Dominican Republic - Emergency Road Reconstruction Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-2641-DO REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE. DOMINICAN REPUBLIC FOR AN EMERGENCY ROAD RECONSTRUCTION PROJECT November 29, 1979 This document has a restricted distribution and may be used by recipients only In the performance of their official duties. Its eontents may not otherwise be disclosed without World Bank authorization.  DOMINICAN REPUBLIC EMERGENCY ROAD RECONSTRUCTION CURRENCY EQUIVALENTS Currency Unit = Peso (RD$) US$1.00 = RD$1.00 US$1,000,000 = RD$1,000,000 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 mile (mi) 1 kilogram (kg) = 2.2 pounds (lb) 1 hectare (ha) = 2.47 acres ABBREVIATIONS SEOPC - Secretaria de Estado de Obras Publicas y Communicaciones (Secretariat of State of Public Works and Communications) ONAPLAN - Oficina Nacional de Planificacion (National Planning Office) IDB - Inter-American Development Bank USAID - United States Agency for International Development TSS - Transport Sector Study CMU - Construction Management Unit  FOR OFFICIAL USE ONLY DOMINICAN REPUBLIC AN EMERGENCY ROAD RECONSTRUCTION PROJECT Loan and Project Summary Borrower: The Dominican Republic Amjiount: US$25 million Terms: Seventeen years including four years of grace at 7.95 percent per annum interest rate. Projec t Dls-ription: The project, which is part of the Government's hurricane Emergency Reconstruction Program, would permit the recon- struction of two roads, totalling 150 km. The 86 km Cruce de Guayacanes to Santiago de la Cruz road connects the agricultural north western area to Santiago, the country's second largest city. The 64 km. Azua-Barahona road links the southwestern part of the country to the capital city. Both roads were scheduled for reconstruction over the 1982-84 period under SEOPC's five-year (1980-84) recon- struction program which was reviewed in May-June 1979 at the time of appraisal of the proposed Second Highway Maintenance and Reconstruction Project. After extensive damage caused by floods that accompanied the hurricanes at Lhe end of August-early September 1979, the reconstruction of these two roads was advanced to 1980-82. Above average project risk could arise from strained SEOPC capacity result- ing from additional demands from the reconstruction task. The risk of serious delays and inadequate project manage- ment and funding has been reduced by the establishment of a Construction Management Unit with high level expertise, and the creation of a Special Revolving Fund. Staff Appraisal Report: In view of the urgency of this project, no Staff Appraisal Report has been prepared. The sectoral framework and the reconstruction program of which the two project roads are part are reviewed and evaluated in detail in the Staff Appraisal Report for the proposed Second Highway Maintenance and Reconstruction Project dated November 1, 1979. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Estimated Costs: Local Foreign Total -----(US$ Million)----- Civil Works 9.3 17.3 26.6 Equipment 0.1 1.4 1.5 Construction Management Unit 0.4 0.3 0.7 Supervision 1.1 0.6 1.7 Base Total 10.9 19.6 30.5 Contingencies: Physical. 1.0 2.0 3.0 Price 1.9 3.4 5.3 Total Costs 13.8 25.0 38.8 Financial Plan: Local Foreign Total -----(US$ Million)----- IBRD - 25.0 25.0 Government 13.8 - 13.8 Estimated -----US$ Million---- Disbursements: Bank FY 1980 1981 1982 Annual 7.0 15.0 3.0 Cumulative 7.0 22.0 25.0 Economic Rate of Return: Preliminary estimates based on identification surveys carried out before the hurricane damages showed benefit/ cost ratios above 3.0 for both project roads using a discount factor of 12 percent.  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE DOMINICAN REPUBLIC TO FINANCE AN EMERGENCY ROAD RECONSTRUCTION PROJECT 1. I submit the following report and recommendation on a proposed loan equivalent to $25 million to the Dominican Republic to finance an Emergency Road Reconstruction Project. The loan would have a term of 17 years including a grace period of 4 years. It would bear an interest rate of 7.95 percent per annum. PART I - THE ECONOMY 2. The last economic report "Current Economic Memorandum on the Dominican Republic," (Report No. 2492-DO) was distributed to the Executive Directors on May 11, 1979. Relevant social and economic data are presented in Annex I. This section describes recent economic trends prior to the onslaught of hurricanes David and Frederick in August/September 1979. Part III assesses the impact of the hurricanes on the economy. 3. During 1968-74, the Dominican economy experienced an unprecedented average annual increase in GDP of 10.5 percent. In 1974-1977, however, economic growth slowed to only 5.3 percent per year. In 1978, preliminary estimates indicate a further decline to 3.6 percent, while in 1979 it may be negative because of the hurricanes. 4. Economic growth during 1968-74 was led by exports of sugar and minerals, by tourism and a high level of both private and public investment. During that period, the Dominican Republic was able to increase substantially the volume of sugar exports, start the exploitation of ferronickel deposits, undertake vigorous industrial expansion (mostly in import substitution indus- tries), and establish itself in the Caribbean tourism market. The main reasons for slower growth in recent years were poor agricultural performance, partly as a result of droughts in 1975 and 1977, increases in petroleum prices since 1974, the drop in sugar prices after 1975, which had a strong impact on domestic aggregate demand, and--more recently--the depressed world market for ferronickel and bauxite. Manufacturing, oriented mainly to the domestic market and heavily dependent on imported intermediate and capital goods, had been particularly affected by the slow growth of the economy and by shortages of electricity. Industrial expansion during 1975-78 averaged 4.7 percent per year, compared with the 1968-74 average rate of 13.7 percent. 5. The country's balance of payments, like that of most energy import- ing, primary products exporting countries, deteriorated in the latter part of this decade. In 1974 the cost of petroleum imports increased by over US$100 million and was largely responsible for the deficit in the balance of payments in that year. Between 1973 and 1978, the cost of petroleum imports in relation to the value of sugar exports increased from 24 percent, to 92 percent, and is expected to reach 109 percent in 1979. Steep increases in the price of sugar  - 2 - created a surplus in 1975; but since then, sugar prices have fallen drastically, the demand for ferronickel and bauxite has been weak, and the production of coffee and cocoa stagnated, with the result that the deficit on current account has widened. The balance of payments has also become sensitive to flows of capital from private sources, which in turn reflect the perception abroad of factors affecting risk and uncertainty in the Dominican economy. Because of a de facto dual exchange rate system and the openness of the economy, the weakness in the balance of payments is partly reflected in a 20 percent premium at which the U.S. dollar trades in the parallel market. There was an unprecedented overall balance-of-payments deficit of US$95 million in 1978 reflecting an estimated increase in the current account deficit from US$264 million in 1977 to US$377 million in 1978 due to continued decline in sugar prices, a drop in coffee and cocoa prices, a substantial reduction of the volume of coffee and ferronickel exports; and a decline in net capital inflows. Because of the massive increase in petroleum prices, the current account deficit in 1979 was expected to reach US$480 million before the hurricanes. 6. Inflation, which was minimal during the 1960s, accelerated in the 1970s. The average annual increase in the Santo Domingo consumer price index during 1971-77 amounted to 11.8 percent. This same index indicates a reduction in the rate of inflation during 1978 to 3.5 percent, reflecting a fall in food prices following the recovery of domestic food production from the effects of drought, and stable housing costs. These categories account for almost two thirds of the weight in the index, and have been the sources of upward pressure on prices during most of the decade. Recent increases in gasoline prices, electricity rates, and wages have generated more upward pressure on prices during 1979. 