A WORLD BANK COUNTRY STUDY DOMINICAN IREPUBLIC Economic Prospects and Policies to Renew Growth F. l )w A WORLD BANK COUNTRY STUDY DOMINICAN REPUBLIC Economic Prospects and Policies to Renew Growth The World Bank Waslhington, D.C., U.S.A. Copyright ©) 1985 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing July 1985 World Bank Country Studies are reports originally prepared for intemal use as part of the continuing analysis by the Bank of the economic and related conditions of its developing member countries and of its dialogues with the governments. Some of the reports are published informally with the least possible delay for the use of govern- ments and the academic, business and financial, and development communities. Thus, the typescript has not been prepared in accordance with the procedures appropriate to formal printed texts, and the World Bank accepts no responsibility for errors. The publication is supplied at a token charge to defray part of the cost of manufacture and distribution. The designations employed, the presentation of material, and any maps used in this document are solely for the convenience of the reader and do not imply the expression of any opinion whatsoever on the part of the World Bank or is affiliates concerning the legal status of any country, territory, city, area, or of its authorities, or concerning the delimitation of its boundaries or national affiliation. The most recent World Bank publications are described in the annual spring and fall lists; the continuing research program is described in the annual Abstracts of Current Studies. The late&t edition of each is available free of charge from the Publications Sales Unit, Department T, The World Bank, 1818 H Street, N.W., Washington, D.C. 20433, U.S.A., or from the European Office of the Bank, 66 avenue d'Iena, 75116 Paris, france. Library of Congress Cataloging in Publication Data Main entry under title: Dominican Republic : economic prospects and policies to renew growth. (A World Bank country study) 1. Dominican Republic--Economic policy. 2. Fiscal policy--Dominican Republic. 3. T-ood prices--Government policy--Dominican Republic. 4. Dominican Republic--Commercial policy. I. World Bank. II. Series. HC153.5.D65 1985 338.97293 85-12249 ISBN 0-8213-0570-0 PREFACE As part of its continuing discussions with member govern- ments, the World Bank regularly prepares analyses of macro- economic and sectoral policy issues countries face. The objective is to present thorough analyses of problems and suggest alternative ways to overcome them. Occar'ionally, these reports are of sufficient public interest and scope that the Government and Bank decide to make them available to a wider audience. This is such a report. It analyzes several dimensions of the economic and financial crisis that Dominican authorities confronted in the early 1980s. The country's terms of trade had fallen dramatically, its debt burden was rising, and its export volume had dropped with the recession in the industrial courtries. These factors aggravated deep-seated long-term problems: an overvalued and inflexible foreign exchange rate, an eroded tax revenue base, an antiquated trade regime, complicated management problems in state enterprises, and pricing distortions in the agricultural sector. Since this report was written, the administration of Salvador Jorge Blanco has taken actions to address several of these persistent and long-standing problems. But problems that have developed over years cannot be eradicated in a short time; they require continued attention over many years. In the spirit of improving knowledge of the macroeconomic and sectoral challenges the country confronts over the long run, the Dominican authorities and the Bank have decided to publish this report. A. David Knox Regional Vice President Latin America and the Caribbean Regional Office Synopsis The Dominican Republic is confronting the worst economic crisis in its recent history. This memorandum examines its long-term prospects, its public finances, pricing policy in food crops, and the incentive structure facing importers and exporters. It concludes that, unless major policy initiatives are taken, growth in the second half of the 1980s will not resume the high rates experienced in the early 1970s. The foreign trade regime should be reformed to eliminate imbalances in trade, to make import- substitution more efficient and promote new exports. Disincentives facing exporters should be reduced to encourage exports. New taxes and improvement in the performance of public enterprises are necessary to reduce fiscal deficits; the public investment program, constrained by the lack of public savings, should concentrate on high-return projects already underway. The country's natural endowments favoring food production could be exploited more fully if government price distortions were eliminated. DOMINICAN REPUBLIC - ECONOMIC DATA GNP per capita, 19d2: US$1,40G a! GROSS DOMESTIC PRODUCT IN 1982 ANNUAL RATE&OF GROWTH (% in constant prices) US$ Million x 1960-75 1970-75 1975-82 GDP at Market Prices 7,877.0 100.0 6.1 9.2 4.0 Gross Domestic Irnvestment 1,637.0 20.1 13.4 17.6 5.9 Gross National Savings 1,195.0 15.2 4.7 16.0 -0.2 Current Account Balance -441.9 5.6 - - - Export of Goods, NFS 1,141.8 14.5 3.5 11.1 0.8 Import of Goods, NFS 1,534.6 19.5 4.37 12.5 -1.4 OU1PUT AND PRODUCTIVITY IN 1982 (constant 1970 prices) Value Added US$ Million % Agriculture, Livestock, Forestry and Fishing 528.8 17.3 Mining 95.9 3.1 Industry 810.5 26.5 Services 1,622.6 53.1 Total 3,057.8 100.0 GOVERNMENT FINANCE General Government Central Government DR$ Million % of GDP DRS Million % of GDP 1983 1975 1983 1983 1975 1983 Current Receipts 1,052.0 21.6 12.3 914.6 18.2 10.7 Current Expenditures 1,019.6 8.5 12.0 896.3 8.0 10.5 Current Surplus ( ) or Deficit (-) 32.4 13.1 0.4 18.3 10.2 0.2 Capital Expenditures 261.4 11.6 4.O 320.6 9..1 3.8 External Assistance (net) -- -- -- 126.3 0.3 1.5 MONEY, CREDIT AND PRICES 1970 1977 1978 1979 1980 1981 1982 (DR$ million outstanding End of Period) Money and Quasi-Money 283.7 1,240.9 1,376.0 1,653.1 1,803.0 2,064.3 2,353.0 Bank Credit to Public Sector 213.1 302.8 426.7 552.8 652.8 995.6 1,379.2 Bank Credit to Private Sector 174.9 779.2 828.9 893.1 1,044.5 1,019.9 1,113.5 (Percentages or Index Numbers) Money and Quasi-Money as % of GDP 19.1 27.1 29.1 29.9 27.1 27.3 29.4 Consumer Price Index (Base l976-77- 100) 57.0 100.0 107.1 116.9 136.3 146.8 158.0 Consumer Price Index in Annual Percentage Changes 3.8 8.7 7.1 9.2 16,6 7.7 7.6 Bank Credit to Public Sector as of % of GDP 14.3 6.6 9.0 10.0 9.8 13.2 17.2 Bank Credit to Private Sector as of % of GDP 11.8 17.0 17.5 16.2 15.7 13.5 13.9 a/ IBRD World Atlas Basis. DOMINICAN REPUBLIC - TRADE PAYMENTS AND CAPITAL PLOWS BALANCE OF PAYMENTS MERCHANDIXE EXPORTS (Average 1978-83 1976 1977 1978 1979 1980 1981 1982 1983 a/ US$ million X US$ Million Sugar (raw) 285.3 32.6 Export of Goods, NPS 840.4 917.9 828.0 1,134.9 1,271.3 1,512.6 1,141.8 1250 Coffee (unprocessed) 85.0 9.7 Import of Goods, NFS 1,005.0 1,109.1 1,154.0 1,484.3 1,918.7 1,818.4 1,534.6 1550 Cocoa (raw) 60.3 6.9 Resource Gap (deficit -) -164.6 -191.2 -326.0 -349.4 -647.4 -305.8 -392.8 -300 Tobacco (leaf) 43.8 5.0 Petronickel 84.8 9.7 Net Factor Income -123.8 -123.4 -135.7 -187.7 -210.2 -293.1 -254.1 -289.0 Dore 166.9 19.1 Net Transfers 46.5 50.1 149.8 205.8 187.8 193.0 205.0 215.0 Other 149.5 17.1 Current Account Balance -2iy -2.5 -311.9 -331.3 -669.8 -405.9 -441. -T7 Total 875.6 10 EXTERNAL DEBT, DECEMBER 30, 1982 US$ Million Direct Foreign Inveatment 60.0 45.9 39.6 -13.4 62.7 79.7 -1.4 35.0 Net MLT Borrowing 93.3 104.3 97.7 210.7 252.7 153.6 192.8 -53.1 Public Debt including guaranteed private 1,932.1 Disbursements (131.3) (150.5) (192.7) (361.7) (382.2) (320,2) (355.8) (265.0) Non-Guaranteed Private Debt 326.1 d/ Amortization (38.0) (46.2) (95.0) (151.0) (129.5) (166.6) (163.0) 1318.1) Total Outstanding and Disbursed 2,258.2 V/ Other items, n.e.i. 45.4 185.5 79.5 46.5 236.6 21.7 -60.1 51.7 DEBT SERVICE RATIO FOR 1982 Change In Net Reserves - increase) b/ 43.2 -71.2 95.1 87.5 117.8 150.9 310.6 - Public Debt, including guaranteed e/ 16.6 Non-Guaranteed Private Debt 16.0 Gross Reserves 165.0 224.0 199.3 339.1 402.5 555.8 200.0 Total Outstanding and Disbursed f/ 32.6 Net Reserves -11.0 60,2 -34.9 -122.4 -240.2 -391.1 -701.8 -680.9c/ IBRD/IDA LENDING (December 31, 1982) US$ million Fuel a-id Related Materials Imports 170.0 176.7 199.0 314.9 446.8 497.4 449.5 458.0 Outatanding and Disbursed 137.6 Exports -- -- -- -- - - - - Undisbursed 148.9 Outstanding including undisburaed 286.5 a/ Estimate. b/ Includes arrears. c/ As of August 31, 1983. d/ Registered, unregistered private debt could sore than duplicate this amount. e/ Only medium- and long-tern. E/ Includes an estimate for short-term debt. DOMINICAN REPUBLIC ECONOMIC PROSPECTS AND POLICIES TO RENEW GROWTH Table of Contents Page No. COUNTRY DATA SYNOPSIS SUMMARY OF MAJOR CONCLUSIONS....................................x X A. Policies RegardiLg the External Sector .................... xi B. Public Finances and the Public Investment Program xiv C. Food Production and the Role of INESPRE ..................., xvii D. Final Remarks ............................................. xviii Chapter I - The Country's Past Growth and Future Prospects...... 1 A. The Growth Experience of the 1970s ..........................1 B. Prospects for the Future .................................. 3 C. Implications of the Economic Projections .................. 7 Chapter II - Public Finances: Problems and Adjustments ......... 9 A. Declining Public Revenues ............................... 10 B. Public Expenditures ....................................... 15 C. Public Enterprises ........................................ 16 D. Declining Public Savings: Consequence and Recommendations. 22 E. The Public Investment Program ....................... 24 F. Main Problems of the Investment Program ................... 25 G. An Alternative Investment Program......................... 30 Chapter III - Food Pricing and Policy ............. ........ 34 A. Pricing Policy ............................ 36 B. Rice Production .......................... 36 C. Edible Vegetable Oils ....................... 41 D. Maize and Animal Feeds ................................ 42 E. Other Commodities. ...... .... ................. 43 F. Summary of INESPRE's Role and Recommendations .............44 This report is based on the findings of economic missions which visited the Dominican Republic in April and December 1983. The main mission of April was comprised of Marcelo Selowsky (Chief), Desmond McCarthy and Mario Reyes-Vidal; and David Morawetz, Luis A. Ramirez, David Franklin, and Robert Girling (consultants). The December mission, focusing on the public investment program, was comprised of Richard Newfarmer (Chief), Thorkild Juncker (Young Professional) and James Loome (Research Assistant). Paul Meo provided extensive comments and made a substantial contribution to the final version of the report. -vii - viii - Table of Contents - (Cont'd) Page No. Chapter IV - Incentive Policies in Manufacturing .................. 46 A. The Incentives for Import Substitution ...............47 B. The Incentive Structure for Non-traditional Exports. 49 C. Comparing Import Substitution and Export Promotion Incentives... ................................... ..51 D. Main Recommendations ................................ 53 ANNEXES I - Macroeconomic Projections ................................... 55 II - Sectoral Issues in the Public Investment Program ............. 74 III- Non-Traditional Exports: The Potential ......................85 Statistical Appendix ............................................ 104-171 List of Tables of Main Text 1.1 Economic Performance under Alternative Runs ..................1 2.1 Consolidated Public Sector Indices ......................... 9 2.2 Public Sector Current Account Surplus ...................... 10 2.3 Import Taxes, 1971-83 ...................................... 11 Chart 2.1 - Total Public and Tax Revenues as Percent of GDP ...... 12 2.4 Revenues of the Central Government .......................... 13 2.5 Tax Burden of Selected Latin American Countries, 1982 ...... 14 2.6 Consolidated Public Sector Current expenditures ............. 16 2.7 Public Enterprises: Current Account Surplus ................ 17 2.8 CEA: Key Costs and Revenues .............................. 18 2.9 Estimated Waste from Abnormal Inefficiencies ............... 20 2.10 Public and Private Share of Investment and Savings ........... 24 2.11 Volume and Sectoral Allocation of Funds ..................... 25 2.12 Public Investment Programs, 1984-86 ......................... 26 2.13 Investment Budget by Sector, 1984-86 .......................32 3.1 INESPRE's Commodity Transactions, 1983 ..................... 36 3.2 INESPRE: Gross Margins ................................ 38 3.3 Production, Consumption and Imports of Rice ................ 39 3.4 INESPRE: Projection of Imports According to Sources of Funds................ .....41 4.1 Key Industrial Indicators .............................46 4.2 Structure of Trade Restrictions on Imports, 1982 ........... 48 4.3 Estimates of Effective Protectio to Domestic Industry...... 49 4 4 Nominal Anti-Export Bias ................................. 52 MAP IBDli8950 CURRENCY EQUIVALENTS Official Rate: Dominican Peso (DR$) = United States Dollar(US$1.00) US$1.00 = DR$1. O Parallel Rate: The US$ floats freely on the Parallel Market; during 1983 the range has been about DR$1.45 to DR$1.98: US$1.00 ABREVIATIONS CAASD Corporacion del Acueducto y Alcantarillado de Santo Domingo (Water and Sewage Corporation of Santo Domingo) CAC Certificado de Abono Cambiorio (Tax Credit Certificate) CAT Certificado de Abono Tributario (Tax Certificate) CDE Corporacion Dominicana de Electricidad (Dominican Electricity Corporation) CEA Consejo Estatal de Azucar (State Sugar Council) CEDOPEX Centro Dominicano de Promocion de Exportaciones (Dominican Export Promotion Center) CONAPE Comision Nacional de Politica Energetica (National Comission on Energy Policy) CORDE Corporacion Dominicana de Empresas Estatales (Dominican State Enterprise Corporation) EFF Extended Fund Facility EPZ Export Processing Zone IAD Instituto Agrario Dominicano (Dominican Agrarian Reform Institute) IDB Inter-American Development Bank IMF International Monetary Fund INAPA InEtituto Nacional de Aguas Potables y Alcantarillados (National Drinking Water and Sewerage Institute) INAVI Instituto Nacional de Auxilios y Viviendas (Housing and Welfare Institute) INCAT Instituto de Capacitacion Tributaria (Tax Training Institute) INDRHI Instituto Nacional de Recursos Hidraulicos (National Water Resources Institute) INESPRE Instituto Nacional de Estabilizacion de Precios (National Price Stabilization Institute) INVI Instituto Nacional de Vivienda (National Housing Institute) ONAPLAN Oficina Nacional de Planificacion (National Planning Ofice) ONAPRES Oficina Nacional de Presupuesto (National Budget Office) SEA Secretariado de Estado de Agricultura (Ministry of Agriculture) SFZ Special Free Zone VAT Value-Added Tax FISCAL YEARS Central Government: January 1 to December 31. State Sugar Council (CEA): October 1 to September 30. - ix - SUMMARY OF MAJOR CONCLUSIONS i. In his inaugural address of August 1982, President Salvador Jorge Blanco recognized the serious economic situation confronting the Dominican Republic. He stressed the severe external imbalance in the economy and the magnitude of the external payment arrears of the Central Bank. He also elaborated on the crisis facing the public finances resulting from a weak tax system and the substantial deficits of public enterprises. He explicitly pointed out that many of the present problems could be attributed to past public policies and that only by changing easy-going public policies to strong austerity measures could the present crisis be overcome. ii. Many of the initiatives taken during this first year of the Administration were aimed at addressing the short-term aspects of this crisis. The most important were a containment of Central Government expenditures, particularly wages, a liberalization of foreign exchange policies, the EFF arrangement with the IMF, and negotiations to reschedule and consolidate the external debt. However, as the President recognized, the crisis was also a result of long-term policies undertaken in the past that had to be corrected. The purpose of the World Bank missions, which visited the country in April and December 1983, was to assist the Government in looking at these long-term issues and assemble a series of suggestions for addressing them over the medium-term. Both the Government and the Bank mission are fully aware that, while the fiscal/balance of payments situation is the nation's most acute problem, other problems also remain to be resolved--urban and rural poverty, educational and health deficiencies, and administrative weaknesses. The most acute problems, however, must be addressed first. This report is hence restricted in scope to these problems. iii. As recognized in the President's inaugural speech, the short-term problem can only partly be explained by external conditions outside the control of government policy--high international interest rates, low prices for the country's major exports coming together with suddenly high prices of imports such as petroleum. The roots of the problem go much deeper--to a long-term deterioration that began in the early 1970s. Since that time, public sector receipts have experienced a steady drop; the volume of exports has grown little; and industrial and GDP growth decelerated. iv. The mission's projections reveal that the country's present problems could persist unless further, long-term actions are taken. World prices of sugar and mineral exports could recover in the medium-term, but the potential increase in volume in these exports is limited. Under pessimistic assumptions about export volumes and prices, per capita consumption would fall by 2.4 percent annually in 1984-86 and unemployment would rise to nearly 30 percent of the labor force. Debt service would rise from its current 20 percent of export earnings to 43 percent in 1986 and over 50 percent by 1990, presuming the nation could increase its access to non-concessionary foreign funds. Since this may be an optimistic expectation (see Annex I) the decline in per capita GDP and consumption could be even greater. Unless major policy changes are made soon, or the external environment is far more -x- - xi buoyant than expected, the economic and social gains made since the mid-1960s may be put at risk, and the country's credit-arthiness for long-term loans may be jeopardized. air. To avoid this pessimistic scenario, the Dominican Republic will have to undertake some major (and perhaps painful) policy reforms. These involve changes in prices as well as public policies, institutions and attitudes. If policy changes are undertaken and export revenues grow, GDP could grow in real terms by 3.4 percent in 1984-86 and accelerate to nearly 6 percent by the end of the decade. The debt service ratio would not rise above 35 percent and fall to nearly 25 percent in 1990. The Go-.ernment is aware of the magnitude of the task it confronts to realize this optimistic scenario; some of these changes have already begun. Some others are under active consideration by the Government. This report has been prepared to assist the authorities in their deliberations. This section summarizes the report's major recommendations, leaving the analyses and detailed recommendations to the main text. A. Policies Regarding the External Sector vi. The macroeconomic projections of Chapter I show that, to recover GDP growth rates of 4-6 percent per annum at the end of the decade, the volume of exports must grow more rapidly. The real growth rate required of exports ranges between 5 and 10 percent per annum. To achieve these rates, the Government must accord exporters a price incentive that more closely approximates the world price. Similarly, price signals to the import-substitution sector must also reflect international prices if lomestic economic activity is to be efficient. The only effective way to transmit international prices into domestic price signals to both exporters and importers is to reconcile the disparity between the official and parallel exchange rates. The Government has dealt with this problem by transferring increasing amounts of trade into the parallel market, a strategy that if completed will eliminate these price disincentives to growth. vii. Some categories of exports in the Dominican Republic will respond more quickly to a more attractive exchange rate than others. Non-traditional exports, particularly tourism, agroindustries, and exports of the Export Processing Zones, seem to have a substantially more rapid response to economic incentives, but they have received far lower price incentives than some other sectors, particularly industrial import substitution. Price signals to the non-traditional sectors are especially important because the projections of the mission show that the nation's output and income growth are quite sensitive to alternative rates of expansion of exports in these sectors. viii. To be sure, the short run responsiveness of some traditional agricultural exports to a more attractive exchange rate will be limited; factors other than short-term price changes have a greater bearing on their production. But given the relatively high share of sugar, mineral and other traditional exports in total exports, every effort must be made to convey - xii - proper price signals to producers to ensure maximum productions Equally important, some traditional exports--such as sugar--are not profitable at the official exchange rate and world price. If the government does transfer traditional agricultural exports to the parallel market, the measure could be complemented by sugar and mineral export taxes--similar to the sugar tax the country had before--where the tax rate would vary with the U.S. dollar world price of the product. At low world prices, approa-hing domestic cost of production, the rate would be zero; at high international prices, the government would receive the windfall gains. ix. The non-price incentive measures taken in the past to compensate for the disincentives caused by the trade and foreign exchange regimes have been inadequate. Many of them are highly discretionary, and hence unpredictable. Moreover, incentives like subsidized imported resources or cheap credit discriminate against the use of domestic resources, particularly Dominican workers. The most important reason to rely on price incentives through exchange rate reform is that incentives to exporters will be provided automatically and quickly to the most efficient producers, without creating bureaucratic obstacles to realizing export profits. x. In addition to expanding exports, the economy can adjust to scarce foreign resources by lowering import requirements while maintaining growth. This can only be achieved if the import-substitution process is efficient--in the sense that it begins in those activities where substitution takes place at the lowest peso cost per dollar substituted. Unfortunately, much of the industrial substitution has been increasingly inefficient because of the unrealistically high levels of protection offered certain industries; other imports are either prohibited or subsidized through access to the official exchange rate market or tariff exonerations. This distorted system of price incentives has partially disguised the fact that much of agriculture is quite efficient economically. Agricultural production--particularly that of foodstuffs and vegetable oils--could be accelerated if the incentive system were revised. xi. The limited price incentives given to the export sector and efficient ±mport substitution in agriculture compared to the far more generous incentives given to import substitution in manufacturing can be highlighted with the following figures. The current regime of subsidized imported inputs mixed with import prohibitions produces import substitution at a cost to the economy of between two to four Dominican pesos to substitute one U.S. dollar's worth of imports. However, producing export products costs only 1.05 to 1.22 pesos per dollar earned. In some agricultural import substitution activities, such as rice and oil, the cost of substituting one dollar is even less than one peso. 1/ When the peso cost of a product is less than, say, DR$1.50 per US$1.00 earned or saved, then that product is clearly profitable for the country to produce; when it is much higher, the country is the poorer for producing it. The problem then remains how to change the incentive framework to ensure that private producers produce what is most economical for the country. l/ These figures exclude taxes and the effects of the various incentive and disincentive schemes such as the CACs. - xiii - xii. The Government is now revising its trade strategy to remove price and non-price disincentives to exports and agriculture. A major obstacle to reaching this is the disparity between the official and parallel exchange rates. The Government's recent transfer of 83 agricultural products completely to the parallel market is a significant step which will greatly increase the attractiveness of export production. The process of transferring exports to the parallel markets will have to be accelerated if exports are to be expanded at their full potential. In addition, reforms to the customs service could be considered to accelerate the export drive. The vagueness of some customs laws, high turnover in customs officers and limited work hours have made it difficult to import key inputs in a timely manner, even including some EPZ companies. The plethora of export permits required until recently by CEDOPEX also increased exporterst costs; recent efforts to simplify licensing procedures represent improvements and could be extended to the entire administrative infrastructure. CEDOPEXts temporary export prohibitions have deterred exporters from the development of new, stable markets. Many exporters complain about the inadequate quality of domestically produced packing materials. Their high cost in some cases has deterred exports, particularly that of canned fruit and juices. xiii. The present import regime also has encouraged an inefficient productive structure and deterred exports. Some improvements could be considered for action in the neat future: All imported inputs and capital goods now exonerated from regular tariff duties--in 1982 they paid an effective duty of only 12.2 percent--could be subject to a flat and single duty equal to 20 percent. This would lower the incentive for inefficient import substitution and encourage the use of domestic inputs and labor. All import duties could be based on imports valued at the parallel exchange rate, instead of at the official rate. Not only would this improve tax receipts, it would recognize the reality of import costs. xiv. Steps also should be taken to establish a long-run maximum nominal tariff rate in the 30 to 50 percent range. All tariffs in excess of this range and all import prohibitions would be gradually revised downward. This could be complemented by additiorial sales taxes for certain luxury consumer durables so as to discourage their sale or use. Automobiles, for example, could have a substantially higher sales tax. In moving toward this long-run objective over a period of say 3-4 years, some imiAediate first steps could be taken, such as the conversion of quantitative prohibitions and prohibitive tailffs into relatively high tariffs, therefore capturing for the coantry's treasury the heretofore lost revenues from illegal imports. xv. Important changes may also be considered regarding external capital flows. The Government must strictly control the borrowing of public enterprises abroad; unfortunately, much of the present public external debt was contracted without an effective central plan or allocation process. In the future, these decisions should be considered and approved more carefully. Iii addition, the Central Bank should consider declining to grant guarantees to new private debt at the official exchange rate. - xiv - B. Public Finances and the Public Investment Program xvi. The fiscal situation has deteriorated consistently since the early 1970s and reached crisis proportions in 1982. It resulted from a fall in public sector revenues from about 20 percent of GDP in 1971 to 11 percent of GDP in 1982. As a result, savings of the consolidated public sector steadily declined from 8 percent of GDP to a negative figure of 1.1 percent. xvii. The present Government has taken some quick initiatives to face this fiscal crisis. A policy of wage restraint was a painful but important initiative. A new value added tax on industrial transactions will provide additional fiscal revenues. An initial effort has been made to develop a coordinated public investment program; the recently published program is a first step in this direction. All these measures were supported by a three-year EFF arrangement with the IMF, signed in January 1983. The mission recognizes that these initiatives have been important in addressing the short-term aspects of the crisis. However, this crisis was also partly caused by a long-run deteriorating trend in the public finances of the country; additional measures oriented to the long run will have to be taken to reverse the structural problems that gave rise to this deterioration. xviii. A major source of the secular decline in fiscal revenues is lower import duty collections, which fell from 6.7 percent of GDP in 1971 to only 2.2 percent in 1982. This resulted from a continuous erosion of the tax base due to a larger share of exempted petroleum imports, the use of specific rather than ad valorem taxes, growing import prohibitions and a widespread system of exonerations which became increasingly discretionary due to the lack of clear regulations. xix. The second major source of this erosion was the performance of public enterprises. Their savings have also declined continuously over time, reaching a low of minus 1.5 percent of GDP in 1981. External factors, such as higher petroleum prices and lower sugar prices, explain only part of the decline. It also is part of a trend that can be attributed to inefficiencies in the generation and transmission of energy, to high prices paid for colono cane in spite of low sugar prices, to high processing and transport costs for sugar, to inadequate previous management of CORDE, and to inappropriate pricing policies for INESPRE. The ease by which public enterprises were able to finance their deficits through direct foreign loans and Central Bank credit partly explains the past lack of incentives to correct these inefficiencies. xx. . The Government has already undertaken some important actions to improve the financial poaition of key public enterprises. CEA's new management is already producing positive results. It has improved CEA's efficiency, instituted programs to increase the sucrose content of cane, and now has access to the parallel market for one-fifth of its exports. The new CORDE management is completing a company-by-company review of its enterprises and has already taken determined wage and employment action. - xv - xxi. The weaknesses of public enterprises have developed over a long period, however, and it may also take a long time to reform them. CDE's electricity tariffs are now quite high. The further revenue action required may be far more difficult. First, governmental users must pay their bills. Second, CDE's losses are extraordinarily high; reducing non-billed connections will take time, but is of an extremely high priority. Equally important will be cost reductions. Future investments of CDE must be carefully structured and analyzed. Nonetheless, some operating efficiency can be achieved in the medium-term through reduction of the over-staffed work force and the more efficient operation of the existing plant. xxii. The Government has taken much-needed action to resolve some of the problems of CEA, but these will have to be complemented by further measures. It is now beginning a major renovation of its mills and transport system. A study now underway may indicate that some mills, however, should be closed. CEA has taken important action to reduce the subsidies to the domestic consumers of sugar; the crude sugar price is below the world price; the domestic molasses price is far below international prices. Both should eventually be raised. Until recent price rises mitigated this problem, CEAMs weak financial situation made it unable to pay its internal debt. To complement the rescheduling of its foreign short-term debt, the Government has converted CEA's internal debt into equity. The Government has also provided foreign exchange incentives to raise profitability. CEA, along with other sugar exporters, will need continued expanded access to the parallel market if it is to operate profitably in the long run. Finally, its price to private cane producers should be more rapidly adjusted with international price changes. All of these steps will need the strong support of the Government. xxiii. The Government has also taken action to restore financial viability to CORDE. In the future, some of CORDE's companies, which seem to have no reason for remaining in the public sector other than their prior Trujillo ownership, could be sold or closed. Other public enterprises could be reduced in scope (e.g., some INESPRE operations) with few effects on policy goals but at considerable fiscal savings. During the 1980s public resources and management talent will be stretched thinly. By reducing and refocusing the public enterprises on more specific tasks with clearer economic goals, the Dominican Republic can improve the overall efficiency of its public sector. xxiv. The capacity of the public sector to generate savings has been severely crippled with the fall in revenues and the losses of the public enterprises. Public resources are therefore extremely limited in 1984 and will probably continue to be scarce for the next few years. Even if the measures the Government has already taken to reverse these trends are successful, they will not be sufficient to generate enough public savings to reach the levels now programmed for 1984. The program envisions expenditures of about DR$560 million, but it is doubtful that the Government can mobilize--through public savings, non-monetized domestic borrowings, and net foreign borrowing--more than DR$250 to DR$300 million. This means that several projects now programmed will have to be postponed because of the shortage of counterpart funds. - xvi - xxv. The alternative to scaling back the program is to starve all projects simultaneously. In this case, projects that could have been completed and begun to generate a return will be delayed along with those that are new or far from completion. This course would reduce the efficiency of all public investment. As all projects are stalled, precious time runs out on the grace period of foreign loans, cost overuns increase, and valuable project construction personnel are lost. Under these conditions, the average productivity of investment would suffer. This would also mean that the public sector would need more tax resources to achieve the same level of output. If the public sector's investment yields a low return, governmental activity acts as a drag on growth rather than a stimulus. xxvi. It is therefore preferable to scale back the public investment program selectively. This will require several institutional changes as well as changes in the sectoral and project-specific allocation of funds. Institutionally, the Government will have to improve its planning and budgeting procedures; in every year since 1980, the amount planned has differed markedly from the amount budgeted for investment in the same year, and both have differed markedly from the actual mounts invested. The margin of error has commonly ranged from 50 to 100 percent. To improve the planning and budgeting process, amounts programmed should be more carefully planned and budgeted, amounts actually spent should be better monitored and controlled, and criteria for judging potential projects should be more rigorously defined to improve project selection and facilitate cuts. With this in mind, the Government has recently taken action to improve its monitoring unit in the planning office. xxvii. Another long-term institutional change is necessary to achieve development goals: reducing the fragmentation of sectoral planning and implementation. In agriculture, for example, several agencies now implement agricultural policy: CEA, the Ministry of Agriculture, INDRHI, IAD, and others. But planning to achieve long term sectoral goals, such as agricultural diversification, is virtually absent, largely because no agency is responsible for the formulation and implementation of sectoral goals. xxviii. Scaling back the program to stimulate growth also requires a different sectoral and project allocation than is now planned. The Plan would allocate nearly 27 percent of total 1983-85 public investment into housing and potable water, a 60 percent increase in the share actually spent in these sectors in the previous triennium. At the same time sectors crucial to increase growth and exports, such as energy and transportation, are reduced. Within sectors, some agencies have sought new projects without adequately assessing the implied costs of postponing or delaying on-going projects, delays incurred because the scarcity of counterpart funds limits the number of projects that can be undertaken; this practice appears to be especially common in irrigation and hydroelectric project' where many projects are already behind schedule. xxix. As an aid to Government planners, Chapter II presents an illustration of a realistic investment program that roughly approximates anticipated financing capabilities for the 1984-86 period. To be sure, reducing the level of planned activities to financially realistic levels requires difficult choices, and some worthy projects will have to be - xvii - delayed. But the country can not afford the heavy costs imposed by delays in all projects that are certain to come as financial constraints begin to appear in the course of the budget year. xxx. The Dominican Republic must secure new sources of public revenues before any major new public investment can be financed. These resources might be obtained by three new sources of revenues: (1) The first source, discussed earlier, is to value all imports at the parallel rate to compute their duty and impose a flat 20 percent duty on all non-petroleum exonerated imports (replacing their present rates). TEAse measures would generate fiscal revenues of more than DR$100 million a year. (2) Present legislation exempts from the new VAT important activities in manufacturing and commerce (processed food, beverages, petroleum and derivatives, fertilizers). If these exemptions were to be eliminated, tax collections would increase by approximately DR$30 million. Substantial increases could also be obtained by lowering evasion. It is also crucial for the Dominican Republic to properly organize and staff the administration of the new VAT. (3) The lack of property taxes in the Dominican Republic is unusual for a country that has well advanced rural and urban cadasters. In addition, no capital gains taxes on real estate sales exist. New taxes on property and property transactions would also reduce inequities in income distribution. At least DR$50 million could be generated by implementing a 1 percent property tax law. xxxi. These measures should be accompanied by a complete review and reform of the tax system to improve the system's administration and the equity of the tax burden. Tax measures, such as those discussed above, can of course be undertaken without other reforms. However, to be more effective and service broader development goals, the existing tax system should be reviewed in its entirety. C. Food Production and Role of INESPRE xxxii. The Dominican Republic still has considerable untapped potential in agriculture. Much of this could be freed by removal of artificial price disincentives. Placing a greater share of agricultural trade in the parallel market would provide strong incentives for increased production and exports of coffee, tobacco, beef, vegetables and potentially for rice. Price controls on the production of oil seeds should also be lifted. The Dominican Republic has an international comparative advantage in peanut p?oduction, both in irrigated and rainfed land. INESPRE's own profit requirements seem to be the principal reason for maintaining the price disincentive on the production of vegetable oils; by importing vegetable oils made artificially - xviii - cheap by the official excharge rate and by discouraging the growth of potential substitutes, INESPRE can sell its vegetable oil at high mark-ups. xxxiii. INESPRE should specialize in stabilization activities in rice, where it has been succesful, and withdraw from other activities. INESPRE does not need to procure and process paddy rice directly from producers as part of its rice control activities. INESPRE's efforts to procure rice at the farmgate lead to high operating expenses and grain losses. The Government has unfortunately strengthened INESPRE's monopoly purchasing power in rice and with it the monopsonistic power of the millers by prohibiting farmers from independently transporting their rice to millers and markets outside designated regions. This organization discourages rice production, especially among small growers. xxxiv. INESPRE should withdraw from other activities, particularly in vegetable oils, because these interventions have generally distorted prices and not improved market p,erformance. INESPRE's role in handling semi-perishables (onions and potatoes) is also questionable, since there is a requirement for cold storage facilities for INESPRE to play a credible role in the market. The distribution of free or subsidized inputs could also be eliminated. Fiscal resources could instead be allocated towards a more effective agricultural research, extension, and market information systems. These are more efficient ways to solve problems of risk and high initial costs that arise in the process of modernization of agriculture. D. Final Remarks xxxv. The analysis of this report suggests that the Dominican Republic is potentially well positioned relative to other small countries to cope with a difficult international economic environment. It is endowed with adequate natural resources, a hard-working labor force, and a location near major internatiional markets. But to benefit from these potential advantages, the Government must remove current policy constraints on growth and put in place a policy framework that will be conducive to expanding exports. xxxvi. Besides promoting growth, the Government will also need to affirm its crediltworthiness by undertaking a sustained effort in the short- and medium-term to address the policy issues discussed in this report: incentiveis to exporters and efficient domestic producers must be adequate to assure an ever-growing stream of foreign exchange and establish an internatiionally competitive industrial structure; public sector savings must be increased to finance a dynamic investment program; the public investment program should be made more efficient by concentrating on fewer but vital projects; and food pricing should be adjusted to transmit to producers adequate incentives to produce and expand supply. Such a program will make the allocation of scarce resources more efficient, increase domestic savings, and attract foreign capital and credit. I. THE COUNTRY'S PAST GROWTH AND FUTURE PROSPECTS A. The Growth Experience of the 1970s 1.1 As expected in a small. open economy, aggregate economic growth. in the Dominican Republic has been largely determined by variations in export receipts and external terms of trade. Nevertheless, the country's substantial and sustained investment rate--on the order of 24 percent of GDP daring 1969-80--increased productive capacity and growth, particularly in the initial years when the investments had high rates of return. 1.2 Two distinctive periods can be identified in the recent past: the 1968-74 period, when real GDP grew at 11 percent a year, and the 1975-81 period, when this growth rate declined to 4 percent. The first period was one of an external environment without major cycles, It was, moreover, a rieriod when the country was recovering from the long twilight of the Trujillo era and the trauma of the civil disorders and intervention of the mid-1960s. During this period, export earnings grew at an annual average rate of 23 percent; in no single year was the increase below 10 percent. Export prices and volume grew at 15 and 9 percent, respectively. Real value added in mining grew 38 percent a year, although it started from a low base; manufacturing by 14 percent a year; and conistruction by 18 percernt a year. This pariod stressed those major sectors where the country had a strong comparative advantage: raw sugar exports reached one million metric tons, ferronickel reached 80 thousand metric tons, and tourism began. Manufacturing was directed towards easy import-substitution possibilities. 1.3 Since 1974 several new external factors came into play. Export prices, particularly that of sugar, became substantially more volatile adding complexity to the short-term management of the economy. Export prices reached a peak in 1975, declined by 30 percent in the 1977-79 period, reached a new peak in 1981, and plummeted again by 40 percent in 1982. The oil price shocks of 1974 and 1979-80 increased the ftel import bill tenfold, reaching US$500 million by 1981, As a resuilt of these changes in relative prices, terms of trade deteriorated severely. In 1977 the petroleum bill absorbed only 60 percent of all sugar export earnings, but by 1982 it had risen to 133 percent of sugar earnings. 1.4 Besides the deterioration in terms of trade, a second external factor was the decline in export volume induced primarily by the recession in the industrialized countries. By 1982, the volume index of exports had declined one-fifth below its 1978 value. 1.5 A third external factor was the abrupt rise in interest rates in the OECD countries; this pushed up the cost of the Dominican Republic's foreign borrowing. Service payments on public foreign debt rose from US$87 million in 1978 to US$246 in 1979 and, after dropping slightly in 1980-81, rose to US$250 million in 1982. 1.6 The combination of these factors--terms of trade, export volume declines, and Interest rate rises--caused GNP to be 8.8% lower in the 1979-81 -2- period than it would have been in the absence of the shocks. Forty-seven percent of the cummulative effects of the shocks were due to the decline in terms of trade; 35 percent were attributable to export volume; and 23 percent were due to interest rate effects.1! 1.7 These external shocks came at a time when long-term structural weaknesses were becoming evident in the economy. Most important, industrialization based upon import substitution behind the prevailing tariff and quota regime had begun to slow; and the fiscal deterioration of the public sector was becoming acute. Thus, the cyclical effects of the shocks aggravated secular trends of economic deterioration. 1,8 The Government's policy responses were insufficient to cope with external shocks and secular stagnation. In spite of the worsened external environment, imports kept growing at rates above that of GDP growth. During the 1975-80 period, capital goods and raw materials imports grew at 8 percent a year in real terms, largely financed by increasing private and public external borrowing. The growth in imports and borrowing was encouraged by an exchange rate policy which made imports artificially cheap and effectively eliminated exchange rate risk to private debtoris. Despite the high investment rate (in both the private and public sectors), and a high rate of imports of capital goods and intermediate inputs, the real value added of manufacturing and agriculture grew at only 3.2 and 3.7 percent a year, respectively. 1.9 The fiscal situation also suffered a continuous deterioration. While at the beginning of the decade public savings amounted to 8 percent of GDP, this figure became zero at the end of the decade and negative by 1982, It resulted from a significant decline in tax relative to national income and a deterioration in the finances of public enterprises. 1.10 The slower growth of manufacturing in spite of high protective barriers and subsidized imported inputs and capital goods--the degree of subsidy increased during this period of external crisis--reveals the limits of a policy of protected industrialization in a country of small market size. The slow growth of agriculture can be explained by the fact that subsidized imports of inputs and capital goods did not compensate for the implicit disincentive to growth resulting from subsidized food imports, restrictions on agricultural exports, and generalized price controls on foodstuffs, During the 1975-80 period the more dynamic sectors were precisely those where factor and product price controls were limited, where legislation was less binding, and where foreign investment was relatively unregulated. Foreign exchange received from tourism grew at 20 percent a year reaching over US$200 million by 1981. Although starting from a low base, employment and net foreign exchange generation in the Export Processing Zones grew at 18 and 26 percent a year, respectively, reaching 20,000 workers and US$60 million by 1981. 