The Project Dovetails and Expands on Efforts by the Donor Community to Assist Government in the Decentralization Process

Home , Bayaguana, Bonao, Las Charcas, Monte Plata Province, Villa Tapia

Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 52139-DO

PROJECT APPRAISAL DOCUMENT

ON A Public Disclosure Authorized PROPOSED LOAN

IN THE AMOUNT OF US$20 MILLION

TO THE

DOMINICAN REPUBLIC

FOR A

MUNICIPAL DEVELOPMENT PROJECT Public Disclosure Authorized December 16,2009

Sustainable Development Department Caribbean Country Management Unit Latin America and the Caribbean Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Public Disclosure Authorized Bank authorization. CURRENCY EQUIVALENTS Exchange Rate Effective - December 10,2009 Currency Unit = Dominican Peso 36.59 = US$1

FISCAL YEAR January 1 - December 31

ABBREVIATIONS AND ACRONYMS

ADM Eastern Regional Municipal Association AECI Spanish Agency for International Cooperation ARCS Audit Reports Compliance System AROMA Municipal Association for the Development of the Rio Macasias Basin BCRD Central Bank of the Dominican Republic CAFTA Central America Free Trade Agreement CAPGEFI Center for Financial Policy and Management CAS Country Assistance Strategy CD Project Management Committee CDD Community-Driven Development CDM Municipal Development Counsel CNS National Counsel for Salaries CONARE National Counsel for the State Reform CONAU National Counsel ofUrban Matters CP s Country Partnership Strategy cso Civil Society Organization DA Designated Account DGCP General Directorate of Public Contracting DGDF Dominican Border Development Agency DGODT General Directorate of Territorial Development DGIP General Directorate of Public Investment DGDES General Directorate of Economic and Social Development DIA Declaration of Environmental Impact DOP Dominican Pesos DM Local District, a division of the municipality with limited autonomy EAR Environmental Assessment Report EC European Commission EIA Environmental Impact Assessment EMP Environmental Management Plan ESMF Environmental and Social Management Framework FEDOMU Dominican Federation of Municipalities FM Financial Management FMS Financial Management System FOGAM Forum for Municipal Environmental Management FS Financial Statements GoDR Government of the Dominican Republic GTZ German Agency of Technical Cooperation GTA Technical Support Group of the Project HR Human Resources IAD Dominican Agrarian Institute IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding IDA International Development Association IDB Inter-American Development Bank

i FOR OFFICIAL USE ONLY

IFAC International Federation of Accountants IFAD International Fund for Agricultural Development I-NAPA National Institute of Potable Water and Sewer System INIFCHI National Institute of Water Resources IPEP USAID Project for Strengthening Environmental Protection Policies ISDS Integrated Safeguards Data Sheet ISR Information Systems Renewal IUFR Interim Unaudited Financial Report LIGA Dominican Municipality League LIP Local Investment Plan LMD Dominican Municipality League MDC Municipal Development Council MDP Municipal Development Plan M&E Monitoring and Evaluation MEA Municipal Environmental Analysis MI Municipal Investment MTR Mid Term Review NBI Unsatisfied Basic Necessities NCB National Competitive Bidding NGO Non-governmental organization OE Operational Expenditures OM Operations Manual ONAPRES National Office of Budgeting ONAPLAN National Planning Office (was replaced by SSEPLAN) ONE National Statistics Office ONFED Office of the National Director of European Funds for Development OPP Provincial Planning Office OTP Provincial Technical Office OTUyR Rural and Land Management PARME Reform and Modernization of the State Program Support PC Project Coordinator PAD Project Appraisal Document PCN Project Concept Note PCU National Project Coordination Unit PE Personal Expenditures PEFA Project Expenditures and Financial Accountability PFM Public Financial Management PFPNE Strengthening ofNortheast Provinces Program PGAM Environmental Municipal Management Plan PID Project Information Document PIP Project Implementation Plan PM Participant Municipalities PMAA Environmental Management and Adequacy Plan PMD Municipal Development Plan POA Annual Operating Plan PROCOMUNIDAD Promotion to Community Initiative, PRODEM Dominican Republic Municipal Development Project PROPESUR Small Producers of the Southwest Region Program RVP Regional Vice President SA Social Assessment SAP Systems, Applications and Products in Data Processing SBD Standard Bidding Document sc Steering Committee SCG Governmental Accounting System SEA Secretariat of Agriculture SEE Secretariat of Education

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. SEEPYD Secretariat of Economy, Planning and Development SEH Secretariat ofFinance SEMARENA Secretariat of Environment and Natural Resources SESPAS Secretariat ofHealth and Social Assistance SIAFE Integrated System for Government Financial Administration SIGEF Integrated System ofFinance Management SIFMUN Municipal Finance System SNPIP National Public Planning and Investment System SOE Statements ofExpenditure SOPEC Secretary ofPublic Works and Communications SRFP Standard Request for Proposals SSEMP Strengthening Social and Environmental Management Plan SSEPLAN Sub-secretariat of Planning STP Technical Secretariat ofthe Presidency TA Technical Assistance and Training TN National Treasury UAM Environmental Municipal Unit UEPEX Automated Country System for Units with External Donor Resources UNAP Health Primary Attention Unit WB World Bank WFP World Food Program TOR Terms ofReference W&A Works and Assets

Vice President: Pamela Cox Country Director: Yvonne Tsikata Sector Director: Laura Tuck Country Manager Roby Senderowitsch Sector Manager: Ethel Sennhauser Task Team Leader: Mark A. Austin

... 111 DOMINICAN REPUBLIC Municipal Development Project

CONTENTS

Page

I. STRATEGIC CONTEXT AND RATIONALE ...... 1 A . Country and sector issues ...... 1 B. Rationale for Bank involvement ...... 3 C . Higher level objectives to which the Project contributes ...... 4 I1. PROJECT DESCRIPTION ...... 4 A . Lending instrument ...... 4 B. Project development objective and key indicators...... 4 C . Project components ...... 7 D. Lessons learned and reflected in the Project design ...... 8 E. Alternatives considered and reasons for rejection ...... 9 I11. IMPLEMENTATION ...... 10 A . Partnership arrangements (if applicable) ...... 10 B. Institutional and implementation arrangements...... 10 C . Monitoring and evaluation ofoutcomes/results ...... 12 D. Sustainability...... 13 E. Critical risks and possible controversial aspects ...... 14 F. Loan conditions and covenants ...... 15 IV. APPRAISAL SUMMARY ...... 17 A . Economic and financial analyses ...... 17 B. Technical ...... 18 C . Fiduciary ...... 19 D. Social...... 19 E. Environment...... 21 F. Safeguard policies ...... 22 G. Policy Exceptions and Readiness...... 22

iv Annex 1: Country and Sector or Program Background ...... 24 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ..... 38 Annex 3: Results Framework and Monitoring ...... 40 Annex 4: Detailed Project Description...... 46 Annex 5: Project Costs ...... 59 Annex 6: Implementation Arrangements ...... 60 Annex 7: Financial Management and Disbursement Arrangements ...... 65 Annex 8: Procurement Arrangements ...... 74 Annex 9: Economic and Financial Analysis ...... 80 Annex 10: Safeguard Policy Issues ...... 85 Annex 11: Project Preparation and Supervision ...... 98 Annex 12: Documents in the Project File ...... 100 Annex 13: Statement of Loans and Credits ...... 103 Annex 14: Country at a Glance ...... 105 Annex 15: Selection of Project Municipalities...... 107 Annex 16: Municipal Diagnostic...... 112 Annex 17: Overview ofthe Legal Framework for the Project ...... 117 Annex 18: Lessons Learned ...... 133 Annex 19: Map IBRD 37034 ...... 135

V DOMINICAN REPUBLIC

MUNICIPAL DEVELOPMENT PROJECT

PROJECT APPRAISAL DOCUMENT

LATIN AMERICA AND THE CARIBBEAN

LCSAR

Date: December 16, 2009 Team Leader: Mark A. Austin Country Director: Yvonne Tsikata Sector: General agriculture, fishing and forestry sector Sector Manager: Ethel Sennhauser (1 00%) Sector Director: Laura Tuck Themes: Rural services and infrastructure (50%); Project ID: PO95863 Other rural development (25%); Other environment Lending instrument: Specific and natural resources management (25%) Investment Loan Environmental screening category: Partial Assessment Safeguard screening category: B

[XI Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other: For Loans/Credits/Others: Total Bank financing (US$m.): 20.0 Proposed terms: The loan would be a Fixed Spread Loan (FSL) in US dollars, payable in 18 years, including 17 % years of grace.

Borrower: Dominican Republic Responsible agency: Secretariat ofEconomy, Planning and Development (SEEPYD), Sub- secretariat ofPlanning (SSEPLAN), General Directorate ofTerritorial Development, SSEPLAN Avenida Cesar Nicolos Penson esq. Calle Rosa Duart, Dominican Republic Tel: (809) 682-5170 Fax: (809) 689-9731 arqlabour [email protected]

Project implementation period: Start: October 15,2010 End: October 15, 2015 Expected effectiveness date: October 15,2010 Expected closing date: February 15, 2016

vi Does the project depart from the CAS in content or other significant I []Yes [XINO respects? Ref. PAD 1.C Does the project require any exceptions from Bank policies? []Yes [XINO Ref. PAD IV.G Have these been approved by Bank management? [IYes [IN0 Is approval for any policy exception sought from the Board? []Yes [XINO Does the project include any critical risks rated substantial” or “high”? [XI Yes [INo

Does the project meet the Regional criteria for readiness for [XIYes []No implementation? Ref. PAD 1V.G

Component 1: Institutional Strengthening: (a) provision of support for the institutional strengthening ofmunicipal governments; (b) strengthening the national level institutional support system for municipal governments; and (c) provision of support for the formulation ofMunicipal Development Plans.

Component 2: Municipal Investments: (a) provision of support for the carrying out of municipal investments through the provision ofMatching Grants to Participating Municipalities for the implementation ofMunicipal Subprojects; and (b) provision of technical assistance and training to Participating Municipalities to assist in the management ofMunicipal Subproject implementation

Component 3 : Project Administration, Monitoring and Evaluation: (a) povision of support for Project coordination and strengthening of DGODT; (b) carrying out of monitoring and evaluation activities for the Project; and (c) provision of support for the preparation of studies relevant to Project objectives.

Which safeguard policies are triggered, if any? Ref. PAD IV.F and Technical Annex 10. - Environmental Assessment (OP. 4.01) - Natural Habitats (OP/BP 4.04) - Physical Cultural Resources (OP/BP 4.1 1)

Significant, non-standard conditions, if any: Ref. PAD 1II.F 1. There are no specific conditions ofeffectiveness or disbursement for the Project. 2. Not later than 45 days after the Effective Date, the Borrower shall establish, and thereafter maintain during the implementation of the Project, a Sectoral Technical Assistance Coordination Group with membership acceptable to the Bank and defined in the Operational Manual, responsible for: (a) reviewing Municipal Development Plans and investment programs proposed under Municipal Subprojects; and (b) reviewing technical issues and providing guidance and assistance to the municipalities in planning and implementing

vii municipal investments. 3. Not later than 45 days after the Effective Date, the Borrower shall establish, and thereafter maintain during the implementation of the Project, a Steering Committee chaired by SSEPLAN and composed by representatives from key organizations, as defined in the Operational Manual, responsible for providing general oversight and policy guidance under the Project. 4. For the purposes ofcarrying out Part 1 and 2 ofthe Project, the Borrower, through DGDOT, shall: (a) enter into an agreement (the Municipal Agreement) with each Participating Municipality, setting forth: (i)the technical, financial, administrative and fiduciary aspects of the Borrower and municipal participation in the implementation of and use of funds for Parts 1 and 2 of the Project; and (ii)the Participating Municipality’s commitment to increase capacity in the implementation ofmunicipal core functions. (b) review annually (or any other interval acceptable to the Bank), together with the Bank, the performance of each of the Participating Municipalities with respect to financial, physical and technical performance targets (included in each of the Municipal Subproject Agreements and explained further in the Operational Manual), and provide evidence showing, to the satisfaction ofthe Bank that: (i)these targets were achieved; and (ii)the amounts disbursed by the Borrower to each Participating Municipality under their respective Municipal Subproject Agreement, were used for goods, works and services eligible for financing out ofthe proceeds ofthe Loan. (c) exercise its rights under each of the Municipal Agreements in such manner as to protect the interests of the Borrower and the Bank, and to accomplish the purposes of the Loan. Except as the Bank shall otherwise agree, the Borrower shall not assign, amend, abrogate, waive or fail to enforce any of the Implementation Agreements, or any of their provisions. 5. For the purposes of carrying out Part 2 of the Project, the Borrower, through DGDOT, shall: i) after having selected a Municipal Subproject in accordance with the guidelines and procedures set forth in the Operational Manual, enter into an agreement with the Participating Municipality (“Municipal Subproject Agreement”), under terms and conditions approved by the Bank and included in the Operational Manual (including the Participating Municipality’s obligation to comply with the terms of the Anti-Comption Guidelines, and to abide by the technical and environmental practices required for the Subprojects), for the provision of Matching Grants for the implementation of said Municipal Subproject. ii) ensure that no Municipal Subproject may involve any of the activities set forth in Schedule 4 to the Loan Agreement. iii)exercise its rights under the Municipal Subproject Agreements in such manner as to protect the interests of the Borrower and the Bank and to accomplish the purposes of the Loan. Except as the Bank shall otherwise agree, the Borrower shall not assign, amend, abrogate, waive or fail to enforce any of the Municipal Subproject Agreements or any provisions thereof. 6. The Borrower shall, and shall cause the Participating Municipalities to, carry out the Project in accordance with the provisions of: (a) the Environmental and Social Management Framework; and (b) the Operational Manual, satisfactory to the Bank, which

viii shall include the rules, methods, guidelines, standard documents and procedures for the Project, including, inter alia, specific procedures to ensure compliance with Bank safeguard policies.

ix I. STRATEGIC CONTEXT AND RATIONALE

A. Country and sector issues

1. Following the banking, economic and social crises of 2003 and 2004, the Dominican Republic experienced a strong recovery in 2005 and 2006, when real GDP growth reached 9.3 percent and 10.7 percent, respectively. Economic growth continued its strong pace in 2007 at 8.5 percent but weakened in 2008 to 4.5% due to the impact of higher oil and food prices and a slowdown in the world economy. GDP growth is now projected to slow to 3.0 percent for 2009 with projections for 5.2 percent each year during the period 2010-14.

2. Despite the impressive periods of economic growth in the recent past, the country continues to face fundamental development challenges ranging from endemic poverty to poor health and education outcomes, and weaknesses in government and societal institutions. Poverty increased dramatically during the economic crisis of 2003-2004 from 28 percent and 9 percent poverty and extreme poverty respectively in 2000 to 43 percent and 16 percent in 2004. Since 2005, poverty levels have declined and in 2006, poverty and extreme poverty were 36 percent and 13 percent respectively. In rural areas however, poverty is entrenched, and the incidence of poverty and extreme poverty was respectively 50 percent and 22 percent.

3. Governance and Decentralization. The Dominican Republic is highly centralized, with most public services, investments and resources managed directly by the national government. Local governments, up to now, have had a minimum role in service provision and investment, and have, at most, served as the distributing agency for transfers from central government, including the distribution of social welfare benefits. At times, local governments are called on to serve as "compensating agents" for the shortcomings of central institutions and sectors. They may step in to provide basic services that are lacking, and tend to do so in a fragmented, discretionary, and inefficient manner.

4. Municipalities, especially small ones, do not have a functional organizational structure. The executive power is concentrated in a few hands who make expenditure decisions. The municipalities have an excessive amount ofstaff without defined functional responsibilities, proper equipment or space, and lack effective financial or administrative systems. They marginally fulfill their planning functions, and use limited, if any, economic or technical criteria in the allocation ofpublic resources in the few investments that are carried out. Improvements to local infrastructure are done in response to the demands of individual communities, usually in isolation of a larger development plan. For example, construction of sidewalks may be done without reference to a town plan or the proper design of drainage systems. Similarly, the construction of small drinking water systems, the channeling of creeks and natural drainage channels, and the location of storm drainage systems and ofthe public markets are done without fully addressing the technical, economic, environmental, sustainability and other systemic issues involved. Roads are repaired and new facilities constructed without providing for their operation and maintenance.

5. During Project preparation, a sample of five municipalities was selected to assess their municipal management and service delivery capacity. These municipalities are representative in terms of the range of social and economic characteristics of the Project provinces and provide diversity in size ranging from about 10,000 to 50,000 inhabitants. They will serve as well as the five initial pilot municipalities of the proposed Project. (The results of this assessment are presented in Annex 16.) In the five municipalities, the local governments:

were heavily dependent on fiscal transfers from central government, and raised limited income from own fees and taxes; used those transfers to finance simple infrastructure such a sidewalks and gutters, drainage canals, and parks, to subsidize basic municipal services for which there was often little cost recovery (cemeteries, markets and slaughterhouses), to maintain a large, generally low-paid staff, and to provide welfare grants and subsidies to the poor and unemployed; were not effective in addressing basic environmental issues, especially the significant problems ofcontamination created by poor or nonexistent sanitation systems; did not engage in urban planning, either through zoning to control development or through planning for public infrastructure needs; were not active in coordinating the range ofdevelopment projects being undertaken within the municipality; and did not have transparent or well-organized internal processes and procedures, personnel policies, or automated revenue or accounting systems.

To address the above challenges, in 2005, the Government identified good governance, strong public institutions and decentralization as key areas for improvement to reduce poverty and improve social cohesion in the country. Its governance and decentralization agenda has resulted in the passage of six public sector administration reform laws in the four year time period of 2005-2008 (see Annex 1 and 17 for overview of new legal framework). The laws are: Public Planning and Investment law; the Procurement law; the Treasury law; the Organic Budget for the Public Sector law; and the Municipal Law and the laws creating the new Secretariat of Finance and the Secretariat of Economy, Planning and Development (SEEPYD). These laws and their associated regulations directly affect how municipalities carry out their planning functions, provide basic municipal services, and allocate expenditures.

7. These laws provide a new legal and regulatory framework for local governments, and assign municipalities new responsibilities to improve access to basic services in rural and peri- urban areas. One of these laws, the Municipal Law 176-07 (2007), was passed after 10 years of debate and aims to modernize and strengthen local governments or municipalities. It clearly defines municipal management roles, differentiates responsibilities between the municipalities and central government institutions, and aims to control the proliferation of municipalities and municipal districts. This law sets out the responsibilities with respect to service delivery, and establishes mandatory Minimum Municipality Services.'

' Minimum Municipality Services are defined by the Municipal Law 176-07 (2007) as: cemeteries and funerary services; collection, processing and disposal of urban and rural solid waste (the Project will not finance any activities related to solid waste and waste management); street cleaning; access to populated areas, repair and maintenance of streets, sidewalks, curbs, and rural paths; squares and public parks; public library; sport facilities; slaughterhouses; markets; civil protection; fire prevention and extinction; environmental protection; urban planning; and basic social services (see Annex 16 par. 25 for an account of the social assistance provided by municipalities).

2 8. The new legal framework regulating municipalities provides the opportunity to organize the internal municipal structure, strengthen municipalities’ capacities in basic core administrative functions, improve municipal service delivery and strengthen municipal support entities to more effectively provide technical assistance and local public expenditure oversight.

9. The current challenge for national government and the municipalities is the implementation of these laws, which, if done effectively, will result in a major change in the quality of local public services. Implementation of the Municipal Law will strengthen municipalities to carry out their newly mandated competencies and establish the needed mechanisms and capacity for coordinating support from central governmental and other entities to municipalities. While capacity in rural poor municipalities is generally weak, the potential for reversing this situation is good. In each municipality there are qualified officials, aware of the problems and committed to improving and modernizing municipal administration. The principal challenge that will be addressed by the Project is the need to strengthen municipal capacity related to organizational structure and cross-cutting functions such as human resource management, planning, financial and procurement management in order to improve the provision ofMinimum Municipality Services as defined and mandated in the new legal framework.

B. Rationale for Bank involvement

10. The rationale for Bank involvement is based on the following Project related aspects:

The Project represents an instrument for the Government of the Dominican Republic to implement the newly enacted legislation on decentralization and local development. The Government is keen to implement the new legal and institutional framework for decentralization and local development including the new National Public Planning and Investment System (SNPIP), and has expressed strong interest in receiving Bank support in that area. The Project would also strengthen Government’s recent efforts to reform its administration so that it be better equipped to support decentralization and local development; . The Project dovetails and expands on efforts by the donor community to assist government in the decentralization process. Initiatives supported by other donors have brought about lessons of experience and helped establish improvements in municipal management processes on a small scale. The Project builds on these lessons and processes, and provides an opportunity for the Government to broaden the scope and scale up those initiatives. In fact, it comes at the time when some of these initiatives have recently closed (e.g., the Reform and Modernization of the State Program Support (European Union), the Participatory Budget Support projects (GTZ)), and there is a great need to provide continuous support to deepen and scale up the country’s decentralization efforts; and The Project builds on the BankS knowledge and experience with regional and international good practices. The Bank has brought to bear on Project design its knowledge and experience regarding decentralization, spatial approaches, territorial development, municipal development, and participatory planning from its analytical and project work in Latin America (Nicaragua, Mexico, Bolivia, Peru, Brazil, Chile), in Asia (Philippines), and Afiica (Senegal, Rwanda and Guinea).

3 C. Higher level objectives to which the Project contributes

11. The proposed Project is fully consistent with The World Bank Group’s Country Partnership Strategy (CPS) 2009-201 2 (Report# 49620-DO) discussed by the Executive Directors on September 17, 2009. The project specifically contributes to one of the strategic objectives of the CPS to enhance the quality of public expenditures and institutional development. The Project will support this objective by working with local governments to increase management capacity in core administrative functions to improve delivering Minimum Municipality Services.

12. The Project is part of a larger agenda ofimproving public investment in the context of subnational and territorial development that the Secretariat of Economy, Planning and Development (SEEPYD) and Sub-secretariat of Planning (SSEPLAN) are pursuing. Additionally, the proposed focus and activities of the Project are consistent with the recommendations of the World Bank to Government in the January 2009, Dominican Republic Territorial Development Policy Note, Le., to support local governments increase transparency in decision-making, ensure transparency in using public resources, and provide tools to engage society in definition of local needs and planning.

11. PROJECT DESCRIPTION

A. Lending instrument

13. The lending instrument to be used for this Project is a Specific Investment Loan (SIL).

B. Project development objective and key indicators

14. The objectives ofthe Project are to improve the technical and financial capacity ofthe Participating Municipalities to program, finance and deliver Minimum Municipality Services. This would be achieved through the provision of: (i)technical assistance in core municipal management functions, such as participatory planning and budgeting, procurement, financial and human resource management; and (ii)matching grants for investment sub-projects identified in the Municipal Development Plan.

15. The Project will strengthen the management capacity of local governments to increase their capacity to deliver Minimal Municipality Services. This institutional strengthening will not happen in the abstract, but will be linked with and practiced in the execution of local public investments that the proposed Project will support. This will contribute to increase quality of local public investments as well as reduce municipal discretionary spending through transparency in public expenditures, and the participation of communities and civil society in local government.

16. Project Development Objective (PDO) Indicators. Annex 3 presents the Project results framework, including the indicators for the Project. For participating local governments, the expected outcomes at the end ofthe Project are:

4 Municipal Development Plans formulated and annual budgets developed through participation ofcommunities as confirmed by reports and documentation required by law; Participating municipalities financial reports are in accordance with acceptable auditing standards ; Participating municipalities have adopted and are using transparent, standardized, and efficient budget and FM, Procurement and HR management procedures as specified in FM, Procurement and HR procedures manual and produced budget reports on time; DGODT has maintained and is fully funding all staff and functions of the Project Coordinating Unit (PCU); and At least 75% of the population satisfied with the provision of services included in the Municipal contract.

The Project will work with rural municipalities located in six (of thirty-one) provinces in five (of ten) different regions of the country. -Thirty potential municipalities were selected based on percentage of poor population, percentage illiterate, percentage rural, and population density, transport access and connectivity, economic potential, and natural resource management criteria. See Annex 15 for more detail. Seventy-two percent of the families in these municipalities are poor, compared to 42% for the country as a whole. The total population of the 30 potential municipalities is 671,904, ofwhich 487,250 are poor.

18. The Project will start working with five pilot rural municipalities (Bayaguana, Padre Las Casas, Las Matas de Farfan, Tamayo and Polo) that have existing implementation capacity and that meet the three minimum participation criteria as defined below in paragraph 21. (For a detailed diagnostic ofthese five municipalities see Annex 16.)

19. To scale up the Project beyond the first five municipalities, the following criteria would be utilized: i) for municipalities six to ten - a) all would need to be from Category B2 municipalities; b) all are in close proximity to the initial five pilot municipalities; and c) the mayors are strong champions for institutional strengthening, as measured by: i)expenditure rate of 80% of programmed annual budget to date for the year; ii) municipality is adequately equipped with office equipment for staff, i.e. office space, desks, computers, etc.; and iii) permanence of municipal staff as measure by length of service of technical and administrative staff.

20. For municipalities eleven to fifteen, the three criteria defined for selecting municipalities six to .ten apply except for a) which would be 60% from Category B and 40% from Category C. For municipalities sixteen plus, criteria b) and c) apply and criteria a) would allow up to 100% from Category C municipalities.

21. Municipal Participation Criteria. In order for municipalities to participate in the Project, they will need to meet the following three minimum criteria: i) Be identified on the list of 30 eligible municipalities as listed in Annex 15;

The Municipal Law defines four levels of municipal administrative capacity, which are: (i)level A, high capacity; (ii)level B, medium to high capacity; (iii)level C, medium capacity; and, (iv) level D, limited capacity.

5 ii) Show the existence of the minimum municipal organization structure based on the Municipal Law 176-07, namely one treasurer/accountant, one planning specialist either exclusive or formally shared with other municipalities, one services and works specialist and, if the municipality has over 30,000 inhabitants, one financial administrator. That is, municipalities with less than 30,000 inhabitants, as per the same law, do not require a financial administrator; and iii) Ongoing formal process ofestablishing or restructuring a Municipal Development Council.

22. The municipalities will also have to write a letter to the General Direction of Territorial Development (DGODT) responding to the invitation to join the Project and stating a commitment to develop a Municipal Development Plan (MDP).

0 The municipalities will receive assistance from the DGODT to develop an MDP. Based on the diagnostics of the municipalities and a participatory process, they will define a priority investment program that will form part ofthe Municipal Contract (Convenio) that they will sign with DGOGT in order to receive investment support under the proposed Project (see Component 2 below). This contract defines municipalities’ commitments to increase capacity in municipal core functions and the investment program such as: Commitment to limit annual spending within the municipal budget allocated for the discretion of the Mayor or Sindico to no more than 10% ofthe annual budget; ii) Confirmed budget allocation for routine maintenance of existing assets in maintainable condition and commitment to budget for maintenance of the new Project supported investment; and iii) Commitment to adopt and implement a municipal procedures manual with both functions and responsibilities for municipal administration within one year of signing the Municipal Contract.

23. Up to a maximum of 30 eligible municipalities can participate in the Project. The final number ofmunicipalities to be supported will depend on the progress made by the five pilot municipalities and the readiness of new municipalities to comply with the Municipal Participation Criteria stated above, as well as the enhanced capacity of DGODT to manage a bigger set ofmunicipalities. This enhanced capacity will be assessed as follows:

i) satisfactory completion offour Municipal Development Plans; ii) satisfactory implementation of at least one municipal investment contract in each of four of the five initial pilot municipalities; and iii) satisfactory municipal fiduciary performance (in four municipalities).

6 C. Project components

24. The Project consists of the following parts (see Annex 4 for Detailed Project Description):

25. Part 1: Institutional Strengthening (US$ 5.75 million, IBRD)

(a) Provision of support for the institutional strengthening ofmunicipal governments, including, inter alia:

(i) the design and implementation of a new municipal organizational structure and establishment oforganizational units and planning systems; (ii)the creation and fbnctioning of municipal development councils, including specific actions to enhance transparency ofmunicipal administrations and participation of civil society; (iii)the strengthening of municipal administration, including (A) the budget and financial administration system in each Participating Municipality; (B) improving procurement management policies; and (C) strengthening the human resource management hnction; and (iv) the strengthening of the capacity for programming, implementing and managing basic municipal services, including the preparation and implementation of minimum annual maintenance programs.

(b) Strengthening the National Level Institutional Support System for municipal governments, including, inter alia, providing assistance to enhance the capacity of SSEPLAN- DGODT, General Directorate of Public Investment (DGIP) and General Directorate of Economic and Social Development (DGDES) to implement the new national, regional, provincial and municipal planning systems.

(c) Provision of support for the formulation of Municipal Development Plans, including, inter alia, institutional action plans and local investment programs, as well as assistance in the preparation ofMunicipal Subproject Agreements.

26. Part 2: Municipal Investments (US$12.32 million, US$ll.20 IBRD, US$1.12 Municipalities)

(a) Provision of support for the carrying out ofmunicipal investments required to improve coverage, quality and management ofMinimum Municipality Services and infrastructure, through the provision ofMatching Grants to Participating Municipalities for the implementation ofMunicipal Subprojects.

(b) Provision oftechnical assistance and training to Participating Municipalities to assist in the management ofMunicipal Subproject implementation.

7 27. Part 3: Project Administration, Monitoring and Evaluation (US$3.40 million, US$3.05 IBRD, US$0.35 GoDR)

(a) Provision of support for Project coordination and strengthening of DGDOT through the provision oftechnical assistance (including audits), training, goods and equipment, as well as incremental operating costs required for Project administration and monitoring.

(b) Carrying out ofmonitoring and evaluation activities that provide inputs to continuously guide Project management decisions, including the preparation ofa communication strategy to support Project implementation (all for purpose ofensuring the achievement of Project objectives).

(c) Provision of support for the preparation ofstudies relevant to Project objectives, including social and institutional assessments required for the inclusion ofnew municipalities in the Project.

D. Lessons learned and reflected in the Project design

28. There have been six projects recently undertaken in the Dominican Republic which have relevance to the present Project: PROCOMUNIDAD (Promotion of Community Initiatives), PARME (Program of Support for the Reform and Modernization of the State), PFPNE (Program to Strengthen the Provinces of the Northeast), PROPESUR (Project for Small Producers in the Southeast Region), Program for Water Supply and Sanitation in Rural Areas, and the Transport Infrastructure program for the uplands of Elias Piiia and Dajab6n. Lessons from these projects, plus lessons from similar efforts in other countries ofrelevance include:

29. The jnancing of programs outside of an established institutional framework can lead to a costly and unsustainable proliferation of implementation schemes and mechanisms. In the case of the Dominican Republic, most of the structures and organizational units used in rural development programs have been temporary. The creation of these temporary structures should be avoided. This Project is supporting the implementation of the new institutional framework related to municipal structure and administration and public investments at the local level and directly using this structure for implementation ofProject activities.

30. Community participation is essential in the selection and implementation of rural investments. In rural development projects in the Dominican Republic, community participation has been limited, frequently consisting of simple consultations of community organizations and NGOs to develop a list of perceived needs. At times, these expressed needs are modified by the authorities without notice to the community, resulting in community disinterest, conflict and lack of credibility of public institutions, especially local government. The proposed Project will facilitate community involvement in the preparation of the MDP and in subsequent supervision ofthe execution ofthe institutional action and local investment plans.

8 31. It is dfficult to determine the impact of past institutional strengthening programs in the Dominican Republic on the management capacity of municipalities. Limited management indicators have been utilized to measure progress along with evaluative diagnostic studies. The cost of project administration and institutional strengthening efforts is high compared to the observable impacts and results and to the amounts dedicated to investments. The proposed Project is focused on increasing municipal administration capacity based on municipal diagnostics and has established indicators for measuring changes in management capacity and service delivery. These indicators and monitoring and evaluation system are described in detail in the Operations Manual.

32. Past programs related to municipal support have created an important capacity among the staff at the national level which has managed them. This capacity will be taken advantage of in this Project. For example, staff trained in the PFPNE project was contracted for the implementation unit of PROPESUR which reduced the initial learning curve and made its implementation more efficient. The proposed Project would utilize the existing institutional structure and staff of DGODT which is made up many individuals that participated in these and other programs. Additionally, the Institutional Strengthening Technical Assistance Group and Sectoral Coordination Group that form part of the proposed Project heavily pull its members from these previous projects.

33. Proactive local champion necessary. The PARME project experience demonstrated the importance of having a proactive mayor committed to institutional strengthening and reform in order for local capacity building to be successful. The proposed Project requires mayors to demonstrate their commitment to the Project activities by complying with key Project participation criteria before they are allowed to participate in the Project.

34. Additionally, lessons learned from other municipal development projects in Latin America Asia and Afi-ica are: (i)Keeping Project entry criteria at a minimum for potential municipalities is key to reducing project complexity and making the project implementable; (ii) It is important to have minimum municipal staff hired before technical assistance activities begin; (iii)Signing of Municipal Contracts which clearly define the commitments of both the municipalities and the implementing agency is key to reduce implementation delays; (iv) Learning by doing hands-on approach which mixes institutional capacity building and technical assistance with investment finance produces more sustainable outcomes; (v) Committing municipalities to a maintenance budget scheme for existing, project supported and future investments is key to sustainability and upkeep of the municipal infrastructure stock; and (vi) Assisting municipalities to define, adopt and implement a municipal procedures manual with functions and responsibilities for municipal administration strengthens the municipal administration.

E. Alternatives considered and reasons for rejection

35. The proposed Project was initially envisioned as a Community Driven Development project with a designated fund which would allow communities to define investment priorities via a participatory planning methodology. This was discarded as result of a request from the then Presidential Technical Secretariat that expressed a wish to support the institutional laws that

9 were passed during Project preparation. These focus on municipal functions and competencies as well as on national and local planning and investments and the corresponding institutional arrangements, principally the creation of the Sub-secretariat of Planning with the DGODT and also the regional and municipal councils.

