad program that include multi-year objectives and projections of expenditures, budget structures, goals, and monitoring indicators (See Annex 3). As planned, PASS2 will:

Continue to promote the gradual introduction of performance agreements in social sectors by supporting the current critical stages of the Government’s reform in the delivery of the institutional strengthening plans that assess the preparedness, capacity building, and training needs for the introduction of Performance Agreements in the education and health sectors. Under PASS3, Performance Agreements would be signed with the Ministries of Health and Education that establish strategic plans, objectives, performance indicators and budgets, covering at least the priority programs in the social sectors, and will be included as an annex to the Budget. As discussed in Section III, the Social Cabinet could also consider institutional diagnostics and strengthening plans for Solidaridad under PASS3 subject to the completion of the organizational redesign of the Solidaridad program.

Consolidate internal regional management agreements in the health sector for results-based budgeting by promoting the signing of internal management agreements between the Ministry of Health and all Regional Health Services (PASS2). This prior action has considerable synergies with the policy actions supported in Policy Area I and expected results are reflected in Annex 3 under Policy Area I.

V.4 POLICY AREA IV. IMPROVING TRANSPARENCY AND OVERSIGHT 100. As discussed in the PD of PASS1, this last area of the PASS program addresses two critical challenges hindering a more informed demand for improved public sector performance in social sectors: (i) at the level of the Government budget, the Financial Management Information System (SIGEF) is only accessible by authorized users, hindering public access to timely and comprehensive budget information; and (ii) Solidaridad does not have an effective social auditing scheme with verifiable and quantifiable feedback loops and complaints to Solidaridad about related health and education inputs are not shared with the respective sectors. Specifically, PASS 2 will:

Promote full disclosure of Government budget information to improve public access and understanding of the budget by supporting the development of a user-friendly, easy-to-understand, web-based tool, "Consulta Amigable" (CA), developed as an interface of

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SIGEF26 (with launching by PASS3), and the regular publication online of budget execution reports in the interim. PASS2—related reforms also include the development of a module within the CA to allow users (civil society groups, NGOs, media, researchers, the public, etc.) to link budget expenditures to performance indicators in health, education, and social protection. As an interim measure, budget execution reports will be published online to allow greater budget transparency and accountability starting September 2010. As part of the Anti-Corruption Participatory Initiative, the information needs assessment for the CA tool will be conducted with civil society groups by PASS3. In terms of expected results, by the end of PASS3 (December 2012), at least 60 independent users would be registered to use the Consulta Amigable tool.

Support the implementation of a community scorecards pilot during the period of October 2010 to May 2011, with a view to expand it to the CCT as a whole for DPL3, subject to pilot results. Previously, the Solidaridad program did not include an effective social auditing scheme with verifiable and quantifiable feedback or adequate feedback loop. The Intersectoral CCT Committee defined a list of elements to be included for evaluation in the scorecard. A draft operative process for the sequencing of the CSC process was already approved by the CCT Intersectoral Committee. Given the absence of prior experience in implementing community scorecards in the DR, the Bank has provided substantial technical assistance–-with guidance on good practices in other countries and regions—to the Social Cabinet and Solidaridad for advancing this process. In the short-term, community scorecards will mainly focus on aspects of CCT service quality (e.g., payments made on time, and training delivered) and the presence of inputs that are necessary for the compliance with the newly defined co-responsibilities: for example, teachers present at school and the availability of micronutrients. The community scorecards will be accompanied by the rolling-out of an improved accountability chain involving direct service providers and users, at district, regional and national management levels. Looking ahead, PASS3 should further publish the results of the pilot, while also supporting the enhancement of the Solidaridad complaint system to include complaints associated with the provision of education and health services.

VI. OPERATION IMPLEMENTATION

VI.1 POVERTY AND SOCIAL IMPACTS 101. A Poverty and Social Impact Analysis (PSIA) has been undertaken as a client-driven analytical and policy base to examine and monitor the expected impacts and potential risks of priority policy actions supported by the PASS DPLs series. This approach also helps formulate recommendations to mitigate the identified risks. 102. As underpinned in the PASS DPL1 PD, early findings taken from literature and key stakeholders‘ interviews pointed to the potential for positive impacts from the newly

26 This automated interface will be linked to performance indicators. An administrative agreement has been signed between MOF and MEPYD to develop a pilot to define performance indicators in health, education, and social protection that will be linked to budget information (see Annex 1 for detailed formulation of prior actions).

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conditional cash transfer program to promote human capital accumulation among the poor, while producing positive externalities beyond the program on improved targeting, results-based financing, greater transparency, and complementary health and education efforts. Conversely, the findings also highlighted the barriers to compliance with health and education co-responsibilities by poor families, including lack of access to national identity documentation and the penalization of households for non-compliance due to remaining supply gaps. 103. Additional analysis confirms the substantial expected positive human capital impacts of the CCT overhaul. In their efforts to restructure Solidaridad, the Government and particularly the Social Cabinet emphasized the need for greater evidence on anticipated impacts on education and health for the poor. Since the actual impact evaluation is scheduled for 2012, an ex-ante micro simulation model was used to estimate the following expected impacts27:

a. First, an anticipated increase in enrollment by 6 percentage points among poor children. Solidaridad (through its targeted and differentiated benefits Comer es Primero, Incentivo a la Asistencia Escolar and Bonogas) should increase enrollment among poor children in rural areas by 6 percentage points (from 71.0 percent to 76.9 percent) compared to 1.5 percentage points for all children.28 This highlights not only the actual effect on lifting financial barriers to education for the most vulnerable families but stresses the concentrated social impacts (and rationalized expenditures) expected from sustained efforts to support comprehensive targeting accuracy. Furthermore, 9.2 percent of working children could potentially start attending school and drop out of the labor market in order to receive the transfer. Hence, introducing education conditionalities as part of the Solidaridad program is estimated to hold unanticipated, but significant effects on reducing child labor in the Dominican Republic.29

b. For the health sector, attendance of children under–5 by a Healthcare Professional should double. Solidaridad (through Comer es Primero only in this case) is expected to double attendance to health centers among poor children in rural areas from 32.3 percent to 66.0 percent, compared to an increase by 9.1 percentage points for all children. Increased attendance of young children by medical professionals represents a major positive step towards ensuring positive cognitive development for poor children. Additional ongoing efforts to improve the quality of health services at the first level of care, shows encouraging results, tripling attendance by children in poor rural areas (from 32.3 percent to 93.2 percent) by focusing on the first level of care. These results emphasize the need to continue a two-pronged (supply and demand) approach when revamping the social assistance envelope to ensure human capital accumulation.

27 The full report ‘Simulation of the Impact of Conditional Cash Transfer Programs on Education and Health in the Dominican Republic’ (Reboul, Leite and Subran, 2010) is being finalized. Consultations with the Government will be held in November 2010. 28 Note that different scenarios and sensitivity analyses were run. On poverty, the anticipated impact points to a decrease ranging from 8 to 10 percentage points. Take-up rate is expected to be between 80 percent (compliance to be expected for education co-responsibilities and 100 percent). Costs are constrained under 0.1 percent of GDP. 29 The ENIGH, 2007 database did not allow any simulation on attendance.

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c. The quality of services remains a major factor behind immunization rates and prenatal controls. Increased multi-sectoral actions have been initiated to ensure positive change.30 Through interviews with key informants, a literature review31 and regression models, emerging findings point to the risk that increasing real incomes by itself does not necessarily translate into improved health outcomes. Simple regressions confirm that the mother’s education level, and the mother’s age are positively correlated with child vaccination rates and attendance by a specialist for prenatal check-ups, whereas the size of the family shows a negative correlation with both practices (marginal effects range from 1 to 5 percentage points). Despite high levels of prenatal care, maternal mortality remains disproportionately high; the lack of trust and confidence in the first level of care seems to foster a lack of continuity in attendance, even in rural areas. Mitigation measures initiated by the Government include enhanced training of health personnel (as part of the newly-formulated PASS2 prior actions), mandatory training workshops for Solidaridad households (as per the operational manual of the program), and the introduction of results-based financing in health. With the support of various partners, the Government has begun exploring synergies in delivering more and better care, especially in maternal-infant care.

104. As part of the WB Social Protection Investment Loan (SPIL), the Government has taken significant steps to ensure the poor are documented in order to participate in the Social Protection System. As of June 1st, 2010, the Central Electoral Council, through the National Registry, has issued national identity documents to 67,273 poor, previously undocumented Dominicans through demand-based processes established by the SPIL project. Once a major risk to the certification of beneficiaries, as identified in Project Document of PASS DPL1, the Government has initiated additional grassroots processes to provide undocumented Dominicans with legal counsel to obtain their IDs. The process is expected to be completed in 2011 with continued increases in documentation in the country, particularly among the poor. 105. Though the risk of a lack of health and education service availability is decreasing with the rollout of the program to close Solidaridad-related supply-gaps in education, health and nutrition (see Box 2, Section III.2), several options are being analyzed by the Government to ensure a robust transition towards a full-fledged CCT. The Government has undertaken a substantial paradigm shift by prioritizing supply-side interventions in health, education and nutrition. These gaps were calculated based on additional inputs and infrastructure needed for the effective delivery of the co-responsibilities in health and education to Solidaridad beneficiaries, and were estimated at US$322.2 million for three years (i.e., US$107.4 million per year) with 88 percent of funds for education gaps, 11.7 percent for health and 0.3 percent for nutrition. Given the operationalization of information systems to verify co-responsibilities, additional emphasis has now been placed on the actual execution of these funds to close supply-gaps to ensure Solidaridad beneficiaries are able to comply with co-responsibilities. In parallel, various scenarios are being discussed on the how to temporarily prevent penalization of non-

30 Limited data is available on the relationship between immunization and prenatal control practices (DHS 2007) and income. Initial recommendations for the baseline of the impact evaluation and an increased emphasis on health indicators in national surveys (including out-of-pocket payments) have been formulated. 31 See Chapter 6 on the health sector (pp. 97-105) in Senderowitsch and Tsikata (eds.). 2010. De la crisis financiera internacional al crecimiento para todos, Notas de Política. Banco Mundial.

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complying families due to the lack of service supply in a given area. The team will be informed of the final decisions by the GoDR before negotiations. 106. As outlined in the PASS1 PD, the PASS-related reforms are expected to help increase, improve and better target social expenditures. From programming to the execution of regular budget lines in education and health, and specific complementary supply investments, the incidence of social expenditures on the most vulnerable is an important dimension for analysis. Among the risks identified, the volatility and vulnerability of these expenditures to macroeconomic conditions, and the actual pro-poor prioritization of specific investments are at stake. 107. Between 2005 and 2009, public expenditures on social sectors increased from 6 to 8 percent of GDP. This is an important step forward given that the Dominican Republic remains one of the countries with the lowest share of GDP spent on education and health. Expenditures in real terms for education and health increased by 130 percent and 83 percent, respectively. Early analysis from the Ministry of Economy shows a buffer effect from the DPL lending to help protect some of the critical health and education inputs that had previously suffered severe budget cuts in times of crisis in the DR. 108. Initial results suggest semi-progressive spending in education, to be potentially offset by the specific investments to close the supply gaps. Using a Benefit Incidence Analysis (BIA) methodology32 across education levels, results indicate mixed evidence on how pro-poor education expenditures are. For initial education, for instance, enrollment rates are unsurprisingly at the lowest levels, 31 percent on average, with the highest levels of variance by regions and income levels, though incidence analysis shows that per capita expenditures are pro-poor. The poorest third of the population is receiving 41 percent of the total envelope. However, when refining the analysis for the target population (3-5 years), the evidence points to a different phenomenon: children below the extreme poverty line receive 3.2 percentage points less in per capita expenditures terms (moderate poor 2.5 percentage points less) whereas non-poor receive 5.6 percentage points more. This variation is in part explained by high repetition rates and low attendance among poor children. This analysis provides important analytical underpinnings for the major coordinated investments in closing supply gaps in education in areas with major concentration of Solidaridad beneficiaries (approximately US$284 million supported by development partners and increased public financing). Estimates of the actual catch-up effect in the incidence of total education spending will be calculated by the end of 2010 when information on execution is more robust. Results for basic education point to pro-poor spending, whereas middle school education tends to be regressive. These weaknesses are certainly exacerbated by institutional and planning bottlenecks as emphasized in a recent report.33 Discussions to address these particular issues are being discussed for the formulation of policy triggers in PASS DPL3. 109. The resources dedicated to the closing of supply gaps in health are shown to be very progressive. Even though actual execution of coverage of the pending supply-gaps is slightly

32 The draft report ‘Análisis de incidencia del gasto público orientado a cerrar las brechas de oferta en salud y educación en la Republica Dominicana’ (Yepes and Subran, 2010) is in progress. 33 See World Bank. 2010. Analisis Organizacional del Sector Educativo. Draft.

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behind schedule, the analysis suggests significant potential for the funds to be dedicated to delivering more and better care for the poorest in the country. The difference between poverty incidence and health spending incidence for the specific investments is less than five percentage points. When disaggregating between rehabilitated and new first-level of care units, this finding prevails, though rehabilitation appears more cost-effective in increasing coverage amongst the poor.

110. The CCT Intersectoral Committee will continue to closely monitor and take corrective actions for the pro-poor execution of specific investments in closing the supply-gaps. The Government is consolidating the gains made by allocating these new supply funds by increasing the oversight of the CCT Intersectoral Committee on the execution of social sectors specific investments. Regular monitoring of the incidence of such investments on the poor is a major step forward to ensure maximum impacts in the reform process contemplated under the PASS DPL Series.34 111. In terms of the options for preparing PASS DPL3, strong emphasis will be placed on building the capacity of Government agencies on methodology used for enhancing the monitoring of policy reforms (micro-simulation and incidence of social spending). A workshop on disseminating emerging findings and identifying analytical gaps for a third phase in preparation for PASS DPL3 will be conducted in November 2010. VI.2 ENVIRONMENTAL ASPECTS 112. As concluded in the preparation of PASS DPL1, the actions supported by the PASS series are not likely to generate significant positive or negative effects on the environment, forests, and other natural resources. PASS DPL2 activities do not diverge significantly from the original, planned activities. One minor change, removing the trigger on the design of an action plan to improve vaccination rates for children under five at the first level of care, has eliminated the only activity estimated to have a (moderate) environmental effect (i.e., generation of medical waste). Nevertheless, new health co-responsibilities under the redesigned CCT Solidaridad program, along with the action plan on maternal-infant still hold minor environmental implications, whose mitigation is discussed below. Overall, minor environmental effects could result from policy areas supported by the DPL, though no significant effects are expected. 113. The potential positive and negative effects are noted below, with proposed measures under the DPL to fill potential gaps in the country system to mitigate those effects:

Policy Area I: The institutional revamp of the CCT Solidaridad program and new co-responsibilities of program beneficiaries in health, nutrition, and education are expected

34 For instance, initial results point to regional differences in the allocation of education expenditures (main budget) and additional expenditures in health in line with the incidence of poverty, pointing to a bias towards population density rather than the concentration of poverty. Such analyses, once finalized could be presented to the CCT Intersectoral Committee and discussed with regional authorities to take action on re-prioritization.