7. Past fiscal policy was cautious. In 1968-77, current budget sur- pluses averaged 6 percent of GDP (varying between 3 percent in 1968 and 10 percent in 1975) and financed, on average, 98.5 percent of the Central Government's capital expenditures. Although the Government's long-term savings performance was impressive, it was achieved at the expense of low growth of current expenditures, especially wages and salaries. During 1968-77, the average annual growth of recurrent expenditures was about 1.6 percent in real terms, and average real salaries of government employees dropped considerably. This austerity limited the Government's ability to operate and maintain the country's economic and social infrastructure as well as to attract and retain capable personnel in government service. 8. In 1978, the fiscal situation deteriorated, with an overall Central Government deficit estimated at RD$114.5 million, mainly as a result of a lower current surplus of RD$175 million, compared with RD$278.4 million in 1977. The reduction in the current surplus was attributable to wage increases granted to public employees, to a reduction of about RD$40 million in revenues due to lower value of sugar exports, the temporary suspension of export taxes on cocoa and coffee, and subsequent reduction by 50 percent of export taxes on coffee. 9. The Government which took office in August 1978 proposes to adopt measures to strengthen the balance of payments and public sector finances,  - 3 - stimulate export growth and eliminate price distortions unfavorable to agricul- ture and employment creation. Although a comprehensive package of economic measures has not yet reached the stage of implementation, it is clear that the Government has recognized the need for appropriate adjustments in policy. It has resisted pressure to launch an ad hoc public works program to palliate the country's acute unemployment problem. The Congress has recently approved legislation - an Export Promotion Law - providing tax incentives to export, and allowing those engaged in non-traditional export activities to sell their foreign exchange earnings in the parallel market which normally trades at a premium over the official exchange rate. The Congress is also considering legislation providing special incentives for agro-industry. The Government is seeking to strengthen the fiscal situation by channelling the plethora of earmarked taxes and special funds, which formerly put a large part of public sector resources beyond the allocation decisions of the annual budget, into a single consolidated fund and by improving administration of income taxes and customs duties. Taxes on liquor and cigarettes were increased earlier this year, while the tax on gasoline was increased when the prices of petroleum products were adjusted to reflect the rise in crude oil prices toward the end of June. It is expected that draft tax legislation including value added and sales taxes, and modifications in the real estate tax, will shortly be put before Congress. Also, measures are being taken to strengthen the autonomous agencies such as the electricity company, for which an increase in rates was recently approved, and the sugar corporation, which was relieved of the burden of a cross subsidy to the electricity company. The Government's ability to secure approval by Congress of the draft legislation will be critical to its success in improving public sector finances. Its willingness to apply the export promotion law in a flexible manner, and to adopt an appropriate monetary program - as soon as the hurricane emergency permits - will be critical to its efforts to diversify exports and strengthen the balance-of-payments. 10. Creditworthiness has recently become of some concern. The large balance-of-payments' deficit in 1978 resulted in the depletion of the coun- try's already low net reserves. The level of gross reserves fell to less than the equivalent of two months of imports, and the prospect is for further reserve loss in 1979. Arrears in current payments, a periodic phenomenon in the Dominican Republic, are increasing once more. While the Administration is aware of these problems, its ability to implement appropriate corrective measures has suffered from legislative delays. These considerations adversely affect the country's ability to obtain financing from commercial sources even though the level of the public external debt in relation to GDP -- 15.3 percent at the end of 1978 -- and the ratio of public external debt service to exports -- 10.2 percent in 1978 -- are not high in comparison to other develop- ing countries. The impact of the hurricanes (discussed in detail below) will add only one-half percentage point to the debt service ratio which was expected to rise to 18 percent in 1979 because of bunched repayment obligations, before declining to 15 percent in 1980. The country's future borrowing requirements will, however, be quite large, and will necessitate both concessionary and non-official funds. The Government has indicated that it will implement the needed economic measures while addressing the country's social problems. Because of limited export prospects, the recent petroleum price increase, and the additional economic constraints resulting from hurricane damages, there will obviously be difficulties in harmonizing these goals. As we continue the  - 4 - dialogue on economic policy, we will be monitoring closely the Government's response to the challenges it faces. We consider that the Dominican Republic will continue to be creditworthy for Bank lending provided the Government expeditiously implements policy measures which have recently been approved by its Congress and others which it is now preparing. PART II - BANK OPERATIONS IN THE DOMINICAN REPUBLIC 11. The Bank Group began operations in the Dominican Republic in 1969. Except for an enclave mining project, lending to the Dominican Republic was on IDA terms prior to FY1975. Since then lending has been on Bank terms, including two Third Window operations. Two loans, for a tourism infrastruc- ture project and a second education project, were approved in FY1975 and two loans, both on Third Window terms, for highway rehabilitation and maintenance and population and family health, were approved in FY1977. Two loans, for irrigation (Nizao Irrigation Project) and tourism (Second Puerto Plata Tourism Project), were approved in FY1979, and a sugar rehabilitation project was approved in the first quarter of FY1980. Total Bank loans and IDA credits outstanding amount to US$135.1 million, of which US$88.7 million are undis- bursed. Annex II contains a summary statement of Bank Group loans and credits as of October 31, 1979 and notes on the progress of ongoing projects. 12. IFC has financed two operations in the Dominican Republic, an investment in a cement plant approved in 1974, and a line of credit for small and medium scale industry approved in 1978. Other projects are under consideration by IFC. 13. In the absence of adequate project preparation and of clear investment priorities, the Dominican Republic did not in the past make full use of official long-term external assistance. Total lending of this type amounted to US$335 million during 1970-77. The present Government has recently approved a three-year public investment program which would permit an increase of long term funds from external development agencies to finance the program. Assistance from IDB has included agriculture (credit programs and irrigation); power (two multi-purpose hydroelectric projects and rural electrification); water supply and sewerage; and higher education. U.S. long-term assistance consisted mainly of food (PL480) and loans for agricul- ture, health, and education. Assistance from IDB over the next three years is expected to include agriculture (with a major emphasis on agrarian settlement programs and credit), potable water, irrigation and power. AID assistance would concentrate on agricultural credit, integrated rural development and rural road maintenance. 14. Bank Group lending to the Dominican Republic has aimed at strength- ening the balance of payments; improving social services available to the lower income groups, particularly in rural areas; improving agricultural  - 5 - production and land distribution; and strengthening institutions responsible for major economic sectors. We have in the aftermath of hurricanes David and Frederick reviewed Bank lending operations in the light of urgent recon- struction requirements. This project and a proposed loan to finance urgent import requirements, which has also been submitted to the Executive Directors, constitute the Bank's contribution to the immediate reconstruction effort. A second road maintenance reconstruction project now also before the Executive Directors is part of the Government's long term highway rehabilitation program, which remains of high priority. Other projects under consideration are an industrial credit operation, a coffee and cocoa rehabilitation program and a low income housing project-with emphasis on the provision of sites and services. 