36. Another option considered was a project that would have embraced a territorial approach with a focus on provinces and regions, as opposed to municipalities. The government, at the early stage of identification, was keen on such a focus, and up to an advanced stage in preparation, the Project design incorporated a component aimed at strengthening the planning framework at regional and provincial levels. This approach was abandoned as the government realized that although this approach was not inconsistent with municipal development; a better option was to concentrate efforts at the municipal level and focus on a limited number of municipalities. What remains of this approach is the selection of the municipalities in clusters based on common natural resource endowments, as well as environmental and ‘connectivity’ criteria, which provide economies of scale in project management as well as the possibility under the proposed Project for municipalities to undertake investments jointly at sub-provincial level by partnering under voluntary agreements.

37. The option to focus on all municipal related competencies as defined by the Municipal Law-(i) exclusive competencies, i.e., Minimal Municipality Services; (ii)shared competencies; and (iii)delegated competencies-was discarded as the scope of the Project would be significantly wider and imply complex implementation arrangements with many sectoral agencies related to both shared and delegated competencies. It was decided to focus on establishing capacity in both municipalities and DGODT for Minimal Municipality Services, and at a potential later stage expand coverage to shared and delegated competencies.

38. Finally, the last option considered (as a Project component) was promoting productive activities along key value chains for various agricultural products with a focus on increasing access to market for small rural producers. This approach had merit especially in generating badly needed economic development from the value chains that have potential, including those related to the market offered by the buoyant tourist industry. Nonetheless, in the interest of simplicity, it was decided to focus on public (and semi-public) goods and services as opposed to private goods and services as would have been implied by the focus on productive value chains.

111. IMPLEMENTATION

A. Partnership arrangements (if applicable)

39. Not Applicable.

B. Institutional and implementation arrangements

40. The Project will be implemented by the Secretariat of Economy, Planning and Development (SEEPYD) at the national level and participating municipalities as the local level. SEEPYD has designated its Sub-secretariat of Planning (SSEPLAN) responsible for the Project. A project coordinating unit will be established within the existing institutional structure of

10 General Directorate of Territorial Development (DGODT) of SSEPLAN. A Steering Committee, chaired by SSEPLAN will include representation of other key agencies, including the Secretariat of Finance (SEH), ' the Secretariat of Environment and Natural Resources (SEMARNA), Dominican Federation ofMunicipalities (FEDOMU), as well as representatives of the participating municipalities. The Steering Committee will provide general oversight and policy guidance for the Project. It will also approve each Municipal Contract before it is signed by DGODT.

41. Project coordination will formally be part of and integrated within DGODT through the establishment of an embedded Project Coordination Unit (PCU). DGODT will appoint and contract staff to facilitate project coordination. Project staff would include a Project Coordinator, two technical coordinators (one for municipal capacity building and one for subproject investments), a group of five professionals forming the Institutional Strengthening Technical Assistance Group for institutional strengthening activities related to core municipal functions, i.e., financial administration, procurement, human resource management, participatory planning and municipal services. In addition, five Provincial Coordinators will be posted in the five provinces where the Project municipalities are located (Monte Plata, Azua, San Juan, Bahoruco, Barahona). Project coordination staff within the PCU will be responsible for monitoring and reporting on Project activities, including safeguard compliance and achievements in each Project municipality.

42, A Sectoral Technical Assistance Coordination Group will be formed to support the municipal investments component which will include specialized personnel within the Secretariats' of Environment, Public Works, Potable Water and Sanitation (Authority) and FEDOMU, Eastern Regional Municipal Association (ADM) and SSEPLAN (CONARE) and other institutions when needed that will: i)review the Municipal Development Plan and the investment program proposed in the Municipal Contract; and ii) review technical issues and provide guidance and assistance to the municipalities in planning and implementing municipal investments.

43. Project monitoring and evaluation will be carried out by the existing DGODT Monitoring Department which will be augmented with one additional specialist to focus exclusively on the Project. The administrative functions will be carried out by a procurement specialist, lawyer and financial management specialist from the DGODT administrative unit.

44. National and local firms, NGOs and consultants will be contracted by the administrative team in DGODT to provide technical assistance in the institutional strengthening areas of municipal organizational structure and human resources, participatory planning, financial management, procurement, and Minimum Municipality Services provision.

45. In each municipality, the sirtdico (mayor) will assign a working group to serve as the technical counterpart of the DGODT project coordination team to be responsible for the implementation of the Institutional Strengthening Program and coordinating technical assistance for the implementation of Minimum Municipality Services investments. The municipality would be in charge of (i)organizing and executing participatory planning activities and investment prioritization; (ii)carrying out procurement of works, goods and services for implementing investment subprojects according to capacity level; (iii)managing subproject contracts; and (iv)

11 operating and maintaining investments works. SSEPLAN (through the DGODT project coordination team and the Sectoral Coordination Group) will ensure that subprojects are eligible, conform to acceptable technical standards, and are managed according to the fiduciary provisions ofthe Loan Agreement and the Project’s Operational Manual.

46. In accordance with law 176-07, each municipality will establish a Municipal Development Council (MDC) consisting of the Head of the Municipality, the President of the Municipal Governing Council and representatives of civil society organizations. These councils will participate in the allocation of investment resources at local level and supervision of their implementation. Their creation, reactivation and strengthening will be supported by the Project.

47. Contribution of participating municipalities. The issue of counterpart hnding from participating municipalities has been discussed with the Government and the municipalities. It was agreed that the contributions of participating municipalities will be valued in terms of a percentage of investment costs (10 percent), and in terms of an increased effort made by the municipality to allocate funds for annual maintenance programs (3 percent of annual revenues). This latter contribution is included in the Municipal Contract as a contractual and measurable indicator of maintenance effort at the municipal budget level. The benefits of the proposed arrangement would be to ensure proper use of existing inter-governmental transfer mechanisms and facilitate implementation of substantial investment programs within a contractual approach. The flow offunds is described in Annex 7. 48. In order to strengthen the new institutional arrangements created by the recent laws, and to reduce institutional implementation risks, the Project will support the following:

9 Augment the DGODT PCU with experienced municipal development staff from CONARE, FEDOMU, and ADM; ii) A project management contract to support the DGODT PCU for the first 24 months of the Project; iii) The establishment of five local provincial offices which oversee and coordinate municipal service providers (consultants and NGOs) where all Project activities would be carried out; iv) Focus on municipalities that are geographically contiguous, where possible; VI Focus on municipalities with mayors that have a progressive attitude towards municipal institutional strengthening as evidenced by their commitment in the initial acceptance letter to participate in the Project and the subsequent Municipal Contract; vi) Require that 50% of the time of the national PCU staff be spent in the field overseeing technical assistance and investment support; and vii) Carry-out three supervision missions a year.

C. Monitoring and evaluation of outcomedresults

49. Project implementation will be guided by a Results Framework (see Annex 3). SSEPLAN through DGODT’s specialized Monitoring and Evaluation Department would have overall responsibility for the monitoring and evaluation (M&E) of Project activities and manage data inputs from the proposed municipalities. DGODT through its administrative unit would maintain a simple financial system to compile Project financial statements using a computerized financial management system. The system would have the ability to classify financial

12 information by Project component, categories of disbursement and sources of financing; and produce the corresponding financial reports (such as Interim Financial Reports (IFRs) and Statement of Expenditures (SOEs)). The M&E system would support the Project supervision process by ensuring that baseline and follow-up data for the key performance indicators are collected and made available on an ongoing basis and at strategic times including Project start- up, mid-term review (MTR) and Project closing.

50. Information from the monitoring system would be analyzed by DGODT and disseminated according to the Project’s communication strategy to municipalities and other stakeholders. The Project would prepare brief quarterly progress reports and more detailed annual implementation reports.

51. An MTR would be conducted no later than 2 1/2 years after the first disbursement and would: (i)assess the degree of advancement in achieving Project outcomes; (ii)evaluate the institutional arrangements for Project implementation; (iii)determine updates, as needed, to the Project Operational Manual; and (iv) review the progress on implementation of the Project Implementation Plan (PIP) and Municipal Contracts. A final evaluation would be conducted in the last semester of Project execution to assess overall achievement of expected Project results.

D. S us t ain ability

52. The first key action for Project sustainability is capacity building undertaken as part of Component 1 with the twin objective of (i)equipping municipality staff with the expertise and capacity to carry out basic core administrative functions related to procurement, financial management, planning, and human resource management; and (ii)strengthening municipal capacity to provide Minimal Municipality Services as defined by the new Municipal Law.

53. The second key aspect is the functionality and viability of sub-projects financed under C2. DGODT will pay particular attention to the soundness of both technical and financial aspects of service provision supported under these sub-projects. The focus on maintenance will be clearly identified in the municipal budget and monitored as a Municipal Contract indicator.

54. The sustainability of Project actions would also be enhanced as the Project structure would be mainstreamed into SSEPLAN’s administrative structure. Project coordination is envisaged as fully integrated into DGODT’s organizational structure. The Project would finance only the incremental expenditures of SSEPLAN structures to support Project implementation, as well as the punctual support that would be needed for certain key expertise that SSEPLAN and other national entities would not have at Project start-up. This support would be outsourced at the beginning of Project implementation with the requirement by service providers that the attendant capacity would be transferred over to SSEPLAN staff through on the job training. Loan funding to support Project coordination would gradually decline over the life of the Project with SSEPLAN gradually assuming financial responsibility for project coordination function. SSEPLAN would be responsible for financing 20% the first year, 40% the second year, 60% the third year, 80% the fourth year and 100% the final year.

55. An additional key aspect ofthe Project sustainability is the establishment, functioning and strengthening of the institutional structure within the DGODT for supporting municipal

13 governments institutional strengthening and Minimum Municipality Services provision. An important outcome of the Project is to establish a functioning institutional arrangement that will eventually be able to assist all municipalities in the country to develop the capacity to comply with the National Planning and Public Investment System.

E. Critical risks and possible controversial aspects

56. The following table details the potential technical and safeguards risks and mitigation measures that would be taken under the Project. For detailed financial management and procurement risks, see Annexes 7 and 8 respectively.

Risk factors Mitigation measures Rating' of residual risk Description of risk Operation-specific Risks Technicalldesign Moderate Incentives for municipalities to The mitigation measures includes the adoption of a contractual Moderate participate in the Project are not strong approach that fosters institutional development combined with enough. local investment programs while requesting the municipality to comply with specific management requirements. Municipalities that implement successfully their first Contract may benefit from additional investments funds as measured by timely completion of first subproject. Preparation of MDPs and institutional DGODT is securing competent, qualified technical personnel Moderate strengthening plans take longer than from FEDOMU, CONARE, ADM and other NGOs that have expected. significant experience in participatory planning and preparation of institutional strengthening programs and MDPs which will support the work in this area. Implementation capacity and Substantial sustainability Low implementation capacity in both Qualified municipal engineers are being hired by DGODT to Substantial DGODT and municipalities with coordinate and oversee the municipal investments Component regard to capacity for the provision of and guide the contracting of appropriate TA for subproject Minimum Municipality Services. design and execution. A Sectoral Technical Assistance Coordinating Group is being formed from sectoral agencies that have significant experience with Minimum Municipality Services by cooperation agreements to review and approve subproject proposals and ensure that the required technical assistance is provided and that the investments meet quality standards when completed.

Adjusting municipal staffing according Detailed analysis of personnel financed by the municipalities Substantial to municipal size, functions and budget will be conducted during the Project to identify who are as prescribed by law. performing key municipal functions and who are not.

Sustainability of operation post-Project Institutional arrangements within DGODT are being\established Substantial to provide on-going TA for core administrative functions and provision of Minimum Municipality Services to municipalities. Additionally, the Project will support the development of a culture of maintenance in municipalities by requiring and monitoring the allocation of maintenance funds in the municipal budget.

Subprojects are not implemented in a Participating municipalities will implement annual investment Moderate timely manner and acceptable quality plans agreed upon in the municipal contract and will benefit from technical assistance to supervise procurement and implementation of works. Technical audits will be carried out as well. Social and environmental safeguards Moderate

14 Implementation difficulties due to The Project’s operational approach attempts to reduce this risk Moderate political rivalries by having communities and stakeholders define priorities and municipalities commit to improve the services they deliver. The social assessment carried out during Project preparation has helped the Project to internalize risks and devise mitigation mechanisms. For example, the Project will include considerable training and consultative activities to ensure that all potential beneficiaries have equal opportunity to participate. In addition, the Project will train both community organizations and municipalities. Capture and control by political A clear accountability and governance framework would be put Moderate constituencies of the participatory in place in the participating municipalities. Outreach, planning and public expenditure information campaigns, and training in participatory planning process at municipal level. would be carried out so that communities can organize for proper representation at the municipal level, articulate their demands and exert due oversight on municipal management and subproject implementation. Subproject eligibility criteria will be enforced and scrutinized and contractual arrangements will strengthen the voice of civil society leaders.

The Project will provide TA to educate communities on citizenships engagement. The Project will have a strong communication plan in the first stages of implementation positively change the clientelistic culture and practices of municipalities’ management and administration. Allocation of Project funds has been prepared to ensure equitable distribution of Projects in municipality, and eligibility criteria will be enforced. Financial Management Risks Risk mitigation measures incorporated into Project design Moderate Procurement Risks Risk mitigation measures incorporated into Project design Substantial Overall Risk (including Substantial Reputational Risks)

F. Loan conditions and covenants

57. There are no specific conditions of effectiveness or disbursement for the Project.

58. Not later than 45 days after the Effective Date, the Borrower shall establish, and thereafter maintain during the implementation of the Project, a Sectoral Technical Assistance Coordination Group with membership acceptable to the Bank and defined in the Operational Manual, responsible for: (a) reviewing Municipal Development Plans and investment programs proposed under Municipal Subprojects; and (b) reviewing technical issues and providing guidance and assistance to the municipalities in planning and implementing municipal investments.

59. Not later than 45 days after the Effective Date, the Borrower shall establish, and thereafter maintain during the implementation of the Project, a Steering Committee chaired by SSEPLAN and composed by representatives from key organizations, as defined in the Operational Manual, responsible for providing general oversight and policy guidance under the Project.

15 60. For the purposes of carrying out Part 1 and 2 of the Project, the Borrower, through DGODT, shall:

(a) enter into an agreement (the Municipal Agreement) with each Participating Municipality, setting forth: (i)the technical, financial, administrative and fiduciary aspects ofthe Borrower and municipal participation in the implementation of and use of funds for Parts 1 and 2 of the Project; and (ii)the Participating Municipality’s commitment to increase capacity in the implementation ofmunicipal core functions.

(b) review annually (or any other interval acceptable to the Bank), together with the Bank, the performance of each of the Participating Municipalities with respect to financial, physical and technical performance targets (included in each of the Municipal Subproject Agreements and explained further in the Operational Manual), and provide evidence showing, to the satisfaction ofthe Bank that: (i)these targets were achieved; and (ii)the amounts disbursed by the Borrower to each Participating Municipality under their respective Municipal Subproject Agreement, were used for goods, works and services eligible for financing out ofthe proceeds ofthe Loan.

(c) exercise its rights under each of the Municipal Agreements in such manner as to protect the interests of the Borrower and the Bank, and to accomplish the purposes of the Loan. Except as the Bank shall otherwise agree, the Borrower shall not assign, amend, abrogate, waive or fail to enforce any ofthe Implementation Agreements, or any oftheir provisions.

61. For the purposes of carrying out Part 2 of the Project, the Borrower, through DGODT, shall:

i) after having selected a Municipal Subproject in accordance with the guidelines and procedures set forth in the Operational Manual, enter into an agreement with the Participating Municipality (“Municipal Subproject Agreement”), under terms and conditions approved by the Bank and included in the Operational Manual (including the Participating Municipality’s obligation to comply with the terms of the Anti-Corruption Guidelines, and to abide by the technical and environmental practices required for the Subprojects), for the provision of Matching Grants for the implementation of said Municipal Subproject.

ii) ensure that no Municipal Subproject may involve any of the activities set forth in Schedule 4 to the Loan Agreement.

iii) exercise its rights under the Municipal Subproject Agreements in such manner as to protect the interests of the Borrower and the Bank and to accomplish the purposes of the Loan. Except as the Bank shall otherwise agree, the Borrower shall not assign, amend, abrogate, waive or fail to enforce any of the Municipal Subproject Agreements or any provisions thereof.

62. The Borrower shall, and shall cause the Participating Municipalities to, carry out the Project in accordance with the provisions of (a) the Environmental and Social Management Framework; and (b) the Operational Manual, satisfactory to the Bank, which shall include the rules, methods, guidelines, standard documents and procedures for the Project, including, inter alia, specific procedures to ensure compliance with Bank safeguard policies.

16 IV. APPRAISAL SUMMARY

A. Economic and financial analyses

63. The economic analysis for the Project compares costs and potential benefits of the components that finance investments and build capacity in the municipalities. Although the benefits will depend on the particular activities selected, the analysis shows that they will likely be more than the costs. The financial feasibility analysis computes whether the municipalities are likely to be able cover the costs oftheir participation, and it demonstrates that they probably can. Some of this analysis is based on data for the average municipality and a more detailed analysis of expenditures is done with data from six municipal governments (among the universe of thirty selected for the Project) for which there is detailed data. (See Annex 9 for further details.)

64. Economic Analysis. The cost-benefit analysis of the Project includes two dimensions: (i)the net economic benefit from investments on Minimum Municipality Services; and (ii)an increased capacity of municipal governments to execute municipal investments. Since the costs ofthe project are largely defined by the parameters ofthe project, the key part of the analysis is estimating a lower bound on the plausible benefits, to see if they exceed the costs.

65, On the first dimension, the minimum necessary benefit in terms of labor saving valued at the wage of low skilled workers-minimum rural wages was calculated. If the Municipal investments supported by the Project were undertaken in the 30 proposed municipalities, then they would need to save at least four daydyear of labor time per worker over the life of the investments, which is assumed to be eight years (two 4-year periods of municipal admini~tration).~Since the time of many workers is worth more than the rural unskilled wage, and people other than workers will benefit from the Project, these estimates are upper bounds on the time-saving needed to make the subprojects worthwhile. The value of the actual subproject investments will depend on how they are chosen and implemented, and it seems plausible that subprojects would have this value or more. Also, this calculation can provide a benchmark against which to assess the subprojects.

66. On the second dimension, the basic question is whether the capacity building components will lead to sufficiently greater transparency ofmunicipal administration, and more efficient procurement and financial management in order to justify the cost. The Project components aimed particularly at institutional strengthening of municipal governments and institutional support system at national level, (Component 1 and 3) are around US$ 9.2 million. Given that the impact of such an investment could last at least eight years (two 4-year periods of municipal administration), and the annual discount rate (opportunity cost of capital) is 12%, the minimum impact should be an increased investment execution of around US$ 1.8 million per year. This figure is around 1% of the capital investment transfers to municipalities actually executed in 2008-US$ 174 million. That is the institutional strengthening parts of the Project, if done well, will more than justify the expense.

67. To ensure that Project investments are executed efficiently, a minimum cost methodology would be followed in subproject preparation and appraisal. There are some

An annual discount rate of 12% (opportunity cost of capital) was assumed.

17 benchmarks for public works with respect to ceilings on unitary costs. However, some municipalities consider that such benchmarks are significantly above their real costs. Therefore, a review ofreasonable unit costs will be carried out during Project start-up, based on data-bases ofmunicipalities themselves, national institutions and recent municipal development projects. A preliminary review of some municipalities, and projects recently completed, show that even though information exists regarding unit costs on investments, there is partial and disperse information on operation and maintenance costs, and very little information with respect to direct beneficiaries’ outreach ofmunicipal services and investments. At present, it is difficult to assess reasonable ceilings for investment cost per direct beneficiary. Therefore, this initial cost reference review should close the information gaps, to allow for proper appraisal of initial subprojects.

68. Financial Feasibility. The financial feasibility includes both counterpart financing of the initial investments and the operation and maintenance costs of the additional infrastructure. The counterpart financing expected from the 30 municipalities in the Project totals US$1.12 million, or less than US$2 per capita over 2-3 years. This compares with about US$54 per capita that the 30 municipalities receive in transfers from the national government each year, plus what they raise from local sources (less than 10% of their overall income). So the municipalities would need to divert about 1-2 percent of their productive outlays to cover the counterpart contributions, which seems feasible. The total value of the municipal investments would be about US$17 per capita, around one third of the total average municipal budget. If operating and maintenance expenses are 10 percent of the initial capital outlay-an upper bound for most basic urban infrastructure and follow-on costs for TA would be even less-then the municipalities would need to divert around three percent oftheir annual budget to operate and maintain the new infrastructure installed by the Project. Some ofthis would be on top of the counterpart outlays, but most of it would come later, after the investment expenses were past. In summary, the budgetary burden of participating in the Project would be well under 10 percent of their revenue and usually closer to five percent for the average municipality, so participation should be financially feasible.

B. Technical

69. Technical assistance for the preparation and implementation of the subprojects would be provided by DGODT’s PCU and Sectoral Coordination Group and/or contracted out by either DGODT administrative unit or participating municipalities depending on the capacity of the municipality and size of the investment. During Project preparation, the expertise of technical service providers was assessed in the Project target area and was verified to be sufficient for technical assistance needs. This expertise should be sufficient in both volume and quality to form a basis for sound technical assistance both in the preparation and implementation of feasible and viable sub-projects. Technical support would be forthcoming from central agencies with responsibilities in the given sectors, such as INAPA, INDRHI, et al, via the Sectoral Coordination Group. As such, design quality and implementation of proposed investments would be enhanced.

70. To be eligible, all investment subprojects must: (i)respond to the priority and demand ofthe beneficiary municipalities identified through the Municipal Development Plan; (ii)require a financial contribution of at least 10 percent of the investments costs from the beneficiary

18 municipality; (iii)be appropriate for the financial capacity ofthe municipality (which should be able to maintain and manage these investments and/or take the necessary measures to improve maintenance capacity); (iv) favor the rehabilitation or upgrading of existing infrastructure over new investments; (v) be economically justified or cost effective; and (vi) be respectful of the environment and avoid any negative impact or, at a minimum, adopt corrective measures to limit or compensate this impact. Works to be financed under the Project are supposed to be of standard complexity.

71. Sustainability of the completed sub-projects will be assured by the participation of local governments and communities in the processes of their identification, and the mandatory provision of adequate municipal budget support for maintenance purposes of a minimum ofthree percent of their current revenues. Municipalities will be assisted by the PCU in developing maintenance arrangements and in establishing maintenance fund accounts to which monthly or yearly contributions will be made, thus ensuring that facilities maintenance needs are met in subsequent years.

C. Fiduciary

72, Procurement. An assessment of the procurement capacity of the Implementing Agency to was carried out in March 2009. The assessment reviewed the organizational structure for implementing the Project and the procurement related documents developed by the DGODT. The key issues and risks identified include: (i)limited prior experience with Bank procurement procedures within the Procurement Units; (ii)overall weak procurement environment at the local level; (iii)limited planning and follow-up capacity, including supervision of contracts; and (iv) lack of previous experience in the use of standard bidding documents, rules and procedures. The overall Project risk is high and an action plan has been developed to address these issues (see Annex 8 for further detail).

73. Financial Management. The financial management (FM) arrangements for loan implementation meet Bank FM minimum requirements. The FM inherent and control risks for the operation are substantial and will be rated moderate once the entity, with Bank support, implements a time-bound action plan addressing identified measures to mitigate risks. The FM Supervision Plan defined the scope as comprehensive supervision, including full on-site supervision covering all areas specified in the FM supervision checklist, plus specific areas of concerns. The frequency ofFM supervision will be semiannual the first year.

D. Social

74. During Project preparation, SSEPLAN has undertaken a systematic social assessment in the municipal areas targeted by the Project. The assessment was based on a stakeholder analysis with a focus on diversity and gender, as well as formal and informal institutions. The consultation process used a structured, participatory approach. The results of the assessment included a comprehensive analysis of social risk potentially emanating from Project interventions directly and risks inherent to the social context.

75. The objectives ofthe Project from a social perspective are:

19 (i) Social inclusion to reduce the current situation of marginalization and social exclusion of different social groups located in the Project area by providing better access to basic services. (ii) Local development and territorial cohesion in selected municipalities by promoting local good governance. (iii)Effective participation of civil society organizations in local government. The Project will support civil society engagement thorough: (a) dissemination of information to these organizations regarding opportunities provided by the Law to participate in local government decision making; and (b) technical assistance to community organizations, as needed, to strengthen their internal organization, including financial management and their capacity to communicate demand and develop proposals to municipal governments. (iv) Enhanced social accountability and transparency in public expenditures for rural infrastructure subprojects based on participatory development plans through strengthened institutions and improved institutional coordination at local level. (v) Improved quality of basic services provision through investments in drainage and sanitation, rural roads, and water supply systems. (vi) Gender equity to provide capacity-building activities to target vulnerable groups such as women. The Project would also seek to enhance women’s participation in decision making.

76. Participatory Budgeting. Currently, the Dominican Republic is implementing Municipal Participatory Budgeting (MPB) which is formalized by a constitutional mandate and specific norms (2006). According to the mandates, participatory budgeting should represent up to 40% of the total budget transferred from the national government to the municipalities. After more than five years of implementation, MPB has reached 138 (out 153) municipal governments and involves accredited civil society and grass roots representatives in local governments. Nearly 65% of the thirty potential Project municipalities are implementing the MPB to some degree. The quality ofthe municipalities’ application ofthe MPB instruments varies.

77. The Dominican Republic needs to improve the local budgeting and monitoring processes of informed participation and prioritization of investments in a more strategic approach. In parallel the coordination of the Municipal Development Councils and public budgeting needs to be improved. There is also space for improving the quality and efficacy of public services delivery. The Project would support capacity building in selected municipalities aimed at improving results ofpublic budget investment and strengthening technical skills ofboth community members and municipal representatives.

78. Involuntary Resettlement (OP/BP 4.12). The Project does not trigger OP/BP 4.12 because it does not involve land acquisition, physical relocation or adverse impacts on livelihoods resulting from restricted access to land or other resources, as defined by OP/BP 4.12. The subproject eligibility criteria and safeguard screening process would exclude any proposal that could involve such impacts. Additionally, a “negative list” of subprojects including all activities related to new road construction, solid waste processing and waste management, as well as other activities involving land will not be financed by the Project.

20 E. Environment

79. Environmental Impacts. During Project preparation, a series of studies and instruments were developed in order to assure the social and environmental sustainability of the Project, and to comply with the national environmental legislation, as well as with the Safeguard Policies of the Bank. The Government of the Dominican Republic through SEEPYD, as the institution responsible for the Project implementation, is committed to ensure the compliance with the above mentioned safeguard policies ofthe Bank.

80. In general, the nature of the works envisaged will not have significant direct or indirect socio-environmental impacts that could endanger the natural or social environment in the area of influence where works will be carried out. Moreover, the measures or actions to prevent, mitigate, and/ or compensate the potential socio-environmental impacts are identified, and with proper management, the environmental and social sustainability of subprojects can be assured. The Project as a whole has been classified by the Bank as a “Category B”, in accordance with the Environmental Assessment Policy OP/BP 4.01,

81. In accordance with the Environmental Assessment Policy, the following documents were developed during Project preparation: (i)Environmental and Social Management Framework (ESMF); (ii)Environmental Assessment Report; and (iii)Municipal Environmental Analysis. In the first stage of the Project, a participatory process will be used to identify and define the subprojects as requested by the local people and represented in the MDPs. In the first year, the Project financing will focus on institutional strengthening and the participation process to identify the municipal subprojects. Subsequently their environmental aspect will be assessed and screened before implementation.

82. The EAR evaluates the existing conditions, identifies potential direct and indirect environmental impacts, evaluates different alternatives, and proposes measures to mitigate negative impacts and enhance positive ones. The ESMF incorporates these measures together with a framework to ensure that all subproject investments financed by the project will be screened for potential environmental impacts and identify whether more comprehensive study is warranted. Based on the findings of the screening process, applicable safeguards will be identified and applied as required during subproject preparation. Additional studies and evaluations, if needed, will be completed as part of the preparation phase. The MEA identified the capacity of five pilot municipalities to manage the environmental screening for subproject investments and defined institutional strengthening activities where needed.

83. When subproject investments are identified, the ESMF developed by the Project will be applied to assure the compliance with Dominican environmental law and assess whether any Bank Safeguards Policies are triggered. The Environmental and Social Preliminary Assessment Form (checklist) will be applied as part ofthe screening process. For all subproject investments, terms of reference have been developed for the DIA (Environmental Impact Declaration) required by Secretariat of Environment and Natural Resources (SEMARENA), which is presented as a part ofthe ESMF document. Environmental Management Plans will be developed as required by the DIA, with the related budget for the execution ofthe environmental measures. The Project budget will include financing for this type ofstudies once subproject investments are identified.

21 84. As part of the ESMF, a Strengthening Social and Environmental Management Plan (SSEMP) was prepared in order to assure adequate social and environmental management during Project implementation. The documents before mentioned were disclosed on May 1, 2009 and are available in the INFOSHOP of the Bank according to World Bank disclosure policy, and in the web page ofthe SEEPYD.

F. Safeguard policies

85. The following safeguards apply to the Project:

Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.1 1) Involuntary Resettlement (OP/BP 4.12) Indigenous Peoples (OP/BP 4.10) Forests (OP/BP 4.36) Safety of Dams (OP/BP 4.37) Projects in Disputed Areas (OP/BP 7.60) Projects on International Waterways (OP/BP 7.50)

86. Environmental Assessment (OP/BP 4.01) policy is triggered because the Bank requires all projects proposed for World Bank financing have an environmental assessment. An environmental assessment was prepared for this Project concluding that Project activities contemplated under the Project are largely Category C in nature with a possibility for the proposal of Category B projects. Specific subprojects will be identified during the execution of the Project as part ofthe institutional strengthening component. In this phase they are required to create Municipal Development Plans which will identify infrastructure activities to be executed under component 2 ofthe Project.

87. Natural Habitats (OP/BP 4.04) policy is triggered given the rural location for many of the participating municipalities and their proximity to protected areas and the possibility that activities could trigger OP 4.04. However, the Project will not execute works in protected areas or natural habitats. All proposed works will be reviewed for their potential impacts to these areas and procedures will be provided in the Project Operations Manual.

88. Physical Cultural Resources (OP/BP 4.Il) is triggered because of the potential for “chance find discovery” when civil works are involved. No works are anticipated in known sites or areas containing any resources of cultural or historical significance. However, procedures are included in the Operations Manual addressing “Chance find” compliance procedures.

G. Policy Exceptions and Readiness

89. The Project does not require any policy exceptions and is ready to be implemented. Specific readiness criteria for the project are:

22 (a) Fiduciary (financial management and procurement) arrangements in place; (b) Key Project staff and consultants have been mobilized; (c) Counterpart finds for the first year ofoperation and been secured and budgeted; (d) Disclosure requirements have been met; and (e) Results assessment arrangements completed: M&E institutional obligations spelled out; M&E capacity in place; and indicators specified.

23 Annex 1: Country and Sector or Program Background DOMINICAN REPUBLIC: Municipal Development Project

Country context

1. GDP growth and decline. After the banking, economic and social crises of 2003 and 2004, the Dominican Republic experienced a strong recovery in 2005 and 2006, with real GDP growth averaging 10 percent per annum. Economic growth continued its strong pace in 2007 at 8.5 percent but weakened in 2008 to 4.5 % due to the impact of higher oil and food prices and a slowdown in the world economy. GDP growth is now projected to slow to 1.9 percent for 2009 with projections for 5.2 percent each year during the period 2010-14.

2. Poverty remains high and rural. Despite the significant growth during 1996-2001 and 2005-07, the country continues to face fundamental development challenges ranging from endemic poverty to poor health and education outcomes and weaknesses in government and societal institutions. Poverty increased dramatically during the economic crisis of2003-2004 from 28 percent in 2000 to 43 percent in 2004-from 9 to 16 percent for extreme poverty. In 2005-08, poverty levels declined some, but remain above the levels of 2000. In 2006, in rural areas, poverty and extreme poverty incidence was 50 and 22 percent-much higher than in urban areas.

Sectoral Issues

3. Municipal Overview. The Dominican Republic is divided into thirty-one provinces, each sub-divided into two or more municipalities (except the National District, with only Santo Domingo). The division of the provinces into municipalities, mandated in the constitution and enacted by a 1959 law, has subsequently been amended frequently to create new provinces, municipalities and sub-municipal administrative units (municipal districts).

4. From the 1960’s to the early 2000’s, competencies of municipalities were centralized and their autonomy reduced. The central government currently provides almost all public services directly to communities, with little involvement oflocal governments. Municipalities provide traditional municipal services (garbage collection, administration of the cemetery, public markets, slaughterhouse and others), with very limited budget resources, most of which comes from central government transfers. This has left municipalities with limited capacity and legal responsibility to respond to the local needs oftheir citizens.

5. In 1938, the Dominican Municipality League (Liga), was created by law with its primary functions defined to be the provision of advice, control and supervision of municipalities. The actual role ofthe Liga from the 1950’s until the mid-2000’s was facilitating the transfer of a percentage of the national budget to municipalities and providing limited assistance in financial management and procurement. The budgetary transfers were discretionary and historically 15 of the 32 main cities and towns of the country received 80 percent of total transfers. Until recently, the use of these resources was decided by the mayor with no technical or legal criteria requirement. Liga’s current role is as an “advisory entity on technical and planning matters.” Due to its condition as a technical advisory body, Ligu no

24 longer controls and intervenes in the activities and decisions of municipalities and its role is limited to formulating recommendations to local governments. Also, the financing of municipalities and of the Liga itself have changed. Now, revenue-sharing transfers to municipalities go directly to the municipalities from the National Treasury, instead of through the Liga. Second, the Liga’s own budget is determined by an annual assembly of municipalities, in cooperation with the SEEPyD, and the resources come from the amounts assigned to municipalities in the national budget.