1.11 A comparison of the GDP growth rate and the investment rate during the 1970-81 period suggests a strong decline in the productivity of new 1/ See Statistical Appendix Table 2e8. -3- capital, from over 40 to less than 15 percent.2/ Although these are approximate figures, there is no doubt that a substantial change took place within a relatively small period of time. Because three-quarters of total investment takes place in the private sector, much of the declining productivity was attributable to that sector. The declining productivity of investment in the private economy is consistent with the effect of the external shocks and the policy of supporting industrialization by increased protection. The effect of protection is precisely to keep private profits high while the social productivity (the return to the economy) diminishes as the process becomes more inefficient. 1.12 Information regarding the status of the major public investment projects implemented since 1975 suggests that the productivity of public investment also declined. A sample of 15 major projects amounting to DR$1 billion shows that the average project delay was nearly two years and that average over-runs amounted to 27 percent of original budgeted costs.3/ Part of this is explained by insufficient domestic counterpart funds; part by a declining absorptive capacity of public agencies in managing an increasing number of investment projects and programs. Unfortunately, there have been many large investment projects in the past that, because of inadequate planning or coordination, have had very limited returns even when completed. B. Prospects for the Future 1.13 The present situation is serious. The mission estimates that real GDP has been virtually stagnant between 1981 and 1983. The balance of payments current account deficit averaged 6 percent of GNP and the accumulation of foreign payments arrears reached US$450 million at the beginning of 1983, almost 10 percent of GNP of that year. Net foreign reserves (including the arrears) were likely negative by almost US$700 million. In 1982 the public finances were in greater disequilibrium than in any year since 1966. 1.14 The severity of the crisis understandably focused the Government's attention on the short-term. The immediate measures have been wage and other fiscal restraints, a new value added tax, improved public enterprise management, and some change in foreign exchange management and negotiation with commercial banks regarding the rescheduling of external payment arrears. 2/ The annual growth rate of GDP was 9.3 and 4.1 percent in the 1970-75 and 1975-81 period, respectively. With a share of labor in the growth of output of 50 percent and a growth of employment of 3 percent a year, the contribution of labor to growth is equal to 1.5 percent a year. The growth to be explained by investment-- assuming no other source of growth--is 7.8 and 2.6 percent a year for the two periods, respectively. With depreciation equal to 6 percent of GDP (the net investment rate being then 18 percent) the implied return to capital goes down from 43 percent to 14 percent between the two periods. 31 ONAPLAN: "Lineamientos de Politica Economica y Programa de Tnversiones Publicas 1983-85," January 1983. 4 These actions were supported by an EFF Arrangement with the International Monetary Fund. However, these measures are aimed mainly at near-term stability. To better assess the prospects for recovery in the medium term, the mission developed a macroeconomic model of the economy and used it to explore various future scenarios. 1.15 The most important assumption used for projecting Dominican economic growth is the sugar price. From 1982 to 1990, the World Bank proje-cts the real price of sugar to increase from its present 13 cents to approximately 18 cents (in 1983 prices). This price reflects the long run cost of production across several producing countries and is equivalent to the cost of high fructose corn syrup. The Dominican Republic sells about half of its sugar exports to the United States under the sugar quota agreement. The United States quota price is ,'xpected to remain at US$400 per ton in 1983 prices, equivalent to 18 cents per pound. The average price for the Dominican Republic is thus projected to rise from US$300 per ton to US$400 per ton in 1990, all in 1983 prices. Given the projected rate of international inflation, this amounts to about US$600 per ton in current dollars for 1990. 1,16 For all the other traditional agricultural exports--coffee, tobacco, and cocoa--little price increase is projected in constant dollars. In the case of minerals, a strong increase is projected for ferronickel, and less strong for gold and silver (dore). Manufacturing prices are expected to follow international inflation: i.e, no significant changes in real values. 1.17 Each of the mission's three alternative scenarios projects real export growth differently. For the base case no volume growth is projected for sugar and cocoa; the former because of global forecasts4/ and the fact that the Dominican Republic already enjoys the largest share (17.5 percent) of the United States import quota; the latter because 1983 exports are already substantially above trend. Real coffee exports would expand at 6 percent because of recent investment in that sector. Also, tobacco would expand by 5 percent.5! The optimistic scenario sets the sugar quantity growth at 2 percent a year. This could result from increased efficielncy in domestic production together with problems in other major producing countries. Coffee and tobacco growth rates are projected at 12 and 10 percent a year. For mineral commodity exports, all three scenarios assume significant real growth in 1983, but volume would remain at 1984 levels thereafter. No new investments appear to be coming on line within the period of analysis. 4/ Ending stocks for 1982-83 are estimated at 37 million tons and for 1983-84 are expected to remain well above normal--about 24 million tons. Substitute sweeteners continue to make inroads into the sugar market in the United States. 5/ This assumDtion may be slightly optimistic; nonethless, lowering it to zero makes little difference in the outcome of th.? scenarios because of the relatively small weight of tobacco in total e-iports. -5- 1.18 For manufactured exports the base case projects an annual growth rate of 5 percent a year. This value reflects their current depressed state and the disadvantageous policy climate. The former leaves plenty of room for expansion and the latter exerts a restraining influence. The optimistic forecast of 10 percent annual growth is based on a more buoyant global economy and a more aggressive domestic policy environment. For the base case, a growth rate of tourism of 5 percent a year is chosen while the optimistic scenario is set at 10 percent. 1.19 The pessimistic scenario assumes zero expansion of volume for all exports, traditional and non-traditional alike. This assumption is conceivable if international conditions should fail to become favorable, and the Government fails to change the structure of incentives facing exporters. 1.20 The Government recently concluded renegotiation of the US$660 million debt owed to private foreign banks, although the final agreement has not been implemented as of this writing. All three projections assume that the State Sugar Council (CEA) debt of US$60.8 million is to be paid entirely in 1986 and the balance of the rescheduled debt repaid in four equal payments beginning in 1985. CEA's interest rate would be 12.8 percent; the rest would pay 11 percent. The net impact of the rescheduling would provide some reduction in debt service payments on the nation's US$2.1 billion total public external debt for 1983 and 1984.6/ However, by 1985 the rescheduling will result in a sharp increase in debt service payments--from about US$450 to US$615 million--as amortization and interest on the US$660 million is added to the overall burden. Near-term payments may be also mitigated by a possible Paris Club rescheduling of official bilateral debt, but payments in 1985 and 1986 will still approximate US$600 million. Resulting Growth 1.21 The outcome of the three projections is summarized in Table 1.1. In the base case overall GDP growth is projected to ultimately recover to 3.5 percent per year during 1987-90. The implications for overall welfare are not satisfactory: per capita cornsumption, after declining in the 1984-86 period, would barely increase toward the end of the decade. The unemployment rate would Increase to 30 percent from the present level of about 20 percent. Clearly the growth rate would not be sufficient to generate a demand for labor large enough to match the projected increas-es in the labor force. Even to reach this rather unsatisfactory situation, external 6/ Note that US$223.5 million of the US$660 million rescheduled was not included in the country's US$2.1 billion medium- and long-term debt because it was short-term. The rescheduling makes it medium-term debt. -6- borrowing must be substantial. The yearly gross borrowing from private sources required to sustain this growth rate reaches US$800 million per year at the end of the decade (in current dollars). 1.22 The optimistic scenario yields a substantially better situation. Not only would per capita consumption increase in the short-run; it would reach an increase of 3 percent per year at the end of the decade. In addition, the required gross borrowing from private sources would become substantially more realistic, around US$500 million per year. The pessimistic scenario clearly reaches long run crisis proportions. Per capita income declines steadily; unemployment exceeds one-third of the labor force; and the required gross private borrowing--virtually unattainable if output were to drop--would exceed US$1 billion. Table 1.1: ECONOMIC PERFORMANCE UNDER ALTERNATIVE RUNS (Yearly averages for the period) Base Case Optimistic Pessimistic Indicators 1984-86 1987-90 1984-86 1987-90 1984-86 1987-90 I. General Indicators (in %) GDP growth 1.6 3.5 3.4 5.9 -0.1 1.8 Per capita consumption growth -0.8 0.7 1.1 3.0 -2.4 0.9 Unemployment rate 28.1 31.3 26.6 26.6 29,6 34.9 Fiscal savings/GDP 1.9 3.4 2.3 4.7 1.5 2.0 II.Balance of Payments (US$million of current dollars) Current account balance -202 -428 -152 -223 -253 -581 Expected net flows 37 151 37 151 37 151 Required additional net flows 165 276 115 71 217 430 Required gross private borrowing 373 807 321 523 428 1,036 Debt outstanding 2,367 3,475 2,287 2,891 2,455 3,967 Debt service ratio (%) 34.3 38.7 32.1 28.9 36.9 50.0 Source: Mission projections; see Annex I. 1.23 The three scenarios assume the same disbursements from official lending agencies as well as from grants and net direct foreign investment (a total of US$728 million and US$50 million respectively in the 1983-85 period). If these flows were themselves to be dependent on the growth prospects of the country, the difference among the scenarios would be even more dramatic. These results clearly show the sensitivity of the growth rate to those export sectors able to respond to better incentives, particularly -7- non-traditional exports and tourism. The GDP growth rate under the optimistic run is derived under imports that decline as a percent of GDP, from 25 percent in the 1980-82 period to 19 percent in 1990. Maintaining a high growth rate under declining import ratios can only be achieved if import substitution occurs in those sectors where it is least costly, especially agriculture. 1.24 Both the base case and optimistic scenarios require that the savings of the Central Government 'iove into a strong surplus in the near future. This is fundamental to maintaining a level of public investment consistent with the resulting GDP growth rate while avoiding the "crowding out" of private investors in access to domestic and foreign savings. In the base case the savings would reach around 2 percent of GDP in the 1984-86 period and 3.5 percent of GDP in the 1987-90 period. In the optimistic case this figure could reach almost 5 percent of GDP in the 1987-90 period. All projections assume that public expenditures are equally high in returns. This assumption also seems optimistic when considering the pessimistic scenario. C. Implications of the Economic Projections 1.25 The mission's projections show that the medium-term output growth of the Dominican Republic will be highly dependent on government policies regarding trade and exchange rate management, public sector efficiency, and relative price signals,, 1.26 Export expansion is now vital. Although the Government cannot affect the slow response of traditional agricultural exports and minerals to price shifts, every eflort must be made to expand their production whenever feasible, particularly for those specific producers which can expand at relatively low cost. O)ther sources of earnings, especially tourism, agroindustries, nontraditional exports, and activities in the Export Processing Zones, seem to have had a more rapid response to economic incentives. The projections described earlier have shown the sensitivity of the GDP growth rate to growth in these sectors. These sectors have also received lower incentives than other traded sectors, especially compared to the industrial import substitution sector. 1.27 The other mechanism by which the economy can adjust to extremely scarce foreign resources is to maintain growth with lower import requirements. This can be achieved only if the import-substitution process is efficient; that is if those activities where substitution takes place have a peso cost less than the dollar substituted. There are indeed activities that can be substitutecl without major import tariffs or restrictions. In the Dominican Republic's case, this sector is basically agriculture. Nonetheless, this requires reducing price distortions so that potential producers who are efficient have a price incentive to enter the market. Chapter II shows how the government sector can be made more efficient to support the adjustment process and reduce distortions. Chapter III discusses -8- some of the policy obstacles preventing agriculture from playing a leading role in the adjustment process. Chapter IV elaborates policy changes that can make import substitution more efficient and export growth more rapid. 1.28 While the following chapters detail specific sectoral problems and actions, it may be well now to present an overview of the major conclusions of the mission to give guidance to the reader. The first conclusion is that trade and exchange rate policies must be used more aggressively to induce the most efficient combination of export promotion and import substitution strategies. The mission's base and optimistic projections both presume a rapid implementation of such strategies; the pessimistic projection does not. The costs of this pessimistic future in economic stagnation, lower living standards, and rising unemployment are high. 1.29 The Government has already undertaken a series of actions to accelerate exports. Export projects receive preferential access to credit. More importantly, the Government has transferred from the official to the parallel market some imports and a share of exports as part of its strategy to meet the goals of its arrangement with the IMF. Many non-processed and non-traditional agricultural exports were recently transferred to the parallel market. The mission supports this approach. To realize the country's future foreign exchange earning potential, more ex:Ports should be transferred to transmit price incentives to exporters. For example, all exports other than sugar and minerals could be transferred. These items are probably the most responsive to price changes and such a program would greatly increase the long-run incentives for non-sugar exports. Also, transfers of all non-petroleum imports would improve the efficient use of imported inputs with few short-run adverse effects on the parallel market. If over the medium-term sugar and mineral exports also are placed in the parallel markets, this could be complemented by a tax on these items whose rate would vary with world prices. At low world prices, approaching domestic costs of production, the rate could be zero. If the world price declined below CEA's production cost, it would have to adjust either via lower production or increased efficiency. 1.30 A second major conclusion, discussed in Chapter II, is that the public sector must play a leading role in generating savings and investing them more efficiently. This requires increasing a badly withered tax base and taking measures to convert the public enterprise sector into a net contributor to public savings. Mbreover, it is clear that foreign funds will be at a premium, and the public investment program should stress those projects which have high returns and can be financed by official creditors. The need to prune the present program to what can be financed and executed rapidly, as well as the need to stress quick output-producing projects will require a stronger and tighter planning capacity. -9- II. THE PUBLIC FINANCES: PROBLEMS AND ADJUSTMENTS 2.1 The Dominican Republic is experie,ifcing the worst fiscal crisis in the country's recent history. Public savings--which had averaged over 9 percent in the early 1970s--gave way to a current account deficit in 1982 (Table 2.1). Virtually every state enterprise was suffering from severe illiquidity and operating losses, and taxes had fallen dramatically as a percent of GDP. This decline was matched by a fall in capital expenditures of the public sector. In the eariy 1970s, capital expenditures had hovered around 10 percenit of GDP, almost all financed by public savings; by the early 1980s, they had declined to less than half that level, financed almost entirely by Central Bank credit and foreign borrowing. Table 2.1: CONSOLIDATED PUBLIC SECTOR INDICES (as percent of GDP) Average Average 1971-1975 1976-1981 1981 1982 1983 a/ Current Revenues 19.4 14.6 13.7 10.6 12.3 Current Expenditures 10.2 11.1 13.3 11.7 12.3 Current Account Balance 9.2 3.5 0.4 -1.1 0.1 Capital Expenditures 10.2 7.7 6.5 4.9 5.7 Overall Public Sector Deficit b/ -0.6 0.4 -5.8 -5.4 -5.4 a/ Estimates; sums do not total exactly due to rounding. b/ Includes Capital Revenues Source: Statistical Appendix tables 5.2 - 5.4. 2.2. A sharp fall in tax revenues from exports precipitated a crisis in 1982. Central Government revenues dropped more than two percent of GDP due to reduced taxes and other revenue related to international trade. Central Government savings declined from positive DR$153 million in 1981 to negative DR$33 million in 1982. The deficits of the rest of the public sector drove the public sector deeper into the crisis. 2.3. The new authorities responded to the crisis by implementing some new tax measures and cutting 1982 expenditures. Taxes on imports were raised slightly. The Government held its current expenditures about constant by limiting its purchases of goods and services and transfers to the private sector. Wages and salaries costs increased by 7 percent; without determined action by the Government soon after its August inauguration, the annual rise - 10 - would have been much nigher. The main burden of the adjustment, however, fell on the public investment program as the Central jovernment reduced its 1982 capital outlays by one-fourth. As a result of these stabilization efforts, the current account performance of the public sector improved slightly in 1983. 2.4 The causes of the current crisis, however, go much deeper than the downturn in trade-related taxes in 1982. A more fundamental cause is a decline throughout the 1970s in the public sector's capacity to generate savings. These trends in public savings are clear from Table 2.2. This situation had three causes: tax revenues fell as a percent of national income, expenditures rose, auid several major public enterprises experienced a sustained erosion of their profitability. Table 2.2: PUBLIC SECTOR CURRENT ACCOUNT SURPLUS (as percent of GDP) Central Public Total Current Year Governmental Enterprisesa/ Account Surplus 1971 7.7 1,1 8.0 1972 7,4 1.4 8.0 1973 7.3 2.1 8.7 1974 8.5 0.4 8.Q 1975 11i1 2.5 13.1 1976 7.4 3,3 9.9 1977 5.6 1.7 7.3 1978 3.0 0.4 3.5 1979 1.3 -0.8 0.5 1980 2.5 -1.0 1.5 1981 2.1 -1.5 0.4 1982 -0.4 -0.7 -1.1 1983 b/ 0.2 -0.3 0.1 a/ Nonconsolidated results. b/ Estimated. Source: Statistical Appendix Tables 2.1. A. Declining Public Revenues 2.5 Public revenues fell from 19.8 percent of GDP in 1971 to 10.6 percent in 1982 (Chart 2.1). Revenues have coincided almost exactly with the movements of those taxes that have a direct relationship with changes - 11 - in exports and imports.'/ The decline was not solely a consequence of short term exogenous factors. The continuous erosion of the tax base stemmed from a faltering administration and increased exonerations. 2.6 The fall in receipts from import duties is the single most important contributor to the fiscal crisis. Table 2.3 shows that the share of import taxes declined from 6.7 percent of GDP in 1971 to 2.2 percent of GDP in 1982, while imports remained relatively constant as a fraction of GDP2/. If the 1971 level of import duties had applied to the 1982 GDP, the resulting import duty revenues would have been DR$528 million, thiee times the size of the actual 1982 current account deficit of the consolidated public sector. The fall in import duties is a result of a rising share of (exempted) food and oil in the import content, a reliance on specific rather than ad valorem taxes, an increasing use of import prohibitions, and the existence of a system of exonerations which became increasingly discretionary and lenient due to the lack of clear regulations. This by itself does not necessarily bring about a decline in import duty revenues. The slight improvement in 1983 is due to recent revenue and collection efforts. Table 2.3: IMPORT TAXES, 1971-1983 Imports a/ Import Duties Implicit Tax Rate on Imports 'ear (as % of GDP) (as % of GDP) Total Net of Food and Oil 1971 18.7 6.7 35.8 n.a. 1972 17.0 5.9 34.7 39.6 1973 18.0 5.7 3 - 7 39.8 1974 23.2 5.7 24.6 32.9 1975 21.4 4.9 22.9 30.8 1976 19.3 4.7 24.3 34.4 1977 18.5 4.5 24.3 34.9 1978 18.2 4.5 24.7 36.1 1979 19.1 4.0 20.9 32.2 1980 21.4 3.4 15.9 25.0 1981 20.1 2.5 12.4 23.1 1982 16.0 2.2 13.8 n.a. 1983_b 14.7 2.7 18e2 n.a. a/ Merchandise imports b/ Estimated Source: National Budget Office, Ejecucion del Presupuesto, several years. 1/ The abnormally good export years of 1975 (due to high sugar prices) and 1980 (due to record gold and silver prices) accounted for unusually high revenues in those years. 2/ 1982 and 1983 are exceptions due to tl.e sharp reduction in growth rates. Chart 2.1: TOTAL PUBLIC AND TAX REVENUES (as percent of GDP) ,2 3 * Ci 7- 222)9 C0 2 1 0 ,,,'TOTAL PUBLIC SECTOR REVENUES AS % GDP C/ \ 19 L0 -F 17.0 - LA 12.0 TAX REVENUES AS % GDP 1971 1973 1975 1977 1979 1981 1983 Source: Statistical Appendix tables 5.3 and 5.5. - 13 - 2.7 Export taxes fell in 1982 due to the 1981 elimination of the sugar export tax, a response to its lower international price and export volumes. This was replaced by a surtax on the income tax liability of the sugar companies. The combined effect of lower import and export taxes was to lower public revenues from international trade by DR$86 million between 1981 and 1982 (Table 2.4); more than half the-entire drop in total public revenues. Table 2.4: REVENUES OF THE CENTRAL GOVERNMENT (DR$ million) Estimated 1979 1980 1981 1982 1983 Total Revenue 690.8 890.8 926.0 754.4 921.8 Current revenue 681.5 879.8 909.2 745.1 914.6 Tax revenue 606.5 696.4 734.4 661.3 784.3 Taxes on income and profits (131.5) (182.1) (186.2) (181.4) (196.5) Taxes on property (5.3) (7.0) (7.1) (8.7) (9.9) Taxes on goods and services (183.4) (207.8) (256.4) (273.9) (331.8) Taxes on internt'l trade (275.0) (255.9) (270.8) (185.2) (232.8) Other taxes (11.3) (13.6) (13.9) (12.1) (13.3) Nontax revenue 75.0 183.4 174.8 83.8 130.3 Capital revenue 9.3 11.0 16.8 9.5 7.2 Source: Statistical Appendix Table 5.5. 2.8 The other half of revenue losses stemmed from a drop in non-tax revenue of DR$87 million. Most of these losses came from shrunken earnings of the state-owned Rosario Dominicana gold and silver mine. 2.9 Another important factor contributing to the decline of fiscal revenue has been the inability of the Government to extract revenues from sources of income that increase with national wealth and are not trade-related. Property taxes are virtually nonexistent. Income tax revenues are low and a recently approved value-added tax will probably render well below its potential yield dto a large number of exonerations. The country's total tax burden, 8.5 percent GDP in 1982, is also among the lowest of the Hemisphere (Table 2.5). - 14 - Table 2.5: TAX BURDEN OF SELECTED LATIN AMERICAN COUNTRIES, 1982 (Tax Revenue as percent of GDP) Country Tax Burden Jamaica 28.8 Venezuela 26.2 Nicaragua 24.5 Chile 23.3 Uruguay 21.7 Brazil 21.2 Ecuador 21.1 Panama 20.5 Peru 18.0 Mexico 15.3 Honduras 14.8 Costa Rica 13.2 El Salvador 12.1 Argentina 10.0 Haiti 9.2 Paraguay 9.1 Dominican Republic 8.5 Colombia 8.3 Guatemala 8.2 Source: The World Bank 2.10 The absence of property taxes is unusual for a country that has well advanced rural and urban cadasters. In addition, there is no capital gains tax on real estate sales. A proposal to impose a 1 percent tax or the value of property and 2 percent on empty land was rejected by Congress in 1980. 2.11 Income taxes in the Dominican Republic are also low in terms of the Western Hemisphere average. Years for which comparable figures exist (1977-79) show that the Dominican Republic ranks 14th out of 22 countries in terms of income tax burden (measured as a percentage of GDP extracted in the form of income taxes).3/ The treasury collects more from taxes on alcoholic beverages than from personal income taxes. 2.12 The decline of income taxes as a percentage of GDP stems from the many exemptions granted to individuals and corporations through incentive laws. This burdens those who pay taxes with extremely high rates and also 3/ Mission estimates based on the Yearbook of National Accounts Statistics, 1981, NY: United Nations, 1983. - 15 - diminishes tax collections by increasing the gains from evasion. The major tax exemptions are granted by the Industrial Promotion Law (Law 299) and by corporate reinvestment incentives. Both incentives together practically exonerate corporations from income taxes. 2.13 A new value-added tax (VAT) on industrial transfers of 6 percent became effective on November 24, 1983. The base of the new VAT tax covered less than one-fifth of GNP since only industrial transactions are included. Even within that sector, several sub-sectors (particularly processed food) are excluded. In September 1983, however, the Administration reduced the coverage of the law further by excluding most small commercial establish- ments, citing administrative difficulties. This tax replaced a 10 percent temporary surcharge on imporgs_-t-h-at was expected to yield about DR$50 million in 1983. The total yield.,of the new VAT is unlikely to surpass DR$65-70 mil- lion in 1984. 2.14 In summary, the sustained fall in public revenues had several causes: reduced import taxes due primarily to exonerations, a decline in export-related revenues from sugar and mining, and a failure to construct a modern tax system based on income, property, and commercial transactions. To these causes must be added the failure of public enterprises to contribute to national savings; instead, public enterprises became part of the problem of rising expenditures. B. Public Expenditures 2.15 While revenues were falling during the 1970s, public sector expend- itures began to increase sharply after 1978, further squeezing public savings. The total public sector expenditures for the 1979-82 period as a percent of GDP was nearly 40 percent higher than the 1975-78 period, 12.6 percent compared to 9.1 percent (Table 2.6). 2.16 Increases occurred in all expenditure categories, but three were especially important, accounting for more than 80 percent of the total increase. Central Government wages and salaries increased their share of GDP about 30 percent relative to the 1975-78 period. Interest payments of the Government account for the large increase in the "other" category of Table 2.6; these increased their share of total public sector expenditure threefold after 1978, reflecting the upward pressure on interest rates from worldwide capital markets. Most significant, however, is the deterioration in the performance of the public enterprises. Transfers from the Central Government to the rest of the public sector rose and the surpluses of the public enterprises during the 1975-78 period turned into operating deficits after 1979, adding 1.4 pecent of GDP to expenditures. Given its weight in revenue and expenditure performance of the overall public sector, the financial role of public enterprises merits more detailed consideration. - 16 - Table 2.6: CONSOLIDATED PUBLIC SECTOR CURRENT EXPENDITURES, 1975-83 (as a Percent of GDP) 1975-1978 1979-1982 1983 Average Average Total public sector 9.2 12.6 12.3 Central Government 7.0 9.1 9.2 Wages and salaries 4.3 5.6 5.3 Goods and services 1.6 1.8 2.2 Other 1.1 1.6 1.7 Transfer to rest of public sector 1.3 1.5 1.4 Public enterprises a/ (0.0) (1.2) (0.4) Rest of Public Sector 2.2 2.4 2.7 a/ Includes current account deficit of public enterprises only. Operating surpluses are recorded as current revenue and not shown in expenditure account. Source: Statistical Appendix Table 5.4. C. Public Enterprises 2.17 The savings of public enterprises eroded over the 1970s and became negative beginning in 1979. This drain reached almost 2 percent of GDP in 1982 (Table 2.7). This deterioration can be explained only partly by external factors such as higher petroleum prices and lower sugar prices. It is also attributable to improper pricing policies and poor management. Initially, the low operating profits of the public enterprises were masked by the extraordinarily high savings of the Central Government, which financed virtually all the investments of the enterprises and even directly subsidized their operations. As fiscal savings deteriorated, the public enterprises increasingly financed their growing deficits through direct foreign loans and relatively easy access to Central Bank credit. 17 - Table 2.7: PUBLIC ENTERPRISES: CURRENT ACCOUNT SURPLUS (as percent of GDP) Year INESPRE CDE CEA Other Total 1971 0.0 0.6 0.4 0.1 1.1 1972 0.0 0.7 0.7 0.0 1.4 1973 0.5 0.9 0.7 0.0 2.1 1974 -0.3 0.6 1.2 0.1 0.4 1975 0.1 0.3 2.2 -0.1 2.5 1976 n.a. n.a. n.a. n.a. 3,3 1977 -0.4 0.0 2.0 0.1 1.7 1978 -0.1 0.2 0.3 0.0 0.4 1979 0.1 -0.6 0.4 -0.7 -0.8 1980 0.2 -0.7 -0.5 0.0 -1.0 1981 -0.8 -0.6 -0.2 0.0 -1.5 1982 -0.2 -0.2 -1.2 0.9 -0.7 1983 -0.4 -0.6 -0.2 0.9 -0.3 Source: Statistical Appendix Table 5.2 and IMF. 2.18 The new Administration quickly took several measures to improve the finances and efficiency of the public enterprises. The State Sugar Council (CEA) has been able to improve the sucrose content of its cane; it is undertaking a series of studies to improve its management practices; its internal and external debt is being rescheduled; and it is beginning a program of rehabilitation of its mills and transport systems with the assistance of a World Bank loan. The Dominican State Enterprise Corporation (CORDE) has also begun a review of its companies, and has already taken strong action on the staffing and wages of the unprofitab'.ea cement company. The Dominican Electricity Corporation (CDE) now has relatively high tariffs; its improvement will depend on its new managementts ability to make long-term reforms. Nonetheless, several long-term issues confront the three major enterprises. State Sugar Council (CEA) 2.19 Since the late 1960s, CEA has been a major contributor to public savings. During the mid-1970s at the peak of sugar prices, CEA had current account savings of more than two percent of GDP after paying export taxes. - 18 In 1932, however, CEA had net current losses of about one percent of GDP and paid no export taxes. 2.20 Its deficit can be only partially explained by the effect of lower international sugar prices. It has been adversely affected by the high prices paid for cane to outgrowers, the high processing and transport costs for sugar, the very low (controlled) prices in the domestic market and the overvaluation of the official exchange rate. 2.21 The price paid for raw cane to smallholders appears high in comparison with the low price of sugar and their sucrose extraction rate. The average revenue obtained by CEA during 1981/82 was similar to that. obtained in 1979/80 (Table 2.8). The price paid for raw cane, however, went up in spite of lower sucrose yields. As a consequence, the price paid to smallholders in 1982 was higher than the maximum price that could be paid without increasing unitary costs above average revenue. CEA's non-cane costs also rose rapidly; 17 percent between 1979/80 and 1981/82, when the consumer price index rose only 12.5 percent. CEA's cost control problem can be solved. While not strictly comparable, the private sugar mills produce raw sugar much more cheaply than CEA. Table 2.8: CEA: KEY COSTS AND REVENUES 1977-78 1978-79 1979-80 1980-81 1981-82 Costs of smallholders cane ($/ton) 11.14 10.78 17.26 25.30 17.70 Smallholders average sugar yield (%) 10.31 11.07 10.80 10.30 10.27 Unitary cost of cane (sugar equivalent cents/lb) 5.4 4.9 8.0 12.3 8.6 Unitary (CEA) non-cane operating costs (cents/lb) 5.4 5.9 7.1 7.8 8,3 Average CEA operating costs for sugar from smallholder cane (cents/lb) 10.8 10.8 15.1 20.1 16.9 Average revenue (cents/lb) 9.1 8.8 15.4 25.6 15.6 Source: CEA and IBRD missions. 2.22 CEA's new management is making progress in reducing costs through a lower payroll, better procurement practices, and a higher sucrose extractiorn rate in the factories (up from 10.3 percent in 1981/82 to 10.8 percent in - 19 - 1982/83). These measures are not enough, however. At an average selling price, including molasses income, of about 15 cents/lb., no more than 6.7 cents/lb. can be paid for cane to outgrowers if all other operating costs are kept constant at about 8.3 cents/lb. And this excludes financial (i.e., interest) costs, which will be rising. The 6.7 cents/lb. can be obtained by reducing the price paid for cane to smallholders and/or by increasing the average sucrose extraction rate. As an example, the price paid to smallhold- ers would have to be reduced to DR$16 per ton and the average sucrose extrac- tion rate would have to be increased to 12 percent in order to break even. Alternatively, if the average slugar yield is maintained at its 1982/83 aver- age (1.0.8 percent), the price paid to smaliholders would have to be reduced further, to DR$14.5 per ton of cane. 2.23 The low prices paid for sugar and molasses in the local market represent another source of CEA's deficit. Domestic prices were well below their export prices; the price of brown sugar is only 60 percent of the export price at the parallel market rate. Molasses is sold at only 30 percent of the export price. By maintaining abnormally low domestic prices of raw sugar and molasses, CEA is subsidizing the refining, animal feed, alcohol and beverages industries. It has been estimated that these indus- tries would have attained reasonable returns on investment even if they had paid the export prices for molasses. An adjustment of the domestic prices toward the international prices would not only improve economic efficiency but also help solve the critical situation of the public finances. 2.24 The situation became acute in the summer of 1983 when CEA was forced to reschedule much of its ext'rnal and internal debt. The Government is, therefore, considering raising its domestic refined sugar prices from RD$0.2065 per pound to DR$.2460. Domestic crude sugar prices could be raised from DR$0.1145 per pound to DR$0.1345 per pound shortly thereafter. Further- more, a new product,"blanco directo", will be added and priced slightly lower than refined sugar at DR$0.2065 per pound. These measures, together with conversion of some internal public debt to equity and higher international prices, will apparetntly ensure an opeiating surplus for CEA in 1984. Never- theless, internal pricing distortions remain; they are particularly acute in the case of molasses and merit eventual adjustment. As international prices rise, the external distortions caused by the continued sale of sugar at the official exchange rate will eventually have to be addressed. Dominican Electricity Corporation (CDE) 2,25 CDE has had serious cash flow problems since 1974. By the end of 1982, CDE had a current account deficit of about DR$30 million and a total deficit of about DR$105 million, financed mainly from the Central Bank. CDE's deficit can be explained by a rigid tariff policy and excessive genera- tion and distributional inefficiencies. - 20 - 2.26 CDE's tariffs remained unchanged from 1955 to 1979. As a result, in real terms the tariff fell yearlv ',etween 1972 and 1980; since 1974, CDE has had negative rates of return on revalued assets. In 1979, CDE was allowed to increase and adjust its tariff levels as well as impose a new fuel surcharge formula. In December 1980, CDE established new rates with a monthly increase across the board of 2 percent for 16 months over and above monthly fuel cost adjustments. The new fuel surcharge formula and the monthly rate increase caused CDE's average tariff to increase by 93 percent in real terms from 1981 through May 1983. This increase enabled CDE to have an operating profit of DR$10.6 million in 1982, equivalent to a rate of return on rtqvalued assets of 2.7 percent. 2.27 Also, generation and distribution losses have cut into CDE's profits. With normal thermal plants eff:+ciency and distribution losses, CDE's current tariffs would have produced in 1982 about 11 percent rate of return on revalued assets and some 45 percent contribution to investment. According to studies carried out by its consultants, CDE's excessive operational costs in 1982 due to poor thermal generation efficiency, excess technical losses, losses due to theft and underbilling, and excess employment costs was three times the current account deficit of CDE (Table 2.9). Table 2.9: ESTIMATED WASTE FROM ABNORMAL INEFFICIENCIES (DR$ million) Inefficient a/ Excess Thefts Thermal Technical and Under- Excess Total Excess Year Generation Losses b/ Billing c/ Employment d/ Expenditures 1974 8,22 2.51 4.57 3.54 18.84 1975 13.90 3.17 5.77 3.48 26.32 1976 9.79 3.04 6e93 3e76 23.52 1977 2.91 4.02 8.28 6.32 21.53 1978 3034 4.35 10.53 7.20 25.42 1979 5.55 4.84 14.14 9.22 33,75 1980 15.24 7.19 17.40 8.27 48,10 1981 21.13 10.87 21.97 9.73 63.70 1982 22.81 12.24 45.51 11.12 91.68 a/ Assumes that on average CDE's thermal plants should use no more than 1.8375 barrels of fuel oil per MWH generated (i.e., 5 percent less effi- cient than Falconbridge). b/ Assumes excess technical losses at 5 percent. c/ Estimated as the total percent of losses in the system minus 15 percent due to the estimated technical losses. d/ Assumes one-third annual payroll is for redundant staff, Source: World Bank missions. - 21 - 2.28 Part of CDE's cash deficit was a consequence of the overall diffi- cult situation of the public sector. Up to September 1982, Government-owned institutions, which absorb some 25 percent of total CDE's sales, had not paid their bills. Since then, however, they have begun to pay CDE within 60 days. CDE's current average tariff is now quite high in comparison with those prevailing in other countries in Latin America, and no further signifi- cant tariff increases are expected other than fuel clause adjustments. Therefore, most of the effort to improve CDE's finances will have to be made through cost reductions. With determined and effective management and the strong support of the Government, CDE may be able to overcome these relative inefficiencies in four to five years. These would be markedly aided by the investment-related measures suggested in the final section of this chapter. Dominican State Enterprises Corporation (CORDE) 2.29 CORDE administers and develops the companies expropriated from the Trujillo family during 1961-62. Until very recently, political interests have prevailed over internal economic goals, which partly exrlains their present precarious financial situation. In 1982 only 5 of 25 enterprises reported operating profits. 2.30 CORDE's new management has begun a reactivation program. Some Government debt has been rescheduled; excess employment has been reduced; and prices have been raised to cover costs in mainy enterprises. In 1983, the authorities claim the new measures could make 15 enterprises profitable. The holding company as a whole is now projected to run a DR$6.4 million profit in 1983 as compared to a DR$750,000 loss in 1982. Nonetheless, to be fully successful, CORDE's enterprises will require further, longer-term actions: (a) Capitalizing some debt owed to the state-owned Reserve Bank and Government-owned auppliers, a process already under discussion with probable adoption in early 1984. (b) Where private buyers are available, some firms could be divested after restructuring. Companies such as Fabrica de Clavos Enriquillo, Distribuidora de Sal, Sociedad Inmobiliaria, and Pinturas Dominicanas, with relatively small assets and workforce, could be included in such a divestiture program. (c) Since private interests would likely not invest in companies with oversized or low productivity workforces, workers' lay-offs could be negotiated by continuing to pay a full salary for one year to each worker. This measure could be applied even to those enterprises which have no potential buyers nor potential for regaining profitability before closing them permanantly since it would be only equal to a single year's loss. (d) A divestiture program for the larger, possibly profitable companies, would not be necessary if the Government were willing to make permanent legal arrangements to enable the operation and management of these enterprises to be well run. To this end, CORDE recently transferred the management of three small mines, producing salt, marble, and gypsium, to the well-managed Rosario Gold Mine. 2.31 The public enterprise sector, therefore, has undergone some important changes--from being a net contributor to public savings in the 1970s, to a large net drain during 1979-82. During 1983, their current - 22 - account deficits diminished; several long-term issues, however, remain to be addressed to convert this trend into renewed savings. D. Declining Public Savings: Consequences and Recommendations 2.32 The failure to mobilize sufficient public savings through the tax system and public enterprises has severely weakened the capacity of the Government to fund its activities, especially its public investment program. Not only does the absence of public savings diminish the capacity of the Government to invest, it reduces its capacity to absorb foreign savings in the form of new project loans. Foreign donors are generally unwilling to provide project funds without some matching contribution from the public sector. The scarcity of domestic resources to match foreign resources thus limits the amount of foreign savings that can be absorbed. The absence of public savings also reduces the attractiveness of the Dominican Republic to private commercial lenders, which might otherwise provide funds to bridge periods of cyclical downturns or offer more generous long-term lending. The economic deterioration culminating in the recent post-1982 crisis has raised severe doubts about the creditworthiness of the country in the minds of the private commercial banks, reflected in the virtual end to new lending. 2.33 As new foreign savings have dried up, the Government has increas- ingly been forced to finance its public investments through increased credit from the Central Bank. In the early 1970s, most of the public investment program was funded through domestic savings and foreign savings accounted for about half the borrowed financing. By 1982, foreign savings were cut to less than one-quarter and almost all of the domestic financing of the increasingly large public sector deficits came from the Central Bank, Even assuming the Government can reduce the operating losses of public enterprises, the Govern- ment must still choose between moderate tax increases with a relatively stagnant public investment program or substantial tax increases to fund a more active investment program. 2.34 One major priority of the Government should be to turn the current deficits of state enterp:ises into operating surpluses. The measures suggested above would help eliminate enterprise deficits and thus any addi- tional increased tax revenues could be devoted to financing investment. Three sources of additional taxation have consideraole potential: import taxes, increasing the coverage and efficiency in applying the new value added tax, and a one percent property tax. 2.35 Present import tax revenues amount to DR$177 million. They come from two types of import tax regimes. First, imports covered by Law 299, which grants to registered firms substantial exonerations on tariffs on imported inputs. In 1982 these imports amounted to DR$307 million, yielding tax revenues of DR$37 million, with an implicit duty of 12 percent. Second, non-exonerated imports (other than food and petroleum) amounted to D)R$449 million and yielded DR$140 million; an implicit duty of 31 percent. One way - 23 to improve tariff collections would be to value all those imports at the parallel exchange rate in order to compute their import duty. At present many imports come through the parallel market but their duty is always computed at the official rate. One other reform would be to charge presently exonerated imports an across-the-board 20 percent import duty. 2.36 The new value added tax (VAT) was originally expected to yield, corrected for evasion, around DR$95 million and replace the present 10 percent surcharge on imports yielding DR$50 million, a DR$45 million increase. The present legislation exempts some activities in manufacturing and commerce (processed and canned foods, beverages, petroleum and deriva- tives, fertilizers). The future revenue was expected to be DR$67 million, assuming the same evasion rates. Obviously, substantially higher revenues can be derived by further lowering evasion rates. This will take time. Most countries that have implemented a VAT benefitted from the experience of administering a previous general sales tax; the Dominican Republic does not have such experience. The law includes several broadly defined exemptions, making its implementation quite difficult and facilitating evasion. Recognizing the administrative difficulties, the Government has coordinated the VAT collection effort closely with its ongoing income tax collection efforts, added some staff, and mouated an educational program for private sector accountants. 2.37 Property taxes are urgently needed for revenue and equity reasons. A one percent property tax would also increase tax revenues by between DR$40 and DR$80 million, uncorrected by evasion. This rough estimate assumes that the base of this tax would be the stock of housing being used by the upper 20 percent of households in the nation's income distribution. This tax would help ease the adjustment burden now shiouldered by lower income groups in a regressive tax system. 2.38 Even if all collections from a possible property tax were omitted from the short-run revenue increases, the other two tax reforms could produce DR$150 million more. In three years or so, all these reforms could produce DR$200-300 million in incremental revenues. 2.39 Without additional tax measures, the public investment program will be stunted. R-ecent borrowings to compensate for the lack of public savings have already placed a heavy burden of debt repayment on the not-too-distant future. Moreover, foreign funds that had been relatively abundant, especially from private sources, are no longer available. This will hamper the public investment program, the subject of the next section. - 24 - E. The Public Investment Program Scope of Public Investment 2.40 The Government and its autonomous agencies and enterprises accounted for 20-40 percent of all investment in the 1960s and 1970s. This public share of domestic investment fell steadily from an average of 32 percent in the early 1970s to 19 percent in the early 1980s (Table 2.10). In 1982, public investment dropped to just 16 percent of an already contracted total domestic investment, reflecting the fall in public savings discussed above. Table 2.10: PUBLIC SHARE OF INVEL;TMENT AND SAVINGS (percent) 1970-75 1976-78 1979-82 Public Share of Gross Domestic Investment 31.9 28.6 19.1 Public Share of Total Savings a/ 41.5 32.1 -1.6 a! Includes foreign savings Source: Statistical Appendix Table 2.7. The 1983-85 Plan 2.41 As the new Administration took office in mid-1982, it encountered a greatly reduced public investment program--capital outlays were less than half the relative size of a decade earlier. The new Administration in its first plan,4/ accorded specific priority to projects that are in progress with foreign finance. It also gave first priority to other projects that (i) consolidate economic and social infrastructure; (ii) develop agricultural potential; (iii) reorient production for structural change; (iv) expand supply of local goods and exports; and (v) promote resource exploration and exploitation. 