15. The Bank Group's share in the Dominican Republic's external public debt outstanding and disbursed was estimated at 5.5 percent at the end of 1978. The Bank Group's share of external public debt service in 1978 was 5 percent. Its share of outstanding public external debt would rise to about 12 by 1985, while its share of external public debt service would increase to about 6 percent. PART III - THE HURRICANES 16. On August 31, Hurricane David, with winds of 150 miles per hour, smashed into the southern coast just west of Santo Domingo and crossed the western section of the country to Monte Cristi, on the north coast just east of the border with Haiti. On September 2, Frederick followed the same path bringing less wind but deluging most of the country with torrential rains for four days and causing extensive flooding of low lying plains and in the fertile Cibao Valley, and landslides in many areas. 17. The death toll has been set at over 2,000, with the majority of deaths being attributed to drowning. Greater loss of life was avoided by moving people, prior to the hurricanes, from squatter settlements in low lying areas into schools, churches and public buildings offering more substan- tial shelter. An estimated 100,000 people are now living precariously in refugee centers. Over one million people were still receiving emergency assistance in October. 18. Damage to property has been extensive. Some 2,400 km of roadway and 58 bridges were destroyed. In the power sector, one hydroelectric station was destroyed and generating facilities were flooded at two other dams, while heavy damage was done to the transmission and distribution network in the southwest. In the industrial sector, damages include the complete de-roofing of factories in the Haina industrial area and partial de-roofing of the Herrera industrial estate in Santo Domingo. Damage to housing is only partially reflected in the total destruction of over 20,000 units. 19. The economic impact of the disaster derives in part from the direct loss of current production due to the destruction of crops and livestock, the damage to goods in warehouses, and the interruption of services, notably in the public utilities, distribution and transportation sectors. In addition,  - 6 - there will be an impact on future production due to impairment of productive capacity which will take time to be restored. This is likely to be significant in the case of permanent tree crops and forests, livestock, and electricity. The latter suffered loss of one-fifth of its generation capacity. 20. Current estimates suggest a production loss of some RD$350-400 million in 1979, which will have the effect of converting an expected 4 to 5 percent positive growth in GDP into a negative growth of about 3 percent. While there should be a substantial recovery in 1980, production losses in 1980 attribut- able to the hurricanes could be as much as RD$130 million (in 1979 prices) or 2 percent of CDP. 21. Economic growth is very likely to be reduced over the medium term, not only because the repair of damage to assets will take time, but also because the cost of repair and replacement will require the diversion of investment from uses which would have created a net addition to productive capacity. The degree of investment diversion will depend on the extent to which additional foreign resources become available. 22. The Dominican Republic is likely to suffer further deterioration in the goods and services account in the balance of payments. Coffee suffered extensive damage to the current crop with losses estimated at 25-30 percent and of about US$40 million in export earnings. In sugar, the production loss has been put at around 125,000 tons with an export value of US$30 million. Cocoa export earnings could be down by US$20 million. Earnings from non- traditional exports will be reduced due to damage to factories and infrastructure. 23. The impact of these losses will not be limited to 1979, since not all the lost production would have been exported before December 31. In 1979, exports of goods and services will be reduced by US$35 million. An increase in imports will be required because of production loss for domestic consumption, damage to inventories of inputs, and to buildings and equipment. The goods and non-factor services account in 1979 is expected to deteriorate by US$60 million, but deterioration could be larger if reconstruction efforts gain momentum. For 1980, an increase in the goods and non-factor services deficit of about US$120 million can be expected because of hurricane damages.  - 7 - BALANCE OF PAYMENTS (Estimates and Projections) (millions of US dollars) Pre-Hurricane Post-Hurricane 1979 1979 1980 Exports of goods and NFS +946 910 1,156 Imports of goods and NFS -1,424 -1,445 - 1,813 Resource balance -478 -535 -657 Factor services, net -145 -145 -191 Current transfers, net +143 +203 +207 Balance on Current Account -480 -477 -641 Direct foreign investment, net 45 -25 /a 50 Public and publicly guaranteed loans, net 158 143 107 Other medium long-term loans, net 9 9 59 Short-term flow, grants and other 95 95 115 Special hurricane loans /b - 52 191 Basic balance -173 -203 -119 IMF drawing, net 51 75 - Use of reserves 122 128 119 /a Including purchase of Rosario Mining Company by Government for US$70 million. /b Including this proposed loan and the Emergency Road Reconstruction loan. 24. Assuming an increase of US$60 million in current transfers due to greater assistance from Dominicans residing abroad, to settlement of re- insurance claims and to emergency aid, the outlook is for the 1979 current account deficit to remain at the pre-hurricane projection of around US$480 million. In the capital account, the main changes attributable to the hurri- canes are inflows of reconstruction loans and reduced disbursement of previously arranged project loans. Although emergency reconstruction loans of almost US$300 million are expected to be committed, disbursements during 1979 are not expected to be much above US$50 million.  - 8 - 25. The basic balance of payments in 1979 is likely to deteriorate by more than US$30 million when compared with pre-hurricane estimates. Drawings of US$75 million (net) from the IMF will help to cushion the impact on gross reserves, but unless payments can be reduced, deferred or additional resources borrowed, the country's gross reserves will be seriously depleted. Reduction of the overall deficit by curtailing imports is not feasible for 1979. Prior to the hurricanes, an overall import increase of 16 percent over the 1978 level had been estimated, of which 14 percent was due to an expected increase in import prices and 2 percent to increase in real imports. Given the damage to local crops and the need for imported reconstruction materials, import reduction seems unlikely and indeed undesirable. In 1979 increased imports of US$20 million due to the hurricane are likely, while in 1980, the level of imports is projected to increase by an additional US$368 million due partly to higher prices and to the inflows of reconstruction imports. The latter will partly be financed by the disbursement of about US$190 million of special hurricane reconstruction loans, including this and en emergency road reconstruc- tion loan. Assuming a substantial recovery in exports, additional transfers and heavy disbursement of special loans, the overall balance of payments could improve over former expectations, but a gap of US$119 million is likely to remain. This would not be sustainable without additional financing, since by then gross reserves may be approaching depletion. The authorities are consider- ing an expansion of the list of imports not eligible for official foreign exchange to dampen import demand. Nevertheless, additional financing over and above that presently expected will still likely be needed, and is expected to come mainly from commercial and bilateral sources. This clearly indicates the need for fundamental adjustments to balance of payments weaknesses that were already evident before the hurricanes and that have now been further aggravated. 