6. Decentralization efforts. The situation started to change in the late-1990’s with the creation of the Dominican Federation of Municipalities (FEDOMU), which was an initiative of a group of mayors to create a representative organization of municipal authorities that would provide a forum for carrying out joint efforts and for sharing experience and resources. Initial support for FEDOMU came from the European Union, Germany and Spain. FEDOMU advocates and provides technical assistance to promote: i) decentralization reforms and legislation that strengthen the autonomy and jurisdiction of municipalities; ii) improvements in all aspects of municipal administration; iii) participatory democracy, transparency, and good governance in the municipalities; iv) dissemination ofknowledge and best practices on the municipal administration; and v) sustainable development at the municipal level.

7. Another important entity, the Presidential Commission for Reform and Modernization of the State, was created in September 1996, to improve public administration and establish the framework for new municipal management. From September 1996 to August 2000, there was an extensive, national discourse regarding reform and modernization of the state, resulting in proposals to change the legal framework for and institutional support for municipalities. In 2001, this Commission was converted into the National Council for State Reform (CONARE), with the mission of reforming Dominican institutions to be more democratic and transparent, and more efficient and effective in fostering development. The duties of the CONARE were to: i)design the “National Program for the State’s Reform” that integrates the proposals of the different political and social sectors; ii) assist in the formulation of global and sectoral policies for this reform; iii) assist in the drafting for required legislation; iv) provide advice to and coordination of the state agencies working on the reform process; and v) coordinate international cooperation. With regard to local governments, CONARE supported: i) the development of a new legal framework for municipalities; ii) strategic planning by municipalities; and iii) the development of a new legal framework for public services. In other words, CONARE oversaw the preparation and consultation of a new legal framework, major elements ofwhich have been enacted since 2006.

8. Municipal Legal Reforms. In the Dominican Republic, reducing poverty requires addressing deep-rooted problems such as weak governance, fragile public institutions and a culture of political clientelism-although necessary but probably not sufficient steps for sustained poverty reduction. In 2005 the administration openly identified good governance and strong public institutions as key areas for improvement to reduce poverty and improve social cohesion in the country and embarked on an ambitious decentralization process as part of comprehensive reforms ofthe Dominican public sector. This process included the drafting and adoption of new laws and regulations (see Annex 17 for detailed description of laws and

25 regulations). The six major reform laws that have been passed in the last four years include the Public Planning and Investment law, the Procurement law, the Treasury law, the Organic Budget for the Public Sector law, and the laws creating the new Secretariat of Finance and the Secretariat of Economy, Planning and Development. These laws and their associated regulations have directly impact how municipalities carry-out their planning functions, provide basic municipal services and allocate expenditures.

9. These laws and regulations can be divided into three groups: a) municipal legislation: this includes new constitutional provisions governing municipalities and the 2007 Municipal Law (Law 176-07, Ley del Distrito Nucionul y 10s Municipios), which set forth the basic legal framework for the operation of local governments; b) laws governing the institutional framework for the formulation, management, monitoring and evaluation of macroeconomic policies and policies related to sustainable development, with a view to ensuring economic, social, territorial and institutional cohesion in the nation (includes the 2006 laws establishing the Secretariat for Economy, Planning and Development, (SEEPyD), and the National System for Public Planning and Investment, (SNPIP)); and c) other laws with a direct impact on municipalities, including a series of recent laws applicable to all public institutions in the Dominican Republic, which have a direct impact on municipalities and their day-to-day activities, from budgeting to procurement.

10. Municipal Legislation. The Dominican Constitution, as amended most recently in 2002, defines the role of municipalities and their internal structure: i) Article 37.6 empowers Congress to create or suppress municipalities and to determine their limits and organization; and ii)Articles 82-85 contain most of the constitutional provisions relating to municipalities. These articles describe the composition and election of local governments, establish the principle of “independence” in the exercise of municipal functions with the limits provided by the Constitution and the laws, and include a reference to municipal budgets and to the possibility oflevying their own taxes.

11. In September 2008, President Leone1 Fernandez launched a new process to amend the Constitution. A draft amendment, currently under examination by Congress, would reform to the country’s institutional fkamework in several ways. Regarding local governments, the draft amendment would institutionalize the principles of municipal autonomy and subsidiarity vis a vis regional and national authorities. In addition, the draft amendment would transfer additional competencies (not yet defined) and resources to municipalities and would grant constitutional protection to participatory budgeting and other mechanisms of public participation in municipal affairs. The draft amendment would not affect the other laws governing municipalities, including Municipal Law 176-07, but rather it would provide constitutional recognition of some initiatives and institutions already in the law (e.g., participatory budgeting).

12. Municipal Law 176-07. In July 2007, Congress passed Law 176-07, replacing Law 3455 of 1952 and other legislation that had governed municipalities for more than fifty years. The enactment was preceded by roughly ten years ofpublic debate and political negotiations and is widely considered as a milestone in the modernization and strengthening of the Dominican municipalities. The 2007 Municipal Law defined precisely the internal organization of local

26 governments and the role of the local officials and bodies (mayors, municipal councils, etc.), established the distribution ofresponsibilities between municipalities and central government institutions, and controlled the proliferation of municipalities and municipal districts. The law defines: (i)the competencies of local governments and a catalogue of Minimum Municipality Services that municipalities must provide ; (ii)the sources of financing and use of municipal resources; (iii)the municipal planning procedures; (iv) the requirements for financial management and municipal finance; (v) the requirements for municipal environmental management; (vi) the requirements for public participation, transparency and accountability; (vii) the rules governing the creation of new municipalities, municipal districts and mancomunidades; and (viii) the role of the Dominican Municipal League (Liga Municipal Dominicana). To date, however, no national-level implementing decree has been adopted for the 2007 Municipal Law, which has delayed the application of some of its provisions. In addition, many ofits provisions require implementation at a local level through municipal ordinances (e.g., ordenanzas, reglamentus, resoluciones), and most municipalities have yet to take these actions.

13. Municipal Competencies and Minimum Services. Articles 18 and 19 of the Municipal Law set forth the list of competencies of municipalities. These competencies are grouped in three categories: (i)exclusive competencies; (ii)shared competencies; and (iii)delegated competencies.

14. Exclusive competencies are those over which municipalities have exclusive jurisdiction in accordance with the Constitution and the laws governing these activities. Article 19 lists 15 competencies that are categorized in six areas or themes, mostly related to the construction and operation of certain basic facilities and the provision of basic services: Transportation - i) traffic management, and ii) management and regulation of public urban transportation; Urban Planning - i) regulation and management of urban and rural public areas, ii) land management and urban planning, and iii) regulation and maintenance of parks; Sanitation - regulation and management of public health and sanitation; Services - i)fire prevention and extinction, ii)construction and management of slaughterhouses and markets, iii)construction and management of cemeteries and funerary services, iv) setting up of public lighting, v) street cleaning, vi) collection, processing and final disposal of solid waste (the Project will not finance any activities related solid waste and solid waste management), and vii) preservation of the municipality’s cultural and historic heritage; Streets and roads - construction of urban infrastructure and facilities, street paving, building and maintenance of rural paths, building and maintenance of sidewalks, curbs and alleys; and Economic Development - Promotion of local economic development.

15. Minimum Services. The Municipal Law contains a list of minimum services, Le., a catalogue of services that every municipality must provide. Most of these services fit within the exclusive competencies of municipalities, but some are related to shared competencies (e.g., environmental protection, “basic” social services”). The complete list is as follows: i) cemeteries and funerary services; ii) collection, processing and disposal ofurban and rural solid waste (the Project will not finance any activities related solid waste and solid waste management);

27 iii) street cleaning; iv) access to populated areas, repair and maintenance ofstreets, sidewalks, VI curbs, and rural paths; vi) squares and public parks; vii) public library; viii) sport facilities; ix) slaughterhouses; x> markets; xi) civil protection; xii) fire prevention and extinction; xiii) environmental protection; xiv) urban planning; and xv) basic social services.

16. The law states that municipalities may request technical assistance from other municipalities or other institutions for the provision of minimum services in those cases where the specific characteristics of municipalities as well as their institutional and financial capacity make it impossible for the concerned municipalities to provide these services on their own. Additionally, municipal assistance receive from the central government shall be primarily targeted at the establishment and adequate provision of the above minimum services and at ensuring that municipalities have sufficient financial resources for that purpose. It is further noted that the central government shall, through the National Treasury, transfer all the financial resources contemplated in the laws. If municipalities do not have sufficient resources to provide the services in question, they can make a specific financing request to the competent authorities in the executive.

17. Shared Competencies. The law defines shared competences as those falling under the responsibility ofboth the municipality and other public entities, either in successive stages or concurrently. It provides that municipalities may exercise as a shared competency any activity related to any public administration function, with the exception of those functions reserved exclusively for the central government by the Constitution. The same provision further stipulates that, while exercising a shared competency, municipalities shall have the right to be duly informed, to be heard, to participate in the coordination ofthe activity, and to have sufficient financial resources to participate in the activity. The law lists a total of seven shared competences: Social Services - i) coordination in the provision and financing of social services and the fight against poverty, ii)promotion ofthe prevention of domestic and gender violence, support and protection of human rights, and iii) design of public policies focused on homemaker women and single mothers; Security - Coordination, management and financing of public security; Health - Coordination and management of primary care services; Education - i)promotion of initial and primary education, as well as professional education; maintenance ofpublic educational centers, and ii)promotion of culture, sport and leisure; Potable Water - coordination for the provision of water supply services, sewerage, and processing of sewage waters; Emergencies - civil protection, emergencies and catastrophe prevention; and Tourism - Tourism promotion.

28 18. Delegated Competencies. Finally, the law defines delegated competencies as those which the central government transfers partially or entirely to municipalities provided that the local government in question has previously accepted the transfer and that there is sufficient financing to carry out the activity.

19. Sources of Financing and Use of Municipal Resources. Article 271 ofLaw 176-07 lists the different sources of financing of municipalities, including their own taxes and subsidies from the central government. The amount of municipal taxes (property, rent a local municipal markets, rent or sale of land in cemeteries, services for solid waste collection and fees for waste site 4, outdoor advertising, motel rooms, , use of urban land for parties in public areas) has traditionally been very low. The most significant source of financing for Dominican municipalities (90% in the five pilot municipalities) is revenue-sharing from national government as provided in Law 166-03. Law 166-03 requires the central government to transfer to the municipalities an annual amount equivalent to 8% of total revenues of the Dominican government as provided in the 2004 budget. This amount was increased to 10% of the budgeted revenue starting in year 2005. Actual transfers have been 4% in 2004, 5% in 2005, 6% in 2006 and 6.8% for 2007/08. Even though there is strong lobbying efforts from mayors and the municipal association FEDOMU, it is projected that the total transfer for 2009 to municipalities will also be 6.5%. The formula for the transfer is population based.

20. The Municipal Law has very strict provisions regarding the use of municipal resources and the used to be monitored by the Court of Accounts: i)up to 25% for personnel costs; ii)up to 3 1% for the provision of municipal services falling within the municipality’s competencies; iii) at least 40% for “infrastructure works, purchase, construction and refurbishing of property and acquisition ofmovable assets related to these projects, including pre-investment and investment costs for initiatives fostering social and economic development;” and iv) 4% for education, health and gender programs. The official actual allocated in the five pilot municipalities has been 31% on personnel, 16% on municipal services, 21% on infrastructure/economic development and 26% on non-classified expenditures. The actually percentage spent on personnel is higher as many of the municipal services and infrastructure/economic development projects actually fund full-time municipal staff.

2 1. Municipal Planning. The 2007 Municipal Law (176-07) incorporates the requirements of the National System for Public Planning and Investment (SNPIP) into the municipal legal framework by: (i)providing for a Municipal Development Plan; (ii)creating a municipal level Social and Economic Council; and (iii)establishing within each municipality a Municipal Planning Bureau and a Municipal Urban Planning Bureau. The Municipal Law requires all municipalities to approve, upon proposal of the mayor and with community involvement, a Municipal Development Plan. The objectives of this plan are to: (i)achieve an adequate use and investment of municipal resources in order to strengthen the municipality’s development in a coordinated, equitable and sustainable manner; (ii)address the community’s basic needs in an efficient manner; and (iii)ensure a coordinated and rational management ofthe territory. Municipal Development Plans must be prepared within the first six months of each local government’s term, and are expected to remain in force for a period of four years. Municipalities are expected to coordinate their plans with plans at the

This project does not finance any activities related to solid waste and waste management.

29 provincial, regional, and national levels. In the 30 target municipalities, only 4 currently coordinate their plans with a few other municipalities within their Mancomunidad or small group of municipalities. The law explicitly contemplates the possibility of “co-investment” (coinversidn) by the municipality and the central government in connection with initiatives included in the investment plans. In addition, government entities at each level must afford municipalities the possibility to participate in all questions affecting the municipal territory, particularly in connection with public works, infrastructure, social services, facilities and public services. The preparation, discussion and monitoring of the Municipal Development Plans shall be entrusted to the Social and Economic Council to be established in each municipality. These Councils are supposed to perform the functions of the “Municipal Development Councils” which are part of the SNPIP institutional framework in accordance with Law 498-06 (see below).

22. Municipal Planning Bureau. Municipalities are also required by the Municipal Law to create two additional departments, whose mandates appear to be overlapping to some extent: (i)a Municipal Planning Bureau with the objective of integrating the government’s sectoral policies with those of the municipality and evaluating the results of the local government’s activity; and (ii)an Urban Planning Bureau in charge of providing technical assistance in connection with the design, preparation, and execution of Municipal Development Plans and the regulation and management ofland and building activities in rural and urban areas.

23. Financial Management and Municipal Finance. The Municipal Law contains a description of a financial management system for municipalities. Whereas the 1952 law only gave mention to two positions (treasurer and accountant), Law 176-07 lays down a more complex organizational structure and a set of rules governing municipal budgeting, accounting and financial management. All municipalities in the country, regardless of their size, are required to have among their staff: (i)a treasurer; (ii)an accountant; (iii)a tax collection officer; and (iv) an internal comptroller. In addition, municipalities with a population exceeding 30,000 inhabitants must also hire a financial manager in charge ofthe coordination of the budgeting, treasury, accounting and collection activities. These functions will be performed by the mayor in smaller municipalities. Municipal finances are subject to a double control: (i) internal, through the municipal comptroller; and (ii)external, through the Court of Accounts and the Republic’s General Comptroller. The specific financial management rules that municipalities must observe in their day-to-day operations are described in detail in Articles 261-270 of Law 176-07.

24. Environmental Management The 2007 Municipal Law also addresses the question of environmental protection and mandates the creation of Municipal Environmental Units in all municipalities, with the option given to allow for the creation of a common Municipal Environmental Unit with other municipalities.

25. Public Participation, Transparency and Accountability. One of the key priorities of the Municipal Law was to incorporate into the municipal legal framework some positive developments in the area of public participation in local affairs (e.g., participatory budgeting), while taking additional steps in the same direction. Consistent with this objective, the law has a full chapter devoted to transparency and participation. Specifically

30 regarding the preparation and implementation of participatory budgets, the Municipal Law has incorporated a practice that many municipalities have been following in the country since 2000. At present, 50% of Dominican municipalities have adopted participatory budgets and 30% of the target 30 municipalities have initiated participatory budgeting procedures. Law 176-07 provides a legal framework for participatory budgeting as an instrument aimed at “establishing the mechanisms for public participation in the discussion, preparation and monitoring of municipal budgets, in particular concerning the 40% of the transfer municipalities are entitled to receive from the national budget, which they are required to use for investment and capital costs, as well as the municipalities’ own resources devoted to the same purpose”. The law lays down a list of objectives and principles underlying participatory budgets and, more importantly, describes a general procedure for the implementation of this participatory mechanism.

26. Creation of New Municipalities, Municipal Districts and Mancomunidades. Law 176-07 regulates not only municipalities (and the National District) but also a number of supra- and sub-municipal entities. For the municipality and for each sub-municipal entity, the law defines the relevant authorities or governing bodies. The Municipal Law also stipulates a number of requirements for the creation of new municipalities and/or the modification of existing ones. This provision constitutes an attempt to rationalize the Dominican municipal map particularly given the fact that the number ofmunicipalities has increased by 40% over a period ten years. The Municipal Law requires, inter alia, a minimum population of 15,000 inhabitants, the existence of sources of financing exceeding 10% of the municipal expenditures in order to ensure financial sustainability, and the carrying out of consultations with the affected communities. Similarly stringent requirements have been established in connection with the creation ofMunicipal Districts (whose number has increased by 456% in 10 years).

27. Role of the Dominican Municipal League (Liga). One ofthe key features ofLaw 176-07 is the redefinition ofthe role ofthe Liga. Prior to the new law, the Liga played a significant role in the Dominican municipal sector. In accordance with the previous legal framework, resources transferred from the central government to municipalities were channeled through the Liga. The Municipal Law now defines the Liga as an “advisory entity on technical and planning matters.” Consistent with this mission, the law describes the different fbnctions of the Liga and fbrther states that the Liga, “due to its condition as a technical advisory body, shall not control and intervene in the activities and decisions of municipalities” and that its role is limited to formulating recommendations to local governments. Also, the Municipal Law provides for a major change in the financing of municipalities and of the Liga itself. First, it stipulates that revenue-sharing transfers to municipalities will go directly to the municipalities from the National Treasury, instead of through the Liga. Second, the Liga’s own budget will be determined by an annual assembly ofmunicipalities, in cooperation with the SEEPyD, and the resources will come from the amounts assigned to municipalities in the national budget.

28. Laws Governing Institutional Framework. Law 496-06 creating SEEPyD as the entity replacing the Technical Secretariat of the Presidency. This law was drafted and enacted in parallel with the 2006 Law (498-06), which lays down the basic legal framework for the new

31 national planning system SNPIP (see below). Pursuant to this law, SEEPyD is the steering body of the SNPIP and has important competencies in the field of territorial management. The SEEPYD’s mission focuses on the “[direction and coordination of] the formulation, management, monitoring and evaluation of macroeconomic policies and policies related to sustainable development, with a view to ensuring economic, social, territorial and institutional cohesion in the nation”. The specific functions of SEEPyD are described as “the formulation of the Development Strategy and the Pluri-annual National Plan for the Public Sector, including the necessary coordination at the local, provincial, regional, national and sectoral levels, in order to ensure consistency across policies, plans, programs and actions.” The 2006 law also describes SEEPYD’s organizational structure. Reporting to the Secretariat is the Sub-secretariat of Planning (SSEPLAN), together with two other Sub-Secretariats, one in charge ofinternational cooperation and the other dealing with technical and administrative matters. SSEPLAN replaced the old National Planning Office (ONAPLAN) and has the following mission: “to propose public policies related to economic, social and territorial development planning, to coordinate, monitor and evaluate such policies, and to participate in the drafting and implementation of agreements between SEEPyD and the Secretariat of State for Finance.”

29. SSEPLAN is in turn divided into three directorate generals (Direcciones Generales), one of which is the Directorate General for Territorial Management and Development (Direccidn General de Ordenamiento y Desarrollo Territorial, “DGODT”).’ DGODT’s mission is described as including “the management and formulation of public policies for territorial sustainable development.” The implementing regulation of Law 496-06, Decree 23 1/07, expands on the DGODT’s functions and elaborates on its general mandate as follows: “to formulate public policies for sustainable territorial development within the National System of Territorial Management [and] to coordinate, across sectors and institutions, the different levels of the public administration and private entities at the local, provincial, regional and sectoral levels, with an influence in the design, formulation, implementation, management and evaluation, ofurban and rural management and land classification”.

30. Planning Law 498-06 and Implementing Decree 493-07. A second piece of legislation defining the institutional framework is the 2006 Planning Law which is the cornerstone ofthe new national planning system, the SNPIP, under the coordination of SEEPyD. The SNPIP addresses the formulation, prioritization, monitoring and evaluation of the investment projects implemented by the public sector. The law defines the principles underlying the system and states that all bodies in the Dominican public sector, including municipalities, are subject to the SNPIP. The SNPIP is implemented by a series of central bodies with national jurisdiction (Consejo de Gobierno, headed by the President of the Republic and in charge of the coordination of the system; Comisidn Ticnica Delegada, comprising Sub-secretaries in the different line ministries; and the SEEPyD, “steering body” or drgano rector of the system); as well as Development Councils (Consejos de Desarrollo) in each region, province and municipality, which are the fora for participation by social and economic stakeholders at each level. Articles 30-44 describe the different phases of the planning process (pre- investment, investment, and evaluation).

’ Another is the Directorate General of Public Investment (“DGIP”), which is the entity within SSEPLAN responsible for the management of SNF’IP.

32 31. At the local level, Law 498-06 establishes a series of institutions and procedures for the implementation of the SNPIP by municipalities. These institutions and procedures can be summarized as follows: Municipal Development Councils. Municipalities shall establish their own Municipal Development Councils with the composition described in the law (including the mayor and other local authorities, as well as representatives from the local business associations, education institutions, trade unions, and civil society organizations). As noted above, the Municipal Law has used a different terminology for these councils by calling them Social and Economic Councils. 0 Municipal Development Plans (MDPs). Municipalities must prepare medium-term and long-term MDPs including all investment projects implemented by local governments. These projects must be subject to a prioritization process before their approval by the municipal authorities. 0 Registry with the SNPIP. All investment projects included in each annual budget must be registered in the SNPIP. Also, municipalities must report periodically on the execution of those projects to SEEPyD so that those projects can be included in the monitoring system. Municipal Planning and Development Units. Each municipality shall maintain a Municipal Planning and Development Unit whose main function is the preparation ofthe MDPs and the monitoring and evaluation of the investment projects to be included in the municipal budget. Possible Agreements with SEEPyD. Law 498-06 states that local governments can enter into “technical assistance agreements” with SEEPyD in order to “strengthen their capacity to generate and design investment projects and monitoring and evaluation systems for their own project portfolios.” Those municipalities that implement the above agreements in a satisfactory manner will be eligible for co-financing programs for the implementation ofmunicipal investment projects.

32. Implementing Decree 493-07 constitutes a first step in the implementation of the Planning Law and the SNPIP. The Implementing Decree contains a number ofprovisions describing in detail the SNPIP’s institutional framework and the procedures for the identification, formulation, preparation, and evaluation of investment projects covered by the SNPIP. However, the decree itself states that most of its provisions are optional (i.e., not binding) for municipalities, with two exceptions: i)the composition, functions and operating procedures of the Municipal Development Councils; and, ii)a series of provisions that simply reproduce the articles of Law 498-06 summarized above (including the possibility of entering into agreements with SEEPyD). This means that, in practice, municipalities have considerable flexibility in implementing the processes established under Law 498-06.

33. Accounting, Procurement, Budgeting and Financial Management Laws. In addition to the basic municipal legal framework and new national planning system framework and municipal support system, there is another set of laws that have a direct impact on municipalities and their day-to-day operations. These laws are generally applicable to all Dominican public sector entities, including municipalities, and are particularly relevant in connection with the financing of municipalities and the administrative functions of

33 municipalities. In many cases, they are also the product ofthe broad reform ofthe Dominican public sector implemented since 2005, just like the Municipal Law and Laws 496-06 and 498-06. Specific attention should be paid to the following laws: Accounting: Law 126-01 creating the Directorate General ofGovernmental Accounting; Procurement: Law 340-06 on Procurement of Goods, Services, Works and Concessions, as amended by Law 449-06; and, Budgeting, Financial Management: Budget Organic Law 423-06, Law 5-07 on Integrated Financial Management, Law 567-05, on the National Treasury, Law 6-06 on Public Credit, Law 10-04 on the Court of Accounts, and Law 10-07 on the National System of Internal Control and the Republic’s General Comptroller Office.

34. Accounting Law 126-01 is part of the series of laws adopted in recent years to reform the Dominican Government’s financial administration. The law establishes the Directorate General for Governmental Accounting as the entity within the Secretariat of State of Finance in charge of the Governmental Accounting System (SCG). The SCG must be used not only by the central government, but also for decentralized entities, state-owned enterprises, and municipalities. The law describes the main objectives and the basic characteristics of the SCG, which is conceived as a “single, uniformed, and integrated” accounting system to be used by all public sector entities. The Directorate General is vested with the power to determine the books and accounts as well as the methodology to be used in governmental accounting. The law sets forth an accounting system based on financial reports recording each entity’s assets and liabilities, as well as the economic results ofthe activity of the entity and the execution of the budget (both in terms of revenue and expenditures). Specifically regarding municipalities, Law 126-0 1 stipulates that municipalities shall provide all financial information requested by the Directorate General through the Ligu. This provision needs to be amended in light of the new Municipal Law and the new role of the Ligu as an advisory body.

35. Procurement Law 340-06 contains the basic legal framework for public procurement in the Dominican Republic. The law was enacted in August 2006, and four months later, an amendment (Law 449-06) was passed to adapt the procurement regulations to the trade agreements entered into by the Dominican Republic, the U.S. and CAFTA, as well as to clarify some aspects of the original law. The law defines its scope as including the entire Dominican public sector, including municipalities. The law applies to all public procurements conducted by these entities, with some exceptions (including procurement carried out in connection with “loans and grant agreements with other States or public international law entities, as provided in those agreements, in which case the agreed rules will prevail”). The Secretariat of State for Finance is, according to the law, the “steering body” of the public procurement system. The law sets forth a number of general principles underlying public procurement (e.g., efficiency, competition, transparency, equity, etc.), describes the different procurement methods, the thresholds for the application of each of them and the procedures to be followed in the submission and evaluation of bids and the award of the contracts, as well as the content and format of the different procurement documents. Under the new Municipal Law, the Ligu will no longer carry out procurement on behalf of local governments, which has been common practice in small municipalities. This will require a significant effort on the part of municipalities to comply with the procurement rules.

34 36. Budgeting, Financial Management. A final set ofrules includes various laws regarding the preparation and implementation of the budget and the external controls over municipal finances. Law 423-06 establishes the Budget System, as the set of rules governing the budget process in all public entities, including municipalities, including its formulation, discussion and approval, implementation, and monitoring and evaluation. Law 423-06 contains some provisions specifically dealing with municipal budgeting (Articles 7 1-73). The most relevant are: i) municipal budgets shall be approved by the Municipal Councils in accordance with the laws regulating municipalities (i.e., the Municipal Law), and ii) municipalities shall follow the Manual of Budget Categories and apply the technical rules and methodologies adopted by the SEEPyD, the Directorate General for Budget, and the Directorate General for Governmental Accounting. After approval, budgets must be forwarded not later than January 15 of each year to various entities within the central government (including SEEPyD, the Court of Accounts and the Comptroller General’s Office). Municipalities shall also provide information to the same institutions in connection with budget execution at the end ofthe budget year.

37. Law 5-07 contains general provisions on the basic principles of the Integrated System for Government Financial Administration (SIAFE) and its information system, the Integrated System of Finance Management (SIGEF). These provisions have been adapted to the municipal level through Law 176-07. Law 567-05 regulates the Treasury System as part of SIAFE. The Treasury System comprises all principles, rules, bodies, and procedures through which the following activities are carried out: collection of revenues, registry and custody of funds and assets under the responsibility of the public entities, the management of bank accounts, and the ordering of payments. The law contains the basic principles and rules for the operation of the entire system. According to the law, municipalities can apply its provisions by adapting them to their own financial management processes. Law 6-06 regulates the Public Credit System, which is the part of SIAFE that deals with public debt. The law is also applicable to municipalities. In particular, the law identified various procedural and substantive conditions that must be met for municipalities to issue debt.

38. Finally, municipal finances are subject to external control by two separate entities: the Court of Accounts and the Republic’s General Comptroller’s Office in accordance with the Municipal Law. These entities, as well as the controlling mechanisms they use, are regulated in two different laws. Law 10-04 establishes the Court of Accounts as the institution responsible for the external audit of the entire Dominican public sector, including municipalities. The law provides that all public institutions shall be subject to four types of control: (a) external (through the Court itself); (b) internal (through the General Comptroller’s Office); (c) legislative (through Congress); and (d) social (through civil society organizations). Specifically regarding the first type of control, the law lays down the foundations of the National Audit System led by the Court of Accounts. The Court is responsible for the “examination ofthe general and specific accounts of the Republic through audits, studies and special investigations.” As far as municipalities are concerned, Law 166- 03 (providing for the transfer ofresources fiom the central government to municipalities, see above) requires all municipalities to submit quarterly reports to the Court of Accounts, the Ligu, and the General Comptroller’s Office describing the amounts and the end use of their

35 expenditures. Law 10-07 (together with its implementing regulation, Decree 491 -07) is the legal text governing the National System of Internal Control and its “steering body”, the Republic’s General Comptroller Office. This Office is responsible for the control over the revenue and expenditures of the different departments ofthe public administration, as well as municipalities. The control the Office exercises over municipal accounts takes place through the submission of accounting information on a quarterly basis (see above). At the municipal level, this role is complemented by the municipal comptroller, a position required for all municipalities under Law 176-07.

39. Municipal Diagnostic. During Project preparation, a sample of five municipalities was selected, one in each of five Project provinces, to evaluate their municipal management and service delivery capacity. The five selected municipalities were: Polo, Tamayo, Bayaguana, Padre Las Casas and Matas Del Farfan. The results of this evaluation are presented in detail in Annex 16. In summary, the diagnostic studies showed that the municipal governments: (i)were nearly completely dependent on fiscal transfers from central government, which on a per capita basis differed by a factor of 2.5 to 1; (ii)raised very little income from their own fees and taxes; (iii)focused on simple infrastructure such a sidewalks and gutters, drainage canals, and parks, combined with providing basic municipal services (trash collection, cemeteries, markets and slaughterhouses), and welfare grants and subventions to the poor; (iv) did not effectively address basic environmental issues, including contamination of water sources from human waste and from garbage dumps; (v) did not take an active role in controlling or supporting urban development (e.g. through zoning and public infrastructure planning); (vi) were not active in coordinating development projects being undertaken by others within the municipality; (vii) did not have transparent or well-organized internal processes and procedures, personnel policies, or accounting systems; and (viii) did not engage in any planning processes beyond the elaboration of an annual budget. Several sectors stood out in the studies as being of concern: (i)lack of access to reliable and safe drinking water; (ii)lack of basic sanitation and inadequate treatment of solid and human wastes6; (iii)poor condition of the rural road network, with many roads impassable during the rainy season.

40. Opportunities. Improving access to services requires a combination of: (i)tangible investments in basic social and economic services for the poor (which is in the municipal domain to provide), and (ii)measures to reform and strengthen local public institutions to improve the efficiency, transparency and accountability of the use of public funds. The extensive new legal and regulatory framework for local governments and assignment ofnew responsibilities to municipalities to improve the poor’s access to minimum and basic municipal services in rural and peri-urban areas present an enormous opportunity for the Dominican Republic in the short and medium term. However, the promise of this opportunity is compromised by the existing weak institutional capacity of local governments to take advantage ofit.

41 While the technical assistance needs are many, it will be focused on five specific areas: i) supporting municipalities to implement their new functional and organizational structure and related staffing; ii) strengthening the basic fiduciary capacity in procurement, financial

No activities related to solid waste and waste management will be financed in this project.

36 management, and human resource management of municipalities; iii)assisting municipalities to develop capacity to provide minimum and basic municipal services; iv) using the new planning framework to guide the allocation of limited public resources at the municipal level; and, v) strengthen national entities responsible for strengthening and monitoring municipal performance.

37 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies DOMINICAN REPUBLIC: Municipal Development Project

Project Name Financier Amount IPDO Closing Sector Issue Ratings Date Social Sectors WB USD 22 June Increasing program Investment Program million 2012 effectiveness through (of which participation ofpoor in US$19.4 monitoring and evaluation million WB) (social programs) Increasing access to services through provision of identify documentation for Dominican citizens Youth Development WB US$33.8 June Poverty reduction program Project million (of 201 1 focusing on human capital which US$25 development (education and job million WB) training for youth and young adults) Northeast IDB US$10 Closed Provincial level planning for Community million in 2005 infrastructure investment; use of Development Phase 1 participatory processes

Strengthening , IDB US$350,000 2009 Establishment ofa Integrated Integrated Financial Financial Administration Admin. Systems System (SIAF) in the Region municipality of Santiago and municipalities ofthe north- central region Modernization of the IDB US$23.4 201 1 Supports the strengthening of Administration of million (of financial administration, Public Resources which US$21 budgeting, and procurement million IDB) within national government. Promotion of IDB & US$33 Closed Focused on rural municipalities, Community GTZ million (of in 2008 provided training in the project Initiatives which US$ cycle; created Municipal (PROCOMUNIDAD) 16.9 million Technical Units, Municipal IDB; US$5 Fund for Preventive million GTZ) Maintenance, and Local Committees for Preventive Maintenance; and supported investment in community works. Funciones in 12 municipalitas: Piedra Blanca, Maimh, Cevicos, Tenares, El Factor, Sanchez, Yamasa, Constanza, Pimentel, Villa Tapia, Janico, and San Jose de las Matas.

Program to Support European I Euro 30 Closed Supported municipal

38 State Reform and Union million in 2008 decentralization process, Modernization.- strengthening ofmunicipal PARME finance systems (SIFMUN), (Decentralization community investment (through component) the Fondo de Acompanamento, drainage, water supply, markets, and road rehabilitation projects with avg. cost ofUS$ 84,000) and participation ofcivil society in municipal budgeting. Involved 20 municipalities of which 6 coincide with the proposed project.

Small Producers in IFAD US$12 Closed In addition to financing the South East million in Dec productive projects, the project Project. IFAD 2007 financed small water supply (PROPESUR) systems with NGOs acting as contractors for these projects.

Rural Areas Potable AECI - 2008 Increased the coverage of Water and Sanitation INAPA sustainable water supply Project . systems in poor rural communities and poor urban neighborhoods. Road Infrastructure AECI - 2006 Promoted the sustainable use of Development in the DGDF natural resources and reduction High Lands of Elias ofpoverty in the Rio Artibonito Piiia y Dajabon basin. Training in construction techniques for rural roads. Planning for the improvement and reconstruction ofrural roads, with the participation of diverse public institutions, NGOs (local and international) working in the project area. Increased the flow ofpersons and commercial agriculture through the improvement of rural roads of 58 communities.