2.42 The new plan would significantly change the prevailing allocation of public investment. Agriculture, housing, and potable water are programmed to receive far more in the next triennium than their 1980-82 levels, and energy is to receive significant i.ncreases in the years beyond (Table 2.11). 4/ ONAPLAN Programa de Inversiones Publicas, (August 1983). - 25 - Transportation and Communication would receive proportionately less. The agricultural investments are largely in irrigation. Two large housing projects in Santo Domingo and Santiago account for most of the increases in housing. A major water project for Santo Domingo explains most of the increase in potable water. The expansion of the electricity network combined with its conversion to non-oil energy sources account for the increases in energy. Table 2.11: VOLUME AND SECTORAL ALLOCATION OF FUNDS Past and Future (percent of total) Executed Planned for Sector 1980-82 1983-85 1983 & Beyond Agriculture 15.1 22.4 21.1 Industry & Commerce 3.6 4.4 4.0 Energy 32.7 22.0 29.7 Transport and Communication 21.8 14.4 13.8 Housing 12.6 18.3 9.6 Education 3.5 3.1 3.9 Public Health 3.1 4.5 2.7 Potable Water 4.0 8.5 13.3 Other 3.6 2.4 1.9 Total 100.0% 100.0% 100.0% Amount (DR$ Millions) DR$967.6 DR$1,666 DR$3,196.5 Source: ONAPLAN, Plan 1983-86; National Budgets 1981-83. F. Main Problems of the Investment Program 2.43 The current program faces several sets of problems, including the large gap between current plans and financial possibilities, distortions induced by the financial shortages, and institutional problems. These problems contribute to sectoral misallocations, discussed in a final section. Financial Gaps 2.44 The 1983-85 Plan contains expenditure levels for investment that will be exceedingly difficult to achieve without major new increases in taxes. The plan contains projects requiring about DR$1.9 billion in - 26 - expenditures in the 1984-86 period.5/ Nonetheless, even the most optimistic assumptions would not place total available financing above DR$850-900 mil- lion. On an annual basis, public savings will probably be between DR$50-100 million; net foreign borrowing will probably range from DR$150-200; and net domestic financing, including funds from the domestic banking system, can be expected to be DR$25-50 million. Realistic levels of financing would be about DR$250 million for 1984; DR$300 million in 1985, and DR$350 million in 1986. These compare to annual expenditures in the plan of DR$564 million, DR$615 million, and DR$677 million. This leaves a gap of about DR$300 million per year (table 2e12). Table 2.12: PUBLIC INVESTMENT PROGRAM, 1984-86 (DR$ million) 1984 1985 1986 Planned 563.8 615.2 677.0 a/ Available Financing 250.0 300.0 350.0 Gap 313.8 315.2 327.0 a/ Estimated on. basis of projects begun and ongoing in the 1983-85 Plan, Source: ONAPLAN, Programa de Inversiones 1983 - 1985 and mission. estimates. Crisis-induced Distortions 2.45 The shortage of domestic resources has forced the Government to halt virtually all investment projects other than, those with foreign financing, and slow even these quite drastically. The fiscal and balance of payments crises effectively drive the public investment program. This creates two types of distortions. 2.46 First, the immediacy of the finanoial crisis compels the Government to focus on near-term adjustments rather than adequately plan for long-term development. As a result, decisions which are taken as short-term, stop-gap measures may conflict with long term objectives. The Government's decision in 1983 to invest heavily in a massive housing program to stimulate construction employment at the cost of other investment projects is one example. The absence of long-term programming also means that some meritorious projects will not be fully considered. For example, most 5/ The 1983-85 plan does not present figures for 1986; nonetheless, projects begun in the triennium will continue into 1986, some at increased levels. Therefore, it is assumed that 1986 expenditures will be about 10 percent higher than those programmed for 1985. - 27 - authorities agree that agricultural and export diversification should be a prime goal for the country and that near-term investment decisions should be directed at that goal. But because this objective is not clearly stated, public agencies and ministries do not design and implement their investment programs accordingly. 2.47 A second distortion stemming from the crisis is the implicit dependence of the entire investment program on foreign sources of finance. This means that some projects with high economic rates of return are underfunded because they have a low foreign exchange component or are of minimal interest to international donors, such as road rehabilitation projects and some public health projects. 2.48 The dependence on foreign financing also appears to be a major reason why government agencies and decentralized institutions eagerly seek new projects while delaying ongoing projects, even though the economic returns to completion of ongoing projects with large sunk costs is usually higher than for new ones. An agency with an ongoing project which has a ratio of counterpart-to foreign-financing of 50:50 has an incentive to delay the ongoing project when foreign donors appear with offers for two projects of the same value with ratios of 25:75. By shifting internal resources, the agency can buy two projects at the price of completing the ongoing project. This also complies with the needs of the Central Bank because it uses domestic funds to double access to foreign exchange. Even if a large proportion of the additional foreign exchange is spent on direct imports for the project, the Central Bank receives at least some new foreign exchange, augmenting its import capacity. Institutional Problems 2.49 Institutional problems have compounded the distortions imposed by the financial crisis. First, executing agencies are not accustomed to ranking projects based upon economic rates of return, and contend that all their projects are equally vital. The institutional capability to supervise or conduct economic feasibility studies is limited at nearly all levels of planning. Since the administering agencies are reluctant to rank projects and adamantly refuse cuts, when the central authorities are forced to delete projects, they do so with far less knowledge. 2.50 Second, planning and budgeting are limited tools to guide public expenditures because the systems permit too much flexibility in the course of the year. As new projects appear, they can be readily undertaken. Thus the plan and budget bear limited relation to what eventually is spent. In 1980, a typical year, planned real investment was proiected at DR$820 million; budgeted investment at DR$580 million; and executed investments only DR$333 million. In 1981, 1982, and 1983, the budget exceeded the plan. Wide disparities were present for all years since 1980 and for the major decentralized agencies.6/ To address this problem, the new Technical Secretary and Director of Planning created a Project Monitoring Unit whose 6/ See Statistical Appendix Tables 5.8, and 5.9 which present comparisons for the years 1979-83. - 28 - task it is to track the implementation of projects and publish monthly reports. Nonetheless, both the budgeting and planning systems should be strengthened to better guide resource allocation. 2.51 A third institutional problem is the fragmentation of decision- making within sectors. This hampers the implementation of any long term investment strategy. In agriculture for example, the Secretary of Agricul- ture is nominally responsible for the sector, but INDRHI, IAD, CEA, and the Agricultural Ministry itself all design and implement separate investment programs. Decisions concerning investment are quite decentralized. CEA is completely outside the administrative purview of the Secretariat. Thus, for example, if agricultural diversification were to be a national goal and public investment were to support such a strategy, it would be difficult for the Secretary of Agriculture to implement the program. Much the same could be said for decision-making in the generation of electricity. The burden of sectoral coordination in agriculture and electricity is thrown on the Office of the President. Costs of the Current Situation 2.52 Several specific costs are attributable to the current financial and institutional problems. First, the current system generates enormous pressure on the Office of the Presidency to expand investment and begin new projects regardless of resource constraints and national economic strategy. Since both the planning and budgeting levels tend to be unrealistic, Ministers and decentralized agencies are not forced to administer cuts in their total activities at the outset of the year and expectations at the executing level remain unjustifiably ambitious. 2.53 The most frequent outcome, therefore is, to permit all projects to continue but with inadequate financing. Consequently, most ongoing, foreign- financed projects are delayed because of the unavailability of counterpart funds to match proffered foreign resources. According to ONAPLAN, almost two-thirds of the projects for which information was available were reported to be well behind schedule.7/ Of the $206 million of foreign funds originally programmed for disbursement in 1983, only 41 percent had been disbursed by end-September. The situation was worse for the domestic resources programmed: only 24 percent of these had been disbursed. It is unlikely that total disbursements will reach 45 percent of that originally planned by the end of the year. 2.54 Project delays of up to three years imply substantial additional costs for the economy, particularly since the project loan must be repaid regardless of whether the project itself is producing a real economic return. The country has often begun amortizing loans before they are fully disbursed. The net payment associated with such anomolous projects could actually be negative. Delays also cause cost overruns. ONAPLAN estimates for 9 projects show average cost additions to be 37 percent of the initial 7/ See Statistical Appendix Tables 5.10 and 5.11. - 29 - value of the project.8/In addition, delays cause valuable human experience to be lost and fees on undisbursed debt to accumulate. These clearly lower the rate of return on a large segment of the public investment program. 2.55 In not planning, the Government is more likely to incur the costs of delay than if administrators adequately foresee delay. If one segment of a road is completed, it is usable even if the rest of the road is not completed; on the other hFnd, if the whole road is partially graded and then funds run out or if the almost completed segment is out of order because of poor planning, the agencies forego the use of the already spent funds and the productivity of investment is reduced. Perhaps the greatest cost of the current situation is the sectoral and project misallocation that occurs because project choices have not been made. Thus, too much has been spent on housing recently and there is a risk that too much may be invested on potable water in the future. These costs can be illustrated by presenting an alter- native vision of sectoral and project allocations over the long term, a task undertaken in the final section. Institutional improvements, however, are also vital to raising the productivity of public investment. Institutional Recommen.dations 2.56 Several institutional recommendations flow from the foregoing analysis. First the Office of the President should continue to exercise a strong leadership role encouraging the executing agencies to establish clearer rankings for projects on the basis of economic rate of return criteria. The Technical Secretariat of the Presidency, however, must finally select the projects that are to proceed, consistent with the Executive desires and resource availability. 2.57 Two corollaries stem from this principle. First, it is essential that executing levels develop techniques to analyze and rank projects in a systematic fashion according to pre-determined criteria. The criteria in the plan are sensible but leave the weighting of each separate criterion to the individual agencies. This means one agency can justify its projects on employment-creation ground and another on grounds of export expansion. The criteria as a group operate as ex post rationales for all projects, rather than as a priori standards for project selection and resource allocation, Second, information on the projected rates of return must flow upwards in a systematic fashion to ensure that decision-making will be informed at all levels. This implies that standard formats for each project should be adopted and reviewed regularly by ONAPLAN. 2.58 A second set of recommendations are procedural. Better coordina- tion between the planning and budgeting procedures must be adopted for both to exercise allocation and control functions. Several muldane but important steps could be taken immediately. First, the exact scope of a project should be clearly defined. Some implementing agencies tend to conceive of a project as being identical to a foreign loan; in fact, several loans may go into what should logically be seen as one project; or a loan may fund only a portion of 8 / See Statistical Appendix Table 5.10. - 30 - what should be conceived of as a discrete project. Also, the costs of admin- istering a project should also be inicluded in its definition. Second, coordination would be enhanced markedly by adopting a national codification system for projects; as it stands, a project is identified only by its foreign loan number if it is funded externally. Domestic projects appear to have no numbers and all projects have no number during the pre-solicitation stage. This failing also prevents the coordination and control by the supervising agencies at the early stages of all projects and for all projects that are not identical to a foreign loan. 2.59 Finally, two long-term issues must be addressed: Management continuity and fragmentation of decision-making within sectors. Both will require fundamental changes in the way the public sector staffs and coordinates its decentralized functions. The Office of the Presidency must begin to develop proposals to treat these major problems. These changes would markedly improve implementation of a more realistic investment program. G. An Alternative Investment Program Levels of Priorities 2.60 In the three-year period 1984-86, the Dominican. Government will probably be able to afford an investment program of about DR$900 million. Since programmed projects are well over double that amount, the Government must therefore cut projects that, however important and worthy, are of lesser priority. ONAPLAN's stated principles for project selection are generally well-founded: First, ongoing projects with considerable sunk investment and nearer to completion will generally yield a higher marginal return than new projects with longer gestation periods. Second, given the constraints on domestic financing, the Government will, of necessity, have to relay on foreign-financed projects; it should apply the strictest possible rate of return criterion to project selection to ensure maximum benefits. However, it would be a mistake to assume that all foreign-financed projects necessarily provide a higher rate of return to the country than all domestically funded projects. Some essential projects can only be funded domestically, and other projects with front-end loaded foreign exchange components may be in their final phases and require only domestic counterpart to complete. / Third, those that stimulate production and structural adjustment should be of highest priority. These criteria would exclude new heavy investments in housing, water supply, education, and public health. To be sure, these sectors produce an economic return and urgently require 9/ Planning and budgeting must therefore recognize this principle and incorporate a certain portion of investment funds, perhaps 10 - 15 percent, for purely domestic projects. In practice, a large segment of domestic funds are spent on purely domestic projects, either through the budgets of the decentralized agencies--which do not appear in the plan and budget--or through special programs, such as housing, - 31 investment; but, under present circumstances, raising the economy's growth rate in the near-term requires adjusting the investment program to projects with relatively short pay-off periods. 2.61 Other criteria for project selection should be clearly relegated to a secondary priority, a distinction not made in the cdrrent plan.10/ Making this distinction would permit planners to use the stated criteria as stand- ards against which to judge projects and the overall pattern of resource allocation. A Revised Program 2.62 The mission has presented a revised, illustrative investment program consistent with these priorities and financial resources. This is only a first approximation, but may prove useful to the Government as it revises its own program. The suggested public investment proaram shown in Table 2e13 totals slightly more than DR$265 million in 1984. 1/ Approxi- mately 25 percent of the 1984 value of these projects are in agriculture, 12 percent in transportation, and 38 percent in energy. In 1985 and 1986, the share of energy would drop to about one-quarter of the investment plan and the total allocated to transportation and communication would rise slightly to one-fifth. Agriculture is programmed to receive between one-fifth and one-quarter of investment in the three years. Housing and potable water are reduced to levels, reflecting their traditional levels of about 3 percent and one percent, respectively. In future fiscal years of the program, funds allocated to sectors, but not specific projects, would become more important and give planners greater flexibility to select the highest return projects in specific sectors. In 1986, for example, these discretionary funds would amount to more than DR$130 million. 10/ See paragraph 2.41 for a list of current criteria. 11/ The total program is based upon the projects listed in Statistical Appendix Table 5.14. The initial list of projects was taken from the ONAPLAN 1984 list of projects to be funded. It should be noted that this list of projects contained in the 1984 plan is not identical to that contained in the 1984 budget; the mission decided to work with the plan list because it was more comprehensive and contains projections beyond 1984. For a more elaborate explanation of the methodology used andproject breakdown, see Statistical Appendix Table 5.12 - 32 - Table 2.13: ALTERNATIVE INVESTMENt BUDGET BY SECTOR, 1984-86 1984 1985 1986 DR$ % DR$ % DR$ % Agriculture: Priority I 65.0 37.9 20.5 Priority II - - 25.2 17.7 Funds to be allocated - - - - 38.0 Total 65.0 24.5 63.1 21.0 76.2 21.8 Industry and Commerce: Priority I 10.0 7.0 9.3 Priority II - - - Funds to be allocated - - - - 8.0 Total 10.0 3.8 7.0 2.3 17.3 4.9 Education: Priority I 3.6 2.5 2.5 Priority II - - 4.0 - 3.0 Funds to be allocated - - 5.2 - 8.0 Total 3.6 1.4 11.7 3.9 13.5 3.9 Transport: Priority I 31.8 - 36.4 - 11.5 Priority II - - 22.7 - 17.0 Funds to be allocated - - - - 35.0 Total 31.8 12.0 59.1 19.7 63.5 18.1 Public Health: Priority I 6.3 - 7.9 - 10.0 Priority II - - 10.5 - 5.8 Funds to be allocated - - - - 8.0 Total 6.3 2.4 18.4 6.1 23.8 6.8 Energy: Priority I 100.4 - 59.2 - 60.6 Priority II - - 20.1 - 7.0 Funds to be allocated - - - - 15.0 Total 100.4 37.8 79.3 26.5 82.6 23.6 Housing: Priority I 8.9 - - - - - Priority II - - 8.8 - 12.0 Funds to be allocated - - - - Total 8.9 3.4 8.9 3.0 12.0 3.4 Potable Water: Priority I 2.6 - - - - - Priority II - - - - - - Funds to be allocated - - 6.0 - 8.0 Total 2.6 1.0 6.0 2.0 8.0 2.3 Other: Priority I 37.0 - 41.0 - 41.0 Priority II - - 5.6 - 3.0 Funds to be allocated - - - - 9.1 Total 37.0 13.9 46.6 15.6 53.1 15.2 Total: Priority I 265.6 - 200.7 - 155.4 Priority II - 88.1 - 53.5 Funds to be allocated - - 11.2 - 141.1 Total 265.6 100.0 300.0 100.0 350.0 100.0 Source: Table 5.12 statistical appendix. - 33 - 2.63 This program obviously would entail difficult choices. It would mean that several important projects would have to be delayed one year, such as the expansion of some major highway projects, several new irrigation projects of INDRHI, and some education projects. Expenditures on other very large projects in housing and potable water x.ould be delayed until after 1986. These projects are so large that they would distort the entire investment program in favor of housing and potable water at the inevitable cost of delaying projects of higher national priority. 12/ If the public investment program is reduced in scope, the efficiency of the public sector investment program will be markedly enhanced and the Goverment may once again become a leading sector in the country's growth. 12/ Problems affecting individual sectors as a whole and their project priorities are discussed in detail in Annex II for five sectors representing the bulk of public investment--housing, electricity, agriculture, potable water and transportation. - 34 - III: FOOD PRICING AND POLICY 3.1 Many analyses have been done on the Dominican Republic's export crops, their problems and prospects. Indeed, this report discusses them throughout, because they are vital to the country's recovery process. This chapter concentrates on the price incentives for nonexport crops, particularly foodcrops, because of their importance to domestic living standards and potential for export and import-substitution. 3.2 The Government intervenes in the pricing of food commodities primarily through the Institute for Price Stabilization (INESPRE). INESPRE was created in 1969, although state intervention in agricultural marketing dates back to the 1930s, INESPRE's statutory objectives are to regulate the prices of agricultural products in domestic markets to protect consumption levels in this food-importing country. Its main function was to smooth wide cyclical fluctuations in food prices, especially rice. INESPRE's inter- ventions in recent years have grown beyond rice into edible oils, maize, sugar and other products (Table 3.1). 3.3 INESPRE now controls nearly all the domestic market for rice, half the domestic maize market, and less than a fourth of the domestic market for beans. It has an import monopoly on basic food commodities, including maize, edible oils, nonfat dry milk, and some processed foods. INESPRE sets prices at different points in the marketing chain and buys and sells food products in domestic and international markets. Its dominant-firm pricing powers are enhanced by powers to control prices of other commodities directly. 3.4 INESPRE has tried to achieve several, sometimes conflicting, objectives: keeping prices down to mitigate inflation, providing incentives to producers to keep production up, and creating buffer stocks of key commodities to dampen the swings in production cycles. In recent years, the interaction between the dual exchange rate and administered pricing has created a series of price distortions in several important food markets. The resulting price incentives may inadvertently dampen domestic production and even exports of rice, peanuts and oil seed; they may promote the uneconomic expansion of corn. The combined effect of these activities reduces efficient import substitution, deters exports of food crops, and probably makes income distribution more unequal.. A first section of this chapter presents an overview of INESPRE's pricing behavior, and subsequent sections review pricing policy in the main lines of INESPRE activity. 35 Table 3.1: INESPREtS COMMODITY TRANSACTIONS, 1983 Total Sales Total Purchases Share of Commodity (DR$ millions) (DR$ millions) Imports Polished rice 158.1 142.2 0.0 Black beans 2.8 2.0 0.0 Soybean oil 20.2 19.4 100.0 Cotton seed oil 14.8 13.2 100.0 Sugar (various types) 80.9 75.5 0O0 Onions 1.2 0.7 0.0 Maize 31.4 27.6 88.0 Wheat bran 3.6 3.0 100.0 Sorghum 3.2 3o3 0.0 Potatoes 0.5 0.3 0.0 Eggs 0.6 0.5 0.0 Poultry meat 3.1 2.9 0.0 Nonfat dry milk 5.1 4.7 100.0 Butter oil 4.3 3.3 100.0 Animal fats 0.5 0.5 100.0 Soybean meal 3.1 3.0 100.0 Pigeon peas 1.1 0.0 0.0 Other products 2.1 2.2 0.0 Total 336.6 304.3 Gross Operating Margin DR$32.3 million Source: INESPRE, Plan Operativo, 1983. - 36 A. Pricing Policy 3.5 INESPRE has traditionally sought to provide cheap food to urban consumers. At first it sought to smooth the fluctuations in the domestic rice harvest by buying stocks in the harvest season and then releasing them slowly to coincide with the off-season scarcities. Gradually, its goals shifted to controlling 100 percent of the rice supply. By 1983 it had accumulated stocks valued at about one-third an entire year's production and inLended to add stocks of US$14 million to stocks of maize, oils, and soybean meal. To pay for the cost of these stocks as well as keep prices low for rice consumers, INESPRE has cross-subsidized rice sales from high mark-ups on other imported products, such as vegetable oils. It has kept its own profit in these products high by using its price control powers to keep prices low on inputs going into domestically produced substitutes, such as peanuts, which could otherwise be used to produce peanut oil at a competitive price. 3.6 One indication of the degree of cross-subsidization is the wide variance on mark-ups charged across its several product lines. Its mark-up over procurement prices ranged from 7 percent on rice to 70 percent on soy oil (Table 3.2). The simple average mark-up has risen slightly between 1982 and 1983 because of financial needs. Its rice margin averaged less than one percent during the 1970s, but rose to an average of 2.3 percent in the 1978-82 period, about one third of which was required for interest payments on its rice stocks. It rose to seven percent in 1983. 3.7 These mark-up differentials form only part of the distortion. In the product review below, two others are elaborated: the effects of pricing imports at the official rate and the uses of its price control powers to control entry of domestic producers into food markets INESPRE now controls. B. Rice Production 3.8 INESPRE has consolidated its control over the rice trade and expanded vertically into milling. INESPRE is now purchasing paddy directly from farmers and milling it in its own mills. A recent law 1/ prevents the transport off rice outside of the producing region unless specifically authorized by, INESPRE. The law was designed to prevent farmers from selling directly to urban markets or to exporters on the parallel market, some of whom were selling rice to Haiti. The effect of the law, however, is to confer monopsonistic power on rice millers since they are the only buyers for the rice. 3.9 Rice represents nearly half 3f the value of INESPRE's sales and purchase operations. Rtce consumption averages 50 kg. per person per year and absorbs 13 percent of the total expenditures of households. Rice also represents approximately 10 percent of the value added in agriculture, with three-fourths of the output coming from over 25,000 farms of less than 5 1/ Decree No. 273 of September 21, 1982. - 37 - hectares. 2/ The labor share in the farmgate cost of rice has been estimated at 55 percent; accordingly, rice production is an important source of employment and income for small farms and rural labor. Rice price policy has a dual role: it affects the cost of living of rice consumers and significantly influences the level of rural incomes and employment. Table 3.2: INESPRE: GROSS MARGINS a/ (percent mark-up over costs) Product 1982 1983 Rice 4.3 7.0 Corn 5.7 9.1 Sorghum 6.4 5.4 Black beans 34.6 25.0 Red beans 38.9 25.0 Wheat bran 21.4 25.0 Onions 22.8 22.8 Potatoes 31.2 31.2 Milk b/ 48.8 62.2 Butter Oil 18.7 43.0 Sugar b/ 7.4 7.4 Chicken/poultry meat 36.4 45.4 Eggs 0.0 33.0 Soy flour 56.8 39.5 Cotton seed oil 67.5 62.1 Soy oil 72.6 70.3 Simple average 28.3 31.1 a/ Per unit price minus unit cost as a percent of the latter. I/ Simple average for multiple grades. Source: INESPRE 2/ B. Senauer, T. Roe, and D. Greene, "An Analysis of Foodgrain Price and Trade Policy in the Dominican Republic," University of Minnesota, October 1982. 38 - 3.10 Rice production increased rapidly between 1973 and 1979, growing at an average annual rate of 6.5% (Table 3.3). Increases were achieved mainly asa result of the introduction of new rice varieties and expanding irrigation systems. Opening new lands to irrigation increased rice acreage 27 percent inthe 1970s. Between 1979 and 1982 production stabilized however, and total imports have fluctuated between 0 and US$72 million. They are expected to be zero in 1983. Table 3J3: PRODUCTION, CONSMbPTION, AND IMPORTS OF RICE (thousands of metric tons) INESPRE Imports as INESPRE Sales Domestic Consump- INESP-RE Domestic Percent of as Percent of Year Production tion Sales Purchases Imports Consumption Consumption 1973 177.3 217.6 88.6 63.6 29.6 13.6 40.7 1974 197.0 244.1 197.4 149,0 72.4 29.7 80.9 1975 210.6 259.5 197.6 138.9 4904 19.0 76.1 1976 210.8 247.1 203.1 143.6 32.6 12.9 82.2 1977 200.9 251.8 215.1 175.6 64.4 25.6 85.4 1978 227.8 222.3 191.2 188.0 10.4 4.7 86.0 1979 258.1 274.4 252.4 218.4 0.0 0.0 92.0 1980 254.1 291.3 260.8 230.5 40,5 13.9 89.5 1981 258.5 257.7 236.7 221.6 62.9 24.4 91.8 1982 254.4 281.7 223.8 214.1 0.0 0.0 79.4 1983 a/ 299.7 283.6 264.0 254.0 0,0 0.0 93.0 a/ Projected for 1983 Source: INESPRE, Plan Operativo, 1983. 3.11 INESPRE has apparently played its intended role in stabilizing rice prices. Time series data for rice prices at various points in the marketing and distribution chain during 1973-82 reveal that nominal domestic prices for rice at the producers', millers' and consumers' levels have been more stable than international prices.3/ Marketing margins have also remained rather stable, with the producer price for paddy averaging 56 percent of the mill price for polished rice. INESPRE appears to have achieved significant success in stabilizing inter- and intra-year fluctuations in the domestic prices of rice. Part of this success over the last 10 years is because it has secured imported rice through PL480 and other foreign programs at lower and less fluctuating prices than the world price. 3/ Domestic prices exhibit a coefficient of variation of approximately 21 percent, while the internrational price series exhibits a coefficient of variation of 36 percente See Statistical Appendix Table 7.3. -39- 3.12 Nonetheless, the price incentives facing domestic producers were much lower than the world price. Only once during 1973-1982 was the domestic price paid to the millers above the peso impor. price at the parallel exchange rate. The average negative protectiorN (i.e., tax on producers) during the ten-year period was 16 percent. Even if the first two years of the period (1973-74) are excluded because imports were unusually high, the remaining eight years yield a negative protection of 11 percent compared to import prices at the parallel exchange rate.4/ Thus, even though production has grown, it might have grown even more rapidly had international prices prevailed, offering a greater stimulus to produce. 3.13 As the gap between the official and parallel rate has widened, pricing distortions are becoming more acute. Two distinct regimes occurred during the last eight years; one ending in 1978 in which prices to millers were higher than INESPRE's purchase price for imports at the parallel market rate and another since 1978 in which miller prices were lower. Beginning in 1979, to assist INESPRE with its financial problems, the agency was allowed to acquire up to US$100 million on the official exchange market for its imports. Since INESPRE establishes its price to the millers at an average mark-up of about 20 percent over its actual import cost, the negative protection of the last four years occurred because INESPRE was allowed into the official foreign exchange market when the peso price was more than 20 percent below the parallel price. An opportunity exists to return INESPRE to more neutral pricing for rice if it operates only on the parallel market. Since world market prices are now quite low, the gap has narrowed and domestic consumer prices would rise very little. 3.14 Several policy actions were taken in 1983, primarily as a response to the continued financial deficits of INESPRE. The prices of most products were raised. The price of rice, for example, rose from DR$0.316 per pound in Santo Domingo in February 1982 to DR$0.349 by April 1983. Second, INESPRE has attempted to cut costs by permitting the millers (with prior authorization) to sell directly to urban markets and to contract out storage; this will reduce INESPRE's transportation and storage costs. Third, the Government has reduced INESPRE's access to foreign exchange from DR$16.9 million (of total nonconcessional imports of DR$18.3 million) in 1983 to DR$4.5 in 1984 and DR$5 million thereafter (see Table 3.4). 4t Because of concessionary aid, INESPRE was occasionally able to buy rice on the world market at prices below the international price for a number of years; hence the effective protection based on INESPRE's actual costs was about neutral. - 40 - Table 3.4: INESPRE: PROJECTION OF IMPORTS ACCORDING TO SOURCES OF FUNDS, 1983-86 (US.$ million a/) Sources of Projected Finance 1983 1984 1985 1986 Total 69.3 75.9 65.0 60.0 Commodity Credit Corporation (CCC) 18.8 36.9 30.0 25.0 PL- 480 23.0 20.0 20.0 20.0 Argentina 9.2 - - - Own Resources 18.3 19.0 15.0 15.0 Official Market 16.9 4.5 5.0 5.0 Parallel Market 1.4 14.5 10.0 10.0 a/ F.O.B. value Source: INESPRE 3.15 These measures, however helpful in correcting some price distortions, do not eliminate them. Only a small portion of INESPRE's total imports will be purchased at the parallel rate because all PL480 and CCC imports (half the total) can still be bought at the official rate. Moreover, the monopsonistic powers conferred upon INESPRE and regional mills will probably depress prices below the levels they would be under competitive conditions, and thus discourage production in the long run. Finally, these measures do not appear to be sufficient to end INESPRE's net drain on national savings: INESPRE was projected to finish 1983 with a deficit of more than DR$30 million. 3.16 Perhaps most important, the low domestic price continues to stiffle export potential. Rice production in 1980 could, at the margin, cost only DR$1.02 per US$1 saved or earned, an implicit exchange rate well below the parallel rate. It is thus clear that the Dominican Republic has a significant international comparative advantage in rice production. This calculation is a conservative one, since under present pricing of imported and other inputs there is probably a suboptimal use of imported factors of production. Under more economic pricing of inputs, foreign exchange savings would be even higher. The end result could lead to profitable rice exports. - 41 - C. Edible Vegetable Oils 3.17 Imports now constitute more than two-thirds of the Dominican Republic's consumption of edible vegetable oils. Domestic production of these oils declined by 14 percent during the 1970s and imports increased by 233 percent. Peanuts, cottonseeds, and coconuts have been the traditional sources of raw materials for domestic production of edible vegetable oils. Recently, soybeans and African oil palm have been introduced or. an experimental basis. INESPRE serves as a monopoly importer that sells its vegetable oil imports to processors and distributors. In the last four years, INESPRE has imported an average of 60,000 metric tons of oil for an import bill of approximately US$40 million per year. 3.18 Profits from the sale of imported oil constitute the bulk of INESPRE's gross profits. For 1983, INESPRE expects to import 41,000 metric tons of soybean oil and 26,000 metric tons of cottonseed oil for a total import bill of US$34 million; half of INESPRE's planned value of imports for 1983. Its mark-up for vegetable oils is over 60 percent, compared to 7.4 percent for rice. INESPRE expects DR$14 million in gross profits from the sale of soy and cottonseed oil in 1983, 42 percent of its net revenues. 3.19 INESPRE, therefore, has a large incentive to maintain the level of vegetable oil imports high and domestic production of oilseed down. It has used its monopoly power to depress prices for domestic producers and, hence, to provide revenues for its operations. For example, the producer's price for peanuts has averaged 55 percent of import prices--even at the official exchange rate--throughout the 1970s. Cost calculations indicate that the country has a strong advantage in peanut production; irrigated peanut production could convert 0.73 Dominican pesos into US$1; for rainfed peanut production this conversion would be equal in v-lue to only 0.38 pesos. There seems to be no economic justification to continue the strong disincentive to domestic production of vegetable oils. - 42 - D. Maize and Animal Feeds 3.20 Maize, bought and sold by INESPRE, is mostly used for poultry feeds. INESPRE captures approximately 15 percent of the domestic production of maize, and nearly 90 percent of INESPRE sales are from imported maize. For 1983, the cost of planned maize imports exceeds US$24 million, of which US$16 mill-ion are expected to be purchased on concessionary credit. terms from the United States. Soybean meal is also imported by INESPRE for the poultry industry. Together with maize, these imports constitute 40 percent of INESPRE's planned 1983 imports. In addition, the Institute imports processed poultry meat in an effort to keep poultry prices stable. 3.21 INESPRE has consistently maintained the producer price of maize above import costs, even at the parallel exchange rate; over the last eight years the producer price has averaged 10 percent over the import price at the parallel exchange rate. Nevertheless, the Dominican Republic does not appear to have a comparative advantage in producing maize, at least under irrigated conditions. Domestic cost coefficients show it would require an exchange of 1.32 pesos per U.S. dollar or higher for maize production under rainfed conditions, and 1.70 pesos per dollar for maize production under irrigated conditions. The recent rise in the parallel rate, however, may indicate that some corn imports could be substituted with domestic production under rainfed conditions where the exchange rate required is 1.32 pesos per dollar. 3.22 High maize prices together with subsidized water charges create an incentive for maize production on irrigated lands. An alte-,- ...ive feed grain, sorghum, would be a more efficient use of water and domestic resources; but its production receives negative incentives under the current pricing for maize. The only motivation for high prices seems to be that maize (from commercial and concessional) imports can then contribute significantly to INESPRE's cash flow and financial needs. - 43 - E. Other Commodities. 3.23 Sugar, beans, and nonfat dry milk represent the other commodities for which INESPRE attempts to control the market. INESPRE also intervenes in the market for some semi-perishables such as onions and potatoes, but the Institute's role is minor in those markets although they contribute to its financial losses. 3.24 INESPRE buys sugar of three different qualities from CEA and monopolizes its distribution. Sales of sugar products account for a fourth of INESPRE's sale volumes. INESPRE's role is limited to maiItaining price controls in the sugar retail market; prices have been well below export prices, even at the official exchange rate, although recent decisions to increase prices may reduce this distortion. 3.25 Beans are an important staple in the diet of consumers; they absorb approximately 5 percent of the budget of households at the urban poverty levels and provide 6 percent of daily calorie requirements and a far higher percent of protein needs. INESPRE's role in the marketing of domestic production is minor, but if INESPRE's imports are taken into account, it handles approximately 20 percent of total consumption of beans. The open market price for red beans--the preferred product--is consistently and substantially above the INESPRE support price. Attempts to encourage production of black beans by setting relatively high prices led to surpluses, but exports to Venezuela became impossible since Dominican farmgate prices are higher than international prices. INESPRE currently holds and continues to acquire stocks of black beans. Similar experiences have been realized for pigeon peas. 3.26 The price of pasteurized milk is controlled at DR$0.45 a quart, and milk producers are not selling their raw milk to the processor because they can sell raw milk directly to consumers for DR$0.65 per quart. This has created a shortage of processed milk in urban areas. INESPRE is importing 5,000 metric tons of nonfat dry milk and butter oil to supply reconstituted milk to urban areas at a foreign exchange cost of US$8.2 million. 3.27 INESPRE's expansion into other products has required cold storage facilities (for onions and potatoes) and expansion of staff and operating facilities, but these products represent less than 7 percent of INESPRE's sales volume. Unfortunately, they are being heavily subsidized even without accounting for operating expenses. This subsidy element alone amounts to DR$13.8 million, and operating losses could amount to another DR$5 million. - 44 F. INESPRE's Role and Recommendations 3.28 The pricing policies of INESPRE have probably hindered efficient import substitution and discouraged exports. However well motivated, they have probably worsened income distribution and hurt both the rural and urban poor. For example, rice prices could have averaged 10 percent higher during the last eight years. This would have reduced the incomes of the poorest 30 percent of consumers only by an estimated 1.3 percent; most people could have shifted their purchase into alternative, cheaper food staples. On the other hand, higher rice prices probably would have had an increased impact on rural wages and employment, and therefore income, by substantially more. By depressing incomes of rural producers these policies have removed an incentive for the rural population to stay on the land and inadvertantly stimulated rural-urban migration. 3.29 Until 1979, INESPRE was generating cash surpluses; it is now generating deficits. While gross margins have increased four-fold from 1978 to 1981, the Institute has experienced losses because of higher storage costs, higher administrative expense, and financial expenses required in holding inventories and increasing the physical plant. Reductions in INESPRE's quota of foreign exchange at the official rate will place even greater financial stress on the Institute's financial position unless it undertakes significant modification of its pricing operations. 3.30 The recommendations that follow are designed to improve the performance of agriculture but are also consistent with improving equity. The suggested measures should also improve rural incomes and the balance of payments. The use of "cheap" food policies and "cheap" imported inputs to agriculture is not a viable long term vehicle to improve income distribur- tion. Their negative effect on rural income and rural employment can lae more significant in worsening income distribution than their possible positive effects on urban consumers. The problems of urban poverty can be better attacked by policies other than food pricing. 3.31 INESPRE should be encouraged to specialize in stabilization activities in rice. It can control tl .'1tra-year price variaace by acquiring about a quarter of the harvc..-. (in milled form) in each month from June to January, and selling off its stocks in February through May. Inter-year variance could be dampened by holding stocks no greater than one-fifth of consumption. Domestic prices could be allowed to follow the trend of import prices, without transmitting the short-run volatility of international prices. During the 1970s a pricing rule that would have kept nominal prices within a 10 percent band of a moving average of import costs at the parallel rate would have achieved the same inter-year stability at a lower fiscal, foreign exchange, and social cost. With 130 private mills, INESPRE could leave the milling process entirely, selling its mills to private companies or cooperatives. - 45 - 3.32 The Government should take affirmative action to reduce the monopsonistic powers that flow from the current organization of rice distribution and marketing. Serious consideration should be given to revising Decree No. 273 which effectively reduces the number of buyers to whom farmers can sell their produce. Consideration should also be given to revising those rules which now impede the export of rice. This includes making rice eligible for sale on the international market at the parallel rate, adjusting domestic prices to reflect international prices, and reorganizing distribution and marketing channels to ensure that producers receive their share of international price incentives. 3.33 INESPRE should also divest itself of stocks of oil and other commodities and forego further stock accumulation, particularly of vegetable oils. Price controls on oilseeds should be lifted, and its storage facilities such as tanks and cold rooms sold. Revenues from this sale could be used to repay INESPRE's debts. INESPRE's role in handling semi-perish- ables (onions and potatoes) is also questionable. Even if the market for these commodities becomes "unstable", the welfare impacts would be minor. Some price stability could be enhanced through unimpeded imports and a system of variable levies on imports. - 46 - IV. INCENTIVE POLICIES IN MANUFACTURING 4.1 The contribution of the manufacturing sectorl/ to GDP has increased only slightly during the last decade. In the 1960s and early 1970s, industrial output grew rapidly but began to stagnate in the late 1970s (Table 4.1). The industrial share in GDP has not increased appreciably since the mid-1970s, apparently betraying the promise industry once held for diversifying the sugar-based economy. Table 4.1: KEY INDUSTRIAL INDICATORS (percent) Real Growth Rates 1968-75 1975-80 1980-82 Industrial Value Added a/ 12.1 5.6 3.3 Industrial Output a/ 12.4 5.7 2.7 b/ Shares 1968 1972 1975 1980 1981 Industrial Output/GDP 12.7 13.5 14.7 15.5 15.1 Industrial Exports/Industrial Output n.a. 3.6 3.0 3.2 2.8 a/ Excludes processed sugar, furfural, and roasted coffee. b/ 1980-81. Source: Central Bank and CEDOPEX. 4.2 Industrial production has been directed at serving a irotected domestic market for consumer goods with an increasing use of :imtported inter- mediate inputs. The declining growth of value-added in relatioon to the growth of gross output reflects the import-substitution policy fl:E.1nework. Industrial exports outside the Export Processing Zones (EPZ) reraj.L,-r low, roughly 3 percent of total industrial output. EPZ exports, however':, have experienced a substantially higher growth, although from a rather :luw base. This chapter analyzes the policy environment that has led to this p:attern of growth and subsequent stagnation. / Throughout this report, "manufacturing" or "industry" excludes sugar mills. - 47 - A. The Incentives for Import Substitution 4.3 The import substitution bias in manufacturing is rooted in the import tariff system, import exonerations and prohibitions, as well as the dual foreign exchange market. The current system of tariffs is based on many complicated laws which operate in a cumulative manner: in addition to Law 170 of 1971 (the main tariff law) and Law 173 of 1964 (unifying several previous tariff laws), import duties are also established by (a) Law 361 of 1964 which added a 20 percent ad valorem tax on all imports, excluding exonerated imports; (b) Law 136 which established a 4 percent surcharge; (c) Law 346 of 1972 extablishing a minimum tariff of 10 percent; (d) Law 597 of 1977, raising the tariff rate on machinery, equipment, and spare parts to 20 per- cent; and finally, (e) Law 48 of 1982, which established a one-year addi- tional 10 percent import tax. 4.4 The resulting tariff system is extremely complex to administer. Additive tariff laws have specific and ad-valorem tariffs requiring that each product be calculated individually. Also many cases of total or partial exonerations arising from special contracts between particular enterprises and the Government create special laws granting specific tariff exonera- tions. The most important source of tariff exonecation is Law 299, which grants to registered import-substitution firms (categories "B" and "C") sub- stantial exonerations--up to 95 percent--on import tariffs on raw materials and intermediate inputs, as well as significant tax exemptions for reinvest- ments. 4.5 Import prohibitions and other non-tariff barriers were introduced in 1979 to stem a worsening balance of payments. Import prohibitions were imposed on several consumer goods such as certain garments, furniture and other light industrial products. During 1982, about 200 imports were prohibited, increasing the number of prohibited import items to 357. The value of these imports amounted to DR$109 millions in 1981 or 11.5 percent of total non-oil imports. 