26. As a result of the loss in production in general and especially in coffee and cocoa, and also the likely change in the level and structure of trade, current revenues of Government in 1979 are expected to decline by RD$25 million, or 4 percent of budgeted collections. Without the expected increase in revenue from imports and from recently introduced higher taxation of gasoline, this reduction would be greater. The fiscal situation will still be quite tight; pre-hurricane projections pointed to a decline in the current fiscal savings of the Central Government from RD$175 million in 1978 to RD$59 million in 1979 and a concurrent increase in the overall deficit from RD$115 million to RD$188 million. In addition to already programmed capital expen- ditures, emergency expenditure requirements by Government of over RD$110 million have been identified, part of which will have to be met in 1979. However, because some planned capital outlays will now be deferred, the increase in the 1979 deficit will likely be modest. Although there are no estimates of the fiscal impact of the hurricanes in 1980, the expected slower growth could mean that a projected current surplus of RD$90 million will not be realized and that the capital program will continue to be determined by borrowed foreign resources. Two implications emerge from this situation. First, the recently approved three-year public investment program may need to be reduced. Second, measures are required to improve the rate of absorp- tion of foreign loans in order to expedite disbursement if the Government's reconstruction efforts are not to be constrained by lack of funds.  -9- The Reconstruction Program 27. The total damage to physical assets in both the public and the private sectors has been estimated at RD$400-500 million. Some of these assets were covered by insurance and a substantial part of the task of reconstruction will be left to private initiative. The public sector program which will address the needs of the destitute and the restoration of public infrastructure and facilities, is being developed in two stages. The first, primarily of an emergency nature, provides for the restoration of essential services and domestic food production capability; the second will involve the adjustment of the recently completed three-year public sector investment program in order to achieve a blend of replacement and improvement objectives and adjustments to changes in resource availability. The first phase emergency reconstruction program is expected to be 40 percent completed in 1979 and will continue until the end of 1980. It will cost around RD$230 million. The second stage is under preparation; the following paragraphs refer to the emergency reconstruction program. 28. In agriculture, primary emphasis will be on the recovery of produc- tion of food crops reflected in a program of soil preparation, fertilizer application and provision of seeds, with the objective of cultivating over 200,000 hectares with maize, red beans, rice, vegetables, cassava, bananas, and sweet potatoes. This replanting program will be accompanied by the repair of irrigation ditches, canals, and dams and the cleaning of drainage ditches in flooded areas. Another program includes the immediate rehabilita- tion of plantations of coffee, cocoa, and plantains; a more permanent effort is being considered for the longer term. The rehabilitation of the fishing industry will involve the construction of 150 boats in new drydock facilities while RD$60,000 worth of outboard motors will be imported to replace lost or damaged ones and to outfit the new fishing fleet. Of the total cost of the agricultural program of around RD$50 million (not including the regular opera- tional cost of the Ministry of Agriculture) about RD$14 million will be pro- vided as credit through the state-owned Agricultural Bank. 29. In the transport sector, the reconstruction of roads and bridges, ports and wharves is expected to involve an expenditure of RD$52 million, of which almost RD$11 million to reestablish road communications is consid- ered urgent. Deterioration of the Dominican road system has been of concern for some time. The recent disaster, however, has added emphasis to this need and has pointed out some weaknesses in the system. Among highways, highest priority has been assigned to the reconstruction of Azua-Barahona, and Cruz de Guayacanes-Santiago de la Cruz, Sanchez and Duarte. The first two comprise the proposed Emergency Road Project. The reconstruction of Sanchez and Duarte, which require minor repairs, is being undertaken with local funds. Some 2,000 km of rural road construction will be carried out with financing from the Interamerican Development Bank (IDB). The ports of Boca Chica, Haina, Santo Domingo, Barahona and Azua are also to be repaired. This will involve dredging of channels which have been choked by silt, removal of sunken or damaged vessels, repair of warehousing and cargo handling equipment, and replacement of navigational aids. 30. Repairs to the power generation and distribution system were started immediately after the hurricanes and there has been substantial restoration of supply on an emergency basis, but with considerably diminished system reliability. The longer term reconstruction program includes the restoration of the transmission and distribution network at a cost of RD$20 million of  - 10 - which 90 percent of expenditures will be to purchase mostly imported materials. Nearly 1,500 km of power lines will be installed in the process. The second largest expenditure amounting to RD$14 million will be for the repair of hydro- generation facilities at Valdesia, Tavera and complete replacement at Jimenoa. The drying out of the first two should be accomplished within 5 months while Jimenoa will require 30 months for reconstruction. Damages to thermal units at Haina and Santo Domingo and to diesel units at Constanza and Ocoa will cost less than RD$3 million and will require about 3 months for completion. The diesel units are especially required for handling peak loads and their repair is critical if presently frequent outages are to be avoided in the near future. 31. The program for restoring potable water supply calls for the recon- struction of collapsed entombment and filtration facilities, replacement of destroyed mains, cleaning of silt blocked pipes and the repair of electrical pumping facilities. The projected cost of RD$5 million reflects the fact that a substantial restoration of supply has already been achieved. This figure includes a provision for the trucking of water to maintain emergency supplies in some areas. 32. Given the substantial damage to housing, the large number of people living in centers of refuge, and the need to release public buildings for normal use, the provision of alternative shelter is now urgent. While the reconstruction program in housing is expected to cost some RD$30 million, the first phase calls for an expenditure of RD$8 million of which RD$6 million will be spent in rural areas to provide 3,000 temporary tent shelters with sanitary and cooking facilities at a cost of about RD$150 each, and about 3,000 prefab- ricated houses costing about RD$1,500 each. Also 5 to 6 thousand houses will be repaired under this program. In urban areas the initial objective is to repair about 7,000 units at a total cost of RD$1 million and to provide multi-family structures to accomodate about 2,000 families at an average cost of RD$500 per family. Another part of the program seeks to address the needs of the income-earning homeless by providing low cost lots on publicly-owned lands together with suitable financing to permit the people to re-house themselves on land not subject to flooding. Some RD$7 million has been earmarked for repairing school buildings, and about the same amount for repair of health facilities. The re-development of these services will be carried out over the longer term, full account being taken of the changing settlement patterns and geographical distribution of population in the aftermath of re-housing efforts. 33. While most industries are assumed to have had adequate insurance, the rehabilitation of the industrial sector requires that provision be made for increased credit for replacing inventories, restoring working capital, and providing a cushion in cases of inadequate coverage. A recuperation fund amounting to RD$50 million has been established by the Central Bank within the Investment Fund for Industrial Development to help this sector in its reconstruction efforts. 