39 Annex 3: Results Framework and Monitoring DOMINICAN REPUBLIC: Municipal Development Project

Results Framework

PDO Project Outcome Indicators Use of Project Outcome Information The objectives of the Project are to Municipal Development Plans improve the technical and financial formulated and annual budgets capacity of the Participating developed through participation of Municipalities to program, finance communities as confirmed by and deliver Minimum Municipality reports and documentation required Services. by law.

Participating municipalities financial reports are in accordance with acceptable auditing standards.

Participating municipalities have adopted and are using transparent, standardized, and efficient budget and FM, Procurement and HR management procedures as specified in FM, Procurement and HR procedures manual and produced budget reports on time.

At end of project DGODT has maintained and is fully funding all staff and functions ofthe PCU.

A least 75% of the population satisfied with the provision of services included in the Municipal contract. Intermediate Outcomes Intermediate Outcome Use of Intermediate Indicators Outcome Monitoring

Result 1 - Municipal Development Result 1 - At least 15 municipalities To be used to verify if the process Plans (MDPs) and ' diagnostic with diagnostics and MDP produced has been initiated effectively and to assessments (of participating by the Municipal Development adjust the targetsiobjectives if municipalities) to be supported by Council and in accordance with the needed. the Project completed with defined Participatory Planning Law and a institutional action plans and local Municipal Contract countersigned investment plans. by Sindico and Project Coordinator (DGODT).

Result 2 - Municipal institutional Result 2 - 60% of at least 15 Annual information will be used to action plans with core municipal municipalities have implemented the measure progress of the Project and management TA implemented. action plan with core elements: specifically the effectiveness of TA ., Central government receives from DGODT and local service quarterly reports on executed providers and municipalities.

40 budget in a timely fashion; . Municipal management manual (technical, procurement, FMS, administrative, HR) prepared, adopted and being implemented; , New hiring’s based on post description; ’. 3% of budget allocated for and satisfactory utilization of operations and maintenance budget for Project finance investments.

Result 3 - Municipal local Result 3 - Demonstrates that municipal investment plans of Minimum government has taken steps to Municipality Services investments 1.75% of subprojects, as defined in increase and improve service have been implemented. the municipal contracts, delivery. Adjust if adequate satisfactorily completed by at progress is not observed. least 15 municipalities. 2.75% offacilities built /rehabilitated effectively used.

Result 4 -The institutional structure Result 4 - To assess if the desired institutional within the DGODT for supporting conditions have been created and municipal governments’ institutional 1. DGODT has developed maintained to improve minimum strengthening and investment needs contractual mechanisms for municipal service provision. established and functioning. supporting municipal development (municipal contract) 2. DGODT has set up a data base to monitor municipal development (financial and on level of equipment) 3. DGODT has develop a strategy for financing municipal investments

Arrangements for results monitoring,

1. Project implementation will be guided by the Results Framework. DGODT’s existing specialized Monitoring & Evaluation (M&E) unit which is currently staffed with four specialists will have overall responsibility for the M&E of Project activities and manage data inputs from Project municipalities. The unit will be augmented with one additional M&E specialist for the Project. DGODT will compile Project financial statements using a computerized financial management system. The system would have the ability to classify financial information by Project component, categories of disbursement and sources of financing; and produce the corresponding financial reports (such as Interim Financial Reports and Statement of Expenses). The M&E process would fbnction as both a day-to-day management tool and a mechanism for assessing Project outputs and outcomes as well as for quarterly, semi-annual and annual implementation review by the SSEPLAN and the Bank supervision team. It would support

41 Project supervision by ensuring that baseline and follow-up data for the key performance indicators are collected and made available on an ongoing basis, including Project start-up (before Loan effectiveness), mid-term review (MTR) and Project closing.

2. The physical implementation outcomes, as defined in the Results Framework, will be monitored for each Project component. Results monitoring will focus on answering two questions: What change has there been in the municipal institutional capacity? And what advances have been made to create the municipal institutional conditions to improve provision of Minimum Municipality Services?

3. For the first question, DGODT project coordination and M&E unit will assess the status of each Project municipality on a range ofmeasures on an annual basis, starting at the time in which the general Project agreement is signed with a given municipality. The measures to be assessed include, but may not be limited to: (i)consistency ofmunicipal organizational structure with the legally mandated structure given the population size of the municipality; (ii)consistency of municipal staffing with the legally ‘mandated staffing given the population size of the municipality; (iii)presence and status of municipal financial management system for budgeting and accounting as required by law; (iv) presence of a Municipal Development Plan and completeness of that plan; (v) completion of annual audits; (vi) extent to which the Municipal Development Plan coincides with municipal expenditures; (vii) existence and status of the Municipal Development Council; and (viii) implementation of transparency and participation measures required by law. All measures are defined in detail in the Operations Manual.

4. For the second question, DGODT project coordination and M&E unit will monitor the training received and increased capacity of the technicians and improved quality and coverage based on MDP targets to provide of “minimum municipal services.”

5. DGODT will compile municipal finance data on a yearly basis and establish simple financial ratios. Additionally, a data base of completed investments will be maintained. On an annual basis, beginning at the end of the second year, a table will be completed in which the status of implementation of each subproject is assessed and for those completed subprojects information presented regarding the hnctioning, effectiveness and likely sustainability of the investment, based on the stated objectives ofthe investment proposal.

6. Information from the monitoring system would be analyzed by DGODT and disseminated according to the Project’s communication strategy to municipalities and other appropriate stakeholders. The Project would provide basic quarterly progress reports and more detailed annual reports which include an update on compliance with legal covenants.

7. A thorough MTR would be conducted no later than 2 1/2 years after the first disbursement and would: (i)assess the degree of advancement in achieving Project outcomes; (ii)evaluate the institutional arrangements for Project implementation; (iii)determine updates, as needed, to the Project operational manual; and (iv) review the progress on implementation of the Project Implementation Plan (PIP). A final evaluation would be conducted in the last semester ofProject execution to assess overall achievement of expected Project results and to use these results to design a strategy for future replication.

42 . 8. In addition to reporting on Project outcomes, DGODT will report on: (i)the lessons arising from sub-project implementation based on case studies; and (ii)the results of the baseline survey, mid-term evaluation, and final Project evaluation.

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N Annex 4: Detailed Project Description DOMINICAN REPUBLIC: Municipal Development Project

1. The objectives of the Project are to improve the technical and financial capacity of the Participating Municipalities to program, finance and deliver Minimum Municipality Services. This would be achieved through the provision of: (i)technical assistance in core municipal management functions, such as participatory planning and budgeting, procurement, financial and human resource management; and (ii)matching grants for investment sub-proj ects identified in the Municipal Development Plan. The Project implementation period is five years and the amount ofIBRD support is US$20 million.

2. Project coverage. Thirty municipalities have been identified to potentially participate in the Project based on percentage of illiterate, rural, and poor population and population density, transport access and connectivity, economic potential, and natural resource management related criteria (see Annex 15). The Project will start with five pilot rural municipalities (Bayaguana, Padre Las Casas, Las Matas de Farfan, Tamayo and Polo) which are economically stronger, with a population between 10,000 and 51,000 inhabitants, and have existing implementation capacity that meet the following key minimum participation criteria: i) Be identified on the list of30 eligible municipalities as listed in Annex 15. ii) Show the existence of the minimum municipal organization structure based on the Municipal Law 176-07, namely one treasurer/accountant, one planning specialist either exclusive or formally shared with other municipalities, one services and works specialist and, if the municipality has over 30,000 inhabitants, one financial administrator. That is, municipalities with less than 30,000 inhabitants, as per the same law, do not require a financial administrator; and iii)Ongoing formal process of establishing or restructuring a Municipal Development Council.

The municipalities will also have to write a letter to the General Direction of Territorial Development (DGODT) responding to the invitation to join the Project and stating a commitment to develop a Municipal Development Plan (MDP).

3. The municipalities will receive assistance from the DGODT to develop an MDP. Based on the diagnostics of the municipalities and a participatory process, they will define a priority investment program that will form part of the Municipal Contract (Convenio) that they will sign with DGOGT in order to receive investment support under the proposed Project (see Component 2 below). This contract defines municipalities’ commitments to increase capacity in municipal core functions and the investment program such as:

46 i) Commitment to limit annual spending within the municipal budget allocated for the discretion of the Mayor or Sindico to no more than 10% of the annual budget; ii) Confirmed budget allocation for routine maintenance of existing assets in maintainable condition and commitment to budget for maintenance of the new Project supported investment; and iii) Commitment to adopt and implement a municipal procedures manual with both functions and responsibilities for municipal administration within one year of signing the Municipal Contract.

4. Up to a maximum of 30 eligible municipalities can participate in the Project. The final number of municipalities to be supported will depend though on the progress made by the five pilot municipalities and the readiness of new municipalities to comply with the Municipal Participation Criteria stated above, as well as the enhanced capacity of DGODT to manage a bigger set of municipalities. This enhanced capacity will be assessed as follows: i) satisfactory completion of five Municipal Development Plans; ii) satisfactory implementation of at least one municipal investment contract in four of the five initial pilot municipalities; and iii) satisfactory fiduciary performance.

5. Overall impact indicators are: Municipal Development Plans formulated and annual budgets developed through participation of communities as confirmed by reports and documentation required by law. Participating municipalities financial reports are in accordance with acceptable auditing standards. Participating municipalities have adopted and are using transparent, standardized, and efficient budget and FM, Procurement and HR management procedures as specified in FM, Procurement and HR procedures manual and produced budget reports on time. At EOP DGODT has maintained and is fully funding all staff and functions of the PCU. A least 75% of the population satisfied with the provision of services included in the Municipal contract.

6. Three components are foreseen, namely: (1) institutional strengthening; (2) investments/ subprojects; and (3) project management. Project costs are summarized in Summary Cost Table below.

Summarv Cost Table

Total PROJECT COST 0.35 1.6% 20.0 93.2% 1.12 5.2% 21.47 100.0%

47 Component 1: Institutional Strengthening (US$5.75 million, IBRD)

7. During the past four years, legislation has been passed establishing specific requirements for the structure, staffing and functions of municipal governments. The objective ofthis component is to provide assistance to Project municipalities so that they will meet some of the new requirements and will develop the procurement, financial management, human resource management, participatory planning, and other organizational systems that will lead to more efficient services and investments. Specifically, the component will result in: a) strengthening of administrative and technical capacity within Project municipalities to manage resources related to Minimum Municipality Services provision investments financed through Project Component 2. b) procurement of goods and services by Project municipalities being managed according to national regulations; c) municipal finances being managed in a transparent manner, utilizing the national budget, accounting and financial management system; d) planning and financial management units being progressively established within Project municipalities with appropriate staff and related compensation; and e) adoption of operating manuals by Project municipalities which define basic functions, duties and responsibilities of staff and defines each of the administrative functions and how they are carried out.

8. The Institutional Strengthening component is divided in three subcomponents, namely:

1.1 Provision of support for the institutional strengthening of municipal governments, including, Basic Institutional Strengthening of Municipal Governments; 1.2 Strengthening the national level institutional support system for municipal governments, including, inter alia, providing assistance to strengthen the capacity of SSEPLAN-DGODT, DGIP and DGDES to implement the new national, regional, provincial and municipal planning systems 1.3 Provision of support for the formulation of Municipal Development Plans (“MDPs”), including, inter alia, institutional action plans and local investment programs, as well as assistance in the preparation of Municipal Subproject Agreements.

9. This component would specifically finance consultants, training, studies, and horizontal learning workshops.

10. I.I Provision of support for the institutional strengthening of municipal governments, including, Basic Institutional Strengthening of Municipal Governments The municipal institutional action plan is part of the Municipal contract and will be monitored by DGODT and specialized firms contracted to provide technical assistance in these areas. For the implementation of the component activities, support will be provided by DGODT’s Project Coordination Institutional Strengthening Technical Assistance Group, CONARE, FEDOMU, ADM and other local organizations and service providers that support municipal governments. Progress evaluations will be done throughout Project implementation, especially for supervision missions and at the mid-term review, to identify what is working well and what modifications are needed. While the specifics of each institutional strengthening program will differ somewhat between

48 municipalities, the basic institutional strengthening program of each municipality will focus on activities in the following areas:

Design and implementation of a new municipal organizational structure and establishment of organizational units and planning systems in accordance with Laws 498-06 and 176-07. Strengthening of the financial administration system in each municipal government, improving budgeting, decision-making, and reporting to oversight agencies (Le. the Contraloria and Camara de Cuentas) including the installation or strengthening of SIFMUN (municipal finance system). This would include strengthening basic core administrative capacities as defined in the Accounting Laws 126-01 and 449-06, Budget Organic Law 423-06, Integrated Financial Management Law 5-07, the National Treasury Law 567-05, Public Credit Law 6-06, the Court of Accounts Law 10-04, and the National System of Internal Control and the Republic’s General Comptroller Office Law 10-07. Improving procurement management policies outlined in the Procurement Law 340-06 with the aim of contributing to more efficient spending and improved municipal service provision. Strengthening the human resource management function, establishing clear roles and responsibilities of key municipal staff, improving staffing information flow to the central government, and implementing staffing levels consistent with municipal income level. Strengthen capacity for programming, implementing and managing basic municipal services including preparation and implementation of minimum annual maintenance programs. Actions to strengthen transparency of municipal administrations and participation of civil society, including the strengthening the Municipal Development Councils.

11. 1.1.1. Design and implementation of a new municipal organizational structure and establishment of organizational units and planning systems. Organizational structures for municipal governments will be defined and or adjusted and implemented in order to comply with the current legal framework and take advantage of organizational best practices. This will include planning, administrative, human resources units. As recommended by the social evaluation, municipal governments will be encouraged to incorporate functions or units, where necessary, to be in charge of civil society affairs. If lacking, new qualified municipal staff will be hired in accordance Law 41-08, System for Qualification and Selection of Personnel. Specialized firms will be contracted by the PCU to provide technical assistance to municipalities.

12. 1.1.2. Creation and functioning of municipal development councils, including specijk actions to enhance transparency of municipal administrations and participation of civil society. One of the key priorities of the Municipal Law was to incorporate into the municipal structure mechanisms to promote and guarantee public participation, transparency and social accountability in local affairs. Municipalities will become better able to share information about their activities to citizens and civil society organizations, and receive input from these through the creation of community councils and Municipal Development Councils, and other participatory mechanisms. Specifically regarding the preparation and implementation of participatory budgets, the Municipal Law has created an instrument aimed at “establishing the mechanisms for public participation in the discussion, preparation and monitoring of municipal budgets, in particular concerning

49 the 40% of the transfer municipalities are entitled to receive from the national budget, which they are required to use for investment and capital costs, as well as the municipalities’ own resources devoted to the same purpose.” The law lays down a list of objectives and principles underlying participatory budgets and describes a general procedure for the implementation of this participatory mechanism, including the active role of civil society and the new Municipal Development Councils. The Institutional Strengthening Technical Assistance Group within DGODT contract firms and/or NGOs to provide technical assistance and oversight for the training and functioning of Municipal Development Councils and overall public participation, transparency and social accountability.

13. 1.1.3.Strengthening of municipal administration, including (A) the budget and financial administration system in each Participating Municipality; (B) improving procurement management policies; and (C) strengthening the human resource management function. (A) Training will be provided to strengthen the financial administration system in order to improve budget execution and reporting to oversight agencies (Le. the Contraloria and Chmara de Cuentas), including the installation and implementation of SIFMUN (municipal finance system). This would also strengthen basic core administrative capacities as defined in the Accounting Laws 126-01 and 449-06, Budget-Organic Law 423-06, Integrated Financial Management Law 5-07, the National Treasury Law 567-05, Public Credit Law 6-06, the Court of Accounts Law 10-04, and the National System of Internal Control and the Republic’s General Comptroller Office Law 10-07. (B) Improve procurement practices, policies and procedures necessary for proper procurement and acquisition of municipal goods, services, and civil works as mandated in the Procurement Law 340-06, to contribute to more efficient spending and improved municipal services. (C) Human resource management capacities will be strengthened to improve correspondence between the employee list and payroll, clearly define staff functions and roles, implement staffing policies and limits based on municipal population and revenue stream, improve information flow to central government, and standardize compensation and performance evaluation systems. Municipal planning capacity will be strengthened to guide preparation and up-dating of MDPs and coordination of participatory planning processes, including participatory budgeting and civil society relations. The Institutional Strengthening Technical Assistance Group within DGODT will oversee contracting of firms and/or NGOs to provide financial management, procurement management, human resource and planning technical assistance and support to municipalities. Necessary goods and equipment would be procured for staff to carry out their functions.

14. 1.1 -4. Strengthening of the capacity for programming, implementing and managing basic municipal services, including the preparation and implementation of minimum annual maintenance programs.

15. 1.2 Strengthening the national level institutional support system for municipal governments, including, inter alia, providing assistance to strengthen the capacity of SSEPLAN-DGODT, DGIP and DGDES to implement the new national, regional, provincial and municipal planning systems, The Project will provide assistance to strengthen the capacity of SSEPLAN - DGODT, DGIP y DGDES to implement the new national, regional, provincial and municipal planning systems as part of the SNPIP. Consultancies will be financed to assist in the review and consolidation of the many existing participatory planning methodologies into one process to be utilized by all

50 municipalities. Training will be provided to the technical units in DGODT, DGP and DGDES in participatory planning methodology. Equipment needed for SSEPLAN to implement the national planning system will be financed by the Project.

16. 1.3. Provision of support for the formulation of Municipal Development Plans (MDPs), including, inter alia, institutional action plans and local investment programs, as well as assistance in the preparation of Municipal Subproject Agreements. This subcomponent will support carrying out an assessment of the municipality (for the additional participating municipalities beyond the initial 5 pilot municipalities) and contracting of technical assistance to prepare the MDP which will include both an institutional action plan and local investment program. The Project will work through and thus strengthen the new municipal organizational units and planning systems that are being established in accordance with Laws 498-06 and 176-07. The institutional action plan and local investment program will then serve as the basis for a detailed municipal contract between the municipality and the DGODT for the Project. However, the MDP would not be limited to only Minimum Municipality Services which the Project would finance but include local defined needs of many types of infrastructure.

17. The municipal assessments involve an integrated analysis of: existing institutional structure and capacities of procurement, financial and human resource management and planning; social aspects related conflict management, community organization and participation in municipal affairs and social accountability of municipalities; and provision of minimal and basic municipal services (coverage, quality, deficits, efficiency and sustainability). These assessments are essential to identify specific problems and possible solutions and plan technical assistance needs along with potential institutional strengthening and investment subprojects. During Project preparation, five municipal assessments were undertaken, namely: Bayquanu, Mutas de Farfrin, Padre Las Casus, Polo and Tumayo leading to a draft MDP and municipal contract. The assessment framework used for these assessments will be utilized for additional participating municipalities. The PCU will contract firms andor NGOs to carry out these municipal assessments and supervise the firms work.

18. The MDPs are strategic plans with a municipal/territorial view, for the short, medium and long term. This stage is critical since municipal governments, together with other local actors, can measure, value and prioritize problems and solutions identified in the assessments. These participatory plans intend to overcome the deficiencies observed in consultation workshops where lists of community preferences are simply recorded without any implementation strategy. Based on Law 176-07, participation of relevant local actors (communities, community organizations, civil society and municipal authorities) must be ensured during the planning process. Based on the Law 498-06 and Decree 493-07, recommendations of Municipal Development Councils and relevant information from Participatory Budgets must be incorporated in MDPs. Institutional action plans are part of the MDP and will include specific institutional reforms and capacity building actions that municipal governments are committed to implement related to basic core administrative functions and minimum municipal service provision. The institutional action plan will be incorporated into the municipal contract subscribed between the municipal governments with DGODT. Local investment programs are also part of the MDP and contain a list of subproject investments and activities prioritized by municipal governments to be part of the Municipal contract potentially be financed by the Project andor by other sources of financing. The PCU will contract firms andor

51 NGOs to support municipalities in developing their MDPs. Municipalities will facilitate the participation of communities, community organizations, civil society and municipal authorities in the MDP preparation.

Component 2: Municipal Investments/Subprojects (US$12.32 million, US$11.20 IBRD, US$1.12 Municipalities)

19. The objective of component 2 is to finance municipal investments required to improve coverage, quality and management of Minimum Municipality Services and infrastructure. The investment program would have been defined in the Municipal Development Plan and stated in the Municipal Contract. Municipalities will receive matching grant funds to manage these investments programs. The municipalities will receive technical assistance in the management of subproject investments at each level.

20. Municipal Law 176-07 (sections 19 and 20) defines public sector competencies for municipal governments and institutions at the national level. Specifically, this law establishes the minimum services that municipal governments must provide. If they cannot provide them, cooperation agreements can be negotiated with other municipal governments or public institutions. In accordance with this law, the following subprojects would be eligible for co-financing under this the Project:

- Sidewalks and curbs - Parks and town squares - Sport facilities - Cemeteries and facilities for funeral services - Improvement ofaccess roads to towns - Improvement ofrural access roads - Public libraries - Slaughterhouses - Public markets - Environmental protection works - Facilities for municipal brigades, namely fire protection, police, infrastructure maintenance (among others).

21. For the first five municipalities the following investments programs have been identified: construction of sidewalks, markets; repair of water systems; and slaughter houses.

22. 2.1. Provision of support for the carrying out of municipal investments required to improve coverage, quality and management of Minimum Municipal Services and infrastructure, through the provision of Matching Grants to Participating Municipalities for the implementation of Municipal Subprojects. Subproject investment may finance works, goods and services. Special purpose vehicles may be purchased for fire protection, among other services. Equipment may be provided for public library, sport facilities, slaughterhouse and public markets among other facilities. Infrastructure works will be contracted for municipal infrastructure either for public use such as streets, sidewalks and curbs, parks and squares, rural access roads, or for facilities to provide municipal services (as described above). No activities requiring the use of land of any type will be eligible for Project financing. Services essentially include technical assistance and training for subproject start-up and implementation.

52 23, Co-financing among funding sources. Subproject grant financing will essentially consist of non-reimbursable grandtransfer from the national government to the municipal governments, to be executed together with a counterpart municipal contribution of a minimum of 10% of the investment, including studies, works and supervision. The municipal counterpart could include: resources from the municipal budget or from other sources; value of assets where works will be conducted; and in-kind contribution from final beneficiaries (labor and community works). The Project transfers will be independent and additional to the transfer system foreseen by law. When the municipal contribution is needed in cash, the municipal government will incorporate it into the municipal budget. When counterpart contribution is partly in-kind, the municipal government must guarantee that resources required are available on a timely basis. The Project may finance 90% of the total subproject budget for municipal investment subprojects.

24, Subproject budget ceilings. Based on municipal assessments, the average cost of municipal investment subprojects is around US$ 70,000, ranging from US$ 5,000 for modular works to almost US$ 100,000 for road rehabilitation (among others). Based on this, the cost ceiling per subproject will be US$ 100,000.

25, Subproject Financing. Eligible municipal investments must be identified in the municipality's MDP and include it in the municipal contract. Resources for the municipal investment component have been assigned indicatively by allocating US$25 (of external financing) per poor person within each Project municipality, for a total of US$12.32 million for the 30 municipalities that would be eligible to participate (see annex 5). This would represent 7.8% of the total national budget for social expenditure per capita (US$321) for 2007. Over 3 years of Project subproject execution that would be 2.6% per year.

26. Table 4.1 summarizes how the PRODEM resources would be distributed across the municipalities, on the basis of equal financing per poor person. This distribution in the last column would only be an initial indication, and the distribution would presumably be adjusted at the mid-term review, taking into account experience to date and how the different municipalities demonstrated their ability to use funds effectively and promptly. To put this into perspective, the table also shows the amount of transfers received by municipalities in 2008. The amount ofthe PRODEM financing, received over 3-4 years, would be about the same as the transfers the municipalities actually received for investment in 2008. The PRODEM funds would thus offer a substantial incentive for the municipalities to parficipate and undertake the necessary institutional reforms. The PRODEM funds would not, however, represent an order-of-magnitude increase of resource for these municipalities to manage.

Table 4.1 - PRODEM Resource Distribution I I I j 1 Transfers I Transfers j PRODEM ~ Transfers2008 I 2o08 ~ %poor ' 2008 ~ jinancing

Municipality i Population ~ populati executed 1~ executed executed I (indicative) i ~ on j i capital ~ Current 1 (equalp-cpoor)

j I uss(000) ; us%(ooo) ~ US$(OOO)

53 ...... _...... I ...... "..... "......

Las Matas de Farfin 51,955 72.9 j 2,821 967 ~ 1,854 ...... 938 ...... 1 f1 ...... i...... "...... 4I ...... "..... "...... ,1

Tamayo ~ 25467 71 1 I 1383 474 I 909 1 448 ...... 1...... i...... :,, ...... "...... 1...... i...... 10,241 j 85.1 556 191 366 i 215 PO!? ...... r! ...... /...... * ...... 1"' ...... Total 5 .ti ...... 148,328 j 73 ~ ...... 5? ...... 293 .i...... 2,681

Total 30 i 734,592 1 72.5 I 39,885 ~ 13,673 26,212 I 12,320

27 According to the diagnosis of five municipalities, described in Annex 16, the average cost ofmunicipal subproject is about US$70,000 with a range from US$5,000 for small investments including pre-investment studies to investments that cost over US$100,000 for road rehabilitation and others. If local contributions totaled US$1 .12 million (as assumed in Annex 5, based on 10% local contribution for the infrastructure component), then the total financing would be US$12.32 million-enough for about 176 projects (US$70,000 each) or about 6 per municipality on average. One could expect wide variation across municipalities, with larger ones executing more and/or larger projects than the average.

28. Benejciaries. These subprojects will mainly benefit direct users (residents or non- residents) of infrastructure/facilities and municipal services. Indirect beneficiaries may include other residents due to improvement of environment quality, as well as national institutions and municipal population in general due to more efficient public spending.

29, Responsible parties for investment execution. Under the supervision of the Project technical assistance and administrative-financial teams, the municipal governments will be responsible for the administration and supervision of contracts issued for the execution ofthese subprojects.

30, Responsible parties to operate and/or maintain investments. The municipal governments will be mainly responsible for the operation and/or maintenance of subproject investments. However, the operation of municipal facilities may be commissioned, subcontracted or delegated to private to private entities or other local public institutions. The Project will indirectly contribute to investment operation and maintenance by providing resources for start-up technical assistance and training of specific municipal investment subprojects, and through municipal institutional strengthening (component 1).

31. The potential impact of these subprojects will essentially be evaluated based on satisfaction of direct users and/or municipal residents in general, and eventually by assessment of qualified institutions related to the specific subproject purposes. Whenever possible direct impact indicators will be used such as: number of residents with access to quality public infrastructure (streets, sidewalks and curbs), animals slaughtered under proper sanitary conditions, and volume of local produced commercialized under proper sanitary conditions.

32. 2.2. Provision of technical assistance and training to Participating Municipalities to assist in the management of Municipal Subproject implementation. The subproject life- cycle process is explained in detailed in the Operations Manual. Below is an overview ofthe life-cycle process.

33. Pre-investment. Initial subproject identification: Subproject Profiles. This activity corresponds to the "identification of investments needs." Municipal investment subprojects eligible for financing should be identified and prioritized in MDP local

54 investment plans generated with support provided under component 1. Subprojects included in MDP should be formulated at the level of subproject profiles. The minimum contents of municipal investment subproject profiles would be: problem identification and geographic localization; description of demand for infrastructure or service; definition of objective, results and expected benefits; definition of subproject scale and reach; quantitative assessment of with and without Project situations; preliminary analysis of technical altematives/options; preliminary budget of investment costs (including unitary costs and economic life ofitems included), estimates of operation and maintenance costs; terms ofreference for technical assistance foreseen; weekly/monthly work plan for subproject implementation (with responsible parties); Indicators to appraise subproject viability are detailed in the Operations Manual. The technical team, with contribution from members of the Sectoral Technical Assistance Coordination Group for technical support, will review and verify subproject profile eligibility and viability (with site visits and desk work).

34. Subproject selection - evaluation viability and approval. To be eligible, municipal ' investment subprojects presented to the PCU of DGODT for co-financing must be prepared with the following criteria: (i)they must be identified and prioritized in the MDPs; (ii)they must be technically and economically viable; (iii)they must be financially sustainable either by the municipal government or a third party commissioned, contracted or delegated for operatiodmaintenance; (iv) they must comply with current environmental regulations applicable to the Project; and (v) they must be included in the subproject categories defined as a minimum municipal service. DGODT will designate an evaluation group/committee to review subproject documentation, Such a committee will be composed by members of the Project technical team and members from the Sectoral Technical Assistance Coordination Group for technical support. This committee will evaluate/appraise subprojects based on the above-mentioned viability criteria. The committee will issue a recommendation to the PCU in DGODT for approval or rejection of co-financing request. Once subprojects are approved, municipal governments and the PCU will subscribe municipal contract.

35. Subproject technical studies. Subproject included in the municipal contract will be further elaborated to the level of pre-feasibility/feasibility studies. The minimum contents would be: problem identification and geographic localization; description of supply/inventory and demand for infrastructure or service; definition of objective, results and expected benefits; definition of subproject scale and outreach; quantitative assessment of with and without Project situations; analysis of technical alternatives/options and justification of selected alternative; final budget of investment costs (with unitary costs and economic life of investments), estimates of operation and maintenance costs; terms ofreference for technical assistance foreseen; weekly/monthly work plan for subproject implementation (with responsible parties); technical designs and legal documentation required depending on the subproject nature and purpose; and indicators to appraise subproject viability. Final pre-feasibility/feasibility studies will subject to a formal appraisaYevaluation and selection for Project co-financing. Municipal governments are responsible for detailed subproject formulation. However, they must receive sufficient and timely suppodguidance from the technical team. For this activity, municipal governments can hire qualified technical assistance with Project resources to support pre-investment. Municipal governments will ultimately present final pre-feasibility/feasibility studies to the PCU for subproject approval and financing.

55 36. Subproject execution - contract subproject TA, execute subproject, financial administration. Subproject implementation involves financial management, procurement management and implementation monitoring. The financial management and audits during subproject implementation will be conducted according to current Bank norms and procedures. Procurement of works, goods and services during subproject implementation will be subject to current Bank norms and procedures. Subproject transfers will be executed by the municipal government. Under the close supervision of the administrative and technical team of the Project, the municipal governments will be responsible for subproject procurement actions and reporting. Subcontracted parties will have to render works and services to the satisfaction of contracting municipal governments and the PCU in DGODT.

37. Monitoring of investment execution. Subproject execution monitoring will essentially consist of visits of Project personnel based on a calendar which takes into account subproject complexity and duration. Subproject will have at least two visits, at the beginning and at the end. During such visits, conditions for the fulfillment of subproject purpose and specifications will be assessed. Relevant monitoring tasks include: appropriate localization of investments; appropriate awareness of direct beneficiaries and communities; appropriate beneficiary participation during subproject implementation; appropriate environmental conditions; activities initiated and progress made; appropriate quality/specifications of works, goods and services; activities duration according to plan; and satisfactory investment completion and operational start- up of subproject. Once the subproject is completed to the satisfaction of contracting municipal government and the PCU, a completion report will be prepared for final payment. In close interaction with the Monitoring and Evaluation Department of DGODT, the Project monitoring personnel will be responsible for these tasks. In component 1, technical assistance and training is provided to strengthen community and civil society organizations for a more effective participation in local governance via the Municipal Development Councils. With such technical assistance and training, these organizations could monitor both subproject investment execution and subproject operation and maintenance. A technical audit would be camed out before the mid-term review and before the Project closing.

Component 3: Project Administration, Monitoring and Evaluation (US$3.40 million, US$ 3.05 IBRD, US$ 0.35 GoDR)

38. This component’s outputs are the efficient and effective coordination of the Project and an M&E system which can measure progress in achieving Project objectives. The component will achieve this through the provision of consultants, goods, and incremental operating costs which will support the operation of Project coordination integrated within DGODT’s structure. The component will finance the establishment of institutional mechanisms, administrative systems, management information system, personnel, equipment and other elements needed for the implementation of the Project. The component will also ensure that effective fiduciary arrangements are in place during implementation. The component will be coordinated by DGODT and SSEPLAN’s administrative units. The component has the following subcomponents:

3.1 Provision of support for Project coordination and strengthening of DGODT through the provision of technical assistance (including audits),

56 training, goods and equipment, as well as incremental operating costs required for Project administration and monitoring; 3.2 Carrying out of monitoring and evaluation activities that provide inputs to continuously guide Project management decisions, including the preparation of a communication strategy to support Project implementation (all for purpose of ensuring the achievement of Project objectives; and 3.3 Provision of support for the preparation of studies relevant to Project objectives, including social and institutional assessments necessary for the inclusion of new municipalities in the Project.

39. 3.1. Provision of support for Project coordination and strengthening of DGODT through the provision of technical assistance (including audits), training, goods and equipment, as well as incremental operating costs required for Project administration and monitoring, This subcomponent will finance the contracting of a technical team in the PCU of the DGODT from CONARE, FEDOMU, ADM and other municipal support entities, including a project coordinator, two technical coordinators (one for municipal capacity building and one for subproject investments), five Provincial Coordinators (Bahoruco, Barahona, San Juan, Monte Plata and Azua provinces) posted in the

I provinces, and Institutional Strengthening Technical Assistance Group (Core Municipal Functions) of five specialist in financial administration; procurement; human resource management, participatory planning and municipal services and an administrative assistant. In addition, an M&E specialist will be contracted to augment the existing DGODT M&E unit. The Project Coordinator would also be assisted by an account, procurement specialist and lawyer assigned full time to the Project by DGODT Administrative Unit. The Provincial Coordinators would be in the front line of Project’s implementation. They will coordinate the provision of technical assistance and training to municipalities. Given the lack of experience of the DGODT in managing Bank supported projects, technical assistance in project management and core municipal functions will be recruited at the outset ofthe Project.