4.6 There are no data on actual tariff collection at a disaggregated level. Nevertheless, a pattern emerges from Table 4.2. Of DR$756 million of imports in 1982 (excluding food and oil), 40 percent were exonerated from tariffs through Law 299. While the lega. average tariff was 76 percent, exonerations produced an effective tariff of only 12.2 percent. Non- exonerated imports paid an average tariff of 31.2 percent. While details are sparse, non-exonerated capital goods tended to pay a flat 20 percent duty, while collected duties for consumer imports were in the 50 to 100 percent range. 4.7 This tariff structure favors imports of goods not produced domestically, but it also heavily protects final consumption goods produced - 48 - domnestically. The foreign exchange regime reinforced this bias by allowing tax-exonerated imports to come through the official exchange market, 56 percent of total imports in 1983. Table 4.2: STRUCTURE OF TRADE RESTRICTIONS ON IMPORTS, 1982 (excluding food and petroleum) Import Categories Tariff Rates On: Exonerated Imports Non-Exonerated (Law 299) Imports Capital Goods 11.0% 20% Intermediate Inputs 10.8% n.a, Raw Materials 13.2% n.a. Consumer Goods Between 50 and 100% Average Rate Tariff 12.2% 31.2%. Total Imports DR$307 million DR$449 million Total Tariff Revenues DR$37.4 million DR$140 million % at official exchange rate 56% 0% Source: Mission estimates based on data from the Ministry of Finance, 4.8 The mission estimated effective rates of industrial protection resulting from these tariff and exchange rate policies. The information used was the 1977 manufacturing sector input-output matrix; data on levels of nominal import tariffs estimated in a forthcoming study on effective protection 2/; and estimated levels of nominal tariffs on exonerated input imports collected by the Ministry of Finance. These estimates are clearly,v only illustrative; the quality of the data, the use of cdifferent source,>, the aggregation of inputs (and of exonerations), and the assumption that doiaestic prices equal international prices plus the ad valorem import tariff all call for cauti.on in the use of the data. 4.9 Even without exonerations, the level of protection is high and extremely variable across products (Table 4.3). Exonerations produce not onl a substantive increase in the average level of protection (from 125 percent t 2/ INCAT, "Estudio sobre Proteccion Efectiva en la Republica Dominicana", Draft 1981. 49 - 232 percent), but also in an increased protection variance (from 153 percent t226 percent). The highest increase in protection takes place in electi'cal machinery, the sector with the lowest value added per unit of output. In this sector, imported inputs amount L_ 90 percent of the gross value of production. The allocation of foreign exchange reinforces the pattern of industrial protection. The third column of the table adds the effect of forcing final goods into a parallel market while permitting inputs in the official market. The massive protection offered by this step and the equally massive distortion and inefficiencies it causes fully highlight the problems caused by the dual foreign exchange rate system. B. The Incentive Structure for Non-traditional Exports 4.10 The Export Incentives Law (Law 69), implemented in mid-1980, grants incentives to non-traditional exports by providing both foreign exchange and fiscal incentives. The former partially exempts exporters from the surrender requirements of currencies obtained from non-traditional exports. The latter included a tax certificate credit (Certificado de Abono Tributario CAT) until October 1983 and a drawback system to admit imported inputs to expGc* production. Table 4.3: ESTIMATES OF EFFECTIVE PROTECTION TO DOMESTIC INDUSTRY a/ (percentages) Policies Regarding Imported Inputs Without With Effect of Official ISIC Code Exoneration Exoneration Exchange Rate 311-2 Processed foods -9.3 96.3 159.9 313 ,d from 35 products in 1980 to only about five yearly in 1981-82. 4.15 Because the overall impact of CATs on promoting exports was quite minimal, the program was effectively ended in early October 1983. The Temporary Import System 4.16 Under this system, import duties are waived for any imports used to manufacture non-traditional products exported within a year. As with CATs, this incentive has had little impact. By the end of 1982, only 26 firms, with imports amounting to only DR$1.5 million, had used this specific provision. The widespread import tariff exonerations provided by Law 299 have made this system redundant. Under Law 299 exporters are granted not only tariff relief on imports of materials, but also avoid the special customs procedures required of beneficiaries of the temporary import scheme. C. Comparing Import Substitution and Export Promotion Incentives 4.17 The industrial policy framework that dominated the 1970s was established by the institutionalization of a parallel foreign exchange market in 1967 and Law 299 in 1968. This framework encouraged an inward development of the industrial sector, mostly import substitution of consumer goods and also strongly discriminated against the export of industrial products. Throughout the 1970s, availability of foreign exchange at the cheaper official rate for imports of capital goods stimulated their import and promoted the use of capital-intensive technologies. The widespread exonerations of tariffs and other import duties on imported goods encouraged the use of imported inputs in the manufacturing sector. At the same time, however, the production of final consumer products at high cost levels was brought about by prohibitions and high tariffs, and by the need to finance the imports of these goods with foreign exchange from the parallel market. 4.18 Export of manufactured goods were discouraged by the requirement to exchange their proceeds in part or in full at the official ra.te. Exports of manufactured goods thus remained a low proportion--3 percent--of manufacturing production. Table 4.4 shows nominal protection estimates for production toward the domestic market vis-a-vis the nominal incentive to export; column 3 shows the resulting anti-export bias. The bias index shows the peso/dollar exchange rate that would be needed to balance government-induced price distortions and export prices. 52 - Table 4.4: NOMINAL ANTI-EXPORT BIAS Domestic Producer: Export Producer: Peso Cost of Peso Cost of Production Production Compared to Compared to US$1 of Import US$1 of Export Relative Valued at Valued at Anti-Export Parallel Market Parallel Market Bias (DR$) (DR$) ISIC Code (1) (2) (1)/(2) 311-12 Processed food 2.10 1.24 1.69 313 Beverages 7.21 1.24 5.81 314 Tobacco 2.42 1.22 1.98 321 Textiles 3.36 1.13 2.97 322 Clothing 3.36 1.15 2.92 323 Leather products 2.79 1.18 2.36 324 Footwear 2.36 1.26 1.87 332 Furniture 2.61 1.22 24 >13 341 Paper/paper products 2.55 1.13 2Q25 342 Printing/publishing 2.61 1.16 2.25 351 Industrial chemicals 2.26 1.13 2.00 352 Other chemicals 2.07 1.15 1.80 356 Plastic products 2.90 1.10 2.63 362 Glass/glass products 3.05 1.12 2.72 369 Non-metallic minerals 2.36 1.20 1.97 381 Metal products 2.48 1.15 2.16 382 Non-electric machines 2.02 1.12 1.80 Source: Mission estimates as of December 1982. The Potential for Non-Traditional Exports. 4.19 The potential for expanding non-traditional eAports is great in the Dominican Republic. The market for non-traditional agricultural exports, such as tropical fruits, fresh and frozen vegetables, and winter vegetables, is vast. The proximity of the U.S. market provides the country with locational advantages over potential competitors in many products. Also, the exports of agro-industrial products, such as toasted coffee, processed pineapple and coconut products, could be markedly expanded. Altogether, these products account for less than one-fifth of the country's exports. - 53 4.20 Nonetheless, numerous disadvantages hamper the growth of these exports. These include the lack of appropriate packaging at competUtive prices and deficient transport and insurance services. Export prohibitions block growth in certain items. For industrial exports outside the Export Processing Zones (EPZs'), the major barrier to growth is the lack of appropriate inputs owing to the high protection of local inputs. Within the EPZs firms do not benefit from the depreciation of the price of the peso in the parallel market for the purchase of their domestic Inputs (e.g. electricity), and so their costs tend to rise in comparison with EPZs in other countries. In addition, customs operations are still cumbersome and the supply of utility services is unreliable. Many of these problems, analyzed in detail in Annex III, could be overcome at relatively low costs to the Central Government and have a major impact upon the long-term foreign exchange earning capabilities of the country. D. Main Recommendations 4.21 Recent measures regarding the operation of the parallel market and the promotion of non-traditional exports have undoubtedly lessened some of the past trade distortions. First, there was the transfer to the parallel exchange market of imports of capital goods begun in 1980. The share of capital goods using the official exchange rate declined by about 80 percent, from 15 percent of all official market imports in 1980 to less than 3 percent in 1983. By the beginning of 1983, only 46 percent of total imports remained in the official market, down from 65 percent in 1978. About 90 percent of these were raw materials, nearly all oil and oil-related. Second, the virtual elimination of imported non-oil inputs from the official market in mid-1981 has probably lessened some of the distortions. Third, the recent decision that exports of 83 non-traditional agricultural products be moved totally to the parallel exchange market is an important stimulus to exports. Fourth, the inclusion of many services, particularly credit card transactions, will promote service industries like tourism. Finally, CEDOPEX has taken a series of actions to reduce administrative barriers to export promotion, focusing especially on eliminating delays in giving the export permits and on the elimination of bureacractic discretion in awarding incentives. 4.22 These accomplishments have begun the process of moving the economy away from an inward-oriented strategy toward an outward orientation. Nonetheless, the economy is still dominated by high levels of protection and widening dispersion in effective rate of protection among products. These policies still discourage would-be exporters and encourage inefficient import substition. 4.23 These remaining distortions continue to shackle growth. The resources used by the protected import substitution se!ctor to substitute for one dollar of imports is several times larger tbqr. the resources used by the export sector in order to generate one dollar's worth of foreign exchange. Also, the export sector has been subject to substantially higher degrees of discretion and uncertainty than prolucers for the domestic market. This adds to the regular uncertainty that exporters already face - 54 - in the external markets. If exports are to be accelerated, the structure of the remaining incentives should be changed. 4.24 Because of the complexity of the current tariff system, enforcement of revenue collection is cumbersome and highly discretionary. The application of laws depends largely on the interpretation of custom officials. A simplification of the current tariff system, including the conversion of specific tariffs into ad valorem tariffs, would lessen these problems. An effort was made to consolidate all the tariff laws iui force in 1980 into a new tariff law proposal. This was presented to Congress in 1980 and its adoption would enormously simplify the tariff system. 4.25 The country, however, clearly needs a new tariff structure which would reduce the present, excessive anti-export bias. One possible measure is an across-the-board tariff of 20 percent for all exonerated imports presently paying less than 20 percent. There would be no exoneration, except for food, petroleum, and the duty-free temporary import system for exports referred to below. The Government should also consider establishing a long-run maximuim tariff rate goal in the 30 to 50 percent range, toward which all tariffs in excess of it and all import prohibitions should evolve. This could be complemented with additional sales taxes for "luxury" consumer durables so as to discourage both their import or domestic production. For example, automobiles could have a substantially higher sales tax. In evolving toward this long-run objective, some intermediate steps should be taken, particularly the conversion of quantitative prohibitions and prohibitive tariffs into "high" tariffs therefore allowing a minimum amount of imports. One major step would be the elimination of the distortions in resource allocation introduced by the dual foreign exchange system. This measure would also eliminate the substantial unearned profits currently being appropriated by importers benefiting from foreign exchange quotas. Many of these measures might be achieved, wholly or partly, by issuing regulations to Law 299, which if formulated properly could begin to phase out exonerations and some distortions. 4.26 Many other changes should be considered. The regulations used to implement Law 69 col.ld be liberalized to ensure faster, less costly, and more effective access to the parallel market by non-traditional exporters. CEDOPEX is to be commended for its extensive progress toward this goal already. Moreover, institutional changes could be useful in reorienting industrial and even agroindustrial and non-traditional agricultural investment toward exports. These include phasing out cumbersome customs operations, arranging adequate packaging materials at internationally competitive prices, and overcoming shipping obstacles. ss / - 55 - ANNEX I Page 1 of 19 ANNEX I MACROECONOMIC PROJECTIONS - .. . . I - 56 - ANNEX I Page 2 of 19 Introduction 1. In order to evaluate the prospects of the Dominican Republic, the mission developed and applied a macroeconomic projection model. The base year chosen was 1980. Much of the analysis in this Appendix takes as a reference a base run, but two other important runs, an "optimistic" and a "pessimistic" run, were also added. Since the growth prospects of the economy (and the mission's projections) are strongly affected by the debt situation, export prospects and domestic factcr prices, these are discussed first. Key Assumptions 2. Debt. The total medium and long-term external public debt out- standing in 1983 is estimated at US$2,258.2 million (see Statistical Appendix Table 4.1). The distribution of debt outstanding and disbursed as of December 31, 1982 indicates a balanced use of creditor sources, with only 20.1 percent owed to private creditors, 21.5 percent to multilateral institutions and 58.4 percent to bilateral sources. The overall percentage distribution of total commitments by creditor sources for the period 1979-82 shows a clear change of financial sources. The share of bilateral sources increased to 74.1 percent by 1982 while no contracts were made with private banks in the last two years. This contraction in the use of private sources also resulted in improvement in terms. In 1982 the average interest was 5.5 percent; maturity was 16.4 years; and average grace period was 4.4 years. 3. The Dominican Republic has nearly completed renegotiation of most debt owed to private banks. Of the US$660 million being renegotiated, US$342.5 million in overdue letters of credit and US$60 million of CEA's obligations were previously short-term debt and not included in the mediumr- and long-term debt discussed earlier. These rescheduled arrears will now become part of the total medium- and long-term debt. The projections assume that the CEA loan is to be paid entirely in 1986 and carries an interest rate of 12.8 percent. The balance is assumed to be rescheduled with 11 percent interest and repaid in four equal payments beginning in 1985. 4. The rescheduling eliminates all outstanding amortization on private guaranteed and non-guaranteed debt in 1983, although the sum total in the projections is treated as a new commitment which requires new payments of principal and interest but will not generate any new disbursements. The rescheduling thus provides some reduction in debt service payments on the total (because US$223.7 million of this is included in the rescheduling) for 1983 and 1984. However, by 1985 the rescheduling will result in a sharp increase in debt service payments as amortization and interest on the US$660 million is added to the overall burden. - 57 - ANNEX I Page 3 of 19 5. External Prices. Export and import prices are exogenous as provided by the World Bank's Commodity Division.1/ The indices for current and constant export prices are given in Technical Appendix Tables 1 and 2. The ratio between the two is a price index for tradeable goods. The World Bank's forecasts seek to incorporate commodity specific prospects for demand, supply and trade and have underlying macro-economic assumptions for the global economy. Thus the overall real GDP growth for the OECD economies is taken at 3.9 percent p.a. between 1983 and 1990 for the forecasts used in this analysis. The sugar price used is the average of the projected world free market price and the U.S. quota price, since the Dominican Republic is expected to sell about half its exports under the quota arrangement. The U.S. quota price is projected to remain at US$400 per ton in 1983 prices. Thus the average sugar export price is projected to rise from US$300 per ton in 1983 to US$621 in 1990 in current dollars. 6. Export Quantum Prospects. The export quantum projections used in this study are summarized below. There are three principal scenarios considered, base, optimistic and pessimistic. For all three the price projections used are those developed by the commodity division of the World Bank. The differences in the projections arise from the assumptions on the quantum indices. The prospects for exports of agricultural commodities are discussed Tablc- I: EXPORT PROJECTIONS, 1983-1990 QUANTUM GROWTH RATE ASSUMPTIONS (annual percentage rates) Commodity Base Optimistic Pessimistic Sugar 0 2 0 Coffee 6 12 0 Tobacco 5 10 0 Cocoa 0 0 0 Ferronicke a/ 0 0 0 Bauxite b/ 0 0 0 Gold 0 0 0 Manufactures 5 10 0 Non-factor services 5 10 0 a/ Ten percent growth in 1984; stability thereafter. b/ Forty-three percent growth in 1984; stability thereafter. / For further details see Price Prospects for Major Primary Commodities (in five volumes), Report No. 814/82, The World Bank, July 1982. - 58 - ANNEX I Page 4 of 19 in the main report. For the base case no volume growth is projected for sugar and cocoa; the former principally because global forecasts are pessimistic2/ and the Dominican Republic already erijoys the largest share of the U.S. import quota at 17.5 percent--the latter because 1983 exports are already substantially above trend. The base run forecast for coffee at 6 percent is largely influenced by recent improvements in investments in that sector. Tobacco has also shown significant improvement, partially due to increased demand in free zone operations. 7. The optimistic scenario sets sugar quantity growth forecast at 2 percent. This would be predicated on favorable production in the Dominican Republic together with problems in other major producing areas--such as the recent dry weather experienced in Australia, Indonesia, Mexico, Philippines, Fiji, South Africa and Thailand or the untimely rains in Cuba. For the optimistic scenario coffee and tobacco growth rates are projected at 12 and 10 percent p.a. respectively. The pessimistic scenario presumes no volume growth in any export item. 8. For mineral exports, the base and optimistic scenarios assume quantum outputs to remain at 1983 levels for gold,, but a ten percent increase for ferronickel in 1984 and a 43 percent increase for bauxite; both would then be constant thereafter. This is predicated on no new investment coming on line within the analysis period, which in turn does not appear unreasonable given current global situation for demand, stocks, and capacity utilization. For manufactures, the base run projects annual growth rate of 5 percent. This value reflects a compromise between the current (1983) depressed state of manufactured exports and the poor policy climate. The former leaves plenty of room for expansion while the latter exerts a restraining influence. The optimistic forecast of 10 percent annual growth is based on a more buoyant global economy combined with a more encouraging domestic policy environment. 9. Non-factor services include tourism. This sector has shown great promise in recent years. Compared to its competitors the Dominican Republic is still small, but as it grows larger it will become increasingly difficult to maintain strong growth rates. For the base case a growth rate of 5 per- cent is chosen while the optimistic scenario is set at 10 percent. 10. Domestic Factor Prices. In the model domestic factor prices are assumed to adjust in step with external inflation rates, This has strong implications for employment. Changes in exchange rate policy towards free market levels would raise the relative cost of imported capital and 2/ Ending world stocks for 1982/83 are estimated at 37 million tons and for 1983/84 are expected to remain well above normal--about 24 million tons. Substitute sweeteners continue to make inroads into the sugar market in the U.S. 59 - ANNEX I Page 5 of 19 intermediate inputs. In certain sectors this would increase employment; for example, higher pesticide costs in agriculture would result in more labor for weeding. However the overall impact on employment depends on the elasticity of substitution between factors. The model does not currently include different types of labor which could be useful in analyzing labor markets, mostly because the data in this area are weak. However it does produce rather crude projections for employment under different scenarios. The Model 11. Economic Projections. The model was used to develop the three projections for the economy and provide a framework for discussing various policy options. First, a unified data base was developed. This was done as a social accounting structure for 1980. A model was then developed to incorporate most of the important variables and the model tuned using available data for 1981, 1982, and 1983. Finally a set of projections were developed under the assumptions described in the previous section. 12. Social Accounting Structure. The basic data set used in this analysis was based on the principal accounts for 1980. It is then developed into a Social Accounting Matrix (SAM) for 1980. The year 1980 was chosen for a number of reasons. The various statistics for that year are relatively reliable and yet it is not so far back that the general economic structure changed much by 1983. It also affords a few years, 1981-1983 to tune the model. 13. The layout of the SAM required a number of decisions. The projections had to be amenable to investigation for a number of policies. These included the impact of different export scenarios, changes in exchange rate, and the interaction of alternate government budgets on employment. Inevitably there was a trade-off betweeni the complexity needed to analyze a variety of policies and the time available. The structure chosen allows for flexibility so that the model may be enriched as desired and yet it succeeds in producing the basic information. 14. The basic SAM structure is shown in Table II. It has the following principal features. 4 sectors - agriculture, manufacturing, construction, and other (principally services) 2 institutions - government (central), private (includes all other) 3 capital accounts - private, government and depreciation 2 financial accounts - domestic, foreign Table II: MACROECONOMIC BALANCES, 1980 (DR$ Million) PRODUCTION ACCWNT FACTOR ACCOUNT INSTIT ROW FINAL CAPITAL FINANCIAL TOTAL OHAIJWO SECTORS Y P 0 PRIV GOVT Ip lG DLPR. SF D FOR AG MAN CON OT SECTORS AG 197 565 0 273 1035 507 0 507 424 931 0 0 0 0 19t6 MAN 147 486 225 394 1252 1216 0 1216 539 1962 50 117 40 207 3214 CON 0 a 103 0 103 0 0 0 0 1031 442 234 355 1031 1134 OTH 147 331 206 683 1367 3344 539 3863 249 4112 0 0 0 0 5479 491 1382 534 1350 3757 5067 519 SS,6 1212 8036 492 351 395 1233 11793 PC GC C XG IPO IC I REP I0 FACTORS w 1257 935 459 2903 5551 195 -210 5536 YAGN IIND9 YCONN YOTH0 NOPfC SUB FSY NNPFC p 0 90 66 32 207 395 395 YACO YI10D YCOID YTOT7 DEPR DEPR 1347 1001 491 3107 5946 -210 5931 YGC TINOD OCO 0OTH COPFC FSY GCPfC INST. PRIV 5536 5536 188 5724 CTR HIPC GOVT 208 208 416 177 177 879 VATX DIRTX GREV TRAD 13 66 13 85 177 59 S0 SO IIDTXI INIXE IODTXK 593 5536 177 247 SO 6603 ROM 135 557 96 729 1497 422 422 1919 1 hPRA MPR3 KPRC IPRO APRY 1tCAP 3 4 DIRECT INPUTS 1475 1832 619 4110 8036 5244 714 5958 1249 964 3S1 395 1110 GEXD X IP IG IREP I CAP PRIV 480 480 230 404 634 1114 SAYP 8D8P EX. BF8P SFUWP GOV 165 165 69 117 166 351 SAYG 808G EX. OF%8 SfUENG DEPR 395 395 395 DEPR OEPR SF 670 670 SAVf SAVF 395 395 480 165 645 670 299 521 820 2530 OD8 EX. OFN BTOR SFUN FINANCIAL DO. ISO 149 299 299 DA4 EX. ORES BOU FOR. 521 521 521 EX. 8FU EX. au 820 8231 TOTAL 1966 3214 1134 5479 11793 5536 395 5931 5724 879 bbO3 1919 1114 351 396 610 25,0. 299 61 820 NNPFC HINC GCE 'f18 EMPTOYV3NT 1103) 563 23S 4S 451 1295 - 61 - ANNEX I Page 7 of 19 The social accounting structure provides a consistent framework for the important economic accounting identities. For example the GDP at market prices (in DR$ million) is given by: GDPMP C + I + E M 6648 5,586 1,710 (1,212 + 59*) -1,919 consumption investment exports of imports goods f.o.b. CIF * indirect taxes on exports or alternately GDPMP - V.A. + DEPR. + INDT 6,648 5,551 395 702 value added depreciation indirect taxes Similarly, most of the other identities may be obtained from the structure. 15. The Model in Operation. A simplified model of the economy was next developed. It is shown schematically in Table III and it works along these lines. Consumption (C) is determined endogenously. This combines with exogenously determined investment (I), exports (E) and government consumption (G) to provide final demand. Subject to technological assumptions this provides gross production estimates. Domestic prices are determined by exogenously set export, import and factor prices. The level of value added gives income and labor demand estimates. Tutal savings (S), has private, government (central) and foreign components. The model iterates until this equals the level of investment. Then the model computes the current account, updates the debt module and estimates the additional capital flows needed. 16. Finally, capital stock and labor supply is adjusted and the model proceeds to the next year. Each year the shortfall in external borrowing is computed to fill the gap and the debt situation is ,ijdated. 17. Base Run. The outcome for the base run is summarized in Table IV. Overall GDP is projected to grow by about 0.3 percent in 1983 and 1984, and after a gain of 1.5 percent in 1985 to rise towards annual growth rates of 3.5 percent towards the end of the decade. For the external sector the current account deficit for 1983 is estimated at US$232 million and rises to US$527 million by 1990. This is discussed in more detail in Section IV under policy issues. This in turn would result in debt outstanding (medium and long term) going from US$2.1 billion to close to US$4.1 billion. On the domestic front there would be a steady improvement in central government finances but the unemployment situation could well deteriorate steadily until almost one third of the labor force would be unemployed by 1990. 18. Optimistic Run. The optimistic run assumes annual real growth rates for exports of sugar, manufactures, and non-factor services of - 62 - ANNEX I Page 8 of 19 Table III: SIMPLIFIED SCHEMATIC OF MODEL CAPITAL STOCK, LABOR SUPPLY CONSUdPTION INVEST- GOV. MENT EXPORTS CONSUM. FINAL DEMAND GROSS P ODUCTI ION IMPORT DEMAND PR CES - EXPORT-IMPORT--FACTOR PRICES VALUE ADDED -- LAB OR DEMAND IN OME S I NET INVESTMENT, CHANGE IN LABOR SUPPLY COMPUTE CU LENT ACCOUNT UPDATE DIBT MODULE - 63 - ANNEX I Page 9 of 19 2 percent, and 10 percent respectively from 1983 to 1990, while the price forecasts used in the base run are retained. The results are given in Table V. Output growth would level off at almost 6 percent by 1990. In this instance the current account balance would be only US$222 million by 1990 while the total debt outstanding would be US$3.2 billion at that time. Government savings are projected to be positive close to US$537 million by 1990. Unemployment levels while high would show signs of moderating at that time; capital utilization would show substantial improvement. 19. Pessimistic Run. The pessimistic run projects zero real growth for all exports. The results are summarized in Table VI. It suggests a disastrous situation: no growth until 1986, and even then growth rates of less than 2 percent until 1990. This would be further compounded by a current account deficit of US$240 million by 1990 and total debt outstanding of almost US$5 billion at thllt time. Unemployment levels would reach 37 percent and continue rising. Discussion of the Results 20. A number of policy issues will be crucial to the projections. They can be considered under three broad categories: external balance, domestic balance and employment and prices. Inevitably- these are closely inter- related and policy instruments tend to affect all three in varying degrees. In the previous section the analysis chose different external scenarios but did not introduce any major structural changes. Clearly, without significant new initiatives the Government will find it difficult to address major problem areas in balance of payments, employment, price stability. The renegotiation of private debt and the EFF arrangement with the IMF will give a little breathing space to introduce such measures but future borrowing should seek to move overall economic management towards more desirable medium and long-term goals. 21. External Balance. The medium and long-term debt outstanding in 1983 is close to US$2.1 billion. This is now further augmented by US$342.5 million arising from short-term arrears. The implication of the renegotia- tiorn is that amortization payments on US$660 million of the total debt will not be made in 1983. Most of this sum is being rescheduled at 11 percent interest and will be repaid in four equal payments beginning in 1985. Thus it is essential that the breathing space even though limited be used effectively to prepare for the heavier repayment burden in coming years. ANNEX I 64 Page 10 of 19 lable IV: BASE 1980-1990 (unless otherwise stated, real values in 1980 prices, levels in DR$ millions growth percent) 1980 a/ 1983 1984 1985 1986 1990 National Accounts GD? real 6651.9 7001.2 7023.8 7131.9 7334.0 8416.7 Consumption real 5588.5 5356.4 5340.1 5547.5 5710.5 6607.9 Investment real 1709.7 1366.7 1371.7 1394.7 1443.9 1643.5 Government (central) real 519.0 513.5 513.5 513.5 534.1 624.8 National Accounts - Growth Rate GDP growth rate 0.1 0.4 0.3 1.5 2.8 3.4 Cons. growth rate -- -0.2 -0.3 3.9 2.9 3.2 Inv. growth rate -- -11.0 0.4 1.7 3.5 3.5 Goverrnent growth rate 0.0 1.0 0.0 0.0 4.0 4.0 GDP deflator 100.0 116.1 120.1 124.2 133.1 184.0 Consumer Price Index 100.0 116.6 120.6 125.0 134.0 185.1 Balance of Payments (U.S. dollars at current prices) Exp. goods and NFS 1212.0 1206.9 1392.9 1577.9 1729.3 2514.5 Imp. goods and NFS 1918.2 1385.1 1458.0 1696.9 1885.5 2948.6 Resource balance -706.2 -178.3 -65.0 -119.0 -156.2 -429.0 Factor Services receipts 102.0 58.5 61.4 64.5 67.7 82.3 Factor Services pryments -312.0 -322.5 -379.7 -383.3 -390.6 -476.1 Net current trantfers 183.0 210.0 220.5 231.5 243.1 295.5 Current account balance -733.2 -232.3 -162.9 -206.3 -236.0 -527.3 Net NiLT foreign borrowira 324.4 259.0 287.6 345.4 401.6 763.8 Gross borrowing requirement 0.0 0.0 201.4 394.9 523.6 991.3 Other capital flows b/ 410.0 20.8 22.6 24.5 26.7 37.4 Debt service/exports 11.7 19.9 29.6 34.6 38.7 39.9 Debt outstanding 1184.8 2036.4 2176.7 2358.4 2567.7 4147.5 Government Government revenue 880.6 779.6 876.8 1008.2 1110.3 1654.7 Government cdrrŽnt expenditure 714.1 799,6 819.4 841.1 914.3 1352.3 Governmect savings 166.5 -20.1 57.3 167.0 196.1 302.4 Factors Capital i:tilization 83.4 78.5 77.1 77.3 78.8 83.6 Marginal output/capital ratio 0.2 0.2 0.2 0.1 -0.1 0.2 Unemployment rate 20.0 24.6 26.6 28.3 29.4 32.4 a/ Growth rates shown are for 1980-81. b/ Net direct foreign investment, net official transfers, errors and omissions. -65 - ANNEX I Page 11 of 19 Table V: OPTIMISTIC 1980-1990 (unless otherwise stated, real v,˘,2- !es in 1980 prices, levels in DR$ millions gro. :th percent) 1980 a/ 1983 1984 1985 1986 1990 National Accounts GDP real 6651.9 7001.2 7141.4 7385.5 7743.1 9728.6 Consumption real 5588.5 5356.4 5419.4 5725.2 5999.4 7562.5 Investment real 1709.7 1366.7 1378.3 1408.8 1466.7 1716.7 Government (central) real 519.0 513.5 513.5 513.5 534.1 624.8 National Accounts - Growth Rate GDP growth rate 0.0 0.4 2.0 3.4 4.8 6.0 Cons. growth rate -- -0.2 1.2 5.6 4.8 5.6 Inv. growth rate -- -11.0 0.8 2.2 4.1 4.3 Government growth rate 0.0 1.0 0.0 0.0 4.0 4.0 GDP deflator 100.0 116,2 I90.0 124.2 133,0 183.9 Consumer Price Index 100.0 116.6 120.6 125.0 133.9 185.1 Balance of Payments (U.S. dollars at current prices) Exp. goods and NFS 1212r0 1206.9 1434e4 1672.4 1890.1 3138.7 Imp. goods and NFS 1918e2 1385.1 1477.6 1746.4 1972.0 3320.9 Resource balance -706.2 -178.3 -43.3 -74.1 -81.9 -182.2 Factor Services receipts 102.0 58.5 61.4 64.5 67.7 82.3 Factor Services receipts -312.0 -322.5 -379.7 -381.3 -384.4 -417.8 Net current transfers 183.0 210.0 220.5 231.5 243.1 295e5 Current account balance -733.2 -232.3 -141.0 -159.3 -155.4 -222.2 Net MLT foreign borrowing 324.4 213.8 118.5 134,7 128.8 184.8 Gross borrowing requirement 0.0 0.0 179.6 347.9 435.8 536.7 Other capital flowsb/ 410.0 20.8 22.6 24.5 26.7 37.4 Debt service/exports 11.8 19.9 28.8 32.6 34.9 25.8 Debt outstanding 1184.8 2036.4 2154.9 2289.6 2418.4 3179.1 Government Government revenue 880.6 779.6 891.0 1043.3 1170.7 1890.0 Government current expenditure 714.1 799.6 819.4 841.1 914.3 1352.3 Government savings 166,,5 -20.1 71.6 202e2 256.4 537.4 Yactors Capital utilization 83.4 78.5 78M4 79X7 82.3 89.9 Marginal output/capital ratio 0.2 0.2 0.2 0.1 -0.1 0o4 Unemployment rate 20.0 24.6 25.9 26.8 27.1 26.2 a/ Growth rates shown are for 1980-81. b/ Net direct foreign investment, net official transfers, errors and omissions. -66 - ANNEX I Page 12 of 19 Table VI: PESSIMISTIC 1980-1990 (unless otherwise stated, real values in 1980 prices, levels in DR$ millions growth percent) 1980a1 1983 1984 1985 1986 1990 National Accounts GDP real 6651.9 7001.2 6888.3 6886.7 6973.1 7493.8 Consumption real 5588.5 5356.4 5248.8 5374.8 5454.1 5932.9 Investment real 1709.7 1366.7 1364.2 1381.1 1423.9 1592.0 Government (central) real 519.0 513.5 513.5 513.5 534.1 624.8 National Accounts - Growth Rate GDP growth rate 0.1 -0.4 -1.6 -0.0 1.3 1.7 Cons. growth rate n.a, -0.2 -2.0 2.4 1.5 1.6 Inv. growth rate n.a. -11.0 0.2 1.2 3.1 3.0 Government growth rate 0.0 1.0 0.0 0.0 4.0 4.0 GDP deflator 100.0 116.2 120.0 124.3 133.1 184.1 Consumer Price Index 100.0 116.6 120.6 125.3 134.0 185c0 Balance of Payments (U.S. dollars at current prices) Exp. goods and NFS 1212.0 1206.9 1338.8 1480.5 1582.4 2078.9 Imp. goods and NFS 1918.2 1385.1 1433.7 1646.8 1806.5 2672.4 Resource balance -706.2 -178.3 -94.9 -166.3 -224.2 -593.5 Factor Services receipts 102.0 58.5 61.4 64.5 67.7 82.3 Factor Services payments -312.0 -322.5 -379,7 -386.1 -397.8 -524.9 Net current transfers 183.0 210.0 220.5 231,5 243.1 295.5 Current account balance -733.2 -232.3 -192.7 -256.4 -311.2 -740.5 Net MLT foreign borrowing 324.4 213.8 170.1 231.8 284e5 703.2 Other capital flows b/ 410.0 20.8 22.6 24.5 26.7 37.4 Gross borrowing requiremrnts 0.0 0.0 231.2 445.0 608.7 1337.7 Debt service/exports 11.7 19.9 30.7 37.0 43.2 56.4 Debt outstanding 1184.8 2036.4 2206.5 2438.3 2722.8 4918.0 Government Government revenue 880.6 779.6 858.0 971.3 1054.0 1488.2 Government current expenditure 714.1 799.6 819.4 841.4 914.3 1352.3 Government savings 166.5 -20.1 38.5 130.1 139.7 135.8 Factors Capital utilization 83.4 78.5 75e7 74.9 75.8 79.4 Marginal output/capital ratio 0.2 0.2 0.2 0.1 0.0 01 Unemployment rate 20.0 24.6 27.5 29.8 31.5 36.9 a/ Growth rates shown are for 1980-81. bI Net direct foreign investment, net official transfers, errors and omissions, - 67 - ANNEX I Page 13 of 19 22. One of the major constraints to growth in the Dominican Republic will be its expected limited access to foreign, commercial borrowing. In Table VII the capital account situation is summarized. In line I best estimates are given for expected, reasonably sure net flows much of it from official multilateral sources (e.g., IDB, IBRD, USAID). In 1984 for instance, net official capital flows are estimated at US$49 million (disbursements are estimated at US$191 million with amortization payments at US$142 million). The "other" category at US$22.6 million includes gralits of US$6.1 million and net direct foreign investment of US$16.5 million. These expected net flows are projected to reach US$195 million by 1990. One could argue that the figure is on the low side but it is based on best information currently available from lending agencies. 23. In line II the base case situation is summarized. Note that in 1983 the current account balance is estimated at only US$232 million. This is partly a reflection of the scarcity of net private medium- and long-term funds. While all private amortization is rolled over, no fresh funds are expected. In 1984 the current balance is estimated at only US$163 million. This is because net official flows are expected to drop in 1984. As oil facilities and other extraordinary assistance drops and; only a modest amount of net private borrowing (US$90 million) can be expected. The effect of this private capital constraint is to constrain import growth and ultimately GDP. If anything, the mission's "pessimistic" scenario may be too optimistic; it is difficult to see how commercial banks would lend $1.3 billion gross to a stagnant economy. On the other hand, the "optimistic" scenario may be too pessimistic; surely the more rapid export growth would permit more borrowing than envisaged in the model if the authorities so desired. More net funds, if well invested, would accelerate growth even more. 24. Changes in Exchange Rate. The main text of the report suggests a number of sectors which could benefit from more attractive price incentives through movement towards a unified exchange rate. On the export side, these are primarily for manufactured goods, non-factor services and certain non-traditional agriculture commodities. On the import-substitution side, a unified exchange rate would stimulate domestic production in food, some intermediate goods and to a lesser extent other consumer goods and capital goods, One may surmise the effect of a unified market clearing exchange rate. In the medium term one could expect increases, especially for manufactures and non-traditional agriculture exports. However, to capitalize on these gains any change in the exchange rate would need to be accompanied by a comprehensive pro-export commercial policy, i.e., a freeing up of export prohibitions on various product categories and in general removal of most exchange controls. 25. Domestic Balance. The base case scenario suggests that the Central Government current accounts will move into surplus in the near future. Central Government expenditure is ptojected to rise from DR$800 million in 1983 to DR$1,350 million by 1990. This is in line with providing a steady -68 - ANNEX I Page 14 of 19 Table VII: THE CAPITAL ACCOUNT (US$ million current) 1980 1983 1984 1985 1986 1990 I. Expected sure Net Flow 283.7 234.6 71.6 46.0 -8.0 194.9 Net Official (278.7) (213.8) (49.0) (21.5) (-34.7) (157.5) Other (5.0) (20.8) (22.6) (24.5) (26.7) (37.4) II. Base Case Current Account -733.1 -232.3 -162.9 -206.3 -236.0 -527.3 Amortization, MLT Private -31.9 - -110.1 -234.7 -280.6 -658.8 Gross M+LT Private Borrowing 77.6 - 201.4 294.9 523.6 991.3 Average Maturity 8.9 12.9 9.9 9.2 3.4 III. Optimistic Case Current Account -733.1 -232.3 -141.0 -159.3 -155.4 -222.2 Amortization MLT, Private -31.9 - -110.1 -234.7 -272.4 -536.7 Gross M+LT Private Borrowing 77.6 - 179.6 347.9 435.8 509.4 Average Maturity 8.9 13.5 10.4 9.9 9.7 IV. Pessimistic Case Current Account -733.1 -279.8 -337.5 -416.4 -497.7 -1008.5 AmortizaLion MLT, Private -31.9 - -110.1 -234.7 -289.5 -792.0 Gross M+LT Private Borrowing 77.6 - 231.2 445.0 608.7 1337.7 Average Maturity 8.9 12.3 9.5 8.7 7.6 69 ANNEX I Page 15 of 19 increase in public expenditures, particularly in the social sectors. It will also contribute to a tolerable level of effective demand. Revenues are projected to 1.acrease from DR$780 million in 1983 to DR$1655 million by 1990. While revenue from exports and imports and direct taxes are expected to rise slightly, the main extra factor would be increased receipts from value added taxes. It is essential that the administration of this taxation be improved and various "leakages" and special exemptions be minimized. 26. If a unified exchange rate policy is pursued it is essential that government revenues from exports of sugar and minerals be sustained by export or revised income taxes. Import trade data suggest that average rates actually paid fall well below legal nominal tariff ranges. It might be more effective to have a broad based tax on all imports but at a considerably lower rate, in the region of 20 percent. An exception could be lower rates for various basic foodstuff (in the short term) and higher rates for various consumer goods. The higher revenues expected in the base and optimistic scenarios would provide greater savings for investment. In current prices, the pessimistic projection has fiscal savings below the 1980 level. 27. Various public organizationis outside the Central Government would also have to review their pricing policies. This is discussed in detail in the main text. 28. Employment and Prices. While it always is difficult to define unemployment in a country such as Dominican Republic, the general estimates tend to assess it at about 20 percent.3/ In this particular analysis, information on population, labor force and unemployment was collected from various sources (see references in Table VIII) in an attempt to estimate employment structures and sectoral elasticities. Because appropriate employ- ment data are not readily available, estimates were made by (1) obtaining labor force estimates for 1960, 1970 and 1980; (2) applying gross unemploy- ment rates to these estimates; aiid (3) distributing the resulting unemploy- ment figures by sectors under the assumption that the employed were distributed in the same manner as the labor force. The analysis did not adequately take into consideration a number of relevant factors affecting the labor market, such as Haitian laborers who do much of the cane cutting, female participatica, and the large but poorly understood informal sector. 29. A final set of estimates are given in Table VIII. The historic figures are deemed to be reasonable based on comparisons with other sources, while the projections are derived from the base case scenario. Certainly one 3/ For example in the labor force survey of urban areas in June 1980, unemployed were defined as those who had not worked during the week in question but were actively seeking employment. - 70 - ANNEX I Page 16 of 19 may argue about the historic numbers used--that perhaps 20 percent unemploy- ment is too high--and that the definition of unemployment fails to take into account many considerations about the informal sector. But in the end it seems evident that without major new policy initiatives there can be little improvement under any reasonably plausible set of assumptions about the external situation. - 71 - ANNEX I Page 17 of 19 Table VIII: EMP'..7OYiENT ESTIMATES UNDER BASE CASE ASSUIPTIONS (thousands) 1980 1983 1985 1990 Employment Sector Agriculture 561 580 588 622 Manufacturing 238 244 257 288 Construction 45 44 44 46 Others 451 478 476 545 Total 1,295 1,346 1,364 1,501 Population, Economically Active 1,619 1,784 1,904 2,218 Unemployment Rate (%) 20.0 24.6 28.3 32.4 Elasticity Agriculture .394 Manufacturing .817 Construction .373 Others .712 Total .474 Sources: Oficina Nacional de Estadistica, Republica Dominicana en cifras 1973, Vol. VIII, Santo Domingo, 1978. Main Problems in the Economic Development of the Dominican Republic, World Bank Report No. 1705-DO, Nov. 23, 1977. Economic Memorandum on thie Dominican Republic, World Bank Report No. 3446-DO, May 15, 1981. Dominican Republic -- A Special Report on the Social Sectors: Recent Performance and Future Prospects, Draft, Nov. 8, 1982. Yearbook of Labor Statistics, International Labor Office, Geneva, 1970, 1977, 1979, and 1981. Labor Force Estimates and Projections 1950-2000, International Labor Office, Geneva, 1977. World Development Reports, World Bank, 1978, 1979, 1980, 1981, 1982, and 1983. Hacia una Politica de Empleo en la Republica Dominicana (Seminario del 1 al 3 de Junio de 1979; realizado en la Romana), Secretariado Tecnico de la Presidencia, Oficina Nacional de Planificacion, Santo Domingo, 1980. Poblacion y Mano de Obra en la Republica Dominicana: Perspectivas de la Fuerza de Trabajo y del Empleo -- Desempleo en el Periodo 1980-1990. Nelson Ramirez; Antonio Tatis; Diana German; Instituto de Estudios de Poblacion y Desarrollo, Santo Domingo, 1983. Mlercado de Trabajo en Cifras 1950-1980, PREALC, Oraanizacion Internacional del Trabajo, 1982. ONAPLAN (Documento Preliminar) Empleo y Politica Economica de Curto Plazo, PREALC, 1983. ANNEX I -72 - Page 18 of 19 Table IX: EXPORTS: INDEX OF CURRENT PRICES (1980 = 100) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 Sugar 100 167.5 88.1 82.8 95.8 110.4 120.1 131.2 143.1 156.6 171.5 Coffee 100 88.0 96.8 97.7 99.7 101.7 107.8 114.2 121.1 128.4 136.1 Tobacco 100 105.0 112.0 118.7 118.7 118.7 126.3 134.4 143.0 152.1 161.8 Cocoa 100 71.0 63.0 66.7 66.1 65.4 69.3 73.5 77.9 82.6 87.5 Ferronickel 100 103.0 92.0 92.0 105.8 121.6 131.4 141.9 153.2 165.5 178.7 Bauxite 100 112.0 122.0 129.3 140.9 153.6 164.4 175.9 188.2 201.3 215.4 Dore 100 65.0 48.0 58.0 69.6 83.6 88.6 93.9 99.6 105.5 111.9 Manuf. 100 95.0 95.4 101.6 110.8 119.1 126.2 133.8 141.9 150.4 159.4 International Price Index 100 95.0 95.4 101.6 110.8 119.1 126.2 133.8 141.9 150.4 159.4 Source: IBRD/EPD Commodities Division. 73 ANNEX I Page 19 of 19 Table X: EXPORTS: CONSTANT PRICE INDEXES: PRICES DEFLATED BY THE INTERNATIONAL PRICE INDEX 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 Sugar 100 176.3 92.3 81.5 86.5 92.7 95.2 98.1 100.8 104.1 107.6 Coffee 100 92.6 101.5 96.2 90.0 85.4 85.4 85.4 85.3 85.4 85.4 Tobacco 100 110.5 117.4 116.8 107.1 99.7 100.1 100.4 100.8 101.1 101.5 Cocoa 100 74.7 66.0 65.6 59.7 54.9 54.9 54.9 54.9 54.9 54.9 Ferronickel 100 108.4 96.4 90e6 95.5 102.1 104.1 106.1 108.0 110.0 112.1 Bauxite 100 117.9 127.9 127.0 127.2 129.0 130.3 131.5 132.6 133.8 135.1 Dore 100 68.4 50.3 57.1 62.8 70.2 70.2 70.2 70.2 70.1 70.2 Manuf. 100 100.0 100.0 100.06 100.0 100.0 100.0 100.0 100.0 100.0 100.0 International Price Index 100 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: IBRD/EPD Commodities Division, - 74 - ANNEX II Page 1 of 11 ANNEX II SECTORAL ISSUES IN THE PUBLIC INVESTMENT PROGRAM - . . . . . - 75 - ANNEX II Page 2 of 11 SECTORAL ISSUES IN THE PUBLIC INVESTMENT PROGRAMI Housing 1. A major component of the present 1983-86 investment program is housing construction. It is programmed to account for 18 percent of that investment over the three year period, 50 percent more than its share of fixed expenditures in the nrior triennum (see Table 2.11). In August 1982 the new Administration unveiled "a gigantic plan, without precedents in the republic's construction history" with a production target of 25,000 dwelling units per year, mostly to be carried out by INVI. INVI's capital budget increased from DR$17 million in 1982 to DR$69 million in 1983. In actuality, it may have spent considerably more. After a presidential guarantee of payment in March 1983, some suppliers agreed to make available on credit ample stocks of construction materials, equipment and fixtures. Thousands of new dwelling units mushroomed on raw land sites in Santo Domingo and Santiago. The construction sector, which had stagnated in 1981, and declined 5 percent in 1982, suddenly grew by 7 percent in 1983. 2. Two sets of problems now afflict the housing program: financial deficits and misdirected priorities. INVI's resources were direct transfers from the Government. The new Government has supplied funds to INVI at the rate of more than DR$7 million per month. In June 1983, a Special Housing Fund was created, financed by issuance of DR$60 million in state bonds guaranteed by collections from the new Value Added Tax during 1984. To raise some liquidity an.d prepare itself to meet the first payments to contractors in March 1984, INVI has undertaken advance sale of the units under constr^uction; raising initfial douwLlpayIenCts from the traditional 5 percent to 10-20 percent. However, these deposits are pegged to a quoted average price of DR$15,000 per apartment, which understates real cost of dwellings by at least 40 percent since it does not include physical and price contingencies, interest during construction, design, supervision and administrative costs, nor the value of land, infrastructure and community facilities. INVI's effective interest rates on mortgage operations (5 to 8.5 percent) have also required subsidies; and cursory methods of estimating construction costs did not fully reflect steep increases in the price of materials and labor. Arrears in payment collections have produced progressive decapitalization of the agency. 