|1. Project Data:
ICR Review Date Posted:
|Dominican Republic Social Crisis Response Adjustment Loan
Project Costs(US $M)
Loan/Credit (US $M)
Sector, Major Sect.:
|Central government administration, General education sector, Health, Other social services,
Law and justice and public administration; Education; Health and other social services; Health and other social services
Cofinancing (US $M)
Board Approval (FY)
|2. Project Objectives and Components:|
a. Objectives1. Maintain a satisfactory macroeconomic framework as demonstrated by the continued implementation of the stabilization program;
2. Support the government's response to the social impacts of the financial and economic crisis; and
3. Stimulate policy reforms in the social and electricity sectors.
b. Components (or Key Conditions in the case of Adjustment Loans):1. Macroeconomic framework. The letter of development policy, which is an element of the legal agreements, sets values in 2004 for, among other indicators, the consolidated public sector deficit (3.5 percent of GDP) and inflation (below 14 percent).
2. Crisis response and medium-term actions. They consisted of the following components:
a. To support an emergency response program in electricity, the component consisted of importing fuel to generate electricity for national distribution.
b. To build the response capacities and performance in the social sectors, the component consisted of:
c. To provide a stimulus for longer term reform in the social sectors, the component sought reforms in health insurance, social assistance, targeting, monitoring and evaluation, and initiation of immediate measures to better target electricity subsidies to poor consumers.
- targeting scarce resources to reach the poor with basic services, food and cash;
- protecting the 2004 budgets of key social and electricity sector programs to sustain basic services; and
- taking urgent steps to accelerate the inclusion of a large and growing number of undocumented Dominicans who are both predominantly poor and ineligible for social assistance.
c. Comments on Project Cost, Financing, Borrower Contribution, and DatesThe Bank structured the loan to disburse it during January-June 2004 in three tranches, but a 12 month implementation period was allowed to provide some flexibility in the release of the floating tranches. The first tranche of US$50 million would be disbursed on basis of actions taken prior to Board presentation. Two floating tranches of US$25 million each would be disburse based on actions in the social sector (Tranche A or "Social Tranche") and in the electricity sector (Tranche B or "Electricity Tranche"). Each floating tranche would be released when the specific conditions for each were met. As a result of a weak macroeconomic performance, the closing date was extended three times; the final closing date was delayed eight months, to August 31, 2005.
|3. Relevance of Objectives & Design:|
Dominican Republic ended 2003 under a serious financial crisis, triggered by the failure in April 2003 of the largest private bank after accounting irregularities and fraud were discovered. A Central Bank bail out of the banks nearly doubled the public debt, and the peso depreciated by 100 percent. Alongside this crisis, another one had been brewing in the electricity sector, caused by high system losses, low collection rates and long and frequent blackouts as distribution companies cut supplies in the poorest areas where their collection rates were the lowest. The devaluation increased the cost of energy and domestic fuel prices because Dominican Republic imports most of its energy needs. The economic crisis raised social tensions, already high as a result of the blackouts.
The loan addressed three issues that were relevant at that moment: (a) seek macroeconomic stability, to prevent a long and sharp economic decline resulting in higher and permanent poverty levels; (b) secure imports of fuel and ensure that poor could have a predictable flow of electricity at affordable prices; (c) secure adequate funding for social programs and ensure that they reached the poor and the money spent was used effectively.
|4. Achievement of Objectives (Efficacy) :|
1. Maintain a satisfactory macroeconomic framework (Modest)
Macroeconomic developments present a mixed picture for the period when the loan was active. The letter of development policy indicated that the government expected to attain a consolidated public sector deficit of 3.5 percent of GDP in 2004, but it reached 7.3 percent of GDP. The government also expected real GDP to fall one percent and inflation to fall below 14 percent in 2004; real GDP increased two percent but inflation reached 29 percent. However, the situation improved afterward, during 2005, when the loan was still active. In 2005 the economy grew at 4.5 percent, inflation fell to less than 10 percent, and the consolidated public sector deficit fell to 4.1 percent of GDP.
2. Support the government's response to the social impacts of the financial and economic crisis (Substantial)
a. Emergency response program in electricity.
b. Build response capacities and performance in the social sectors.
- The loan financed the purchase of fuel worth $30 million that helped to mitigate the blackouts; neither PAD nor ICR estimate the magnitude of the mitigation (for example, increase in number of hours with electricity);
- Dominican Power Corporation (CDE) supplied 73 GWh per month (target was 80 GWh) to the distribution companies, at no cost to them, to serve 400,000 poor households under the blackout reduction program.
- Government froze electricity tariffs for about 545,000 households that consumed less than 200 kwh per month.
- For key social expenditures the government budgeted for 2004 about DR$3.4 billion (US$89 million at exchange rate of 38 pesos per US dollar-PAD says it is US$113 million -par. 85, and ICR says US$130 million, p. 20). About 93 percent of it went to three programs: school feeding (DR$1.5 billion), essential drugs (DR$871 million) and supplies/hospital subsidies (DR$764 million). Of these:
(i) About 1.6 million children in grades 1-8 benefited from the school feeding program, and under the program Incentivo a la Asistencia Escolar (ILAE) about 100,000 mothers received cash payments contingent on school attendance of their children;
(ii) About 120,000 poor people were enrolled in the subsidized national health insurance system; the program is not fully operational yet, so those enrolled have not received the full benefits of the coverage.
(iii) The government created a targeted food subsidy program (Comer es Primero) that was launched on a pilot basis in December 2004 with 16,000 households; the program was scaled up in 2005 to reach 200,000 households). This program replaced the condition that required INESPRE (Institute for Price Stabilization) to prepare an operational manual for a new food targeted program and start the program in accordance with manual.