34. These plans, while still tentative and incomplete in some details, indicate at once the magnitude of the task of reconstruction and the additional resources which will be required. The managerial and technical capabilities  - 11 - exist within the country, but the main shortfall will be in the area of financial, specifically foreign exchange, resources. The following pledges or proposals of external assistance have been announced; these figures in some cases including programmed operations that have been advanced as well as net increases in lending programs. Multilateral Assistance IDB US$100 million IBRD US$50 million Bilateral Assistance Federal Republic of Germany: D Mark 20 million = about US$11 million Venezuela US$40 million U.S.A.I.D. US$15 million In addition to the multilateral assistance mentioned above drawings amounting to SDR50.75 million equivalent to US$66 million have been permitted by the IMF for emergency balance of payments support. Of the multilateral and bilateral sources of external finance, only the IMF's facilities, and US$20 million from Venezuela would be disbursed by the end of 1979. About US$40 million of IDB loans and the proposed US$25 million Bank loan to finance urgent import require- ments will be quick disbursing, and are expected to be drawn down during the first half of 1980. The Dominican Republic may also benefit from a provision of US$1-1/3 million allocated by the European Economic Community for assistance to countries which have been hit by hurricane David. This short list does not fully reflect the external resources which may become available when discussions with other potential donors and lenders are completed. Neither does it reflect the substantial contribution of an emergency nature that has been provided by a large group of institutions and countries, but it does provide a background against which to appreciate the crucial role of Bank support in financing the longer term reconstruction effort. PART IV - THE TRANSPORT SECTOR AND THE HIGHWAY SUB-SECTOR The Transport Sector 35. The Dominican Republic relies for its transportation upon an exten- sive road network, nine international ports, two operating international airports and nine domestic airports, a publicly owned-railway line and several private lines. International freight traffic is concentrated in the Santo Domingo and Haina ports in the South, and Puerto Plata in the North, which handle almost 60 percent of all imports and exports excluding petroleum. Haina port handles most of the country's petroleum imports of about 1.7 million tons. International air traffic, which expanded rapidly since 1970, is almost exclusively handled at Santo Domingo international airport. Minor tourism traffic and some cargo for export, is handled at La Romana international airport. A new airport is being constructed at the tourist area of Puerto Plata. International road traffic between Haiti and the Dominican Republic is negligible.  - 12 - 36. Because of the smalL size of the country, the location of its resources and its economic structure, internal transport distances are short. The main exports--sugar and minerals--normally require hauls of less than 100 km. Average hauling distances do not exceed 125 km. This has made highway transport the most widely used mode, accounting for almost 99 percent of total domestic transport of goods (excluding sugarcane and sugar products) and passengers. The railway network, which encompasses about 1,600 km, provides freight transport for sugarcane and sugar products. 37. The transport system in the country is broadly adequate, and although the road network is not dense, it provides access to all major producing areas. However, with a decline of transport sector investments in recent years, and inadequate funding for operation and maintenance of physical facilities, the present condition of the system is poor. This has been exacerbated by hurricane damages, which have rendered acute the need for road rehabilitation, in particular. Planning and Coordination 38. Investment decisions for most public transport expenditures are made by the Office of the Presidency in its National Planning Office (ONAPLAN). ONAPLAN is responsible for sectoral planning, taking into account the plans prepared by the relevant agencies. The Secretariat of Public Works (SEOPC) which is responsible for the transport system, has in the past lacked adequate capability to conduct sector planning and coordination. It has therefore had to seek the assistance of foreign consultants. In 1973, a Highway Rehabilita- tion and Administration Study (under UNDP financing) was prepared with the Bank acting as executing agency. In 1978, a Technical-Economic Transport Sector Study (TSS) was prepared with IDB assistance. These studies, parti- cularly the second, contained a survey of the sector and identified high priority studies needed to provide a basis for adequate planning. Imple- mentation of the recommendations of these studies has been curtailed by lack of adequate institutional arrangements, informality of the project selection process, absence of statistics and systematized data collection for transport planning, and, until recently, failure to include economic feasibility considerations in the formulation of investment programs. Further- more, the capacity of SEOPC to carry out these tasks has been limited by its inability to attract and retain qualified staff, caused, in part, by the low salaries paid. More recently, SEOPC has formulated a program to reorganize and strengthen its administrative and planning capabilities. In this context, it has negotiated with IDB a two year technical assistance program. 39. The transport sector does not present major issues of intermodal coordination and planning, and the lack of overall sectoral planning has not resulted in any major misallocation of resources. For the future, the attitude of the present Administration, which recognized the problem and intends to begin implementation of a modern personnel administration system and to strengthen planning--particularly in the highway mode--is a positive develop- ment. The establishment by SEOPC of a Road Reconstruction Planning Unit responsible for the Government's long-term reconstruction efforts and for the formulation of road rehabilitation and maintenance programs, both integral parts of the Second Road Maintenance and Rehabilitation Project, would provide  - 13 - the basis for the improvement of planning in the highway r,ode, which at this time constitutes an urgent need, in view of SEOPC's ambitious public investment program and tight fiscal situation. SEOPC's capacity would be supplemented b' a special Construction Management Unit responsible for the execution of civil works under the Emergency Road Reconstruction Project. Recent Sector Improvements and Developments 40. The administration which took office in August 1978 is in the process of formulating its goals for the sector. The TSS is the strongest background document for Government followup. From its recommendations for studies, policies and preliminary project investment identification, the Government is selecting a few for early implementation. The vehicle axle load and dimension regulations and the administrative reorganization of SEOPC, are the most important. Among the investments identified, a countrywide list of road rehabilitation priorities is being used as a base for the Government's 1980-1984 reconstruction program. In the port subsector, the recommendations for the construction of a new port at Haina and expansior. works at Puerto Plata are also being followed. 41. A public sector investment plan for 1980-1982 has recently been approved. It contains recommendations for transport project investments, with a total cost estimated at $362 million, including highway reconstruction, strengthening of maintenance capacity and improvement of the feeder road network; Haina port construction and expansion (breakwater) of Puerto Plata; and purchase of aircraft for the Dominican flag carrier (Dominicana de Avia- cion). This investment plan is now under revision to include urgent invest- ments needed for hurricane reconstruction. In addition to the 150 km of emergency road reconstruction included in the proposed project, other urgent investments for roads, bridges and rural roads would be included. The Highway Subsector 42. The basic road network consists of three trunk highways radiating from Santo Domingo: the Duarte Highway to the north (263 km), the Sanchez Highway to the west (193 km) and the Mella Highway to the east (75 km). The size of the national system is adequate for the present level of economic activity, and construction of additional highways is therefore not of high priority. However, the condition of the network is not satisfactory. Some 2,000 km or 45 percent of the paved roads have reached a degree of obsoles- cence and deteriorated to the point where preventive maintenance is no longer meaningful. Such roads need reconstruction/rehabilitation on the basis of full engineering studies and modern pavement design. This situation has been exacerbated by damages to the road network caused by Hurricanes David and Frederick, particularly in the northwest and south. Emergency road recon- struction is essential to the transport of produce to urban areas for domestic consumption and for export. 