3. Its investment priorities may be inconsistent with its founding mandate. Less than 12 percent of INVI's investments have gone inito housing affordable 1o the poor in 1982 and 1983 (Table I). INVI's program has passed the threshold of low income housing (DR$10,000 per unit); the real average cost of its current production would be above DR$20,000 per unit. In addition, the Housing and Welfare Institute (INAVI) has also resumed houcing - 76 - ANNEX II Page 3 of 11 constrmiction with an unspecified number of new middle class projects. These project s are highly concentrated in the wealthiest part of the country. Two projects, one in Santo Domingo and another in Santiago, absorb a dispropor- tionate share cf all housing investments; according to the Investment Program, they will receive most of INVI's 1984 and 1985 budget. ANNEX II Page 3 of 15 Table I: INVI: PLAN OF OPERATIONS (DR$ Thousands and percent) Total Program August to Dec. Category Number of Units 1982-1985 1982 1983 1984 - 1985 $ % $ $ % $ % Low Income Housing 9201 49916 19.3 2651 21.7 10,176 11.8 37089 23.2 Basic 837 4576 1.8 982 8.0 2,771 3.2 823 0.5 Rural 481 3600 1.4 496 4.1 2,657 3.1 447 0.3 Sites and Servicesa/ 7883 41740 16.1 1173 9.6 4,748 5.5 35819 22.4 Middle Class Housing 17,704 207,609 80.2 9,435 77-3 76,163 88.0 122,101 76.2 Middle Class 13,661 177,570 68.6 9,412 77.1 74,561 86.1 93,597 58.4 Municipal Housing 4,043 30,129 11.6 23 0.2 1,602 1.8 28,504 17.8 Other 1,192 1,330 0.5 120 110 259 0.3 951 0.6 Total 28,097 258,954 100.0 12,206 100.0 86,598 100.0 160,141 100.0 a/ World Bank project. Soiurces: INVI and USAID) 0g W La M H - *W ' x ' OHF - 78 - ANNEX II Page 5 of 11 Recommendations for Future Housing Investments 4. Housing projects now absorb far too much of the total public investment budget; INVI is now highly constrained by management and technical limitations; and the public sector may not be able to meet its near-term financial and building obligations. These factors suggest that the housing program should be scaled back, an action the Government is apparently considering since it has recently suspended investments pending a full review of the program. 5. INVI could accomplish its mandate of constructing houses of less than DR$7,000 in cost by relying mainly on foreign financing provided the World Bank's Sites and Services Project and a possible Housing Investment Guarantee Program of AID, perhaps as much as DR$25 million in 1984. This would maximize foreign financing as well as focus more intensively on lower income housing. 6. These measures would mean that several specific projects will be delayed, especially the large housing projects in Santo Domingo and Santiago financed from the national budget. This wc.ld requLire selling the partially constructed middle class houses at a discount to the private sector, perhaps with the intermediation of the National Housing Bank. These cuts would reduce the 1984 programmed and unprogrammed outlays by several million pesos in 1984. Energy and Electrical Power 7. The single largest component of the public investment program is energy. In the most recent 3-year plan, energy will absorb 22 percent of all public investment; somewhat more if the years beyond 1985 are considered. In 1982 the CDE accounted for 40 percent of autonomous-agency public invest- ment. INDRHI and CEA also had projects to produce energy, mainly as a by-product of irrigation and sugar production activity. 8. Inadequate power supply is an obstacle to growth and international competitiveness: costly black-outs in major industrial areas are frequent; many private users have been forced to install their own high-cost generation facilities; transmission and distribuition losses keep prices to consumers among the highest in the Caribbean; and only 33 percent of the total popula- tion has access to electric service--50 percent of city dwellers and 14 per- cent of those in rural areas. 9. Four sets of issues reduce the efficiency of the investment program in the power sector: sector organization; problems of generation; problems of distribution; and investment financing. Sector organization is still hampered by inadequately formulated institutional mandates and destabilizing - 79 - ANNEX II Page 6 of 11 politicization. The President of the Republic appoints and dismisses Boards members and General Manager of all Government-owned autonomous entities such as CDE and INDRHI. This appointment and dismissal power has been exercised frequently so that these agencies lack the minimum stability required for efficient organization. The President also approves utility tariffs, and thus shoulders the political responsibility for all rate increases. This has been one major reason for the freeze on electricity tariff rates from 1955 to 1979. 10. Clear lines of responsibility are not defined within the sector. Although a National Commission of Energy Policy (CONAPE)'/ was established as an advisory board to the President and to prepare long-teni plans, it does not seem to have played a central coordinating function. CDE is the sole producer and vendor of public electric service. However, CONAPE has a mandate to advise the President on the planning and policies for electricity gr.neration and for rational use of the country's energy resources and related technology; this seems to duplicate the responsibility of the Ministry of Industry and Commerce for all matters related to energy and hydrocarbons. In fact, it appears that effective decision-making is overly centralized in the Presidency,, 11. Problems in electrical generation also afflict the sector. CDE suffers from inadequate installed capacity, technical inefficiency and an inappropriate mix between petroleum, coal and hydropower technologies. CDE's installed generating capacity by the end of 1982 was 880.5 MW, it generated 56 percent of energy in fuel-oil thermal plants; 21 percent in gas turbine plants using diesel oil; two percent in various diesel plants; and 21 percent in hydropower plants. Because of lack of spare parts and maintenance, two thermal units are out of service and all thermal units, except two, are operating well below their potential capacity. CDE must therefore purchase surplu, power and energy from CEA and Falconbridge, a private producer of ferronickel. 12. CDE's investment strategy is designed to increase efficiency of existing capacity, increase installed capacity to meet forecast demand, and switch from high-cost petroleum-fired plants to lower-cost coal and hydro- electric generation. The evolution of power and electric energy supply in the last decade was erratic due to lack of planning, financial constraints and damages in 1979 caused by Hurricane David. Inadequate planning delayed 1/ Chaired by the Secretary of Industry and Commerce and composed of the Technical Secretary to the Presidency (ONAPLAN), CDE's General Manager, the President of the Dominican Oil Refinery, INDRHI's Managing Director, the Director of the Dominican Institute of Industrial Technology, the President of the Association of Engineers, Architects, and Surveyors, one representative of the country's universities appointed by the President, two representatives of the private sector, and one electrical engineer appointed by the President who acts as Executive Secretary of the Commission. - 80 - ANNEX II Page 7 of 11 the timely installation of major primary generation plants. Thus, expensive gas turbines had to be installed to cope with the emergency. CDE's financial problems resulted in deficient plant maintenance, inefficiency, and low capacity utilization in CDEts thermal plants. 13. CDE's generating requirements in the future are difficult to project because: (i) repressed demand produces sudden spurts of sales when new generating capacity is installed; (ii) the national recession has made it difficult to project the economy?s growth; and (iii) the growing system losses, 38.5 percent of net generation in 1983. Nevertheless, the net energy produced is projected to grow at about 4 - 5 percent in 1983 and 1984. CDE then projects growth of about 2.5 percent yearly from 1985 to 1987, Because of decreased distribution losses, however, CDE's sales are expected to grow at an average rate of 9 percent during the period 1984-87. Lighting, commer- cial and industrial sales are expected to grow at an average yearly rate of 10 percent. It is expected that oil-based electricity will fall from 89 percent of total supply in 1982 to only 36 percent by 1987, as oil is replaced by hydropower and imported coal. 14A The CDE also suffers from tne severe transmission and distribution losses discussed Chapter II. Distribution losses grew at 11.3 percent per year in terms of GWH in the early 1980s. Losses in generation jumped from 27 percent of net generation in 1978 to 34 percent in 1982. By the end of June 1983, losses increased to 38.5 percent, is among the highest in the world. Eighteen percent are technical losses and 20 percent are other losses (thefts, meter control mismanagement, deficient meter reading, and unsound billing practices). 15. The principal causes of energy thefts are: (i) CDE's inability to expand its distribution system due to financial constraints; groups of consumers install their own inexpensive service lines creating two additional problems: overloaded distribution transformers which frequently burn out, and additional technical losses because service lines are installed without any standards; (ii) CDE's inability to control energy sales is a second problem. Meters installed to measure both energy produced and energy sent throughout most of the feeders are neither read nor contrasted because CDE does not have mobil equipment to contrast meters on-site; (iii) consumers fraudulently reduce their monthly electricity bills. Energy: Recommendations 16. The energy sector is programmed to receive nearly one-quarter of the investment budget over the next three years. To ensur that this money is invested wisely and efficiently, the CDE and the Central Government must act to resolve some of the major organization, efficiency and financing problems. Costs will have to be cut domestically if CDE is to meet its goal of financing 30 percent of its capital outlays, even by 1987. -81- ANNEX II Page 8 of 11 17. The CDE has 17 projects in the National Plan for 1984 with foreign financing for a total value of DR$104.3 million, including generating stations, rehabilitation programs, distribution projects, minihydro development, and consul.tant studies. The program is generally well-conceived and the projects are of the highest priority. Nonetheless, more resources should be channelled into eliminating the exceptionally high generation losses and measures designed to end theft losses. Such investments have a high marginal return with short gestation periods. Second, the CDE is investing considerable amounts on expanding distribution networks. These investments make little sense when current generating capacity cannot adequately serve consumers presently linked into the system. These programs could be reduced by as much as DR$10 million, an amount equal to the counterpart that CDE is expected to require from the Central Bank in 1984. 18. In addition, among the several hydro projects administered by INDRHI, two projects should be postponed on the grounds that they are new projects and can be delayed: Los Toros I and II and Tres Saltos del Pryn. These projects produce only small additions to the national supply of electricity. Finally, portions of two projects funded by the Venezuelan Investment Fund (a series of consultant studies and minihydro projects) could probably be cut since they appear to be budgeted at far greater amounts than is listed in their loan documents. The savings in these two projects imply a reduction in 1984 expenditures of DR$7 million in total, and DR$2 million of domestic budgeted funds. Agriculture 19. The agricultural sector is high on the Government's investment priority list--up from 15.1 percent of expenditures in 1980-82 to 22.4 percent in the 1983-85 plan. Actual expenditure amounted to DR$122.6 million in 1983, 51 percent of which was disbursed by autonomous agencies. The Ministry of Agriculture (SEA) is responsible for overall agricultural policies as well as research and extension; land refo-.m is the responsibility of the Agrarian Reform Institute (IAD); irrigation is implemented and managed by the National Water Resource Institute (INDRHI); and agricultural credit is channeled mainly through the Agricultural Bank. Other institutions having a direct effect on the agricultural sector are the Office of Price Control (DGCP), and the Price Stabilization Institute (INESPRE). Ministry of Agriculture (SEA) 20. The Ministry of Agriculture administers its own projects and theoretically coordinates the decentralized age,ncies INDRHI and IAD. Under - 82 - ANNEX II Page 9 of 11 its own administration, it has four foreign financed projects programmed to receive funds in 1984. Two are on-schedule: "PIDAGRO III" which is designed to strengthen the Ministry itself, administer a National Cadastre, and execute 9 small agricultural projects; roughly one third of its total amount has been disbursed. The other is the two-year old "Cafe and Cacao" project, designed to rehabilitate plantations and infrastructure in the export agricultural sector. Two other projects, however, are relatively new and postponable: The "Manejo de Recursos Naturales" project is designed to establish a national system of resource planning and implement erosion control pilot projects. With less than oine percent of its total amount disbursed, it can be probably postponed at relatively low cost. Another project, "Desarrollo Pequenos Productores de Alimentos," had nlot recorded any disbursements of its DR$14 million total as of October 1983. Postponing these projects would reduce DR$9.2 million in total 1984 investment expenditures and free up DR$2.6 million in local counterpart. 21. Eventually, the Ministry of Agriculture should take the lead in developing a long term agricultural development strategy that could guide diversification in production and exports of the sector. Financial limitations and institutional fragmentation currently prevent this project, but it should be addressed in the relatively near future. INDRHI 22. INDRHI administers a network of four irrigation districts covering 135,000 hectares. Created in 1965 as a decentralized agency under the Ministry of Agriculture, INDRHI has suffered from frequent changes of management. From between 1977 and 1983 about 10 different managers and their group of departmental heads have changed, producing discontinuities in planning and budgeting while weakening administrative systems. 23. Partly because of these changes, INDRHI suffers from several insti- tutional difficulties. Planning is predominantly technical and done with inadequate integration into the financial situation of the agency. Yearly budgets generally overestimate resource availabilities. Calculations of project costs are sometimes inaccurate. Central management has not developed sufficient controls over project units based on detailed information. Finan- cial record-keeping procedures, improved in recent years, are still poorly developed. Domestic and external funds are not distinguished in the finan- cial management. Foreign lenders have found that external funds disbursed for the purpose of a specific project in fact are used for a different purpose. To improve control, the administration has recently established a central committee responsible for implementation of INDRHI's projects. The committee is independent of INDRHI, but the manager is a member. 24. The rapid proliferation since 1973 of INDRHI's projects has dramatically accentuated these managerial problems. In the period 1973-79, projects with foreign participation at a total cost of DR$232.4 million were - 83 - ANNEX II Page 10 of 11 initiated; DR$126.9 million were foreign financed. But by August 1981 less than a quarter of these foreign funds had been disbursed. As a result, five of INDRHI's eight onjoing projects are behind schedule and four have substan- tial cost overruns. / The agency recorded disbursements of less than 5 percent of its programmed expenditures in 1983, compared to an average of 36 percent for all other agencies. Yet it is also one of the most vigorous solicitors of new projects. Four of the new eight projects emphasized by the Government are for INDRHI. 25. INDRHI could usefully concentrate its resources on investments already underway. INDRHI has seven irrigation projects listed in ONAPLAN's inventory of projects to receive budgetary support in 1984. Of these four new ones should be considered for deferral. These include "Sabana Yegua" (a study of irrigation potential), the "Area Presa de Sabaneta" project (a project that is already 4 years behind, less than 3 percent of its total amount disbursed), the "Aglipo" project, a new irrigation system, and the water control system "Manejo de Agua a Nivel de Fincas," a new project currently before Congress. The resources saved by these deferrals, DR$15 million in total and DR$3.3 million in counterpart, could be channelled into the completion of the other, much delayed irrigation and canal projects, such as "Bajo Yaque del Norte," "Maguay Chaquey", and "Alto Yaque del Norte", and "Agropampa-Yaguela." State Sugar Council (CEA) 26. CEA is slated to invest DR$20 million in 1984 in the form a rehabilitation project of its main sugar activities. The project, funded by the World Bank, forms the backbone of the entire CEA investment program over the next four years. 3/ In addition, it will invest in a biogas energy project with DR$1.9 million in a feasibility study. This investment program is limited and prudent given the constraints on CEA's resources. Potable Water 27. Potable water projects are slated to more than double its share of public investment compared to 1980-1982. The total value of the projects included in the plan are US$350 million, about equal to an entire year's investment budget. 28. Two agencies account for most of the expenditures on potable water, the Institute for Potable Water (INAPA) and the Water and Sewage Corpiration of Santo Domingo (CAASD). While many of the small ongoing projects should be 2/ See Statistical Appendix Tables 5.10 and 5.11. 3/ This project, although included in ONAPLAN's 1984 list for funding, was deleted from the 1984 budget as sent to Congress in January 1984. - 84 - ANNEX II Page 11 of 11 continued, new, large projects that are not yet begun in this sector should be deferred until after 1986. One of the new projects would absorb nearly 15 percent of all public investment in the future years and thus squeeze out other investments. The return of this project is in the distant future and it does not contribute directly to enhancing the near-term productive capacity of the country. In short, new large projects in this sector risk doing to future public investment programs what INVI's housing program has already done to the present program: badly distort the investment program away from higher national priorities. If currently planned but not begun projects were scaled down and begun after 1986, the action could free-up considerable funds for the future. Transportation and Communication 29. The transportation sector comprises about 14 percent of the public investment program, slightly less than the 1980-82 real expenditure level. Of the eight projects with a total value of DR$54 million designed for imple- mentation in 1984, six are ongoing road rehabilitation programs, communica- tions projects, or ports. Projects that are nlew or hardly begun can be postponed. Even though neither require local counterpart funds in the first year, they will need them in subsequent years and this will bias the projects against completion. Postponing the two new projects will reduce the 1984 budget by DR$22 million. 30. Meanwhile, several road rehabilitation projects merit local resources, even though they have no foreign component. For example, the road rehabilitation program financed purely with domestic resources is now several years behind. Because of the lack of maintenance, roads throughout the country have fallen into such disrepair that their repair now are capital projects. These investments should be made soon to prevent further deterio- ration and the Ministry should allocate additional resources to current expenditures for road maintenance. - 85 - ANNEX III Page 1 of 19 ANNEX III NON TRADITIONAL EXPORTS: THE POTENTIAL 86 - ANNEX III Page 2 of 19 NON-TRADITIONAL EXPORTS: THE POTENTIAL 1. The main text analyzed the effects of government policies on the price incentives facing producers. Often, however, the effect of government policies is not always what the theory claims it should be. Also, it is difficult to assess the priority with which policy changes should be considered without discussing directly with producers their own plans and judgments. For these reasons, the mission interviewed about 30 non-traditional exporters or producers during April 1983. During 1978-81, non-traditional exports accounted for approximately 15 percent of total commodity exports. In 1982 this figure reached 19 percent, but only because of the strong decline in earnings of traditional exports. A. Nontraditional Agricultural/Agroindustrial Exports'! 2. The prospects for increases in agricultural and agro-industrial exports are good in several different categories of these products. The main potential market is the United States, and for some (especially tropical) products, there may be good prospects in Europe as well. The main advantages that underlie these good export prospects in agricultural and agro-industrial exports are natural ones: good soil, moderate temperatures, an appropriate range of altitudes, reliable rainfall, and a geographical location close to the United States. 3. In 1982 exports of fresh and frozen fruits and vegetables amounted to about US$25 million, approximately 40 percent of all agricultural and agro-industrial non-traditional exports. These items, produced expecially for the Hispanic population living on the US East Coast, include traditional Latin-Caribbean vegetables like yautia, pigeon peas, cassava, yams, plantains, and sweet potatoes, and traditional Latin-Caribbean tropical fruits such as tamarind, guayaba, guanabana, papaya, and passion-fruit. Both the vegetables and the tropical fruits may be exported fresh, frozen, or pulped. For example, Dominican frozen pulp of guanabana, tamarind and papaya in attractive see-through packages is currently sold in selected markets in the United States and used to make juices and milk shakes. 4. The second category in which export prospects appear promising would be for a much larger market. These are off-season or fresh winter vegetables and fruits for the U.S. East Coast and Midwest. Vegetables in this category include tomatoes, cucumbers, onions, peppers, cherry tomatoes, 1/ Non-traditional exports are defined as (a) agricultural exports other than sugar, coffee, cocoa, and tobacco, (b) agroindustries, which basically includes toasted coffee, processed and canned food, and (c) other industrial exports produced both inside and outside the Export Processing Zones (EPZs). This section does not consider EPZ exports because they are analyzed in a subsequent section. - 87 - ANNEX III Page 3 of 19 eggplants, avocados, pumpkins, beans, and snow peas. Fruits include cantaloupe and honeydew. Mexico currently supplies fresh winter produce to the coastal areas of Texas and California, but the Dominican Republic is better located geographically to supply the East Coast and parts of the Midwest. There is a precedent for such trade. Before 1960, Cuba used to supply winter vegetables to this market; a Cuban ferry arrived at the Florida Keys every 24 hours and the goods were distributed by rail from there to other parts of the United States. The potential of this market may be up to US$80 million worth of exports, whereas current exports are less than US$4 million a year. 5. A third category, year-round exports of tropical fruits such as pineapples (especially fresh but also processed), coconut products (grated coconut, coconut milk, coconut cream), bananas, and mangoes, also has good export prospects, again to the U.S. East Coast and Midwest. A fourth category is a wide range of frozen vegetables and fruits of many of the above varieties. Canned vegetables and fruits look promising too, but only if the can problem (see below) can be solved. A fifth, miscellaneous products category with good prospects includes cocoa butter, cut flowers (e.g., carnations), and goods like okra that are favored by particular segments of the United States market. Finally, in a related area, it might be feasible to increase exports of beef substantially (only US$8.8 million in 1982) not only to the USA, but also to those Caribbean nations with a developed tourism industry. B. Non-EPZ Industrial Exports 6. In contrast to agriculture and agroindustry, the potential for exports of industrial goods that are not produced in EPZs appears less promising, at least in the short to medium term. The gross value of exports of such goods amounted to US$33 million in 1982, compared with an average of US$42 million a year during 1980-81. &/ 7. The case of exports of chemical fertilizers is a special one. The gross value of these exports rose dramatically from less than US$2 million a year during 1972-77 to US$19 million in 1980, but then fell to US$8 million in 1982. Net exports are much less than these figures, however, since the value of imported raw materials is about 60 percent of the value of the final product; the fertilizer export operation is essentially one of assembly. The main reason for the decline in exports since 1980 has been increasing protectionism, especially in Central America, Venezuela, and Martinique. Since the domestic market for fertilizer is saturated and the prospects for exports are not good, one of the largest Dominican fertilizer companies has now begun to diversify its activities into exporting cucumbers, cantaloupes, and other off-season produce to the United States. 2/ The main export products in 1982 were chemical fertilizers (US$8.4 million), leather handbags (US$6.0 million), and cigars (US$1.4 million); these were the only three items in which exports of as much as US$1 million were recorded in 1981 and 1982. - 88 - ANNEX III Page 4 of 19 8. In the case of ceramic tiles, one firm with a government-protected domestic monopoly produces first-rate products. Its main advantages are low labor and transport costs: a container from Santo Domingo to Miami costs US$800 compared with US$2,800 from Italy to Miami. In 1981, this firm exported US$1.5 million of floor and wall tiles to the United States. However, by 1982, exports had fallen to US$0.3 million. the main reasons for this decline were the significant rise in the cost of electricity during 1981-82 (electricity and liquid gas are about one-third of total costs), the cost of imported inputs, and the U.S. recession. The fact that this industry is quite intensive in electricity and imported inputs--both likely to be relatively more costly--makes it a less likely candidate for future exports. 9. Despite apparent labor and transport cost advantages, yearly non-EPZ exports of footwear from the Dominican Republic have never reached a million dollars, and were close to nil in 1981 and 1982. Their main problems are the lack of good quality raw materials and the lack of marketing know-how. The situation for non-EPZ clothing appears to be similar; both export volumes and values are insignificant, and there was a lack of good quality raw materials at world prices (here timing and customs problems seem to be important) as well as a lack of marketing expertise. 10. In summary, given the present level of development and sophistication of Dominican industry and the difficulties associated with importing inputs, the best short-and medium-term export prospects for non-EPZ manufactured goods are for those products that use predominantly or solely local raw materials, and in which a detailed understanding of the international market is not essential. Ai example of such goods might be industrial oils that are made from agricultural products and used in the food and pharmaceutical industries. In the long-run, continued transfer of export goods to the parallel exchange market as well as the development of a draw-back system to facilitate and to decrease the cost of imported intermediate goods could prove instrumental for continued growth of this segment of the export sector. C. Export Problems 11. Whether the goods being exported are industrial, agroindustrial, or agricultural, however, the three basic requisites of export success are price, quality, and timely delivery. All of the following problems affect one or more of these three requirements. After listing the problems, possible solutions will be suggested. - 89 - ANNEX 1II Page 5 of 19 Packaging Materials 12. A wide range of agroindustrial exports are severely hampered by the relatively high price of tin cans. The can-making company in the Dominican Republic is a monopoly; importing empty cans is far too costly since their bulk is high but value is very low, In spite of importing tinplate almost free of import duties, virtually all exporters claimed the local company sells cans at prices far higher than the world price. Whether this difference reflects monopoly rent or a true higher cost of production mulst be investigated further, but its importance can be appreciated by the following examples. 13. Canned pina colada mix has three basic ingredients: pineapple juice, coconut cream, and the can. At present, Puerto Rico purchases coconut cream from the Dominican Republic, buys pineappele juice on the world market (including some from the Dominican Republic), and exports canned pina colada mix to the Dominican Republic. The best-known Puerto Rican brand of pina colada mix is priced at US$10.75 f.o.b. San Juan for a carton of twenty-four 15 oz. cans. By comparison, the Dominican price f.o.b. Santo Domingo is US$12.75, of which the cost of the cans is US$4.75. The cost differential --according to a Dominican producer--is solely in the cans. Another example is pineapple juice. Last year, significant amounts of pineapple were thrown down a rav4ne to rot. These pineapples were not good enough to sell fresh but were ideal for juicing--except that the cost of the cans made exporting uneconomic. 14. Cardboard cartons made in the Dominican Republic not only cost two to three times more than imported cartons, they are of too low a quality for most exports. Domestic producers of cardboard cartons are forced to use domestically produced recycled raw materials instead of using the better quality imported liner, which is subject to import restrictions. The result is that the export potential of some goods--especially of fresh produce--cannot be realized because the currently produced local cartons are not acceptable. 15. Unlike the case of cans, it is currently possible to import cartons, but only the largest firms do this. This is partly because transport and handling costs are too high for a relatively small volume. It is necessary to import at least a container load, which in turn means that special storage facilities must be built for the large volume of cartons. Partly, too, it is for bureaucratic reasons. In at least one case, an exporter of frozen regetables establishbe& itself as a Special EPZ apparently solely so that he could import cardboard cartons free of duty and customs red-tape. The authorities recently permitted carton manufacturers to import, virtually free of duty, high quality paperboard for the construction of cartons for exporters. CEDOPEX believes this step, combined with less demanding regulatory procedures, will go a long way in solving the carton problem. - 90 - ANNEX III Page 6 of 19 Table I: COST OF CARDBOARD CARTONS, 1983 (DR$) Costs per Cardboard Carton (1) (2) Carton used in export of: Local Imported Ratio (1)/(2) (at the parallel rate) Handbags 1.85 0.97 1.9 Pigeon Peas 0.65 0.33 2.0 Coconut Cream 0.75 0.33 2.3 Frozen Vegetables 0.90 0.30 3.0 Source: Mission interviews. 16. A predominantly government-owned firm has a monopoly on bottles, and domestic prices are well above world prices. In a shipment of ketchup, the value of the bottles is as great as, if not greater than) the value of the tomatoes; thus if bottles are significaritly overpriced, exports are not feasible. Not surprisingly, very few Dominican exports are bottled. Other Inputs 17. One of the key problems hampering the export of non-EPZ industrial goods is the high cost and variable quality of other key inputs. In the production of footwear and handbags, leather is the principal problem. Not only is local leather of poorer quality than that from the United States and Argentina, but the price of local leather is 30-60 percent greater. The high cost and variable quality of local leather is probably important in creating considerable indirect unemployment in the footwear industry. Santiago, in particular, is known for its shoemaking expertise. Yet outside the EPZs, footwear exports are negligible. Similar situations exist in other important intermediate inputs. The regular tariff exemptions on raw materials, that usually lower import tariffs from 70 to 15 percent, are often refused when a domestic producer of a related material complains to the Ministry of Commerce. This generates uncertainty and delays for any industrialist interested in using such inputs. Customs 18. Many non-EPZ exporters complain of significant delays and uncertainties in getting imported inputs out of customs. These delays may be one of the most important costs of using imported inputs and, conversely, one of the main sources of protection to local producers of these same products. In general, it takes at least two or three weeks to get goods out; in some cases it takes months, Inputs that are being imported under "internacion - 91 - ANNEX III Page 7 of 19 temporal" rules (duty-free import for re-export) have to pass through no fewer than eight steps within the customs department. At each step, illness or temporary absence of the relevant officer can increase the delay. Even the standard delay of 2-3 weeks is enough to significantly reduce the main advantage (short delivery time) that the Dominican Republic has in the United States market for clothing and footwear over Taiwan and other East Asian producers. Another problem is the bond the exporter must post to guarantee that he will pay tariffs on the imported materials if they are not re-exported. One exporter reported that he had still not had his bond returned a full year after he had exported the final product. 19. Unfortunately, many importers complain that customs laws are unclear and require much interpretation. Further, there are frequent changes in customs personnel, which means that exporters have to devote much time to reclarifying or renegotiating their positions when officials change. One way, but an expensive way, for firms to avoid these customs problems is to establish themselves as Special EPZs. Transport 20. In exporting fresh fruit and vegetables, transport costs and availability are crucial. It cost US$1,800 to ship a single refrigerated container from Santo Domingo to Miami. For some vegetables (e.g., cucumbers) this amounts to 100 percent of the cost of the produce itself. Via air freight, the cost is double the value of the produce. If fresh produce is to be shipped in large volumes to the United States, transport frequencies will need to be increased significantly. At present, there is only one direct ship from Santo Domingo to Miami every 10 days. The journey lasts 3-1/2 days. All other shipping goes via Puerto Rico or elsewhere, with the goods trans-shipped at the intermediate port. These journeys last 8-1/2 days, but refrigerated fresh fruit and vegetables generally last only 7 to 12 days. Thus, with the indirect shipping route, the risk of spoilage is great. 21. Shipments by air encounter several problems. First, existing planes have small and irregularly available space for cargo--they are neither big enough nor reliable enough for the sorts of volumes to be expected. A simple solution would be to allow exporters to charter jumbo jets, especially during December-February wlhen there are small amounts of productiLon in California and Florida; but the Dominican airlines have objected. Second, the facilities at the airports need to be improved. There are currently too few pallets, so cartons have to be handled by hand, which damages produce like tomatoes and melons. And cartons at the airport are sometimes left in the sun for a couple of hours; long enough to destroy much of the produce. Export Prohibitions and Taxes 22. Apparently as a carryover from the past, there remain a number of prohibitions and taxes on exports; other prohibitions are occasionally - 92 - ANNEX III Page 8 of 19 applied depending on local supply and demand. 3/ A number of exporters complained that these on-and-off prohibitions fost them clients. Exports of beef would presumably have been significantly higher if exports had not been prohibited a few years earlier, causing clients to be lost. Exports of fertilizer were suddenly prohibited for a while in the mid-1970s. An exporter of cassava lost his U.S. client two years ago when exports wore suddenly prohibited. The export of onions was prohibited in April 1983; plantains, coconuts, shellfish, and other products have also been prohibited in recent years. All of this damages the Dominican Republic's image as a reliable export supplier, seriously hampering its access to markets where a sustained supply is demanded. Central Bank Delays 23. Two different delays at the Central Bank hampered exports. Until recently, it could take up to three months before an exporter received back from the Central Bank the dollars that he was permitted to change on the parallel market. He thus lost the interest on this money for the period of the delay. This operation is now in the hands of the commercial banks, eliminating delays. An exporter who used imported inputs, however, must still wait up to 14-15 months for the Central Bank to release the dollars to honor the letter of,credit. The exporter is charged interest for the period of the delay. In the case of fertilizer exports, this interest charge eliminates the value of the parallel-market export incentive. Not surprisingly, as a result of the delays ir honoring letters of credit, foreign suppliers and banks are wary of dealing in letters of credit with Dominican purchasers. Shipping risk 24. Another important issue is the burden of shipping risk. In tradi- tional Dominican exports of primary products (sugar, cocoa, coffee, and tobacco) , goods are sold f.o.b. against an irrevocable letter of credit and there is no risk to the exporter. For exports of perishable fresh fruits and vegetables, however, the shipping risk is significant. Whereas Dominican exporters of these goods tend to want to sell f.o.b., standard U.S. practice is for sales to be made on consignment. Under this practice, the U.S. inmporter receives the goods, sells them, and takes a 13-15 percent comission on the selling price, paying the balance to the exporter. Of course, if the goods are damaged in transit, the exporter receives less, and in the extreme case, nothing. At present, many thousands of dollars in export sales are lost because exporters do not understand or accept the consignment system. The Need for an Export Mentality and Quality Control 25. Some problems confronting exporters stem from a general lack of knowledge of the many and difficult actions required of an investor to make 3/ See Statistical Appendix Table 3.5 - 93 - ANNEX III Page 9 of 19 an export-oriented project a success. Most non-EPZ exports of non-tradi- tional products from the Dominican Republic have been surpluses; leftovers available for export. This strategy causes two problems. First, overseas clients cannot count on their Dominican source of supply; in lean years they must find alternative suppliers. If these alternatives prove reliable, the clients are likely to continue purchasing from them. Second, this strategy assumes the same goods that are sold domestically can be sold in the United States and Europe. This is not the case in manufactured goods: styles are different, quality-control requirements are more stringent, and timing is vital. 26. Perhaps surprisingly, this also applies to non-traditional agricultural exports. For most such goods, it is simply not possible to have long run success by exporting the same product sold in the Dominican Republic; production devoted specifically to export is needed. Two examples support this conclusion. In each case, a foreign-owned firm growing agricultural products for export has given a good demonstration of the many things needed if such operations are to be a success. The first example, frozen okra, illustrates a model in which the exporter purchases the produce from small farmers. The second example, fresh pineapple, illustrates an alternative model in which the exporter maintains total control over the growing operation. In each case, measures taken to increase productivity and to raise and control quality were crucial. 27. Okra has good market prospects in the United States. Dominican exports of pre-cooked frozen okra to the U.S. rose from close to zero in 1979 to US$3.6 million in 1982, and there appears to be considerable potential for further growth. By 1982, among Dominican non-traditional exports of agricultural and agro-industrial products, exports of okra were exceeded only by coconut cream, canned pigeon peas, and yautia. The source of these exports was a U.S.-owned firm. The manager of this firm's Dominican operation has lived in the Dominican Republic for five years, and is the only foreigner employed by the firm. Okra is bought from 2,442 small farmers, and a further 350 Dominicans are employed full time; 280 as operators of the processing plant and 70 as mechanics and field workers. Okra is a very labor-intensive crop, as every piece has to be picked by hand. 28. To illustrate how to grow okra and the advantages of applyiag many small but important changes in cultivating methods, many demonstration plots were set up to illustrate both high and low yields. Yields on land of similar quality vary from 800 to 3,300 pounds per tarea. There is one field extension officer for each eighty growers and he sees each grower twice a week. The company provides credit to farmers for the purchase of inputs, ploughs, and working capital, and guarantees the price to the growers. As quality has improved, the price received by farmers has increased from 4 cents a pound to 9 cents a pound. 29. Quality is not a minor matter to the company. The U.S. Department of Agriculture issues regulations concerning the quality of okra. Size, - 94 - ANNEX III Page 10 of 19 toughness, and color must be right, and it must be insect-free. Of course, similar quality control standards exist for mo't vegetables and fruits. 4/ 30. One of the most difficult challeng.. the company has faced is conveying these detailed quality control requirements to its 2,440 small farmers, since there are no such quality restrictions on local sales. A second part of the problem is that since classification and sorting is done only at the processing plant, located far from the growers, it takes time to give growers feedback on the sizes and qualities they are sending in. The quality problem is made more difficult by the fact that many growers are illiterate. The manager of the company estimates that in three more years (i.e. a total of eight) the quality control problem will have been solved. 31. The company has found Dominican workers to be very trainable. Compared with some other Latin American countries in which it has worked, there is less absenteeism and a greater sense of responsibility. Several workers have been trained in the United States. Since okra cannot be grown all year round, current plans are to grow okra for 7 months and in the off season plant other crops that replace the nitrogen used intensively by okra. These vegetables could be frozen and exported using essentially the same equipment and infrastructure that is used for okra. 32. The second example is provided by a transnational corporation currently growing fresh pineapples for export in the Villa Altagracia Valley. Because of the many problems involved in purchasing produce for small holders that were illustrated in the okra case, this company prefers to retain full control of the growing operation itself. The company's current aim is to lease 2,500 acres (it originally wanted 5,000) and enter a joint venture with the State Sugar Company (CEA) which owns the land. A total of 700 people will be employed; 500 working in agriculture and packaging the fresh fruit and 200 working in the central plant. Export of 1.5 million boxes of fresh fruit are expected to amount to US$6 million a year, with a further US$1.25 million in concentrated juice exported in wooden bins. 33. The company has taken many costly steps to ensure export success. First, an in-depth market survey was done. This indicated that the market is likely to bear exports of 5-6 million boxes a year, each box containing 6-14 pineapples weighing a total of about 40 pounds. Hawaii is currently the main supplier to the U.S. but because of transport cost differentials, the Dominican Republic can land pineapples on the east coast and truck them to the south and midwest cheaper. In Europe, there seems to be a good chance of opening up a year--round market. Overhead costs include the purchase of equipment, training of people to plant and pack pineapples and to drive 4/ For honeydew melons, for example, the 17 specificatio.,s relate to size, shape, color, ripeness, sugar content, cleanliness, cracks, bruising, sunburn, liquid content, damage caused by hailstorms, and so forth. - 95 - ANNEX III Page 11 of 19 tractors, trucks and forklifts; and planting of a 100-acre seedbed used to plant 100 acres a month. Extensive and costly research determined how best to plant the seedlings (number per acre, conditions); how best to feed the plants and with what; how best to control flowering; how and when to harvest; and how best to control quality before, during and after harvest, during packing, during transport and on arrival in the United States. 34. The company has been hampered throughout its Dominican operations by an inability to obtain leased land. In the Villa Altagracia area, where the company is currently operating only 700 of the requested 5,000 acres, the problem appears to have been with CEA. While pineapples are far more labor-intensive than sugar, CEA's mill employees have objected to increasing the size of the pineapple operations. In the Azua area, the company had well worked-out plans to lease 2,000 acres from the Government and use it in a large-scale project for the export of melons, peppers, okra, cucumbers and eggplant; four years later, the land has not yet been made available. The result is that the company's exports of fresh pineapples are currently not the 2 million boxes a year as originally planned for 1983 but 0.3 million boxes, and exports of fresh melons and vegetables are zero. The company claims that if it had known that the land availability problems would drag on for 3-4 years it would never have begun the project. 