40. DGODT staff will be responsible for monitoring and reporting on Project activities, including achievements in each Project municipality. A mid-term evaluation of the Project will be contracted by the PCU immediately following the second year of the Project and a final evaluation just prior to Project closing. The key staff, including project coordinator and five provincial coordinators, will be selected by a competitive, transparent and open process to be carried out by the DGODT. All staff will have a performance evaluation annually with support from an independent external human resource firm.

41. The subcomponent will also finance goods and incremental operating costs for DGODT. In addition, the subcomponent will finance: (a) national and departmental workshops to launch the Project; (b) internal coordination and training activities; and (c) management of competitions for investment ideas.

42. The subcomponent will ensure the establishment of a functional, transparent, accountable and efficient financial management system for the Project, including carrying out of external and independent financial and procurement audits. The former will be conducted annually and the latter in the prior to the mid-term review and on the last year of Project implementation.

57 43. 3.2. Carrying out of monitoring and evaluation activities that provide inputs to continuously guide Project management decisions, including the preparation of a communication strategy to support Project implementation (all for purpose of ensuring the achievement of Project objectives. The objective of this sub-component is to ensure transparency of Project activities and ensure that there is informed participation of the beneficiaries of the Project. The outcomes of this subcomponent are: (i)a communications strategy to support Project implementation will be designed and carried out by the PCU, and will include the production and dissemination of audio-visual and printed materials; and (ii)the establishment of a functional, transparent, participatory and efficient M&E system, including accounting software for the Project. DGODT will compile municipal finance data on a yearly basis and establish simple financial ratios. Additionally, a data base of completed investments will be maintained. Evaluations of subproject results and impacts will be conducted periodically, and specifically for the Mid-Term Review and at the end of the Project life. These evaluations will measure indicators and base-line criteria defined during subproject preparation. The Monitoring and Evaluation Department of DGODT will have overall responsible for this activity. The PCU will conduct internal Project evaluations, but will also contract independent external evaluations for the Mid-Term Review (two years after Project start) and end of Project evaluation (six months before the end of the Project).

44. 3.3. Provision of support for the preparation of studies relevant to Project objectives, including social and institutional assessments necessary for the inclusion of new municipalities in the Project. The subcomponent will support technical studies relevant to Project objectives and activities during implementation, including social and institutional assessments necessary for including new municipalities in the Project area as well as environmental assessment. Exact themes will be determined during implementation.

45. The Project would promote horizontal learning among municipalities by holding four workshops a year to share lessons learned related to both institutional strengthening activities and implementation of Minimum Municipality Services investments.

58 Annex 5: Project Costs DOMINICAN REPUBLIC: Municipal Development Project

Cost (US$ million) Project cost by component andor activity Local Foreign Total 1. Municipal Institutional Strengthening A. Municipal Institutional Strengthening Programs 0.00 3.55 3.55 B. National Institutions Strengthening 0.00 0.57 0.57 C. Municipal DiagnosticsPreparation of MDP 0.00 1.63 1.63 Subtotal Component 1 0.00 5.75 5.75

2. Municipal Investments/Subprojects A. Basic studies, works, good and supervision Subtotal Component 2 1.12 11.20 12.32

3. Project Mgmt., and M&E Subtotal Component 3 0.35 3.05 3.40

Total Project Costs 1.47 20.00 21.47 Front-end Fee Total Financing Required - 20.00

59 Annex 6: Implementation Arrangements DOMINICAN REPUBLIC: Municipal Development Project

The design of the Project is based on recently passed laws that, among other things, define municipal competencies and functions in the areas of planning, public investment and management. The Project will not have an independent executing unit, but a fully integrated and embedded PCU and will strengthen and utilize the existing personnel within General Directorate of Territorial Development (DGODT) of the Secretariat of Economy, Planning and Development (SEEPYD) to coordinate project implementation. The municipalities themselves will be responsible for managing the planning, preparation, implementation and monitoring of Project financed local public investments, consistent with the decentralization of functions to the municipalities.

2. In 2006, Law 496-06 established the SEEPYD to replace the Technical Secretariat of the Presidency. The SEEPYD contains three undersecretaries, the Sub-secretariat of Planning (SSEPLAN), which replaces the National Planning Office (ONAPLAN), the Undersecretary of State for International Cooperation, and the Undersecretary of State Technical and Administrative. The new structure is in the process of consolidation and several regulations have been issued (see Annex 17, "Overview of the Legal Framework for the Project.").

3. Secretariat of Economy, Planning and Development (SEEPYD). SEEPYD is the lead government institution with regard to the National Planning and Public Investment System (SNPIP) and has a coordination role with municipalities as mandated by Law 498- 06. The law states: "In each ofthe councils of the municipalities and the National District, there will be created Municipal Planning and Development Units which will be responsible to develop municipal development plans and administrative modernization, evaluate investment projects for inclusion in the municipal budgets and when appropriate, administer a system of reporting and monitoring of the portfolio of investment projects." (Chapter V, Art. 21, paragraph 11). This is consistent with the mandate of the municipal law which establishes the creation of the "units of municipal planning and programming." Thus, municipalities, through these units, participate in the planning system which is overseen by SSEPLAN.

4. Sub-secretariat of Planning (SSEPLAN). Within SEEPYD, SSEPLAN is responsible for territorial development policy, and for the coordination of different sectors and institutions at the municipal, provincial and regional levels with regard to territorial development programs, projects and local planning and public investment. SSEPLAN has three General Departments: General Direction of Territorial Regulation and Development (DGODT); Economic and Social Development (DGDES); and Public Investment (DGIP). DGIP manages the SNIP (National Public Investment System) which the municipalities will be a part of through the Project. DGDES also has a relationship to municipalities through its oversight and evaluation of public investment planning and related policies. SSEPLAN and DGODT are the key entities in the scheme of Project implementation.

60 Diagram A6-1- Project Institutional Structure

Steering Committee - - __ ___ (SC): SSEPLAN, SEH, SSEPLANPreside SC SEMARN, FEDOMU I I I

General Direction

Project Coordinator I I I I I I I I f Department I SEODT ’ I I I Project M&E I Administratwe Assistants Speciailst I Assistance I Coordination Group L J I lnstlutional Strengthening I For Municipal I Techncal Coordinator I Investments Municipal Investments Accountant Techncal Coordinator Environment Public Works Specialist Potable Water and Lawyer lnstlutional Strengthening Sanitation Authority Technml Assistance Group SSEPLAN (Core Municipal Functions) Financial Administration Procurement Human Resource Mngt Paflupatory Planntng Municipal Services

I Municipal

Provincial Coordinators (5) Development Council Particpatory Budgeting Presupuesfo Municpal Executing Units ------Particpafwo

5. General Direction of Territorial Regulation and Development (DGODT). DGODT will have operational responsibility for the coordination and implementation of all three components of the Project: Institutional Strengthening; Municipal Investments; and Project Administration, Monitoring and Evaluation. DGODT has two departments: Policy Development, Planning and Territorial Development; and Monitoring, Evaluation of Territorial Development. The latter department will carry out the monitoring and evaluation and reporting on Project activities, including achievements in each Project municipality. A mid-term evaluation of the Project will be contracted out immediately following the second year of the Project and a final evaluation just prior to Project closing.

6. Steering Committee (SC). SSEPLAN will chair a Project Steering Committee (SC) which will also have representation of SEH, SEMARNA, FEDOMU, ADM and 3

61 participating municipalities. The SC will provide general oversight of the Project, including: (i)issuing Project guidelines necessary to ensure the effective application ofthe Operational Manual and Project objectives and targets; (ii)acting to ensure that Project activities and strategies are compatible with the plans and initiatives of the government sector agencies; (iii)facilitating linkages and coordination of Project activities with programs and projects of other agencies and sources of financing; and (iv) emitting opinions and recommendations regarding Project issues as presented to it by SSEPLAN. The Steering Committee will be responsible for reviewing and approving the following documents: (i)the Project Annual Operating Plan (POA); (ii)municipal contract with each municipality; (iii)periodic reports regarding the status and plans for subproject investments; and (iv) other Project monitoring and evaluation reports. The SC will also receive copies of completed municipal MDPs, and the municipal proposals for Project financing for investment and institutional strengthening projects. The Project Coordinator will act as the Secretary ofthe Steering Committee.

7. Project Coordination. DGODT will either appoint and/or contract staff to facilitate project coordination. Project staff would include a Project Coordinator, two technical coordinators (one for municipal capacity building and one for subproject investments), a group of 5 professionals forming the Institutional Strengthening Technical Assistance Group for institutional strengthening activities related to core municipal functions, i.e. financial administration, procurement, human resource management, participatory planning and municipal services and .five Provincial Coordinators posted in the provinces where the Project municipalities are located (Monte Plata, Azua, San Juan, Bahoruco, Barahona). The Provincial Coordinators would be in the front line of Project’s implementation, coordinating the provision of technical assistance and training to municipalities and relying on support from both the institutional strengthening group of professionals and the Sectoral Coordination Group. Given the lack of experience of the DGODT in managing Bank supported projects, experienced technical assistance in project management and core municipal function will be recruited at the outset of the Project.

8. Project monitoring and evaluation will be carried out by the existing DGODT Monitoring Department which will be augmented with one additional specialist to focus exclusively on this Project. The administrative functions will be carried out by a procurement specialist, lawyer and financial management specialist from the DGODT administrative unit. A Procurement Specialist will be hired to augment the capacity of the administrative unit. They will also participate in technical assistance to the municipalities in each area of expertise (human resource management, accounting, financial management, procurement and legal). The Project coordination team will be responsible for preparing the Project’s Annual Operating Plan (POA) and contracting technical assistance for the municipal government for the preparation of the MDPs, as stipulated by the Project Operational Manual.

9. In addition, there will be an Sectoral Technical Assistance Coordination Group to support the municipal investments component which will include specialized personnel within the ministries of Environment, Public Works, Potable Water and Sanitation (Authority) and FEDOMU, ADM and SSEPLAN (CONARE) and other institutions when needed that will: i)form evaluation committees to review and approve municipal minimum services investments; ii)confirm appropriate TA is provided for subproject execution and provide overall quality control for the provision of local technical assistance by firms, NGOs and

62 consultants; and iii) review technical issues and provide guidance and assistance to the municipalities in planning and implementing municipal investments.

10. Technical Assistance/Specialized Service Providers (firms and NGOs). DGODT, both directly or through third parties, will provide technical assistance during Project implementation. This technical assistance will be practically oriented, helping municipal staff to learn about and apply processes such as procurement and contracting, financial management, human resource management, planning and supervision of works and services. Provincial coordinators will have a key role in providing TA, with the support ofDGODT staff and the Institutional Strengthening TA Group and Sectoral Coordination Group. In each municipal government there will be at least a small group of qualified staff that can be trained in implementation processes. One important condition will be the support of the sindico (mayor) to these processes, especially to the Municipal Strengthening Program.

11. National and local firms, NGOs and consultants will be contracted by or sign cooperation agreements with the administrative team in DGODT to provide technical assistance in the institutional strengthening areas of municipal organizational structure and human resources, participatory planning (MDPs), financial management, procurement and minimum service provision capacity building. Individual consultants can be contracted by municipalities which have demonstrated basic administrative capacity, to provide technical assistance for preparing investment proposals, pre-investment studies and implementation ofinvestments.

12. Strengthening Procurement Capacity in Municipal Governments: Municipal governments will receive training on local procurement legislation and procedures as part of Component 1 to contribute to the overall objective of institutional strengthening of municipalities. Firms will be selected competitively to provide this training. The Project is also encouraged to coordinate with the Centro de Capacitacidn en Politica y Gestidn Fiscal (CAPGEFI) and the Direccidn General de Contrataciones Ptiblicas (DGCP) to take advantage ofthe procurement training they have developed for civil servants.

13. Municipal Technical Staff. In each municipality, the sindico (mayor) will be asked to name a working group to serve as the technical counterpart of the DGODT project coordination team to be responsible for the implementation of the Institutional Strengthening Program and coordinating technical assistance for the implementation of municipal minimum services investments. Municipal governments are legally responsible for participatory planning and providing Minimum Municipality Services. Additionally, the requirements of local governments for investment planning are detailed in the new municipal law and involve establishing a municipal development council.

14. Municipalities. The municipality would be in charge of: (i)organizing and executing territorial planning activities and investment prioritization; (ii)carrying out procurement of works, goods and services for implementing investment subprojects according to capacity level; (iii)managing subproject contracts; and (iv) operating and maintaining investments works. SSEPLAN (through the DGODT project coordination team and the Sectoral Coordination Group) would ensure that subprojects are eligible, conform to acceptable technical standards, and are managed according to the fiduciary provisions of the Loan Agreement and the Project’s Operational Manual.

63 15. Municipal Development Councils. In accordance with recent legislation,' each municipality needs to establish a Municipal Development Council (MDC) which consists of the mayor of the municipality, the President of the Municipal Governing Council and representatives of civil society organizations. These councils are to be consultative and participate in the allocation of investment resources at the local level and supervision of their implementation. Their creation or strengthening will be supported by the Project.

16. Project's subproject investment financing. Within Component 2 financing would be provided for subprojects in the selected municipalities that have been identified and prioritized in the in the local investment plan of the Municipal Development Plan (MDP) and included in the municipal contract. Investment subprojects related to the minimal municipal functions would be eligible for Project financing to the extent that: (i)they respond to a priority expressed in the MDP; (ii)they respond to the Project overarching objective; (iii)they meet technical feasibility and cost-effectiveness, as well as the conditions for sustainability (in terms of recurrent costs, maintenance, payment for services if appropriate); and (iv) they are not on the negative list established in the Operational Manual. All the above criteria would be reviewed by the Provincial Coordinators, with support from the PCU and Sectoral Coordination Group.

17. Municipal Subproject Execution. To support learning by doing, subprojects would be procured and managed by municipal governments on graduated scale based on capacity. DGODT shall assess the basic capacities of participating municipalities according to criteria detailed in the OM. Municipalities will be rated on a scale of A to D based on the capacity ranking system defined in the Municipal Law, where municipalities rated A through C will be able to implement activities of component 2, with DGODT close monitoring. In order to participation in the Project, municipalities need to comply with minimum criteria which puts them in a minimum ofcategory C.

' Law 498-06 and Decree 493-07

64 Annex 7: Financial Management and Disbursement Arrangements DOMINICAN REPUBLIC: Municipal Development Project

1. This report summarizes the results ofthe financial management (FM) capacity assessment of the General Directorate of Development and Territorial Planning (DGODT), to act as the fiduciary unit of a US20 million loan to be implemented by the State Secretariat of Economy Planning and Development (SEEPYD) and municipal governments. SEEPYD is the lead government institution for the National Planning and Public Investment Systems. Within SEEPYD’s Sub-secretary for Planning (SSEPLAN), the DGODT is responsible for territorial development policy and coordination of different sectors and institutions at the municipal, provincial, and regional levels for territorial development programs and projects.

2. The objective of this FM assessment is to determine whether the DGODT has acceptable FM arrangements for Project fiduciary purposes. Project specific activities and circumstances were also factored in to ensure that entities’ FM systems are also commensurate with the needs and nature of the Project. It was carried out in accordance with OP/BP 10.02, and the Manual of FM Practices in World Bank-Financed Investment Operations issued by the FM Sector Board in November 3, 2005. The evaluation was performed on site in January-March and updated in September 2009. It included discussions with SEEPYD/SSEPLAN/DGODT staff assigned to the Project preparation. The report’s findings and conclusions were based on working knowledge, interviews, and in-depth desk reviews of relevant documents that define the entity’s current operational environment; organizational, administrative and financial documents.

3. Background. Although Dominican Republic scored low on financial management outputs in fiscal discipline, transparency and supporting efficiency in operations, in 2005, in 2006- 2007 a new legal framework was defined, among other objectives, to improve FM performance and strengthen institutional capacity, including the sub-national level. Obstacles to implement the many laws are numerous and, although there are visible improvements, many challenges remain to successfully implement them. Inherent Risk at the Country level below provides more information portraying a finer picture on the background.

4. Strengths. DGODT’s financial management capacities are satisfactory to support Project activities. Although the entity has not implemented a Bank financed Project, it is staffed with qualified and experienced FM professionals. The entity is involved in an institutional strengthening exercise, and its administrative and internal control procedures meet Bank’s minimum requirements. It is currently using automated and integrated software. Moreover, the Project will be using UEPEX, the automated country system for units with external donor resources. Pre-award surveys, including FM aspects will be completed in each one ofthe selected municipalities to be targeted in the Project prior to transferring funds for executing sub-projects. The decisive factors to determine minimum acceptable FM arrangements prior to receiving resources will be included in the Operations Manual. The Project allocates resources and its first component is devoted to institutional strengthening ofparticipant municipalities.

65 5. Risk Assessment and Mitigation. Overall FM risk at entry is Substantial, downgraded to Moderate once risk mitigating measures take place. The following matrix summarizes the financial management risk assessment for the Project.

Risk After Mitigation Risk Risk Mitigation Measures Condition of Risk Rating Incorporated into Project Design Negotiation, Board or Effectiveness Inherent Risk Country level: Substantial Comments below this matrix. Moderate Entity level: The Project unit does Substantial Capacity building and technical Moderate not have previous experience assistance to increase effectiveness implementing WB-funded nor at the fiduciary and executing units donor-funded projects. It has limited is incorporated into Project design. experience with municipal activities. Project level: Lack of coordination High A simple flow of funds has been Substantial at the municipal level, and the defined to help overcome lack of creation of innovative mechanisms DGODT experience in financing for financing municipal work. municipalities. Overall Inherent Risk Substantial Moderate

Substantial UEPEX has a budgeting module. Moderate prepared, alihoughthe actual The FM staff will be trained on how information is not periodically to periodically report on budget compared to actual. execution. 2. Funds Flow: The Government Moderate A revolving fund with be set up in Negligible or has substantially improved the flow participant municipalities, with Low of funds cycle from the designated segregated operating accounts for I accounts to the Projects’ operating sub-projects. The Operations accounts (from 45 down td 9 daysf. Manual (OM) will specify details. 3. Staffing: FM Staff has Moderate FM staff will be trained on the new Low qualification and experience moderately commensurate with the scope of the Project. No experience procedures for FM and manaeing similar oroiects. Disbursement arrangements. 4. Accounting Policy & Procedures: Moderate A consistent set of accounting Low DGODT has manuals specifying policies and procedures will be used, accounting policies and procedures. to be complemented by the manuals for UEPEX and the OM. Substantial The Operations Manual will include Moderate Comptroller General, nor the a section on internal audit &controls DGODT has appointed an entity’s to foster adequate internal control internal auditor. environment. 6. External Audit: DGODT has not Substantial The Project will be subject to annual Moderate been subject to external audits, financial audits following auditing neither by the Chamber of Accounts, standards and specific TORS nor by independent audit firms. acceptable to the Bank. 7. Reporting & Monitoring: The Substantial The UEPEX system has the Moderate current automated system timely capability of having timely and prepares periodic reports, although accurate reports, linked not only to not linked to line item; physical line item, but to Project physical progress, category, or component. progress, category and component. 8. Information Systems: DGODT Substantial See comments in 7 above. Moderate has an IS in place, the FM staff is trained. Shortcomings in 7 above. Overall Control Risk Substantial I Moderate

66 Risk After Mitigation Risk Risk Mitigation Measures Condition of Risk Rating Incorporated into Project Design Negotiation, Board or Effectiveness Residual Risk Rating Moderate

6. Country Level. The Country inherent risk was defined as high at the 2005 Country Fiduciary Assessment Report. The report concluded that the government should be commended for the successful design of an integrated financial management system (Sistema Integrado de Gestidn Financiera -SIGEF) that was being implemented as part of a broader country strategy to automate the country’s FM system. The Government’s efforts to implement actions according to the new FM legal framework were highlighted in the Project Expenditures and Financial Accountability (PEFA) exercise jointly performed in 2007 by the European Commission (EC) and the Bank’. At a slow pace, the automation and modernization efforts ofthe FM country system continue, and SIGEF has been deployed in 90+ ministries, departments and agencies (MDAs). Consequently the FM data recording and reporting has improved its quality and timelines. Already in its last stage of design there is a sub-system for implementing entities with donor credit funds called “Unidades Ejecutoras de Pristamos Externos (UEPEX) with SIGEF interface. It is in place in all Bank operations. Its equivalent at the sub-national level (SIFMLTN) is installed in nearly half ofDominican Republic municipalities.

7. The Municipal Law2 establishes specific public financial management (PFM) regulations, defining, among other processes, the municipal budgeting, accounting, reporting, staffing arrangements, and internal control structure. It delineated the percentages for budget allocation: Up to 25% for staffing, 3 1% for operations and maintenance expenses, at least 40% for capital expenses (investment), 4% devoted to programs handling education, gender and health issues. The Law on Participatory Budgeting3 incorporates citizen’s participation in the municipal decision making process of the 40% allocated to capital expenses. The methodology was first implemented in 1999 in Villa Gonzalez, and currently it is implemented in 100+ municipalities.

8. The Bank and other development partners are currently assisting the Government in its efforts to implement the many PFM and institutional laws, enforce them and apply sanctions for deviations. Donor coordination is going on to jointly either update or perform analysis documenting reform progress, establishing a baseline, identifying quick- wins and actions needed to unblock those instances that limit reform implementation.

9. Project Level. Regardless of financial weaknesses at the country level, the impact of these risks on the Project is likely to be limited given the defined implementation arrangements. In addition, specific FM procedures developed solely for the Project with adequate level ofcontrols will be followed. Each participating municipality will subscribe agreements with the DGODT in order to receive technical assistance and investment support. A more detailed description of the Project and implementation arrangements is included in Sections I-IV, and Annexes 1-6 ofthe PAD.

’ The DR Public Financial Management Report (PEFA) can be accessed in the following link: ~ttu://ec.euroaa,eu/euroueaid/what/economic-siipport/public-finance/documents/domrepublic pefa en.pdf Law 176-07 on the National District and Municipalities, promulgated on July 2007. Law 170-07 on Municipal Participatory Budgeting sets the legal framework of its methodology.

67 10. The Project itself presents a significant risk, given the need to have coordination between the Central Government and the Municipalities, in a country where decentralized culture and inter-institutional coordination are not strong features. Also, the fiduciary entity’s strength and mandate is for planning, not implementing, and this poses a concern given the conceptual model adopted in the new legal framework based on principles or regulatory centralization and operative decentralization. The model entails the concentration of the functions of enacting regulations, and the de-concentration of the operational and management functions. Risk at the Project level is consequently rated high and substantial after mitigating measures, mainly recognizing that capacity building and technical assistance are incorporated into Project design.

11. Entity Level. Implementation Arrangements. The Project will be implemented by the Secretariat of Economy, Planning and Development (SEEPYD), which has designated its Sub-secretariat of Planning (SSEPLAN) responsible for the Project. The Project Coordinating Unit will be the General Directorate of Development and Territorial Planning (DGODT), which will be responsible for Project financial management: accounting and financial reporting, budgeting, internal control, treasury operations and external audit, acting as the fiduciary agent for the Project, including procurement. DGODT’s payroll consists of 66 employees and 3 consultants. Its FM Department has qualified staff and an additional consultant will be hired to be part of the technical team. Its organizational structure is represented below.

Direcci6n General de Ordenamiento y Desarrollo Territorial (DGODT) Organigrama

Soporte Adm. y Financier0

Planes de OT Planes UrbanolRural OT y R = Ordenamiento Terr tor a Uroano y R-ral

More information on implementation arrangements is included in the PAD, Section 1II.B.

12. Budgeting, Accounting, and Financial Reporting. UEPEX, which has embedded internal controls into the system, will be used for Project budgeting, accounting and reporting, reflecting Project categories, components and sources of funding. It will automatically prepare the Statements of Expenditure (SOEs) to be attached to withdrawal applications.

68 13, Project financial reports will consist of annual financial statements and semiannual Interim Unaudited Financial Reports (IUFRs) as part of Project progress reports. Annual financial statements (FS) will be prepared on accrual basis; compliant with International Accounting Standards; except for the Report on Sources and Uses of Funds, which will be prepared on a cash basis ofaccounting according to Bank requirements.

14. The IUFRs format are incorporated in the Operational Manual. IUFRs will include:

Sources and uses of funds: for each semester and cumulative (uses by category and component from Bank proceeds and counterpart contribution); Physical progress: Allocated budget and financial execution compared to physical progress and results achieved; 9 Acquisitions progress: Update of acquisitions according to the Procurement Plan.

15. Flows of Funds and Disbursement Arrangements. Disbursement Methods to be used under the Loan: (i)Reimbursement; (ii)Advance; and (iii)Direct Payment. The minimum value for applications for direct payments and reimbursements will be US$75,000.00.

16. Loan proceeds using the advance method would be deposited into a Segregated Designated Account (DA) denominated in US$, held at the Central Bank of the Dominican Republic (BCRD) -standard procedure in the Dominican Republic. The first request for advance will be set with a ceiling of US$750,000.00. Subsequent requests to increase advances to the DA will be flexible, based on projected expenditures sufficient for peak disbursement periods of Project execution.

17. Detailed instructions will be included in the Disbursement Letter. Project expenditure supporting documentation for the advance and reimbursement methods will be:

Statements of Expenditures (SOEs) for expenditures below the following thresholds. Payments for: Works against contracts valued at US$250,000.00 or less; for Goods against contracts valued at US$50,000.00 or less; for Consultant Services for individuals against contracts valued at US$50,000.00 or less; and for firms against contracts valued at US$100,000.00 or less. All consolidated SOEs documentation will be maintained by DGODT for post-review and audit purposes for up to one year after the final withdrawal from the loan account; Records (e.g.: copies of receipts, supplierkonsultants invoices, contracts) for all expenditures above those thresholds

18. Project expenditure supporting documentation for Direct Payments method will consist of records (e.g. : copies of receipts, supplier/ contractors invoices).

19. Funds for Investments/Subprojects: DGODT will transfer funds to participant municipalities (PM). Understanding that DR municipal fiduciary capacity is generally low, and taking into account that not all municipalities are at the same level of capability, each PM will be evaluated to determine its capacity to handle sub-project funds. They will be rated as A, B, or C or D, according to the evaluating criteria defined by the Municipal Law and detailed in the OM. A is the rating for those PM able to implement investment activities from US$70,000.00-US$200,000.00; B if able to implement investment activities ranging from US$30,000.00-US$70,000.00; C if able to implement activities from US$10,000-US$30,000.00. A technical team will be responsible for

69 evaluating participant municipalities, providing TA and training in order to assist in strengthening municipalities technical and fiduciary capabilities; consequently, building capacity and strengthening their entities.

20. Municipalities rated as A, B or C will receive a three-month advance commensurate with planned activities for a quarter, in order to create a revolving fund. They will document payments to payeeshendors, and will process subsequent replenishment requests monthly, according to the graphic below. The format to process monthly replenishment and report on expenditures will be defined in the OM. The PM will partner with DGODT throughout the implementation ofkey sub-project processes (technical and fiduciary aspects), so that implementation is carried out not only to fulfill the identified need included in the proposal, but also as critical institutional strengthening and capacity building process, with the PMactive participating using the “learning by doing” methodology.

2 1. Retroactive Financing. No withdrawal shall be made for payments prior to the date of the Loan Agreement, except that withdrawals under Categories (1) through (3) set forth in the disbursement table in the Loan Agreement, up to an aggregate amount not to exceed $4 million equivalent may be made for payments prior to this date but on or after December 10, 2009, but not earlier than 12 months from the date ofthe Loan Agreement, for Eligible Expenditures under the Project.

22. Below there is a flowchart with funds the Designated Account to the Operating Account: ‘ Notes: Graphk No. 1 Flow of Funds -Dominican Republic Munidpel Development Project Procssa for Withdrawal ApplicsUone’ (See Notes 14) 7Fw Cwnp. 2

Approves the annual Natlonal OfAca budget and UEPEX controls thf WAS do 4 of Budgeting +b not exceed budget (ONAPRES)

,- Process the deposk Resetvas Bank into the Operflong of the Account denomlnsted Revolving 5 Dominican Fund (Notd) Republic. , (BRW , 1. The timing ofthe process in each step varies mainly due to errors, returned for corrections 2. At this stage funds are available for payments to payeesivendors. To process payments, units currently take from 5-8 working days, from the requests for payment to cutting checks. 3. The flow of funds process has been streamlined and the time significantly reduced as result ofthe new legal framework in place since 2007 and the automation of some process, such as the electronic transfer from the TN .

70 4. The flow of funds for the revolving fund corresponding to municipalities implementing subprojects, including FM, is detailed in a separate flowchart. The process will be detailed in the OM. The flow of funds for the revolving fund for municipalities implementing subprojects is represented below:

Graphic1 Municipal Development Project Flowof Fundrfor ApprovedSubPrqectrinPartidpant Municipalities (RevolvingFund Denominated in RD$)

Notes 1. The Fof timemay varywhen thereareerrwswirreguiaritiesardthedocument issent backforcwrection. 2. To process check a eTransfer to the payeelvendor, the prticipantmunicipiity would take from l.Sdays, but this time could beextended if documentation if not ccmplete or accurate.

Table 7.2: Disbursements per Expenditure Category

Category Amount of the Loan Percentage of Expenditures Allocated to be financed (expressed in USD) (inclusive of Taxes) (1) Goods, consultants’ services, Non- 5,450,000 100% consultant Services and Training under Part 1 of the Project.

(2) Matching Grants under Part 2 of the 13,500,000 90% Project.

(3) Goods, Non-consultant Services, 1,000,000 90% consultants’ services, Incremental Operating Costs and Training under Part 3 of the Project.

(4) Front-end Fee 50,000 Amount payable pursuant to Section 2.03 of this Agreement in accordance with Section 2.07 (b) of the

71 1 General Conditions

(5) Premia for Interest Rate Caps and 0 Amount payable pursuant to Interest Rate Collars Section 2.07 (c) of this Agreement I TOTALAMOUNT I us$20,000,000 I I

For the purposes of disbursements:

“Training” means reasonable expenditures incurred by the Borrower for the carrying out of training activities under the Project, including reasonable costs of travel and per diem of trainers and trainees, rental of training facilities and equipment, refreshments, publishing services and printing training materials.

“Incremental Operating Costs” means incremental expenditures incurred by the Borrower for recurrent costs associated with the implementation of the Project, including: (i)office supplies, rental of office facilities and utilities associated with the PCU; (ii)transportation costs, travel and per diem cost for technical staff which will carry supervisory activities under the Project, as well as salaries of locally contracted employees; and (iii)vehicle operation, maintenance, and insurance costs.

“Non-consultant Services” means services to be contracted for, inter alia, social communication campaigns, including surveys and outreach programs and information technology (IT) connection.

23. Internal Control. Although the internal audit is a responsibility of the Comptroller General of the Dominican Republic, according to the Law 10-07 promulgated in Jan. 2007 that creates the Internal Control System, as ofthe date of this assessment, the Comptroller has not appointed an internal auditor at the DGODT. Project internal controls will consist of (i)financial control embedded in the FM country system, (ii)FM regulations established through the PFM legal framework; and (ii)internal controls to be defined in the OM.

24. External Audit Arrangements. Project annual financial statements (FSs) will be audited by an auditor acceptable to the Bank following International Standards for Auditing issued by the International Federation of Accountants (IFAC), and specific terms of reference acceptable to the Bank. Annual audits will cover all Project funding and expenditures. Audit reports will be due within four months following the end of the reported (fiscal) year (Due date: April 30). The scope of audit will be detailed in the terms of reference. Opinions will be required on: Designated Account; SOEs, Project FSs; compliance and internal controls.

25. The actions to be implemented are summarized in the table below:

Table 7.3. FM Action Plan

By October 1,2010

72 Action I Responsibility I Completion Date - Implementation of the automated information system (LTPEX) 1 DGODTlMOH I By September 15,2010 External Audit No later than six months

- Adapt the accounts classification to reflect the structure of DGODT By September 1,201 0 Project activities

26. Supervision Plan. The Project FM Supervision plan is presented in the table below. It will be adjusted according to the fiduciary performance and updated risk rating.

27. Summary and Conclusion. The financial management (FM) arrangements for loan implementation meet Bank FM minimum requirements. The FM inherent and control risks for the operation are substantial and will be rated moderate once the entity, with Bank support, implements a time-bound action addressing identified measures to mitigate risks. Financial management arrangements at the municipal level will be evaluated as part of Component 1 - Design and implementation of a new municipal organizational structure and establishment of organizational units and planning systems. Activities to address recommendations from the diagnostic work will be implemented as part of Component 1 - Strengthening of municipal administration.

28. The FM Supervision Plan defined the scope as a comprehensive supervision, including full on-site and intensive supervision, hand-holding type, covering all areas specified in the FM supervision checklist, plus specific areas of concerns and assistance to set up FM arrangements. The frequency of FM supervision will be at least quarterly the first year, and semiannual thereafter. The intervals and scope will be revised with the supervision results as indicated in the FM ISR rating.

73 Annex 8: Procurement Arrangements DOMINICAN REPUBLIC: Municipal Development Project

A. General

Procurement for the proposed Project would be carried out in accordance with the World Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004 and revised in October 2006; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004 and revised in October 2006, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual Project implementation needs and improvements in institutional capacity.

Procurement of Works: The Project will finance small works as part of Subprojects included under Component 2. Participating municipalities rated A through C may carry out the procurement of small works below US$50,000 following the procedures of Shopping as defined in paragraph 3.5 of the Procurement Guidelines. The procurement of works above US$50,000 will be carried out by DGODT. The procurement will be done using the Bank's Standard Bidding Documents (SBD) for all ICB and National SBD agreed with or satisfactory to the Bank.

Procurement of Goods: Goods procured under this Project would include, inter alia, office equipment, hardware and software under Components 2 and 3. Participating municipalities rated A through C may carry out the procurement of goods below US$30,000 under Component 2, following the procedures of paragraph 3.5 of the Procurement Guidelines. The procurement of goods above US$30,000 will be carried out by DGODT. The procurement will be done using the Bank's SBD for all ICB and National SBD agreed with or satisfactory to the Bank.