- For undocumented Dominicans the government provided 11,091 birth certificates (target was 11,000) to undocumented children enrolled in school, and the National Council for Social Security (CNSS) provided information to about 12,000 undocumented families on obtaining their identity cards. Local officials put significant resistance to completing the required documentation, and an NGO hired to evaluate CNSS's program found problems with CNSS's approach. [Illegal immigrants and their children are mostly Hatians and they account for about 10 percent of Dominican Republic's 9 million people.]
3. Provide a stimulus for longer term reform in the social sectors. (High)
- The government completed a poverty map of Dominican Republic and developed a method for means-testing, identifying and categorizing possible poor households that could benefit from its social programs. Also, the government has launched the Sistema Unico de Beneficiarios (SIUBEN-Unified System for Beneficiary Selection), going beyond the conditionality of the loan. As input to the Sistema, about 1.2 million households were surveyed in the last quarter of 2004. Programs such as Comer es Primero, ILAE, propane gas subsidy and other social programs will use SIUBEN to identify beneficiaries. Using SIUBEN should lead to better targeting of social programs and more efficient government expenditure.
- After a survey of major social programs was completed, the government eliminated eight programs in housing, health, training, employment and agriculture, exceeding the target of five set in the condition.
- The government issued five presidential decrees and other regulations reforming the health sector; the reforms seek to reduce inequality in access to health services between different population groups and between urban and rural areas. The reforms have been tried first with families in Region IV, one of the poorest regions, but it is too early to measure impact on child and maternal mortality rates and weaknesses in the capacity to deliver services continue.
- Paid for by the government, civil society organizations monitored the implementation of key social programs supported by the loan. The report they prepared found that the programs had worked as planned, and identified problems that the government has corrected.
- The government has also contracted a study to evaluate the school feeding program and has prepared terms of reference to collect and evaluate baseline information on the ILAE program. While no results can be attributed to these actions, the steps taken indicate that the government is paying attention to use effectively the resources for social programs.
- Introducing open bidding of school feeding programs reduced the costs of the program by US$42 million
IEG does not rate efficiency on adjustment loans.
|6. M&E Design, Implementation, & Utilization:|
External evaluators carried out an evaluation of the school feeding program (Programa de Alimentos Escolares) but the evaluation report is not yet available.
The conditional cash transfer program Programa de Incentivo a la Asistencia Escola -ILAE- started selecting beneficiaries using a proxy-means test since January 1, 2004, but the number of additions and subtractions has been small (about 254 mothers out of 100,000 beneficiaries). ILAE became a non-conditional cash transfer program in December 2005, and the first verification of schooling is taking place in 2006.
|7. Other (Safeguards, Fiduciary, Unintended Impacts--Positive & Negative):|
Reason for Disagreement/Comments
|Satisfactory||Satisfactory||IEG agrees with ICR that borrower performance was not fully satisfactory. Delays in implementing program resulted from the slow pace in dealing with macroeconomic issues, delays in agreeing to a stand-by program with the IMF, and delays in submitting an audit for the disbursed first tranche|
Quality of ICR:
- When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006.
- ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness.
When available, use local experts and let them lead technical assistance work. Doing so ensures continuity, ownership and recommendations that government agencies tend to accept more easily.
When civil society organizations have the technical capacity to monitor and evaluate programs, the Bank could consider using them as a potential partner in supervising loan performance and evaluating results.
The letter of development policy normally specifies conditions for maintaining a satisfactory macroeconomic framework, but even so the main text of the PAD should make them explicit and be clear on how the condition will be evaluated.
|10. Assessment Recommended? No|
|11. Comments on Quality of ICR:|
The ICR provides adequate information on the electricity and social aspects of the program, but little on the macroeconomic framework. The letter of development policy contains most of the relevant indicators for the expected outcomes under the macroeconomic framework, and they were not even mentioned in the ICR. A table comparing the expected and actual values of the indicators would have saved space and sufficed to show whether program objectives were achieved.
Some information that would have been desirable to have but was not provided is mentioned below.
- ICR does not discuss what happened with the essential drugs program nor with the actual expenditure in the key social spending programs. Imposing a condition on budgeting seeks to ensure that the money is spent in the desired program; otherwise, what is the purpose of imposing the condition?
- ICR could have supplied information on the cost of the school feeding program before and after open bidding to measure impact.
- When discussing achievement of objectives the ICR could have mentioned the total amount budgeted for social programs, as ensuring funds for the programs was an important loan objective. The information appears broken down in Annex 1, page 33, but the total is not provided. Page 20, however, provides the dollar value of the program; the value differs from that in the PAD and the one that results from dividing by 38 pesos -the exchange rate used in the PAD- the peso value of the budget in Annex 1.
- The letter of development policy also noted that in 2004: (a) capital expenditures would not exceed 2.7 percent of GDP; (b) total government expenditure would not exceed 15.8 percent of GDP; (c) the budget would incorporate a subsidy for electricity equal to 0.9 percent of GDP; (d) social expenditure would remain at about 7 percent of GDP; and (e) another 0.6 percent of GDP would be allocated to meet the flow deficit of electricity distributors. The ICR did not discuss these indicators, which were part of the program. Available public information indicates that the situation in electricity has not improved. The Government's Letter of Intent of September 29, 2005 to the IMF states that "In the first few months of 2005 the quantitative performance indicators for the electric power distribution sector-in particular the cash recovery index- have been somewhat weaker than anticipated" (par. 23).