35. The demand for pineapples is substantial. In addition to the market prospects for fresh fruit delineated in the market survey, the firm has received a request to supply 20,000 toIns of processed pineapples a year, for which 30,000 tons of fresh pineapples would need to be grown. This would require a second project almost as big as the existing one. Of course, this order is I.ot likely to be filled if no more land is made available. By comparison with this pineapple project, a small local firm that intends to begin exporting fruit juices, has never produced juices before, and has done no market survey but thinks that "there might be a market in Puerto Rico." The firm's quality control consists of a taste test carried out by the chief production engineer. Of course, other larger local firms are more professional--but none approaches the sophistication of the two foreign firms described above. D. Non-Traditional Exports: Recommendations Packaging Materials 36. There are several possible solutions to the can problem. First is the question of fact. In spite of complaints of users, the Dominican can company insists its cans are of similar quality and price (at the parallel exchange rate) as cans on the world market. However, If the price differential is indeed significant and reflects monopoly rent, the Government could fix the supply price of cans to exporters at the world market price. - 96 ANNEX III Page 12 of 19 Alternatively, the Government could allow a second can-making plant to be set up, possibly solely to service the agro-export industry. If exporting fresh winter produce to the United States is to be feasible, a solutior- has to be found to the cardboard carton problem. The quality of existing Dominican cartons was not good enough to protect the goods, mnd the prica mechanisms for importing cartons were too cumbersome for all but the largest firms. Recent changes in import regulations may ameliorate this problem. Other Inputs and Effective Protection 37. A move from the present regime of quantitative import restrictions and high variation in effective protection to a unified ad valorem duty has been advocated earlier in this report. Fundamental for the success of traditional exports is to lower to this level all tariffs on imported intermediate inputs and raw materials presently not included in the list of exonerated imports. All these import restrictions could be replaced by the 20 percent ad valorem tariff suggested earli- in the report, irrespective of whether a similar commodity is produced domestically. Reforms in the Administrative System 38. It is crucial, that some way be found to increase the predictability of customs department decisions (perhaps by clearer regulations) and accelerate the operation of the "internacion temporal" process. It ought to take 2-3 days to get imported inputs out of customs, not 2-3 weeks or months. CEDOPEX has taken some recent steps designed to reduce export procedures; the effect of these steps may be apparent soon. While administrative reforms (document simplification, reducion of approvals, training courses, etc.) can help, the fundamental problem of administrative delays and uncertainty stems from the many discretionary programs of the Government. The goal should be to reduce them and depend on more automatic price signals and clearer regulations as more stable incentives. Transport and Insurance 39. The idea of exporting large volumes of fresh produce to the United States from the Dominican Republic is relatively new, so it is quite understandable that existing transport facilities are inadequate. Because of the high risk of spoilage if fresh produce is shipped on the longer route via Puerto Rico, more shipping is needed on the direct Dominican Republic-U.S. route.5/ What is needed, at least during the peak produce-exporting season, is one ship every 3 days. Although the Government could offer such a service itself, it would probably be more efficient if it simply offered a sliding-scale subsidy to an existing carrier to increase its frequency of operation. The subsidy would fall as the volume of produce shipped rose. The subsidy could be withdrawn completely as soon as the volume of produce shipped fully justified the service. 5/ Probably to Miami from either Haina, Puerto Plata or Azua. - 97 - ANNEX III Page 13 of 19 40. In addition, exporters of fresh produce who wish to charter jumbo jets to transport their goods to the United States should be allowed to do so, and an arrangement made with the Dominican airlines to ensure that these planes are allowed to land. If necessary, it might be stipulated that such jumbos be used for fresh produce only. Further, refrigerated storage and palleting facilities at Dominican ports and airports need to be expanded and improved. The Government might consider encouraging a private firm to sell insurance for the shipping risk for fresh fruits and vegetables. Such insurance could help smaller operators adjust to the idea that they have to sell fresh fruit and vegetables on consignment rather than f.o.b. It is important that quality control and shipping improvements be made sooner rather than later, It will take only a few large shipments of fresh produce to arrive spoiled or damaged for the country to get a bad name as an unreliable supplier. Clarifying Rules for Foreign Investors 41. It seems most unlikely that the 2,800 Dominicans who earn a liviig from growing, processing and exporting frozen okra could have made a success of this activity without the detailed knowledge of the U.S. market and optimal growing practices that the foreign company has provided. Similarly, knowledge of the U.S. market and optimal growing practices, and the ability and willingness to spend large sums on infrastructure and research seems to have been crucial to success in the pineapple exporting project. At least initially, it may be necessary to encourage foreign firms to provide these sorts of expertise. The problems faced by the pineapple exporting company in obtaining leased land suggest that the Government may have been ambivalent about this in the past. To remedy this situation the Government has recently revised the foreign investment law to clarify the legal status of investors. E. The Potential for Export ProcessinZones 42. Three Export Processing Zones (EPZs) are currently in operation in the Dominican Republic: Santiago, La Romana, and San Pedro de Macoris. A fourth zone in Puerto Plata is expected to be in operation by the end of 1983. In addition, 9 enterprises, mostly agro-industrial, have been classified as Special Free Zones (SFZs) and are located in different parts of the country. 6/ 43. The number of firms located in the EPZs and SPZs grew from 8 in 1970 to about 100 in 1982 and is projected to be 112 by the end of 1983. This growth was not even, either by zone or by time period. In Santiago, 6/ These enterprises enjoy the same duty-free import benefits of EPZ firms and receive the same (official) exchange rate for their exports, but do not enjoy the common facilities of the EPZ industrial estates. - 98 - ANNEX III Page 14 of 19 growth was rapid from 1974 to 1981, when there were 38 firms, but there has been little net increase (by end-1983, the number of firms was 42) in the number of firms since then. In San Pedro de Macoris growth continued through 1982, when there were 33 firms. In La Romana, the number of firms in early 1983 (19) was only three greater than it had been in 1976, and the same as in 1979. The low post-1976 growth rate in La Romana compared with the other two EPZs may be due partly to higher rents and a deliberate policy effort to limit the expansion of La Romana's industrial Park. On average, the firms in La Romana are considerably larger (average employment is 435 persons per firm) than those in Santiago (166), San Pedro de Macoris (109), and the SFZs (112). In 1982, 62 percent of EPZ firms produced garments and textiles, 12 percent produced fcotwear and leather products, 8 percent produced cigars and processed tobacco, 2 percent produced electronic and electrical goods, and the remaining 16 percent produced miscellaneous items. 44. The value of the net exports from EPZs and SFZs increased from US$1 million in 1970 to US$62 million in 1982. (The value of net exports is the quantity of foreign exchange surrendered to the Central Bank; alternatively, it can be seen in theory as the gross value of exports less the value of imports uised to produce them.) In the three EPZs, the annual growth of the net value of exports was consistently 20 percent or better during 1970-1980, and averaged 33 percent a year during 1975-1980. By contrast, during 1980-1982 the annual growth rate in the three EPZs ranged from minus 5 percent to a positive 20 percent. In the SFZs, the nominal net value of dollars earned was barely greater in 1982 than it had been in 1976; in real, terms it had returned to its 1974-1975 level. Nevertheless, even in 1982 the net value of EPZ exports was considerably greater than the gross value of exports of non-traditional agricultural goods, agro-industrial goods and other non-EPZ industrial goods. 45. Total direct employment in the EPZs and SFZs rose from about 500 in 1970 to about 20,000 in 1982. The largest zone in terms of employment provided was Santiago (7,700 in early 1983). This was followed by La Romana (7,000), San Pedro de Macoris (4,000) and the SFZs (1,600). The annual rate of growth of direct employment in the three EPZs was consistently greater than 20 percent through 1979, before falling below zero in 1982. For each person employed directly in an EPZ probably another 2 are employed indirectly in trade and commerce, transport, services, and provision of goods to the employed persons who now have higher incomes.7/ Thus, taking the more conservative estimate, directly and indirectly, the EPZs were probably responsible in 1982 for some 50,000 jobs. If it is assumed conservatively that each person employed provides at least partial income support for at 7/ The Consejo Nacional de Zonas Francas Industriales estimates 1.5. See "Programa de Trabajo y Presupuesto Operativo, 1983," mimeo, Santo Domingo, September 1982. Nauel Dominguez estimates about 3; Vide, "Consideraciones sobre las Zonas Francas Industriales en la Republica Dominicana," mimeo, Central Bank, 1982. - 99 - ANNEX III Page 15 of 19 least 3 others,8/ some 200,000 people (or 4 percent of the country's population) bene_fit directly or i.adirectly from the creation of jobs in the EPZs. Because of low wage-skill ratio and lower propensity for labor relations problems, a large proportion of the jobs created directly by EPZs are occupied by women. In Santiago in 1982, the proportion was 68 percent; in La Romana it was 82 percent. In jobs created indirectly, the ratio of females to males is probably somewhat lower. Benefits and Costs of EPZ 46. Besides the considerable net foreign exchange generated, the main benefit of the EPZs is the direct and indirect creation of at least 50 000 jobs and some form of support to at least 4 percent of the populationA4/ They have also helped to decentralize industry and employment. Almost equally important is the role of EPZs in providing a first-rate training ground for workers and mid-level managers. Almost all EPZ firms have trained the workers, supervisors and mid-level managers who they employ. Because plants are well laid-out, quality control is stringent, and the operations are well run, workers and mid-level personnel are getting an excellent education in what is needed to export labor-intensive products; a training that is not available elsewhere in the Dominican Republic. 47. The above benefits from the existence of the EPZs are derived by the Dominican Republic at minimal cost: (a) In the Santiago EPZ, the only cost incurred by the Government was the DR$6 to 7 million initial investment. One of the aims of the non-profitmaking local body that runs the EPZ has been to pay for all services provided to EPZ firms (improvements to roads and buildings, provision of electricity, etc.) from fees charged to these firms--and this has been achieved. Although institutional arrangements at the other two EPZs are different, Government costs are minimal. (b) The on-the-job labor training provided in the EPZs is provided entirely at the EPZ firm's expense. (c) The cost to the economy of creating a job in the EPZs is far lower than the cost of creating a job outside the EPZs. According to a recent study,10/ the cost of creating a job in the Santiago EPZ is RD$3,250 or about one fourth of the cost of a job in import-substitution industries established under law 299e11/ 8/ Dominguez, op cit. , assumes that the figure is five rather than three. 9/ In the town of La Romana it has been estimated that the wages and salaries paid by EPZ firms benefit about 50 percent of the local population. See M. Dominguez, op. cit.. 10/ M. Dominguez, op.cit.. 11/ This estimate of the cost of one job is based upon data from applications for law 299 status. - 100 ANNEX III Page 16 of 19 (d) Firms locating in EPZ may be footloose, and may leave the country with only short notice, leaving much unemployment behind them. However, if the Dominican Republic is able to keep the EPZs attractive, this turnover will be of the desirable and natural kind: firms specializing in assembling garments, for example, will gradually be replaced by firms using (and training) labor that is more skilled. The continued existence and prosperity of EPZs in East Asia over a period when real wages have more than trebled is testimony to the fact that rising wages need not signal the end of the EPZs. Attractions of Dominican Republic EPZs to Foreign Firms 48. The firms located in the three EPZs are predominantly foreign owned. Most have only one foreign employee, the manager, who is not only an expert but has worked in several different countries. They were unanimous regarding the advantages the Dominican Republic offered to them. These included: (a) Political stability and good personal safety relative to other host countries. (b) A good labor force; workers learn fast, and once trained, productivity is high, with effective quality control procedures.12/ (c) Good administration; the EPZs are relatively efficiently run and bureaucratic problems, while not entirely absent, are not overwhelming. (d) Nearness makes possible more re-orders of a fast-selling item. Re-orders tend to be particularly profitable because they require no new plant organization. F. EPZ: Problems and Recommendations 49. Although the Dominican EPZs have had significant success, a numbei of problems remain. The important ones appear to be quite solvable. Cost, Profitability,and Competitiveness 50. During the past several years, some 42 companies have closed operations in the three Dominican EPZs. In addition, two EPZs have noted that at least 102 companies have enquired about investing in an EPZ in the Dominican Republic but have failed to do so. Further, of the 100 or so companies currently operating in Dominican EPZs, at least 21 have already opened similar operations in other countries; and the trend is continuing. 12/ The high quality of EPZ-produced goods can be seen from the fact that EPZ firms have been able to export goods bearing labels like La Coste, Florsheim and Partagaz (cigars), among many others. - 101 - ANNEX III Page 17 of 19 51. If the former rate of growth is to be recaptured and if decline is to be averted, it is almost certainly going to be necessary to allow EPZ firms partial and eventually full access to the parallel foreign exchange market. At present, EPZ firms have to exchange the dollars they earn at the official exchange rate in order to pay local costs (wages, electricity,, rent, etc.). Table II presents the Ministry of Industry and Commerce's evaluation of the relative competitive position of Dominican EPZs, using the official exchange rate for peso costs. The analysis concludes that costs of the Dominican EPZs compare quite fa-vorably with other EPZs in the Caribbean. It was prepared in response to a study sponsored by the EPZ firms that concluded that costs in Dominican EPZs are higher than in several other countries in the region. The comparison is made difficult by volatile A-!Id temporary exchange rate conditions, but the evidence together with -de record of slow growth of the Dominican EPZs in recent years seems to support the gradual transfer of EPZ exports to the parallel market in conformity with the medium-term plans for a unification of the foreign exchange market. Table II: COMPARISON OF TOTAL US$ COST ESTIMATES FOR FACTORY OPERATIONS IN SEVEN COUNTRIES OF THE CARIBBEAN AREA, 1983a/ (US$ thousand) Rental on Direct Salaries Electricity Factory Total Country and Benefits Cost Building Cost Haiti 479.0 41.3 48.0 568.3 Costa Rica 667.2 25.6 77.0 769.8 Dominican Republic 818.7 65.0 36.0 919.7 Colombia 932.2 27.3 87.0 1,046.5 Mexico 942.4 25.2 90.0 1,057,6 Panama 1,015,7 42.0 99.0 1,156.7 Jamaica 1,737.6 54.6 36.0 1,828.2 a! Cost comparison based on a textile factory employing 500 people in a 30,000 square foot building using 420,000 kilowatts of electricity annually. Source: Central Bank Domestic inputs 52. Most EPZ firms use a small amount of domestically-produced inputs. Managers generally felt that the inputs that are available are not of the appropriate quality, price, and dependability of delivery, and this accords with the mission's findings. To date, the Dominican Government has resisted suggestions that it should require EPZ firms to buy a certain proportion of their inputs locally. This resistance has been wise; it seems certain that - 102 - ANNEX III Page 18 of 19 any such rule would cause many firms to move out. If and when local goods improve in quality and reliability of delivery, and if EPZ firms are allowed to exchange export earnings in the parallel market EPZ firms will use them of their own accord. Customs 53. All customs papers for imported goods, inputs and machinery, are processed by Government offices in Santo Domingo. This is true even if the imports arrive at Puerto Plata. The delay is only a few days; yet in exporting clothing, for example, even a few days can be important. Within the Santiago EPZ, there were a number of complaints that the hours of the local customs office were inappropriate and that too much overtime was charged to ensure customs clearance of urgenitly-needed goods and materials. Finally, all goods being imported to the Dominican Republic must have a consular invoice signed by the Dominican Consul in the country of origin. This requirement may be unique to the Dominican Republic. If the Consul is absent from his office for a few days, urgently needed merchandise can be delayed, and entire plants can be stopped. If consular invoices could be dropped and customs paperwork processed in Santiago or Puerto Plato, these problems could be ended. E.lectricity and Telejphone 54. EPZ firms suffer from the same problems with the cost and irregularity of supply of electricity as non-EPZ firms. The Dominican telephone system is not adequate for an exporter. For example, it is not possible to dial direct from Santiago to Santo Domingo, let alone to the United States. All calls must go through operators, often with some delay. EPZ Administration 55. On the whole, Dominican EPZs appear to be well and efficiently run. However, it seems that the two privately-run zones (Santiago and La Romana) are run more efficiently than the government-run zone at San Pedro de Macoris. It might be useful, then, if any future zones that are set up follow the Santiago or La Romana models, rather than that of San Pedro de Macoris. One United States businessman who has managed firms in the United States, Mexico, Central and South America, and Taiwan (several of these in EPZs) was full of praise for the administration of the Santiago EPZ. The one change suggested was a one-stop initiating office. In the Taiwan EPZs, a firm setting itself up only has to go to one office to organize buildings, power supply, telephone, visas, housing for personnel, schooling for children, translators, tariff exemptions to import an automobile, and to recruit personnel. Perhaps some such concentration of services might be considered for existing and future Dominican EPZs. 103 - ANNEX iII Page 19 of 19 United States Quota 56. In a few lines (pyjamas, some kinds of pants) expansion of Dominican clothing exports is blocked by the limited United States quota. However, unlike in many developing countries, there are still a large number of clothing itpns in which there is yet no U.S. quota restriction. T.hus, the prospects for export expansion in the industry are good. - 104 STATISTICAL APPENDIX - 105 - STATISTICAL APPENDIX Table Title Page Standard Table 1: National Accounts Summary (current prices), 1978-83..... 108 Standard Table 2: National Accounts Summary (1978 prices), 1978-833....... 109 Standard Table 3: Balance of Payments Summary, 1978-83o.,*....e ....... 110 1.1 Past and Projected Population, 1950-2000 .............. ................ IIl 1.2 Demographic Indicators, 1950-2000.. . .. . .......... e .... 112 2.1 Origin of Gross Domestic Product, 1978-83..* ... .,*...*.... ... 113 2.2 Origin of Gross Domestic Product (1970 prices), 1978-83.0....,..... " 114 2.3 Gross Domestic Expenditure (current prices), 1978-83.., ... ......... 115 2.4 Gr.oss Domestic Expenditure (1970 prices), 1978-83.......,.o..s.. 116 2.5 Savings and Investment 1978-83.f..............*O. .*... 117 2.6 Composition of Private and Public Investment, 1974-81 ........ 118 2.7 Public and Private Share of Investment and Savings, 1970-82 ..... .e . 119 2.8 Indicators of External S'.ocks and Structural Adjustment, 1976-82..... 120 3.1 Balance of Payments, 1978-83 ............................... 121-122 3.2 Exports by PrinciLpal Commodity Groups, 1978-83.................... 123 3.3 Manufactured Exports, I975-82.E*.... *o** * * *e*..***e**.. ** . .. . . .. 124 3.4 Exports by Destiniation, 1978-83,.......a,* .......,..a.,........... .125 3.5 List of Prohibiteod Exports. ............................ . . . . . . 126 3.6 Imports by Economic Classification, 1978-82. ..,.....,............... 127 3.7 Imports Paid with Official Foreign Exchange, 1980-83...e e.....e..... 128 3.8 List of Prohibited Imports ...... . . . . . . . . ... .... 129 3.9 Net International Reserves, 1978-83................s..e...... 130 4.1 External Public Debt Outstanding, 1982.. ............................ 131 4.2 Public External Debt Service as of 1982......***.***.*********.** 132-136 5.1 Operations of the Central Government, 1978-83.....6*.*,....000... 137-138 5.2 Consolidated Operations of Public Sector, 1977-83...*...*......,. 139-140 -106 Page 2 STATISTICAL APPENDIX Table Title 5.3 Consolidated Current Account Public Revenues, 1971-83. ..,.. 143-144 5.4 Consolidated Current Account Public Expenditures, 1971-83.... 145-146 5.5 Central Government Revenues, 1978-84.... ..*............. 147 506 Government Revenue from Tariffs and Other Import Duties, 1977-84 ..... 9*0 ..**.. .***...*... . *....*.*. 148 5e7 Fixed Investment of the Public Sector, 1979-82 ............ .. 149 5.8 Public Sector Fixed Investment: Plan, Budget and Executed, 1979-84 ............................. 150 5.9 Fixed Investment by Selected Agencies: Plan, Budget and Executed, 1982-84.,.......... ............***... 151 5.10 Cost Overruns for Selected Projects, 1983.... ..... ...... 152 5.11 Status of Externally Financed Projects, Occober 1983 .....,. 153 5.12 Alternative Investment Budget, 1984-86...........,.......... 154-155 5.13 Dominican Electricity Corporation (CDE): Capacity and Energy Balance 1978-87 ....*....,.,.,...... 156 5.14 Dominican Electricity Corporation (CDE): Powyer Least Cost Program 1983-90 ..........b.e.....,...,.o 157 5.15 State Sugar Council (CEA ); Investment Program, .............,....... , , . . ...... . . . , . 158 6.1 Banking System - Summary Accounts, 1977-83g..4.*... **..... ..* 159-162 6.2 Commercial Bank Credit to the Private Sector by Economic Activity, 1977-82 ................e.....@.e x.c .. 163 7.1 Average Annual Growth Rate for Output of Selected Commodities in the Dominizan Republic, 1971-82*,. .**o*. .***. 164 - 107 - Page 3 STATISTICAL APPENDIX Table Title Page 7.2 Imports of Food Commodities by INESPRE, 1972-83.*...,....*......o* 165 7.3 Rice Prices in the Dominican Republic, 1973-82 ........ 166 8.1 Manufacturing Output, 1962-80. .e ........ ............e ..e.. 167 8.2 Value Added in Manufacturing, 1962-80 .... **.* ee............*oe. 168 8.3 Structure of Foreign Exchange Incentives for Industrial.0 e..*o*.. 169 Products 8.4 Manufactured Exports Receiving Foreign Exchange Incentives,oo...0o 170 1981-82 9.1 Implicit Price Deflators, 1978-83.......................o....... 171 9.2 Consumer Price Index. 1 172 9.3 Retail Prices of Petroleum Derivatives, 1976-82 .........**.*..**173 9.4 Average Selling Price of Electricity, 1976-83 .......... .ee .....a 174 The following Symbols are used for all tables: Zero: - Not Available: -- (also n.a. and blank) Negligible: Standard Table 1: NATIONAL ACCOUNTS SUMMARY (US$ millions) a/ 1978 1979 198 0 1981 1982 1983 GDP 4,728.4 5,525.4 6,649.0 7,227.0 7,877.0 8,527.0 Resource Gap 326.0 349.4 647.4 305.8 392.8 300.0 Imports (GNFS) 1,154.0 1,484.3 1,918.7 1,818.4 1,534.6 1,550.0 Exports (GNFS) 828.0 1,134.9 1,271.3 1,512.6 1,141.8 1,250.0 Total Expenditures 5,054.4 5,874.8 7,296.4 7,532.8 8,269.8 8,827.0 Consumption 3,924.2 4,480.6 5,586.3 5,774.0 6,633.0 7,007.0 General Government 271.1 420.4 519.5 693.0 776.0 750.0 Private 3,653.1- 4,060.2 5,066.8 5,081.0 5,857.0 6,257.0 0 Gross Domestic Investment 1,130.2 1,394.2 1,710.1 1,758.0 1,637.0 1,845.0 Fixed Investment hI 1,031.9 1,335.0 1,628.3 1,694.0 1,557.0 1,769.0 Changes in Stock 98.3 59.2 81.8 64.0 80.0 76.(0 Domestic Saving 804.1 1,045.1 1,063.1 1,453.1 1,244.1 1,545.0 Net Factor Income 135.7 187.7 210.2 293.1 254.1 289.0 Net Current Transfers 149.8 205.8 187.8 193.0 205.0 215.0 National Saving 818.2 1,063.2 1,040.7 1,353.0 1,195.0 1,471.0 Average Exchange Rate 1.0 1.0 1.0 1.0 1.0 1.0 (Peso per US$) a/ Dominican currency. r/ Estimated. Source: Statistical Appendix Tables 2.1, 2.3, 2.5, 2.7 and 3.1 Standard Table 2: NATIONAL ACCOUNTS SUMMARY (1978 US$ millions)a/ Est. 1978 1979 1980 1981 1982 1983 GDP 4,728.4 4,951.1 5,235 4 5,433.8 5,520.0 5,688.5 Terms of Trade Effect 0.0 18.8 227.4 318.8 -1.3 36.9 Gross Domestic Income 4,728.4 4,969.9 5,462.8 5,752.6 5,518.7 5,725.4 Resource Gap 326.0 321.8 543.1 236.0 299.2 220.5 Imports (GNFS) 1,1154.0 1,366.8 1,609.6 1,403.1 1,168.8 1,138.9 Capacity to import 828.0 1,045.0 ..,066.5 1,167.1 869.6 918.4 (Exports (GNFS) 828.0 1,026.1 839.1 848.3 870.9 881.5 Total Expenditures 5,054.4 5,272.9 6,t005.9 5,988.6 5,817.9 5,945.9 Consumption 3,924.2 4,029.3 4,754.3 4,568.0 4,852.2 4,886.3 General Government 271.1 378.0 442.1 548.2 567.6 523.0 1 Private 3,653.1 3,651.3 4,312.2 4,019.8 4,284.6 4,363. 3 0 Gross Domestic Investment 1,130.2 1,243.6 1,251.6 1,420.6 965.7 1,059.6 Fixed Investment b/ 1,031.9 1,172.1 1,221.5 1,082.4 910.0 950.3 Changes in Stocks 98.3 71.5 30.1 338.2 55.7 109.3 Domestic Saving 804.2 940.6 708.5 1,184.6 666.5 839.1 Net Factor Income 135.7 168.5 173.0 233.0 178.8 174.6 Current Transfers 149.8 184.7 154.6 153.4 144.3 144.9 National Saving 818.3 956.8 690.1 1,105.0 632.0 809.4 Deflators: GDP 100.0 111.5 127.0 133.0 142.7 149.9 Tmports 100.0 108.6 119.2 129.6 131.3 136.1 Exports 100.0 110.6 151.5 178.3 131.1 141.8 Total Expenditures 100.0 111.4 121.5 125.8 142.1 148.4 Consumption 100.0 111.2 117.5 126.4 136.7 143.4 Investment 100.0 113.9 133.3 156. 5 171.1 183.1 a/ Dominican currency. '5/ Estimates.bls2123,2527an31 Source: Statistical Appendix Tables 2.1, 2.3, 2.5, 2.7 and 3.1 January 1984 - 110 - Standard Table 3: BALANCE OF PAYMENTS SUMMARY (US$ millions) Est. 1978 1979 1980 1981 1982 1983 Exports 828.0 1,134.9 1,271.3 1,512.6 1,141.8 1,250.0 Merchandise 675.5 868.6 961.9 1,188.0 767.7 816.0 Non-factor Services 152.5 266.3 309.4 324.6 374.1 434.0 Imports 1,154.0 1,484.3 1,918.7 1,818.4 1,534.6 1,550.0 Merchandise 862.4 1137.5c/1, 519 .7a/1,451.7e/1,257.3 1,275.0 Non-factor Services 291.6 346.8 399 .0 366.7 277.3 275.0 Resource Balance (x-m) -326.0 -349.4 -647.4 -305.8 -392.8 -300.0 Net Factor Income (Credit) -135.7 .-187.7 -210.2 -293.1 -254.1 -289.0 Factor Receipts 20.8 31.9 41.8 11.8 4.4 5.0 Factor Payments -156.5 -219.6 -252.0 -304.9 -258.5 -29 4.0 (Medium and Long-Term Interest Paid a/ 47.2 78.5 109.4 132.0 113.3 -- Net Current Tranfers 149.8 205.8 187.8 193.0 205.0 215.0 Transfer Receipts 150.6 206.5 189.9 194.4 206.5 216.5 Transfer Payments 0.8 0.7 2.1 1.4 1.5 1.5 Current Balance -311.9 -331.3 -669.8 -405.9 -441.9 -374.0 Direct Investment 39.6 -13.4 62.7 79.7 -1.4 35.0 Official Grant Aid b/ Net Medium and Long-Term Loans -20.4 -25.7 -9.6 -58.9 -22.0 -51.2 Disbursements 50.2 42.6 78.9 9.3 2.1 8.0 Repayments 70.6 68.3 88.5 68.2 24.1 59.2 Other Medium and Long-Tce:m (Net) 142.5 288.9 355.7 279.8 172.5 56.5 Net Credit from IMF - 74.2 -64.8 -25.3 40.6 178.4 Disbursements - 88.2 - -3.8 51.4 -- Repayments 14.0 64.8 21.5 10.8 -- Net Short-Term Capital 39.3 -41.0 103.2 -38.4 -2.8 -6.7 Capital Flows net and Errors and Omissions -15.8 39.2 -104.8 -18.1 -55.5 -154.0 Change in Net Reserves 95.1 87.5 117.8 150.9 310.5 8.0 a/ Does not include interest on IMF loans and non-guaranteed medium and long-term loans. b/ Included in current transfers. C/ Includes US$16.9 million of donations on account of hurricanes, US$22.5 million corresponding to imports of merchant vessels not covered by customs data, and US$17.7 million of other coverage adjustments. d/ Irncludes US$21.3 million of coverage adjustments. e/ Includes US$1.5 millien of coverage adjustments. Table 1.1: PAST AND PROJECTED POPULATION, 1950-2000 Annual Growth Percent Labor Force in: YEAR Ratea/ Total Male Female Aged 15-64 Urban Agric. Indust. Services (percent) (thousands) (Percent) 1950 -- 2,136 - 23.7 70.6 11.6 17.7 1960 3.62 3,047 - - - 30.2 66.5 12.2 21.:3 1970 2.78 4,006 - - - 40.3 61.2 14.0 24.8 1980 3.O9 5,431 2,746 2,685 23,845 51.0 49.0 18 33 1985b/ 2.80 6,234 3,149 3,305 3,449 - - - I 199 Ob/ 2.62 7,096 3,582 3,514 4,087 - - 1995b/ 2.41 7,994 4,033 3,961 4,724 - - 200/b/ 2.12 8,880 4,478 4,402 5,443 - - a/ Average Amnual Growth Rate for period ending in year shown. b/ Projections. Source: World Bank - 112 - Table 1.2: DEMOGRAPHIC INDICATORS, 1( 50-2000 Crude Crude Total Life expectancy Birth Death Fertility at Birth (years) Year Ratea/ Ratea/ Rateb/ Male Female 1950 51.4 20.6 7.5 43.6 46.7 1960 49.8 14.7 7.5 50.9 54.4 1970 42.0 10.6 6.2 56.1 59.8 1980 34.0 7.9 4.2 60.7 64.6 1985 32.6 6.7 3.9 62.8 66.6 1990 29.8 5.9 3.5 64.6 68.6 1995 26.4 5.4 3.1 66.3 70.3 2000 23.2 5.1 2.7 67.7 71.7 a/ per thousand of population. '6/ children per woman. Source: World Bank Table 2.1: ORIGIN OF GROSS DOMESTIC PRODUCT, 1978-83 (DR$ Million) Est. 1978 1979 1980 1981 1982 1983 GDP at market prices 4,728.4 5,525.4 6,649.0 7,227.0 7)877.0 8,527.0 Primary Production 1,004.3 1,287.7 1,681.7 1604.0 1,609.2a/ i,704.8a/ Crops 621.4 680.0 927.3 951.6 819.77 845.2 Livestock 244.1 339.9 420.4 335.0 489.7 307.1 Forestry and fishing 20.8 35.0 42.3 45.0 52.8 54.4 Mining 118.0 227.8 29 1.7 27 2.4 247. 0 29 2. 1 Secondary Production 1,265.3 1,370.3 1,546.1 1754.7 2,087.9 2,169.8 Manufacturing 873.7 920.0 1,005.1 1,124.4 1,475.6 1,522.7 Construction 349.0 419.0 509 . 7 56 3. 5 48 7 . 6 52 2. 2 Electricity 42.6 31.3 31.3 66.8 124.7 124.9 Services 2,458.8 2,872.4 3,421.2 3,868.3 4,179.9 4,245.8 Commerce 732.8 861. 0 1, 048 . 7 1,173.6 1,319.4 1 s 33 5. 7 Transport and communications 322.2 354.9 362.3 390.8 654.3 661.0 Financial services 154.9 191.0 237.8 286.8 197.1 207.6 Housing 402.8 456.3 557.2 681.2 507.5 515.2 Public administration 326.3 469.1 553.2 607.9 810.2 820.0 Other 519.8 540.0 662.0 728.0 691.4 706.3 a/ Estimates. Source: Central Bank Table 2.2: ORTGIN OF GROSS DOMESTIC PRODUCT, 1978-83 (1970 DR$ Million) Es t. 1978 1979 1980 1981 1982 1983 GDP at Market Prices 2,619.5 2,741.6 2,899.5 3,010.0 3,057.8 3,152.3 Primary Production 571.1 608.2 608.1 644.3 624.7 661.8 Crops 293.8 287.9 296.6 312.1 318.2 328.1 Livestock 151.8 156.4 168.2 179.1 190.1 199.f2 Forestry and fishing 11.2 17.4 18.5 19.6 20.5 21.1 Mining 114.3 146. 5 124.8 133. 5 9 5.9 113.4 Secondary Production 700.0 732.0 775.7 797.0 810.5 842.3 Manufacturing 482.5 504.8 530.2 544.5 572.8 591.1 Construction 174.5 183. 5 19 6. 5 199.1 189 . 3 202. 7 Electricity 42.9 43.7 49.0 53.4 48.4 48.5 Services 1,348.4 1,401.4 1,515.7 1,568.7 1,622.6 1,648.2 Commerce 438.6 451.5 473.6 494.9 512. 2 518.5 Transport and communications 218.9 225.4 230.5 242.7 254.0 256.6 Financial services 66.4 67.9 70.4 73.3 76.5 80.6 Housing 177.2 18 6.0 198.1 198. 8 19 7. 0 200.0 Public administration 200.4 236.1 277.7 300.1 314.5 318.3 Other 246.9 234.5 265. 4 258.9 268 .4 174.2 Source: Central Bank Table 2.3: GROSS DOMESTIC EXPENDITURE, 1978-83 (DR$ Million) 1978 1979 1980 1981 1982 1983 GDP at Market Prices 4,728.4 5,525.4 6,649.0 7,227.0 7,877.0 8,527.0 Resource balance -326.0 -349.4 -647.4 -305.8 -392.8 -300.0 Exports a/ (828-0) (1,134.9) (1,271.3) (1,512.6) (1,141.8) (1,250.0) Imports a/ (-1,154.0) (-1,484.3) (-1,918.7) (-1,818.4) (-1,534.6) (1,550.0) Consumption and Investment Expenditure 5,054.4 5,874.8 7,296.4 7,532.0 8,270.0 8,823.0 Consumption 3,924.2 4,480.6 5,586.3 5,774.0 6,633.0 7,007.0 Private (3,653.1) (4,060.2) (5,066.8) (5,081.0) (5,857.0) (6,257.0) Public (271.1) (420.4) (519.5) (693.0) (776.0) (750.0) Gross capital formation 1,031.9 1,335.0 1,628.3 1,694.0 1,557.0 1,740.0 Private (699.1) (1,036.1) (1,296.1) (1,349.0) (1,264.0) (1,388.0) Public (332.8) (298.9) (332.2) (345.0) (293.0) (352.0) Change in inventories 98.3 59.2 81.8 64 80 76 a/ Exports and Imports of Goods ecnd Non-Factor Services. Source: Central Bank Table 2.4: GROSS DOMESTIC EXPENDITURE, 1978-83 (1970 DR$ Million) Es t. 1978 1979 1980 1981 1982 1983 GDP at Market Prices 2,619.5 2,741.6 2,899.6 3,010.0 3,057.8 3,152.3 Foreign balance -78.4 -63.5 -316.3 -199.2 -58.3 -35.3 Exports (542.7) (672.4) (549.9) (555.9) (570.9) (577.6) Imports (-621.1) (-735.9) (-866.2) (-755.1) (-629.2) (-612.9) Consumption and Investment Expenditure 2,697.9 2,805.1 3,231.6 3,209.2 3,116.1 3,187.6 Consumption 2,062.3 2,117.9 2,498.7 2,400.8 2,550.2 2,568.5 Private (1,887.1) (1,902.2) (2,233.0) (2,113.6) (2,251.8) (2,293.6) Public (175.2) (215.7) (265.7) (288.2) (298.4) (274.9) Gross capital formation 574.8 653.2 680.6 603.3 507.2 566.8 Private (412.6) (519.4) (529.4) (480.4) (411.8) (452.1) Public (162.2) (133.8) (151.2) (122.9) (95.4) (114.7) Change in inventories 60.8 34.0 52.3 205.1 58.7 52.3 Sources: Cer.tral Bank and IMF. Table 2.5: SAVINGS AND INVESTMENT,1978-83 (DR$ Million) Est. 1978 1979 1980 1981 1982 1983 Gross Domestic Investment 1,130.2 1,394.2 1,710.1 1,758.4 1,637.0 1,845.0 Public sector 332.8 298.9 332.2 345.4 293. 0 -- Private sector 797.4 1,095.3 1,377.9 1,413.0 1,344.0 -- Gross National Saving 818.2 1,063.2 1,040.7 1,353.0 1,195.0 1,471.0 Public sector a/ 165.0 27.0 98.0 32.0 -170.0 5.6 Central government (144.0) (69.0) (165.0) (154.0) (-33.0) 18.3 Rest of public sector (21.0) (-42.0) (-67.0) (-122.0) (-137.0) -12.7 Private sector 653.2 1,036.2 942.7 1,321.0 1,365.0) 1,465.0 Foreign Saving 312.0 331.0 670.0 406.0 442.0 374.0 Public sector capital 157.4 195.4 365.5 174.0 -- 289.8 Private sector capital 43.6 13.4 155.5 89.0 - 42.2 Change in net international reserves (increase -) bl 111.0 122.2 149.0 143.0 -- 42.0 a/ These are not equal to values in Table 2.7 which were calculated on a different basis. b/ Includes gold valuation adjustment and SDR allocation. Source: Central Bank and IMF. Table 2.6: COMPOSITION OF PRIVATE AND PUBLIC INVESTMENT, 1974-81 (in percent of 1970 DR$) Private Investment Public Investment Change in Year Construction Equipment Stocks TOTAL Construction Equipment TOTAL 1974 37.8 47. 6 14.6 100 78.4 21.6 100 1975 38.2 52.0 9.8 100 7 5.8 24.2 100 1976 40.7 48.0 11.3 100 88.2 11.8 100 1977 43.0 47.8 9.2 100 86.3 13.7 100 1978 44.3 42.9 12.8 100 88.5 11.5 100 1979 49.0 44.9 6.1 100 74.7 25.3 100 1980 50. 6 40.4 9. 0 100 68.2 31.8 100 1981 57.1 37.4 5.5 100 76.7 23.3 100 Sources: ONAPLAN, Lineamientos de politica economica y programa de inversiones publicas, Enero de 1983; Central Bank, Inversion Bruta Interna segun tipo comprador; Boletin Mensual, Abril de 1983, Diciembre de 1982 y Diciembre de 1978. - 119 - Table 2.7: PUBLIC AND PRIVATE SHARE OF INVESII AND SAMIMS, 1970-82 INVESTMENr SAVINGS Gross Domestic Domstic Lublic Private lublic Private Foreign Invest1ment Share Share Total Share Share Share YEAR (IR$ million) (%) (%) (%) (%) (M) (%) 1970 24.4 26.7 73.3 100 36.6 16.1 47.3 1971 297.6 30.7 69.3 100 44.8 6.0 49.2 1972 91.7 38.3 61.7 100 40.7 39.4 20.0 1973 518.1 31.9 68.1 100 5.1 36.1 24.8 1974 683.1 31.0 68.1 100 34.2 25.2 40.6 1975 832.2 32.6 67.4 100 53.7 33.5 12.9 1976 8'1.7 2B.3 71.7 100 45.5 21.8 32.7 1977 999.5 28.2 71.8 100 36.1 33.2 31.4 1978 1130.2 29.4 70.6 100 14.6 57.8 27.6 1979 1394.2 21.4 78.6 100 1.9 74.3 23.7 1980 1710.1 19.4 80.6 100 5.7 55.1 3.2 1981 179B.0 19.3 80.7 100 1.8 75.5 22.7 1982 1637.0 16.3 83.7 100 -15.9 & 8 26.1 1983 1816.0 19.4 76.4 - - - - Source: Central Bank, ONAPLAN, World Bank, and IF. Table 2.8: INDICATXRS OF EUERNAL SX1KS AND ADJUSIMC 1976-82 (percent) Average Average Average 1976-78 1979 1980 1981 1979-81 1982 1979-82 I. OIC5Z VARIABLES 1. Real Effective Exrhange Rate 100 104.7 100.9 99.7 101.8 95.2 100.1 2. Yney Supply/CDP (l/GDP) 9.6 9.6 8.9 8.2 8.9 8.7 8.9 3. Domestic Credit/GDP 28.2 27.6 27.1 28.4 27.7 31.8 28.7 4. Credit to Goverrment/GDP 6.8 7.3 7.5 9.2 8.0 12.1 9.0 5. Govermenat Budget Balance/GDP -3.4 a/ -5.7 -6.0 -5.8 -5.8 -5.4 -5.7 6. Real Discoumt Rate 7. Domestic Energy Pric/Internatioal Energy Price (at official prices) 55.0 80.5 91.2 91.0 87.6 103.5 91.6 II. BAIANCE CF PAYMUNPS EFFEC]S CF E=TERNAL SHOCKS 1. Exteral Shocks/GNP 9.2 11.0 6.4 8.8 2. Terms of Trade Effects/Exteral Shocks 81 9 -53 42 3. Export Volume Effects/External Shocks 10 21 90 35 4. Interest Rate Effects/Externl Shocks 9 10 64 23 III. 1RF(ANM INDICATC1S A. Balance of Payments Effects of Policy Responses (expressed as a % of Balance of Paynts Effects of External Shcks) 1. Ndal et External Finncing -40 14 -106 -34 2. Export Prortion 36 -5 -13 6 3. Inport Substitution: Fuel -4 13 27 11 NnFuel 51 12 27 29 4. Inport Effects of Macra-economic Policies 57 66 166 88 B. Policy Response Ratios 1. Eport Pro.tion/Exports 10 -2 -4 2 2. Tipart Substitution/Imports 12 8 9 10 of which: Fuel/Fuel Irnports -5 24 29 15 Nn Fuel/N Fuel Inorts 17 4 6 9 a/ Miss:ion Estimate. Note: See Bela Belassa and Desmnd McCarthy "Adjustnmnt Policies in Developing Countries 1979-82" World Bank, April 15, 1983. Source: CaIlations based on data frm World Bank and IMF data banks. Page 1 Table 3.1: BALANCE OF PAYMTS, 1978-83 (US$ Million) 1978 1979 1980 1981 1982 Est. 1983 Credit Debit: Balance Credit Debit BaLance Credit Debit Balance Credit Debit Balance Credit Debit Balance Credit Debit Balance Current Account 999.4 1,311.3 -311.9 1,373.3 1,704.6 -331.3 1,50310 2,172.8 -669.8 1,718.8 2,124.7 -405.9 1,352.7 1,794.5 -441.9 1,471.5 1,845.5 -374.0 Merchandise and services 848.8 1,310.5 -461.7 1,166.8 1,703.9 -537.1 1,313.1 2,170.7 -857.6 1,524.4 2,123.3 -598.9 1,146.2 1,793.1 -646.9 1,255.0 1,844.0 -589.0 Mercbandise f.o.b. 675.5 862.4 -186.9 868.6 1,137.5 at-268.9 961.9 1,519.7 b/-557.8 1,188.0 1,451.7 c/-263.7 767.7 1,257.3 -489.6 816.0 1,275.0 -453.0 Services 173.3 448.1 -274.8 298.2 566.4 -268.2 351.2 651.0 -299.8 336.4 671.6 -335.2 37,8.5 535.8 -157.2 439.0 569.0 -130.0 Freight and insurance 11.2 lOZ. - 13.0 123.9 -110.9 14.4 163.9 -149.5 17. 141.7 -3 11. 1Z. -413.5 12.0 128.0 -116.0 Other transport 8.4 8.9 -0.5 9.2 7.6 1.6 11.3 10.6 0.7 13.6 12.4 1.2 9.7 12.6 -2.9 10.0 13.0 -3.0 Travel 92.3 126.3 -34.0 123.9 158.2 -34.3 172.6 165.8 6.8 206.3 127.8 78.5 266.1 87.0 179.1 326.0 74.0 252.0 Investmet income 20.8 156.5 -135.7 31.9 219.6 -187.7 41.8 252.0 -210.2 11.8 304.9 -293.1 4.4 258.5 -254.1 5.0 294.0 -289.0 Governnt, -n.i.e. 2.1 2.2 -0.1 4.1 3.5 0.6 4.5 3.7 0.8 7.3 5.2 2.1 6.4 5.0 1.4 4.0 9.0 -5.0 Other services 38.5 52.2 -13.7 116.1 53.6 62.5 106.6 55.0 51.6 79.6 79.6 - 80.4 47.7 32.7 82.0 51.0 31.0 Transfers 150.6 0.8 149.8 206.5 0.7 205.8 189.9 2.1 187.8 194.4 1.4 193.0 206.5 1.5 205.0 216.5 1.5 215.0 Private Y49-.6 T.3 146.3 177.3 0.3 177.0 183.8 0.7 183.1 176.4 0.1 176.3 190.5 0.5 190.0 195.5 0.5 195.0 Official 4.0 0.5 3.5 29.-2 0.4 28.8 6.1 1.4 4.7 18.0 1.3 16.7 16.0 1.0 15.0 21.0 1..0 20.0 Capital account 330.9 129.9 201.0 459.2 250.4 208.8 672.3 151.3 521.0 613.5 351.0 262.5 423.4 277.1 146.3 409.3 375.7 33.6 Private capital 114.2 70.6 43.6 95.1 81.7 13.4 244.0 88.5 155.5 156.6 68.2 88.4 2.1 67.8 -65.7 101.4 59.2 42.2 Direct investment 39.6 - 39.6 - 13.4 -13.4 62.7 - 62.7 79.7 - 79.7 - 1.4 -1.4 35.0 - 35.0 long- & .ediun-term loane d/ 50.2 70.6 -20.4 42.6 68.3 -25.7 78.9 88.5 -9.6 9.3 68.2 -58.9 2.1 24.1 -22.0 8.0 59.2 -51.2 Other (net) e, 24.4 - 24.4 52.5 - 52.5 102.4 - 102.4 67.6 - 67.6 - 42.3 -42.3 58.4 - 58.4 Official capital 216.7 59.3 157.4 364.1 168.7 195.4 428.3 62.8 365.5 456.9 282.8 174.1 421.3 209.3 212.0 307.9 316.5 -8.6 Central Goverment 90.6 10.8 79.8 155.3 13.8 141.5 92.6 12.7 79.9 133.8 14.1 119.7 103.7 41.7 61.9 81.6 49.9 31.7 Dec. gov. agencies 11.9 2.0 9.9 11.2 4.6 6.6 5.0 1.9 3.1 1.5 1.7 -0.2' - 3.0 -3.0 - 7.6 -7.6 Iocal goverDnents - 0.8 -0.8 - 0.7 -0.7 - 0.5 -0.5 - 0.1 -0.1 - - - Public enterprises 21.7 7.8 13.9 132.7 57.0 75.7 105.4 18.3 87.1 82.9 55.2 27.7 117.7 65.2 52.5 80.3 152.7 -72.4 Public fInmcial Institutions 18.3 3.0 15.3 19.9 6.6 13.3 100.3 7.6 92.7 92.7 27.3 65.4 132.4 29.0 103.4 95.1 48.7 46.4 Short term 74.2 34.9 39.3 45.0 86.0 -41.0 125.0 21.8 103.2 146.0 184.4 -38.4 67.6 70.4 -2.8 50.9 57.6 -6.7 Page 2 Table 3.1: BALANCE OF PAYMENTS (US$ Million) 1978 1979 1980 1981 1982 Est. 1983 Balance Balance Balance Balance Balance Balance SDR allocation 7.2 7.3 6.6 - - Gold monetization I - - 5.1 -16.4 - Cold revaluation 15.8 27.8 23.7 -19.2 1-4 - Net monetary ove-ts (-iucrease) 95.1 87.5 117.8 150.9 310.6 - Central Bank 77.3 124.0 107.3 109.6 357.6 Assets 22.7 -108.2 7.0 -8.3 111.1 Liabilities 54.6 232.2 100.3 117.9 246.5 Conmercial banks 17.8 -36.5 10.5 41.3 -46.7 Assets 15.1 -31.6 -70.4 -145.2 -19.5 - Liabilities 2.7 -4.9 80.9 186.5 -27.2 a/ Includes US$16.9 million of donations on account of hurricanes; US$22.5 million corresponding to imports of merchant vessels not covered by customs data; and US$17.7 million of other cnverage adjLstments. b/ Includes US$21.3 million of coverage adjustments. c/ Includes US$1.5 million of coverage adjustments. d/ Includes publicly guaranteed private debt. e/ Includes private short-term capital and errors and omissions. Sources: Central Bank and IMF. - 123 - Table 3.2: EXPORTS BY PRINCIPAL CCOiHODITY (IOUP (Value in millions of U.S. dollars; volume in thousands of metric tons or troy ounces; and unit values in U.S. dollars per metric ton and per 100 lbs.) 1978 1979 1980 1981 1982 1983a/ Total exports, f.o.b. 675.5 868.6 961.9 1,188.0 767.5 792.0 Major agricultural exports 442.1 525.1 498.9 753.6 487.2 - Raw sugar Value 172.0 1901.9 290.2 513.2 265.5 280.1 Volume 904.7 992.4 802.0 847.5 833.3 984.9 Unit value (m. tons) 190.2 192.4 361.9 605.5 318.6 284.4 Unit value (100 lbs.) 8.6 8.7 16.4 27.5 14.4 12.9 Refined sugar and by-products Value 39.1 42.6 40.5 47.2 43Xi - Unprocessed coffee Value 86.2 142.9 51.8 62.2 90.6 76.2 Volume 24.3 38.8 19.7 26.8 34.0 29.5 Unit value (m. tons) 3,342.9 3,686.0 2,636.5 2,320.9 2,664.1 - Unit value (100 lbs.) 160.7 167.1 119.6 105.3 120.8 117.0 Processed coffee Value 10.7 14.8 25.0 13.6 5.0 - Raw cocoa Value 85.5 73.1 51.1 44.8 52.9 54.2 Volume 27.8 25.1 23.5 27.2 38.7 34.0 UWnt value (m. tons) 3,073.9 2,913.6 2,176.5 1,647.1 1,366.2 1,594.1 Unit value (100 lbs.) 139.4 132.1 98.7 74.7 61.9 72.3 Processed cocoa Value 2.2 5.3 4.7 5.3 6.1 - Tobacco leaf Value 45.8 54.9 34.8 65.6 21.4 40.2 Volume 37.3 42.5 21.8 39.2 12.0 22.0 Unit value (m. tons) 1,227.9 1,291.1 1,596.5 1,673.5 1,777.5 1,827.3 Unit value (100 lbs.) 55.7 58.6 72.4 75.9 80.6 82.8 Tobacco products Valve 0.6 0.6 0.8 1.7 2.6 - Major mineral products 168.6 272.1 379.4 334.1 193.0 246.2 Bauxite Value 23.1 20.9 18.5 15.7 5.2 0.0 Volume 756.7 634.7 605.8 457.2 140.5 0.0 Unit value (m. tons) 30.6 32.9 30.6 34.3 37.3 - Ferronickel Value 72.7 123.5 101.3 110.5 24.2 76.3 Volume 50.0 65.4 46.6 49.1 14.1 53.7 Unit value (m. tons) 1,453.2 1,885.9 2,172.2 2,250.5 1,709.6 1420.5 Gold alloy Value 63.4 104.9 225.5 186.4 146.6 154.8 Volume (troy ounces) 342.8 353.0 369.6 407.8 386.3 364.0 Silver alloy Value 9.4 22.8 34.0 21.5 17.0 15.1 Volume (troy ounces) 1,844.3 2,276.2 1,622.5 2,033.6 2,197.0 1300.0 Other exports 64.8 71.4 83.7 100.3 87.3 95.1 a/ Projection. Sources: Central Bank and IMF. Table 3.3: MANUFACTURED EXPORTS 1975-82 (DR$ thousand) 1975 1976 1977 1978 1979 1980 1981 1982 Food products a/ 12,557 11,404 11,743 13,489 14,521 17,232 18,784 22,147 Beverages 78 110 99 102 98 251 228 193 Tobacco 1,100 589 538 631 515 804 1,670 1, 431 Textiles 18 50 103 19 0 36 70 22 8 Leather products 2,898 3,329 6,691 7,414 7,746 6,395 5,868 6,281 Footwear 84 148 160 828 580 413 64 352 Furniture 108 134 134 129 123 179 154 288 Paper and paper products 541 769 603 207 121 ... 2 70 Printing and publishing 682 571 259 299 221 328 291 453 Chemicals 813 729 2,270 4,533 10,561 19,730 14,940 25,484 Plastic products 262 117 244 336 410 174 220 518 Glass and glass products ... 7 29 3 7 140 54 189 Non-metal products 75 63 47 46 402 1,022 773 706 Metal products 1,063 1,353 2,747 1,870 1,127 1,127 1,931 3,420 Electrical appliances 297 428 340 560 614 601 542 -- Other manufactures 763 3,720 1,554 5,508 11,955 10,740 16,738 -- TOTAL 21,339 23,521 27,561 36,145 49,037 59,206 62,281 -- a/ Excludes roasted coffee and meat. Source: Central Bank. Table 3.4: EXPORTS BY DESTINATION, 1978-83 (US$ Million) Jan - May 1978 1979 1980 1981 1982 1982 1983 Total exports, f.o.b. 675.5 868.6 961.9 1,188.0 767.7 351.6 363.9 North Ainerica 409.5 511.5 505.5 810.2 437.2 200.4 257.9 United States (excluding Puerto Rico) 363.4 459.1 444.6 741.3 385.4 172.6 233.2 Puerto Rico 40.6 49.9 58.0 54.0 44.0 23.5 14.2 Canada 5.5 2.5 2.9 14.9 7.8 4.3 10.5 LAFTA 54.7 49.5 88.5 79.5 19.8 7.5 0.1 Venezuela 54.5, 49.0 87.1 71.4 19.3 7.2 0.1 Other 0.2 0.5 1.4 8.1 0.5 0.3 0.0 Other South America and Caribbean 11.9 17.8 24.6 30.1 52.8 10.5 6.6 EEC 78.7 86.4 79.8 73.6 53.0 26.0 32.0 Belgium 24.0 22.7 21.6 25.5 23.4 9.8 10.6 France 7.7 4.2 3.2 4.5 3.5 0.7 0.5 The Netherlands 37.0 47.0 48.1 26.9 21.5 12.6 16.2 United Kingdom 4.2 6.4 1.2 12.7 0.9 0.9 3.0 Other 5.8 6.1 5.7 4.0 3.7 2.0 1.7 Other Europe 103.3 167.L' 229.3 161.8 182.8 95.1 61.7 Spain 21.5 38.2 15.1 43.2 11.1 2.7 4.6 Sweden 0.1 ... ... 3.4 0.0 0.0 0.0 Switzerland 72.8 127.7 204.5 103.0 89.9 37.1 30.8 Other 9.4 1.9 9.7 12.2 81.8 55.3 26.3 Asia 8.3 28.9 8.7 15.2 6.0 0.0 3.0 Japan 8.3 28.8 8.7 15.1 5.9 0.0 3.0 Other ... 0.1 ... 0.1 0.1 0.0 0.0 Africa 8.6 6.7 25.5 2L 7.6 16.1 12.0 2.6 Algeria 2.2 2.0 7.0 10.7 0.0 12.0 1.5 Morocco 3.7 2.5 1.7 2.5 12.9 0.0 0.0 Other 2.7 2.2 16.8 4.4 3.2 0.1 1.1 Sources: Central Bank and General Directorate of Customs and Ports. - 126 - Table 3.5: LIST OF PROHIBITED EXPORTS (as of April, 1982) 1. Vegetable oils 2. Amber 3. Rice 4. Shrimp 5. Charcoal 6. Coconut 7. Turtleshell (unprocessed) 8. Copra 9. Raw beans (except black beans) 10. Propane gas 11. Soybeans 12. Lobsters 13. Wood 14. Dried corn 15. Peanuts 16. Tomato paste 17. Animal blood and derivatives 18. Soybeans 19. Derivatives of soybeans, peanuts, copra and cotton (except margarine). II. PRODUCTS FOR WHICH EXPORT IS SUBJECT TO LICENSING a/ (as of April, 1982) 1. Garlic 2. Sugar and molasses 3. Cotton 4. Cattle feeds 5. Brass and derivatives 6. Empty bottles 7. Bulbs and rhizome of native species 8. Raw cocoa and derivatives 9. Coffee 10. Cattle meat 11. Chicken meat 12. Pork meat 13. Beer and malt 14. Dried coconut and derivatives 15. Corals 16. Raw leather 17. Scrap metals (copper, lead, zinc, aluminum) 18. Scrap paper 19. Marmalades and candy 20. Bovine cattle 21. Buayacan and Almacigo 22. Canned raw beans 23. Black raw beans 24. Raw materials for cattle feed 25. Corn flour 26. Eggs 27. Fresh milk 28. Butter 29. Domestic coins 30. Potatoes 31. Dried leather 32. Cut hides 33. Seeds or stems for reproduction 34. Seeds of "hierba de Guinea" 35. Sugar solutions 36. Textiles under export quotas for the United States market a/ This list does not includes 186 other products for which export, as of April, 1982, was subject to licensing, as they were benefiting from Export Promotion Law 69 of November, 1979. Source: CEDOPEX Table 3.6: IMPORTS BY ECONOMIC CLASSIFICATION a/ 1978 1979 1980 1981 1982 1983 b/ I. US$ million Total imports, f.o.b. 859.7 1,080.4 1,498.4 1,450.2 1,257.3 1,250.0 Consumer goods 207.3 228.2 312.4 312.4 - Foodstuffs (57.5) (67.6) (116.0) (125.7) (--) (--) Tobacco and beverages (8.8) (11.0) (6.3) (2.6) () Durable goods (43.9) (46.0) (69.4) (60.6) (--) (--) Other (97.1) (103.6) (120.8) (128.6) (--) (--) Fuels (petroleum and derivatives) 199.0 314.9 448.8 497.4 449.5 458.0 Intermediate goods 252.0 330.7 412.1 346.1 - -- Capital goods 201.4 206.6 325.1 294.2 -- -- II. In percent Total imports, f.o.b. 100.0 100.0 100.0 100.0 100.0 100.0 Consmer goods 24.1 21.2 20.8 21.5 -- -- Foodstuffs (6.7) (6.3) (7.7) (8-3) (--) (--) Tobacco and beverages (1.0) (1.0) (0.4) (0-2) (-) (-) Durable goods (5.1) (4.3) (4.6) (4.2) (--) (-) Other (11.3) (9.6) (8.1) (8.8) (--) (--) Fuels (petroleum and derivatives) 23.2 29.1 30.0 34.3 35.6 36.6 Intermediate goods 29.3 30.6 27.5 23.9 - -- Capital goods 23.4 19.1 21.7 20.3 -- -- a/ Based on customs data, without balance of payments adjustment. b/ Projection Source: Central Bank. Table 3.7: IMPORTS PAID WIT OFFICIAL FOREIGN 1CHAE AS A SHARE OF TOTAL IMPORTS, 1980-83 (DR$ million and percent) Jan. - Aprll 1980 1981 1982 1983 Type of Product Official Total Imports Percenta/ Official Total lIports Percenta/ -fficial Total Imports Fercenta/ Official Total Imports Percenta/ Petroleum 370.0 448.8 82.4 421.1 497.4 84.7 356.4 449.5 79.3 137.6 - - Capital goods 161.2 325.1 49.6 65.0 294.2 2;2.1 45.4 - - 5.4 - - R ateriasL/ 377.2 412.1 91.5 219.0 324.6 67.5 22.5 - - 36.3 - - Cousir goods 196.7 312.4 63.0 130.5 312.4 41.8 103.5 - 13.9 - - Foods 79.4 116.0 68.4 64.3 125.7 51.2 44.9 - - 3.9 - - o Others 117.3 196.4 59.7 66.2 186.7 35.5 59.6 - - 10.0 - - TOTAL 1,105.1 1,498.4 73.8 835.6 1,42B.6 58.5 733.8 1,255.8 5B.4 193.2 414.6 46.6 a/ Officia-l as a percent of Total Imports. w EclLudes petrolem. Source: Central Bank. - 129 - Table 3.8: LIST OF PROHIBITED IMPORTS (as of April, 1982) Product Decree Law Date Telescopic sights of fireams - 416 03/21/69 Cigarettes - 372 08/20/64 Garlic 313 - 10/22/70 Onion 313 - 10/22/70 Flowers Resolution of Min. of Agriculture 06/03/76 Agric. products during harvest time - 5946 06/09/62 Table and bed linens - 458 01/03/73 Men's and boys' underwear 792 - 04/03/79 Men's and boys' suits 792 - 04/03/79 Men's and boys' footwear 792 - 04/03/79 Noodles, spaghetti, macaroni and pasta 792 - 04/03/79 Fresh and frozen fish and seafood 792 - 04/03/79 Cocoa and cocoa by-products (excluding confectinary and chocolate) 792 - 04/03/79 Detergents 841 - 04/24/79 Trousers 841 - 04/24/79 Boys' and girls' garments 841 - 04/24/79 Furniture (excluding surgical) 841 - 04/24/79 Calendars including their base 841 - 04/24/79 Sanitary napkins 841 - 04/24/79 Vehicles of 2400 cc engine (including station wagons (during 2 years)) 2,191 - 01/20/81 Self-propelled machinery for extracting, levelling, excavating and other groundworks (during 1 year) 2,496 - 06/11/81 Tractors (during 1 year) 2, 49 6 - 06/11/81 Cheeses Resolution No. 170 11/03/81 Ministry of Agriculture Sinks, bidets and commodes 2,836 - 10/30/81 Source: Central Bank. Table 3.9: NET INTERNATIONAL RESERVES, 1978-83 (US$ million) December 31 April 30 Est.aj 1978 1979 1980 1l98 1 1982 1982 1983 1983 Total -34.9 -122.4 -240.2 -391.1 -701.8 -425.6 -773.5 -- Central Bank 18.6 -105.4 -212.7 -322.3 -678.6 -421.1 -740.8 -693.0 Assets 174.0 282.2 275.2 283.4 172.4 236.1 214.2 -- Gold (20.2) (48.4) (72.8) (58.6) (43.7) (51.0) (38.7) (--) Sight deposits and currency (118.6) (59.8) (157.7) (142.4) (103.5) (111.9) (59.3) (--) Time deposits (0.5) (130.6) (16.2) (49.0) (4.0) (9.6) (89-0) () IDB bonds (1.8) (1.8) (1.8) (1.8) (1.8) (1.8) (1.8) (--) U.S. AID letters of credit (0.4) (2.1) (1.6) (0.6) (-) (0.6) (-) (-) Items in transit (25.6) (29.9) (24.5) (28.5) (17.7) (57.4) (17.5) (--) SDR holdings (6.1) (9.5) (-) (1.9) (0.6) (2.3) (5.9) (-- IMF reserve t.anche () () () () () () () () Bilateral agreements (0.8) (0.1) (0-6) (0.6) (1.1) (1.5) (2.0) (--) Liabilities -155.4 -387.7 -487.9 -605.7 -851.0 -657.2 -955.0 U) Arrears (-) (-22.4) (-47.5) (-62.7) (-182.2) (-91.6)(-139.1) (--) Letters of credit b/ (-) (-21.0) (-102.1) (-253.7) (-254.1) (-313.5)(-2994.3) () Bilateral agreements (-50.9) (-59.4) (-105.7) (-116.8) (-142.4) (-111.3)(-157.5) (--) Use of IMF resources (-47.5) (-124.3) (-48.5) (-23.0) (-71.6) (21.5)(-202.1) (--) IDB deposit c/ () (-50.0) (-15.8) () () (-) (--) (--) Central banks (-) (-32.8) (-64.2) (-61.0) (-51.7) (-57.2) (-42.0) () Foreign commercial banks (-57.0) (-77.8) (-104.1) (-88.7) (-65.0) (-62.1) (-50.0) () Other (-) (-) (-) (-) (-84.0) (-) (-70-0) (--) Commercial banks -53.5 -17.0 -27.5 -68.8 -22.2 -4.5 -32.7 -- Assets d/ 25.3 56.9 127.3 27 2. 