43. The need to improve road maintenance has been recognized as one of the major requirements in the highway subsector. The present administra- tion declared this to be one of its high priority objectives. The Bank has supported since 1977 the initiation of a highway maintenance program. As a  - 14 - result, the level of road maintenance has increased markedly while institu- tionaL improvements have been achiieved. The maintenance of the network is now under the responsibility of a new Sub-Directorate of Maintenance created within SEOPC as a result of the technical assistance provided under the First Road Maintenance and Reconstruction Project. Also, a new Training Section responsible for personnel training has been organized. At the same time, the infrastructural support to carry out maintenance activities lias been substantially improved. Continuation of the ongoing works is essential to bring maintenance activities to a more adequate level, as planned in the Five Year Maintenance Program for 1980-1984. 44. Estimated contributions from road user charges (US$52.2 million p.a.) have been substantially above totai highway expenditures. It is estimated thiat, over the next years, proceeds from road user charges would be adequalte to support planned expenditures for implementing the reconstruction and maintenance programs as well as future outlays for construction. The most important revenue source is the motor fuel tax, which accounts for about 50 percent of the road user charges. The other two important revenue sources are vehicle registration fees and import duties on vehicles. 45. Future economic growth of the country depends upon facilitating access to arable areas in order to increase agricultural production. The need to improve and expand the feeder roads system has been recognized by Lie Government. The General Directorate of Feeder Roads of SEOPC was given more authority in the area of feeder roads. It has two projects currently under preparation which would be financecd by IDB and by USAID. Given this rela- tively strong external support for construction of feeder roads, the role of the Bank should be to develop planning and construction methods and to test the potential of labor-based Lechnologies, which appear prima facie to be suitable in the context of high levels of unemployment. Road Traffic and Vehicle Fleet 46. About one half of the principal products in the country and almost all passengers are carried by road. This is reflected in the relatively hligh traffic density which shows that some 10 percent of the nationlal network carries over 3,000 vehicles per day and about 35 percent carries over 1,000 vehicles per day. Vehicle registration, which between 1967 and 1974 grew by 14 percent, has slowed to 9 percent since 1975. The composition of the vehicle fleet is 64 percent passenger cars, 34 percent trucks and 2 percent buses. About 3X) percent of passeniger cars perform public services anld about 63 percent of all trucks are of a pickup type. About 60 percent of the whlole fleet is registered in the cities of Santo Domingo and Santiago. The Road Transport Industry 47. Thie trucking industry is divided into a large number of single- vehicle owners. These account for 98 percent of the medium and heavy trucking fleet, which totals 17,000 units. There are five multi-vehicle companies with six to 40 vehicles. Single-vehicle owners transport products from rural areas to cities, and multi-vehicle companies provide intercity transport.  - 15 - Rates and tariffs are regulated by SEOPC's General Directorate of Transporta- tion. In practice, however, the enforcement of tariff regulation is lax, and charges are about 25 percent higher than official ones. Single-vehicle owners, who are generally ready to operate with low profit margins, have created a highly competitive environment. Vehicle Weight and Dimension Regulations 48. Three weighing stations were installed by SEOPC in 1972 and two are under construction. When all the weighing stations become operational, it will be possible to monitor the majority of trucks in the country for weight control. At present, trucks are inspected for compliance of weight regulations, but not for axle load or vehicle dimensions, in the absence of a clearly defined axle load and vehicle dimension policy. To remedy this, a covenant was included in Loan Agreement No. 1316T-DO which stipulates that the Government would, by December 31, 1976, enact regulations defining maximum vehicle axle loads and dimensions. This, however, was not done because the Government felt it needed additional time to carry out a comprehensive study on vehicle axle loads and dimensions. SEOPC has undertaken the prepara- tion of a comprehensive study of vehicle axle loads and dimensions, with financing from IDB, that is expected to be completed by December 1980. To ensure timely government action, a detailed timetable has been agreed with the Government under the Second Road Maintenance and Rehabilitation Project for completion of the study and subsequent enactment of vehicle axle load and dimension regulations. Bank Role in the Highway Subsector 49. The Bank's previous involvement in the highway subsector consists of the provision of technical assistance as executing agency under the UNDP- financed Highway Rehabilitation and Administration Study (1973), and the First Road Maintenance and Reconstruction Project (Loan 1316T-DO, US$5.0 million, August 1976), which, initiated highway reconstruction and maintenance programs. The Highway Rehabilitation and Administration Study provided the first highway inventory and carried out the first systematic traffic data collection in the Dominican Republic and was the first attempt to use economic evaluation for the selection of projects and the formulation of a Road Rehabilitation Program. In addition, it reviewed the need for workshops and workshop equip- ment and tools and road maintenance equipment and parts, all of which served as a base for the formulation of the First Road Maintenance and Reconstruction Project. 50. The Bank's First Road Maintenance and Reconstruction Project included (a) the initiation of a highway maintenance program, including the purchase of highway maintenance equipment, spare parts and workshop rehabilitation, and improvemnent of road maintenance procedures and planning; (b) the reconstruction of a 19-km road section; and (c) technical assistance for the maintenance program and consulting services for supervision of the road reconstrua:tion. The limited objectives of the project were broadly achieved. The level of road maintenance has increased markedly, and improvements in the methods of design and supervision of road reconstruction works have been applied. At the same time, the infrastructural support indispensable for successful maintenance has been laid out: 18 new workshops have been built and equipped,  - 16 - and a number of maintenance equipment units have been purchased to increase the grossly inadequate existing fleet. The reconstruction of the 19-km Puente Camu-San Francisco de Macoris road is scheduled for completion by the end of 1979; that is, with a 15 month delay resulting from the failure of the initial contractor, and subsequent decision by SEOPC to complete the works by force account. PART V - THE PROJECT Background 51. As described in Part III, the hurricanes that hit the Dominican Republic recently have caused extensive damages to the economy of the country. Damage to the road network was concentrated in the northwest and south, cutting off important agricultural areas from urban and export markets. In particular, two roads, connecting Cruce de Guayacanes and Santiago de la Cruz (85 km), and Azua and Barahona (65 km), which had been identified by the Government before the hurricanes as part of its 1982-1984 reconstruction program, were partially washed away by extensive flooding. 