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to create an increased demand for services. This could potentially generate environmental effects in terms of biomedical waste management (BMWM). The Bank has been engaged with the health sector for several years on this issue even before the current series of Adaptable Programmatic Loans (APL) in support of the Health Sector Reform. The implementation of the Health Sector Reform Project (PARSS1) built on the activities conducted by the previous Provincial Health Services Project and provided resources to assess needs and support the strengthening of infrastructure and training in healthcare facilities to start a process of continuous BMWM improvement. In 2007, the Government developed new BMWM regulations with support from PARSS1 to develop the operational guidelines for the implementation of new regulations that were adopted by Executive Decree in 2009 (Decree 126-09). The second phase of the APL (PARSS2) will contribute to the development of tools for monitoring the implementation and enforcement of the new regulation to develop measurable goals and targets to ensure that the country is indeed moving in the direction of an enhanced capacity to mitigate these risks. The PASS DPL trigger on the obligatory training for health staff on the new maternal-infant care protocol will include key considerations for waste management. During the new CPS period, within the framework of the PASS series, and exploiting synergies with PARSS2, the Bank will continue to explore opportunities to support capacity building to implement these new procedures, train personnel, and establish stronger coordination with the Ministry of the Environment for waste and occupational safety issues.

Policy Area II: The Multi-Annual National Plan for the Public Sector 2010-2013 on medium-term projections of social protection coverage, budget envelopes and revenue sources would include coverage of identified gaps in the performance targets for CCT programs, including in education, primary health care, and nutrition, including micronutrients. This may imply expansion or new constructions of schools and health care facilities. These implications on the rehabilitation/construction of schools, health clinics and/or stores would be mitigated through the framework of construction guidelines already in place through the existing WB projects in health and education.

114. Policy Areas III and IV, focused on performance agreements and increased transparency, are still not expected to generate significant environmental effects.

VI.3 IMPLEMENTATION, MONITORING AND EVALUATION

115. The implementation and monitoring of PASS DPL2 will continue to rely on the close coordination of the Bank team with the respective institutions responsible for the PASS reforms, namely the Ministry of Finance, the Ministry of Economy, the Social Cabinet, the Ministry of Health, and the Ministry of Education, all of which will provide the requisite baseline data, when available, from which to measure outcomes by the end of the program.35 (See Annex 3, Select Monitoring Indicators). The Social Cabinet, through the CCT Intersectoral Committee, will continue to assist in the coordination of information reporting on

35 Data is available for most of the indicators described in the matrix. The main exception relates to the current lack of beneficiary’s assessment for the CCT. The latter will be financed by an additional financing to the Bank’s social investment project, which is currently under preparation.

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the program’s monitoring indicators related to Policy Area 1 on the shift toward human capital promotion and to some extent on Policy Area 4 on transparency and civic oversight for the CCT program. The Ministry of Finance and the Ministry of Economy and Planning, will report progress monitoring indicators for Policy Areas 2 and 3. VI.4 FIDUCIARY ASPECTS 116. The fiduciary risk related to the Public Financial Management (PFM) environment in the Dominican Republic is considered moderately high. This rating is confirmed through a review of a number of analytical PFM assessments undertaken in recent years. These include the 2005 Country Fiduciary Assessment (including the Country Financial Accountability Assessment and Country Portfolio Performance Review), the Public Expenditure Review, the 2007 Public Expenditures and Financial Accountability (PEFA), the 2009 Update Report on the Observance of Standards and Codes (ROSC) on Accounting & Auditing, and the Policy Note “Hacia un sistema de rendición de cuentas y desempeño en la República Dominicana.” There is also an ongoing 2010 independent Repeat PEFA assessment, with preliminary results issued in a revised draft version in September 2010. 117. In the last few years the Dominican Republic has engaged in reviewing, strengthening and reforming the way its public finances are planned and managed. The country has made good progress in passing important reforms that targeted the FM legal framework and redefined the role of the institutions involved in public financial management. Developing the reforms has involved not only senior officials, particularly those within the relatively new Ministries of Finance, Economy, Planning and Development, and Public Administration, but congressional members and other oversight entities concerned with quality and efficiency of budget execution and control. Indeed, the World Bank has noted a renewed commitment by government officials in the institutions that are responsible for the implementation of these PFM reforms. 118. A number of advances have been registered. Budget execution and monitoring are relatively less problematic, and significant progress were made in the last few years with multiple budget related initiatives being implemented simultaneously. Both the 2007 PEFA report and preliminary results of the draft Repeat PEFA 2010 have noted as a positive development the alignment of budget classifiers with international standards as documented in the Government Finance Statistics Manual issued by the IMF in 2001. This process has already been completed for central government entities. 119. During the last few years the government has deployed and is steadily implementing a countrywide Integrated Financial Management Information System: the SIGEF system now covers almost half of the municipalities and its subsystem of implementing units with external resources, UEPEX, is already being utilized in most projects financed by major development partners. However, the integration of this system with the new (and renewed) planning instruments, and other initiatives recently introduced including the Development Strategy, the Multi-Annual National Plan for the Public Sector 2010-2013, the Regional Plans, the Medium-Term Sector and Institutional Strategic Plans, and performance contracts, among others, remain a challenge. Once existing management challenges are addressed and the

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integrated information system is fully deployed to all public entities, including decentralized entities to cover the whole spectrum, improvements are expected in enhanced transparency, strengthened internal controls, improved recording of accounting transactions and greater access to quality, timely, and digestible public financial data. 120. On the other hand, there still exist some significant challenges in the PFM domain. Although the on-going efforts by Government to reform public financial management are widely recognized and most major laws have now been revised, their implementation has been slow and is a recurrent theme in the analytical assessments that have been undertaken. Such implementation requires significant capacity building and sensitization of public officials on the changed practices introduced by the laws, and these efforts are still ongoing. Both assessments highlight serious limitations in the breadth, the content and the method of presenting the financial information. Among deficiencies, they point out the pending challenge to present consolidated information at non-financial public sector level, and the absence of full treatment of assets and liabilities in the financial statements. Also, current national standards do not permit the presentation of information on various stages of the expenditure cycle other than the payment stage. Such information, for instance on commitments, would permit a more effective monitoring of budget implementation and the utilization of funds. Recognizing this challenge, The General Directorate of Governmental Accounting (DIGECOG) has expressed Government’s interest in bringing the accounting standards in line with the International Public Sector Accounting Standards (IPSAS). As a first step, the Government recently initiated an assessment of the gaps that exist between national and international standards, a process that will be supported under the IADB-financed Project for Integral Financial Management (PAFI II). 121. The main PFM oversight entities, the Contraloría General de la República (Comptroller General, CGR) and the Cámara de Cuentas (Chamber of Accounts, CdC), are both members of the LAC Organization for Supreme Audit Institutes (OLACEFs –Organización Latinoamericana de Entidades Fiscalizadoras Superiores). Both are responsible for the internal and external audit functions of the public sector, although CdC has a broader scope, since the CGR is limited to entities of the Central Government. Both entities are implementing concrete measures to improve governmental performance accountability by enhancing their capacity and staff skills in accordance with their new legal framework. With very limited resources, largely financed by external resources, both entities have been implementing activities to improve compliance with their legal auditing mandate. The CGR has kept its internal control role as prior reviewer, which had been removed by the Internal Control Law but was reinstated by the new Constitution, despite its incompatible function with that of auditor. To be able to comply with this role, the CGR would require a substantial increase in its workforce, which translates into greater resource allocation. The CdC, following recommendations of a self assessment of its institutional arrangements performed in 2008, is compelled to enhance its effectiveness and strengthen its capability as Supreme Audit Institution (SAI) while addressing the low public trust in the organization. Along these lines, the Chamber has signed agreements with the European Commission, the United States Agency for International Development (USAID), among other donors. Through an Institutional Development Facility Grant for Public Management and Financial Accountability, the WB approved a grant expected to begin implementation shortly. Both oversight entities have also signed inter-institutional agreements, along with agreements with other governmental oversight

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bodies, such as the Dirección de Prevención de la Corrupción Administrativa (DPCA); however, beyond formulation, the actual implementation of those agreements is uncertain. With multi-year and multi-sectoral non-lending technical assistance, the WB will support these oversight entities, among others, recognizing the role civil society organizations play on the demand side to balance governmental efforts for increased accountability and transparency in the management of public funds. 122. Procurement. The latest Country Procurement Assessment Report (CPAR) for the Dominican Republic was published in April 2005. Since then the country passed Law 340-06 for Public Procurement of Goods, Works, Services and Concessions, approved in August 2006 and later modified by Law 449-06. This law is the first to comprehensively include all aspects of procurement of goods, works, services, the selection of consultants and concessions in the country, while also attempting to increase competition and transparency by allowing direct contracting only for limited circumstances specifically detailed in the law. As the country entered into the DR-CAFTA negotiations, the Public Procurement Law has been validated as fully consistent with the procurement provisions of said agreement. Another important milestone in the procurement reform was the passing of Decree No. 490-07 that provided the enabling regulations for the new procurement law and the launching the portal “comprasdominicana”.

123. Nevertheless, despite these achievements in the past four years, the country still faces important challenges in public procurement reform. Law 340-06 is not being fully implemented and there is the need for more transparency and efficiency in the system. The Bank is providing support to the national procurement body, Dirección General de Contrataciones Públicas (DGCP), in their National Procurement Strategic Plan and in the application of the OECD Procurement Indicators. The National Procurement Strategic Plan under preparation includes activities that are to be implemented in the short, medium and long term to ensure significant improvements in the procurement system. The support from the Government to this Plan is crucial for procurement reform.

124. Flow of Funds. In the last five years the flow of funds within the DR portfolio from Designated Accounts denominated in US Dollars to the Operating Account in RD pesos, has dramatically improved, and most of the issues that persist are procurement related. Project Implementation Units (PIUs) reported the cycle continues to be from five to seven days, according to discussions during the Country Portfolio Performance Review (CPPR) in 2009 with a stable pace for the 2010 CPPR. A more efficient release of allocated funds via the Treasury, following the cycle indicated in the new legal framework, which included eliminating the need to involve entities which added no value to the process, in addition to the use of modern administrative tools, such as e-banking for electronic wire transfers, show a less cumbersome and effective flow. However, the implementation of a Single Treasury Account, as mandated in the current legislation, remains a challenge.

125. Central Bank of the Dominican Republic. The last IMF Safeguards Assessment of the Central Bank of the Dominican Republic (BCRD) was carried out in 2003. The 2003 report noted that an independent external auditor had been engaged for the first time in 2000 and that there had been progress toward the implementation of International Accounting Standards. According to the report, one weakness of the BCRD was the framework for institutional

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oversight of the external and internal audit functions at the level of the Board. A detailed Action Plan was agreed to between the IMF and the Government to address these issues, including the establishment of an oversight body to supervise the newly redefined internal audit function and to ensure follow-up of external audit recommendations. The last audited financial statements (2004-2009) contain unqualified audit opinions on the BCRD’s financial statements with a note of emphasis with respect to accounting policies. The financial statements are prepared in accordance with generally accepted accounting practices for Central Banks and are supplemented by International Financial Reporting Standards. The notes on financial statements detail where and how the accounting policies differ from International Financial Reporting Standards. VI.5 DISBURSEMENT AND AUDITING 126. The administration of this loan will be the responsibility of the Ministry of Finance. The proposed loan will follow the Bank’s disbursement procedures for development policy loans/credits. The untied balance of payments/budget support will be disbursed against satisfactory implementation of the development policy program, including compliance with tranche release conditions and the maintenance of a satisfactory macroeconomic policy framework, and not tied to any specific purchases. Furthermore, no procurement requirements will be needed. Once the loan is approved by the Board and becomes effective, the borrower may submit a withdrawal application requesting the Bank deposit the proceeds of the loan into a dedicated account designated by the Borrower and acceptable to the World Bank at the Central Bank of Dominican Republic at the request of the Borrower. The Borrower shall ensure that upon deposit of the Loan into the account, an equivalent amount shall be credited in the Borrower’s budget management system, in a manner acceptable to the Bank. The Borrower will report to the Bank on the amounts deposited in the foreign currency account and credited to the budget management system. If the proceeds of the loan are used for ineligible purposes as defined in the Development Policy Loan Agreement, IBRD will require the Borrower to promptly, upon notice from IBRD, refund an amount equal to the amount of the payment to IBRD. Amounts refunded to the Bank upon such request shall be cancelled. The Bank will retain the option to request an audit of the dedicated account.

VI.6 RISKS AND RISK MITIGATION

127. Table 2 below summarizes major Risks as identified in the PD of PASS 1, discusses the extent to which they have materialized and identifies new risks and risk mitigation measures when applicable.

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Table 2: Proposed PASS Program. Major Risks and Risk Mitigation Measures Risks Updated Risk analysis by July 30,2010

Economic risks: - Actual recovery remains largely dependent on improvements in the volatile external environment (including the notable risk of a potentially widespread global debt crisis). Crisis recoveries in the DR have historically been swift, but highly regressive, with lasting negative impacts on the poor. If the global economic recovery were to be shorter or weaker than expected, the DR could still face a deterioration of growth performance. New Risk: Effects of the Haiti earthquake of January 2010: the contraction of demand from Haiti, the second largest destination market of Dominican exports, as well as unexpected expenses to help Haiti could produce some negative consequences. New Risk: A higher than expected deficit in the electricity sector could potentially affect Government solvency and contribute to a fiscal financing gap.

- Current economic risks remain substantial, but mitigating factors include strong, resilient economic growth with positive developments in certain sectors. - The Government has strengthened its macro-management policies, including growth in the size and sophistication of the domestic debt market and improved financial and bank supervision to contain the potential consequences of a global debt crisis. - With the financial resources and technical support provided by the PASS program and other IFI financing, the Government has provided immediate support to stem the effects of the crisis through the expansion and rationalization of the social safety net, whose effects can partly be seen in the resilience of social spending and poverty levels, in sharp contrast to previous crises. The Government program looks to maintain reform momentum to now enhance human capital promotion of the poor. - This is a short-term risk which if managed well can actually become an opportunity in the medium-term when reconstruction efforts could generate additional demand for Dominican goods and services.

- Significant negative consequences are not expected from this risk, unless the deficit increases enough to affect the overall deficit. The Government is currently implementing administrative measures to raise revenues and reduce expenditures, with active IMF support and monitoring in this area.

Risks of a Possible Shift in Institutional Priorities over Time - A shift in institutional priorities could endanger the implementation of the PASS-supported Government reforms (CCT reform and Performance Agreements in the public sector) - This risk is exacerbated by the need to coordinate within the Government: across social sectors (Social Cabinet, Education and Health); between Social Agencies, the Ministry of Finance and Ministry of Economy; and between the Ministries of Finance and Economy.

- Reforms supported by the PASS program have benefitted from strong Government ownership at high levels. - Regarding the CCT reform, inherent difficulties linked to intersectoral coordination did occur but they have been mitigated, as anticipated, by: (i) the institutionalization of the major committees that now oversee the implementation of the redesigned CCT program, including the CCT Intersectoral and Interagency Committees; (ii) incentives for social agencies to jointly deliver results for the CCT program, through the budget management reform supported by the PASS; and (iii) active donor coordination efforts (especially WB-IADB).

- Regarding the reform on Performance-informed budgeting (Performance Agreements), weak coordination between the Ministry of Economy and the Ministry of Finance remains a serious risk to the reform.

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Risks of Resource Constraints to Implement Reforms - Government faces institutional and administrative capacity constraints in certain areas of PASS-supported reforms. - The financial crisis could reprioritize activities, placing financial resource constraints for what could appear to be non-priority items. - The GoDR’s efforts to meet fiscal targets may pose a risk of needing to cut expenditures, possibly including the social areas. This would threaten the timely implementation of critical reforms linked to this PASS DPL series.

This risk has been largely mitigated by the activities of the Programmatic NLTAs on Social Sectors and Quality of Public Expenditures (capacity-building and just-in-time assistance), resources of the Social Protection Investment Loan (SPIL) Project, IADB multi-phase investment loan, and GPF grant financing. Delays in the Congressional ratification of the Additional Financing (AF) of the SPIL impeded the provision of resources for the Monitoring and Evaluation system of Solidaridad and the beginning of the census. The AF is now effective. - The World Bank team continues to monitor this risk closely. Some of the policy actions supported by the PASS Program aim at protecting social expenditures targeted to the poor (See Pillar II for example).