Procurement of non-consulting services: "Non-consultant Services" means services to be contracted for, inter alia, social communication campaigns, including surveys and outreach programs and information technology (IT) connection. The procurement will be done using international bidding documents agreed with or satisfactory to the Bank, following the same thresholds and procedures established for goods.

Selection of Consultants: Consultants will be selected to provide technical assistance, establishment of institutional mechanisms and preparation of the institutional strengthening program for municipalities, among others, included under the Project. Short lists of consultants for services estimated to cost less than US$200,000.00 equivalent per contract may be composed entirely of national consultants in accordance with the provisions ofparagraph 2.7 ofthe Consultant Guidelines. The selection ofconsultants will be done using the Bank's Standard Request for Proposals document (SRFP) and will be carried out exclusively by DGODT.

74 6. Where teams of consultants are not required, individual consultants will be hired to provide specialized advisory services, training, and services to support Project implementation and monitoring.

7. Training. “Training” means reasonable expenditures incurred by the Borrower for the carrying out of training activities under the Project, including reasonable costs of travel and per diem of trainers and trainees, rental of training facilities and equipment, refreshments, publishing services and printing training materials.

8. Operating Costs: “Incremental Operating Costs” means incremental expenditures incurred by the Borrower for recurrent costs associated with the implementation of the Project, including: (i)office supplies, rental ofoffice facilities and utilities associated with the PCU; (ii)transportation costs, travel and per diem cost for technical staff which will carry supervisory activities under the Project, as well as salaries of locally contracted employees; and (iii)vehicle operation, maintenance, and insurance costs. Operating Costs will be procured using the implementing agency’s administrative procedures which were reviewed and found acceptable to the Bank

9. Others: NGOs will be selected following Least-Cost Selection as defined in paragraph 3.6 ofthe Consultant Guidelines.

10. Subprojects: Component 2 will finance municipal investments required to improve coverage, quality and management of Minimum Municipality Services and infrastructure. The selection of subprojects will be done following the criteria detailed in the PAD and Operational Manual. The implementation of Subprojects will be done following the provisions of this Annex 8. The Project will observe the provisions of the World Bank’s “Guidelines: Procurement Under IBRD Loans and IDA Credits” dated May 2004 and revised in October 2006; and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated May 2004 and revised in October 2006, for the procurement ofworks, goods and services included under Subprojects. Local procurement procedures acceptable to the Bank may be used for the procurement of Small Works and Shopping of goods and non-consulting services under Subprojects, as long as the Bank is satisfied that the local procedures do not contradict the Procurement and Consultant Guidelines. Given the weak procurement capacity identified in the municipal governments it is not recommended that they carry out processes for the selection of consulting firms. If the selection of firms is required under Subprojects the DGODT shall have the fiduciary responsibility for these processes. Procurement activities carried out by municipal governments as part of Subprojects will be audited by an independent procurement auditor prior to the mid-tern review and on the last year of Project implementation.

11. Strengthening Procurement Capacity in Municipal Governments: Municipal governments will receive training on local procurement legislation and procedures as part of Component 1 to contribute to the overall objective of institutional strengthening of municipalities. Firms will be selected competitively to provide this training. The Project is also encouraged to coordinate with the Centro de Capacitacidn en Politica y Gestidn Fiscal (CAPGEFI) and the Direccihn General de Contrataciones Pliblicas (DGCP) to take advantage ofthe procurement training they have developed for civil servants.

12. Particular Methods of Procurement of Goods, Works and Non-Consultant Services. 13, International Competitive Bidding. Except as otherwise provided in paragraph 2 below, goods, works and Non-Consultant Services shall be procured under contracts awarded on the basis ofInternational Competitive Bidding.

14. Other Methods of Procurement of Goods, Works, and Non-Consultant Services. The following table specifies the methods of procurement, other than International Competitive Bidding, which may be used for goods, works and Non-Consultant Services. The Procurement Plan shall specify the circumstances under which such methods may be used. Although not anticipated, direct contracting may be used if properly justified and with the prior approval ofthe Bank.

Procurement Method (a) National Competitive Bidding (b) Shopping (c) Direct Contracting

15. Particular Methods of Procurement of Consultants’ Services.

16. Quality- and Cost-based Selection. Except as otherwise provided in paragraph 2 below, consultants’ services shall be procured under contracts awarded on the basis of Quality and Cost-based Selection.

17. Other Methods of Procurement of Consultants’ Services. The following table specifies the methods ofprocurement, other than Quality and Cost-based Selection, which may be used for consultants’ services. The Procurement Plan shall specify the circumstances under which such methods may be used.

Procurement Method (a) Quality-based Selection (b) Selection under a Fixed Budget (c) Least Cost Selection (d) Selection Based on the Consultants Qualifications fc) Individual Consultants I (d) Sinale Source Selection I

18. Review bv the Bank of Procurement Decisions

19. The Procurement Plan shall set forth those contracts which shall be subject to the Bank’s Prior Review. All other contracts shall be subject to Post Review by the Bank. The procurement procedures and SBDs to be used for each procurement method, as well as model contracts for works and goods procured, will be presented in the Operations Manual.

20. Thresholds: Thresholds for the use of the procurement methods specified in the Project procurement plan are identified in the table below, which also establishes the notional thresholds for prior review. The agreed procurement plan will determine which contracts will be subject to Bank prior review.

76 each year <50 Intl. & Natl. Shopping None Irrespective of value DC All 2.1 Subprojects <30,000 Shopping Review by independent

3. Services 3.A Firms >loo QCBS All 50 Comparison of 3 CV All <50

B. Assessment of the agency’s capacity to implement procurement

21. The Project will be implemented by the Secretariat of Economy, Planning and Development (SEEPYD) at the national level and a minimum of five and up to thirty participating municipalities at the local level. At the national level, SEEPYD has designated its Sub-secretariat of Planning (SSEPLAN) responsible for the Project. A Project coordinating unit will be established within the existing institutional structure of General Directorate of Development and Territorial Planning (DGODT) of SSEPLAN. A Steering Committee, chaired by SSEPLAN will include representation of other key agencies, including the Secretariat of Finance (SEH), the Secretariat of Environment and . Natural Resources (SEMARNA), FEDOMU and ADM, as well as representatives of the participating municipalities. The Steering Committee will provide general oversight and policy guidance for the Project

22. DGODT is headed by a General Director supported by technical and financial management teams. The procurement function has been carried out by the Financial Management Department. An assessment of the capacity of the Implementing Agency to implement procurement actions for the Project was carried out on March 2009. The assessment reviewed the organizational structure for implementing the Project and the procurement related,documents recently developed by the DGODT.

23. The key issues and risks concerning procurement for implementation of the Project have been identified and include: (i)limited prior experience in Bank’s procurement within the

77 DGODT and municipalities; (ii)overall weak procurement environment at the local level; (iii)limited planning and follow-up capacity, including supervision of contracts; (iv) lack of previous experience in the use of standard bidding documents, rules and procedures; and (v) weaknesses identified in municipal governments. The overall Project risk is high. The mitigating measures which have been agreed are:

DGODT will recruit a Procurement Specialist with relevant experience in Bank’s procurement, to be dedicated full time to the Project, before September 1, 20 10. Independent Procurement Audits of Subprojects to be carried out before the mid-tern evaluation and at the last year of implementation of the Project. Submission to the Bank of a preliminary Procurement Plan to cover the first 18 months of the Project. Completed before appraisal. Preparation of an Operations Manual (OM) with a specific chapter on procurement, detailing all the procedures and channels of responsibilities and flow of documentation. The OM shall also include the standard bidding documents for each procurement method. Completed during appraisal. Establishment of a procurement filing system, to be subsequently submitted for Bank’s no objection by October 1, 2010. Organizing a launch seminar before Project effectiveness.

C. Procurement Plan

24. The Borrower developed a procurement plan for Project implementation which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the Project Team on December 9, 2009 and is available at DGODT. It will also be available in the Project’s database and in the Bank’s external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual Project implementation needs and improvements in institutional capacity.

D. Frequency of Procurement Supervision

25. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the Implementing Agency has recommended at least one post- review mission per year, when not less than 1 in 10 contracts should be reviewed. Procurement activities carried out by municipal governments as part of Subprojects will be audited by an independent procurement auditor prior to the mid-term review and on the last year of Project implementation.

E. Details of the Procurement Arrangements Involving International Competition

26. Goods, Works, and Non Consulting Services. (a) During appraisal no contract packages were envisioned to be procured following ICB and direct contracting, however, in the event that these are identified, the following must apply: (b) ICB contracts estimated to cost above US$3,000,000 for works and US$250,000 for goods per contract and all direct contracting will be subject to prior review by the Bank. (c) The first two NCB contracts for works and goods each year will be subject to prior review by the Bank. (d) The first contract for small works of each year will also be subject to prior review by the Bank.

78 27. Consulting Services (a) List of consulting assignments with short-list of international firms.

(b) Consultancy services estimated to cost above US$lOO,OOO per contract and all single source selection of consultants (firms) will be subject to prior review by the Bank.

(c) Short lists composed entirely of national consultants: Short lists of consultants for services estimated to cost less than US$200,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines.

' Quality and Cost-Based Selection (QCBS) uses a competitive process among short-listed firms that takes into account the quality ofthe proposal and the cost of the services in the selection ofthe successful firm.

79 Annex 9: Economic and Financial Analysis DOMINICAN REPUBLIC: Municipal Development Project

The Project will strengthen municipal governments in rural, economically disadvantaged regions of the Dominican Republic resulting in their increased capacity in municipal planning, in the provision of basic municipal services and in the allocation of municipal expenditures as required by new municipal legal framework. Thirty municipalities, selected based on poverty related criteria, will be invited to participate in the Project. Part of them will subscribe agreements with the DGODT to receive technical assistance and investment support.

Annex 4 describes the specific Project contributions to participating municipalities. Essentially, these involve support for: municipal development planning; institutional strengthening (organization, management and capacity building for specific services); and municipal investments. Thus Project costs will be limited to such contributions. Project benefits will essentially consist of increased outreach and improved quality of municipal services; and improved effectiveness and efficiency of municipal governments in the provision ofmunicipal services.

A financial and economic analysis for the Project requires costs and benefits valuation. However, as described in Annex 4 and other sections, the public nature of municipal services does not lend itself to objective valuation of benefits. The financial feasibility is based on a sensitivity analysis on expenditures of six municipal governments. Whereas the economic feasibility is based on a minimum impact-benefit analysis' of municipal investments and capacity in the same six municipalities. The major data sources for these analyses are the municipal assessments (in project files) undertaken for five representative municipalities during Project preparation, and a detailed financial report of a sixth representative municipal government (in project files). The conceptual framework and summary results for the financial and economic analyses are presented in the following sections.

Financial Feasibility

4. The financial analysis of the Project focuses on the financial feasibility for municipal governments to participate. With institutional strengthening actions, these governments are expected to enhance their fiscal revenues in the medium-to-long term. However, the most direct Project impact would be generated through leveraging municipal expenditures on technical assistance and training and investments for Minimum Municipality Services, foreseen by the Municipal Law. Project funded technical assistance and training (TA) will be limited by the counterpart funds which municipal governments can provide. Meanwhile, Project funded works and assets (W&A), necessary to improve municipal infrastructure and services, will be limited by both: the availability of municipal counterpart funds and the operating costs since a greater outreach of municipal infrastructure and services is likely to increase personnel and operational expenditures for maintaining infrastructure/assets.

' Similar conceptual application described in World Bank Technical Paper No. 349, New Evaluation Procedures for a New Generation of Water-Related Projects, p. 25-48. Evaluating the WRMP: the Minimum Impact Approach. December 1996.

80 5. The counterpart financing expected from the 30 municipalities in the Project totals US$ 1.12 million, or less than US$2 per capita over 2-3 years. This compares with about $54 per capita that the 30 municipalities receive in transfers from the national government each year, plus what they raise from local sources (less than 10% oftheir overall income). So the municipalities would need to divert about 1-2 percent of their less productive outlays to cover the counterpart contributions. The total value of the infrastructure investments would be about US$17 per capita, around one third of the total average municipal budget. If operating and maintenance expenses are 10 percent of the initial capital outlay-an upper bound for most basic urban infrastructure and follow-on costs for TA would be even less-then the municipalities would need to divert around 3 percent of their annual budget to operate and maintain the new infrastructure installed by the Project. Some of this would be on top of the counterpart outlays, but most of it would come later, after the investment expenses were past. In summary, the budgetary burden of participating in the Project would be well under 10 percent of their revenue and usually closer to 5 percent for the average municipality, so participation should be financially feasible.

6. A more sophisticated and disaggregated financial analysis was also done, using actual expenditure data from six municipalities, broken out by categories: personnel expenditures (PE), operational expenditures (OE), works and assets for municipal services (W&A), technical assistance and training (TA), other expenses on Minimum Municipality Services (required by law); and other expenditures (including expenditures on services mandated to other public institutions and unclassified expenditures). Table 9.1 presents a summary of results for this analysis. Unless specified otherwise, all values in Table 9.1 are expressed in 2008 Dominican Pesos (DOP). How does a US$2-3 dollar per year cost of participating compare with the overall budget picture for these six municipalities? It varies. In Polo and Bayaguana, which are close to the national average the burden should be hardly noticed-only 5-8 percent of total outlays and less than half of miscellaneous expenses. In Tamayo it could be the most difficult, requiring a local counterpart resource equivalent to over 205 ofthe 2008 budget (estimated). To participate, municipalities need to show how they plan to operate andor maintain investments to be co-financed by the Project. Furthermore, all of the six municipalities analyzed received less in budget transfers than the national average, and if their transfers were brought up to the national average, then the additional transfer resources would be more than enough to pay for the local counterpart and other costs ofparticipating in the Project.

Economic Benefits and Costs

The economic analysis ofthe Project includes: (a) the net economic benefit ofinvestments on “minimum municipal services;” and (b) an increased capacity of municipal governments to execute municipal investments. With respect to the first dimension, municipal services add economic value if the benefits to the municipal population are greater than the expenditures incurred to provide them. For the purpose of this analysis, the minimum benefit or impact was defined as the productive adult-labor time saved by municipal investments. In other words, if investments such as rural roads andtown streets were not improved, adult people (who are formally and informally employed and generally the source of income for their families) will be affected in their mobility and labor time availability. While there would be additional benefits derived from TA and W&A, such as quality oflife and health, labor-time saved to adult population is feasible to

81 value and thus to assess minimum impacts that would be necessary to make the Project economically beneficial.’

8. Table 9.2 presents a summary of results. Labor availability per working day is used as an indicator to value a minimum likely impact. Adult labor time is valued based on the 2008 minimum rural wage of unskilled labor. Estimated adult worker versus total population ratio is 2/5. The calculation also assumes that the operating and maintenance costs of the infrastructure are equal to the initial costs, a conservative estimate that would be high for many types of subprojects. With these assumptions, the subprojects would need to save 4.0 dayslyear of labor time per worker over the life of municipal investments, given that such investments could last at least 8 years (two 4-year periods of municipal administration), and the annual discount rate (opportunity cost of capital) is 12%. If only 20 municipalities, out of the 30 target municipalities, were able to participate in the Project, the minimum labor saving per worker would need to be 6.0 daydyear. Since the time of many workers is worth more than the rural unskilled wage, and people other than workers will benefit from the Project, these estimates are upper bounds on the time-saving needed to make the subprojects worthwhile. The value of the actual subproject investments will depend on how they are chosen and implemented, and this calculation can provide a benchmark against which to assess the subprojects.

Table 9.2: Benefits Assessment of Municipal Investment Component in PRODEM

30 Municipalities ’ 20 Municipalities ’

Project cost per person (US $) $ 16.92 $ 25.38

Project cost per worker (40% of population) $ 42.29 $ 63.44 0 & M cost for new investments / worker $ 42.29 $ 63.44 Total cost / worker $ 84.59 $ 126.88

Labor saving needed to have benefits exceed costs Average Rural Unskilled Wage - DR Peso / day 150 150

Minimum Rural Unskilled wage - US $ / day $ 4.24 $ 4.24

Minimum annual benefit / worker (US $) $ 17.03 $ 25.54

Labor-savings to cover cost over the life of investments (daydyear) 4.0 6.0 1 I I ‘US $ 12.43 million, for a total population of 734,593. ’US $ 12.43 million, for a total population of 489,728 (or 734,593 divided by 30 times 20). 3Annuity based on: total cost per worker as present value, life of 8 years, annual interest of 12%.

9. With respect to the second dimension, the benefits of the Project could be assessed in terms of a potential increase of municipal investments, as a result of the basic institutional strengthening of municipal governments. Ideally, municipal governments could better identify and execute additional investments needed for municipal services, due to greater transparency of municipal administration and more efficient procurement and financial

’ Cost and time savings to beneficiary population (users) are commonly selected to value benefits of social infrastructure projects, such as roads and facilities to provide public services.

82 management. In this context, the Project investment, aimed particularly at institutional strengthening ofmunicipal governments and institutional support system at national level, (component 1 and 3) is around US$ 9.2 million. Given that the impact of such an investment could last at least 8 years (two 4-year periods of municipal administration), and the annual discount rate (opportunity cost of capital) is 12%, the minimum impact should be an increased investment efficiency nationwide of around US$ 1.8 million per year’. This figure is about 1% of the capital investment transfers to municipalities actually executed in 2008-US$ 174 million. So we can expect that the institutional strengthening parts ofthe Project, if done well, will more than justify the expense.

Subproject Viability Appraisal

10. As stated in Annex 4, to ensure that Project investments are executed efficiently, a minimum cost methodology would be followed in subproject preparation and appraisal. The Project will co-finance: TA to deliver expected results at the minimum cost; and W&A with lowest unitary investment, operation and maintenance costs, given at least a minimum standard of quality. At present, there are some benchmarks for public works with respect to ceilings on unitary costs. However, some municipalities consider such benchmarks are significantly above their real costs. Therefore, a review of reasonable unit costs should be carried out during Project start-up, based on data-bases of municipalities themselves, national institutions and recent municipal development projects. A preliminary review of some municipalities, and projects recently completed, show that even though information exists regarding unit costs on investments; there is partial and disperse information on operation and maintenance costs, and very little information with respect to direct beneficiaries’ outreach ofmunicipal services and investments. At present, it is difficult to assess reasonable ceilings for investment cost per direct beneficiary. Therefore, this initial cost reference review should close the information gaps, to allow for proper appraisal ofinitial subprojects.

11. Once appropriate cost references exist, TA would be appraised based on minimum investment cost per municipality or per direct beneficiary population (e.g. a specific community, the whole municipal population, etc.) In turn, W&A would be appraised based on minimum investment and operatiodmaintenance cost per infrastructure unit (meter of sidewalks, km of access road, squared meter of park, etc.); per direct ’ beneficiary; and per service unit (cattle heads slaughtered, road users, etc.). Maintenance needs should be planned for and demonstrated how the municipality intends to fund both operations and maintenance. W&A maintenance will be confirmed for each subproject. Doing adequate maintenance of completed projects would be a condition for accessing additional funding for other municipal investments.

’ Annuity calculated based on a present value of US$ 9.2 million, an amortization period of 8 years, an interest rate of 12%.

83 II Annex 10: Safeguard Policy Issues DOMINICAN REPUBLIC: Municipal Development Project

Environmental Aspects

1. Environmental Impacts. During Project preparation, a series of studies and instruments were developed in order to assure the social and environmental sustainability of the Project, and to comply with the national environmental legislation, and with the Safeguard Policies of the Bank. The Government of the Dominican Republic through SEEPYD, as the institution responsible for the Project implementation, is committed to ensure the compliance with the above mentioned safeguard policies ofthe Bank.

2. In accordance with the Environmental Assessment Policy, the following documents were developed during Project preparation: a) Environmental and Social Management Framework (ESMF); b) Environmental Assessment Report (EAR); and c) Municipal Environmental Analysis (MEA). These documents did not include a specific analysis of subproject investments because in the first stage of the Project a participatory process and a demand driven approach will be put in place. Consequently the first year of the Project financing will focus on institutional strengthening and the participation process to identify the municipal subprojects.

3. The ESMF developed during Project preparation will be applied to assure the compliance with Dominican environmental law and to determine whether any Bank’s safeguards Policies have been triggered. During the execution of the subproject cycle, a three tiered monitoring system will be used to ensure the proper application of environmental safeguards. These procedures are defined in the Project Operations Manual and begin with the identification of subprojects within the municipalities. During the preparation of the Municipal Development Plans (MDPs) municipalities will screen subprojects in accordance with procedures provided in the Project Operations Manual. This screening process is designed to provide an initial determination of potential environmental impacts and identify whether more comprehensive study is warranted at the MDP’s issuing stage. Based on the findings of the screening process, applicable safeguards will be identified and applied as required during subproject preparation. Additional studies and evaluations will be completed as part ofthe preparation phase.

4. As part ofthe ESMF, a Strengthening Social and Environmental Management Plan (SSEMP) was prepared in order to assure adequate social and environmental management during Project implementation. The documents before mentioned were disclosed on May 1, 2009 and are available in the INFOSHOP of the Bank according to World Bank disclosure policy, and in the web page ofthe SEEPYD.

5. Environmental Assessment Findings. Based on the findings of the environmental assessment, potential environmental and social impacts associated with the Project are related to the investment activities contemplated under component 2 ofthe Project. Works are focused on relatively small projects relating to management and maintenance ofmunicipal infrastructure and services. Overall, these activities will likely fall under Category C as defined under OP/BP 4.01. There is a possibility that some works may be classified as Category B. No works or activities

85 that would meet the criteria for Category A will be funded under this Project and none are envisioned.

6. The type of works anticipated include maintenance related activities such as road repair, curb and gutter installation, maintenance and repair of flood control structures, water services and similar activities. Additionally institutional support will be provided in the development and improvement of municipal service activities such as emergency response, disaster preparedness. Under these activities, service improvements can be realized through improved operational management and purchase ofnew equipment.

7. No new facilities or major infrastructure construction are contemplated under the Project. New buildings will not be constructed, new irrigation or water supply systems will not be considered.

8. In general, the nature of the works envisaged would not have significant direct or indirect socio-environmental impacts that could endanger the natural or social environment in the area of influence where works would be carried out. Moreover, the measures or actions to prevent, mitigate, and/or compensate the potential socio-environmental impacts will be identified with a proper management, and the social sustainability of its subprojects would be assured. In this regard, the Project as a whole has been classified by the Bank as a “Category B”, in accordance with the Environmental Assessment Policy [OP 4.011.

Infrastructure will be restored to its function and service levels. 0 Infrastructure will be strengthened to improve disaster resistance in their present locations. No resettlement or purchase of lands will occur under the Project. 0 Anticipated negative environmental impacts are those common to construction and limited to the construction site and duration ofthe construction activity, and therefore can be managed and mitigated using good engineering practices. Positive impacts result from the restoration and rehabilitation ofservices related to those supplied directly by the municipalities. i 9. Environmental Compliance. Environmental management and compliance in the Dominican Republic is executed under law 64-00 (largely supported by a previous Bank project) through the Secretario de Medio Ambiente y Recursos Naturales (SEMARENA). All agencies and private enterprises are required to comply with national environmental law which includes a detailed environmental assessment procedure developed as required under Law 64-00 Environmental Management and Natural Resources articles 9, 17, 18, 38 a1 48, 107, 109, 150 y 175; and regulations for the system of permits and licenses approved by the Secretary of Environment. This system generally meets or exceeds Bank policy requirements including the requirement for an environmental management plan for construction works.

10. Under the Project, municipalities will develop Municipal Development Plans (PMD in Spanish) for review by the Bank and DGODT. Among other attributes these plans will contain a Local Investment Program. Within this program, specific investment activities will be defined

86 and subject to review by the local environmental management staff, DGODT and ultimately the Bank as a requirement to access funds under the Project.

11. In the case of the works identified in this Project as category Cythe Project’s environmental management framework includes a series of environmental contract clauses included in all contracts to deal with the direct impacts ofconstruction.

12. Works will be screened the implementing agencies and by the Bank and as required to determine the potential environmental compliance requirements, in accordance with Bank safeguards. Upon the Bank’s request, the Borrower will be responsible for implementing any necessary safeguard compliance provisions.

13. Environmental Management Framework. Environmental compliance for Project activities will be managed principally at the level of the municipality with oversight provided by DGODT. Under the Project, municipalities will receive support for the development and strengthening of local environmental management capacity including the establishment of environmental support units at the municipal level.

14. Existing Institutional Capacity. Direccidn General de Ordenamiento y Desarrollo Territorial - The DGODT has recently conformed a Environment and Risk Management Unit responsible for environmental management (Unidad de Gesti6n Ambiental y de Riesgo). Also, this Unit would specifically be the responsible for the application of the Environmental Management Framework (EMF) developed for the Project. This Unit is constituted by eight specialists with profiles on geography, development, resettlement and environmental engineering which would have the primary responsibility for the EMF implementation and oversight at municipal level.

15. Municipalities - The central government and particularly the Secretary of Environment and Natural Resources (SEMARENA) are currently implementing a series of initiatives to environmental management at the municipal level. Law 64-2000, Environment and Natural Resources, and law 176-2007, National District and the Municipalities are the legal framework for the creation of the Municipal Environmental Management Unit. Currently 94 of the 120 Municipalities have these unites and all the Municipalities proposed in the Project have these Units.

16. Through the USAID Project for Strengthening Environmental Protection Policies (IPEP), SEMARENA has developed a Guide for the Municipal Environmental Management. This guide defines the structure for the environmental management at the municipal level including the Municipal Environmental Management Unit (UGAM) and the Forum for Municipal Environmental Management (FOGAM) as basic structures for the implementation of the Environmental Municipal Management Plan (PGAM). Among other activities this guide calls for the development of municipal environmental ordinances. These activities are supported under the Project with the development of municipal environmental management capacities under component 1.

87 17. Environmental Review. Environmental review will begin at the municipal level where initial screening activities will be conducted by their respective environmental staff when MDP are being prepared. Guidelines provided both under Dominican law and Bank requirements will be applied to classify specific works activities. This guidance will be provided in the Project Operations Manual.

18. DGODT will provide an oversight review to verify the findings of the municipality and the Bank will provide a final review of the PMD to verify eligibility to access funds.

19. During this review, in the unlikely event a Category A project is proposed, the Project will be rejected from the portfolio. While unlikely, projects classified as category B will be required to comply with both Dominican Law and Bank environmental safeguards. For projects ofthis type Dominican law requires the preparation of an environmental assessment and impact mitigation plan in order to receive approval from SEMARENA. Projects of this type cannot proceed under Dominican law without approval from SEMARENA and the issuance of an environmental certificate (Permiso Ambiental).

20. Environmental Contract Requirements. For category C projects, the potential impacts are related directly to the construction activity and cease when construction is finished. These types of impacts will be managed by the application of Standard Environmental Compliance Contract clauses to deal with issues such as worker sanitation, noise control, management of hazardous materials and petroleum products, chance find of artifacts, and other activities related to small works projects.

2 1. Detailed screening procedures and environmental management requirements will be included in the Project operations manual to include Bank screening requirements, application of Dominican National Environmental Law, and the inclusion of environmental contract clauses for uncomplicated works activities. As part of the certification process for the participation of municipalities in the Project, each municipality is required to adopt their own Operations Manual. Environmental management requirements will be included reflecting the implementation ofthe Project level Operations manual.

22. Coordination with other National Agencies. In some cases, other Dominican national agencies will need to be consulted depending on the nature of the project. Usually, a works project requiring this level of interaction will also require a separate EA as part of the works planning process. Such agencies include INAPA (drinking water), INDRHI (Irrigation and watershed issues), SOPEC (public works, roads) as necessary.

Social and Involuntary Resettlement

23. Involuntary Resettlement (OP/BP 4.12). The Project does not trigger OP/BP 4.12 because it does not involve land acquisition, physical relocation or adverse impacts on livelihoods resulting from restricted access to land or other resources, as defined by OP/BP 4.12. The subproject eligibility criteria and safeguard screening process would exclude any proposal that could involve such impacts. Additionally, a “negative list” ofsubprojects including all activities related

88 to new road construction, solid waste processing and waste management, as well as other activities involving land will not be financed by the Project.

24. Eligibility criteria for subprojects. A screening process will be applied by the DGDOT to all civil works. In order to ensure that OP4.12 is not triggered, sub-projects under the “negative list” will not be financed by the Project, which includes the following: Sub-projects that require any land acquisition or physical relocation or adverse impacts on livelihoods resulting from restrictions access to land including; all sub-projects of new road construction of roads; subprojects that will affect access to natural resources, causing social impacts and loss of income or food sources; subprojects involving any activity on solid waste and waste management.

25. Existing Institutional Capacity. Direccidn General de Ordenamiento y Desarrollo Territoria - The DGODT will be responsible for the monitoring so as to the OP/BP 4.12 will not be triggered. The initial screening process will be at the MPD preparation phase and the Bank will provide ongoing support and will review it with the DGODT in all missions.

26. Indigenous Peoples (OP/PB 4.10). This safeguard is not triggered. During the assessment, no groups identified as “Indigenous Peoples” in relation to this safeguard are located in the Project area and none are expected. For the purposes of this safeguard, Indigenous Peoples include persons characterized by: (i)self-identification as members of a distinct indigenous cultural group and recognition of this identity by others;‘ (ii)collective attachment to geographically distinct habitats or ancestral territories in the Project area and to the natural resources in these habitats and territorie~;~(ii) customary cultural, economic, social, or political institutions that are separate from those of the dominant society and culture; and (iv) an indigenous language, often different from the official language ofthe country or region.

Relationship to Other Bank Safeguards

27. Environmental Assessment (OP/BP 4.01). An environmental assessment was prepared for this Project concluding that Project activities contemplated under the Project are largely Category C in nature with a possibility for the proposal of Category B projects. Specific subprojects will be identified during the execution of the Project as part of the institutional strengthening component. In this phase they are required to create MDPs which will identify infrastructure activities to be executed under component 2 ofthe Project.

28. Natural Habitats (OP/BP 4.04). The Project will not execute works in protected areas or natural habitats. However this safeguard is triggered given the rural location for many of the participating municipalities and their proximity to protected areas and the possibility that activities could trigger OP 4.04. All proposed works will be reviewed for their potential impacts to these areas and procedures will be provided in the Project Operations Manual.

29. Forests (OP/BP 4.36). During the preparation of the Project, it was determined that no activities, for example, forest harvesting and planting are contemplated under the Project which would involve forest resources.

89 30. Pest Management (OP 4.09). Pest Management was originally included to assure that activities related to solid waste management were adequately addressed. After consultation with the counterpart, solid waste management activities have been eliminated from the Project.

3 1. Physical Cultural Resources (OP/BP 4.11). No works are anticipated in known sites or areas containing any resources of cultural or historical significance. There is, however, always a potential for “chance find discovery ” when case of civil works are involved and procedures are included in the Operations Manual addressing “Chance find “ compliance procedures.

Social

32. It is estimated that out of the 30 municipalities where the Project is to be implemented one municipality has 100,000 inhabitants, nearly 50% percent are small municipalities with less that 15,000 inhabitants, while the other 50% are considered medium size with between 15,000 and 56,000 inhabitants. On the basis of the social assessment (SA) and in consultation with the affected local communities the participation of local public and private institutions and organizations are incorporated into the Project design. The measures through which the Project will ensure that most vulnerable communities participation are: (i)to support local social organizations to ensure that they receive social and economic benefits and with special emphasis on vulnerable population through the improvement of public services provision; (ii) to implement accountability mechanisms to support both the improvement of the supply and demand sides ofgovernance through the implementation of territorial plans and local community development plans and participative budgets; iii) to carry out capacity building for both community organizations and municipalities ensuring production and access to information on the municipalities performance. Further details are provided in the remaining text ofAnnex 10.

Public Consultations

33. The 30 municipalities that fall within the Project are mainly composed by rural settlers which are amongst the 49 poorest municipalities of the country with 72% average of poverty rate. On the basis of the social assessment (SA) and in consultation with the affected communities the SA included the following.

Summary of Social Assessment

34. The government of Dominican Republic conducted a comprehensive social assessment (SA) in 5 selected municipalities according to criteria that shared social conditions, poverty levels, rural population density and the municipalities selected were: Bayaguana, Padre las Casas, Las Matas de Farfan, Tamayo y Polo. The full report and detailed documentation on the consultations carried out as part of the SA process are available in the Project file. The report is also available on the Project website: http://www.stu.gov.do/

35. The main areas covered by the social assessment include (i)social objectives; (ii)legal framework; (iii) municipalities selected and stakeholder analysis; (iii) social context, opportunities and limitations for the Project, social impacts of the Project and measures to mitigate; (iv) key inputs to the Project, and risks; (vii) monitoring and evaluation recommendations.

90 36. Social objectives. The objectives ofthe Project from a social perspective are: Social inclusion to reduce the current situation ofmarginalization and social exclusion of different social groups located in the Project area, by providing better access to basic services. Support local development and social and territorial cohesion in selected municipalities by promoting local good governance. Promote effective participation of civil society organizations in local government. The proposed Project will support civil society engagement thorough: (i)dissemination of information to these organizations regarding opportunities provided by the Law to participate in local government decision making; and (ii)technical assistance to community organizations, as needed, to strengthen their internal organization, including financial management and their capacity to communicate demand and development proposals to municipal governments. 0 Foster social accountability and transparency to enhance investment in public expenditures for rural infrastructure subprojects based on participatory development plans by strengthening weak institutions and improving institutional coordination at territorial level. Improve the quality of basic services provision by investing in drainage and sanitation, rural roads, and water supply. Gender equity to provide of capacity-building activities to target vulnerable groups such as women. The Project would also seek to enhance women’s participation in decision making.