4 291.9 352.4 337.3 -- Liabilities -78.8 -73.9 -154.8 -341.2 -314.1 -356.9 -3700 -0 a! Assumes no rescheduling of commercial bank debt in 1983. b/ Amounts owed to local commercial banks by the Central Bank for letters of credit which have been paid by head offices or corresponident banks abroad. c/ Advance deposit made from the Venezuelan Special Fund. dI Includes amounts due to the banks by the Central Bank, as explained in footnote b/. Source: Central Bank. Table 4.1: EXTERNAL PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF DECEMBER 31, 1982 (US$ thousand) D E B T O U T S T A N DI N G : I N A R R E A R S TYPE OF CREDITOR -: CREDITOR COUNTRY DISBURSED :UNDISBURSED: TOTAL PRINCIRAL INTEREST ---------------------------------------------------------------------- ---------- ----------- SUPPLIERS CREDITS MEXICO 535 - 535 535 - SWEDEN 84 - 84 84 - UNITED STATES 17 - 17 17 1 TOTAL SUPPLIERS CREDITS 636 - 636 636 1 FINANCIAL 1,1JSTITUTIONS BAHAMAS 31,072 - 31.072 4,448 3.201 CANADA 6,076 - 6,076 851 115 FRANCE 7,809 40 7,849 460 292 NETHERLANDS 1,500 - 1,500 148 40 UNITED KINGDOM 17,000 - 17,000 1,273 1,441 UNITED STATES 261,968 - 261,968 6.701 2,371 TOTAL FINANCIAL INSTITUTIONS 325,425 40 325,465 13.881 7.460 MULTILATERAL LOANS BIA AHORROS Y PREST. 500 - 500 .250 34 IBRD 115,698 143,919 264,617 - - IDA 21,900 - 21,900 - - IDB 190,225 284,011 474,236 - - INTL FUND ARG(IFAD) 1,770 20.158 21,928 - - OPEC SPECIAL FUND 17,766 - 17,766 57 - TOTAL MULTILATERAL LOANS 347,859 ' 453,088 800,947 307 34 BILATERAL LOANS BRAZIL 20,653 1,079 21.732 - - CANADA 8.850 4,820 13,670 - - FRANCE 3.332 - 3,332 - 18 GERMANY, FED.REP. OF 10,514 5,266 15,780 - - JAPAN 10,723 3,706 14.429 - - MEXICO 61,372 44.497 105,869 - - SPAIN 115,044 41,290 156,334 4,835 4,132 SWITZERLAND - 731 731 - - UNITED STATES 469,798 52,425 522,223 9,205 4.534 VENEZUELA 245,575 31,456 277,031 - - TOTAL BILATERAL LOANS 945,861 185,270 1.131,131 14,040 8.684 TOTAL EXTERNAL PUBLIC DEBT 1.619,781 638,398 2,258,179 28,864 16,179 NOTES: (1) ONLY DEBTS WITH AN ORIGINAL OR EXTENDED MATURITY OF OVER ONE YEAR ARE INCLUDED IN THIS TABLE. (2) DEST OUTSTANDING INCLUDES PRINCIPAL' IN ARREARS BUT EXCLUDES INTEREST IN ARREARS. Source: IBRD Debt Reporting System Page 1 Table 4.2: SERVICE PAYMENTS, COMMITMENTS, DISBURSEMENTS AND OUTSTANDING AMOUNTS OF EXTERNAL PUBLIC DEBT PROJECTIONS BASED ON DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF DECEMBER 31, 1982 (US$ thousand) TYPE OF CREDITOR SUPPLIERS CREDITS YEAR : DEBT OUTSTANDING AT : T R A N S A C T I O N S D U R I N G P E R I O D OTHER CHANGES : BEGINNING OF PERIOD : ---------------------------- ---------------------------------------------------------- ----------------------- : DISBURSED : INCLUDING COMMIT- : DISBURSE- : S E R V I C E P A Y M E N T S CANCEL- ADJUST- : ONLY :UNDISBURSED: MEN-S : MENTS :-- ---:------------------: LATIONS MENT * : PRINCIPAL INTEREST : TOTAL * i) (2) (3) (4) (5) (6) (7) (8) (9) 1973 19.165 25,501 560 2,852 3,600 575 4,175 1,608 -114 1974 18,246 20,739 1,040 2.775 1,-898 867 2,765 60 -495 1975 18.898 19,326 617 1,045 2,901 767 3,668 - -277 .1976 16,765 16,765 - - 2,868 771 3,639 32 -1,163 1977 12,702 12,702 299 299 2,922 907 3,829 - 9 1978 10,088 88- - 2,571 484 3,055 56 173 1979 7,634 7,634 200 164 3,284 632 3,916 - 61 1980 4.575 4,611 - 34 1,316 251 1,567 - -238 1981 3,055 3,057 12,174 376 1,574 132 1.706 .- -277 1982 1,580 13.380 - - 891 48 939 11,800 -53 1983 636 636 * * * * * * THE FOLLOWING FIGURES ARE PROJECTED e * * * * * 1983 636 636 - - - - - - -636 * THIS COLUMN SHOWS THE AMOUNT OF ARITHMETIC IMBALANCE IN THE AMOUNT OUTSTANDING INCLUDING UNDISBURSED FROM ONE YEAR TO THE NEXT. THE MOST COMMON CAUSES OF IMBALANCES ARE CHANGES IN EXCHANGE RATES AND TRANSFER OF DEBTS . FROM ONE CATEGORY TO ANOTHER IN THE TABLE. Source: IBRD Debt Reporting Service. Page 2 Table 4.2: SERVICE PAYMENTS, COM MENTS, DISBURSEEMTS AD OUTSTANDING AMOUNTS OF EXTERNAL PUBLIC DEBT PROJECTIONS BASED ON DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF DECEMBER 31, 1982 (US$ thousand) TYPE OF CREDITOR FINANCIAL INSTITUTIONS YEAR : DEBT OUTSTANDING AT : T R A N S A C T I O N S D U R I N G P E R I O D OTHER CHANGES : BEGINNING OF PERIOD : ---------------------- ------------------------------------------------------------------------------- DISBURSED: INCLUDING COMMIT-: DISBURSE- . S E R V I C E P A Y M E N T S CANCEL- : ADJUST- ONLY :UNDISBURSED: MENTS : MENTS : ----:------------ ---------- ------------: LATIONS : MENT * : PRINCIPAL INTEREST TOTAL (I) (2) (3) (4) (5) (6) .(7) (8) (9) 1973 22,738 34.718 48,989 37,310 8,053 2,990 11,043 - 605 1974 52.600 76,259 63,211 41,244 10.485 4,155 14,640 3 -639 1975 82,720 128,343 22,604 43,616 18,158 8,694 26,852 3 3 1976 108,178 132.789 57,500 61,460 16.891 7.848 24,739 - - 1q77 152.747 173.398 89,813 68,333 14,055 10,069 24,124 405 1 1978 206,747 248.752 93,300 103,800 22,692 21,758 44,450 1,500 2 1979 287,857 317.862 206,877 222,246 161,827 34,473 196,300 - 12,583 1980 360,845 375,495 84,239 77,544 30,580 65,870 96,450 85 -1,084 1981 407.791 427.985 - 8,170 33,408 69,928 103,336 - -3,740 1982 381,214 390.837 - 8,655 64,028 58,099 122,127 - -1,344 1983 325,425 325,465 * * * * * * THE FOLLOWING FIGURES ARE PROJECTED * * * * * * 1983 325,425 325,465 - 40 88,077 30,962 119,039 -13,880 1984 223,508 223,508 - - 77,051 21,800 98,851 t -2 1985 146,455 146,455 - - 60,644 13.662 74,306 - - 1986 85.811 85,811 - - , 43,230 7,865 51,095 - -1 1987 42,580 42,580 - - 33,135 3,506 36,641 - -2 1988 9,443 9,443 - - 2,856 798 3,654 - - 1989 6,587 6,587 - - 2,886 530 3,416 5 -2 1990 3,699 3,699 - 2,918 260 3,178- - 1991 781 781 - 500 48 548 - - 1992 281 281 ^ - 281 11 292. - - * THIS COLUMN SHOWS THE AMOUNT OF ARITHMETXC IMBALANCE IN THE AMOUNT OUTSTANDING INCLUDING UNDISBURSED FROM ONE YEAR TO THE NEXT. TfHE MOST COMMON CAUSES OF IMBALANCES ARE CHANGES IN EXCHANGE RATES AND TRANSFER OF DEBTS FROM ONE CATEGORY TO ANOTHER IN THE TABLE. Source: IBRD Debt Reporting Service Page 3 Table 4.,2: SERVICE PAYMENTS, COMMITMENTS DISBURSEIENTS AN1 OUTSTANDING AMOUNTS OF EXTERNAL PUBLIC DEBT PROJECTIONS BASED ON DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF DECEM3BER 31, 1982 (US$ thousand) TYPE OF CREDITOR NMULTILATERAL LOANS YEAR DEBT OUTSTANDING AT T R A N S A C T I O N S D U R I N G P E R I O D OTHER CHANGES BEGINNING OF PERIOD ------------------------------------------------------------------------------------------------------------ DISBURSED : INCLUDING COMMIT- : DISBURSE- : S E R V I C E P A Y M E N T S CANCEL- : ADJUST- ONLY :UNDISBURSED: MENTS : MENTS :-----------:----------- -----------: LATIONS : MENT * : PRINCIPAL INTEREST TOTAL (1, (2) (3) (4 : 5) (6) (7) (8) (9) 1973 27,658 36.374 31,020 1,972 1,862 2,177 4,039 - 82 1974 27,850 65,614 65,000 4,012 2,607 2,116 4,723 - - 1975 29,255 128,007 40,470 3,148 3,339 2,041 5,380 - - 1976 29,064 165,138 16,000 8,290 2,174 2,272 4,446 98 -1 1977 35,180 178,865 24,713 20,791 2,174 2,515 4,689 - -2 1978 53,795 201,402 4,585 35,809 2,174 3,241 5,415 - 91 1979 87,430 203,904 276,450 32,162 2.424 3.829 6,253 67 -469 1980 117,128 477,394 109,500 90,053 2,677 4,465 7,142 - - 1981 204.505 584,217 119,000 75.715 2,878 8,860 11,738 - -2 1982 277,345 700,337 105,078 73.042 2,622 11,840 14,46-2 1,966 120 1983 347,859 800.947 * * * * * * THE FOLLOWING FIGURES ARE PROJECTED 4 * * * * * 1983 347,859 800,94.7 - 88,795 6,392 14,383 20,775 - -307 1984 429,955 794,248 - 95,063 17,986 -7,.644 35,630 - 4 1985 507,034 776,266 - 84,794 19.773 20,930 40,703 - 1 1986 572,058 756,494 - 66,535 24,995 22,973 47,968 - 2 1987 613,600 731,501 - 47,760 26,175 23,627 49,802 - 1988 635,183 705,326 - 32,949 27,186 23,294 50,480 - 1989 640,945 678,139 - 20,939 28.774 22,301 51,575 - 3 1990 633,114 649,368 - 12,067 34,211 23,166 57,377 - I 1991 61',969 615,158 - 3,238 34,627 2i,761 56,388 - - 1992 579,580 580,531 - 786 35,486 20,320 55,806 - 2 1993 544,882 545,047 - 161 37,405 18,787 56,192 - -1 1964 507,637 507,641 - 4 37,530 16,703 54,233 - -3 1995 470,108 470,108 - - 37,210 14,610 51,820 - -1 1995 432.897 432,897 - - 37,416 12,520 49,936 - 1 1997 395,482 395,482 - - 31,0 10,541 41,551 . -3 * THIS COLUMN SHOWS THE AMOUNT OF ARITHMETIC IMBALANCE IN THE AMOUNT OUTSTANDING INCLUDING UNDISBURSED FROM ONE YEAR TO THE NEXT. THE MOS-T COMMON CAUSES OF IMBALANCES ARE CHANGES IN EXCHANGE RATES AND TRANSFER OF DEBTS FROM ONE CAYTEGORY-TO ANOTHER IN THE TABLE. Source: IBRD Debt Reporting Service Page 4 Table 4,-2: SERVICE PAYMENTS, COMMITMENTS, DISBURSEMENTS AND OUTSTANDING AMOUNTS OF EXTERNAL PUBLIC DET PROJECTIONS BASED ON DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF DECEMBER 31, 1982 (US$ thousand) TYPE OF CREDITOR BILATERAL LOANS YEAR : DEBT OUTSTANDING AT T R A N S A C T I O N S D U R I N G P E R I O D OTHER CHANGES : BEGINNItNG OF PERIOD ---------------------------- ------------------------------------------------------------------------------------ DISBURSED: INCLLIDING COMMIT- DISBURSE- S E R V I C E P A Y M E N T S CANCEL- ADJUST- ONLY :UNDISBURSED: MENTS MENTS :-------------- ------------------: LATIONS MENT * PRINCIPAL INTEREST TOTAL (t) (2) (3) (4) (5) (6) (7) (8) (9) 1973 208,356 239,659 32,682 12,825 6,214 3,449 9.663 236 -1 1974 214,971 265,890 55,087 15,061 6,795 3,452 10,247 5,029 35 1975 223.010 309,188 38,761 40,949 6,662 6,334 12,996 240 -186 1976 257,222 340,861 98,072 61,590 14,883 7,415 22,298 4,992 308 1977 303.942 419,366 29,139 61,199 26,215 10.082 36,297 3,385 -116 1978 338,332 418,789 43,009 34,715 23,031 14,452 34,483 3,797 -796 1979 351.807 437,174 133,372 55,878 23,044 16,552 39,596 6,069 -4.830 1980 378,962 536,603 322,985 218,288 26,975 21,436 48,411 4,128 -690 1981 569.459 827,795 166,216 210,031 70,868 41,934 112,802 12,325 10,460 1982 707,!'-1 921,278 300,984 313,095 73,480 39,228 112,708 258 -17,393 1983 945,861 1,131,131 * * * * * * THE FOLLOWING FIGURES ARE PROJECTED * * * * * * 1983 945,861 1,131,131 - 137,903 124,630 54,690 179,320 - -14,038 1984 945,096 992,463 - 23,291 15,849 49,151 155,000 - . -9 1985 862,529 886,605 - 11,338 113,633 40,995 154,628 - 2 1986 760,234 772,974 - 7,374 123,071 34,716 157,787 - -6 1987 644,530 649,897 - 4,386 112,685 27,566 140,251 - -3 1988 536,227 537,209 - 602 55,184 22,829 78,013 - -1 1989 481,644 482,024 - 268 35,787 20,306 56,093 - -3 1990 446,122 446,234 - 112 39,733 18,443 58,176 - 1 1991 406,502 406,502 - - 37,138 16,163 53,301 - - 1992 369,364 369,364 - - 38,315 14,437 52,752 - -1 1993 331,048 331,048 - - 37,352 12,386 49,738 - i 1994 293,697 293,697 - - 26,848 10,549 37,397 - -4 1995 266,845 266,845 - - 26,742 9,389 36,131 - -4 1996 240,099 240,099 - - 23,401 8,279 31,680 - -1 1997 216,697 216,697 - - 22,505 7,458 29,963 - 1 * THIS COLUMN SHOWS THE .AMOUNT OF ARITHMETIC IMBALANCE IN THE AMOUNT OUTSTANDING l.C JrD!NG INDISBURSED FROM ONE YEAR TO THE NEXT. THE MOST COMMON CAUSES OF IMBALANCES ARE CHANGES IN EXCHANGE RATE-A TRANSFER OF DEBTS FROM ONE CATEGORY TO ANOTHER IN THE TABLE. Source: IBRD Debt Reporting Service. Page 5 Table 4.2: SERVICE PAYMENTS, COMITITMENTS, DISBURSEMIENTS AND OUTSTANDING AMOUNTS OF EXTERNAL PUBLIC DEBT PROJECTIONS BASED ON DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF DECEMBER 31, 1982 (US$ thousand) TOTAL YEAR DEBT OUTSTANDING AT : T R A N S A C T I O N S D U R I N G P E R I O D OTHER CHANGES BEGINNING OF PERIOD : ---- --------------------------------------------------------------------------------------------------------- DISBURSED : INCLUDING : COMMIT- DISBUR%,- : S E R V I C E P A Y M E N T S: CANCEL- ADJUST- ONLY :UNDISBURSED: MENTS : MENTS :.-----------:---------------------: LATIONS : MENT * : PRINCIPAL: INTEREST: TOTAL (1) : (2) (3) (4) (5) : (6) : (7) : (3) (9) 1973 277,917 33.6,252 113,251 54.959 19,729 9,191 28,920 1,844 572 1974 313,667 428,502 184,338 63,092 21,785 10,590 32,375 5,092 -1,099 1975 353,883 584,864 102,452 88.758 31,C60 17,836 48,896 243 -460 iY76 411.229 655,553 171,572 131,340 36,816 18,306 55,122 5,122 -856 504,541 784,331 143,964 150,622 45,366 23,573 68.939 3,790 -108 1978 608,962 879,031 140,894 174,324 47,468 39,935 87,403 5,353 -530 1979 734.728 966,574 616,899 310,450 190,579 55.486 246,065 6,136 7,345 1980 861,510 1,394.103 516,724 385,919 61,548 92,022 153,570 4,213 -2,.012 1981 1,184,810 1,843,054 297,390 294,292 108,728 120,854 229,582 12,325 6,441 1982 1,367,650 2,025,832 406,062 394,792 141,021 109,215 250.26 14,024 -18.670 1983 1,619,781 2,258,179 * * 4 * * * THE FOLLOWING FIGURES ARE PROJECTED * * * * * 1983 1,619,781 2,258,179 - 226,738 219,099 100,035 319,134 - -28,861 1984 1-598,559 2,010,219 - 118,354 200,886 88,595 289,48i -7 1985 1,316,018 1.809,326 - 96,132 194,050 75,587 269,637 - 3 1986 1,418,103 1,615,279 - 73,909 191,296 65,554 256,85.0 - -5 1987 1,300,710 1,423,978 - 52,146 171,995 54,699 226,694 - -5 1988 1,180.853 1,251,978 - 33,551 85,226 46,921 132,147 - -2 1989 1,129,176 1.166,750 - 21,207 67,447 43,637 111,084 - -2 1990 1,082,935 1,099,301 - 12,179 76,862 41,869 118,731 - 2 1991 1,018,252 1,022,441 - 3,238 72,265 37,972 110,237 - - 1992 949,225 950,176 - 786 74,082 34,768 108,850 - 1 1993 875,930 876,095 - 161 74,757 31,173 105,930 - - 1994 801,334 801,338 - 4 64,378 27,252 91,630 - -7 1995 736.953 736,953 - - 63,952 23,999 87,951 - -5 1996 672,996 672,996 - - 60,817 20,799 81,616 - - 1997 612,179 612.179 - - 53,515 17,999 71,514 - -2 * THIS COLUMN SHOWS THE AMOUNT OF ARITHMETIC IMBALANCE IN THE AMOUNT OUTSTANDING INCLUDING UNDISBURSED FROM ONE YEAR TO THE NEXT. THE MOST COMMON CAUSES OF IMBALANCES ARE CHANGES IN EXCHANGE RATES AND TRANSFER OF DEBTS FROM ONE CATEGORY TO ANOTHER IN THE TABLE. Source: IBRD Debt Reporting Service Page 1 Table 5.1: OPERATIONS OF THE CENTRAL GOVERNMENT, 1978-83 (DR$ million) Es t. 1978 1979 1980 1981 1982 1983 Current revenue 591.3 681.5 879.8 909.9 745.1 914.6 Taxes on income and profits 111.0 131.5 182.1 186.2 181.4 196.5 Taxes on property 5.1 5.3 7.0 7.1 8.7 9.9 Taxes on production and transactions 160.4 183.4 207.8 256.4 273.9 331.8 Taxes on exports and imports 250.6 275.0 285.9 270.8 185.2 232.8 Other revenue 64.2 86.3 197.0 189.4 95.9 143.6 Current expenditure 447.3 612.2 715.2 756.2 778.5 896.3 Wages and salaries 228.4 319.2 375.2 402.2 430.0 448.2 Purchases of goods and services 88.9 112.8 111.8 138.7 133.3 185.0 Transfers to private sector 43.3 62.4 58.5 66.5 68.8 73.4 Transfers abroad 1.8 1.2 1.5 1.0 O.6 1.3 Transfers to rest of public sector 77.3 94.7 110.5 99.2 94.7 115.6 Interest payments 6.9 21.9 45.6 45.9 48.3 72.8 Other 0.7 ... 12.1 2.7 2.8 Surplus orn current account 144.0 69.3 164.6 153.7 -33.4 18.3 Capital revenue 4.6 9.3 11.0 16.8 9.5 7.2 Capital expenditure 251.2 382.1 362.3 324.7 194.4 320.6 Capital formation 170.8 140.3 134.9 151.8 110.7 -- Registered in Treasury accounts (150.5) (121.4) (134-9) (151.8) (110.7) (--) Not registered in Treasury accounts (20.3) (18.9) (**.) (* ) (... ) Transfers to rest of public sector 73.7 237.3 187.6 163.0 80.3 -- Registered in Treasury accounts (68.4) (212.0)a/ (187.6) (163.0) (80.3) (-- Not registered in Treasury accounts (5.3) (25.33j/ (..*) (* *) (.e ) )-- Other 6.7 4.5 C/ 39.8c/ 9.9 3.4 -- Overall surplus or deficit (-) -102.6 -303.5 -186.7 -154.2 -218.3 -295.1 Page 2 Table 5.1: OPERATIONS OF THE CENTRAL GOVERNMENT, 1978-83 (DR$ million) Es t. 1978 1979 1980 1981 1982 1983 Financing 102.6 303.5 186.7 154.2 218.3 295.1 External (net) 79.6 134.1 117.6 60.2 48.4 -- Drawings (90.6) (150.8) (127.9) (75.8) (91.1) () Commercial borrowing /65.0/ /120.0/ /... //*/ 1...! /--/ Project borrowing /25.6/ /3098/d/ /127.9/ /75.8/ /91.1/ 1--l Amortization (-11.0) (-16.7) (-10.3) (-15.6) (-42.7) (--) Domestic 23.0 169.4 69.1 94.0 169.9 -- Central Bank (net) (53.6) (31.5) (70.0) (118.2) (148.5) (-) e Credit (net) /16.4/ /31.5/e/ /7 e0./ /118.2/ /148.5/ 1-- Budgetary reserve /37.2/ /1 1 I... / 00 Reserve Bank (-26.7) (79.6) (32.7) (13.9) (3.4) (-- Credit (net) /-2.5/ /27.8/ /29.7/ /-1.6/ /22.2/ 1--! Deposits /-24.1/ /51.8/ /3.0/ /15.5/ /-18.8/ I--I Private commercial banks (net) (-4.7) (-3.6) (1.4) (0.5) (-1.7) Other (0.8) (61.9)f/ (-35.0) (-38.6) (19.7) (--) a/ A total of DR$58.2 million registered in Treasury accounts as financial investment is included here in capital transfers (DR$12.7 million for CORDE, DR$25.5 million for CDE, and DR$20 million for CEA). b,/ Debt amortization abroad on behalf of CDE out of US$185 million foreign loan. cl The disbursement of DR$25 million from IDB, registered in Treasury accounts in 1979, is included in 1980. dJ Includes DR$5 million for drawing from Central Bank account of P.L. 480 funds. T/ Includes DR$3.1 million in Central Bank coin issue on behalf of the Treasury. f/ Mostly DR$50 million Hurricane David bond issue, bought by Central Bank and later transferred to Rosario Mining Corporation. Sources: National Budget Office, Central Bank of the Dominican Republic and IMF. - 139 - Table 5.2: CONSOLIDATED OPERATIONS OF THE PUBLIC SECTOR, 1977-83 (DR$ million) Est. 1977 1978 1979 1980 1981 1982 1983 I. Central Government Current revenue 625.7 591.3 681.5 879.8 909.9 745.1 914.6 Of wihich: consolidated transfers (21.7) (18.8) (19.0) (6.8) (.) (...) (.e) Current expenditure 368.2 447.3 612.2 715.2 756.2 778.5 896.3 Of which: consolidated transfers (77.3) (94.7) (94.7) (110.5) (99.2) (97.9) (115.6) Current account surplus 257.5 144.0 69.3 164.6 153.7 -33.4 18.3 Capital revenue 3.6 4.6 9.3 11.0 16.8 9.5 7.2 Of which: consolidated transfers *) (.. (-) ( ) *) *3 (@ ) Capital expenditure 288.5 251.2 382.1 362.3 324.7 194.4 320.6 Of which: consolidated transfers (84.8) (73.7) (237.3) (187.6) (163.0) (75.6) (171.6) Overall surplus or deficit (-) -27.4 -102.6 -303.5 -186.7 -154.2 -218.3 -295.1 Financing External (net) 8.2 79.6 134.1 117.6 60.2 48.4 126.3 Internal (net) 19.2 23.0 169.4 69.1 94.0 169.9 168.8 II. Dominican Social Security Institute (IDSS) Current revenue 29.2 33.2 39.1 47.6 46.6 51.2 63.9 Of which: consolidated transfers (...) (...) (0.3) (0.5) (***) (0.6) (*..) Current expenditure 27.7 30.4 37.3 43.2 46.3 48.5 57.0 Of which: consolidated transfers (* .e)(@ @v §° Current account surplus 1.5 2.8 1.8 4.4 0.3 2.7 6.9 Capital revenue ... ... ... 0.7 ... 7 Of which: consolidated transfers (0. ,)( O7) *3 ") Capital expenditure 1.1 3.8 1.6 3.5 1.6 0.9 5.0 Of which: consolidated transfers (...) (...) (.0.) ,..) (...) (.0.) (e .) Overall surplus or deficit (-) 0.4 -1.0 0.2 0.9 -0.6 1.8 1.9 - 140 - Page 2 Table 5.2: CONSOLIDATED OPERATIONS OF THE PUBLIC SECTOR, 1977-83 (DR$ million) Est. 1977 1978 1979 1980 1981 1982 1983 III. Decentralized Government Agencies a/ Current revenue 44.2 48.6 63.8 69.5 75.7 77.6 100.6 Of which: conslidated transfers (22.1) (26.3) (45.1) (46.9) (52.0) (52.1) (51.9) Current expenditure 44.0 47.8 66.0 72.4 87.9 77.3 96.3 Of which: consolidated transfer (.X.) (.) (.) (.) (.) (.) (..) Current account surplus or deficit (-) 0.2 0.8 -2.2 -2.9 -12.2 0.3 4.3 Capital revenue 37.0 32.2 62.5 43.3 63.2 42.6 104.6 Of which: conslidated transfers (25.6) (23.1) (52.1) (37.8) (63.2) (31.3) ( 89.8) Capital expenditure 48.5 67.6 67.8 50.2 74.9 49.7 169.3 Of which: consolidated transfers .. )()()(, )(..) Capital formation (39.0) (54.0) (54.0) (36.5) (59.c , (44.1) - Overall surplus or deficit (-) -11.3 -34.6 -7.5 -9.8 -23.9 -6.8 -60.4 IV. Local Governments b/ Current revenue 28.2 30.2 34.8 35.8 36.9 41.6 45.3 Of which: consolidated transfers (11.6) (18.2) (25.7) (26.7) (27.8) (27.8) (20.4) Current expenditure 28.6 30.2 31.3 35.4 36.5 38.2 42.5 Of which: consolidated transfers (e..) (.0.) (...) (.0.) (...) (0.2) (0.2) Current account surplus or deficit (-) -o.4 .. 3.5 0.4 0.4 3.4 2.8 Capital revenue 4.9 3.2 2.6 3.6 4.9 2.3 1.2 Of which: consolidated transfers (2.2) (1.8) (1.3) (2.1) (1.8) (0.5) (...) Capital expenditure 5.1 9.7 6.2 3.8 4.8 3.8 7.8 Of which: consolidated transfers (.) (.) (.) (,.) (0.1) Other Taxes 0.3 0.4 0.4 0.4 0.3 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.2 Nan-tax Revenues 1.7 1.6 1.4 1.4 1.6 1.0 1.0 1.1 1.3 2.7 2.4 1.1 1.5 Public Enterprises a/ 1.1 1.4 2.1 0.4 2.5 3.3 1.7 0.4 - - - - - Rest of General Government b/ 2.4 2.1 1.8 1.5 1.5 1.3 1.0 0.8 0.9 1.1 1.1 1.2 1.6 a/ Includes current account surplus of public enterprises (deficits appear as expenditures). 6/ Includes Dominican Social Security Institute, Decentralized Governmeat Agencies and local Governments. Sources: National Budget Office, Central Bank, Ministry of Finance and IKF. Page 1 Table 5.4: CONSOLIDATED CURRENT ACCOUNT PUBLIC EXPENDITURES, 1971-83 I. (DR$ Million) Est. 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 Total Public Sector 197.1 216.8 237,1 283.3 304.8 354.4 410.6 480.8 701.7 854.0 957.7 920.0 1046.5 Central Government 143.9 159.8 178.0 212.9 234.0 270.9 304.1 370.0 517.5 604.7 657.0 680.6 780.7 Wages and Salaries 110.4 117.3 124.3 142.9 154.6 164.5 182.1 228.4 319.2 375.2 402.2 430.0 448.2 Goods and Services 19.9 21.2 26.4 48.1 44.1 62.4 74.5 88.9 112.8 111.8 138.7 133.3 185.0 Interest 2.1 2.3 4.0 5.7 5.0 6.5 7.2 6.9 21.9 45.6 45.9 48.3 72.8 Transfers to private sector 11.5 19.0 23.2 16.2 30.3 37.5 39.5 43.3 62.4 58.5 66.5 68.8' 73.4 Other - - - - - - 0.8 2.5 1.2 13.6 3.7 0.2 1.3 Transfers to rest of public sectorai (34.2) (27.5) (28.1) (44.9) (33.7) (46.9) (64.1) (77.3) (94.7) (110.5) (99.2) (97.9) (115.6) Public Enterprises b/ - - - - - - - - -5. 8 83.3 121.9 69.6 -35.4 Rest of General Government c/ 53.2 57.0 59.1 70.4 70.8 83.5 106.5 110.8 136.4 166.0 178.8 169.8 230.2 Page 2 Table .5.4: CONSOLIDATED CURRENT ACCOUNr PUBLIC EXPENDITURES, 1971-83 II. (As Percentage of (DP) Est. 1971 1972- 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 Total Public Sector 11.8 10.9 10.1 9.8 8.4 9.0 8.9 10.2 12.7 12.8 13.3 11.7 12.3 Central Government 8.6 8.0 7.6 7.4 6.5 6.9 6.7 7.8 9.4 9.1 9.1 8.6 9.2 Wages and Salaries 6.6 5.9 5.3 4.9 4.3 4.2 4.0 4.8 5.8 5.6 5.6 5.5 5.3 Goods and Services 1.2 1.1 1.1 1.7 1.2 1.6 1.6 1.9 2.0 1.7 1.9 1.7 2.2 Interest 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.1 0.4 0.7 0.6 0.6 0.9 Transfers to private sector 0.7 0.9 1.0 0.6 0.8 0.9 0.9 0.9 1.1 0.9 0.9 0.9 0.9 Other 0.1 - 0.2 0.1 - Transfers to rest of public sectora/ (2.1) (1.4) (1.2) (1-5) (0.9) (1.2) (1.4) (1.6) (1-7) ((1.7) (1.4) (1.2) (1.4) Public Enterprises b/ - - - - - - - - 0.9 1.3 1.7 0.9 0.4 Rest of General Government c/ 3.2 2.9 2.5 2.4 2.0 2.1 2.2 2.3 2.5 2.5 2.5 2.2 2.7 a/ Transfers not included in Total Central Government Expenditures. 'b/ Includes current account deficit of public enterprises only. (Surpluses appear as revenues.) c/ Includes Dominican Social Security Institute, Decentralized Government Agencies and Local Governments. Transfers from the Central Government to the non-consolidated public sector are included here. Sources: World Bank, Ma1in Problems in the Economic Development of the Dominican Republic, November 23, 1977. International Monetary Fund, Recent Economic Developments, December 28, 1982. Centcal Bank Boletin Mensual, December, 1982. IBRD mission estimates. - 147 - Table 5.5: CENTRAL GOVERNMENT REVENUE 1978-1983 (DR$ million) Est. 1978 1979 1980 1981 1982 1983 Total revenue 595.9 690.8 890.8 926.0 754.6 921.8 Tax revenue 537.0 606.5 696.4 734.4 661.3 784.3 Taxes on net income and profits 111.0 12'>5 182.1 186.2 181.4 196.5 Company, corporate, or enterprise (60.5) (78.0) (131.6) (112.5) (112.5) (119.0) Of which: Rosario Mining /14.3/ /22.3/ /60.7/ /29.0/ /---/ /35.2/ Individuals (47.3) (52.3) (49.5) (72.6) (63.6) (75.0) Other (3.2) (1.2) (1.0) (1.1) (5.3) (2.5) Taxes on property 5.1 5.3 7.0 7.1 8.7 9.9 Death and gift taxes (0.8) (1.2) (1.8) (1.7) (1.6) (2.0) Property transfers (4.2) (4.0) (5.0) (5.2) (6.4) (6.7) Other (0.1) (0.1) (0.2) (0.2) (0.7) (1.2) Taxes on goods and services 160.4 183.4 207.8 256.4 273.9 331.8 Selective excises on goods (128.7) (147.7) (167.3) (213.3) (224.9) (276.4) Cigarettes /23.1/ /24.4/ /24.9/ /27.1/ /28.2/ /34.0/ Beer, alcoholic beverages /57.0/ /64.2/ /77.5/ /81.1/ /86.5/ /94.9/ Gasoline, petroleum products /28.1/ /37.8/ /55.6/ /104.0/ /106.7/ /41.1/ Sugar /18.2/ /19.0/ /6.7/ /---/ /---/ /---/ Other /2.3/ /2.3/ /2.6/ /1.1/ /3.5/ /6.0/ a/ Selective excises on services (13.7) (16.8) (19.9) (21.6) (28.4) (35.0) Taxes on use of goods or property or permission to perform activities (18.0) (18.9) (20.6) (21.5) (20.6) (20.8) Business or professional licenses /5.5/ /6.2/ /7.1/ /7.2/ /5.3/ /5.2/ Motor vehicle taxes /12,5/ /12.7/ /13.5/ /14.3/ /15.3/ /15.6/ Taxes on international trade and transactions 250.6 275.0 285.9 270.8 185.2 232.8 Import duties (211.1) (220.8) (226.7) (182.8) (174.9) (227.1) Custom duties /68.9/ /69.3/ /67.9/ /48.6/ /48.0/ /56.3/ Oth;ar charges /142.2/ /151.5/ /158.8/ /134.2/ /126.9/ /170.3/ Export duties (39.5) (54.2) (59.2) (88.0) (10.3) (5.7) Sugar /10.7/ /12.2/ /40.5/ /83.0/ /2.2/ /---/ Coffee and cocoa /27.7/ /40.8/ /17.6/ /4.2/ f7.4/ /5.0/ Other /1.1/ /1.2/ /1.1/ /0.8/ /0.7/ /0.7/ Other taxes 9.9 11.3 13.6 13.9 12.1 13.3 Stamp. -axes (5.8) (6.4) (7.2) (7.6) (8.1) (8.8) Other (4.1) (4.9) (6.4) (6.3) (4.0) (4.5) Nontax revenue 54.3 75.0 183.4 174.8 83.8 130.3 Property income 35,6 52.4 161.6 152.8 65.6 109.7 Of which: Rosario Mining (10.7) (27.7) (125.2) (131.0) (41.1) (78.7) b/ From nonfinancial public enterprises and public financial institutions (20.0) (25.9) (126.9) (129.1) (52.9) (90.2) Other (16.6) (26.5) (35.7) (23.7) (12.7) (9.5) Fees and charges 15.8 17.3 17.4 18.3 c/ 15.0 c/ 15.2 Fines and forfeits 0.7 0.8 0.9 0.8 0.8 2.2 Other 1.2 4.5 3.5 2.9 2.4 3.2 Capital revenue: sale of assets & grants 4.6 9.3 11.0 16.8 9.5 7.2 a/ Includes DR$2.5 million for ITBI collected at import in 1983. b/ Includes DR$10.0 million of extra ordinary transfer of profits accumulated in previous years. C/ Includes revenue for the sale of minibus tickets. Minibuses began to be operated by a government owned company (ONATRATE) in 1980. Revenue and expenditure are included in the central government budget until the organization of the company as a separate entity is legally completed. Sources: National Budget Office, Central Bank, Ministry of Finances and IMF. Table 5.6: GOVERNMENT REVENUES FROM TARIFFS AND OTHER IMPORT DUTIES, 1977-83 (DR$ million) Es t. 1977 1978 1979 1980 1981 1982 1983 Tariff Law 171/71 (Annual) 69.8 68.9 69.3 67.9 48.6 48 0 56.8 Unified Import Taxes (Law 173) 77.8 79.6 81.9 81.2 71.4 o -- Additional 20% Tax (Law 361) 22.3 22.2 23.7 28.0 23.2 - Additional 4% on Import 4 Duties (Law 136) 5.4 4.8 4.8 6.7 5.6 -- -- Taxes on free and exonerated imports (Laws 346 and 597) 11.9 15.2 17.3 25. 6 22.2 Other import duties 18.7 20.4 23.8 17.3 11.8 -- -- Total tariffs and Import duties 205.9 211.1 220.8 226.7 182.8 174.9 227.1 Total current fiscal revenues 625.7 591.3 681.5 873.8 909.9 745.1 914.6 Source: Ministry of Finance, Central Bank and IMF. 149 - Table 5.7: FIXED INVESTMENT OF THE PUBLIC SECTOR, 1979-82 (DR$ million) Executing Agency 1979 1980 1981 1982 Total Public Sector a/ 273.4 332.8 346.7 289.0 Central Government 127.5 137.2 155.7 112.4 The Presidency 50.4 20.3 32.8 22.2 Armed Forces 4. 0 2.8 3.7 3.2 Education 1.7 9.9 10.3 11.9 Public Health 5.0 8.1 6.7 2.0 Agriculture 9.7 21.2 12.9 8.3 Public Works 50.5 68.7 74.2 61.5 Finance 1.3 3.1 7.6 2.9 Other 4.9 3.1 7.5 1.3 Public nonr-financial autonomous and decentralized agenciesO/ 145.9 196.6 190.8 176.6 CEA 9.0 29.6 18.4 10.2 CDE 34.2 80.2 60.5 83.6 Corp. de Hatillo 15.3 11.9 26.6 15.1 IAD 3.4 2.5 13.3 5.5 INESPRE 1.9 3.0 3.3 6.4 INAPA 16 .1 11.8 7.3 5.8 INDRHI 11.4 12.6 33.0 18.6 INVI 18.4 13.3 7.3 16.5 Other 36.2 30.7 21.1 14.9 a/ These amouats differ slightly with IMF figures for capital formation due to difference in accounting procedures. b Includes all autonomous and decentralized agencies except Central Bank, Reserve Bank and National Housing Bank. Source: National Office of the Budget. - 150 - Table 5.8: PUBLIC SECTOR FIXED INVESTMENT: PLAN, BUDGET AND EXECUTED, 1979-83 (DR$ million) 1979 1980 1981 1982 1983 Plan Total real investment -- 820.1 a/ 480.9 b/ 302.6 C/ 462.7 d/ Central Government: -- 411.9 a/ 205.7 W/ 136.9 -f 167.6 a/ Public non-financial decentralized agencies e! -- 408.2 a/ 275.2 b/ 165.7 c/ 295.1 d/ Budget Total real investment 470.7 579.8 683.4 616A6 649.4 Central Government 128.5 107.2 167.3 146.2 142.3 Public non-financial decentralized agencies e/ 342.2 472.6 516.1 470.4 507.1 Executed Total real investment 273.4 332.8 346.5 289.0 380.3 f/ Central Government 127.5 137.2 155.7 112.4 121.2 T/ Public non-financial decentralized agencies e/ 145.9 195.6 190.8 176.6 259.1 f/ a/ From plan 1980-82 b/ From plan 1981-83 -/ From plan 1982-84 dI From plan 1983-85 eI All decentralized and autonomous agencies except Central Bank, National Housing Bank, and Reserve Bank. f/ Estimate. Source: National Budget Office; ONAPLAN; IMF estimates; Mission estimates. Table 5.9: FIXED INVESTMENT BY SELECTED AGENCIES: PLAN, BUDGET, AND EXECUTED 1982-83 (DR$ million) 1982 1983 Plan 82-84 Budget Executed Plan 83-85 Budget Estimate a/ Total non-financial decentralized agencies b/ 165.7 470.4 176.6 295.1 507.1 259.1 CEA 1.0 25.4 10.2 24.4 17.1 10.5 CDE 79.5 135.6 83.6 65.3 109.8 47.8 IAD 8.7 35.2 5.5 26.7 52.0 - INESPRE 1.5 12.2 6.3 0.4 3.5 3.9 INDRHI 41.1 103.4 18.6 44.5 133.7 16.0 INVI 4.4 18.7 16.6 85.1 68.5 85.0 Other 29.5 139.9 35.8 48.7 122.5 -- a! Central Bank and IMF estimates. bI All decentralized agencies except The Central Bank, National Housing Bank and Reserve Bank. Source: National Budget Office; ONAPLAN. - 152 - Table 5.10: COST OVERRUNS FOR SELECTED PROJECTS (Status as of October 1983) Total Value Overruns No. Years Agency Project (DR$ million) (DR$ million) Behind % Overrun a/ 1. INDRHI Yaque del Norte 92.0 54.0 3.0 60.0 2. INDRHI Presa Sabaneta 76.2 40.0 4.0 53.0 3. INDRHI Nizao 51.8 6.0 3.0 12.0 4. SEOPC Puerto Haina 59.5 24.0 4.0 40.0 5. SEOPC Rehabil. Roads 37.0 18.6 1.0 50.0 6. SEOPC Roads II 49.0 3.3 1.7 7.0 7. SEOPC Rural Roads 32.4 3.0 1.5 9.0 8. SESPAS Hospitex 26.5 100 1.5 38.O 9. SEEBAC Pide 17.9 3.0 1.5 17.0 442.3 161.9 2.4b/ 36.6 a/ Overruns as a percent of Total Value. 11 Average. Source: Informe de Proyectos con Financimiento Externo, October 26, 1983, Depto Proyectos, ONAPLAN. Table 5.11: STATUS OF EXTERNALLY FINANCED PROJECTS, OCTOBER 1983 Agency Number of Projects Disbursement Program for 1983 Percent of Programmed Disbursements Total Behind With Cost Foreign Domestic a/ Total Realized Jan - Sept 1983 Schedule Overruns (DR$) Foreign Domestic Total M% M% (%) Dominican Electricity Corp. 6 n.a.b/ n.a. b/ 35.9 13.0 48.9 55 18 45 INDRHI (Water Resources) 8 5 4 19.0 11.0 30.0 3 - 2 Public Workrs 7 6 4 38.7 32.3 71.0 46 25 36 Central Bank 6 2 n.a. 38.5 0.4 38.9 50 25 49 Agriculture 4 3 n.a. 14.8 8.6 23.4 30 88 52 Public Health 3 3 1 9.9 9.1 19.0 10 4 7 Education, art and culture 3 3 1 4.7 5.6 10.3 38 23 30 Technical Secretary of President 2 n.a. 0.7 1.5 2.2 57 723 State Sugar Council 1 1 1 11.4 6.8 18.2 7 25 14 Housing Institute 1 0 n.a. 5.8 .3.0 8.8 35 - 23 Water &Sewer -Sto. Dom. I 0 0 - - - - - Domin. Agrarian Institute 1 1 n.a. 9.6 10.0 10.6 22 17 36 Agriculture Bank 1 0 n.a. 2.0 -. 2.0 130 - 130 Natl. Drinking Water & Sewer Inst. 1 1 n.a. 2.1 0.8 2.9 10 - 7 Others 4 1 n.a.- 13.0 2.6 15.6 90 69 87 TOTAL 49 27 11 206.1 104.7 301.8 41 24 36 a,Represents the amount programmed by ONAPLAN as minimum counterpart necessary for disbursement of external funds. b_ n.a. means that it was not known whether or not a project was behind schedule or had cost overruns. Source: ONAPLAN Table 5.12: ALTERAIVE INVS1M BDEE 1984-1986 a/ Page 1 (DR$ millon) Exeuting Institution loa Number Project Name Iender Priority 1984 1985 1986 Externl Fuds Domestic Fwids Total Ministry of Agriculture %5/SF Pidagro III IDB I 5.0 3.0 8.0 7.3 - 517-T-035 Mamnjo de Recursos Naturales AID II - - - 5.0 5.1 2023-DD Cafe y ao IBRD I .0 4.0 11.0 8.4 3.7 98-DO Desarrollo Peq. Productores IFAD II - - - 2.2 5.7 12.0 7.0 19.0 E.9 14.5 Mxnistry of Public Works 517-T-033 Rebab, Caminos Vecinales AID I 0.5 3.0 3.5 2.0 3.0 431/SF Puerto Hna IDB I 8.0 5.0 13.0 11.0 - 590/SF Rehab. de pates, etc. IDB I 1.0 0.6 1.6 5.4 2.2 1784-DO Carretera II IBRD I 8.0 5.0 13.0 12.9 - DO-PI Telecom. Rurales Japan U - - - 0.7 - 31y627-SF Amplfficacion Duarte IDB II - - - 14.0 11.0 C2-RD-L9-114 Carretera Azua-San Juan FIV II - - - 8.0 6.0 517-T-045 Rebab.Caminos Vecinales II AID I 0.5 0.2 0.7 5.1 6.3 18.0 13.8 31.8 5.1 2-.5 Ministry of Public Halth 517-T-030 Salud I AID I 2.0 1.0 3.0 1.0 - 680/SF Fortalecimuento Serv. Salud IDB if - - - 10.0 4.2 76-012-1518 Hospite France I - 3.3 3.3 6.9 10.0 2-DO Fortalecimiento Serv. Salud IFAD UT - - - 0.5 1.6 U' Ministry of Education 517-T-032 PIDE AID I 1.0 1.0 2.0 - - 647/SF Creacion de Escuelas Tec. IDB I 1.0 0.6 1.6 2.5 2.5 PREA TDB II - - - 4.0 3.0 2.0 1.6 3.6 6.5 5.5 Ministry of Planning 517-T-43 Adiestramiento de Personal AID U - - - 1.6 - 566/SF Pre-inersion IDB I - - - 1.0 - PL-480 Varios AID I 27.0 - 27.0 30.0 30.0 1655-DD Ntzao i.SD I 7.0 5.0 12.0 - - 517-T-037 Conservacion Recursos Eergeticos AID II - - - 2.1 - 34.0 ~ -5.0 9-. -347.7 30.0 Institute of Nacional 21/CD-SF Sabana Yegua IDB I - - - 0.5 1.1 Water Reso lrwes (DEM)a/ 570/SF Sabaneta 1DB I - - - 7.0 - 0O/SF Reab. de Riego IDB I 2.0 1.0 3.0 - - BE-Epana Los Toros I y U II - - - 14.7 3.0 1862/SF-DR LANIACA IDB I 0.2 1.2 1.4 - - 517-T-042 lnejo Agua nivel fincas AID U - - - 5.4 3.0 Jpn LDsarolo AGLIPO Japan U l - - - 2.1 3.8 CEE(Don.) Janco BC I 0.8 0.1 0.9 2.6 3.5 IT Tres Saltos de Priju IU - - - 6.3 3.0 BE-Fspara Presa Rio Mijo Spain I 0.6 0.1 0.7 - - 3.6 2.4 6.0 35.6 17.4 Table 5.12: ADNaTIVJE INVE SM BUDGEr 1984-1986 a/ (cont'd) Page 2 (DR$ Millin) 1984 fm2Tia ThStitution en NI*er Project N1 Priority zternal Fuds Domeatic PnKds Total 1985 1986 Santo Dzzir Water 7(2/SF fin d r l dDB - - - - - a (CLAD) 112-lC FIV Dminienm Agricultural Iratitute (IAD)5B6/SF y 23-D Asentamientos (bapesans 1B I 8.0 4.0 12.0 11.4 5.5 AgricLture Dak (BagnLioUlO 679/St-ER Ckedito Agric. PrqF o y Mdians tgrirultores IDB I 9.0 2.0 11.0 9.5 9.5 eprcmsos C tonrtuwale 679/SF MARU - - - -I 9.0 2.0 11.0 9.5 9.5 Ile Hatnical Hocaung litttute (INDI) aia-Sabana Perdida Haina-Sabna Perdida MD) I 5.5 3.4 8.9 8.0 - Dominican Electricity Gxportion 646/SF y 74/flC Ipez-Agosura 1B I 13.3 0.6 13.9 12.4 11.6 (CIE) ITAII I Spain I 15.3 - 15.3 - - JIAO Il Spain I 26.6 - 26.6 10.0 10.0 517-Tt-C37 Minflodroelectric AID I 0.4 - 0.4 - - Rehab. Distrito Santo DIdi, FIV I 2.0 - 2.0 10.5 10.0 Co(strucice de 9 sub-eatacioxes BEEE-(fW I 1.7 1.5 3.2 - - Rio E o FI-France I 12.0 1.7 13.7 5.0 5.0 hAnto Capacldac Talera EB-Spadn I 1.9 0.3 2.2 7.0 7.0 Varixos projects Kiw I 5.6 0.5 6.1 6.0 6.0 C2RD-W-92 Fr!1 projects EIV I 2.4 0.5 2.9 - - C2-RD-06391 Alto aqundel9ur F IV r 0.8 0.3 1.1 - - N&toal Institute for Vater ad Sewra (KAA) 654/SPL.450 PLANAR Im B I 1.6 1.0 2.6 - - State S&r QCil a/ 176G-DD (CPA) -rngios del Fstsdo IDRD I 12.0 8.0 20.0 14.0 18.6 H*rd.c4palY Santo D9axn Desarrolo latitttonal (MN) dl A nto IE II - - - 3.0 3.0 Central sk Sepgundo Pryecto TurLaro, QeaM Norte ir I 6.0 4.0 10.0 11.0 11.0 Priority I 195.7 69.9 265.6 200.7 155.4 Priority II - - - 88.1 53.5 Finds to be aLlocated - - - 11.2 141.1 Total investnea bMgEt 195.7 69.9 265.6 300.0 350.0 a/ Text Tb 2.17 restructures th idividuAl ageony data presented bere and restutures it into ecra:d sectors. To derive the vale for each sector in Text Table 2.17 the folloiag procedure waa used: 50 percet of hIN's total mm assIgS to the eerg sector hile 50 percent was assigned to the agrictlture sector. In tie case of CEA, 50 percent was assigned to the energy sector hULle 50 percent aw asesigond to the inlustrial sector. Ihe valmes for ell other agencies ire assigned 100 percent to the appropriate sector. KIIE: Project investzet data for priority I projects 1984, and priority II projects 1985 are cbtaimed from ONAHAN estimates of tie 1984 project invest t budget. Estimates of priority I 1985 and 1986 aed priority II 1986 figure are based on data in the project inventory of the 1983-85 investment pln. Srces: MIR-LAN and Bat misaim estit. - 156 - Table 5.13: DIXINICAN ELIRICITY (RMP(fION (CE): Capacity and Ebergy BaLme 1978-87 Historic Projected 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 Energy Sales (Gwh) 1,674.0 1,706.8 1,943.7 2,CB3.7 1.880.5 1,832.0 1,942.0 2,CB4.0 2,300.0 2,551.0 lighting 639.4 636.0 723.9 817.8 723.3 714.0 789.0 868.0 961.0 1,CBO.0 Gommrcia1 214.1 214.2 260.7 256.4 22B.4 220.0 225.0 236.0 282.0 332.0 Idustrial 617.5 661.9 719.5 757.9 673.2 660.0 673.0 705.0 765.0 830.0 Goverrnt arxi Muircipalities 182.1 173.9 215.0 226.6 231.4 202.0 215.0 230.0 245.0 260.0 Piblic lighting 20.9 20.8 24.6 25.0 24.2 36.0 40.0 45.0 47.0 49.0 Losses (Mwh) 626.0 551.2 686.2 702.9 967.8 1,123.0 1,188.0 1,122.0 985.0 850.0 % of Net Eergy 27 24 26 25 34 38 38 35 30 25 Net Ewrgy Produced (GAi) 2,300.0 2,25B.0 2,62B.5 2,786.6 2,848.3 2,955.0 3,130.0 3,206.0 3,2B5.0 3,375.0 Haina (Bunker) 1,267 1,2C9 1,461 1,384 1,456 1,620 1,620 1,546 1,500 799 Santa Doingo (Bunker C) 207 215 269 294 278 280 280 241 186 175 Rierto Plata (Buker C) 161 140 153 123 43 205 200 200 190 180 Carbn - - - - - - 270 654 654 1,300 Gas (Diesel Oil) 311 220 245 274 230 140 140 50 50 50 liesel (Diesel Oil) 7 7 11 7 6 6 6 6 4 2 Hydro Power Plants 279 310 2CB 512 318 343 a/ 4B4 b/ 5(9 701 8CS Purchasesc 68 159 2B2 193 466 31 130 - - - Nrr-conwntional (Bagasse) - - - - - - - - - 60 Iad Factor % 64 63 65 67 64 62 62 62 62 62 Maimn DemIand (4) 411 412 462 475 504 540 B0 D0 610 630 Installed Capacity (mw) 640 640 738 722 910 930 1,077 1,CB3 1,112 1,2B2 Hydro 150 150 150 150 186 186 219 2B5 314 341 Steam (Bunker C) 357 357 357 357 443 d/ 480 480 480 480 480 Steam (Coal) - - - - - - 115 115 115 230 Gas TlWbines 116 116 116 116 186 186 186 186 186 186 DLesel 17 17 17 17 17 17 17 17 17 17 Ptichases - - 98 82 78 60 60 - - - Nmr-conventional (Bagasse) - - 9/ EBtimated on the basis of accuiated hydropowr production until May. '/ Includes increase of Tavera's energy production due to operation of Bao reservoir. C/ Fram 1980 figures include mainly purchases from Falconbridge. -/ 1982 maxiian stean (Buker C) capacity generated was only 322 M or about 73%. of installed capacity. Sotrce: CD)E and World Bank. Table 5.14: DIaNCAN RERCICY OPORATION (CDE): Power least-Cost Program 1983-90 Yearly Firm Year of Project Ecution and Capacity Generation t pe Operatim Status a/ !)g hEip NW GWh ierto Plata II Theral (oil) 1983 C CDE 36 - b/ Itabo I Therm l (coal) 1984 C CDE 115 - / Tavera-Bao Hydro 1984 C C(E 33 286 'Amp]lcion Tavera-Bao Hydro 1985 C CDE 63 - c/ eqs Pryectos d/ Hydro 1985 C CDE 5 25 ILos Toros Hydro 1986 F CDE 11 68 IDpez-AWstura Hydro 1986 C CDE 18 124 Barbojo-San Pedro Bagasse 1987 F CDE 28 - Rio-Blanco Hydro 1987 P CDE 27 1(B Itabo l Thermal (coal) 1987 P CDE 115 b/ Manabao-Bejucal Hydro 1988 F ODE 19 70 Ia Hhlguera Hydro 1988 F CDE 11 54 EL Torito Hydro 1988 F ODE 13 38 los Vegaus Hydro 1988 F CDE 21 61 Mao Hydro 1988 F INERBI 45 140 Ailna Hydro 1988 F IND!E 30 89 Barbojo-Barahona Bagasse 1988 F CDE 38 -b Bejcal Tavera Hydro 1989 PRE CEE 74 215 Saanet.-ao Hydro 1989 PRE CDE 87 333 Ios Jaimenez Hydro 1989 1RE CGE 5 26 Alto Yuna Hydro 1989 PRE INDEHI 32 113 Termica Ihemal (coal) 1990 - e/ CDE 115 - b/ a/ Project Status: C - under construction; F - feasibility completed; P - procurement (equipmet and civil wrks); ERE - prefeasibility. b/ Thermal Generation depends on hydroelectric production. CI Ircreases capacity at Tavera Plant. Includes EL Salto-Qxnstaz, irabo and San Rafael - Magiiabal. ODE should stidy the best Thrnl A location from the point of view of system stability, coal feeding and enviromental inact. Source: aDE and World Bank. Table 5.15: STATE SUGAR COUNCIL (CEA): Investment Programal (1982 DR$ thousand) Ist. Year b/ 2nd Year 3rd. Year 4th Yeard/ Equipmeut Labor c/ Total Equip. Labor Total Equip. Labor Total Equip. Labor Total Total TOTAL INVESTMENTS 36,384 9,904 46,288 28,536 7,854 36,390 14,172 3,279 17,451 691 2,373 3,064 103,193 Breakdown Factories & States Rehabilitation 20,375 3,630 24,005 20,671 3,476 24,147 7,438 1,600 9,038 - - - 57,190 Transport 15,335 2,140 17,475 5,833 1,003 6,836 6,034 1,192 7,226 691 2,373 3,064 34,601 Irrigation and Drainage 110 2,010 2,120 330 2,040 2,370 700 100 800 - - - 5,290 Cane Area Reduction - 583 583 - 308 308 - 387 387 - - - 1,278 Admin., Reorg. & Studies 564 1,541 2,105 1,702 1,027 2,729 - - - - - - 4,834 Divided in two Components World Bank Rehabilitation Project 16,142 5,460 21,602 17,074 5,366 22,440 2,861 1,144 4,005 691 2,373 3,064 51,111 Investment by CEA's own resources 20,242 4,444 24,686 11,462 2,448 13,950 11,311 2,135 13,446 - - - 52,082 36,384 9,904 46,288 28,536 7,854 36,390 14,172 3,279 17,451 691 2,373 3,064 103,193 Ln World Bank Component: 0 Factories and Estate Rehabilitation 9,685 961 10,646 11,979 1,765 13,744 148 101 249 - - - 24,639 Transport 5,893 537 6,430 3,393 652 4,045 2,713 656 3,369 691 2,373 3,064 16,908 Irrigation and Drainage - 1,950 1,950 - 1,950 1,950 - - - - - - 3,900 Cane Area Reduction Prog. - 583 583 - 308 308 - 387 387 - - - 1,278 Admin., Reorganization & Studies 564 1,429 1,993 1,702 691 2,393 - - - - - - 4,386 16,142 5,460 -21,602 17,074 5,366 22,440 2,861 1,144 4,005 691 2,373 3,064 51,111 Investments from CEA's Resources: Factories & Estates Rehabilitation 10,690 2,669 13,359 8,692 1,711 10,403 7,290 1,499 8,789 - - - 32,551 Transport 9,442 1,603 11,045 2,440 351 2,791 3,321 536 3,857 - - - 17,693 Irrigation and Drainage 110 60 170 330 90 420 700 100 800 - - - 1,390 Admin., Reorganization and Studies - 112 112 - 336 336 - - - - - - 448 20,242 4,444 24,686 11,462 2,488 13,950 11,311 2,135 13,446 52,082 Notes: a/ All figures are in middle 1982 prices; contingencies are not shown. bl The first year of the program is intended to be 1984, pending approval and disbursement of foreign loan. c/ Consultant fees and studies are included in labor. d/ The total investment plan is for three years onlv, a 4th year has been added to show the balance of the Transport Component which could be completed during that year. Table 6.1: BANKING SYSTEf: SUMMARY ACCOUNTS (DR$ million) I. Central Bank December 31 Est.a/ August 31 1977 r/ 1978 1979 1980 1981 1982 1983 1982 1983 Net international reserves 95.9 18.6 -105.4 -212.7 -322.3 -678.6 -693.0 -560.1 -645.9 Assets 196.7 174.0 282.2 275.2 283.5 172.4 -- -- -- Liabilities -100.8 -155.4 -387.6 -487.9 -605.8 -852.0 -- -- -- Arrears (--) (--) (-22.4) (-47.5) (-62.7)(-182.2) (--) (--) (--) Letters of credit in arrears to local banks (--) (--) (-21.0)(-102.1)(-253.7)(-254.1) (--) (--) (--) Other (-100.8)(-155.4)(-344.2)(-338.3)(-289.4)(-414.7) (--) (--) (--) Net domestic assets 507.1 658.4 878.4 1,063.8 1,375.9 1,817.2 2,154.0 1,603.0 1,942.1 Net claims on the public sector 305.6 374.3 423.8 525.3 688.0 970.5 1,653.7 880.3 1,073.8 Central government budget (net) (169.6) (223.2) (254.8) (324.7) (442.9) (--) (--) (--) (--) Claims /206.8/ /223.2/ /254.8/ /324.7/ /442.9/ /--/ I--/ /--/ /--l Deposits (budgetary reserve) /-37-2/ /--/ /--/ /--l /--/ f--f f--f f--f f--f Other central government (net) (63.2) (67.0) (80.2) (89.5) (99.6) () () (~~ ) (--) Counterpart funds (-2.2) (-3.9) (-6.1) (-10.2) (-6.4) (--) (--) (--) (--) Public financial institutions (73.2) (86.1) (92.9) (124.0) (146.5) (-) (--) (--) (--) Rest of public sector (net) (1.8) (1.9) (2.0) (-2.7) (5.4) (--) (--) (--) (--) Credit to commercial banks 163.7 222.7 269.5 326.0 444.5 530.2 -- -- -- Credit to the rest of the financial system 49.0 55.8 83.0 115.4 133.0 157.9 210 153.6 197.3 Net unclassified assets c/ -11.2 5.6 102.1 97.1 110.4 158.6 -- -- -- Counterpart unrequited foreign exchange d/ 15.2 31.5 65.0 96.9 81.9 80.5 80.0 76.0 81.1 of which: revaluation of gold -- 15.8 43.6 62.6 43.4 -- -- -- -- Mediumr- and long-term foreign liabilities 90.7 106.6 120.6 188.2 259.0 359.1 545e.7 297.4 374.8 Liabilities to commercial banks 292.7 314.1 311.8 286.8 387.8 335.1 449.3 372.6 528.1 Cash in vaults 49.7 49.0 68.8 74.6 72.1 74.1 70.0 68.6 60.8 Reserve deposits 209.6 232.3 221.0 274.6 484.3 329.0 360.0 343.2 374.0 Special deposits el 33.2 32.6 65.3 87.0 147.7 368.3 395.6 315.6 433.7 Other liabilities 0.2 0.2 0.1 0.2 0.1 -- -- 10.0 74.0 Arrears and letters of credit in arrears to local banks -- -- -43.4 -149.6 -316.4 -436.3 -376.3 -364.8 -414.4 Liabilities to the private sector 204.4 224.8 275.6 279.2 324.9 363.9 386.0 296.9 312.2 Currency in circulation 203.2 223.9 273.5 274.9 323.8 357.9 380.0 292.6 310.9 Demand deposits 1.2 0.9 2.1 4.3 1.1 6.0 6.0 4.3 1.3 Other liabilities -- -- -- -- -- -- -- -- - Page 2 Table 6.1: BANKING SYSTEM: SUMMARY ACCOUNTS (DR$ million) II. Reserve Bank December 31 August 31 1977 r/ 1978 1979 1980 1981 1982 1982 1983 Net international reserves 2.8 -35.0 -5.2 -7.2 -12.5 -0.2 -34.3 2.9 Assets El 32.4 10.5 19.6 12.3 51.6 52.4 2241 68.9 Liabilities -29.6 -45.5 -24.8 -19.5 -64.1 -52.6 -56.4 -66.0 Monetary reserves and currency holdings 64.5 111.8 96.3 66.3 21.1 13.2 54.4 76.7 Cash in vaults 19.3 18.3 24.6 29.0 26.9 23.7 21.6 20.7 Reserve deposits 29.3 66.7 766.6 41.6 27.8 6.0 23.5 22.2 Special deposits e/ 15.9 26.8 5.8 6.7 19.8 54.0 41.4 109.1 Arrears and letters of credit in arrears ... ... -10.7 -11.0 -53.4 -70.5 -32.1 -75.1 Net domestic assets 199.9 256.2 403.0 488.0 685.8 747.1 678.9 746.6 i Net claims on the public sector -15.3 52.8 123.3 124.1 302.4 410.4 349.1 448.8 t Central Government budget (net) (-16.6) (-43.3) (36.3) (69.0) (83.0) (86.4) (104.7) (87.4) Claims /68.2/ /65.6/ 19 3.4/ /123.1l/f/121. 6//143.9/ /133.9//131.7/ Deposits /-84.8/f-108.9/ /-57.1/ /-54.1//-38.6//-57.5/ /-29.2/1-44.3/ State and local governm1ents (net) (3.9) (10.6) (11.8) (13.2) (14.9) (13.7) (14.6) (14.9) Public financial institutions (net) (17.1) (21.6) (20.8) (27.0) (44.0) (46.8) (47.9) (43.9) Rest of puDlic sector (-19.7) (63.9) (54.4) (14.9)(160.5).(263.5) (181.9)(302.6) Official capital and surplus -53.6 -53.9 -56.8 -60.7 -76.7 -81.2 -76.5 -81.3 Credit to rest of the financial system 1.8 5.6 5.3 8.1 8.1 9.9 9.1 15.0 Credit. to private sector 257.7 249.8 298.9g/ 373.0 380.6 365.9 361.4 368.2 Net unclassified assets 9.3 2.1 32.6 46.6 71.7 42.3 35.8 -4.1 Net interbank float ... 0 -0.3 .--3.1 -0.3 ... . . Liabilities to monetary authorities 104.2 143.1 205.2 257.8 364.4 446.4 365.2 469.4 Liabilities to the rest of the financial system 6.0 5.3 14.7 11.3 23.8 33.4 29.0 36.2 Liabilities to the private sector 157.0 184.6 274.2 278.0 306.2 280.3 304.8 320.6 Demand deposits 55.4 41.5 69.5 70.2 61.3 50.6 55.2 46.7 Time and savin6s deposits 47.1 83.8 101.3 105.3 116.6 131.7 127.3 140.9 Other liabilities i/ 54.5 59.3 103.4g/ 102.5 128.3 98.0 122.3 133.0 Page 3 Table 6.1: BANKING SYSTEM - SUMMARY ACCOUNTS (DR$ million) III. Private Commercial Banks December 31 August 31 1977f/ 1978 1979 1980 1981 192 1982 1983 Net international reserves -38.5 -18.5 -11.8 -20.3 -56.3 -21.9 -13.7 -37.9 Assets 9/ 8.0 14.8 37.3 115.0 220.9 239.5 208.9 275.7 Liabilities -46.5 -33.3 -49.1 -135.3 -277.2 -261.4 -222.6 -313.6 Monetary reserves and currency holdings 238.4 201.0 227.2 201.9 366.8 317.2 315.3 432.5 Cash in vaults 30.4 30.7 44.5 44.4 46.0 56.8 47.0 40.1 Reserve deposits 176.8 142.4 173.3 210.8 429.3 304.3 321.1 348.9 Special deposits e/ 31.2 27.9 42.1 85.3 154.4 325.8 280.0 382.6 Arrears and letters of credit in arrears ... ... -32.7 -138.6 -262.9 -369.7 332.8 -339.1 Net domestic assets 635.0 692.6 709.9 785.7 757.5 883.5 8 33.4 933.4 Net claims on the public sector 14.4 -0.4 5.7 3.4 5.2 -1.8 18.1 4.8 Central government budget (net) (17.3) (12.6) (9.0) (10.4) (10.7) (8.9) (14.4) (12.0) Claims /17.3/ /12.6/ /9.0/ /10.4/ /10.9/ /9.8/ /14.4/ (12.7) Deposits /...../ /... ./ /... ./ /... ./ -0.2 /-0.9/ /../ /-0.7/ State and local governments (net) I.. ./ (-0.2) (0.1) (-0.2) (-0.2) (-0.2) (-0.1) (-0.2) Public financial institutions (net) (-2-0) (-3.6) (-6.1) (-6.1) (-6.5)(-11.5) (-3.2) (-4.3) Rest of public sector (-0.9) (-9.2) (2.7) (-0.7) (1.2) (1.0) (7.0) (-2.8) Credit to rest of the financial system 22.0 33.2 22.5 43.3 34.4 30.0 32.8 40.2 Credit to private sector 521.5 579.1 594.2 671.5 639.3 747.8 714.8 796.8 Net unclassified assets 77.1 85.7 101.5 9.l 94.4 110.5 84.1 93.1 Net interbank float ... -5.0 -14.0 -21.6 -15.8 -3.0 16.4 1 5 Liabilities to monetary authorities 62,2 80.0 65.8 69.6 83.1 85.6 79.8 87.2 Liabilities to the rest of the financial s-rstem 16.2 14.8 23.2 25.6 28.3 48.3 68.4 91.4 Liabilitie-, to the private sector 756.5 780.3 836.3 872.1 956.6 1044.8 986.8 1149.4 Demand deposits 155.9 166.8 220.8 205.7 240.1 289.3 248.0 277.7 TiLae and sav.trigs deposits j/ 391.5 39 4.9 380.1 39 3.4 436.5 531.1 498.0 564.4 Other liabilities i-I 126.4 124.5 129.1 150.9 144.9 86.9 106.7 143.3 Private capital and surplus 82.7 94.1 1-06.3 122.1 135.1 137.5 134.1. 