Risks of delays in closing identified supply-gaps in health and education linked to the co-responsibilities of the redesigned CCT Solidaridad.

The GoDR’s commitment to continue allocating funds in the budget to bridge supply-gaps is likely to remain firm, in part due to its link with DPL triggers. The risk of slow execution of allocated funds will be mitigated by the forthcoming quarterly reviews of execution progress, by the CCT Intersectoral Committee. Reviews will have a problem-solving approach and highlight the units responsible for the resolution of issues.

Risks of Possible Stakeholder Opposition to PASS–Supported Reforms - Teachers Union may oppose interventions in the Education Sector. - Association of neighborhood shops or Colmados affiliated with the CCT Program Solidaridad may oppose reform to the CCT payment mechanism Solidaridad debit card. - Some initial resistance within the Solidaridad Program to the full organizational restructuring (See Prior Action 1, Policy Area I), including the updating of personnel roles.

- PASS-supported reforms focus mainly on the articulation of the redesigned CCT with the supply of education services. More controversial areas for teachers unions, such as complex issues of education quality, will not be addressed by PASS DPL2, but through other political economy analysis and NLTA, which will include a dialogue with the teachers’ union. - Colmado owners are likely to oppose the transformation of the near-cash payment method (debit cards to be used in shops) into a full cash payment. This line of reform is therefore not currently envisaged by the Government. - CCT Staff and leadership have now been brought on board thanks to the participatory methodology of organizational development and to the clear signaling from the Vice-President.

Risks of Governance Challenges

- No governance challenges have emerged yet but the following risk mitigation measures continue to have effect: PASS policy reforms will support measures that will strengthen the mechanisms of targeting and verification of co-responsibilities, ensuring that payments of transfers will progressively be made against verification of co-responsibilities. - CSOs will closely monitor the redesigned CCT

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program performance and data will be available through the development of an integral Monitoring and Evaluation system. - Donors’ committee to be set up for the CCT Solidaridad program comprised of IADB, WB and UNDP experts, which will assess progress and address any issues at least on a biannual basis.

Natural Disaster Risks The DR remains vulnerable to multiple types of natural disasters, particularly floods and hurricanes. The cumulative damage from the last three major storms, Noel (2007), Olga (2007) and Gustav (2008), was estimated to be over US$300 million in key economic sectors alone. Significant damage caused to infrastructure was not quantified, also estimated in the hundreds of millions US$. Natural disasters have the potential to derail economic growth and poverty reduction. They also pose a heavy fiscal burden, increasing indebtedness and redirecting public resources away from long-run development plans.

- Damage to the major private sector enterprises is partly covered by their own insurance. - World Bank assistance covers natural disaster risk mitigation under the US$80 million Emergency Recovery and Disaster Management Loan. - The strengthening of the CCT Solidaridad program, through this loan, can also help to mitigate the impact of disasters on the poorest.

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ANNEX 1: PRIOR ACTIONS FOR PASS2

Progress Status and Comparison with PASS2 Triggers in the PD of PASS1

Triggers for PASS DPL2 as specified in PASS DPL1 PD

Prior Actions PASS DPL2

Comments Progress Status

I. ENHANCED PERFORMANCE OF SOCIAL SECTORS TO PROMOTE HUMAN CAPITAL FOR THE POOR

1.1 Conceptual, institutional and operative revamp of the CCT Solidaridad program, now focused on promoting human capital for the poorest citizens

(*) Government approves regulations governing the operation of the CCT Interagency Committee (bringing together ADESS-SIUBEN-Solidaridad) and the CCT Intersectoral Committee reflecting at least: (i) measures to ensure quality of the registry of active CCT beneficiaries list (eligible as per targeting instrument and receiving payments based on compliance with co-responsibilities); (ii) the CCT intersectoral coordination at national/regional levels for the fulfillment and verification of co-responsibilities; and (iii) The Integral System of Monitoring and Evaluation (M&E), including currently missing baselines around verification of compliance with co-responsibilities, and actual compliance of Solidaridad households with co-responsibilities.

1. Resolution of the Social Cabinet Coordinator (Vice-President) approving: (i) the regulations governing the function of the CCT Interagency Committee (composed of ADESS, SIUBEN, and Solidaridad) and CCT Intersectoral Committee (Solidaridad, Health and Education); and (ii) the implementation, by November 2011, of the organizational development plan for Solidaridad, including the updating of the organizational structure and personnel roles in line with the mission goals and operational rules of the redesigned CCT Solidaridad Program.

Revisions to the prior action reflect: - The realization of the urgent need for the

organizational restructuring of the Solidaridad program as a condition for reform success;

- Delays in the development of the Monitoring and Evaluation System, including baselines, as explained in Section III.2.

- An enhanced focus on the process for the verification of co-responsibilities whose importance merited a separate, specific prior action (No. 2) provided below.

- Once the newly prioritized Solidaridad organizational development is completed and CCT Committees are firmly established at the national level, regional committees will be established for DPL3.

Met.

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Triggers for PASS DPL2 as specified in PASS DPL1 PD

Prior Actions PASS DPL2

Comments Progress Status

2. Communication of the Vice-President on the process of verification of co-responsibilities, presenting the Act of Agreement from the CCT Intersectoral Committee of the CCT Solidaridad Action Plan 2010-2011, stating that: (i) by December 2010, 90 percent of beneficiary households receiving transfers will be registered in a Primary Care Unit and/or school or have received a letter warning of potential suspension due to incompliance; and (ii) defining the procedures and timeline (beginning in January 2011) for the systematic verification of co-responsibilities in education and health, with the objective of linking at least 80 percent of the transfers to the beneficiaries of the CCT Solidaridad Program based on the verification of co-responsibilities.

New prior action. The verification of co-responsibilities was recognized as a critical action for the success of the redesigned Solidaridad program, meriting its own prior action given the Special Operation undertaken over the past six months to communicate co-responsibilities to all schools, health centers, and beneficiary households.

Met.

1.2 Additional health policy measures

(*) Government designs a 4-year action plan to improve prenatal control and quality of delivery services, including early identification of high-risk pregnancies and definition of delivery criteria.

(*) Government designs action plan to improve vaccination rates for children under five at first level of care, according to national protocols.

The Government and the Bank agreed to remove these prior actions, as initially framed in the context of the PD for PASS1, from this pillar. Improvements to the quality of delivery services at first level of health care are being addressed by other measures and prior actions supported by the PASS program, especially the signing of results-based management agreements between regional health services and the Ministry of health (policy area III) and enhanced budget management (reduction of supply-gaps linked to the CCT- Policy Area II). In addition, the GoDR, through the support of both WB PARSS2 and IADB APL2 projects (investment loans), is focused on improving the quality of delivery services at the first level of care, including the

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Triggers for PASS DPL2 as specified in PASS DPL1 PD

Prior Actions PASS DPL2

Comments Progress Status

development of action plans on prenatal controls, early identification of high-risk pregnancies and vaccinations (original PASS2 triggers).

1.3 Additional education policy measures (*) Implementation of the School Management System (Sistema de Gestión de Centro Escolar, SGCE) by the Ministry of Education (MINERD), allowing for the systematic verification of education co-responsibilities and the monitoring of targeted schools in priority district.

(*) Pilot test for the definition of a new structure and amounts of transfers to be implemented in 2009-2010.

(*) Government administrates student learning outcome tests for the first cycle of Basic Education (4th grade).

(*) Government validates student evaluation standards for the second cycle of basic education.

3. Resolutions of the Ministry of Education: (i) formalizing the introduction of the student learning outcome tests (with reference to Mathematics and Spanish) for students in the first cycle of basic education; and (ii) validating the evaluation standards to be used both in public and private schools for students in the second cycle of basic education.

The School Management System is up and running, but is now covered by the new prior action No. 2 above on the verification of co-responsibilities.

The pilot test for new transfer structures remains planned for the 2010-2011 school year, but is no longer presented as a criterion for DPL2 disbursement given the existence of the DPL3 policy action based on the results of the pilot.

The two triggers on student learning outcome tests were consolidated into a single prior action.

Met.

1.4 Improved quality of service to beneficiaries (*) Government expands the network of institutions affiliated with the Solidaridad program (Red de Abasto Social) according to the target set for the first year.

(*) Government approves and starts implementing a plan to enhance transparency of CCT Solidaridad card, allowing beneficiaries to be

4. Resolution of the Coordinator of the Social Cabinet (Vice-President) instructingthe implementation of greater access to information on the CCT Solidaridad payment card to allow beneficiaries to be informed of (i) the total amount of the cash transferred to said beneficiaries; and (ii) the available balance on their cards through the use of a toll-free telephone line by December

Unchanged (minor detail additions). The GoDR complied with first stage of expansion of the institutional network (18 percent expansion in the number of affiliated colmados) by June 2010. Nevertheless, given the inclusion of network expansion as a DPL3 trigger, consensus was reached to focus the DPL2 prior action on the more difficult transparency issues as the criterion for disbursement.

Met.

60

Triggers for PASS DPL2 as specified in PASS DPL1 PD

Prior Actions PASS DPL2

Comments Progress Status

informed of the total amount of transfers and the available balance on their card.

1st, 2010.

II. IMPROVED BUDGET MANAGEMENT TO SUPPORT THE JOINT PERFORMANCE OF SOCIAL SECTOR AGENCIES WITHIN THE REDESIGNED CCT PROGRAM (Social Cabinet, Health and Education Ministries)

(*) Government publishes a Policy Paper with projections on entitlements, revenues and proposed medium-term budget envelopes to achieve the identified gaps in the performance targets for the conditional transfers program, covering: (i) education; (ii) primary health care, including access to essential medicines, and increased enrollment in SENASA of the remaining CCT beneficiaries; and (iii) nutrition, including the supply of micronutrients (iron and folic acid) prioritizing CCT beneficiaries, pregnant women and children under two years old.

5. The Government, through its Council of Ministries, has : (a) approved the Multi-Annual National Plan for the Public Sector 2010-2013, which contains the medium-term guidelines for social protection policy with projections as to the coverage, estimated budget, and financing bases, including the quantification of the service coverage gaps in education and health linked to the Solidaridad program including: (i) initial, basic, and the first cycle of middle school education; (ii) primary health care and an increase in the enrollment in SENASA among Solidaridad beneficiaries not covered by any Social Security scheme; and (iii) nutrition, including the provision of micronutrients for pregnant women and children under two years of age; and (ii) submitted the draft 2011 Budget Law including these cost projections to the Dominican Congress.

Completion of DPL3 objective. The GoDR made a concerted effort to go beyond the creation of a policy report on CCT projections (initial trigger formulation), to both develop these projections and ensure their timely incorporation into a new landmark Government planning instrument, the Multi-Annual National Plan for the Public Sector 2010-2013 (originally a DPL3 trigger). The inclusion of these projections improves the likelihood of sustaining financing for the CCT Solidaridad, enhancing the predictability of planning and budget management for the program in the medium-term.

Met.

(*) The 2010 budget provides sufficient resources to meet the output targets of the conditional transfers programs, along with strengthened procedures to ensure the predictability in disbursements for budget users.

6. The Government has made available: (a) sufficient resources to meet the output targets of the CCT Solidaridad Program that had been calculated and agreed for 2010 as reflected in Article 26 of the 2010 National Budget Law and a technical note issued jointly by the Ministry of Economy, the Social Cabinet and the Ministry of Finance in October 2010; (b) strengthened procedures to

Unchanged with additional actions. The policy action on the 2010 National Budget Law represents the first time the Ministries of Finance, Economy, Education, and Health, the Social Cabinet and the Solidaridad Program convened to develop procedures for predictable budget disbursements for the intersectoral program, including supply gap coverage. The GoDR then developed innovative mechanisms to monitor the actual execution of these

Met.

61

Triggers for PASS DPL2 as specified in PASS DPL1 PD

Prior Actions PASS DPL2

Comments Progress Status

ensure the predictability in disbursement for budget users, as evidenced in Article 26 of the 2010 National Budget Law; and (c) adequate measures to monitor and publish the use of such resources, as evidenced by a resolution issued by the CCT Intersectoral Committee establishing that the results of the execution of said budget are presented to the CCT Intersectoral Committee on a quarterly basis and published on the web page of the CCT Solidaridad Program or of the Ministries of Health and Education.

resources by the sectors, including their publication online.

III. SUPPORTING THE GRADUAL INTRODUCTION OF PERFORMANCE AGREEMENTS IN THE SOCIAL SECTORS

Performance Agreements (*) Institutional strengthening plans for the health and education sectors, based on the institutional diagnostics in DPL1.

(*) Diagnostic and draft institutional strengthening plan for the introduction of a performance agreement covering the redesigned CCT Solidaridad program.

Performance Agreements7. The Ministries of Health and Education agree with the Ministry of Economy on the institutional strengthening measures that are needed to ensure preparedness for the introduction of their respective performance agreements by October 2011.

Unchanged. The possibility of producing Solidaridad-specific diagnostics and draft institutional strengthening plans is contingent upon the newly prioritized Solidaridad organizational development; as such, the Solidaridad-specific diagnostics and draft institutional strengthening plans will be reevaluated as a possible trigger for DPL3 subject to the results of the organization development plan.

Met.

Health Sector (*) Internal management agreements signed with the remainder of Regional Health Services (RHSs)

Health Sector 8. Internal management agreements signed between the Ministry of Health and the remaining Regional Health Services to introduce results-based management.

Unchanged. The agreements represent a key piece of health reforms in line with international best practice in the separation of functions and development of new instruments to align incentives to foster efficiency and accountability in the provision of public healthcare services to meet targets and allocate resources based on results.

Met.

62

Triggers for PASS DPL2 as specified in PASS DPL1 PD

Prior Actions PASS DPL2

Comments Progress Status

IV. ENHANCED TRANSPARENCY AND CIVIL SOCIETY OVERSIGHT IN SOCIAL SECTORS

Overall budget (*) A "Consulta Amigable" web-based tool developed and approved by the Finance Ministry (MoF) as a public interface of the Integrated Financial Management System (SIGEF) to improve access and understanding of the public budget and progress in the management for results process.

(*) Administrative agreement between MoF and Ministry of Economy and Planning (MEPYD), including a module in “Consulta Amigable” linking budget information to performance indicators.

Overall budget9. The Ministry of Finance (i) confirms (a) the implementationdevelopment of the Consulta Amigable Project, which aims at creating a web-based interface to make available, over the internet, data on the national budget contained in the Borrower’s integrated financial management system; and (b) the publication (beginning on September 30, 2010) on the Minister of Finance’s website of monthly interim reports on the execution of the Borrower’s national budget; and (ii) signs an administrative agreement with the Minister of Economy to establish the development of a pilot system to link budget information to performance indicators through the web-based interface described in (i) herein.

Consolidated triggers into one ‘Consulta Amigable’ (CA) prior action with the additional implementation of interim measures to provide accessible budget execution data and transparency as the web-based tool progresses through organizational and technical development and pilot phases. Budget execution reports will be captured manually and posted on the web.

Met.

Redesigned CCT Program (*) Approval by CCT Intersectoral Committee (Education-Health-CCT) of social auditing program for the redesigned CCT and corresponding health and education services, including the use of community scorecards for monitoring health and education inputs, and the rolling out of an improved accountability chain involving direct providers, users, and district-regional-national management levels. (*) The CCT Solidaridad website publishes the: (i) monitoring and

10. Resolution of the CCT Intersectoral Committee instructing the implementation of a Community Scorecards pilot to monitor the availability and improve the accountability of health and education inputs linked to co-responsibilities to be undertaken from September 2010 to April 2011, with the aim of gradual expansion to the entire CCT starting in June 2011 subject to the pilot results.

