Dominican Republic - Urgent Import Requirements For Hurricane Reconstruction Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4219 PROJECT COMPLETION REPORT DOMINICAN REPUBLIC URGENT IMPORT REQUIREMENTS (LOAN 1782-DO) December 10, 1982 LAC I Latin America and the Caribbean Programs Department This document has a restricted distribution and may be used by recipients only in the performance of their ofici duties. Its contents may not otherwise be disclosed without World Bank authorization.  FISCAL YEAR January 1 to December 31 ABBREVIATIONS BTN - Brussels Tariff Nomenclature CDE - Corporacion Dominicana de Electricidad (Dominican Electricity Corporation) IMF - International Monetary Fund  FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT DOMINICAN REPUBLIC URGENT IMPORT REQUIREMENTS LOAN 1782-DO TABLE OF CONTENTS Page No. Preface i Basic Data Sheet ii Highlights iii I. Introduction 1 Loan Original and Preparation 1 Loan Objectives 2 II. Utilization of the Loan 2 III. Conclusions 4 Attachment: Comments from the Borrower 5 This document has a restricted distribution and may be used by recipients only in the performance of l their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  a ~~ ~~~~~~~~~~~~~~~~~~At a  PROJECT COI 7LETION REPORT DOMINICAN REPUBLIC URGENT IMTORT REQUIREMENTS LOAN 1782-DO PREFACE This is a Completion Report of the Urgent Import Requirements Project, for which Loan 1782-DO was approved on December 18, 1979 for US$25 million. It was fully disbursed on December 9, 1980. The objective of the loan was to provide assistance to the Government's hurricane reconstruction program, by financing urgently needed imports of raw materials, semi- finished and final goods to restore national production. The Project Completion Report was prepared by the Latin America and Caribbean Regional Office on the basis of a country visit in April 1982, the President's Report of November 29, 1979, and a study of the files. Comments received by the Borrower are attached as an Appendix. The project has not been audited by the Operations Evaluation Department.  4  - ii - PROJECT COMPLETION REPORT DOMINICAN REPUBLIC URGENT IMPORT REQUIREMENTS LOAN 1782-CO I. BASIC DATA Original Final Negotiations (date completed) 11/15/79 Board Approval 12/18/79 Loan Signing - 01/08/80 Effectiveness 12/31/79 08/20/80 Final Authorization 12/31/80 08/25/80 Closing Date 12/31/80 12/09/80 Loan Amount (US$ Million) 25.0 25.0 Amount Disbursed (US$ Million) 25.0 25.0 Borrower Dominican Republic Implementing Agency Central Bank II. MISSION DATA Mission Month/Year Manweeks Identification 09/79 2 Appraisal 10/79 2 Supervision N/A N/A Country Exchange Rate Name of Currency Peso (RD$) Year Exchange Rate Appraisal Year 1979 US$1= RD$1 Intervening Year Average UJS$l= RD$1 Completion Year Average US$1= RD$1   - iii - PROJECT COMPLETION REPORT DOMINICAN REPUBLIC URGENT IMPORT REQUIREMENTS Loan 1782-DO r HIGHLIGHTS The project achieved its limited objective of assisting the Dominican Government in its reconstruction efforts by financing imports of industrial inputs needed to restore production, and by providing local counterpart funds for the purchase of an emergency power plant, and for implementation of other projects in the power sector. Nevertheless, this assistance was delayed by ten months mainly because the Dominican Congress did not ratify the loan documents early as needed. Because of the above delay, the loan did not provide the balance-of-payments relief at the time it was most needed. This brings into question the desirability and effectiveness of Bank financing of emergency projects in the Dominican Republic in the future.  ft J I I  - 1 - PROJECT COMPLETION REPORT DOMINICAN REPUBLIC URGENT IMPORT REQUIREMENTS LOAN 1782-DO I. INTRODUCTION Loan Origin and Preparation 1. A special mission visited the Dominican Republic on September 9-14, 1979, in response to a request by the Dominican Government for hurricane reconstruction assistance. Hurricanes David and Frederick had hit the Dominican Republic on August 31 and September 2, causing considerable damage to property. A subsequent mission (October 14, 1979) obtained data on the economic impact of the disasters, and on the Government's reconstruction program, and proposed that the Bank assist the country's reconstruction effort with a US$25 million Urgent Import Requirements loan to finance imports of raw materials, semi-manufactured and final goods to restore national production (Loan 1782-DO); and with a US$25 million Emergency Road Reconstruction loan. 2. The economic impact of the disasters derived from direct loss of p-roduction due to destruction of crops and livestock, damage to goods and interruption of services, mainly of public utilities, distribution and transport; as well as indirect losses due to damage to infrastructure and productive capacity. Production losses were estimated at RD$400 million. 3. The deficit in the current account in the balance of payments increased from US$319 million in 1978, to US$341 million in 1979, owing to extensive damage to coffee, cocoa and sugar crops, reduced earnings from non-traditional exports as a result of damage to factories and infra- structure, and an increased level of imports needed to replace inventories and meet equipment needs to resume production. In 1980, the deficit in the current account increased to US$670, of which US$120 million were the result of hurricane damage. 4. Current Government revenues fell in 1979 as a result of loss in production in general, especially in cocoa and coffee, thus making more difficult the already tight government fiscal situation. The overall public sector deficit was of the order of US$286 million in 1979, and of US$335 million in 1980, which included US$110 million of emergency expenditures. 5. The Government's reconstruction program provided for the restoration of essential services and domestic food and export production capability; and adjustment of the three-year investment program to achieve a blend of replacement and improvement in resource availability. In agri- culture, emphasis was placed in programs of soil preparation, fertilizer application, and provision of seeds to induce the recovery of food and export  -2- crops, The transport programs emphasized reconstruction of roads and bridges, ports and wharves. Repairs to the power generation and distribution system were started immediately after the hurricanes to provide services on an emergency basis, but longer-term reconstruction needs involved mostly imports of foreign materials to repair generation, transmission and distribution facilities. The industrial sector required increased credit to replace inventories and restore working capital. 