52. The northwestern and southwestern regions, which are the areas of influence of the project's roads, are among the country's most depressed areas. About 29 percent of the country's total population is concentrated in these areas. Agriculture, mainly rice, peanuts, coffee, cocoa, and sugar, is their main economic base, but production is still under rudimentary methods which have resulted in low productivity and high unemployment. The Government's hurricane reconstruction program includes a number of investments, aimed at improving local conditions among which the proposed road reconstruction project is of high priority. The Project 53. The proposed project was appraised by a mission which visited the Dominican Republic on September 9-14, 1979 and by a post-appraisal mission of October 29 - November 7, 1979. Negotiations were held in Washington on November 19-20, 1979. The delegation was headed by Mr. Arsenio Fernandez, Under-Secretary of State of Public Works and Communications. The objective of the project is to limit economic loss by restoring road facilities to areas under agricultural production. The project would provide for reconstruction of two primary roads totalling about 150 km which were in the path of the hurricane: the 64 km Azua-Barahona road and the 86 km Cruce Guayacanes- Santiago Rodriguez-Santiago de la Cruz road. These roads were already identi- fied as in need of reconstruction prior to the hurricanes and were included in the second phase (1982-84) of the road reconstruction program, whose first phase is included under the Proposed Second Highway Project. In many instances, the extensive flooding caused by the hurricanes washed away what was left of the obsolete pavement and eroded embankments. The Government took immediate steps for emergency repairs, which allow traffic flows to proceed normally. However, these repairs are of a temporary nature, and would not stand the torrential rains of these regions during the rainy season. The immediate reconstruction to two-lane paved standards is therefore, urgent. The Project would also finance the purchase of road construction equipment required by SEOPC to carry out part of the project's civil works by force account.  - 17 - 54. The Government, with SEOPC as the Executing Agency, plans to proceed with the immediate reconstruction of the above roads to two-lane paved standards. To expedite mobilization and start of construction, SEOPC would execute part of the works by force account. Local contracting firms would execute most of the works. To facilitate execution the works under the roads would be divided into eleven sections. 55. SEOPC is currently preparing final engineering design studies for the roads included in the project which will, however, have to be revised while works are in progress to reflect the effect of hurricane damages. SEOPC will begin mobilization in December 1979 and plans to start works by early 1980 and to complete construction over 24 months. This timetable would permit the revision of engineering design studies while works are in progress. The design standards and the concept used for pavement selection are adequate, and would follow the ones developed for similar works under the Second Highway Maintenance and Reconstruction project. 56. Some of the existing SEOPC equipment would be assigned to the Proj- ect. In addition, SEOPC would need to acquire about US$1.5 million of equip- ment to build up adequate capacity to carry out part of the works by force account. Early availability of this equipment is essential. Therefore, SEOPC and the Bank have agreed on a list of equipment to be procured on the basis of nego- tiated contracts, when standardization and early delivery are important. Annex IV details the equipment needed for the above purposes. The equipment in question is of the same type as equipment needed for SEOPC's current maintenance operations and would revert to this function when the project is completed. SEOPC's equipment renewal program after 1982 would be adjusted to reflect the availability of this equipment. Project Management and Execution 57. SEOPC would carry out two sections amounting to about 15 percent of the project by force account. Local contractors would carry out the remaining works. The proposed approach would allow SEOPC to start the works by early 1980. The alternative of using contractors on the basis of unit price contracts for whole lots, as planned for similar works under the Second Highway Project, would require prior completion of engineering and bidding and would not allow the works to start before August-September 1980. Quick mobilization of SEOPC forces on public roads would attest to the Government's concern and effec- tiveness in facing the massive reconstruction task ahead. The latter element is important since it would maintain a high level of commitment to the success of the program. 58. The proposed arrangements for project implementation would include adequate safeguards to ensure effective construction management and proper engineering and supervision. SEOPC would entrust overall responsibility for the implementation of the project to a special Construction Management Unit (CMU) established for the purpose within SEOPC. The CMU would be headed by a Dominican Director and by an expatriate engineer with extensive experience in construction management, who would act as Co-Director. The qualifications and experience of the Director and Co-Director would have to be acceptable to the Bank. In addition, the CMU would be staffed with a public accountant or  - 18 - economist with experience in cost accounting to record operation costs, includ- ing the cost of works by contractors, and two experienced civil engineers to direct force account work. The unit is expected to be fully staffed by April 1, 1980. SEOPC would establish a separate account for the operational expendi- tures of the CMU, with an initial deposit of $75,000. The Bank would reimburse SEOPC 30 percent of total operating expenditures of the CMU. Condition of dis- bursement would be that such disbursements do not exceed, at any given time, 2 percent of disbursements for civil works. Specialized consultants would be retained by SEOPC under the authority of the CMU to update engineering, super- vise execution and monitor costs. They would also certify cost accounts for the purpose of loan disbursements. The establishment of the Units the hiring of its Co-Director, and the employment of the consultants to update engineering, supervision and monitor costs would be conditions for disbursement on the civil works (Sections 3.02 and 3.04 of, and Schedule 1 and 5, to the draft Loan Agreement). 59. To prevent further inflation of SEOPC's payroll, the Bank has obtained assurances that (i) SEOPC would endeavor to assign to the Project qualified man- power already on its payroll; and (ii) that employment of additional manpower for the purpose of the project would be on terms limited to the execution of the project work (Sections 3.01 and 3.04(b) of the draft Loan Agreement). Procurement 60. SEOPC's construction and equipment procurement programs describing the parts of the works to be carried out by force account and through contracts, and the related implementation schedule have been agreed upon. Contracts for civil works not carried out by force account, would be procured under competi- tive bidding in accordance with local procedures which are satisfactory to the Bank. In order to speed up the procurement procedures, the contracts would be based on the nominal quantities of work, particularly in road sections where changes in engineering design are considered necessary. In order to allow early start of works SEOPC would, until March 1, 1980, have the option of awarding contracts to local firms through simplified procedures after seeking proposals from at least three established contractors. The award proposals and the draft contracts would be subject to prior approval by the Bank. In order to expedite purchase and in the interest of standardization with exist- ing equipment, SEOPC would procure the equipment needed at the start of the works through comparative shopping among established suppliers including at least all those who bid in 1977 for the equipment procurement program under the First Highway Maintenance Project. The award recommendations and the draft contracts would be subject to