Unchanged. The prior action reflects greater detail on dates and processes. Website publications will continue to take place, as integrated into other prior actions above, but are no longer considered as a separate criterion for disbursement.

Met.

63

Triggers for PASS DPL2 as specified in PASS DPL1 PD

Prior Actions PASS DPL2

Comments Progress Status

evaluation system of the CCT; and (ii) the Policy Paper described in Pillar 2.

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ANNEX 2: PASS DPL SERIES. OVERALL OPERATION POLICY MATRIX (July 31, 2010)

Theme DPL 1 (Nov 2009) DPL 2 (Est. Nov 2010) DPL 3 Triggers (Est. Nov 2011)

I. ENHANCED PERFORMANCE OF SOCIAL SECTORS TO PROMOTE HUMAN CAPITAL FOR THE POOR

1.1 Conceptual, institutional and operative revamp of the CCT Solidaridad program, now focused on promoting human capital for the poorest citizens (i) Human capital function of the CCT has been confused over the years because of the inclusion of non-conditional cash transfers in the Solidaridad operative realm. (ii) Unclear/inefficient division of roles and responsibilities within agencies of Social Cabinet (targeting: SIUBEN, payment: ADESS, CCT: Solidaridad). (iii) Poor coordination between Social Cabinet agencies and Education and Health Ministries. (iv) Lack of a clear results framework for the CCT program and the related performance of health and education services.

(*) Presidential Decree establishing the legal and regulatory framework for the restructuring and strengthening of the Borrower’s social protection system as well as mandating social protection programs to be organized as non-conditional cash transfers, targeted subsidies, and cash transfers conditioned to the investment in human capital by poor families. (*) Resolutions of the Social Cabinet Coordinator (Vice-President) revamping the institutional framework and operative rules of the CCT program Solidaridad (i) ensuring the compliance with and verification of co-responsibilities; and (ii) including indicators of management and impact, through: (i) the creation of an inter-institutional Committee (Solidaridad-ADESS-SIUBEN) for the coordination of all policy actions to be developed in the social protection sector; (ii) the creation of an Inter-agency Committee (Solidaridad, Health and Education), for the coordination of

(*) Resolution of the Social Cabinet Coordinator (Vice-President) approving: (i) the regulations governing the function of the CCT Interagency Committee (composed of ADESS, SIUBEN, and Solidaridad) and CCT Intersectoral Committee (Solidaridad, Health and Education); and (ii) the implementation, by November 2011, of the organizational development plan for Solidaridad, including the updating of the organizational structure and personnel roles in line with the mission goals and operational rules of the redesigned CCT Solidaridad Program. (*) Communication of the Vice-President on the process of verification of co-responsibilities, presenting the Act of Agreement from the CCT Intersectoral Committee of the CCT Solidaridad Action Plan 2010-2011, stating that: (i) by December 2010, 90 percent of beneficiary households receiving transfers will be registered in a Primary Care Unit and/or school or have received a letter warning of potential suspension due to incompliance; and (ii) defining the procedures and timeline (beginning in January 2011) for the systematic verification of co-

(*) Government uses procedures and mechanisms working to allow for the verification of co-responsibilities of at least 80 percent of CCT families. (*) Establishment of Regional Inter-Sectoral Committees in at least half of the regions covered by the program. (*) Integral System of Monitoring and Evaluation shared by the CCT, Education, Health and the three agencies ADES, SIUBEN and CCT Solidaridad.

65

Theme DPL 1 (Nov 2009) DPL 2 (Est. Nov 2010) DPL 3 Triggers (Est. Nov 2011)

all policy actions to be developed for the health, education and nutrition sectors; and (iii) the approval of two new manuals: the first on cross-cutting processes to be applied to all social programs, and the second on the operative rules applicable to the redesigned CCT Solidaridad Program.

responsibilities in education and health, with the objective of linking at least 80 percent of the transfers to the beneficiaries of the CCT Solidaridad Program based on the verification of co-responsibilities.

1.2 Additional health policy measures (i) Low quality of maternal and child healthcare services at the first level of care. (ii) Poor maternal and child health outcomes: high rates of maternal and child mortality and lack of protection against immune-preventable diseases.

(*) Resolution of the Ministry of Health that launches mandatory training for health staff on various aspects of primary health care including the new protocols for maternal-infant care starting October 1st, 2010. (*) The Ministry of Health develops and implements a national evaluation system to evaluate the adherence of health staff to training on the new manuals for maternal-infant care. (*) The Government implements an informational tool for the daily registry of primary level care activities.

66

Theme DPL 1 (Nov 2009) DPL 2 (Est. Nov 2010) DPL 3 Triggers (Est. Nov 2011)

1.3 Additional education policy measures (i) Lack of an information system, owned by the Ministry of Education, to verify co-responsibility compliance and monitor basic quality factors. (ii) Lack of differentiated education financial incentives offsetting opportunity costs within the CCT Program. (iii) Poor ability of the Ministry of Education to monitor student learning outcomes, including students from CCT families.

(*) Resolution of the Ministry of Education validating student evaluation standards for pre-primary education and the first cycle of Basic Education.

(*) Resolutions of the Ministry of Education: (i) formalizing the introduction of the student learning outcome tests (with reference to Mathematics and Spanish) for students in the first cycle of basic education; and (ii) validating the evaluation standards to be used both in public and private schools for students in the second cycle of basic education.

(*) Based on the results of the pilot test to be implemented in 2010-2011, definition of a new structure and amounts of transfers will occur to improve the educational indicators of access, retention, promotion and completion rates by education level.

(*) Government administrates the adjusted student learning outcome tests for the second cycle of Basic Education (8th grade).

(*) Government validates student evaluation standards for secondary education (2nd & 4th grade).

1.4 Improved quality of service to beneficiaries (i) Current payment mechanism offers limited competition in services, prices, and products. (ii) Beneficiaries are not able to access basic information about CCT benefits, including transfer amount or account balance.

(*) Resolution of the Head of the Social Cabinet (Vice-President) approving a plan to expand the network of institutions affiliated to Solidarity program (Red de Abasto Social, including colmados or corner grocery shops, as well as small supermarkets-pequeños comercios) with a view to achieve three main objectives: (i) to promote competition among affiliated shops; (ii) to expand the supply and types of products that can be purchased with the Solidaridad debit card; and (iii) reduce transaction time and costs for Solidaridad beneficiaries.

(*) Resolution of the Coordinator of the Social Cabinet (Vice-President) instructing the implementation of greater access to information on the CCT Solidaridad payment card to allow beneficiaries to be informed of: (i) the total amount of the cash transferred to said beneficiaries; and (ii) the available balance on their cards through the use of a toll-free telephone line by December 1st, 2010.

(*) Government expands the network of institutions affiliated to Solidarity program (Red de Abasto Social) according to the target set for the second year.

67

Theme DPL 1 (Nov 2009) DPL 2 (Est. Nov 2010) DPL 3 Triggers (Est. Nov 2011)

1.5 Improved Targeting Performance (*) Government will implement a

new census with improved inclusion and exclusion accuracy, compliance with eligibility criteria and expanded beneficiary identification into new geographic zones with high poverty levels not considered in the 2004-2005 census, along with subsequent updating of program beneficiary databases.

II. IMPROVED BUDGET MANAGEMENT TO SUPPORT THE JOINT PERFORMANCE OF SOCIAL SECTOR AGENCIES WITHIN THE REDESIGNED CCT PROGRAM (Social Cabinet, Health and Education Ministries)

(i) Budget allocations are inadequate to meet entitlements under the CCT program. (ii) The budget is not always executed as planned, which may further disrupt delivery of the CCT.

(*) Communication of the Head of Social Cabinet (Vice-President) to the Ministry of Finance providing an assessment quantifying and estimating the costs of supply-gaps linked to redesigned CCT program, covering the provision of: (i) education services and related inputs (didactic materials); (ii) primary health care services including access to essential medicines; and (iii) micronutrients prioritizing Solidaridad pregnant women and children under two years old.

(*) The Government, through its Council of Ministries, has : (a) approved the Multi-Annual National Plan for the Public Sector 2010-2013, which contains the medium-term guidelines for social protection policy with projections as to the coverage, estimated budget, and financing bases, including the quantification of the service coverage gaps in education and health linked to the Solidaridad program including: (i) initial, basic, and the first cycle of middle school education; (ii) primary health care and an increase in the enrollment in SENASA among Solidaridad beneficiaries not covered by any Social Security scheme; and (iii) nutrition, including the provision of micronutrients for pregnant women and children under two years of age; and (ii) submitted the draft 2011 Budget Law including these cost projections to the

(*) Review of progress in closing supply-gaps in educational provision, health and nutrition in prioritized areas. (*) Projections contained in the Policy Paper, linking program targets and resources, reflected in the multi-annual plan and the medium-term budget framework.

68

Theme DPL 1 (Nov 2009) DPL 2 (Est. Nov 2010) DPL 3 Triggers (Est. Nov 2011)

(*) The Ministry of Finance (MH) has taken the necessary measures to ensure that sufficient funds will be included in the Borrower’s 2010 Budget Law to cover the supply-gaps linked to the redesign of the CCT Solidaridad Program identified in the assessment described above, as well as special measures to ensure that those funds are disbursed in a timely fashion.

Dominican Congress. (*)The Government has made available: (a) sufficient resources to meet the output targets of the CCT Solidaridad Program that had been calculated and agreed for 2010 as reflected in Article 26 of the 2010 National Budget Law and a technical note issued jointly by the Ministry of Economy, the Social Cabinet and the Ministry of Finance in October 2010; (b) strengthened procedures to ensure the predictability in disbursement for budget users, as evidenced in Article 26 of the 2010 National Budget Law; and (c) adequate measures to monitor and publish the use of such resources, as evidenced by a resolution issued by the CCT Intersectoral Committee establishing that the results of the execution of said budget are presented to the CCT Intersectoral Committee on a quarterly basis and published on the web page of the CCT Solidaridad Program or of the Ministries of Health and Education.

III. SUPPORTING THE GRADUAL INTRODUCTION OF PERFORMANCE AGREEMENTS IN THE SOCIAL SECTORS

(i) Budget management mainly focuses on inputs, hindering the prioritization of a results-based management of critical social programs.

Performance Agreements (*) The Ministry of Economy, Planning and Development (MEPyD) and the Ministry of Public Administration (MAP) have completed an institutional diagnostic to assess the preparedness and capacity building needs for the introduction of Performance Agreements in the education and health sectors.

Performance Agreements (*) The Ministries of Health and Education agree with the Ministry of Economy on the institutional strengthening measures that are needed to ensure preparedness for the introduction of their respective performance agreements by October 2011.

Performance Agreements (*) Performance Agreements signed with the Health and Education Ministries. These will establish strategic plans, objectives, performance indicators and budgets, covering at least the priority social sector programs, and will be included as an annex to the Budget.

69

Theme DPL 1 (Nov 2009) DPL 2 (Est. Nov 2010) DPL 3 Triggers (Est. Nov 2011)

Health Sector (ii) Weak performance and accountability of Regional Health Services (RHSs), which are very centralized.

Health Sector (*) The Ministry of Public Health (MSP) signs results-oriented internal management agreements with two Regional Health Services.

Health Sector (*) Internal management agreements signed between the Ministry of Health and the remaining Regional Health Services to introduce results-based management.

Potential trigger to be examined after completion of the revamp of Solidaridad. (*) Diagnostic and draft institutional strengthening plan for the introduction of a performance agreement covering the redesigned CCT Solidaridad program.

IV. ENHANCED TRANSPARENCY AND CIVIL SOCIETY OVERSIGHT IN SOCIAL SECTORS

Overall Budget (i) Very low level of public access to timely and comprehensive budget information. CCT Program (ii) Lack of access to information at the sector level (health and education) to allow for the proper monitoring by civil society of supply gaps. (iii) Lack of a social auditing program for the CCT program, including verifiable and quantifiable feedback and adequate feedback loop. (iv) CCT complaint system is

Redesigned CCT Program (*) The CCT Solidaridad website publishes: (i) the list of CCT beneficiaries; and (ii) the assessment defined above quantifying and estimating the costs of covering supply gaps in health, education and nutrition.

Overall budget (*) The Ministry of Finance (i) confirms (a) the implementation development of the Consulta Amigable Project, which aims at creating a web-based interface to make available, over the internet, data on the national budget contained in the Borrower’s integrated financial management system; and (b) the publication (beginning on September 30, 2010) on the Minister of Finance’s website of monthly interim reports on the execution of the Borrower’s national budget; and (ii) signs an administrative agreement with the Minister of Economy to establish the development of a pilot system to link budget information to performance indicators through the web-based interface described in (i) herein. Redesigned CCT Program (*) Resolution of the CCT Intersectoral Committee instructing the implementation of a Community Scorecards pilot to monitor the availability and improve the accountability of health and education inputs linked to co-responsibilities to be

Overall budget (*) Launching of the “Consulta Amigable” Tool. Redesigned CCT Program (*) Publication of the community scorecards pilot results. (*) Government enhances the complaint system of the CCT program so that it can include complaints associated with the

70

Theme DPL 1 (Nov 2009) DPL 2 (Est. Nov 2010) DPL 3 Triggers (Est. Nov 2011)

narrowly confined to the CCT program and cannot direct complaints about education/health services.

undertaken from September 2010 to April 2011, with the aim of gradual expansion to the entire CCT starting in June 2011 subject to the pilot results.

provision of service in schools and health facilities.

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ANNEX 3: UPDATED RESULTS FRAMEWORK FOR THE PASS PROGRAM Introductory Note: The table below provides a selection of key monitoring indicators, baselines and targets for the three-loan PASS series, as elaborated and discussed extensively with the Government. In this Second PASS DPL we have updated and simplified the presentation. The Bank and the Government agreed on a shorter version of the table of results compared to the version that was presented in the PD of PASS1 to focus the table on key indicators that are more definitively attributable to the prior actions which constitute the PASS series. The Government will continue to monitor indicators used in the presentation in the PD of PASS1 because these indicators remain important for the Government’s broader program beyond reforms specifically supported by the PASS series. Also, some targets were revised to better reflect the evolution of the policy actions targeted by the PASS Program, as for example in the Transparency Pillar on budget transparency (Consulta Amigable web-based tool). The table also provides an update on the status of data collection. As presented in the table, the reforms supported by the PASS Program are expected to generate improvements at four main levels:

i) Institutional and policy improvements (changes in institutional rules and behaviors) mainly related to: (a) the reform of the governance and operative system of Solidaridad to be a full-fledged Conditional Cash Transfer (CCT) program, including improved verification of co-responsibilities and a better articulation with health and education actions (Policy Area 1); and (b) the gradual introduction of performance-informed budgeting (including a gradual move towards performance agreements in social sectors) and a stronger emphasis on results (Internal Management Agreements between the Secretariat of Health and Regional Health Services, focused on improved results at the first level of care) (Policy Area 3).

ii) Improved budget management and execution with a view to progressively reduce supply-gaps in health, nutrition, and education services linked to the newly defined co-responsibilities of the redesigned CCT Program (Policy Area 2).

iii) Improvements in transparency and accountability to users, with respect to the national budget and the redesigned CCT Program (Policy Area 4).

iv) Improvements in human development outcomes, focusing on the share of CCT beneficiaries who actually comply with the newly defined co-responsibilities and thereby invest in education, nutrition and health (Overall PASS Program’s result).