6. Negotiations of the Urgent Imports Requirements loan were held in Washington on November 15, 1979. The Borrower was the Dominican Republic, and the Central Bank was the implementing agency. The Borrower was represented by the Under-Secretary of Finance and the Director of International Agreements of the Central Bank. No major changes to the loan documents were made during negotiations. Nevertheless, the Bank wanted to ensure that only goods necessary for reconstruction would be eligible for reimbursement under the loan, but did not wish to elaborate a detailed list of exemptions, since it was impossible to forsee all possible items not eligible. It was agreed that the Loan Agreement would include a sentence to indicate that final consumption goods would not be financed by loan proceeds. 7. Loan effectiveness was delayed until August 20, 1980, because the Dominican Congress did not ratify the Loan Agreement until July 3, 1980, and the required Congressional Resolution and Legal opinion were not received by the Bank until mid-August. Immediately after the loan was declared effective, the Central Bank submitted the documentation required for disbursement, and the total proceeds of the loan (US$25 million) were disbursed on August 25, 1980. Loan Objectives and Description 8. The US$25 million loan was equivalent to about 7 percent of the value of imports during 1978 in the eligible Brussels Tariff Nomenclature sections, covering a range of imports required for hurricane reconstruction. Disbursement was made on the basis of evidence of entry of the goods into the country and release of foreign exchange by the Central Bank. Customs warrants and invoices provided evidence of entry and of classification and value of imports while copies of drafts provided evidence of payment to suppliers. The loan also made available RD$25 million of local currency resources to the Government to finance reconstruction and development projects in the public sector, in the light of diminished current revenues in 1979, and slower revenue growth in 1980. II. UTILIZATION OF THE LOAN 9. As indicated in para. 7, effectiveness of the loan was delayed for ten months, and so were disbursements. The Central Bank had been ready with the required reimbursement documentation for submission to the Bank since December 1979. Full disbursement of the loan was requested on August 20, 1980. The Central Bank selected imports which entered the country after October 1, 1979 falling within the following sections of the BTN:  -3- Section Description Amount As Percentage (Million US$) of Total Loan. VI - Chemicals 8.4 33.6 VII - Manufacture of plastic and rubber, natural and synthetic .2 .8 XV - Base Metals and manufactures of Base metals 9.7 38.8 XVI - Machinery and equipment including electrical 6.7 26.8 Only invoices valued in excess of US$2,000 were considered for reimbursement. 10. The proceeds of the loan were credited to the reserves of the Central Bank, and an equivalent amount in Dominican Pesos (determined at the official foreign exchange rate) was deposited in a special account at the Central Bank in the name of the Government for purposes of counterpart financing of reconstruction and development projects. 11. On August 7, 1980 when the Dominican Congress ratified the loan, it also resolved to allow CDE full use of the local currency equivalent of the loan to assist it in meeting its reconstruction and investment needs. As a result, CDE submitted to the Central Bank for approval and submission to the Bank, a schedule of counterpart requirements for a total of RD$25 million. RD$10 million were to be used for the purchase of an emergency thermal generation plant to be installed in Puerto Plata in April 1980, and the remaining RD$15 million to be disbursed over a period of one year (September 1980-August 1981), upon presentation of documentation on expenditures incurred by CDE, as follows: Purpose Amount (Million RD$) Haina V Thermal Plant .5 ITABO I Thermal/Coal Plant 1.0 Puerto Plata II Thermal Plan 3.3 Water-Supply Line for Haina/ITABO .8 Rehabilitation of Electricity Distribution Lines 5.5 Rehabilitation Valdesia Dam .6 Rehabilitation Jimenoa Dam 1.3 The above proposal by CDE was approved by the Central Bank with concurrence by the Bank. The funds were disbursed as scheduled.  -4- 12. The loan Document required tnat the special account be audited by the Secretariat of Finance six months after the funds were fully disbursed, and that the Audit Report be submitteed to the Bank. This report has not yet been submitted to the Bank. The Central Bank has indicated that the Audit will be carried out in August-September 1982, and that the report will be submitted to the Bank in October, 1982. III. CONCLUSIONS 13. The objectives of the loan were to assist in the reconstruction efforts undertaken by the Dominican government to restore production capacity and growth, which the provision of imports of essential building materials and replacement of inventories, facilitated. These objectives were fully met, although with some delay. From a balance of payment support view, the loan provided financing for twenty percent of the increase in the deficit of goods and services during 1980, when the major impact of the hurricanes was felt. Moreover, with the provision of local currency, the loan financed 7-8 percent of the public sector deficit. The loan also contributed substantially to government efforts to restore and expand electricity services, which were essential for the country to resume production. J  -5- Attachment COMMENTS FROM THE BORROWER Translation October 14, 1982 MR. SHIV S. KAPUR DIRECTOR, OPERATIONS EVALUATION DEPARTMENT INTBAFRAD WASHINGTON, D.C. BY THIS CABLE WE ARE INFORMING YOU THAT WE CONSIDER SATISFACTORY THE REPORT ON THE EVALUATION AND EXECUTION OF LOAN 1782-DO BY THE WORLD BANK. BEST REGARDS, MANUEL COCCO, DIRECTOR INTERNATIONAL AGREEMENTS, CENTRAL BANK, DOMINICAN REPUBLIC