prior review and approval by the Bank. A delivery period of a maximum of three months would be mandated. This procedure would apply to equipment to be purchased before March 1, 1980. Equipment purchased after that date would be procured through Internatioaal Competitive Bidding, in accordance with Bank Guidelines. Lots with an esti- mated cost of less than US$50,000 for a total value estimated not to exceed US$200,000 would, however, be procured through other procedures acceptable to the Bank (Schedule 4 of the draft Loan Agreement). Project Costs and Financing 61. The total project cost is estimated at US$38.8 million (excluding import and sales taxes), of which US$25 million, or 65 percent of total costs, represent foreign exchange requirements. The baseline costs amount to US$30.5 million on the basis of September 1979 prices. Physical and price contingencies  - 19 - amount to US$3.0 million and US$5.3, respectively. Physical contingencies have been estimated at 10 percent and price contingencies at 16 percent. The project would require about 300 man-months of specialized se:vices, at an estimated average cost of about US$4,000 per month. Individtal rates range from US$10,000 for an experienced expatriate construction manager to US$2,300 for local engineers and technicians. 62. The proposed loan of US$25 million would finance the foreign exchangv cost of the project. The Government would finance US$13.8 million, equivalent to 100 percent of local costs. Disbursements 63. Disbursements would be based on 65 percent of total costs for civil works and for supervision consultants; 100 percent of foreign expenditures for directly imported equipment and advisory services to the CMU; 95 percent of local expenditures for imported equipment procured locally; and 30 percent of total costs for operating expenditures for the CMU. In order to ensure the timely availability of resources, SEOPC would establish a revolving fund to finance project civil works. The Revolving Fund would receive an initial Government deposit equivalent to US$1.2 million and US$2.2 million from the proceeds of the proposed Bank loan. Additional withdrawals of Bank loan proceeds would be made to reimburse SEOPC for eligible expenditures charged against the Revolving Fund (Section 2.02 of the draft Loan Agreement). Disbursements woulc be made against normal documentation, except for disbursements for constructior works carried out by force account and operational expenditures by the CMU, which would be made against statements of costs, verified by SEOPC. Supporting docurun- tation would be retained in SEOPC for post review by Bank supervision missions. The project cost accounts, which would be recorded by the CMU, the separate account for the CMU's operational expenditures and the revolving fun' would be audited by independent external auditors acceptable to the Bank (Section 4.03 of th- draft Loan Agreement). Retroactive Financing 64. It is recommended that up to US$2.5 million of the proposed loan amount be available to provide for retroactive financing of consultant cost, equipment and force account work, carried out after November 1, 1979. Project Risks 65. The project entails above-average risk inasmuch as SEOPC's capacity could be strained by the additional demands resulting from the reconstruction task. However, the risk of serious delays and inadequate project management and funding has been reduced by the establishment of the construction manage- ment- unit with high level expatriate expertise and the institution of a special revolving fund.  - 20 - Economic Assessment 66. Because of the emergency nature of the project, no detailed economic evaluation has been possible. The roads included in this project are critical elements of the basic road network with an estimated traffic ranging from 300 to 470 vehicles per day, whiclh is expected to increase to 2,000-2,700 vehicles per day over a 20 year period. They had been included in the Government's 1982-1984 road reconstruction program before the hurricanes. The 1977 identi- fication survey carried out as a basis to prepare SEOPC's reconstrlltion/ rehabilitation program showed benefit/cost ratios above 3.0 for botlh project roads using a discount factor of 12 percent. Economic feasibility studies conducted in 1978-79 for the preparation of the road reconstruction component of the Second Highway Maintenance and Reconstruction Project broadly confirmed the estimates developed under the above identification survey. The urgency of the works has increased because of additional restrictions on serviceability resulLing from hurricane damage. From a longer term perspective, the roads should be considered an important component of an investment package which will result in an increase in production and income in the depressed northwest(rti and southern parts of the country, and thus contribute to the economic develop- ment of the Dominican Republic. PART VI - LEGAL INSTRUMENTS AND AUTHORITY 67. The Loan Agreement between the Dominican Republic and the Bank and the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement are being distributed to the Executive Directors separately. Special conditions of the loan are listed in Section III of Annex III. Conditions for disbursement of civil works would be the estab- lishment of the Construction Management Unit, hiring of its Co-Director and of a consulting firm for supervision of construction works. Co,ilition of disbursement of operating costs of the CMU would be that said disbursements do not exceed, at any given time, two percent of disbursements for civil works. 68. I am satisfied that the proposed loan would comply witlh the articles of Agreement of the Bank. PART VII - RECOMMENDATION 69. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamar;a President Attachments November 29, 1979  - 21 - ANNEX I Page 1 of TABLE 3A DOWINICAN REPUBLIC - SOCIAL. :NDTCATORS 0A.A SHEET DOMINCAN I-PtTBIC RFERENCE a~'VCPS (ADJUSTED Al'E.GEIGS -LVD AREA (-HOUSAIrD SO. r .)00NICAN RJPUlLIC - Vs, C RECN. ES--.A- - -OIAL .a.; SAr?I s AJE N'EX. H AGRICULTURAL 24.7 .4OST &ECTNT CEOCLPHNIC YCOFM LYICOY 1960 /b 1970 lb ESTIMATE /b REGION /c CROUP /d CROUP /e CNP PER CAPITA (USS) 240.0 390.0 910.0 1124.4 1097.7 1942.6 ENERCY CONS1OTION PER CAPI-A (EILOCR,V.S OF cOAL soUIvALZEt) 157.0 321.0 653.0 943.1 730.7 1646.7 POPULATION AND VITAL STAIST!CS POPULATION, MID-YEA?. (Mi'LLINS) 5.0 4.1 5.0 UAN POPULATION (PERCENT OF TOTAL) 30.3 39.8 45.9 59.3 49.0 51.2 POP7LATION PROJECTIONS POPULATION IN YEAR 2oCO (miu.oNs) 9.0 STATIONARY POPULATION (MILLIONS) 15.0 UAR STATIONAMY POPULATION IS LEACRZD 2075 POPULATION DENSITY PER SQ. )DI. 63.0 83.0 103.0 23.5 44.6 28.2 PER SQ. KM. AGRICULTURAL LAND 166.0 174.0 204.0 80.5 140.7 100.5 POPULATION ACE STILOCTU.E (PERCENT) 0-14 rRS. 46.8 48.2 47.0 40.9 41.3 35.6 15-64 rRs. 50.3 49.1 50.0 54.4 55.3 56.3 65 TRS. A"D ABOVE 2.9 2.7 3.0 3.9 3.5 5.1 POPULATION GROWTH RATE (PE2CEYT) TOTAL 3.6 2.9 2.9 2.4 2.4 1.7 URLAN 6.1 5.8 5.4 3.7 4.5 3.0 CRUDE BIRTH RATE (PER -HOUSAND) 50.0 45.0 37.0 32.J 31.1 27.5 CRUDE DEATH RATE (?ER THOUSAND) 16.0 12.0 9.0 8.5 9.2 9.1 CROSS R9?RODUC-:ON RATE .. 3.5 3.4 2.4 2.2 1.8 rAKILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. 17.2 61.5 USERS (PERCENT OF MARRIED WOEN) .. .. 30.3 17.7 34.7. FOOD AND NUTRI7ON LNDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 121.3 101.0 89.0 99.4 104.4 102.0 PER CAPtTA SUPPLY OF CALORIES (PERCEZT OF REQUIREMrENTS) 92.0 88.0 98.0 107.0 105.0 120.8 PROTEINS (GRAMS PER DAY) 46.0 50.0 45.4 60.4 64.4 80.9 OF 67HICH AN11NAL AND PULSE .. 29.0 23.3 28.3 23.5 31.3 CHILD (AGES 1-4) MRDTALITY RATE 23.0 15.0 10.0 6.7 8.6 5.1 HEALTH 4 LIFE EXPECTANCY AT BIRTH (TEARS) 51.0 57.0 60.0 63.6 60.2 65.6 INFANT 4ORTALITT RATE (PER THOUSAND) .- 96.0/f *- 76.1 46.7 *5.5 ACCZSS T0 SAFE WATER (PERCENT OF POPULA-ION) TOTAL .. 37.0 55.0 63.4 60.6 69.4 URBAN .. 72.70 88.0 79.5 75.7 85.1 RURAL .. 14.0 27.0 38.6 40.0 43.0 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 58.0 42.0 58.S 46.0 70.1 URBAN .. 63.0 74.0 77.8 46.0 88.3 RURAL .. 54.0 16.0 24.5 22.5 33.2 POPCULATION PER PHTSICIAN .. 2100.0 1870.0Li 1841.9 2262.4 1343.2 POPULATION PER NURSING PERSON .. 3930.0 1330.0/1 933.7 1195.4 765.0 POPULATION PER HOSPITAL BED TOTAL 400.0 350.0 350.0/h 563.4 i53.4 197.6 UR8AN .. 150.0 220.0 279.4 253.1 260.2 RURAL .. 2680.0/h 3580.0/h 1140.9 2732.4 1055.0 ADMISSIONS PER HOSPITAL BED .. .. 30.0/h 25.7 22.1 17.3 HOUSING AVERACZ SIZE OF HOUSEHOLD TOTAL 5.0 5.3 5.0 5. 4.7 URBAN 4.8 5.2 .. 4.8 5.2 4.4 RUR.%L 5.1 5.4 5.3 5.4 5.1 AVEXAGE I.