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Table A3.1: Primary Outcomes of the PASS Series Policy Areas

Indicator

BaselineDPL1 Start,Nov. 2009

TargetEnd DPL1 Nov. 2010

TargetEnd DPL2 Nov. 2011

TargetEnd DPL3 Dec. 2012

Indicator Status and/or Comments

I. POLICY AREA 1: ENHANCED PERFORMANCE OF SOCIAL SECTORS TO PROMOTE HUMAN CAPITAL FOR THE POOR

Improvements in governance and operative rules of the CCT program so that: the payments of transfers are effectively made conditional to compliance with co-responsibilities; and intersectoral coordination functions at national and local levels, with sound articulation of the CCTs with health and education actions.I.1 Overhaul of the CCT Solidaridad Program: Towards an effective Conditional Cash Transfer ProgramInterim phase (September 2010 – December 2010): 1.1.1. Share of beneficiary households receiving transfers that are registered at their designated Primary Care Unit (UNAP) and/or school or who received a letter warning of potential suspension due to incompliance with registrations, for: Starting January 2011: 1.1.2. Share of CCT Solidaridad transfers paid based on the timely verification of compliance with co-responsibilities.

0%

NA

80%

NA

90%

80%

95%

90%

As an interim phase, until the information systems and organizational development are fully functional to verify co-responsibilities by January 2011, the CCT Intersectoral Committee defined the interim verification of co-responsibilities as the registration of beneficiary households at their designated Primary Care Unit (UNAP) and/or school or having received a letter warning of potential suspension due to incompliance. To date, 524,778 households (of 719,461 total households) have been registered at or advised of their designated Primary Healthcare Centers (UNAPs). In education, the verification of co-responsibilities will be defined by registration in school systems, which has just begun with the new school year, using the existing registry system of the Incentives for School Attendance (ILAE) program for 414,047 Solidaridad households.

1.2 Improved Articulation with Health ActionsAccording to national health protocol and/or Basic Health Care Plan: 1.2.1. Share of pregnant women from CCT Solidaridad receive prenatal checks 1.2.2. Share of puerperal women from CCT Solidaridad attend postnatal checks 1.2.3. Children between 0 and 5 years old from CCT Solidaridad comply with the series of consults

94.5%

73.2%

0%

95%

80%

30%

95%

85%

50%

95%36

90%

90%

Baseline indicators and goals have been estimated using ENDESA 2007, the DR Social Indicators System within MEPyD, and the IADB Indicators Study for Loan 039. Updated 2010 figures will be provided by the Encuesta Basal Solidaridad to be completed in November 2010. The GoDR has requested to maintain a degree of flexibility in the definition of the targets based on

36 Note: Original target of 90% has been increased to 95% given the finding from the baseline data that 94.5% of women attend four or more prenatal checks.

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Indicator

BaselineDPL1 Start,Nov. 2009

TargetEnd DPL1 Nov. 2010

TargetEnd DPL2 Nov. 2011

TargetEnd DPL3 Dec. 2012

Indicator Status and/or Comments

established by the national standards of comprehensive care for healthy children (growth and development check-ups) 1.2.4. Share of children between 0 and 5 years old from CCT Solidaridad fulfilling the complete vaccination protocol 1.2.5. Share of elderly aged over 65 years old from CCT Solidaridad receiving a health check visit once a year.

79%

1.1%

83%

30%

86%

50%

90%

90%

the results of the Encuesta.Note: The indicator initially presented in PD 1 on “Youth between 10 and 15 years old attend quarterly education and health training, orientation, and individualized advisory sessions” was removed given the lack of development, in practice, of this co-responsibility, and the subsequent difficulty to monitor progress during the duration of the PASS program.

1.3 Nutrition 1.3.1. Share of pregnant women from CCT Solidaridad receiving supply of micronutrients in accordance with the national protocol. 1.3.2. Share of puerperal women from CCT Solidaridad receiving supply of micronutrients in accordance with the national protocol 1.3.3. Share of children between 6 and 60 months from CCT Solidaridad receiving micronutrient sprinkles (iron and zinc)

81%

38%

0%

83%

50%

5%

86%

70%

50%

90%

90%

90%

Baseline indicators and goals have been estimated using the DR Social Indicators System within MEPyD, and the IADB Indicators Study for Loan 039. Updated 2010 figures will be provided by the Encuesta Basal Solidaridad to be completed in November 2010. The GoDR has requested to maintain a degree of flexibility in the definition of the targets based on the results of the Encuesta. Note: The indicator initially presented in PD 1 on “Family members over 16 years of age receive nutrition training” was removed since the Government does not expect to put the related supply of training in place during the duration of the PASS program.

1.4 Improved articulation with Education ActionsEnrollment (for CCT Solidaridad children) 1.4.1. Early Childhood Development 1.4.2. Basic Education 1.4.3. Secondary Education (First Cycle) School attendance (80 percent of school days) for CCT Solidaridad children 1.4.4. Early Childhood Development 1.4.5. Basic Education 1.4.6. Secondary Education

30.9% 84.3% 46.9%

48.8% 93.7% 87.1%

33% 86% 51%

50% 94% 88%

37% 88% 57%

60% 94% 89%

50% 90% 63%

70% 94% 90%

Baseline indicators and targets for educational enrollment and attendance have been defined using MINERD information system data and a proxy test from a representational sample of the ILAE scholarship registry. The GoDR has requested to maintain a degree of flexibility in the definition of the targets based on the results of the Encuesta Basal Solidaridad to be completed in November 2010.

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Indicator

BaselineDPL1 Start,Nov. 2009

TargetEnd DPL1 Nov. 2010

TargetEnd DPL2 Nov. 2011

TargetEnd DPL3 Dec. 2012

Indicator Status and/or Comments

II. POLICY AREA 2: IMPROVED BUDGET MANAGEMENT FOR ENHANCED PERFORMANCE OF SOCIAL SECTORS

Better management of budget projections of social sectors, as a direct result of the implementation of the procedure proposed by the Ministry of Finance. Better management will reduce the differences between the proposed appropriations and their actual execution in order to cover the supply gaps in health, nutrition and education of the Solidaridad program.

2.1.1. Deviation between proposed budget to cover the supply gaps in health, nutrition, and education services and the overall national budget, in relative terms (see the technical appendix below) 2.1.2. Deviation between Scheduled Quota and Actual Budget Proportion to cover the supply gaps in health, nutrition, and education services (see the technical appendix below).

NA

NA

1.00

0.50

0.90

0.65

0.85

0.85

As of August 2010, Indicator 2.1.1 showed a value of 0.0, as all promised appropriations have been allocated, while 2.1.2 stood at 0.65, meeting goals for the end of DPL1.

III. POLICY AREA 3: GRADUAL INTRODUCTION OF PERFORMANCE AGREEMENTS

Improved performance-orientation in the social sectors: The discussion, execution, and monitoring of the budget focus on achieving the objectives, strategy and goals of the Solidaridad program and are informed by the strategic plans of the priority programs related to that program.

3.1.1 Number of priority programs in education, nutrition, and health related to the Solidaridad Program37 that have successfully developed the log-frame methodology.

0 2

4

6

The log-frame methodology implies the development of objectives, baselines, goals, and indicators at different levels. The GoDR intends to achieve satisfactory quality standards.

37 The education programs are the pre-primary, basic, and secondary education programs. The health programs include the Immunization, Maternal and Infant Health and Nutrition program.

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Indicator

BaselineDPL1 Start,Nov. 2009

TargetEnd DPL1 Nov. 2010

TargetEnd DPL2 Nov. 2011

TargetEnd DPL3 Dec. 2012

Indicator Status and/or Comments

IV. POLICY AREA 4: ENHANCED TRANSPARENCY AND CIVIL SOCIETY OVERSIGHT

Budget: Improved access to and knowledge of the public budget; improved access to information on the formulation and execution of the budget for institutions that act in the social sectors (beginning with Solidaridad, education, health, and nutrition programs); increased access to the Financial Management Information System (SIGEF). CCT: Increased transparency and accountability to CCT beneficiaries/users of education and health services regarding the CCT’s co-responsibilities.4.1 Enhanced Budget Transparency and Oversight4.1.1. Number of registered users in the "Consulta Amigable" budget information portal. 4.1.2. Number of times the portal website, where free information is available, is accessed (annual hits).

0

0

0Tool in

development

0 Tool in

development

15Independent registrations

50

60 Additional

independent registrations

1,500

Note: Targets were revised given the change in completion date for the development of the web-based tool.

4.2 Enhanced Transparency and Oversight of the CCT Solidaridad4.2.1. Number of total community-distributed scorecards (Td) versus the number of community-distributed scorecards completed by beneficiary committees of the Solidaridad program (Tll) Indicator: Tll/Td > 50%

0%

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70%

The Community Scorecards pilot is expected to be completed by April 2011, which will include the distribution of 1,300 scorecards. Note: The indicator “Follow-up to the implementation of recommendations generated from the community scorecards/reports: Share of community reports (action plans) resulting from the community scorecards receive follow-up” was removed due to the difficulty of measurement. An impact evaluation of the tool will still, however, be carried out and results will be monitored as part of the Bank supervision of the Social Protection Investment Loan.

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Technical Appendix (Improved budget management for enhanced performance of social sectors through an Annual Operations Plan) Deviation between proposed budget to cover supply gaps and the overall national budget, in relative terms The difference between the allocated budget (Bbs) and the actual budget (Bas) to cover the supply gaps in health, nutrition, and education services within the Solidaridad program will be less than or equal to the difference between the approved overall national budget (Bb) and the actual budget (Ba) in relative terms. Indicator: ((Bas – Bbs)/Bbs) ≤ ((Ba – Bb)/Bb) Bs / Ba ≤ 1 The goal for the end of DPL1 in November 2010 is an indicator of 1.00, for the end of DPL2 in November 2011 an indicator of 0.90 and for the end of DPL3 in November 2012 an indicator of 0.85. Deviation between Scheduled Quota and Actual Budget Proportion The ratio between the scheduled quota (Q) and the quarterly budget proportion (Ba) for the supply gaps in health, nutrition, and education services within the lines of the Solidaridad program budget will be equal to or less than one. Indicator: (Q/ Ba) ≤ 1 The goal for the end of DPL1 in November 2010 is an indicator of 0.50, for the end of DPL2 in November 2011 an indicator of 0.65 and for the end of DPL3 in November 2012 an indicator of 0.85. Since there are four quotas or disbursements per year, this could also be framed as follows: The goal for the end of DPL1 in November 2010 is a simple average of the indicators for the four quotas of 0.50 by the end of DPL2 in November 2011, an average of 0.65 and for the end of DPL3 in November 2012 an average of 0.85.

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ANNEX 4. DOMINICAN REPUBLIC DEBT SUSTAINABILITY ANALYSIS 1. This annex presents a public debt sustainability analysis for Dominican Republic using both a deterministic model and stochastic simulations.38 Public debt is measured as gross debt, i.e. the bonds owned by agencies within the government are not netted out from the total value of debt. The baseline public debt to GDP ratio projections are built on the macroeconomic assumptions that are consistent with the medium term macroeconomic framework envisaged in the IMF Staff Report dated March 2010.

2. The public debt to GDP ratio fell from about 47.4 percent in 2004 to 35.5 percent in 2008 in part as a consequence of benign global economic environment. Nevertheless, the public debt ratio increased to 39 percent in 2009 in the wake of the global financial turmoil. Dominican Republic’s public debt is projected to decline steadily in the medium term under the baseline scenario which is characterized by: (i) sustained growth averaging 6.9 percent of GDP in the period 2010-2015, (ii) an average primary surplus of 1.5 percentage points of GDP; and (iii) an average annual nominal depreciation of 3.6 percent. The projections also indicate that the speed of fall in the ratio of public debt to GDP is likely to decrease in the medium-term compared to its trend in 2004-2008 (Figure A4.1). This result mainly reflects a challenging external economic environment and possible financing difficulties.

3. The team constructed an alternative scenario to see how a benign macroeconomic environment similar to what we observed in the past four years would change the public debt projections of Dominican Republic compared to the baseline scenario. This scenario assumes that the key macroeconomic variables, namely real growth rate, real appreciation of the exchange rate, primary surplus and real interest rates, stay at their historical averages for 2005-2008. Under this scenario, the public debt ratio would decline to 28.5 percent by 2015 compared to about 35 percent under the baseline. Furthermore, the public debt ratio under this scenario would

38 Note that in this annex, statistics consider public debt as gross debt, i.e., they do not net out bonds owned by agencies within the Government. According to the Government, the net debt to GDP ratio for 2009 was 36.6.

Figure A4.1: Public Debt to GDP Ratio (Baseline Scenario)

Source: Staff projections.

Figure A4.2: Public Debt to GDP Ratio (Baseline vs. Historical Averages for the Past 4 Years)

Source: Staff projections.

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decline at a faster pace in the medium term than under the baseline scenario (Figure A4.2).

4. Public debt sustainability in Dominican Republic hinges mainly on stable exchange rates as sensitivity analyses indicate that the public debt ratio is most sensitive to changes in exchange rate. In particular, a one-time 30 percent real depreciation of the RD$ in 2010 would lead to a jump in the public debt ratio to 50 percent in 2011, compared to 40 percent under the baseline. This calls for vigilance in the face of possible pressures on the exchange rate in the aftermath of the recent global economic crisis.

5. In the case of a combined shock of two standard deviations to primary balance, real GDP growth and real interest rates in 2010 and 2011, the public debt ratio would increase to about 47 percent by 2011, declining slightly thereafter (see Figure A4.3). This result implies that the public debt sustainability in Dominican Republic requires continued fiscal discipline and a favorable macroeconomic environment.

Table A4.1: Debt Ratios under Sensitivity Tests (in percent of GDP)

2009 2010 2011 2012 2013 2014 2015 Baseline 39.0 39.8 40.1 38.9 37.6 36.1 34.7

A1. Key variables are at their historical averages in 2010-15 39.0 37.1 36.3 34.9 33.2 31.2 28.5 A2. No policy change (constant primary balance) in 2010-15 39.0 40.5 42.6 44.1 45.5 46.9 48.3 B1. Real interest rate is at historical average plus two standard deviations in 2010 and 2011 39.0 39.5 39.5 37.1 34.5 31.9 29.2

B2. Real GDP growth is at historical average minus two standard deviations in 2010 and 2011 39.0 41.6 45.6 43.3 40.9 38.4 35.8

B3. Primary balance is at historical average minus two standard deviations in 2010 and 2011 39.0 40.7 43.1 40.8 38.3 35.7 33.2 B4. Combination of 1-3 using one standard deviation shocks 39.0 42.5 46.9 44.6 42.2 39.7 37.2

B5. One time 30 percent real depreciation in 2010 39.0 43.7 50.0 47.7 45.3 42.7 40.1 Source: Staff projections

Figure A4.3: Public Debt to GDP Ratio under Baseline and an Alternative Scenario of Combined Shock

Source: Staff projections.

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6. Stochastic simulations assign low probabilities to extreme scenarios. Stochastic simulations produce confidence intervals for the public debt ratios corresponding to varying degrees of uncertainty for four key macroeconomic variables: (a) domestic interest rates, (b) the growth rate, (c) the exchange rate, and (d) the foreign interest rate. Assuming an average primary surplus of 1.5 percentage points of GDP in the period 2010-2015, there is a 97.5 percent probability that the public debt to GDP ratio will remain between 22 and 52 percent (Figure A4.5). There is a 75 percent probability that this ratio will remain within 29-39 percent. Under an alternative scenario, where the primary deficit stays at its 2009 level of 0.7 percentage point of GDP in 2010 and 2011, the 97.5 percent confidence interval for the public debt to GDP ratio would become 24-54 percent.

7. Stochastic simulations indicate an upward trend in the public debt ratio in 2010-2011. This result mainly reflects a relatively weak real GDP growth in 2009 and 2010. Hence, a possible prolonged economic slowdown would be worrisome for public debt dynamics of Dominican Republic.

Figure A4.4: Public debt to GDP Ratio (%)

Source: Staff projections.

Figure A4.5: Public Debt to GDP Ratio under Baseline and Alternative Scenario

Source: Staff projections.