37. Legal framework. The Law 176-07 indicates that the municipalities have a number of own competences in their territories related to transportation, urban planning, infrastructure, environment protection, promotion of economic development as well as the provision of some services. The Law also indicates that ‘public services’ that are under the purview ofthe national institutions (health, education, drinking water, electrification, etc.) can be ‘coordinated’ or ‘shared’ or ‘delegated’ to the municipality. The mentioned Law establishes that the municipality has not only a mandate but also an obligation to provide 18 basic municipal services. The Project in the case of community services, subprojects should have to be identified and prioritized by the community through the Participative Budgeting pr~cedure.’~

38. The Law 176, on Participatory Budgeting indicates that the current legal framework, which was passed by the Congress in 2007, establishes the communities’ participation for the definition of the social services demands, prioritization ofinvestments though consensus and establishment ofmechanisms of social control for the municipal budgeting oversight.

39. Articles of the Law 176-07, not yet regulated, promotes the establishment of mechanisms whereby municipalities link with civil society organizations and other governmental institutions at local and national levels to allow participation in decision-making processes. The Law 176-

The services at municipal level can be classified according to their scope: (i)municipal services concerning the municipal territory; (ii)community services that serve communities circumscribed to the territory of these municipalities.

91 07, includes 16 articles describing the competences of so-called “local agents” in charge of linking municipalities and local communities to ensure their participation’ 6, including allowing municipal financial support for civil society and nonprofit organizations.

40. Stakeholder groups. Main stakeholders include: . Municipalities 30 small and medium size municipalities that share similar poverty rates, with a large number of rural households’ income depending on agriculture activities, poor public services provision and lately confronting high migration rates. Municipalities are represented through a municipal council, a sindico, and the Assembly (Juntas) of Municipal Districts. The Project will actively promote equal access and involvement for community members with special attention to vulnerable groups and women. The community members will participate in the Project by submitting proposals under Component 2, which provides financing for subprojects carried out by rural families . Community Organizations-three levels of community organizations were identified at local level:(i) grassroots organizations; (ii)second tier organizations; and (iii)third tier level). As part of Component 1, technical assistance will be provided to strengthen community organizations to allow for their more effective participation in local government. This will include: (i)dissemination of information to these organizations regarding their new rights and opportunities provided by the law to participate in local government; and (ii)technical assistance to community organizations, as needed, to strengthen their internal organization, including financial management and their capacity to communicate concerns and proposals to municipal government. . Civil society organizations-there are two types of civil society organizations that play a role in the Project: (i)NGOs that will receive technical assistance from the Project; (ii) and NGOs which can support coordination and planning development at the municipal level.

Table Ale1Five municipalities selected for the Social Evaluation Density of % of illiterate Population % ofpoor % of rural Municipality Population people 2007 people population (in h.hm2) Bayaguana 36,212 68.5 41.6 37.6 10.8 Padre Las Casas 24,453 76.8 62.3 40.4 19-4 Las Matas de Farfan 51,955 72.9 53.1 74.5 13.5 Tamayo 25,467 71.1 62.2 51.5 15.3 Polo 10,241 85,l 77.8 100.2 19.6 Total (5) 148,328 73.0 50.3 53.9 13.3 Total (30) 734,592 72.5 53.3 65.9 14.9 Total (NACIONAL) 9,361,416 42.2 36.4 . 177.0 6.6 Source: Population was based on the 2007 Population Census; poverty data is based on a STP/ONAPLAN 2005 Study.

41. Consultations. The government’s social assessment (SA) for the Project was based on two main types of information: (i) secondary data sources such as existing studies of 30 municipalities selected, statistical surveys, census reports, and general bibliography, and (ii) primary data sources from the five selected municipalities such as interviews, focus groups, participatory and consultation workshops, and informal conversations with stakeholders. Five

92 community workshops, five focus groups, in-depth interviews with community leaders and local organizations representatives, were carried out.

42. Consultations with civil society. Between September and November of 2007 about 404 CSOs were identified in the five selected municipalities: Bayaguana, Las Matas de Farfan, Padre de las Casas, Polo, Tamayo (see Table A1O.l). Among them 38% were associations of rural farmers, 14% religious and 13% women’s organizations. According to consultations carried during the social assessment between 69% and 98% have implemented or participated on development projects. The SA confirmed that the CSOs are not proactive participants of municipal planning and that certain community organizations have links with political parties becoming a source of tension with the municipality, when belonging to a political opposition.

Table A 1-1 - Main organizations - associations of social actors

Las Matas de Padre Las Bayaguana Polo Tamayo Farfan Casas Centro de Instituto de Movimiento de Fundaci6n para Estudios y Desarrollo de Campesinos el Desarrollo Promocibn Economia Visi6n Mundial Comunidades Comunitario Social Asociativa NGO Unidas (MCCU) (FUDECO) (CEPROS) (IDEAC) Third level org. NGO NGO NGO Centro Zonal De Promoci6n de la Federaci6n de Promoci6n de la Pastoral Social Mujer del Sur Sur Futuro Caficultores del Mujer del Sur (CESOPAZ) (PROMUS) NGO Sur (FEDECARE) (PROMUS) NGO NGO Third level org. NGO Coordinadora Fundaci6n de Consejo para el de Juntas y Cooperativa de Mujeres Desarrollo Parroquia San Asociaciones Mujeres Simona Organizadas de Comunitario Antonio Jose Mercedes Esmeralda Feliz Bayaguana (CODECA) Religious org. Second level Second level org Second level org. NGO org Junta Federacibn de Cooperativa de Confederacion Campesina La Juntas Productores de Junta Campesina de Desarrollo Nueva Campesinas Cafe Organic0 de de Tamayo Familiar Luchadora (FERROCAN) Polo Second level org NGO Second level Second level org Second level org 0% Fundaci6n para Junta el Desarrollo de Campesina El Junta Campesina T6-Mujer Las Matas de Grupo Lemba Montazo de la Zona Caiiera NGO Farfan NGO Second level Second level org (FUNDEMAFA) NGO 0% Asociaci6n para Federacidn de Fundacion de Junta el Desarrollo de Productores del Juntas de Campesina de la Cuenca del Bosque Seco del Vecinos de Gajo de Monte Rio Macasias. Sur Bayaguana Second level (AROMA) (FEPROBOSUR) Second level org NGO 0% Third level orB

43. Representatives of these CSOs attended five workshops and were consulted on five main topics: (i)identification of social groups to be addressed by the Project; (ii)opportunities for

93 interrelationships between the municipalities and local communities demands; (iii)existing and functioning mechanisms for participation by CSOs and NGOs and building partnerships with municipalities; (iv) presentation of the Project design and components; (v) recommendations for the Project design and components.

44. Other consultations. The Project team also discussed rural with local leaders about the nature and profile of the local COS organizations and existent alliances among organizations in each municipality.

45, Key findings and inputs to the Project design consultations a. Vulnerable groups have limited access to public services and rural roads, water and sanitation are precarious. Municipalities provide limited services and lack quality in services provision. The Project should be supporting the participation of community associations/organizations and provide opportunities along with capacity building to implement social oversight mechanism.

ible A-10-3 Vulnerablc Zroups and their charr teristics by municipalil

Buyaguuna Las Matas de Farfan Padre Las Casas Polo Tamayo

Group of rural communities in the Group of urban Group of rural Group of residents of surroundings of Parque Female Group communities communities bateyes Nacional Jose del Carmen Ramirez Men and women residing They live in They consider Young and older women, in different bateyes in neighborhoods with very They live in high areas themselves abandoned most of them without Tamayo, generally precarious water and by the government partners Haitians or Dominica- electricity supply Haitians They admit that even Most of them came in They own dry lands, though there are They lack traced streets, with an extreme without irrigation They live in the high improvements in the sidewalks, curbs or vulnerability due to the systems. They do not area of Padre Las Casas. treatment to Haitians, sewage system effects of cyclone hold titles on them. discrimination situations Georges, in 1998 exist Many years ago they The majority works in Dwellings on bateyes are subsisted growing With streets full of big land within Parque Some are young single generally very precarious peanut, which they are water puddles Nacional Jose del mothers or mud houses, all in a reintroducing Carmen Ramirez bad condition The lack of water makes They live in agriculture an extremely They practice migratory The majority do not own High levels of violence overcrowding and risky activity agriculture homes promiscuity conditions They are jobless or are They face AIDS, skin They do not have access They face the risk of Inhabited by occasional seasonal workers with cancer and child to loans for production being moved as working low income workers very low or unstable malnutrition within the Park is illegal income They have nutrition Little help from the Beneficiaries of national They receive sporadic Many work in dry lands, problems, specially municipality or local social assistance technical assistance vulnerable to drought. children programs Many families subsist They face serious land They have schools but working as day laborers They have serious food Rural Communities communication problems there are discrimination outside their limitations problems communities Agriculture without The daily income is Bad road conditions The main employer is

94 Bayaguana Las Matas de Farftin Padre Las Casas Polo Tamayo

irrigation in lands within between RD$I50.00 and cause marketing the private Consorcio Parque Nacional de 10s RD$250.00. The average problems CaAero, that pays low Haitises. weekly income is wages and has developed RD$700.00. a policy of cutting jobs

Access roads in bad Apart from taking care They work the land as a The Consorcio CaAero condition. Very of their homes, women family and have very has polluting practices precarious water and have to raise animals low incomes that destroy farms and electricity services. bateyes Women also carry water Roads within the bateyes Many have been moved for the house from long Out Of Parque National are in a very poor distancesand wood for de 10s Haitises. condition cooking The municipality is not The municipalities and responding to the the Consorcio CaAero do necessities of the not provide services communities

b. Support community Organizations participation designing Proiect activities. The communities expect to be considered in several Project activities and to be convoked to participate in the elaboration of the Local and Community Plans. Mutual support from municipalities and community members is needed to enhance the well-being ofthe entire community. c. Technical training. These events should include capacity building for communities’ organizations and municipalities. The Project should be supporting to link the demand and supply of public services provision. In doing it should support municipalities institutional strengthening through territorial planning, budget formulation and implementation of participatory budgeting and conflict resolution. Supporting the community organizations for participatory planning budgeting and social control. d. Inclusion of rural women’s associations and DOUPS. Women organizations are active and have a salient number of organizations. According to law 33% ofpolitical representative are women and 4% ofthe municipal budget has to be invested on health and education benefiting women. % ofwomen participation on the Project should be indicated in as an indicator.

46. Key inputs to the Project design from civil society consulted. a. Transparency. The Project should support the establishment of mechanisms for the municipalities to provide accurate, timely and reliable information about budget expenditure improving the municipalities’ accountability when allowing to hold authorities to account, and thereby enhance development effectiveness. b. Demand side Governance. The program should reward the producer associations or communal organizations that present proposals for public services improvements, prioritization ofinvestments and social control on budget execution. c. Improve local well-being. The impact of the program consists of producing responsive municipalities and proactive community members to ensure the adequate public investment and improve local communities’ livelihoods.

47. Social characteristics of the municipalities. The 3 0 municipalities have three main reasons behind limited access to economic opportunities: (i)large number of small farmers with limited

95 access to land and financial services; (ii)lack of local employment opportunities, especially among women; and (iii)youth migration to urban centers or international migration. The target beneficiaries of this Project are rural settlers where historically clientelistic and patronage politics have been predominant. Local settlers perceive the local government management as politically bias when investing public resources, and are therefore reluctant to pay taxes or tariffs for basic public services provision.

48. This Project will enhance social inclusion and increase economic opportunities for local community members by improving the quality of public services provided by municipalities. Vulnerable population has limited or no access to public services and markets and lack adequate infrastructure. The vulnerable population identified by the SA need specific type of support that will enable to reduce social inequalities that hamper an inclusive well-being.

49. The Project will support decentralization and promote the compliance with the current legal framework. The Project needs to support participatory process (participatory budgeting, councils planning and implementation and support to local nonprofit organizations) as defined by the Law. Local communities have large number of associations where communities feel adequately represented and with leaderships that respond to their demands. The SA mapped 404 organizations in the five municipalities where their associates select their leaders evidencing strong social capital. The municipal institutions have limited interactions with the community associations and organizations.

Table 10A-4 Local institutions and Community Organizations (CO) I 1 I Secretary of Environment and Natural Resources. CO on management of natural resources

Secretary of Agriculture Farmers and women’s associations

Secretary of Education Schools Councils

Secretary of Public Culture I Municipal Councils for Cultural Development I

National Quisqueya Verde Reforestation Councils

Secretary of Public Health Health Councils

Dominican Agrarian Institute (IAD) Farmer Associations

National Institute of Water Resources (INDRHI) Irrigation Councils

Pro-Community Social Control Committees

50. Participatory Budgeting. Currently, the Dominican Republic is implementing Municipal Participatory Budgeting (MPB) which is formalized by a constitutional mandate and specific norms (2006). According to the PB’s norms participatory budgeting could represent up to 40% of the total budget transferred from the national government to the municipalities. After more than five years of implementation, MPB has reached 138 (out 153) municipal governments and involves accredited civil society and grass roots representatives in local governments. Nearly 65% of the thirty potential Project municipalities selected by the Project are implementing the

96 MPB to some degree on a constituent annual basis. The quality of the municipalities’ application ofthe MPB instruments varies.

5 1. The participating budgeting process promotes a space to gather demands and make public budget decisions more transparent. Participatory budgeted executed public investments benefit the poorer communities, while their participation on selection social infrastructure empowers grass-roots groups to have a voice in public decision making. Participatory budgeting has enhanced awareness on the need to improve municipal planning with the establishment of Committees for monitoring results on procurement and a variety of civil works. According to SA of the Project, in many cases, the participatory budgeting process has been the introduction to hold public representatives accountable by their Community members. In the same line of argument, community members are giving the first steps towards social monitoring.

52. The Dominican Republic needs to improve the local budgeting and monitoring processes of informed participation and prioritization of investments in a more strategic approach. In parallel the coordination ofthe Municipal Development Councils and participatory budgeting needs to be improved. There is also space for improving the quality and efficacy ofpublic services delivery. The Project would support PB capacity building in selected municipalities aimed at improving results of public budget investment and strengthening technical skills of both community members and municipal representatives.

53. Risks. The risk that the Project will confront difficulties during implementation due to political rivalries will be strongly mitigated by the Project’s operational approach itself, when communities and stakeholders define priorities themselves and municipalities’ commitment to improve services deliver. The SA carried out during Project preparation has helped the Project to internalize risks and devise mitigation mechanisms. For example, the Project will include considerable training and consultative activities to ensure that all potential beneficiaries have an equal opportunity to participate. In addition, the Project will provide training for both community organizations and municipalities. The Project’s design has internalized feedback provided by beneficiaries as part ofthe SA conducted during the Project preparation stage.

54. Another risk that the Project has to manage is benefiting one group more than others. The Project will ensure to educate on citizenships engagement. The Project requires a strong communication plan in the first stages of implementation to have results on changing the clientelistic culture and practices ofmunicipalities’ management and administration.

55. Lack of local human resources for training could lead to delays on implementation and consequent shortcoming of participatory planning. The Project team will work to ensure the provision ofadequate and timely training.

56. Monitoring and feedback. The data in the SA will serve as a baseline to measure results in the regions. During the consultation a group of farmers decided to form a monitoring group to follow the planning and implementation of the Project, in a voluntary fashion. The monitoring and evaluation arrangements and will be defined even more specifically in the Project Operational Manual.

97 Annex 11: Project Preparation and Supervision DOMINICAN REPUBLIC: Municipal Development Project

Planned Actual PCN review 06/ 15/2006 08/1 0/2006 Initial PID to PIC 07/15/2006 09/10/2006 Initial ISDS to PIC 07/15/2006 10/23/2007 Appraisal 05/13/2009 12/10/2009 Negotiations 05/15/2009 12/11/2009 Board/RVP approval 0 1/2 1/20 10 Planned date of effectiveness 1O/ 15/20 10 Planned date ofmid-tern review 04/15/2013 Planned closing: date 02/15/2016

Key institutions responsible for preparation of the Project . Secretariat of Economy, Planning and Development (Secretaria de Estado de Economia, Planijkacidn y Desarrollo - SEEPYD) Sub-secretariat ofPlanning (Sub-Secretaria de Planz3cacidn y Desarrollo - SSEPLAN) General Directorate of Development and Territorial Planning (Direccidn General de Ordenamiento y Desarrollo Territorial - DGODT)

Bank staff and consultants who worked on the Project included: Name Title Unit Steve Webb Lead Economist Consultant Sylvie Debomy Sr. Urban Planner LCSUW Ming Zhang Lead Urban Economist LCSUW Jerry Meier Senior Environment Specialist Consultant Andrea Silverman Dec ,/Municip a1 Dev . Specialist Consultant Din0 Francescutti Senior Economist FAO/CP Pilar Larreamendy Sr. Social Development Economist LCSSO Mark Austin Sr. Operations Officer, TTL LCSAR David Tuchschneider Sr. Rural Development Specialist LCSAR Eli Weiss Jr. Professional Officer LCSAR

Miguel Mercado-Diaz Sr. Operations Officer LCSPS Miguel Vargas-Ramirez Water and Sanitation Specialist, LCSFW Catherine Abreu Roja Procurement Specialist, LCOPR Maritza A. Rodriguez Financial Management Specialist LCSFM Anton Garcia Counsel LEGLA Mariana Montiel Senior Counsel LEGLA Fabiola Altimari Senior Counsel LEGLA Jorge Caballero-Ceruti Senior Economist FAO/CP Marco Antonio Zambrano Environment Specialist/Consultant LCSER Alan Carroll Country Operations Advisor LCC3C Roby S enderow itsch Country Manager LCC3C

98 PEER REVIEWERS Jonas Frank Public Management Specialist LCSPS Pierre Werbrouck Sr. Agricultural Economist Consultant Keith McLean Sr. Social Development Economist ECSSD SECTOR LEADER Christina Malmberg Calvo Sector Leader LCC3C

Bank funds expended to date on Project preparation:

1. Bank resources: US$520,000 2. Trust funds: US$500,000 3. Total: us$1,020,000

Estimated Approval and Supervision costs:

1. Remaining costs to approval: US$30,000 2. Estimated annual supervision cost: US$85,000

99 Annex 12: Documents in the Project File DOMINICAN REPUBLIC: Municipal Development Project

Documento de Focalizaci6n y seleccion de Municipios, 13 de julio de 2007

Documento de Focalizacion y seleccih de Municipios, Caracterizacion fisiografica y ambiental de Municipios-ANEXO B, Julio 2007

Aspectos normativos del gobierno local en la Republica Dorninicana, preparado por OTSCORP, Santo Domingo, septiembre de 2007

Evaluacibn Social, Los actores sociales en el municipio, Informe Complementario No. 4, preparado por OTSCORP, Santo Domingo, Diciembre de 2007

Evaluacion Social, El entorno social y el proyecto, Informe Complementario No. 5, preparado por OTSCORP, Santo Domingo, Diciembre de 2007

Evaluacion Social, Conclusiones, recomendaciones y plan de monitoreo, Informe Complementario No. 6, preparado por OTSCORP, Santo Domingo, Enero de 2008

Las Matas de Farfan, Provincia de San Juan, Diagnostico Municipal, Informe Complementario No. 7, preparado por OTSCORP, Santo Domingo, Diciembre de 2007

Municipio de Bayaguana, Provincia de Monte Plata, Diagnostic0 Municipal, Informe Complementario No. 8, preparado por OTSCORP, Santo Domingo, Diciembre de 2007

Municipio de Tamayo, Provincia de Bahoruco, Diagnostico Municipal, Informe Complementario No. 9, preparado por OTSCORP, Santo Domingo, Diciembre de 2007

Municipio de Polo, Provincia de Barahona, Diagnostic0 Municipal, Informe Complementario No. 10, preparado por OTSCORP, Santo Domingo, Diciembre de 2007

Municipio Padre Las Casas, Provincia de Azua, Diagnostico Municipal, preparado por OTSCORP, Santo Domingo, Octubre de 2007

Diagnostic0 sectorial: agua potable y saneamiento, Santo Domingo, Diciembre de 2007

Diagnostico sectorial: servicio de energia electrica, Informe Complementario No. 13, Santo Domingo, Diciembre de 2007

Regiones Unicas de Planificacion -RUP, Documento para discusion, Informe complementario No. 14; preparado por OTSCORP, Santo Domingo, Diciembre 2007

La Clasificacion Rural-Urbana, Informe Complementario No. 15, preparado por OTSCORP, Santo Domingo, Diciembre de 2007 100 Plan de Trabajo, Presentado a la Secretaria de Estado de Economia, Planificacibn y Desarrollo Subsecretaria de Estado de Planificacih y Desarrollo- Direcci6n General de Ordenamiento y Desarrollo Territorial, preparado por OTSCORP, Santo Domingo, 16 de abril de 2007

Informe de Avance No. 1, Presentado a la Secretaria de Estado de Economia, Planificacih y Desarrollo Subsecretaria de Estado de Planificacibn, preparado por OTSCORP, Santo Domingo, 1 de junio de 2007

Informe de Avance No. 2, Presentado a la Secretaria de Estado de Economia Planificacih y Desarrollo Subsecretaria de Estado de Planificacih- Direccih General de Ordenamiento y Desarrollo Territorial, preparado por OTSCORP, Santo Domingo, 23 de julio de 2007

Informe de Avance No. 3, Presentado a la Secretaria de Estado de Economia Planificacih y Desarrollo Subsecretaria de Estado de Planificacih- Direccion General de Ordenamiento y Desarrollo Territorio, preparado por OTSCORP, Santo Domingo, 20 de agosto de 2007

Alchntara Rosario, Yasiris; Guerrero Arias, AndrCs; Morillo Perez Antonio; Focalizacidn de la Pobreza en la Republica Dominicana 2005, Resumen Ejecutivo, ONAPLAN, Santo Domingo, julio 2005 e

De Leh, Enrique; Construyendo Ciudadania en el Desarrollo Local y en la Reduccion de la Pobreza- Experiencias de Presupuesto Participativo; CONARE- GTZ, Republica Dominicana, Septiembre-diciembre del 2004

Natural Resource Aspects of Sustainable Development in Dominican Republic- Aspectos del Desarrollo Sostenible referente a 10s Recursos Naturales en RD, United Nations- Sustainable Development Division

Elaboracion Estrategia Nacional TIC para el Desarrollo y creacion de capacidades nacionales para el monitoreo de indicadores sobre TIC, INDOTEL- PNUD, 28 de Enero del 2004

Project Information Document (PID) Concept Stage, Jean-Claude Balcet- Sr. Ag. Economist, August 2,2006

Proyecto de Desarrollo Regional, Local y Comunitario, Diagndstico Institucional de una muestra de municipios. Plan de trabajo, Prepared by Secretaria de Estado de Economia, Planificacion y Desarrollo - Subsecretaria de Estado de Planificacih -Direction General de Ordenamiento y Desarrollo Territorial, 22 de agosto de 2007

Aspectos Ambientales pendientes para cumplir con 10s requerimientos del Banco y sus Politicas de Salvaguardia, Marco A. Zambrano, Especialista Ambiental, Consultor Banco Mundial

Proyecto de Desarrollo Regional, Local y Comunitario, Anulisis Ambiental, Informe Complementario No. I,preparado por OTSCORP, Santo Domingo, Diciembre de 2007

101 Marco de Gesti6n Ambiental, Informe Complementario No. 2, preparado por OTSCORP, Diciembre 2007

Reporte de Evaluacion Ambiental, Informe Complementario No. 3, preparado por OTSCORP, Santo Domingo, Diciembre de 2007

Laws and Decrees

Ley 496-06- LEY QUE CREA LA SECRETARiA DE ESTADO DE ECONOMiA, PLANIFICACI~N Y DESARROLLO

Ley No. 176-07 del Distrito Nacional y 10s Municipios

Dec. No. 231-07 que establece el Reglamento OrgBnico Funcional de la Secretaria de Estado de Economia, Planificacion y Desarrollo. 1.

102 Annex 13: Statement of Loans and Credits DOMINICAN REPUBLIC: Municipal Development Project

Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d P106619 2010 DO (APL2) Health Ref I1 30.50 0.00 0.00 0.00 0.00 30.50 0.00 0.00 PO54221 2009 W(APLl)Water&Sanitation inTourist 27.50 0.00 0.00 0.00 0.00 27.50 0.00 0.00 Areas PO89866 2008 DO Electricity Distrib Rehabilitation 42.00 0.00 0.00 0.00 0.00 41.90 9.55 0.00 PO90010 2008 DO Social Sectors Investment Program 29.40 0.00 0.00 0.00 0.00 27.69 11.60 -1.07 PI09932 2008 DO Emergency Recovery & Disaster Mgmt 80.00 0.00 0.00 0.00 0.00 56.92 40.37 0.00 PO96605 2006 DO Youth Development Project 25.00 0.00 0.00 0.00 0.00 17.87 15.19 0.00 PO78838 2004 DO Financial Sector Technical Assistance 12.50 0.00 0.00 0.00 0.00 6.84 6.84 0.00 PO82715 2004 DO Power Sector TA Project 7.30 0.00 0.00 0.00 0.00 1.02 1.02 0.00 PO54937 2003 DO-EARLY CHILDHOOD EDUCATION 42.00 0.00 0.00 0.00 0.00 13.60 13.60 13.27 PROJECT PO76802 2003 DO-Health Reform Support (APL) 30.00 0.00 0.00 0.00 0.00 2.56 2.56 1.49 Total: 326.20 0.00 0.00 0.00 0.00 226.40 100.73 13.69

DOMINICAN REPUBLIC STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions of US Dollars

Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic 2003 ADOPEM 0.00 1 .oo 0.00 0.00 0.00 0.00 0.00 0.00 2005 Aerodom 45.00 0.00 0.00 15.00 45.00 0.00 0.00 15.00 2006 Aerodom 17.00 0.00 0.00 0.00 16.50 0.00 0.00 0.00 2003 Banco BHD 10.00 0.00 10.00 0.00 0.00 0.00 10.00 0.00 2005 Basic Energy 22.65 0.00 0.00 0.00 10.22 0.00 0.00 0.00 2002 CII 28.50 0.00 0.00 0.00 28.50 0.00 0.00 0.00 2004 Domicem S.A. 24.00 0.00 0.00 24.00 24.00 0.00 0.00 24.00 2005 Domicem S.A. 3.75 0.00 0.00 3.75 3.75 0.00 0.00 3.75 1998 Flamenco Bavaro 1.18 0.00 7.70 4.07 1.18 0.00 7.70 4.07 2004 Grupo M 20.00 0.00 0.00 0.00 12.95 0.00 0.00 0.00 2000 Hospiten 1 .oo 0.00 0.00 0.60 1.oo 0.00 0.00 0.60 2005 Occidental Hotel 0.00 0.00 20.00 0.00 0.00 0.00 20.00 0.00 2005 Occidom 8.89 0.00 0.00 35.56 8.89 0.00 0.00 35.56 2002 OrangeDominicana 23.29 0.00 15.00 33.27 23.29 0.00 15.00 33.27 2000 Rica 5.63 0.00 3.00 0.00 5.63 0.00 3 .OO 0.00 Total portfolio: 210.89 1.00 55.70 116.25 180.91 .O.OO 55.70 116.25

103 ~ ~ ~~ ~~ ~ Approvals Pending Commitment FY Approval Company Loan Eqw Quasi Partic 2003 ADOPEM 0 00 0 00 0 00 0 00 Total pending commitment 0 00 0 00 0 00 0 00

104 Annex 14: Country at a Glance DOMINICAN REPUBLIC: Municipal Development Project

Dominican Republic at a glance 9/24/08

POVERTY and SOCIAL Domlnlcan America middle- Deve~opmntd~mmcr Republic 8 Carlb. Income 9007 Population, mid-year (millions) 9.8 553 3,437 Life expectancy GNIpercapita (Atlas method, US%) 3,550 5,540 1887 GNI (Atlas method, US%billions) 346 3.18 6,485 Average annual growth, 2001-07 T Population (W 15 13 11 Laborforce (W 2.4 2.1 15 GN I Gross per primary Most recent estimate (latest year avallable, 2001-07) capita enrollment Poverty (%o f population belo wnational po verfyline) 42 Urban population (%of totalpopulation) 68 78 42 Life eqectancyat birth (years) 72 73 69 Infant mortality(per lOOOlivebirths) 25 22 41 Child malnutritio n (%of children under 5) 4 5 25 ACCESStoimproved water source Access to an improved water source (%ofpopulation) 95 91 88 Literacy (%ofpopulationage ?5+) 87 90 89 Gross primaryenrollment (%of school-age population) 98 le m -Dominican Rewblic Male n1 80 a Lower-middle-inmmgrcup Female 96 18 09 -

KEY ECONOMIC RATIOS and LONG-TERM TRENDS 887 1997 2o06 Economlcratbs' GDP (US%billions) 5.8 15.1 319 36.7 Gross capital formation/GDP 24.2 8.8 20.2 219 worts of goods and SeNiCBSlGDP 25.6 46.8 33.2 34.5 Gross domestic savingsiGDP 8.4 15.1 0.7 Gross national savings/GDP 8.3 8.7 7.5 8.9 Current account balancelGDP -62 .11 -2.5 -1.8 Domestic Capital Interest payments/GDP 19 11 0.8 " savings formation Total debtIGDP 67.3 28.1 27.9 Total debt sewice/exports 8.4 5.5 9.6 Present value of debt/GDP 26.9 Present value of debtieqorts 614 Indebtedness 1987-97 1997-07 2006 ' 2007 2007-11 (average annual growth) GDP 3.4 5.2 n.7 8.5 5.3 -Dominican Republic GDP per capita 15 3.5 9.0 7.0 4.6 Low er-middle-inmma grcup worts of goods andsewices 7.5 3.6 5.8 7.6 3.7 -

STRUCTURE of the ECONOMY 1987 1997 2006 2007 (%of GDP) Agnculture ns 8.2 119 8.0 Industry 20.7 33.0 25.9 27.7 M anufactunng 8.8 7.5 0.8 0.2 services 67.4 54.8 62.1 60.3 Household final consumption ependiture 819 79.4 79.7 General gov't final consumption expenditure 5.8 5.5 6.6 6.5 Imports Of goods and SENICES 37.4 515 39.7 414

1987-97 1897.07 2006 2007 (average annual growth) Agnculture 18 48 99 99 Industry 39 32 01 72 M anufactunng 33 30 74 45 SeNlCeS 36 63 97 80 Household final consumption expenditure 29 43 u3 58 General gov't final consumption eqenditure 48 44 97 40 Gross capital formation 46 33 81 132 Imports of goods andservices 65 16 86 67

Note 2007 data are preliminaryestimates This table was producedfrom the Development Economics LDB database 'Thediamonds showfour keyindicators in thecountry(in bo1d)comparedwth its income-group average If dataare missing thediamondmll be incomplete

105 Dominican Republic

PRICES and GOVERNM ENT FINANCE 1987 1997 2006 2007 Domestic prices (%change) Consumer prices 9.7 5.4 7.6 7.4 Implicit GDP deflator 14.4 8.3 8.6 5.7 Government finance (%of GDP, includes currenf grants) Current revenue 15.9 18.0 18.1

Current budget balance 4.4 3.5 3.9 I Overall surplusldeficit -15 -19 -1.1

TRADE 1987 1997 2006 2007 (US$ millions) Total exports (fob) 905 4,614 6,441 6,979 Raw sugar 73 V6 Rawcocoa 66 54 Manufactures 343 3,657 450 4,297 Total imports (cif) 2.028 7,270 nso a,n4 Food 24 404 Fuel and energy 507 896 Capital goods 356 766 2,568 2,699 Export price index (20OO=WO) Import pnceindex(2000=100) Terms of trade (200G=WO)

BALANCE of PAYMENTS 1987 1997 2006 2007 (US$ millions) Exports of goods andservices 1,655 7,060 10,664 11,536 Imports of goods andservices 2,423 7,780 P,748 0,826 Resource balance -768 -720 -2,084 Net income -299 -795 -1735 Net current transfers 705 1352 3,033 3,033 Current account balance -362 -183 -786 -675 Financing items (net) 52 203 1069 12 14 Changes in net reserves 2D -40 -283 -539 M emo: Reserves including gold (US$ mlillons) 235 555 2,251 2,374 Conversion rate (DEC, local/US$) 3.8 14.3 33.4 33.3

EXTERNAL DEBT and RESOURCE FLOWS 1987 1997 2006 2007 (US$ millions) Total debt outstanding and disbursed 3,923 4,240 8,905 IBRD 219 209 438 472 IDA 21 18 D 9 Total debt sewice 307 456 1346 IBRD 35 44 57 64 IDA 0 1 1 1 Composition of net resource flows Official grants 50 51 82 Official creditors 59 -90 314 Private creditors 2 3 288 Foreign direct investment (net inflows) 89 421 1183 Portfolio equity(net inflows) 0 0 0 World Bank program Commitments 0 75 25 19 Disbursements TI I) 67 73 Principal repayments 18 29 35 39 Net flows -2 -s 32 34 Interest payments 18 18 23 25 Net transfers -18 -32 9 8

Note:Thistablewas producedfrom the Development Economics LDB database. 9/24/08

106 Annex 15: Selection of Project Municipalities DOMINICAN REPUBLIC: Municipal Development Project

The selection of the Project municipalities was done based on an analysis of the 154 municipalities and the Distrito Nacional, using data from the 2002 census and the 2005 poverty study by STP/ONAPLAN. The 155 jurisdictions were ranked in terms of each of four characteristics: percentage poor population, percentage illiterate, percentage rural, and population density (top rank would be lowest density). A combined ranking was then created, giving equal weight to all four factors. Out ofthis list, 25 border municipalities were then excluded because they already have substantial projects and programs. After this exclusion, the top 56 municipalities were selected, to which were added four municipalities. Salcedo, Tenares and Villa Tapia (ranked 11 1 , 87, and 71 respectively), in Salcedo province, because each has developed mechanisms for planning which may provide interesting lessons. A new municipality, Sabana Iglesia in Santiago province, was added as well even though it is ranked 97 as it would provide an opportunity to apply lessons in the early years of the formation ofa municipality.