164.0 Page 4 Table 6.1: BANKING SYSTEM - SUMMARY ACCOUNTS (DR$ million) IV. Consolidated Banking System December 31 August 31 l-977'! 1978 1979' 1980 1981 1982 1982 198 3 Net international reserves of the banking system 60.2 -34.9 -122.4 -240.2 -391.2 -700.7 -608.0 -680.9 Assets 237.1 199.3 318.1 300.4 302.1 210.3 141.0 313.8 !Labilities -176.9 -234.2 -440.5 -540.6 -69 3.3 -911.0 -749.0 -99 4.7 Net domestic assets 1,185.8 1,382.7 1,732.1 1,991.5 2,371.9 2,911.0 2,667.4 3,04!;.6 Net claims on the public sector 302.8 426.7 552.8 652.8 995.6 1,379.1 1,247.5 1,527.4 Central government budget (net) (170.3) (192.5) (300.1) (404.1) (536.7) (716.7) (669.6) (784.3) Claims /292.3/ /301.4/ /357.3/ /4158.2/ /575.5/ /775.1/ /699.0/ /829.3/ Deposits /-122.0//-108.9/ /-57.2/ /-54.1/ /-38.8/ /-58.4/ /-29.2/ /-45.0/ Other central government (net) (63.2) (67.0) (80.2) (89.5) (99.6) (118.3) (110.8) (137.1) Counterpart funds (-2.2) (-3.9) (-6.1) (-10.2) (-6.4) (-7.7) (-7.2) (-23.6) State and local governments (net) (3.9) (10.4) (11.9) (13.0) (14.7) (13.5) (14.5) (14.8) Public financial iastitutions (net) (88.3) (104.1) (107.6) (144.9) (184.0) (186.5) (194.7) (195.5) Rest of public sector (-20.7) (56.6) (59.1) (11.5) (167.1) (-351.8) (264.9) (419.3) Credit to rest of the financial system 74.8 94.7 110.8 166.8 175.5 197.8 195.5 252.2 Credit to the private sector 779.2 828.9 893.1 1,044.5 1,019.9 1,113.5 1X076.2 1,16J.l Net unclassified assets 29.0 32.4 175.4 127.4 180.9 220.6 148.2 101.9 Coumt-rpart unrequited foreign exchange 15.2a 31.5 65.0 96.9 81.9 80.5 76.0 81.1 Of which: revaluation of gold -- 15.8 43.6 62.6 43.4 43.1 37.3 38.8 Medium- and long-term foreign liabilities 90.7 106.6 120.6 188.2 259.0 359.1 297.4 374.8 Liabilities to the rest of the financial system 22.2 20,1 37.9 36.9 52.1 81.7 97.4 127.6 Liabilities to private sector 1,117.9 1,189.6 1,386.2 1,429.3 1,587.7 1,659.0 1,588.6 1,782.2 Currency in circulation 203.2 223.9 273.5 274.9 323.6 357.j 292.6 310.8 Demand 9- posits 212.5 209.1 292.4 280.1 302.5 345.8 307.6 325.7 Time and savings deposits 438.6 478.7 481.5 49847 553.3 662.7 625.3 705.3 Other liabilities 180.9 183.8 232.5 253.5 273.2 185.1 229.0 276.4 Private capital and surplus 82.7 94.1 106.3 122.1 135.1 137.5 134.1 164.0 a/ Assumes no rescheduling of commercial bank debt in 19B3w b/ A total of DR$30 million was advanced to the Government for use as counterpart funds, in anticipation of the transfer of funds under the Sa& Jose Agreement. The advance was not registered as credit to the Central Government. It is included in unclassified assets. c/ Starting in 1979, includes DR$70 million investment in shares of the Rosario Mining Company. d/ Includes allocation of SDRs and valuation adjustment of gold and foreign exchange. e/ Deposits for overdue drafts, collectionis and direct payments awaiting delivery of foreign exchange by the Central Bank; plus deposits corresponding to letters of credit sub,ect to prepayment (including letters of credit not yet matured and letters of credit in arrears to local banks). f/ A change in the reporting of banking system accounts occurred in 1978. These g977 figures are estimates of the accounts on the new basis. Includes foreign exchange claims on the Central Bank to reimburse head offices or correspondent banks for payments on commercial letters of credit made by them abroad. h/ Iacludes about DR$ 25 million corresponding to the contingent liabilities and claims arising from guarantees granted by the Reserve Bank to acceptances issued by INESPRE aiid Molinos DomAinicanos in the period September-December 1979. i! Includes deposits corresponding to letters of credit subject to prepat,-ent. / Prior to January 1978, includes some deposits of the decentralized agencies. Sources: Ce.atral Bank and IMP. Table 6.2: COMNMERCIAL BANK CREDIT TO THE PUBLIC SECTOR AND TO THE PRIVATE SECTOR BY ECONOMIC ACTIVITY, 1978-83 December 31 April 30 1978 1979 1980 1981 1982 1983 I. DR$ million Total public sector 161.8 201.2 235.7 402.4 49 6.7 547.7 Total private sector 793.0 8 47.6 99 0.1 9 66.8 1,045.2 1,065.5 Productive Sectors 516.5 554.3 667.6 65 1 700.9 711.5 Agriculture 41.6 50.2 r9 .1 64.4 68.9 81.6 Manufacturing 271.3 282.2 375.7 383.6 354.9 376.1 Construction 69.2 70.4 72.3 58.3 62.3 62.7 Other 134.4 151.5 160.5 151.8 214.8 191.1 Otrher 276.5 29 3.3 322.5 308.7 344.3 354.0 Trade 223.5 237.8 254.7 244.9 283.9 281.6 Installment credit 2.1 1.6 2.4 3.1 2.8 9.7 Miscellaneous 50.9 53.9 65.4 60.7 57.6 62.7 II. In percent Total public sf2ctor 16.9 19.2 19.2 29.4 32.2 34.0 Total private sector 83.1 80.8 80.8 70.6 67.8 66.0 Productive Sectors 54.1 52.9 54.5 48.1 45.5 44.1 Agriculture 4.4 4.8 4.8 4.7 4.5 5.1 Manufacturing 28.4 26.9 30.6 28.0 23e 0 23.3 Construction 7.2 6.7 5.9 4.3 4.0 3.9 Other 14.1 14.4 13.1 11.1 13.9 1.2 Other 29.0 28.0 26.3 22.5 22.3 21.9 Trade 23.4 22.7 20.8 17.9 18.4 17.5 Installment credit 0.2 0.2 0.2 0.2 0.2 0.6 Miscellaneous 5.3 5.1 5.3 4.4 3.7 3.9 Source: Central Bank. 164 - Table 7.1: AVERAGE ANNUAL GROWTH RATE FOR OUTPUT OF SELECTED COMMODIrIES TN THE DOMINICAN REPUBLIC 1971-82 Average Annual Growth Rate Commodity 1971-81 1981-82 Rice 8.99 11.6 Milk 2.72 -- Poultry 9.54 Maize 4.67 Sorghum 18.36 -- Beans 7.60 10.9 Plantains -0.05 -- Coffee 5.51 21.6 Cacao -01 99 9.4 Tobacco 12.02 -17.5 Beef 5.15 - Sugar -0.10 13.4 Sources: Central Bank and Donald W. Larson "The Effect of Price and Credit Policies on Dominican Republic Agriculture", Consultants Report to USAID, September, 1982. - 165 - Table 7.2: IMPORTS OF FOOD COMMODITIES CONTROLLED BY INESPRE a/ 1972-83 Food Grain Value in Current Volume in Thousand Self-Sufficiency Year US$ Million of Metric Tons Index 1972 25.8 168.9 0.60 1973 49.1 205.3 0.56 1974 99.3 251.6 0.54 1975 50.4 118.5 0.50 1976 45.8 132.9 0.56 1977 68.2 172.6 0.55 1978 40.5 111.8 0.61 1979 73.1 174.7 0.68 1980 107.0 287.5 0.60 1981 122.8 329.3 0.59 1982 64.4 236.7 0.67 1983 69.1 -- - Source: INESPRE a/ Includes imports under PL480 and CCC Table 7.3: RICE PRICES IN THE DOMINICAN REPUBLIC, 1973-82 Ratio of INESPRE Miller Price to: Producer Price INESPRE Int'l. price INESPRE's Int'l. Price INESPRE INESPRE Int'l. Price Consumer Index of for Paddy Import Price c.i.f. Import Price at Parallel Price to Import Price at Parallel Price Real Consumer Year DR$/MT (a) c.i.f. US$/MT (b) at Parallel Exchange Rate Millers at Parallel Exchange Rate DR$/MT Price US$/MT Exchange Rate DR$/MT DR$/MT Exchange Rate (1973=100) (1) (2) (3) (4) (5) (6) 7=(6)/(4) 8=(6)/(5) (9) (10) 1973 187 662.4 624.1 749.8 706.5 315 0.42 0.44 375.0 100 1974 198 446.0 458.7 508.4 522.9 458 0.90 0.87 464.0 109 1975 253 352.8 402.1 416.3 474.5 458 1.10 0.97 568.8 117 1976 248 291.1 321.3 349.0 385.2 452 1.29 1.17 564.4 108 1977 269 291.1 480.4 355.1 586.1 452 1.27 0.77 573.2 97 1978 276 320.8 379.5 401.6 475.1 452 1.13 0.95 564.4 92 a, 1979 242 453.6 498.1 554.9 610.2 452 0.81 0.74 557.7 84 1980 282 473.6 527.4 597.7 665.6 529 0.89 0.79 665.8 85 1981 318 450.9 560.2 57r.9 719.3 566 0.98 0.79 720.0 86 1982 318 416.7 406.1 605.3 589.9 566 0.94 0.96 720.0 80 AVERAGE 0.97 0.84 Sources: (a) INESPRE, 'Plan Operativo, 1983". (b) World Bank, "Commodity and Price Trends, 1983 Edition", U.S. Gulf-Port Price, plus $20/ton for Insurance and Freight. Table 8.1: MANUFACTURING OUTPUT 1962-80 (1970 DR$ Million) ISIC Subsector 1962 1972 1975 1976 1977 1978a! 1979a/ 1980a/ 1981a/ 311-12 Processed Food (exc. sugar) 131.0 239.4 29.3.2 331.5 356.8 363.9 423.1 484.0 496.0 313 Beverages 43.5 82.3 103.8 118.4 137.1 138.2 104.6 110.2 113.2 314 Tobacco 24.8 38.3 53.1 56.6 54.4 54.2 47.8 55.5 57.0 321 Textiles 9.3 16.6 26.2 33.0 32.4 31.9 24.2 19.3 19.9 322 Clothing 5.8 9.0 15.1 17.9 16.5 17.6 12.2 11.8 12.1 323 Leather products 2.4 3.8 6.4 7.5 8.3 9.7 8.8 9.3 9.5 324 Footwear 3.1 4.4 7.8 9.5 12.3 11.5 8.1 11.8 12.1 331 Wood products 5.5 1.0 1.0 1.3 1.2 1.4 1.5 2.1 2.1 332 Furniture 3.0 7.2 9.6 12.0 12.8 14.6 15.9 13.8 14.2 341 Paper and paper products 5.6 17.7 19.8 20.7 24.0 22.7 26.9 25.5 26.2 342 Printing and publishing 4.5 7.6 8.6 9.2 10.2 10.6 12.0 13.4 13.7 351 Chemicals 8.0 20.5 23.0 30.0 32.0 29.7 35.5 22.7 23.7 352 Other chemicals 10.5 28.2 37.1 46.6 50.0 48.8 42.8 50.9 52.3 353 Oil refining - - 37.5 39.0 39.1 38.9 8 0.8 78.1 80.4 354 Petroleum and coal products 355 Rubber 1.6 7.2 7.6 8.0 8.1 9.5 8.7 8.5 8.8 356 Plastic products 0.7 7.7 14.4 13.8 16.1 18.2 13.7 19.6 20.0 361 Ceramic and porcelain - - - - - - - - - 362 Glass and glass products 1.1 3.3 4.9 3.7 3.8 6.0 6.3 3.8 3.7 369 Non-metallic minerals 8.0 28.5 58.8 35.5 39.0 36.1 34.3 40.8 41.9 371 Iron and steel - 8.0 23.1 14.2 20.0 20.8 28.1 25.1 25.8 372 Other metals - 0.4 0.4 0.9 1.3 1.1 0.8 0.8 0.8 381 Metal products 3.0 21.3 29.6 27.3 34.1 35.7 30.9 28.4 29.2 382 Non-elec. machinery 0.0 3.4 7.3 7.1 10.1 10.2 5.9 6.9 7.0 383 Elec. machinery 0.4 4.2 8.3 8.9 9.6 10.0 11.0 10.7 10.9 384 Transport equipment - - 0.1 0.0 0.0 0.1 0.1 0.1 0.1 385 Scientific equipment - 0.3 1.2 1.2 2.0 1.8 0.8 0.8 0.8 390 Other manufacturing 0.1 0.8 1.7 1.2 1.3 1.6 1.2 1.2 1.3 Total 272.9 561.1 799.6 855.0 932.5 944.8 986.0 1,055.1 1,082.3 a/ Preliminary figures. Source: Central Bank. Table 8.2: VALUE ADDED IN MANUFACTURING, 1962-80 (1970 DR$ Million) ISIC Subsector 1962 1972 1975 1976 1977 1978a/ 1979a/ 1980a/ 1981a/ 311-12 Processed Food (exc. sugar) 42.4 69.9 87.4 113.3 115.0 118.4 147.1 169.1 173.6 313 Beverages 37.5 52.2 63.0 69.5 87.9 8 4.7 66.8 68.6 7 0. 4 314 Tobacco 21.5 24.5 32.0 34.0 29.5 28.7 25.8 27.0 27.7 321 Textiles 5.5 8.3 17.1 23.5 19.6 21.2 14.6 11.7 12.0 322 Clothing 2.1 5.0 4.6 8.2 5.3 5.7 3.9 3.8 3.9 323 Leather products 1.3 1.1 3.6 3.3 3.5 4.2 3.7 3.9 4.0 324 Footuwear 1.5 2.7 5.2 6.3 8.7 8.2 5.7 8.3 8.6 331 Wood products 4.2 0.8 0.8 1.0 1.0 1.1 1.2 1.7 1.7 332 Furniture 1.6 4.0 5.5 7.3 9.6 11.0 11.3 10.4 10.7 341 Paper and paper products 2.2 5.5 7.2 5.1 7.9 7.6 10.8 10.6 10.9 342 Printing and publishing 2.6 5.3 4.7 5.7 6.2 6.5 7.2 8.2 8.5 351 Chemicals 0 .2 8.1 7.5 8.5 9.4 9.0 10.3 6.7 6.8 352 Other chemicals 4.8 13.2 17.3 23.1 23.1 22.7 19.6 23.5 24.1 353 Oil refining - - 2.8 7.5 10.0 9.8 20.5 20.0 20.5 354 Petroleum and coal products - - - - 0.01 0.6 0.4 0.1 0.1 355 Rubber 0.8 3.8 3.8 2.4 1.3 1.4 1.3 1.3 1.4 356 Plastic products 0.0 4.7 10.2 8.2 9.8 10.5 8.3 11.9 12.3 361 Ceramic and porcelain - - - - - - - - 362 Glass and glass products 0.5 1.9 2.8 1.5 1.7 2.7 2.7 1.7 1.7 369 Non-metallic minerals 5.1 18.7 41.4 16.4 16.4 14.6 22.0 26.5 27.4 371 Iron and steel - 4.3 5.2 3.8 6.8 7.1 9.1 8.2 8.3 372 Other metals - 0.1 0.04 0.1 0.5 0.4 0.4 0.3 0.3 381 Metal products 1.0 9.6 10.4 9.5 13.3 13.2 12.2 11.1 11.4 382 Non-elec. machinery - 1.9 5.1 4.4 6.3 6.4 3.8 4.3 4.4 383 Elect. machinery 0.2 1.3 1.5 4.2 1.9 2.1 2.4 2.3 2.4 384 Transport equipment - - 0.03 0.02 0.02 - - - 0.02 385 Scientific equipment - 0.05 0.8 0.8 1.5 1.3 0.6 0.6 0.6 39 0 Other manufacturing 0.1 o.7 0.9 0.1 0.3 - - - 0.5 Total 44.1 247.4 341.1 367.7 396.6 399.1 411.7 441.8 454.2 a/ Preliminary figures. Source: Central Bank. - 169 - Table 8.3: STRUCTU'RE OF FOREIGN EXCHANGE INCENTIVES FOR INDUSTRIAL PRODUCTS Parallel Market Effective Effective Exports Exchange Rate Exchange Rate ISIC Activity in Percent Dec. 1, 1982 Oct. 20, 1983 311-2 Processed foods 54 1.24 1.40 313 Beverages 55 1.24 1.40 314 Tobacco 50 1.22 1.38 321 Textiles 30 1.13 1.22 322 Clothing 33 1.15 1.25 323 Leather products 40 1.18 1.30 324 Footwear 58 1.26 1.43 332 Furniture 50 1.22 1.38 341 Paper and paper products 30 1.13 1.22 342 Printing and publishing 35 1.16 1.26 351 Industrial chemicals 30 1.13 1.22 352 Other chemicals 34 1.15 1.26 356 Plastic products 23 1.10 1.17 361 Ceramic and porcelain 38 1.17 1.23 362 Glass and glass products 27 1.12 1.20 369 Non-metallic minerals 44 1.20 1.33 371 Iron and steel 20 1.09 1.15 381 Metal products 35 1.15 1.26 382 Non-industrial machinery 28 1.12 1.21 390 Other manufactures 40 1.18 1.30 Simple Average 37.7 1.17 1.34 Parallel Market Exchange Rate 1.46 1.75 Source: Mission estimates. Table 8.4: MANUFACTURED EXPORTS RECEIVING FOREIGN EXCHANGE INCENTIVE, 1981-82 (DR$ thousand) 1981 1982 Actual Exports Actual Exports Exports Eligible Percent Exports Eligible Percent Receiving for with Receiving for with Incentive Incentive Incentive Incentive Incentive Incentive 311-12 Processed Food 2,206.7 30,982.9 (7.1) 6,265.8 33,062.9 (19.0) 313 Beverages 115.5 306.0 (37.7) 32.9 189.9 (17.3) 314 Tobacco 243.5 1,739.3 (14.0) 1,933.1 2,155.7 (89.7) 321 Textiles 6.0 96.8 (6.2) - 1833 3 322 Clothing 156.7 1,378.1 (11-4) 305.9 1,761.4 (17.4) 323 Leather products 4.9 6,691.7 (0.0) 6.0 6,378.9 (0.0) 324 Footwear 263.7 610.8 (43.2) 61.2 592.5 (10.3) 331 Wood products - 38.5 - - 70.1 332 Furniture 70.9 186.7 (38.0) 16.3 283.09 (5.7) 341 Paper and paper products - 230.1 - 41.7 268.4 (15.5) 342 Printing and publishing - 378.8 - 15.7 444.5 (3.5) 351 Industrial chemicals 14,224.7 16,153.8 (88.0) 7,605.2 8,135.7 (93.5) 352 Other chemicals 127.4 832.6 (15.3) 517.6 1,378.1 (37.6) 355 Rubber products - 245.8 - - 320.9 356 Plastic products 23.1 545.4 (4.2) 354.8 524.2 (67.7) 361 Ceramic and porcelain 398.8 475.4 (83.9) 688.0 884.5 (77.8) 362 Glass and glass products 2.2 64.2 (3.4) 71.6 144.3 (49.6) 369 Non-metallic minerals 6,132.5 6,147.1 (99.8) 4,326.5 4,571.3 (94.6) 371 Iron and steel - 130.0 - 3.3 20.5 (16.1) 372 Other metals - - - 381 Metal products 517.4 2,781.2 (18.6) 1,485.6 2,680.5 (55.4) 382 Non-elec. machinery 95.7 396.3 (24.1) 197.6 352.1 (56.1) 383 Elect. machinery - 261.8 - - 38.7 385 Scientific equipment - 773.8 - - 401.7 390 Other industries - 64.8 - 12.3 52.4 (23.5) Total 24,589.7 71,511.9 (34.4) 23,941.1 64,896.4 (36.9) Source: Mission estimates based on CEDOPEX data. - 171 - Table 9.1: IMIPLICIT PRICE DEFLATORS, 1978-83 (1970 = 100) Est. 1978 1979 1980 1981 1982 1983 GDP 18 0.5 201.3 229.1 240.1 257.6 270.5 Imports 18 5.8 201.7 221.5 240.8 243.9 252.9a/ Exports 152.6 168.8 231.2 272.1 200.0 216.4a/ Terms of trade 82.1 83.7 104.4 113.0 82.0 85.6a/ Consumption and investment expenditures 187.3 209.4 225.8 234.7 265.4 276.8 a/ IBRD estimate Sources: Central Bank and IMF. Table 9.2: CONSUMER PRICE INDEX, 1978-83 (May 1976-April 1977 = 100) Jan. - April Weights 1978 1979 1980 1981 1982 1982 1983 I. End of the Period General index 100.0 108.8 136.8 143.0 153.5 164.5 155.9 162.2 Food, bevera-es, and tobacco 51.7 111.2 147.5 141.1 145.5 159.4 149.1 156.0 Housing 23.9 110.6 123.7 142.3 168.8 176.7 167.7 176.0 Clothing, shoes, and accessories 6.0 104.9 122.5 142.2 150.6 168.1 152.7 171.8 N Other 18.4 101.2 128.1 149.4 157.0 161.6 157.9 158.7 II. Period Average General index 100.0 107.1 116.9 136.3 146.8 158.0 155.8 162.8 Food, beverages, and tobacco 51.7 109.2 121.1 139.7 140.3 151.4 148.8 156.5 Housing 23.9 107.7 116.1 127.2 156.0 170.7 168.8 176.3 Clothing, shoes, and accessories 6.0 102.6 111.2 133.9 144.8 158.8 154.4 167.3 Other 18.4 101.9 108.23 139.82 153.8 160.0 158.2 161.2 Source: Central Bank. Table 9.3: RETAIL PRICES OF PETROLEUM DERIVATIVES, 1976-82 Dec. 31 Jan. 23 Apr. 4 July 31 May 26 Sept. 16 Jan. 8 a/ 1976 1979 1979 1979 1980 1980 1981 (In DR$ per gallon) Gasoline 0.99 1.09 1.25 1.85 2.39 2.39 2.57 Diesel 0.53 0.59 0.67 0.86 0.86 0.97 1.15 Kerosene 0.76 0.76 0.76 0.86 0.86 0.86 0.97 LP gas 0.67 0.67 0.76 0.86 0.86 0.90 1.05 Fuel oil 0.47 0.47 0.47 0.47 0.47 0.47 0.65 (Percentage increase from previous level Gasoline 10.1 14.7 48.0 29.2 -- 7.5 Diesel 11.3 13.6 28.4 -- 12.8 18.6 Kerosene -- -- 13.2 -- 12.8 LP gas 13.4 13.2 -- 4.6 16.7 Fuel oil -- -- -- 38.3 a! Prices still effective in October, 1982. Sources: Ministry of Commerce and Industry, and Central Bank. Table 9.4: AVERAGE SELLING PRICE OF ELECTRICITY, 1976-83 May 1976 1977 1978 1979 1980 1981 1982 1983 (In DR cents per kilowatt-hour; end of year) All users 5.0 5.2 5.2 5.7 7.6 11.2 13.7 13.3 ResidentIal 4.6 4.6 4.6 5.1 5.6 8.7 10T5 9.7 Commercial 6.1 6.3 6.3 6.9 9.6 13.4 16.9 16.5 Industrial 4.8 5.1 5.1 5.6 8.4 12.4 15.6 15.1 Public sector 5.7 5.8 5.8 6.4 8.9 13.1 15.0 15.1 (Percent change from previous year) All users 4.0 - 9.6 33.3 47.4 22.3 -2.9a/ ResidentiaJl. - - 10.9 9.8 55.4 20.7 -7.6 Commercial 3.3 - 9.5 39.1 39. 6 26,1 2.4 Industrial 6.2 - 9.8 50.0 47.6 25.8 -3.2 Public sector 1.8 - 10.3 39.1 47.2 14.5 0.7 a/ -percent change from December 1982 to May 1983. Sources: Dominican Electric Corporation and Central Bank. Woudd Bank Publications of Related interest Bangladesh: Current Trends NEW IVEW and Development Issues Carl A. B. Jayarajah, chief or Bhutan: Development in a Brazil: Country Economic mission, and others, Himalayan Kingdom Memorandum Provides an update on current devel- This is a landmark World Bank report Fred Levy, Lorene Yap, and others opment with emphasis on rural and on the Kingdom of Bhutan. Provides Provides a macroeconomic overview of industrial development and domestic an overview of the economy. Anzlyzes Brazil's economy during the 1970s. resource mobilization and suggests key sectors: agriculture, forestry, in- LOoS at the macroeconomics of the that more funds should be channeled dustrv, tourism, energy, transport, hu- federal public sector, labor market de- inlto agriculture, education, health, and man resources, and communications. velopments and wage policv, and the population control. Examines current stage of develop- changing patterns of poverty and in- 1979. 126 pages (includting map. annexes, ment. Reviews development planning come inequality. appendix). (1961-1987) and entifies constraints 400 to growth--manpowver, phvsical, ma- pes. Stock No. BK 9156. So. terial, financial-and the role of exter- ISBN 0-8213-0330-9. Stock No. BK 0330. nal assistance. Outlincs strategies for $15. NEW economic growth. Brazil: Human Resources 1983. 177 pages. Seal H Report Belize: Economic Report Stock No. BK 0306. $5. Seci l Repo i Analyzes current economic policies, Peter T. LKnight, mission chief, deveiopment issues, and the public Brazil: A Review of Ricardo J. Moran, deputy chief, sector investment program. Evaluates Agricultral Policies and others major sectoral issues: agriculture, Reviews agricultural performance and Volume I discusses the dominant pat- transport, fisheries, social infrastruc- polies in Braz in recent decades terns of Brazil's demographic history ture, tourism, and electric power. Paocular aitenrion recven to rural and the outlook through the year 2000. Notes that Belize has the physical re- credit, which ha been the major toul Concludes that, although the Brdzihan sources, but lacks the financial and used by the oovernment to promote economy has g7rwn twice as fast as human resources, to develop the agri- agrscultural growth. Offers recommen the population, the growth process culture and tounsm sectors. Stresses dations for policv changes. has left large diffrences in indices of the importance ot export-oriented ac- economic welfare and basic needs sat- tiities to promote development. 1982. 259 pages (including annex, statisti- isfaction among various population Z984. l5i pages cal appendix). groups; that policies to increase pro- o o K ISBN 0-8213-0095-4. Stock No. BK 0)095, . ductivity outside the modern sector of Stock o. K 0308 . $10. the economy will be crucial to achiev- with special attention paid to unem- BK 9168) for $40 and save $10 over the ing more equitable socioeconomic de- ployment and mechanisms crucial to cost of volumes ordered separately. velopment; and that accelerating prog- the success of such instruments as the ress in the provision of basic services Caribbean Free Trade Association and Colombia: Economic will requlire not only increased finan- the Caribbean Common Market. Development and Policy under cial backing but considerable efforts to The Johns Hopkins University Press, 1978. Changing Conditions overcome institutional problems. 536 pages (including appendixes, statistical Jose B. Sokol, chief of mission, Volume II examines important sectors: appendix, index). and others health, nutrition, and education, Pro- LC 77-17246. ISBN 0-8018-2089-8, Stock Provides a survey and analysis of Col- vides infornmation about general health No. JH 2089, $30 hardcover; ISBN 0- ombia's developmental experience and conditions, malnutition, and emerg- 8018-2090-1, Stock No. IH 2090, S10.95 its principal features. Focuses on de- ing policy issues. paperback. mograpic trends, emplovment, wages, 1979. 560 pages (inc[luding map, 4 an- C A price stabilization, financial policies, A Economy public expenditure, agricultural devel- ISBN 0-8213-9119-4. Stock No. BK 9119. Transition opment, and issues and policies in the $20. Fred D. Levy, chief of mission, manufacturing industry. Examines re- and othllers cent economic developments and out- NEW Traces the development of the Chilean look for the future. economy since the Great Depression of 1984. 320 pages. Brazil: Industrial Policies and the 1930s and emphasizes economic ISBN 0-8213-0329-5. Stock No. BK 0329. Manufactured Exports policies and events of the 1970s and $15. their effects on Chile's economic pros- Discusses Brazil's trade policy on man- pects. Finds that the ultimate success The Comoros: Current ufactured goods and its impact on in- of the government's policies depends Economic Situation and dustrial efficiency and growth of man- on its ability to demonstrate that effi- Prospects ufactured exports. Describes industrial cient resource allocation and acceler- Prospects development in the country dturing the ated growth can be made consistent Updates an earlier World Bank eco- past decade. Presents an overview of with an equitable distribution of in- nomic report on this densely popu- Brazilian policy on technology, includ- come and the relief of absolute pov- lated irchipelago of four islands in the ing development of human resources, erty. Ntozambique channel. Describes the basic regulation and development, in- 1980. 602 pages (including map, 2 appen- painful path to self-sufficiency since dustrial technology, and technology dixes, 96 tables, glossary). The Comoros declared their indepen- transfer, Sk N* dence in 1975. Recovery from revolu- 1983. 308 pages (including 4 annexes). Stock No. BK 9124. $20. tionary changes is underway but the ISBN 0-8213-0156-X.Stock No. BK 0156. China: Socialist Economic East African nation remains one of the Dvl mworld's poorest. Forecasts continuing $0. Development need for outside financial and techni- Brazil: Integrated Development Vol. L. The Economv, Statistical Sys- cal assistance. of the Northwest Frontier tem, and Basic Data (408 pages, ISBN 1983. 180 pages. Dennis J. Mahar, chief of mission, 0-8213-0245-0, Stock No. BK 0245, $20.) ISBN 0-8213-0157-8. Stock No. BK 0157. and others Vol. 1I. The Economic Sectors: Agricul- S5. ture, Industry, Energy, Transport, and Points out that the Brazilian northwest External Trade and Finance (476 pages, The Comoros: Problems and has the potential to become an impor- ISBN 0-8213-0246-9, Stock No. BK Prospects of a Small, Island tant agricultural and timber-producing 0246, $20.) Economy ,s a region, as well as a place where mi- ' * Economy grants from other parts of the countryt Vol. III The Social Sectors: Population, Pierre Landell-Mils, chief of may be productively and permanently Health, Nutrition, and Education (128 mission, and others settled on small-scale farms. Thus, pages, ISBN 0-8213-0247-7, Stock No. D economic development of the region is BK 0247, $10.) Deconomr and summarizes the main curren.ly one of the high priorities of The Bank's first Country Study cover- sectoral and structural constraints to the Brazilian government. Outlines de- ing China raises the curtain on development. Notes that, in view of velopment plans for the area; exam- Chinese economic e rogress since 1949 its extreme poverty, the Comoros will ines population, migration, and social and on its prosnects for the next gen- . require a substanial intflow of re- indicators; and considers issues and eration. It forecasts a substantial in- sources and technical assistance in the recommendations related to the identi- crease in the living standards of its future. A statistical annex provides a fication and protection of Indian lands, people-if the country's immense comprehensie compilation of soclal land settlement, and environmental wealth of human talents effort and co nsicompiation ofhsocil concems. discipfine are marshaled effectively, andae. discplin .. available. 1981. 107 pages (including' annex). But, the report wams, China is enter- Stc o K94.$.ing a difficult period. A successful 1979. 184 pages (including 5 mnaps. 3 an- Stock No. BJK 9140. S5. tansition requires policies that in- nexes). English., French, and Spanish. The Commonwealth crease the efficiency with which all re- Stock Nos. BK 9115 (English). BK 9158 Caribbean: The Integation sources are used. (French), BK 9159 (Spanish). S5. EEveryone with interests in develop- xperience nment and trade will want a personal Sidney E. Chernick and others set of this three-volume study. Prices subject to change without notice Broad issues of regional integration Order the three-volume set (Stock No. and may vary by country. Ecuador: Development NEW Z979. 178 pvaes (includintg map, 3 an- Problems and Prospects nzexes, 3 graphs, organization chart). Alexander G. Nowicki, chief of Stock No. BK 9722. 55, mission, and others Ghana: Policies and Program Reviews the country's main socioeco- for Adjustment Indonesia: Employment and nomic sectors and focuses on the tra- Ishrat Husain, chief of missiorn, Income Distribution in ditional quality of Ecuador's economy and others Indonesia which makes it difficult to bring the Analyzes Ghana's economv since 1970. Mark Leiserson, mission chief and benefits of modem development to a Outlines policies and programs for ad- coordinating author majontv of the poor. Discusses the ex- justment. Focuses on growth and effi- pected shortfall in foreign exchange ciency, the external sector, domestic Examines demographlc, employment, and fiscal reventues compared to the resources, and human resources and wage, and income trends; analyzes the countrv's needs, which can be alle- social development. A detailed statisti- functioning of rural and urban labor viated if aided by a vigorous effort in cal appendix provides background pa- markets; and formulates employment petroleum exploration and a revision pers that review major sectors, includ- and income policv issues that are im- of the domestic price policy for petro- ing agriculture, mining, energy, portant in addressing Indonesa's leum derivatives. manufacturing, population, and trans- longer-term developmerlt strategy. 1979. 660 pages (including 4 technical an- port. 1980. 198 pages (including appendix, 2 nexes, statistical appendix). English and 1984. 224 pages. annexes). Spanish. ISBN 0-8213-0358-9. Stock No. BK 0358 Stock No. BK 9132. 55. Stock NVos. BK 9160 (English) and BK $10. Iv Coast: The Challenge of 9161 (Spanish). $20. 0.uCcss Egyp: Eonomc M nageent Guatemala: Economic and Succssia .dn unen in a Period om Transition Social Posihon and Prospects Bastiaan A. den Tuinder and ina Period ofTran siotions John R. Hansen, chief of -,Csion, ers Khalid Ikram and others an onvestigates the so-called "Ivorian Mir- The most detailed examination of the Cnldsta,pb- acle" and ways to maintain growth Egyptian economy to appear since the ~Q cretwhile reducing or eliminating gaps in 1960s and the first to lay heavy em- lems due to income levels and opportinities for phasis on economic management and the econn- 0incalvsudnd advancement. policies. has 9O ature growth prospects. The Johns Hopkins University Press, 1980. 1978. 461 pageS (including statistical an- The Johns Hoptins Univg h/itixe, Psst 1978. 464 pages (including statistical appendix, x, mp aex). appendix, isndex) i.ndex). Stock No. BK 9150. $5. pndxide) LC 7647395. ISBN 0-8018-1939-3, Stock LC 80-552. ISBN 0-8018-2418-4, Stock No. IH 1939, 528.50 hardcover; ISBN 0- No, JH 2418, $32.50 hardcover; ISBN 0- NEW 8028-2099-5, Stock, No. JH 2099, $12.95 3018-2419-2, Stockl No. JH 2419, 511.50 paperback. paperback. Hungary: Economic Kenya: Population and The Gambia: Basic Needs in Developments and Reforms Development The Gambia The World Bank's first analysis of the Rashid Faruqee, chief of mission, Heinz B. Bachmann, mission chief economy of the Hungarian People's and others and coordinating author, Rene Republic. Examines aspects of the eco- States that fertility in Kenya is high, Vandendries, and Ann nomic structure of Hungarv and the MacNamara nature and evolution of its economic appears to be increasing, and shows This report outlines a basic needs management system. Reviewvs princi- considerable vaiation by region, tribal strategy designed to guide the Gam- pal sectors - agriculture, industry, group, and socioeconomic status. Rec- bian government and the World Bank energy. Discusses policv issues and in- ognizes that rapid population growth in making policv decisions that will in- dicates medium-term perspectives for is resultig in the need for increased the economy. public expenditure for basic needs crease the chances of base survival for services, such as education, health, that countrv's people, The Gambia is 1983. 296 pages. er, a using. Aruesthatha extremely poor; the rural population is Stock No. BK 0307. $10, rapid decline in fertility wig facilitate worse off than those living in urban . the implementation of the'govern- make up 30 to men aercnd chilfren, who India: Economic Issues in the men't's commitment to the provision of lation, are the most disadvantaged Powver Sector basic needs, but that the saisfaction of group and sutfer most from poor C. Taylor basic needs, such as education, is an health and malnutrition. A strategy is Reviewing the country's demand for important instrument for securing proposed that is aimed at improving electricity, points out that economic lower fertility. Explores the socioeco- the health and nutritional status of growth in India depends critically on nomic determinants of fertilitv, the pregnant wvomen and lactating mnoth- the development of the power sector current status of the countrv's famil ers bv combating endemic disease, im- and suggests that public funds be sup- planning program, the social status of proving the supply and distribution of plemented bv increased tariffs to aug- women and fertilitv, and makes rec- food, improving eating habits, and ment the internal cash generation of ommendations for a comprehensive suppiving clean water in rural areas. the State Electricitv Boards, as well as population policy. 1981. 153 pages (including 2 annexes). provide for a more efficient use of 1980. 226 pages (including bibliography) Stock No. BK 9167. 35. power resources. Stock No. BK 9134, 510. Korea: Policy Issues for Long- The Maldives: An Introductory key sectors such as agriculture, indus- Term Development Economic Report try, tourism, energy, and transporta- Parvez Hasan and D. C. Rao K. Sarwar Lateef, chief of mission, tion, as well as human resource devel- Can Korea's growth rate continue with and others opment. greater considerations of equity, struc- Provides a brief introduction to the 1979. 134 pages (including map, 2 an- tural changes to maintain the compar- Maldives, a nation that is among the nexes, statistical appendix). ative advantages of Korean exports, twenty poorest countries in the world, Stock No. BK 9123. 55S the new roles for government in re- and points out that the fisheries sector Papua New Guinea: Its sponse to changing domestic and ex- accounts for 44 percent of employment Economic Situation and ternal conditions? and nearly all visible export earnings P for D l The fohns Hopkins University Press, 2979. and discusses other important sec- rospecs evelopment 558 pages (including map, appendixes, in- tors-agriculture, tourism, cottage in- George B. Baldwin and others de.). dustries, health, and education. Out- Assesses prospects for increasing e'co- LC 78-21399. ISBN 0-8018-2228-9, Stock lines the development priorities for the nomic self-reliance and financial credit-' No. fH 2228, $35 hardcover; ISBN 0- country in the 1980s and the role of worthiness by developing considerable 8018-2229-7, Stock No. JH 2229, $15 pa- external assistance. natural resources. perback. 1980. 178 pages (including 5 annexes, sta- The Johns Hopkins University Press, 1978. tistical appendix). 38 pages (including appendixes, statistical Madagascar: Recent Economic Stock No. BK 9139. S. appendix, bibliograpzly). Development and Future . LC 77-17242. ISBN 0-8018-2091-X, Stock Prospects N Maurtius. Economic No. JH 2091, $6.50 paperback. P.C. Joshi, mission chief, and Memorandum: Recent others Developmex,'s and Prospects Papua New Guinea: Selected Examines, in the light of recent eco- Michel J. C. Devaux, mission Aevelopment Issues nomic developments and the govern- chief, and others Alice Galenson, chief of mission, ment's objectives, the strategy under- Report of a November-Decemtber 1981 Thi oth cos Iving both the 1978-80 Development msintreewhecomcstu- This report constitutes part of a con- lyn ohth 988 Dvlpet mission to review the economic situa- tinuing dialogue between the World Plan and those plans to be imple- tion of Mauritius and to assess prog- Bank and the government of Papua mented subsequently. Points out that ress under the structural adjustment ne Gne on ern ge of eco- the overall performance of the econ- loan approved by the World Bank in New mCuinea on a wide range of eco- omv has been disappointing in recent 1981. nomc and sector issues, It focuses on vea but that the has a few specific areas that were agreed been abut that f s gov mentan i tan 1983 122 pages. to be among the most important for been able to focus on certain important social objectives; the satisfaction of ISBN 0-8213-0122-5.Stock No. BK 0122. the cotntry's development during the basic needs, reduction of urban-rural $5, 1980s. Points out that the major goal income disparities, and the protection facing the countrv in the 1980s will be of living standards of low-income ur- Morocco: Economic and Social to provide rising incomes for its peo- ban groups. Proposes a policy frame- Development Report ple and productive livelihood for its work characterized by increased reli- Christian Merat, coordinating growing labor force. Discusses, in par- ance on external assistance, vigorous author, and others ticular, the employment, agriculture, export promotion, and a general relax- forestrv, fisheries, and industrv sec- ation of economic controls, and con This study examines the growth and tors. siders the feasibility and appropnate- structural changes the Moroccan econ- 280 pages (including 4 annexes) ness of this strategy in relation to the omy has experienced during the ten- * resources of the economy and long- year period, 1968-77. It seeks to deter- Stock No. BK 0096. $10. term development goals of the coun- mine the results that can be expected Paraguay: Regional termdevelo n gfrom the annual plans of financial ad- Development in try. justment that dominate the period Deeomn nEastern 1980. 307 pages (including 6 annexes, 4 1978-80 and eieks ahead to the overall Paraguay .2ppendixes). English and French. prospects for the economy during the Alfredo Gutierrez, chief of Stock Nos. BK 9157 (English) and BK period 1981-90. Considers growth -mission, and others 9164 (French). $15. problems at the sector level and out- Rteviews recent economic develop- Iines the general employmenit situation ments and provides a framework for Malaysia: Growth and Equity and the social development strategy policy actions and investment projects in d Multiracial Society the country is pursuing. designed to make maximum use of de- Kevin Young, Willem Bussink, and 1981.. 54 pages (including statistical ap- velopment possibilities, and suggests Parvez Hasan pendix). English and French. the need to coordinate public-sector Rapid growth is essential to achieving Stock Nos. BK 9165 (English) and activities in a geographic and sectoral Malavsia's economic and social objec- 9166 (French). $20. dimension to exploit the eastern re- tives; favorable resource prospects are gion's natural resources. conducive to such growth. Nepal: Development Z978. 58 pages (incltiditng inaps, 4tarlvetI ll Thte Johns Hopkins University Press, 1980. Performance and Prospects appendix'. Engtisit. 364 pages (including appendixes, index). Yukon Huang, chief of Stock .No. BK 9103 t-jn'lislh) and BK 9l25 LC 79-3677, ISBN 0-8018-2384-6, Stock mission, and others (Spanish). 53. No. IH 2384, 525 hardcover; ISBN 0- Reviews Nepals achievements during $018-2385-4, Stock No. JH 2385, $12.95 the Fifth Development Plan and its Prices subject to change a itlout notice paperback. strategy options for the Sixth Plan for and may vary by country. The Philippines: Housing Portugal: Current and 1980. 73 pages (including statistical ap- Finance Prospective Economic Trends pendix). Madhusudan Joshi, mission chief, Basil Kavalskv, chief of mission, Stock No. BK 9133. $3. and others and Surendra Agarnal Thailand: Income Growth and Reports the findings of a 1981 studv Discusses Portugal's difficult transition Poverty Alleviation requested by the government of the after the revolution of 1974175 and John Shilling, chief of mission, and Philippines focusing on resource mobi- notes that the country has a sound others lization and its macroeconomic impli- economic base, but will have to come Synthesizes the results of four special cations, the development of appropri- to terms with the serious unemploy- studies on poverty-related issues and ate institutions and instruments, and ment problem, increase investment discusses some of the determinants of access to housing fir'ance. and output in export-oriented manu- povertn, the det of 1983. 137 pages (including appendices). facturing, and improve agricultural poverty, the itmpiact on the poor, and ISBN 0-8213-0108-X. Stock No. BK 0208. productivity. the relationship between basic needs $5 1978. 58 pages (including statistical ap- and poverty. Formulates guid0ines for pendix, map). policies aimed at alleviating poverty Philippines: Industrial Stock No. BK 9106. $3. and promoting equitable growth. Development Strategy and Companion paper to Thailand: Toward a Policies Romania: The Industrialization Development Strategy of Full Participa- Barend A. de Vries, chief of of an Agrarian Economy under tion, March 1980, mission, and others Socialist Planning 1980. 64 pages (including 2 annexes,, Outlines the country's industrial de- Andreas C. Tsantis and RoyStock No. BK 9135. $3. velopment strategy, its major objec- Pepper tives, and industrial investment priori- The first comprehensive study of the Thailan...: Industrial ties and determines that the Romanian economy, the study con- Development Strategy in nontraditional manufactured export tains a data base of the economy and Tlhailand drive should continue with increased describes the planning and manage- Bela Balassa, chief of mission, and participation by industries, firms, and ment system. others regions and that policies for the home The Johns Hopkins University Press, 1979. Notes that the country had an out- industries should be reoriented toward 742 pages (including maps, appendixes, standing economic record during the better use of capital and domestic re- bibliography). postwar period, especiallv between sources and more employment crea- LC 79-84375. ISBN 0-8018-2269-6, Stock 1960 and 1973, but points out that oon, JH 2269, $35 hardcover; ISBN 0- there is a slowdown in the growth of 1980. 310 pages (including statistical ap- 8018-2262-9, Stock No. fH 2262, $15 pa-' Thai exports that will have a negative pendix, 9 annexes). verback. effect on the economy. Examines the Stock No. BK 9132. $15, Economic prospects for future exports of pro- Seychelles: cessed food and manufactured goods Portugal: Agricultural Sector Memorandum and analyzes the country's compara- Survey Robert Maubouche and Naimeh tive. advantage in these products. Con- Jacques Kozub, chief of Hadjitarkhani siders the need for the economic eval- mission, and others Traces the development of Seychelles' uation of large goverment-sponsored Analyzes the main issues of agricul- economy from its primary dependence projects; examines measures of import tural development and identifies on the export of copra and cinnamon protection and export promotion investor needs for future World Bank to service economy with tourism as its schemes and questions relating to re- consideration. major industry. Concludes that the gional development. Provides recom- country's management capability is mendations for a coherent industrial 1978. 328 pages (including 2 appendixes, impressive and its development strat- development strategy for the country 10 annexes, maps). egy well designed, btu that it is likely that is aimed at increasing industrial Stock No. BK 9705. S15, to be confronted with financial con- employment, expanding small and straints in the near future, and its in- vestment program will require in- creased domestic efforts, as well as substantial levels of external capital aid. medium-sized firms, and improving Turkey: Policies and Prospects NEW the living standards of the poor. for Growth 1930. 69 pages. Vinod Dubey, mission chief, Yu-oslavia: Adjustment Stoat No. B Shakil Faruqi, deputv mission Po&icies and Development NEW chief, and others Perspectives States that overall economic growth Reviews Yugoslavia's adjustment dur- Thailand: Rural Growth and during the 1960s and most of the 1970s ing the strenuous economic period of E was good compared with other devel- 1976-80. Based on ;he findings of a Employment oping countries. Concludes, however, World Bank economic mission to Yu- Examines the high rate of economic that the sharp increase in oil prices goslavia in 1981, this report is espe- growth in Thailand with respect to ag- had an unfavorable impact on the cial:y useful to economists, countrv ncultural growth. Concludes that agri- country and that resumption of sus- planners, and those interested in eco- cultural growth has a great effect on tamable growth depends on the adop- nomic trends and institutional change. rural development. Supports develop- tion of an export-oriented strategy; on The first section of the report deals ment of programs to alleviate the policies aimed at increasing domestic with issues of adjustment strategy and pockets of rural poverty. Discusses savings and at keeping aggregate de- policy across the economv. The second supply-side factors in rural nonfarm mand for resources in line with aggre- part explores issues in agriculture in- activities and the effect of industrial gate supply; and on the support for dustrv, employment, and regional pol- policies on orovincial manufacturing. these policies by various donors and icy. Includes more than 100 tables of 1983. 212 pages (includinzg atppendixes). the financial community, statistics from 1965 through estimates ISBN 0-8213-0203-5. Stock No. BK 0203. 1989. 347 pages (including 6 appendixes, for 1985. $10. stLatistical annex). 1983. 464 pages. Thailand: Toward a Stock No. BK 9151. $15. ISBN 0-8213-0189-6. Stock No. BK Development Strategy of Full Uganda: Country Economic 0189. $20. Participation Memorandum Yugoslavia: Self-Management E.R. Lim, chief of mission, John Mark Baird, mission leader, and Socialism and the Challenges Shilling, deputy chief, and others others of Development Shows that rapid and sustained This is the first economic report pre- Martin Schrenk, Cyrus Ardalan. growth has helped a substantial pro- pared by the World Bank on Uganda and Nawal A. El Tatawy portion of the population, but -hat, to since 1969. It reviews events prior to Describes major development issues a large extenit, t1he rural population has the 1978-79 war and developments and the overall performance of the not benefited. Stresses that the coun- since the war, including the govern- economy, showving that the new eco- trv should not follow a type of "trickle ment's new financial program. Out- nomic framework of the 1970s down" development strategy, but lines the priority areas for further ac- strengthens decisionmaking at the should focus on raising the productiv- tion and the implications of the lowest microeconomic level and at the itv and incomes of the poorest farm- balance-of-payments outlook for aid same time allows greater coordination ers. This strategy would be a logical requirements. A more detailed review of economic activitv by extending self- continuation of the economic change of the problems and issues in five ma- management principles to the macroe- that began in the middle of the 19th jor sectors-agriculture, industry, conomic level. centurv, w.vith development based pn- transport, energy, and education-is The Johns Hopkins University Press, 1979. marily on indigenous capital and skills also discussed. 410 pages (including map, appendix, glos- and the gradual assimilation of foreign 1982. 166 pages (including statistical ap- sary,.index). technology18.16pgs(,cuzgsaitia p s-ne) t pendix). LC 79-84316. ISBN 0-8028-2263-7, Stock 1980. 246 pages (including statistical ,th ISBN 0-8213-0027-X. Stock No. BK 0027. No. JH 2263. 527.50 hardcover; ISBN 0- P $5. 8018-2278-5, Stock No. [H 2278, $12.95 Stock No. BK 9125. 510, paperback. Turkey: Industrialization and Yemen Arab Republic: TZaire: Current Economic Trade Strategy Development of a Traditional Situation and Constraints Bela Balassa, mission chief and Economy Bension Varon, chief of mission, principal author Otto Maiss, chief of mission, and and others Reports the findings of a special eco- Presents an integrated analsis of the nomic mission that visited Turkey in Outlines the far-reaching changes in difficulties experienced bv the Zairian Mlav-June 1981. Includes productiorn the socioeconomic and political struc- economy between 1975 and the first incentives, financing of economic ac- ture of the Yemen Arab Republic since half of 1979 and suggests that the tivitv, taxation and investment incen- the 1962 revolution and discusses ma- countrv needs to revamp its institu- tives, industrial development and ex- ;or development issues of the late tions and its svstem of incentives and ports. state economic enterprises in 1970s and the 1980s. adopt policies that will lav the founda- manufacturing agriculture develop- 1979. 333 pages tincluding 3 maps, 7 an- tion for a development pattem that ment and exports, and tourism. Con- nexes, statistical appendix, selected bibliog- will render it less vulnerable to cludes with policy recommendations. raphu). changes in the world economv. 2983. ;'i - 455 pages rincluding append- Stock No. BK 9109.-515. 1980. 196 pages (including map, annex. ices and statistical tables) statistical appendix). English and French. ISBN' 0-8213-0046-6. Stock No. BK 0046. Prices subject to change without notice Stock Nos. BK 9128 (English) and BK 520. and may vary by country. 9254 (French). 55. The World Bank Publications Ordr Form SEND TO: YOUR LOCAL DISTRIPBUTOR OR TO WORLD BANK PUBLICATIONS (See the oiher side of this form.) P.O. BOX 37525 WASHINGTON, D.C. 20013 U.S.A. Date - _- Name Ship to: (Enter if different from purchaser) Title Name Firm Title _ Address Firm City State_ _ Postal Code Address Country 'Ihlephone ( ) City State.- Postal Code_ Purchaser Reference No. Country 'hliephone Check your method of payment. Enclosed is my O Check OII International Money Order O Unesco Coupons O International Postal Coupon. Make payable to World Bank Publications for U. S. dollars unless you are ordering from your local distributor. Charge my EJ VISA D MasterCard -I American Express O Choice. (Credit cards accepted onily for orders addressed to World Bank Publications.) 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Cnstanzo de lo JAti OS / C / 4>,P~edernadQs AZUARN NA ES6;. n o -'\d e 4d A I u g z 'A 40 . - Bc9i- 01o 0 20 0 50 40 7 V LOnenE re 720 71Noble L_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ .-.-_ _ _ -- , .1 DO(MIN0.1CAN REPUBLIC -- International boundaries POPULATION Provincial boundaries 1,200,000 persons ® National capital @ Provincial capitals . Towns Main roads 250,000 persons 60,000 persons Playa -- Railways 30,000 persons Grande Rivers z 'o-One dot equals 2,000 persons A V i Cultivable Soils TR?N/DAD e Sugar Cane SS AA/ F ZHEZ 0 ° Ncgua 1980 ESTIMATED POPULATION cisco de Nlacuris Urban 2,75270OO e SA M NA Rural 21679,000 Samana Total 5,431 ,000 I* - r. |2h -na,rande *iches. ~EIZ /o B .AHaoMayor H 3 El Macao C a guana ;, 1 .lSeibo .,I f > e o4 / Yarnaso J n '; ,,,' ]./ -oX -eaor 4/ * ocKd'( ~~I-ITr I-'OM AP F * A TA CPA C/ . A CULAOMING DeMo L?.~~1u de Maof Boca deYuima 69' UNITED STATES OF AMERICA 9 41AHAM.' 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