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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Public sector debt 34.5 36.4 33.4 35.5 39.0 39.8 40.1 38.9 37.6 36.1 34.7o/w foreign-currency denominated (gross) 20.1 20.2 18.3 17.8 19.3 19.7 19.9 19.3 18.6 17.9 17.2

Change in public sector debt -12.8 1.8 -2.9 2.1 3.5 0.8 0.4 -1.2 -1.3 -1.5 -1.4Identified debt-creating flows -5.5 -5.7 -8.4 0.2 -1.6 0.8 0.4 -1.2 -1.3 -1.5 -1.4

Primary deficit -0.3 -0.5 -1.6 1.3 0.7 0.0 -1.0 -2.0 -2.0 -2.0 -2.0 -Seignorage -3.1 -1.7 -2.8 -1.8 -3.2 0.1 0.1 0.1 0.1 0.0 0.0 +Automatic debt dynamics: -2.1 -3.6 -4.0 0.7 1.0 0.7 1.3 0.7 0.6 0.5 0.6

Contribution from interest rate/growth differential -4.8 -3.2 -3.2 0.7 1.2 0.4 1.0 0.2 0.2 0.2 0.2Of which contribution from real interest rate -0.8 0.1 -0.4 2.4 2.4 1.7 3.2 3.1 3.0 3.0 2.9

Contribution from domestic real interest rate -0.7 -0.2 -0.9 1.1 1.4 0.9 2.3 2.2 2.2 2.1 2.0Denominator = 1+g+p+gp 1.2 1.2 1.2 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1

Contribution from real interest rate on foreign debt -0.1 0.5 0.8 1.8 1.4 0.9 1.1 1.1 1.0 1.1 1.1 minus Contribution from real interest rate on net foreign assets 0.0 -0.1 -0.3 -0.5 -0.4 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2

Of which (-) contribution from real GDP growth -4.0 -3.3 -2.8 -1.7 -1.2 -1.3 -2.3 -3.0 -2.9 -2.8 -2.7Contribution from real exchange rate depreciation 2.7 -0.3 -0.8 0.0 -0.2 0.3 0.3 0.5 0.4 0.3 0.3

Denominator = 1+g+p*+gp* 1.1 1.1 1.1 1.1 1.0 1.1 1.1 1.1 1.1 1.1 1.1Key Macroeconomic and Fiscal AssumptionsReal GDP growth (in percent) 9.3 10.7 8.5 5.3 3.5 3.5 6.0 8.0 8.0 8.0 8.0Average nominal interest rate on public debt (in percent) 3.1 4.7 5.0 11.4 11.1 9.7 8.1 8.1 8.4 8.6 8.9Average real interest rate 4.3 -0.3 -2.8 9.3 7.4 5.9 8.1 9.2 8.9 8.6 8.9Inflation rate (in percent) 7.4 5.0 8.9 4.5 5.8 6.0 4.0 3.0 3.0 3.0 3.0Primary deficit -0.3 -0.5 -1.6 1.3 0.7 0.0 -1.0 -2.0 -2.0 -2.0 -2.0

Public Sector Debt Sustainability Framework, 2005-2015(In percent of GDP, unless otherwise indicated)

I. Baseline Projections

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ANNEX 5: LETTER OF DEVELOPMENT POLICY

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LETTER OF DEVELOPMENT POLICY (Translated into English)

DOMINICAN REPUBLIC

Ministry of Economy, Planning, and Development Ministry of Finance

[Stamp: “Received, October 5, 2010, World Bank Office, Dominican Republic]

DM/00812 Santo Domingo, D.N. , October 5, 2010 Mr. Robert Zoellick President, World Bank Washington, D.C. United States of America Ref.: Letter of Development Policy – Performance and Accountability of Social Sectors Programmatic Loan Dear Mr. Zoellick On behalf of the Dominican Republic, we are pleased to inform you of the Dominican Republic’s interest in and commitment to maintaining the priority accorded to public sector reforms, taking advantage of opportunities to improve quality in the execution of social policies, in particular those aimed at strengthening the human capital of the poorest, and continuing the process started in 2006 to implement the most sweeping public finance administration reform in 50 years. We are cognizant of the importance of disbursements related to the above-mentioned operation, which will be contingent on the execution of performance and accountability of social sector development policies, in support of the implementation of key aspects of these priorities. In October 2009, the Dominican Government prepared a countercyclical macroeconomic program, agreed upon with the International Monetary Fund, aimed at restoring the growth potential of the Dominican economy, which was negatively impacted by the global economic crisis. The positive effects of the program were evident during the first six-month period of 2010, when real GDP growth was restored, with this growth being estimated at 7.5 percent (year-on-year basis), while inflation was a mere 5.44 percent, below the Central Bank’s target of between 6 and 7 percent. Core inflation, which excludes food and fuel, stood at 3.5 percent (year-on-year basis). In addition, preliminary social expenditure data reflect the efforts of the Dominican Government to promote social development in the context of the global economic crisis.

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In recent years, the Dominican Republic has strengthened its work agenda with specific plans to take advantage of the opportunities identified to improve the effectiveness and quality of public services, reduce the vulnerability of persons at the bottom of the social pyramid, and prioritize and accelerate public sector reforms. To this end, the Government has received assistance from multilateral organizations while securing adequate fiscal space to protect social programs in the wake of the international crisis and, at the same time, to accord priority to investment programs aimed at the continued development of our economy and a reduction in poverty indicators. The World Bank Group’s Strategic Alliance with the Dominican Republic for 2010-2013 provides a sound framework for collaborative work with the World Bank to achieve these objectives. This Strategy places special emphasis on protecting the poor while boosting competitiveness and strengthening national public institutions in the area of accountability, using a managing for development results approach. In the process of consolidating the draft National Development Strategy for 2010-2030, opportunities were identified for improvement during the process in order to achieve the objectives and goals of the National Development Strategy. They include (i) improving the quality of State management; (ii) enhancing the quality of education; and (iii) reducing deficiencies in the provision of health services. The Dominican Government therefore has an implementation strategy, which includes goals and indicators established and gaps that have been detected in the process. Closing these gaps is a key component of the objectives to be developed through the operations set forth in this Letter of Development Policy (LDP).

I. The Government’s Vision The Dominican Government is executing the most sweeping institutional reform agenda in 50 years. These processes were amply reflected through a process involving the highest law of the land, namely, a constitutional amendment, which was recently promulgated and lays the foundation for true political and administrative management change in the country, which will have to be synchronized with the long-term vision for the country’s development. The Dominican Republic already has a strong National Development Strategy (NDS) proposal, which articulates a vision, strategic thrusts, general and specific objectives, and lines of action that will strengthen work aimed at achieving the development objectives. Furthermore, the proposal covers and makes provisions for a monitoring and evaluation system with a view to tracking implementation of the strategy. The proposed NDS, which already includes the contributions and views of broad swaths of the society, political parties, non-governmental organizations, and multilateral assistance agencies, is currently in the final consensus phase, and is expected to be submitted to the National Congress in early 2011. It is important to note that since the time of submission by the Government of its Letter of Development Policy for the first programmatic loan, the proposed NDS has been substantially enhanced through a broad-based consultative process in the country. In line with the strategic thrusts of the NDS, namely institutional development, social cohesion, productive development, and environmental sustainability, the Government has moved forward

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with the design of a medium-term planning instrument to enhance organization, efficiency, and quality in the expenditure process. This instrument makes clear the priority accorded to public output of the goods and services that public sector institutions are required to deliver to society. The Dominican Republic therefore has a National Multi-Year Public Sector Plan for the 2010-2013 period, which was approved during the second week of September by the Council of Ministers. The plan is oriented toward fulfillment of the Government’s commitment to (i) enhancing efficiency in public expenditure by strengthening reform of government institutions and public planning and focusing on expenditure aimed at reducing poverty and boosting development; (ii) maintaining fiscal sustainability by mitigating, over time, the impact of the global crisis on public finance and reducing the latter’s vulnerability to future shocks; and (iii) improving the investment climate in order to promote mainly private sector-led growth and job creation, thus ensuring the stability of the financial sector and strengthening international competitiveness.

II. Macroeconomic Developments Over the past two decades, the Dominican Republic has been one of the most dynamic economies in Latin America, with an average growth rate of 5.9 percent during the 1991-2009 period. During the first half of this period, growth was led by activities in the tradable goods sector, in particular tourism and free zone activity. However, in recent years, those activities have fallen off, partly as a result of the global economic crisis. At the same time, economic growth generally took place against a backdrop of relatively stable prices and single-digit inflation, except during three years of the period analyzed, two of which were during the financial crisis. This high growth trend was broken by the 2003-2004 financial crisis, which was triggered by the bankruptcy of three banks, one of which was the second largest bank in the country. This event created a period of economic uncertainty and instability, leading to significant capital flight and a sharp depreciation in the national currency, which exceeded 300 percent during the peak period, and to higher inflation, which climbed to 42.7 percent in 2003. The adoption of a robust economic adjustment program backed by the International Monetary Fund and supported financially by the World Bank and Inter-American Development Bank, which also required restructuring of foreign public debt owed to the Paris Club and London Club, led to the restoration of macroeconomic stability and the reversal, in the short term, of the 0.3 percent economic contraction posted in 2003. Under this program, significant reforms were implemented in the areas of government management and financial oversight as well as in the banking sector, the findings of which were provided in the favorable assessment of these entities, based on the results of implementation of the Financial Sector Adjustment Program (FSAP). As a result of three fiscal reform programs conducted between 2004 and 2007 and an austere spending policy, the country made significant strides in the consolidation of its fiscal accounts. The consolidated public sector deficit measured as a percentage of GDP fell from approximately 9 percent at end-2003 to 1.7 percent in 2007. Consolidated public sector debt declined from over 55 percent in 2003 to 33.7 percent in 2008, and the Central Bank’s quasi-fiscal deficit dropped from 4 percent in 2004 to 1.3 percent in 2008.

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The sharp depreciation in the peso in 2003 reversed the current account balance of payments deficit. In 2003 and 2004, the country posted a 5.3 percent and 2.8 percent current account surplus, respectively. As the economic recovery continued, the country returned to its pre-crisis current account balance of payments deficit. Stabilization of the economy and the performance of the external sector allowed the Central Bank to increase international reserves, which rose from US$279 million at end-2003 to US$2,165 million at end-2008. During the final quarter of 2007, the Dominican economy started to be impacted by price increases in such commodities as wheat, corn, and soy, and international oil prices, of which the Dominican Republic is an importing country, in absolute terms. In 2008, the current account balance of payments deficit stood at 9.8 percent of GDP, largely as a result of oil prices. This shortfall was met through record levels of foreign direct investment, bilateral disbursements, and use of international reserves. In 2009, the effects of the international financial crisis were felt in the external sector as a result of lower growth in the tourism sector and the decline in exports and foreign remittances. Nonetheless, the current account balance of payments situation improved, offset by an even greater decline in oil prices. The effects of the external shock led to a downturn in economic growth in 2009, particularly during the first two quarters of the year. In 2009, the economy expanded at an annual rate of 3.5 percent, one of the highest in Latin America. The fall off in economic activity had a negative impact on fiscal revenue, as reflected in a 1.3 percent decline in GDP relative to the projections in the Revenue Budget and Public Expenditure Law [Presupuesto de Ingresos y Ley de Gastos Públicos] for 2009. From a policy standpoint, this led to a reduction in primary expenditures, largely in investment, while safeguarding priority social programs. The non-financial public sector deficit stood at 3.1 percent of GDP, and the primary balance, at 1.2 percent.

III. The Government’s Macroeconomic Program Under the structured agreement with the IMF, a countercyclical fiscal policy was drafted and implemented in the last quarter of 2009. It was continued into the first six-month period of 2010, with the aim of mitigating the impact of the external shock in the economic and social areas and eventually facilitating the return of the economy to growth levels consistent with its potential. The objectives of this part of the program have been met. During the first six-month period of 2010, the economy grew at a rate of 7.5 percent, while unemployment rose slightly in 2009 and has thus far been trending downward in 2010. In addition, inflationary expectations, included in the Central Bank’s monetary program, remain in the range of the inflation target of 5 percent to 6 percent for this year. During the second half of the year, the agreement provides for the start of fiscal consolidation, the main component of which is the reduction of the non-financial public sector deficit, which is projected to fall to 2.3 percent of GDP in 2010; a 0.8 percent decline relative to 2009. Along with this result, an improvement in the primary balance is expected – from -1.4 percent of GDP to -0.2 percent at end-2010. Projections are that in 2011, the non-financial public sector deficit and the primary balance will improve by approximately 0.7 percent and 1.0 percent of GDP, respectively.

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Included in the plan to strengthen public investment in the context of the agreement with the IMF is a commitment made by the Government to continue to step up the measures adopted with a view to the recovery of the electricity sector. Recently, the directors of the three power companies were replaced with foreign professionals with experience in managing enterprises of this nature. It is hoped that the appointment of these experts will lend impetus to the administrative streamlining process taking place in the sector through, inter alia, the addition of new customers, the installation of meters, and effective efforts to combat theft, with the aim of improving the medium-term prospects for the sector. Medium-term fiscal policy will focus on maintaining current fiscal sustainability consistent with a consolidated public debt-to-GDP ratio of roughly 30 percent.

IV. IV. Government Program for the Social Sectors: Reforms for the Programmatic Loan

The Dominican Republic is now better equipped to protect its poorest citizens from the effects of the crisis. The Government has been developing and institutionalizing a targeted social protection system that protects low-income populations, strengthens policy guidelines pertaining to education, health, and nutrition, and focuses on energy subsidy policies. This model involves three entities that operate under the Office of Social Policy Coordination [Gabinete de Coordinación Política Social GCPS]. The Vice President of the Dominican Republic serves as the Coordinator of the GCPS, which is charged with the following specific and interrelated tasks: (i) The Sistema Único de Beneficiarios (Single Beneficiary Selection System, SIUBEN). Implemented in 2004, SIUBEN is a mechanism that promotes transparent and objective targeting of social programs through the identification and socioeconomic assessment of potential beneficiaries. As of September 2010, SIUBEN’s database contained information on 1,658,000 households (approximately 64 percent of Dominican households). Of this figure in the database, 46 percent are categorized as moderately and extremely poor households. With financial support from the World Bank, SIUBEN’s management has made a strong commitment to continue its strengthening plan with a view to conducting another census, commencing in late 2010. (ii) The Solidaridad Program. Established in late 2005, this program marked a shift in focus for social assistance, by explicitly providing the Comer es Primero (Eating Comes First) and Incentivo a Asistencia Escolar (Incentives for School Attendance ILAE) transfers for human capital investment for the beneficiaries. It seeks to help break the intergenerational transmission of the causes that generate and allow poverty to take root, by boosting the investment that poor households can make in education, health, and nutrition, thereby increasing the human capital accumulation of their children. The program essentially has two components. First, the Health component, with four basic lines of action: (a) Prevention: the provision, free of charge, of services outlined in the Basic Health Care Plan for (i) pregnant women between the ages of 15 and 49 years; (ii) boys and girls between the ages of 0 and 5 years; and (iii) adolescents between the ages of 10 and 15 years; (b) Support for Adults of Majority Age, providing a monthly cash transfer of DR$400.00 (US$11.14) and preventive medicine programs; (c) Food Support, through the Comer es Primero transfer for the provision of staple foods equivalent to DR$700.00 (US$19.50) per month and the distribution of micronutrients; and (d) Health Promotion. The

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second component is the Education Component. Looking ahead to the 2010-2011 school year, the Program provides for the redesign of the education component to ensure that, in addition to the current coverage for six to sixteen-year-olds, five-year-olds receive one year of preschool education, and to expand access to the first cycle of secondary education, and contribute to the reduction of the number of overage students, with a monthly per beneficiary transfer of DR$150.00 (US$4.20). (iii) The Administradora de Subsidios Sociales (Administrator of Social Subsidies ADESS). With a view to separating the payment function from the one for beneficiary identification and selection, this entity was established to manage the payment transfer mechanism—the Solidaridad card. This debit card, which is valid in the national financial system platform, is used by establishments belonging to the Red de Abasto Social (RAS)—the network of establishments affiliated with the Solidaridad program—comprised primarily of corner grocery stores known as colmados. However, owing to the turbulent international economic climate, in which the poorest tend to disinvest in their human capital and, in so doing, reduce their chances of overcoming poverty using their own resources, the Government anticipated an increase in demand for actions to protect the well-being of the population. As a result, the prevailing economic context heightens the need to allocate expenditure on social protection in a more effective and efficient manner. Therefore, the Government’s policy priority with respect to social protection is to protect the vulnerable populations and improve the role of institutions and transparency in the allocation and use of resources earmarked for the social sectors. Major developments with regard to the implementation of the Government Program, which are intrinsically linked to the objectives of the Programmatic Loan, are as follows: (i) improved results in the social sectors to enhance the human capital of the poorest; (ii) improved budget management to support the joint performance of the social sectors under the redesigned Conditional Cash Transfers (CCT) program; (iii) the gradual introduction of Performance Agreements in the social sectors; and (iv) enhanced transparency in the execution of the national budget, with special emphasis on social programs such as Solidaridad, and enhanced civil society oversight in the social sectors. (i) Improved results in the social sectors to enhance the human capital of the poorest An important component of this first pillar is the use of public resources to provide a more equitable distribution of opportunities. The Dominican Republic has been improving and continues to improve its social networks, with a view to insulating the poor against the effects of the recent exogenous shocks, including the food and oil crises of mid-2008 and the financial and economic crisis that is still gripping the world. With objectives similar to those found in other programs in the region, Solidaridad promotes investment in health, nutrition, and education (in human capital) for the poorest through a monthly cash incentive. Achievements in this area have been outstanding and are as follows: (i) the Government moved away from its traditional clientelist model for social policy execution, developing and institutionalizing the SIUBEN as a mechanism for targeting eligible citizens; (ii) the authorities allocated social transfers and subsidies in a more efficient manner; (iii) this new social assistance system enhanced transparency in the allocation and use of public resources,

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with the clear identification of the beneficiaries and the amounts earmarked for each transfer or subsidy for each eligible household; (iv) the Government strengthened its capacity to respond in a timely manner to natural disasters or economic crises such as the oil and food price spikes; and (v) this mechanism has resulted in substantial tax savings such as in the case of targeting of the liquefied petroleum gas (LPG) subsidy, as well as expected savings with the elimination of the geography-based subsidy system (PRA) and implementation of the Bonoluz demand subsidy program through the Solidaridad card and program. The foregoing notwithstanding and as indicated in Decree No. 118-09, the Government redesigned and strengthened the social protection system and the participating entities to enhance its efficiency, transparency, and coordination. In order to carry out this mandate, the Office for the Coordination of Social Policy established the Interinstitutional Technical Committee as a coordination forum for the three entities—Solidaridad, SIUBEN, and ADESS—which facilitated the development of the manual on cross-cutting processes for the Conditional Cash Transfers (CCT) Program. In February 2009, the Government initiated a process to strengthen the Solidaridad Conditional Cash Transfers Program, with a view to building its capacity to promote human capital and enhance its efficiency, cognizant of the fact that the co-responsibilities system could not be implemented owing to shortcomings in the provision of social services or intersectoral coordination. For this reason, the Office for the Coordination of Social Policy established the Intersectoral Technical Committee for the Solidaridad program with a view to increasing its operational coordination with the social sectors (education, health) and with those responsible for allocating resources (Ministry of Finance), and avoiding duplication of efforts and systems in a way that facilitates strengthening of the comprehensive and systematic verification process designed to ensure compliance by the target beneficiary population with the co-responsibilities required by this program. The institutional coordination and organizational development of the Solidaridad Program for implementation of the redesigned CCT program is under way to approve (i) regulations governing the functioning of the CCT Interinstitutional Committee (which brings together the ADESS, SIUBEN, and Solidaridad programs) and the CCT Intersectoral Committee (education, health, Solidaridad). The foregoing helped shift the transfers system to co-responsibilities, improve training to beneficiaries on the redesigned Solidaridad CCT Program; align health and education services provided to beneficiaries of the Solidaridad program with sectoral priorities, programs, and standards, all of which are set forth in the operational manual for the Solidaridad CCT Program. In this way, with respect to health, the program is aligned with the application of the Basic Health Plan’s promotion and prevention component for the poor, the majority of whom are enrolled in the health subsidy program. In the case of education, preschool education and the first cycle of secondary education are included in the redesigned Solidaridad program, both of which are targets in the plans for the education sector. Similarly, and with a view to ensuring transparency in the Solidaridad CCT Program, the Government implemented a plan to expand the network of RAS-affiliated establishments, at which beneficiaries, through purchases made, use the social transfers. This plan seeks to (i) promote competition among member businesses; (ii) expand the supply of products available at

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the establishments; and (iii) reduce transaction time and costs for beneficiaries. The Government is committed to assessing the impact of this plan and implementing the recommendations stemming from this assessment. Other objectives of the restructuring of the Solidaridad CCT Program include (i) the deconcentration and automation of its operational cycle, and the strengthening of the community organizational structure, in order to lower costs and better serve beneficiaries; (ii) the introduction of a monitoring and evaluation system to strengthen management and accountability, which began with the conduct of the Social Protection Evaluation Survey (EEPS) in late August 2010. In both cases, the Government is receiving financial support from the World Bank, through additional financing of the SPIL, and from the Inter-American Development Bank, through the Support for the Social Protection Program (First Phase) (DR-L1039). Ensuring alignment and synergies with education and health policies Education: Among the objectives of the Ten-Year Education Plan for 2008-2018, which are in line with human capital promotion of the poor, are (i) the mobilization of public and private will in order to ensure that five-year-olds receive one year of preschool education followed by eight years of inclusive and quality basic education; (ii) the strengthening, expansion, and diversification of the secondary education level and form of quality education for adults, with a view to instilling civic responsibility and paving the way to the job market and/or higher education; (iii) the establishment of clear quality standards and an evaluation system that makes it possible to monitor the performance of the education system, promotes the mobilization of schools, families, and communities for an improved education system and ensures that, for the benefit of the country, the certificates and degrees awarded are reflective of the training provided; and (iv) the promotion of equal access to education, with support for students from the most vulnerable social sectors.

In this regard, and as a way to ensure that, beginning at age five, the population receives a minimum of nine years of preschool and basic education, and to assess the quality of the knowledge acquired, the Ministry of Education validated the definition of the student assessment criteria for the preschool and first cycle of basic education levels.

The actions, which are in line with the objectives of the redesigned Solidaridad CCT Program to strengthen interinstitutional capacity and intersectoral collaboration between the Ministry of Education and the Solidaridad program in order to verify and monitor compliance by beneficiaries with the program’s co-responsibilities and results in the education sector, are evident in the recent development of a Sistema de Gestión de Centro Escolar (School Management System SGCE) by the Ministry of Education. Health: The key objective in this sector is to strengthen the first level of care in order to increase access by the poor to better quality basic health services. The Ministry of Public Health (MSP) has been working on a plan aimed at strengthening infrastructure, equipment, human resources, and other inputs at the primary and secondary health care levels. One aspect of this effort is the introduction of a new system for monitoring compliance tools and protocols.

102

(ii) Improved budget management to support the joint performance of the social sectors under the redesigned Conditional Cash Transfers Program The reform process for the policies in this first pillar, which was initiated in 2006, is based on previous measures that served to strengthen public sector institutions involved in planning, budget, and public financial management. Apart from the aforementioned medium-term planning instrument, another innovation introduced by the reform is the public sector’s multi-year budget, which stipulates the financial conditions for public spending in general, and the public investment plan in particular. In coordinating with the sectoral institutions, and in order to bridge the supply gaps that prevented the Solidaridad program from fully developing, the Government has identified these gaps with a view to meeting the additional demand created by the newly designed transfer system. As a result, the investment needs for the next three years, required for the alignment of the supply of services with demand, have been estimated jointly with the sectoral institutions. In order to make the use and allocation of public funds transparent, the same Intersectoral Technical Committee, of which the Ministry of Finance is a member through the Directorate General of Budget, established a mechanism, by consensus. Through this mechanism, the resources allocated in the 2010-2012 budget to cover supply gaps cannot be used for any purposes other than those established in the three-year estimate and implementation schedule presented by the Coordinator of the Social Policy Office to the Ministry of Finance for the gradual closing of the gaps. Likewise, at the operational level, it has been proposed that the Financial Management Information System (SIGEF) could generate warning reports to facilitate follow-up and monitoring by the Intersectoral Committee, which will supervise budget execution on a quarterly basis. (iii) Gradual introduction of performance agreements between governing bodies and the social sectors The efforts made to create favorable conditions for the implementation of performance agreements and the signing of results-based contracts in public administration in the Dominican Republic must be highlighted. It is anticipated that this approach and the mechanisms for its implementation will constitute a flexible managerial link between the budget sources provided and the desired improvements in the performance of the social sector. This will entail commitments regarding (i) compliance by senior officials of the relevant agencies and ministries with policies, goals, and objectives that are verifiable by performance indicators, in accordance with the Memorandums of Agreement entered into by the governing bodies and the five pilot institutions; (ii) greater managerial flexibility—for the implementing agency—in the enforcement of regulations governing execution, human resources, and inputs; and (iii) budget incentives for agencies and/or cash incentives for officials and employees during the life of the agreement. To this end, an agreement was signed to draft terms and conditions for results-based and performance contracts between the public management governing bodies, namely, the Ministries of Finance; Economy, Planning and Development; and Public Administration; and the Ministries of Public Education and Public Health.

103

This three-year programmatic loan focuses on the development of policies to improve the performance and accountability of the social sectors, and falls under the World Bank’s new strategic alliance with the Dominican Republic to protect the poor while at the same time strengthening institutions and accountability in the performance of the country’s public sector, and improving transparency in the allocation and use of public funds. This second operation will support several of this alliance’s strategic objectives, namely (i) to strengthen social cohesion, and improve access to and the quality of social services; (ii) improve the quality of public expenditure and institutional development; and (iii) strengthen institutional capacity and create alliances to promote reforms. In this regard, the Ministry of Public Administration conducted an institutional analysis that allowed for a preliminary assessment of the level of preparedness and the training required for the introduction of performance agreements in the health and education sectors. The aforementioned preliminary report will be reviewed by the governing bodies along with the respective ministries in order to prepare a final report on the Assessment of Each Condition, to be signed with the governing bodies. As part of this process, the Ministry of Economy is currently implementing a technical assistance program with the Ministries of Education and Health, in order to conduct a pilot exercise for the signing of contracts and, in turn, establish a technical assistance and assessment agreement for institutional strengthening over the next three years, with a view to gradually introducing results-based and performance contracts. Internal Health Management Agreements. In addition, in the case of health, two management agreements have been concluded between the Ministry of Public Health (MSP) and the regional health offices in Cibao Central and El Valle, in which the Ministry promotes, as part of its management role, the deconcentration and decentralization of public health services. The commitments and objectives are set forth in these agreements, and will serve as a guide for actions regarding the provision of care to persons in the populations identified as priority populations, based on the stipulations in the legal framework governing the separation of functions and the establishment of health services networks. The Office of Social Policy Coordination and the governing bodies (the Ministries of Economy, Planning and Development; Finance; and Public Administration) have signed a Memorandum of Agreement whereby they have committed to (i) initiating a preparatory process for the gradual introduction of the Results-Based and Performance Contracts system; (ii) conducting an assessment of basic conditions in order to determine the level of institutional capacity development within the Social Policy Office, which would be needed in order to undertake commitments in the context of a results-based management model; (iii) concluding a Technical Assistance Framework Agreement for Institutional Capacity Development for Results-Based Management, or a Results-Based and Performance Contract, as the case may be; and (iv) implementing policy and institutional strengthening actions to improve the performance and accountability of the Solidaridad Conditional Cash Transfers (CCT) Program.

104

(iv) Enhanced transparency in the execution of the national budget and civil society oversight in the social sectors The Government remains committed to enforcing the existing Access to Information Law. In relation to this Programmatic Loan, the Government is committed to improving access to information on the national budget. In particular, the Ministry of Finance intends to develop and implement a systems project called Consulta Amigable, which relies on the adequate and timely provision of information by SIGEF. In this regard, during 2010, the Ministry of Finance will approve the plan for the operationalization of the Consulta Amigable (CA) tool as a public access interface. This plan will be developed based on the analysis for the functional design of the CA, conducted in the context of the computerized and functional assessment of SIGEF, and financed by the Integrated Financial Management Program (PAFI II). Through an Administrative Agreement with the MEPD (Ministry of Economy, Planning, and Development), it will promote the implementation of results-based management through a pilot that includes the selection of at least two sectors that have made progress in identifying performance indicators, and which, with their consent, will agree to collaborate on the publication of information in the Consulta Amigable module. In addition, in order to make the actions of the Social Policy Office transparent, the entities belonging to the Social Protection System have published the list of eligible beneficiaries, as well as the amounts of the transfers determined by the Solidaridad Conditional Cash Transfers Program, which may be consulted on the websites of any of these entities. More recently, and to enhance transparency in the execution of public expenditure, the value of the supply gaps for the health, nutrition, and education services has been published, which, for the three-year period (2010-2012), is projected to total US$323.7 million. There has also been a commitment from the Government that civil society will not only have access to information, but will be able to participate in the assessment of the programs implemented by the social sectors. In this context, the Government will be working to strengthen the community participation and social oversight system of the Conditional Cash Transfers Program. A commitment has therefore been made by the Intersectoral CCT Committee to collectively approve the community participation and social oversight system for the redesigned CCT, including the use of community bulletins to monitor the availability of health and education inputs and the management of CCT services, associated with the fulfillment of co-responsibilities by beneficiary families. In the context of this second phase of the Program, a pilot will be launched for community bulletins with a view to having a full roll out nationwide, based on the results of this pilot. In light of these actions in the Government’s program, this second three-year programmatic loan from the World Bank, valued at one hundred and fifty million United States dollars (US$150 million), for Performance and Accountability of the Social Sectors is of special importance, and falls under the country’s new joint strategy with this financial institution.

105

We wish to reiterate our appreciation for the continued support provided by the World Bank for the country’s development. Very truly yours, /s/ /s/ Juan Temístocles Montás Vicente Bengoa Albizu Minister of Economy, Planning, Minister of Finance and Development

106

ANNEX 6: COUNTRY AT A GLANCE

Dominican Republic at a glance 10/15/10

Latin UpperKey D evelo pment Indicato rs Dominican America middle

Republic & Carib. income(2009)

Population, mid-year (millions) 10.1 566 993Surface area (thousand sq. km) 49 20,422 48,659Population growth (%) 1.4 1.1 0.9Urban population (% of to tal population) 70 79 75

GNI (Atlas method, US$ billions) 45.7 3,865 7,352GNI per capita (Atlas method, US$) 4,530 6,826 7,405GNI per capita (PPP, international $) 8,100 10,496 12,763

GDP growth (%) 3.5 4.3 4.1GDP per capita growth (%) 2.0 3.1 3.2

(mo st recent est imate, 2003–2009)

Poverty headcount ratio at $1.25 a day (PPP, %) 4 8 ..Poverty headcount ratio at $2.00 a day (PPP, %) 12 17 ..Life expectancy at birth (years) 73 73 71Infant mortality (per 1,000 live births) 27 20 20Child malnutrition (% o f children under 5) 3 4 ..

Adult literacy, male (% o f ages 15 and o lder) 88 92 95Adult literacy, female (% o f ages 15 and o lder) 88 90 92Gross primary enro llment, male (% of age group) 108 118 111Gross primary enro llment, female (% of age group) 101 114 110

Access to an improved water source (% o f population) 86 93 95Access to improved sanitation facilities (% of population) 83 79 84

N et A id F lo ws 1980 1990 2000 2009 a

(US$ millions)Net ODA and official aid 125 102 56 153Top 3 donors (in 2008): European Commission 0 10 13 58 Spain 0 1 16 32 United States 36 25 -19 25

Aid (% of GNI) 1.9 1.5 0.2 0.3Aid per capita (US$) 21 14 6 15

Lo ng-T erm Eco no mic T rends

Consumer prices (annual % change) 9.2 45.4 7.7 6.0GDP implicit deflator (annual % change) 11.7 50.5 6.9 2.9

Exchange rate (annual average, local per US$) 1.0 8.5 16.2 36.0Terms o f trade index (2000 = 100) .. .. .. ..

1980–90 1990–2000 2000–09

Population, mid-year (millions) 5.9 7.4 8.8 10.1 2.2 1.8 1.5GDP (US$ millions) 6,631 7,074 23,997 46,598 2.8 6.3 5.5

Agriculture 21.8 14.5 7.2 6.1 0.4 1.9 2.3Industry 30.6 34.0 35.9 30.0 3.3 7.1 2.4 M anufacturing 16.6 19.4 26.1 23.7 2.5 7.0 3.0Services 55.8 59.6 56.8 63.9 3.1 5.9 7.5

Househo ld final consumption expenditure 77.0 80.4 77.8 94.2 4.2 6.0 6.8General gov't final consumption expenditure 7.6 4.3 7.8 5.8 0.8 7.0 5.0Gross capital fo rmation 25.1 25.1 23.3 7.8 3.6 11.7 -1.9

Exports o f goods and services 19.2 33.8 37.0 18.8 -0.2 8.3 0.3Imports o f goods and services 28.9 43.7 45.9 26.5 3.2 9.9 0.6Gross savings .. .. .. ..

Note: Figures in italics are for years other than those specified. 2009 data are preliminary. .. indicates data are not available.a. Aid data are for 2008.

Development Economics, Development Data Group (DECDG).

(average annual growth %)

(% of GDP)

10 5 0 5 10

0-4

15-19

30-34

45-49

60-64

75-79

percent of total population

Age distribution, 2008

Male Female

0

20

40

60

80

1990 1995 2000 2007

Dominican Republic Latin America & the Caribbean

Under-5 mortality rate (per 1,000)

-10

-5

0

5

10

15

95 05

GDP GDP per capita

Growth of GDP and GDP per capita (%)

107

Dominican Republic

B alance o f P ayments and T rade 2000 2009

(US$ millions)

Total merchandise exports (fob) 5,737 5,410Total merchandise imports (cif) 9,479 12,087Net trade in goods and services -1,888 2,008

Current account balance -1,026 -2,727 as a % of GDP -4.3 -5.9

Workers' remittances and compensation o f employees (receipts) 1,839 3,477

Reserves, including gold 818 2,565

C entra l Go vernment F inance

(% of GDP)Current revenue (including grants) 41.2 24.0

Tax revenue 38.1 22.8Current expenditure 1.0 -2.9

T echno lo gy and Infrastructure 2000 2008Overall surplus/deficit 45.0 -1.0

Paved roads (% o f to tal) 49.4 ..Highest marginal tax rate (%) Fixed line and mobile phone Individual .. .. subscribers (per 100 people) 18 82

Corporate 25 25 High techno logy exports (% of manufactured exports) 1.3 7.5

External D ebt and R eso urce F lo ws

Enviro nment(US$ millions)Total debt outstanding and disbursed 4,541 11,003 Agricultural land (% of land area) 52 52Total debt service 520 1,326 Forest area (% o f land area) 28.5 28.5Debt relief (HIPC, M DRI) – – Terrestrial pro tected areas (% of surface area) .. 28.5

Total debt (% of GDP) 18.9 23.6 Freshwater resources per capita (cu. meters) 2,304 2,110Total debt service (% o f exports) 4.8 8.3 Freshwater withdrawal (billion cubic meters) 3.4 ..

Foreign direct investment (net inflows) 953 2,067 CO2 emissions per capita (mt) 2.3 2.1Portfo lio equity (net inflows) 0 0

GDP per unit o f energy use (2005 PPP $ per kg o f o il equivalent) 6.4 9.0

Energy use per capita (kg of o il equivalent) 875 804

Wo rld B ank Gro up po rt fo lio 2000 2009

(US$ millions)

IBRD Total debt outstanding and disbursed 292 748 Disbursements 39 352 Principal repayments 21 54 Interest payments 22 22

IDA Total debt outstanding and disbursed 14 8 Disbursements 0 0

P rivate Secto r D evelo pment 2000 2009 To tal debt service 1 1

Time required to start a business (days) – 19 IFC (fiscal year)Cost to start a business (% o f GNI per capita) – 17.3 Total disbursed and outstanding portfo lio 92 189Time required to register property (days) – 60 o f which IFC own account 41 180

Disbursements fo r IFC own account 3 21Ranked as a major constraint to business 2000 2009 Portfo lio sales, prepayments and (% o f managers surveyed who agreed) repayments for IFC own account 7 71 n.a. .. .. n.a. .. .. M IGA

Gross exposure 182 100Stock market capitalization (% o f GDP) 0.7 .. New guarantees 114 0Bank capital to asset ratio (%) 9.4 9.7

Note: Figures in italics are fo r years o ther than those specified. 2009 data are preliminary. 10/15/10.. indicates data are not available. – indicates observation is not applicable.

Development Economics, Development Data Group (DECDG).

0 25 50 75 100

Control of corruption

Rule of law

Regulatory quality

Political stability

Voice and accountability

Country's percentile rank (0-100)higher values imply better ratings

2009

2000

Governance indicators, 2000 and 2009

Source: Kaufmann-Kraay-Mastruzzi, World Bank

IBRD, 748 IDA, 8

IMF, 767

Other multi-lateral, 1,852

Bilateral, 2,657

Private, 3,292

Short-term, 1,679

Composition of total external debt, 2009

US$ millions

108

Millennium Development Goals Dominican Republic

With selected targets to achieve between 1990 and 2015(estimate closest to date shown, +/- 2 years)

Go al 1: halve the rates fo r extreme po verty and malnutrit io n 1990 1995 2000 2008

Poverty headcount ratio at $1.25 a day (PPP, % of population) 12.2 6.7 4.4 4.4 Poverty headcount ratio at national poverty line (% of population) .. .. 36.5 48.5 Share of income or consumption to the poorest qunitile (%) 4.2 4.1 3.5 4.4 Prevalence of malnutrition (% of children under 5) 8.4 4.7 3.5 3.4

Go al 2: ensure that children are able to co mplete primary scho o ling

Primary schoo l enro llment (net, %) .. .. 81 80 Primary completion rate (% of relevant age group) .. 61 75 91 Secondary schoo l enro llment (gross, %) 63 42 58 75 Youth literacy rate (% of people ages 15-24) .. .. 94 96

Go al 3: eliminate gender disparity in educat io n and empo wer wo men

Ratio o f girls to boys in primary and secondary education (%) .. .. 104 103 Women employed in the nonagricultural sector (% of nonagricultural employment) 31 34 37 39 Proportion o f seats held by women in national parliament (%) 8 12 16 20

Go al 4: reduce under-5 mo rta lity by two -thirds

Under-5 mortality rate (per 1,000) 62 45 39 33 Infant mortality rate (per 1,000 live births) 48 37 32 27 M easles immunization (proportion o f one-year o lds immunized, %) 70 78 84 79

Go al 5: reduce maternal mo rtality by three- fo urths

M aternal mortality ratio (modeled estimate, per 100,000 live births) 220 170 120 100 B irths attended by skilled health staff (% o f to tal) 93 96 98 98 Contraceptive prevalence (% of women ages 15-49) 56 64 65 73

Go al 6: halt and begin to reverse the spread o f H IV/ A ID S and o ther majo r diseases

Prevalence of HIV (% of population ages 15-49) 0.6 1.2 1.3 1.1 Incidence o f tuberculosis (per 100,000 people) 150 120 100 73 Tuberculosis case detection rate (%, all forms) 24 41 60 59

Go al 7: halve the pro po rt io n o f peo ple witho ut sustainable access to basic needs

Access to an improved water source (% of population) 88 88 87 86 Access to improved sanitation facilities (% of population) 73 76 79 83 Forest area (% of to tal land area) 28.5 28.5 28.5 28.5 Terrestrial pro tected areas (% of surface area) .. .. .. 28.5 CO2 emissions (metric tons per capita) 1.3 2.0 2.3 2.1 GDP per unit o f energy use (constant 2005 PPP $ per kg of o il equivalent) 6.7 6.0 6.4 9.0

Go al 8: develo p a glo bal partnership fo r develo pment

Telephone mainlines (per 100 people) 4.6 7.2 10.1 9.9 M obile phone subscribers (per 100 people) 0.0 0.7 8.0 72.4 Internet users (per 100 people) 0.0 0.0 3.7 21.6 Personal computers (per 100 people) .. .. 1.9 2.1

Note: Figures in italics are fo r years o ther than those specified. .. indicates data are not available. 10/15/10

Development Economics, Development Data Group (DECDG).

D o minican R epublic

0

25

50

75

100

125

2000 2002 2004 2006 2008

Primary net enrollment ratio

Ratio of girls to boys in primary & secondary education

Education indicators (%)

0

20

40

60

80

100

2000 2002 2004 2006 2008

Fixed + mobile subscribers Internet users

ICT indicators (per 100 people)

0

25

50

75

100

1990 1995 2000 2007

Dominican Republic Latin America & the Caribbean

Measles immunization (% of 1-year olds)

PepilloPepilloSalcedoSalcedo Villa VásquezVilla Vásquez

RincónRincón

PimentalPimental

CabreraCabrera

SánchezSánchez

MichesMiches

Boca de YumaBoca de YumaBocaBocaChicaChica

El MacaoEl Macao

Sabana de la MarSabana de la Mar

GasparGasparHernándezHernández

LuperónLuperón

BonaoBonao

CabralCabral

OviedoOviedo

VicenteVicenteNobleNoble

DuvergeDuverge

El CercadoEl Cercado

ImbertImbertSousúaSousúa

Rio SanRio SanJuanJuan

FantinoFantino

Sabana GrandeSabana Grandede Boyade Boya

YamasaYamasa BayaguanaBayaguana

NiguaNigua

VillaVillaAltagraciaAltagracia

ConstanzaConstanza

PoloPolo

Punta PalenquePunta Palenque

RestauraciónRestauración

Monte CristiMonte Cristi

MaoMao

SabanetaSabaneta

Elías PiñaElías PiñaSan JuanSan Juan

SantigoSantigoMocaMoca

Puerto PlataPuerto Plata

SalcedoSalcedo

La VegaLa Vega

CotuíCotuí

San CristóbalSan Cristóbal

BaníBaní

San FranciscoSan Franciscode Macorísde Macorís

NaguaNagua

SamanáSamaná

El SeiboEl Seibo

HigüeyHigüey

La RomanaLa RomanaSan PedroSan Pedrode Macorísde Macorís

HatoHatoMayorMayor

NeibaNeiba

BarahonaBarahona

JimaníJimaní

PedernalesPedernales

AzuaAzua

DajabónDajabón

MonteMontePlataPlata

San JoseSan Josede las Matasde las Matas

JánicoJánico

San JoseSan Josede Ocoade Ocoa

SANTOSANTODOMINGODOMINGO

S A N T I A G OS A N T I A G O

L A V E G AL A V E G AHATOHATO

MAYORMAYOR

LA ROMANALA ROMANADISTRITO NACIONALDISTRITO NACIONAL

LALAALTAGRACIAALTAGRACIA

5

6

9 1 01 0

S A M A N ÁS A M A N Á

ESPAILLATESPAILLAT

4

MARÍAMARÍATRINIDADTRINIDADSÁNCHEZSÁNCHEZ

EL SEIBOEL SEIBO

DUARTEDUARTE

PUERTO PLATAPUERTO PLATA

B A O R U C OB A O R U C OA Z U AA Z U A

BARAHONABARAHONA

1

MONTEMONTECRISTICRISTI

S A N J U A NS A N J U A N

2

3

ELÍA

S PIÑ

A

MONTE PLATAMONTE PLATA

PERAVIAPERAVIA

7

8

PEDERNALES

INDEPENDENCIA

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

Cordillera Oriental

Cordillera Septentrional

Cordillera Neiba

Sierra de Baoruco

IslaIslaSaonaSaona

IslaIslaBeataBeata

Pico DuartePico Duarte(3175 m)(3175 m)

Monte MijoMonte Mijo(2266 m)(2266 m)

Monte TinaMonte Tina(2830 m)(2830 m)

H A I T IH A I T I

To To Fort LibertéFort Liberté

To To LascahobasLascahobas

To To Port au PrincePort au Prince

PepilloSalcedo Villa Vásquez

Rincón

Pimental

Cabrera

Sánchez

Miches

Boca de YumaBocaChica

El Macao

Sabana de la Mar

GasparHernández

Luperón

Bonao

Cabral

Oviedo

VicenteNoble

Duverge

El Cercado

ImbertSousúa

Rio SanJuan

Fantino

Sabana Grandede Boya

Yamasa Bayaguana

Nigua

VillaAltagracia

Constanza

Polo

Punta Palenque

Restauración

Monte Cristi

Mao

Sabaneta

Elías PiñaSan Juan

SantigoMoca

Puerto Plata

Salcedo

La Vega

Cotuí

San Cristóbal

Baní

San Franciscode Macorís

Nagua

Samaná

El Seibo

Higüey

La RomanaSan Pedrode Macorís

HatoMayor

Neiba

Barahona

Jimaní

Pedernales

Azua

Dajabón

MontePlata

San Josede las Matas

Jánico

San Josede Ocoa

SANTODOMINGO

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

S A N T I A G O

L A V E G AHATO

MAYOR

LA ROMANADISTRITO NACIONAL

LAALTAGRACIA

5

6

9 1 0

S A M A N Á

ESPAILLAT

4

MARÍATRINIDADSÁNCHEZ

EL SEIBO

DUARTE

PUERTO PLATA

B A O R U C OA Z U A

BARAHONA

1

MONTECRISTI

S A N J U A N

2

3

ELÍA

S PIÑ

A

MONTE PLATA

PERAVIA

7

8

PEDERNALES

INDEPENDENCIA

H A I T I

LagoEnriquillo

Yaque del Norte

Yaque

del S

ur

Camu

Yuna

Bahíade Ocoa

Bahía de Neiba

Ozama

ATLANTIC OCEAN

Caribbean Sea

To Fort-Liberté

To Lascahobas

To Port-au-Prince

To Grand-Gosier

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

Cordillera Oriental

Cordillera Septentrional

Cordillera Neiba

Sierra de Baoruco

IslaSaona

IslaBeata

Pico Duarte(3175 m)

Monte Mijo(2266 m)

Monte Tina(2830 m)

72º W 71º W 70º W

72º W 71º W 70º W 69º W

18º N

19º N

20º N

18º N

19º N

20º N

DOMINICANREPUBLIC

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

0 20

0 20 40 Miles

40 Kilometers IBRD 33398R

MAY 2009

DOMINICANREPUBLIC

SELECTED CITIES AND TOWNS

PROVINCE CAPITALS

NATIONAL CAPITAL

RIVERS

MAIN ROADS

RAILROADS

PROVINCE BOUNDARIES

INTERNATIONAL BOUNDARIES