Table 1 - Group of 60 municipalities: total population and poor population by region and province; Rank order among all municipalities by four variables (YOpoor, YOilliterate, YO rural, and population density)

~~~ ~

l7Rank order determined using four criteria: % poor, % illiterate, % rural, and population density. 107 PUERTO PLATA

* These municipalities were included because of their previous planning experiences.

2. The 60 municipalities are dispersed throughout the country in all 10 regions and in 21 of the 31 provinces (without the National District of Santo Domingo). The provinces with the greatest number ofselected municipalities were also those with the highest reported levels of Unsatisfied Basic Needs (Necesidades B6sicas Insatisfechas, NBI): Azua, Bahoruco, Barahona, San Juan y Monte Plata.

3. Three criteria were used to reduce the group of60 municipalities to a manageable size, given the limitations ofresources and the interest of SSEPLAN in taking advantage of focusing on a concentrated, geographically limited area. The three criteria were: (i)transport access and connectivity; (ii)economic potential; and (iii)natural resource management.

4. Transport access and connectivity. The municipalities in the group of 60 are located along transport corridors which are indispensable for the local economies. Among others, these corridors include: the Barahona-Enriquillo corridor in the southwest; the Azua-Bahoruco

108 corridor; the Azua-San Juan corridor; the Santo Domingo-Monte Plata circuit; and the Santo Domingo-San Pedro de Macoris-La Romana corridor. Each one of the transport axis defines a region where economic activities are developed in relation to access to the corridor. Close linkage with these transport corridors is one criteria for selection.

5. Economic potential. With the objective ofmitigating against the marginalization of poverty areas, it was decided to focus Project activities on municipalities where the economic downturn has had the most persistent affect and on those where there is potential for growth, e.g., tourism with local participation, and the transformation of subsistence agriculture into commercial agriculture.

6. Natural resource management. In order to facilitate the decentralization of environmental management through the establishment of Unidades de Gesti6n Ambiental Municipal (UGAM), municipalities were prioritized based on the following:

0 Representation of all three main topographies (mountains, valleys, and coastal plains) so that the different problems and environmental challenges of each topography are addressed. 0 The possibility of generating environmental management models that may be replicable to similar areas. 0 The ease with which “mancomunidades” may be formulated in the area in order to develop approaches to regional environmental management and with which actions may be taken to achieve a provincial or regional impact. 0 The opportunity to associate the UGAM of the municipality with the management of a nearby protected area, given the high number of poor municipalities related to these areas.

7. Municipalities were therefore chosen in the influence area of the three transport axis which contribute to the integration (social and territorial) of the southeast region of the country: Azua - Barahona - Enriquillo, Azua - Bahoruco, and Azua San Juan. Using this same criteria, the transport circuit that connects the municipalities of Monte Plata province was included. All the municipalities of this province are included; they have recently formed a mancomunidad.

8. With respect to economic potential, indispensible for the sustainable development of the communities and improvement of poverty conditions, municipalities most affected by the reductions in the sugar sector were selected. In some areas, the growth of tourism has compensated for this impact (San Pedro de Macoris, La Romana) but in other areas (the southeast, Monte Plata) the alternative opportunities have had only modest growth., The presence of “bateyes” in conditions of extreme poverty in these areas (Bahoruco, Monte Plata) and subsistence agriculture are indicators of the impact ofeconomic restructuring.

9. Table 2a presents the group of 30 municipalities selected based on the criteria of connectivity, economic potential, and natural resources, as well as achieving representativity of regions and provinces. This group includes a total population of 671,904 of which 487,250, or 72.5%, are classified as poor. The three municipalities of Salcedo will not be eligible for financing from the Project due to the recent implementation of the Strengthening

109 of Northeast Provinces Program (PFPNE). These municipalities are only included for the conducting ofdiagnostic studies.

Table 2a- Selection of 30 Project municipalities plus additional 3 municipalities for diagnostic studies, classified by population size Less than 15,000; between 15,000 and 40,000; and, greater than 40,000

110 10. If we assume that each municipality got an equal share per capita of the municipal transfers disbursed in 2008, then the distribution is shown in Table 2b. Total transfers were US$ 54.3 per capita, of which US$18.6 (34%) were for capital and US$35.7 were for recurrent expenses.

Table 2b: Transfers to 30 Municipalities in 2008 (transfers in US$) less ths US$ 1,000,000; between US$ 1,000,000 aid US$2,000,000; and, greater than US$2,000,000 Pff 0 VlNCE 1 Yamasa 51,403 $ 3,051,357 $ 1,046,030 $ 2,005,327 2 Esperalvillo 17,284 $ 1,026,004 $ 351,722 $ 674,281

MONTE PLATA

AZUA

SAN JUAN

BAHORUCO

BARAHONA SANTIAGO

Municipalities shaded are the five pilot municipalities for which detailed studies were done, as describe in Annex 16.

111 Annex 16: Municipal Diagnostic DOMINICAN REPUBLIC: Municipal Development Project

1. From the 30 potential Project municipalities, five were selected for detailed diagnostic-one in each of the five Project provinces (except Santiago province where only the new municipality of Sabana Iglesias is participating) See Table 1. Municipalities were selected to be representative of their province in terms of social and economic characteristics, and to overall provide a diversity of size within the sample. The size of the five municipalities range from the largest, La Matas de Farfan, with a population of 51,955, to the smallest, Polo, with a population of 10,241. Together the five municipalities have a poverty rate of 73%, with 49.7% of their population located in urban centers. The economies of the municipalities depend primarily on agriculture and remittances,

Table 1: Five municipalities included in the detailed diagnostic study Municipality % poor % rural Population density % of population Population a (incl.District Municipalities) population population (inha bs.lkm2) illiterate Bayaguana 36,212 68.5 41.6 37.6 10.8 Padre Las Casas 24,453 76.8 62.3 40.4 . 19-4 Las Matas de Farfan 5 1,955 72.9 53.1 74.5 13.5 Tamayo 25,467 71.1 62.2 51.5 15.3 Polo 10,241 85,l 77.8 100.2 19.6 Total 148,328 73.0 50.3 53.9 13.3 Total 30 municipios 7 34,s 92 72.5 53.3 65.9 14.9 Total nacional 9,36 1,416 42.2 36.4 177.0 6.6 a Population projected using the 2002 Census as a base and assuming an average annual growth rate of 1.78%

v1 . " _.x.,,x._~.x...... "......

112 2. For the five sample municipalities detailed diagnostic studies were conducted in the following areas: municipal structure and organization, finances and budgeting; planning; municipal service provision, investments; environmental management; economic development efforts; and social assistance. The diagnostic study included qualitative and quantitative data collected through field work, including social evaluation workshops, focus groups and interviews of officials at the municipal and district municipality levels. The results of this analysis have also provided each municipality with valuable input, and for some municipalities, the diagnostic study suggested a series of strategies and an investment plan.

3. Municipal Structure, Organization and Staffing. Municipalities in the Dominican Republic are defined by national legislation as having an elected municipal council (five regidores) and a mayor (sindico). Selected on a party slate system, the council members usually represent from three to five different political parties. The executive arm of the municipality is the mayor, who has sole authority regarding the hiring of staff and approval of expenditures, although expenditure of over approximately US$300 must be approved by the council. Most municipalities also have at least one municipal district, which is a population center within the municipality lying outside the main urban center. The municipal districts are led by a three memberjunta municipal appointed by the municipal council. Of the five sample municipalities, one (Tamayo) has 6 municipal districts, one (Padre Las Casas) has 4 municipal districts, one (Las Matas de Farfan) has 2 municipal districts, and two (Bayaguana and Polo) have none.

4. None of the five sample municipalities had formally defined organizational structures or position descriptions at the time of the diagnostic in 2006, although at least one of them (Bayaguana) has progressed substantially since then. The de facto structure of all five includes the positions of vice-mayor, treasurer and a department of public services. Of the five, only two have an environmental management unit (Bayaguana and Polo) as required by law. None of the five had a planning unit, and municipal planning rarely went beyond drafting the annual budget. Only one the five municipalities, Las Matas de Farfan, had a human resources unit, which had only one staff person. Even that municipality, like the other four, had no defined procedures for recruitment and selection of staff, and no salary or wage policies or scales. There were no operational manuals that established the personnel procedures, and the responsibilities ofmunicipal staff. None of the municipalities had a staff registry or were able to provide researchers with a complete list ofstaff.

5. Municipal Finances and Budgeting. Municipal revenues include locally generated taxes and fees, which are insignificant and revenue-sharing transfers from the national government. The amount collected locally per capita in 2006 ranged (among the five) from a high of US$0.36 per capita in Bayaguana and a low of US$0.02 per capita in Padre Las Casas. Transfers per capita were on the order ofUS$36 for all municipalities.

6. In two of the five municipalities (Bayaguana and Las Matas de Farfan) the SIFMUN computerized financial management system was installed and staff given training on its use. However in neither of these municipalities is the system used, with staff indicating that the training had been insufficient. These two municipalities both have populations exceeding

113 30,000 and are therefore required to have a finance director, although neither of them did in 2006. All five municipalities kept accounts manually, without computers, even though some municipal budgets were substantial, reaching US$2.8 million in Las Matas de Farfan in 2008.

7. The Municipal Law requires municipalities to allocate their spending in three categories in the following percentages: personnel - no more than 25%, services - 35%, and investment - at least 40%. In the past, municipalities were required to submit their annual budgets to the Liga Municipal Dominicana (LMD) for approval, but this is no longer the case. During the year, the municipality must report quarterly to national authorities its expenditures in these three categories. An analysis of actual expenditures, however, shows that this budgeting restriction to be disregarded. For example, in all five municipalities the amount spent on personnel far exceeded the 25% limit. In Polo, 43% of the services expenditures were also for personnel, resulting in a total of40% ofits budget spent on personnel. .

8. Participatory Budgeting. Two of the five municipalities (Bayaguana and Las Matas de Farfan) have used a participatory budgeting process. Nevertheless, it is not clear that there is commitment by municipal officials to continue with the process, given some of their concerns about its results.

9. Loans. In each of the five municipalities, short term loans were taken to cover the Easter bonuses for municipal employees, with repayment of the loans guaranteed by the monthly transfers. None ofthe five municipalities borrowed for investment purposes.

10. Planning. There is no technical capacity for municipal planning in the sample municipalities and none had a planning unit in 2006. The only planning activity is preparing the annual budget using the previous year’s ledger and, sometimes, technical support from the LMD. None of the sample municipalities have urban plans or any sort of medium or long term planning. Also there is little coordination at the municipal level among various external donors (bilateral, multilateral and NGOs) and the different sectors involved.

Table 2: Finance Indicators for Sample Municipalities - 2006

I Indicator Bayaguana Padre Las Polo Tamayo Las Matas I Casas de Farfhn 1.Gen’l Financial Dependency 91.5% 94.0% 97.5% 88.9% 96.3% 2. Financial Independence 3.6% 0.5% 0.4% 5.1% 3.5% 3. Minimum Self sufficiency 9.9% 8.7% 1.8% 8.7% 8.7% 4. Income per capita US$48.1 US$ 31.3 US$ 27.5 US$ 17.7 US$ 31.3 5. Investment Per capita US 19.4 us 12.1 us 10.0 us 7.3 US$ 12.1 6. Collection Per capita US$ 0.36 US$ 0.33 US$ 0.08 US$ 0.1 1 US$ 0.33 Source: Formats E123 y 3662 for 2006

11, Municipal Service Provision. Overall, there is a weak municipal service delivery and charge collection mechanisms. Lack of planning (i.e sidewalks are built without reference to an urban map and drainage systems are created outside a municipality development plan and local investment plan (MDP and LIP). Some of these services are nonexistent or work with

114 severe disruptions (Le. drinking water, solid waste management18). It has been estimated that 380kms of rural roads are in critical state and in need of at least RD$500.000 (about US$13,774) per km and continuous follow up for maintenance. Most of the services where designed ten to fifteen years ago for a smaller population, and have not been subsequently expanded.

12. Drinking Water. The coverage of the drinking water system is very low (35% to 40%) in both rural and urban areas ofthe five municipalities, and the quality ofthe water is very poor. In some area people purchase their drinking water. In some of the municipalities, the infrastructure available, such as aqueducts, was simply reported as “disappeared” and no hrther explanation was given. The mayors and the inhabitants have knowledge of this poor quality and lack access, and consider service expansion and improvement of quality as one of their priorities.

13. Sewage. The problems with sewage are many. Only in one ofthe municipalities, Las Matas de Farfan, is there an treatment facility, which handles 30% of the sewage from the urban area. In nearly all other cases (except for some latrines) sewage remains untreated and a serious source ofcontamination for the municipality.

14. Cemetery. All ofthe municipalities have at least one, with most ofthem in need of expansion and repairs, and some ofthem are not properly enclosed or protected from flooding.

15. Slaughterhouses. Most are small and ill-equipped. Slaughter is done of cattle and pigs. It is done not by a municipality employee, but by a lay person who in turn receives compensation. Meat is then transported with a cart to the market or elsewhere, uncovered and without basic sanitary requirements. In rural areas, there are no slaughterhouses.

16. Markets. It was noted that the majority of them were functioning three times a week (two of the municipalities haven’t got a municipal market). Although the area is fenced, there are no proper places for the sellers and have become too small for the high numbers of sellers and buyers, and density ofcars and motorcycles. Markets are dirty, and food is not classified nor washed. It is just laid down on plastic sheets. Together with food, shoes and clothes are also sold in the market.

17. Housing. In the rural areas, the bad quality of housing has been identified by all mayors as one ofthe most urgent problems to resolve. In the urban areas the main source ofconcern is roof modernizing and maintenance. Zinc roofs are delivered amongst poorer families, although the whole process takes too long, due to the fact that it is the major directly who decides who receives what and how much. The quality of floors and walls, usually made out of logs, varies greatly from one municipality to the next. Surroundings are overall of poor quality, and there is always risk of flooding and mud slides in the rainy season.

18. Electricity. All municipalities have access to electricity, which is provided through a concession agreement by public companies. The quality of the service provided has been

No activities related to solid waste and waste management will be financed in this project. 115 ranked as satisfactory, but a considerable percentage (20% to 30%) has still no access. Part of the problem is that there is no adequate planning to expand the service.

19. Urban Infrastructure. There is nearly a complete absence of planning and zoning in the urban areas of the five municipalities. Although town centers are provided with minimum basic infrastructure (lights, sidewalk, roads) the expansion of these towns has been unregulated and has not been accompanied with an expansion of critical infrastructure. In addition, there is no disaster mitigation system in place, despite urban areas being severely affected by hurricane George in 1998.

20. Rural Roads. Rural roads in all five municipalities are in very poor condition, with many of them impassable in the rainy season. Municipalities do undertake some repairs but improvements made have not been sustainable, due in part to inadequate technical approaches to road maintenance. There has been no road network planning or prioritization done by the authorities in the five municipalities.

21. Investments. Municipal governments are typically involved in only small and simple projects, such as the donation of materials for housing improvements, construction of sidewalks and gutters, and improvements to drainage in urban areas. Larger projects are left to sector agencies or to the initiative of NGOs and other donors. When local officials in Las Matas de Farfan were asked about the most pressing investment priorities in their municipality, they named water supply, rural roads and electrification, none of which are within the capacity ofthe municipality to address.

22. Environmental Management. While three of the five municipalities do not yet have an environmental management unit, environmental issues were identified as priority in all 5 municipalities. In Las Matas de Farfan, for example, these concerns included: contamination from mishandling of sewage and solid waste and impact of flooding in bringing further contamination from solid wastelg; low air quality due to polluting vehicles, and sewage into rivers, and need to protect forested land from deforestation.

23. Economic Development Efforts. None of the five municipalities have a plan for investments designed to promote economic development.

24. Social Assistance. Traditionally, Dominican Republic municipalities have provided social aid to the poorest residents. In each of the sample municipalities there are monthly “subventions,” payments to individuals, unemployed or retired workers who have no other means of living. In Polo, 130 persons received monthly subventions, in Padre Las Casas, 69, in Las Matas de Farfan, 272, in Tamayo, 60, and in Bayaguana, 45. In addition to these payments, certain individuals also received assistance through municipal donations of housing materials and partial help with funeral, medical and educational costs. The selection ofrecipients ofthis municipal largesse is at the discretion ofthe mayor.

l9No activities related to solid waste and waste management will be financed in this project.

116 Annex 17: Overview of the Legal Framework for the Project DOMINICAN REPUBLIC: Municipal Development Project

A. INTRODUCTION

1. The Dominican Republic has historically been a highly centralized country. However, in 2005 the country embarked on an ambitious decentralization process as part of comprehensive reforms of the Dominican public sector. This process included the drafting and adoption of new laws and regulations. This Project is designed to facilitate the implementation of the new legal framework.

2. This annex provides details regarding the three sets of laws and regulations which are most relevant to the Project and to the decentralization process: a) Municipal legislation: this includes new constitutional provisions governing municipalities and the 2007 Municipal Law (Law 176-07, Ley del Distrito Nucionul y 10s . Municipios), which set forth the basic legal framework for the operation of local governments; b) Laws governing the institutional framework for the Project: this includes the 2006 laws establishing the Secretariat for Economy, Planning and Development (“SEEPyD”) and the National System for Public Planning and Investment (“SNPIP”), which, together with their implementing decrees, describe the institutional architecture underlying the Project; and c) Other laws with a direct impact on municipalities: this includes a series of recent laws applicable to all public institutions in the Dominican Republic, which have a direct impact on municipalities and their day-to-day activities, from budgeting to procurement.

In addition to the above mentioned laws, there are sectoral laws governing the provision of the different services to be financed under Component 2 ofthe Project.

B. MUNICIPAL LEGISLATION i. Constitutional Provisions

3. The Dominican Constitution as amended for the last time in 2002 contains various provisions defining the role of municipalities and their internal structure. These are the most relevant: Article 5 provides that the territory of the Dominican Republic is composed of the National District and the provinces, which in turn are composed ofmunicipalities. 0 Article 37.6 empowers Congress to create or suppress municipalities and to determine their limits and organization. 0 The list of presidential powers laid down in Article 55 includes some prerogatives in connection with municipalities, including the need for presidential authorization for municipalities to sell or mortgage their real estate properties (para. 26). 0 Articles 82-85 contain the bulk of the constitutional provisions relating to municipalities. These articles describe the composition and election of local

117 governments, establish the principle of “independence” in the exercise of municipal functions with the limits provided by the Constitution and the laws, and include a reference to municipal budgets and to the possibility oflevying their own taxes.

4. In September 2008, President Leone1 Fernandez launched a new process to amend the Constitution. A draft amendment, which is currently under examination by Congress, would bring about a number of significant reforms to the country’s institutional framework with the stated objective to “institutionalize” the country. Specifically regarding local governments, the draft amendment promulgates the principles ofmunicipal autonomy and subsidiarity with respect to the regional and national authorities. In addition, the draft amendment provides for the transfer of competencies and resources to municipalities (without specifying what those competencies and resources would be) and grants constitutional protection to participatory budgeting and other mechanisms ofpublic participation in municipal affairs.

5. The constitutional amendment currently under consideration is unlikely to have an impact on the other laws legal texts governing municipalities, including Municipal Law 176-07, as it does not include any major reform concerning local governments, but rather it would provide constitutional recognition of certain initiatives and institutions that are already in place (e.g., participatory budgeting). ii. Municipal Law 176-07

6. Introduction. In July 2007, Congress passed Law 176-07, replacing Law 3455 of 1952 and a number of other related pieces of legislation which had governed Dominican municipalities for more than fifty years. The enactment was preceded by roughly ten years of public debate and political negotiations and is widely considered as a milestone in the modernization and strengthening of the Dominican municipalities. The main objectives of the 2007 Municipal Law are to define in very precise terms the internal organization of local governments and the role ofthe different officials and bodies (mayors, municipal councils, etc.), establish a clear distribution of competencies between municipalities and central government institutions, and control the proliferation of municipalities and municipal districts. The law defines: (i)competencies of local governments and catalogue of “minimum services” that municipalities must provide in accordance with the law; (ii)sources of financing and use of municipal resources; (iii)municipal planning procedures; (iv) requirements for financial management and municipal finance; (v) requirements for municipal environmental management; (vi) requirements for public participation, transparency and accountability; (vii) the creation of new municipalities, municipal districts and mancomunidades; and (viii) the role of the Dominican Municipal League (Liga Municipal Dominicana).

7. To date no national-level implementing decree has been adopted for the 2007 Municipal Law, which has delayed the application of some of its provisions. In addition, many of its provisions require implementation at a local level through municipal ordinances (e.g., ordenanzas, reglamentos, resoluciones), and most municipalities have yet to take these actions.

8. (2) Municipal Competencies and Minimum Services. Articles 18 and 19 of the Municipal Law set forth the list of competencies of municipalities. These competencies are

118 grouped in three categories: (a) exclusive competencies; (b) shared competencies; and (c) delegated competencies.

10. Exclusive competencies (competencias propias) are those over which municipalities have exclusive jurisdiction in accordance with the Constitution and the laws governing these activities. Article 19 lists 15 competencies which can be categorized in six areas or themes, mostly related to the construction and operation of certain basic facilities and the provision of basic services:

2. Management and regulation of public urban transportation B. Urban Planning 3. Regulation and management ofurban and rural public areas 4. Land management and urban planning 5. Regulationand maintenance df parks- C. Sanitation 6. Regulation and management of public health and sanitation D. Services 7. Fire prevention and extinction 8. Construction and management of slaughterhouses and markets 9. Construction and management of cemeteries and funerary services 10. Setting up of public lighting 1 1. Street cleaning 12. Collection, processing and final disposal of solid waste” 13. Preservation of the municipality’s cultural and historic heritage E. Streets and roads 14. Construction of urban infrastructure and facilities, street paving, building and maintenance of rural paths, building and maintenance of sidewalks, curbs and alleys F. Economic 15. Promotion oflocal economic development Development

11. In addition, Article 20 of the Municipal Law contains a list of minimum services (sewicios municipales minimos), i.e., a catalogue of services that every municipality must provide. Most of these services fit within the exclusive competencies ofmunicipalities, but some are related to shared competencies (e.g., environmental protection, “basic” social services”). The complete list is as follows:

1. Cemeteries and funerary services; 2. collection, processing and disposal ofurban and rural solid waste2’; 3. street cleaning; 4. access to populated areas, repair and maintenance ofstreets, sidewalks, curbs, and rural paths; 5. squares and public parks; 6. public library; 7. sport facilities; 8. slaughterhouse; 9. market;

2o This project does not finance any activities related to solid waste and waste management. 2’ This project does not finance any activities related to solid waste and waste management. 119 10. civil protection; 11. fire prevention and extinction; 12. environmental protection; 13. urban planning; and 14. basic-social services.

12. Paragraph Iof Article 20 states that municipalities may request technical assistance from other municipalities or other institutions for the provision ofminimum services in those cases where the specific characteristics ofmunicipalities as well as their institutional and financial capacity make it impossible for the concerned municipalities to provide these services on their own. Paragraph I1 adds that the assistance that municipalities receive from the central government shall be primarily targeted at the establishment and adequate provision ofthe above minimum services and at ensuring that municipalities have sufficient financial resources for that purpose.22

13. .The law defines shared competences (competencias coordinadas o compartidas) as those falling under the responsibility of both the municipality and other public entities, either in successive stages or concurrently. Article 19, paragraph I provides that municipalities may exercise as a shared competency any activity related to any public administration function, with the exception of those functions reserved exclusively for the central government by the Constitution. The same provision further stipulates that, while exercising a shared competency, municipalities shall have the right to be duly informed, to be heard, to participate in the coordination of the activity, and to have sufficient financial resources to participate in the activity. The law lists a total often shared competences:

22 Paragraph I1 further notes that the central government shall, through the National Treasury, transfer all the financial resources contemplated in the laws. If municipalities do not have sufficient resources to provide the services in question, they can make a specific financing request to the competent authorities in the executive.

120 14. Finally, paragraph I1 of Article 19 defines delegated competencies as those which the central government transfers partially or entirely to municipalities provided that the local government in question has previously accepted the transfer and that there is sufficient financing to carry out the activity. The law also explains the process to request a delegation under paragraph IV ofArticle 19.

15. (ii) Sources of Financing and Use of Municipal Resources. Article 27 1 of Law 176- 07 lists the different sources of financing of municipalities, including their own taxes and subsidies from the central g~vernment.~~

16. The amount of municipal taxes has traditionally been very low. The most significant source of financing for Dominican municipalities (reaching 90% of the total in some municipalities) is revenue-sharing from national government (participacidn en 10s ingresos del Estado), as provided in Law 166-03. Law 166-03 requires the central government to transfer to the municipalities an annual amount equivalent to 8% of total revenues of the Dominican government as provided in the 2004 budget. This amount was increased to 10% of the budgeted revenue starting in year 2005.24 Actual transfers have been 4% in 2004, 5% in 2005, 6% in 2006 and 6.5% for 2007/08. Even though there is strong lobbying efforts from mayors and the municipal association FEDOMU, it is projected that the total transfer for 2009 to municipalities will also be 6.5%. The formula for the transfer is population based.

17. The Municipal Law has very strict provisions regarding the use of municipal resources. Indeed, Article 21 sets forth the following limits, to be monitored by the Court of Accounts (Camara de Cuentas): 0 Up to 25% for personnel costs; 0 Up to 3 1% for the provision of municipal services falling within the municipality’s competencies; 0 At least 40% for “infrastructure works, purchase, construction and refurbishing of property and acquisition of movable assets related to these projects, including pre- investment and investment costs for initiatives fostering social and economic development;” and 0 4% for education, health and gender programs.

The official actual allocated in the five pilot municipalities has been 3 1% on personnel, 16% on municipal services, 2 1% on infrastructure/economic development and 26% on non-classified expenditures. The actually percentage spent on personnel is higher as many of the municipal services and infrastructure/economic development projects actually fund full-time municipal staff. Additionally, none of30 pilot municipalities currently meet this prescribed limits.

18. (iii) Municipal Planning. Municipal Law 176-07 incorporates the requirements of the National System for Public Planning and Investment (SNPIP) into the municipal legal framework by: (a) providing for a Municipal Development Plan; (b) creating a municipal level

23 Articles 271-314 (Titulo XYII: Ingresos Municijmles) describes in detail the different sources of income and the requirements and procedures for each ofthem, including the limits for the levying ofmunicipal taxes. 24 Law 166-03 represented a major boost for municipal finances, as under its predecessor, Law 17-97, municipalities only had access to 4% ofthe total income ofthe Dominican government. 121 Social and Economic Council; and (c) establishing within each municipality a Municipal Planning Bureau and a Municipal Urban Planning Bureau.

19. Article 122 ofthe Municipal Law requires all municipalities to approve, upon proposal of the mayor (sindico) and with community involvement, a Municipal Development Plan (Plan Municipal de Desarrollo). The objectives of this plan are to: (i)achieve an adequate use and investment of municipal resources in order to strengthen the municipality’s development in a coordinated, equitable and sustainable manner; (ii)address the community’s basic needs in an efficient manner; and (iii)ensure an coordinated and rational management of the territory. Municipal Development Plans must be prepared within the first six months of each local government’s term, and are expected to remain in force for a period of four years (Article 124 of Law 176-07).

20. Municipalities are expected to coordinate their plans with plans at the provincial, regional, and national levels. Paragraph Iof Section 123 explicitly contemplates the possibility of “co-investment” (coinversidn) by the municipality and the central government in connection with initiatives included in the investment plans. In addition, government entities at each level must afford municipalities the possibility to participate in all questions affecting the municipal territory, particularly in connection with public works, infrastructure, social services, facilities and public services.

21. Pursuant to Article 123, the preparation, discussion and monitoring of the Municipal Development Plans shall be entrusted to the Social and Economic Council to be established in each municipality. These Councils are supposed to perform the functions of the “Municipal Development Councils” which are part of the SNPIP institutional framework in accordance with Law 498-06 (see Section C.ii, below).

22. Municipalities are also required by the Municipal Law to create two additional departments, whose mandates appear to be overlapping to some extent: (i)a Municipal Planning Bureau (Oficina Municipal de Planz$cacidn y Programacidn), with the objective of integrating the government’s sectoral policies with those ofthe municipality and evaluating the results ofthe local government’s activity (Article 124); and (ii)an Urban Planning Bureau (OJicina de Planeamiento Urbano), in charge of providing technical assistance in connection with the design, preparation of execution of Municipal Development Plans and the regulation and management of land and building activities in rural and urban areas (Article 126). Despite the fact that the law is silent on the matter, it could be argued that both offices could be merged in a single bureau. What the law does contemplate is the option that, at least in connection with Urban Planning Bureaus, municipalities may team up among themselves to create common structures.

23. (iv) Financial Management and Municipal Finance. The Municipal Law contains a very detailed description of a financial management system for municipalities. Whereas the 1952 law only gave mention to two positions (treasurer and accountant), Law 176- 07 lays down a more complex organizational structure (Articles 151-162) and a set of rules governing municipal budgeting, accounting and financial management (Articles 26 1-270 and 3 15-366).

122 24. All municipalities in the country, regardless of their size, are required to have among their staff (i)a treasurer (tesorero); (ii)an accountant (contador); (iii)a tax collection officer (encargado de recaudaciones); and (iv) an internal comptroller (contralor). In addition, municipalities with a population exceeding 30,000 inhabitants must also hire a financial manager (gerente Jinanciero), in charge of the coordination of the budgeting, treasury, accounting and collection activities. These functions will be performed by the mayor in smaller municipalitie~.~~

25. Municipal finances are subject to a double control: (i)internal, through the municipal comptroller; and (ii)external, through the Court of Accounts (Chmara de Cuentas) and the Republic’s General Comptroller (Contraloria General de la Repziblica). The specific financial management rules that municipalities must observe in their day-to-day operations are described in detail in Articles 26 1-270 of Law 176-07.

26. (v) Environmental Management. The 2007 Municipal Law also addresses the question of environmental protection. The law mandates the creation of Municipal Environmental Units in all municipalities, with the option given to allow for the creation of a common Municipal Environmental Unit with other municipalities (Article 127). The functions envisaged for these units are described in Article 128 as follows: (i)drafting of regulations for the protection of the environment and the municipality’s natural resources;; (ii)issuance of technical opinions on any projects requiring environmental impact assessments and studies; (iii) ensuring compliance with the General Environmental Law and related regulations; and (iv) preparing programs for the use and operation ofpublic spaces (e.g., squares, parks, etc.).

27. (vi) Public Participation, Transparency and Accountability. One of the key priorities of the Municipal Law was to incorporate into the municipal legal framework some positive developments in the area of public participation in local affairs (e.g., participatory budgeting), while taking additional steps in the same direction. Consistent with this objective, the law has a full chapter devoted to transparency and participation (Titulo AT; Informacidn y Participacidn Ciudadana, Articles 222-253). The following table summarizes the main instruments laid down in Law 176-07 to facilitate transparency, accountability and public consultation in the operation of Dominican municipalities: 26

1) Access to Information 0 Municipalities have a general obligation to provide information about their activities to the citizens (Article 222) 0 Citizens are entitled to have access to copies and certifications of municipal documents, as well as to municipal files and registries (Article 223) 0 The law identifies mechanisms to ensure transparency: (i)the publication of municipal decisions and activities through various platforms (newsletters, media, websites, etc.); and (ii) the establishment of a Municipal Bureau of Access to Information, in charge of all activities aimed at ensuring public access to information (Articles 224 and 225)

25 Articles 153-157 of the Municipal Law contain a very detailed description of the functions of each of these positions, as well as the qualifications required for the job and the recruitment processes to be followed. 26 Pursuant to Article 226 of the Municipal Law, municipalities are required to promote public participation in municipal affairs and, to that effect, adopt a regulation setting forth all the rules ensuring public participation. 123 2) Civil Society Organizations Municipalities shall promote civil society organizations, fostering their participation in local affairs, providing them with information and, depending on the existing resources, access to public means and financial support (through a specific budget item in the municipal budget) (Article 227) 0 Municipalities shall maintain a registry ofcivil society organizations (Article 228) Municipalities shall grant civil society organizations access to municipal facilities and media (Article 229) 3) Municipal Participatory Bodies Social and Economic Council (Article 252) Municipal Monitoring Committees (Comitis de Seguimiento Municipal, Article 253) 0 Community Councils (Consejos Comunitarios, Article 252, para. I) 4) Participatory Mechanisms Right of petition (derecho depeticidn, Article 232) Municipal Referendum (referindurn municipal, Article 233) Municipal Plebiscite (prebiscito municipal, Article 234) 0 Open Meeting (cabildo abierto, Article 235)

0 Participatory Budget (presupuestoparticipativo

28, Specifically regarding the preparation and implementation of participatory budgets, the Municipal Law has incorporated a practice that many municipalities have been following in the country since 2000. At present, 50% of Dominican municipalities have adopted participatory budgets. Law 176-07 provides a legal framework for participatory budgeting as an instrument aimed at “establishing the mechanisms for public participation in the discussion, preparation and monitoring of municipal budgets, in particular concerning the 40% of the transfer municipalities are entitled to receive from the national budget, which they are required to use for investment and capital costs, as well as the municipalities’ own resources devoted to the same purpose” (Article 236).

29. The law lays down a list of objectives and principles underlying participatory budgets and, more importantly, describes a general procedure for the implementation ofthis participatory mechanism (see Article 239): First Phase: Preparation, Diagnosis and Agreement on a Strategic Vision for Development. Municipal authorities and civil society organizations agree on the amounts ofmoney to be devoted in next year’s budget to the projects concerned. 0 Second Phase: Consultation. Citizens identify their priority needs and define the works and projects to be carried out in a series of meetings and assemblies (at the community, neighborhood, and municipal level). Third Phase: Transparency and Monitoring of the Municipal Investment Plan. Municipal Monitoring Committees follow the implementation of the works and projects through, inter alia, monthly meetings with the mayor. Mayors are also required to inform on the status of the implementation of the Municipal Investment Plan twice a year.

30. (vi9 Creation of New Municipalities, Municipal Districts and Mancomunidades. Law 176-07 regulates not only municipalities (and the National District) but also a number of

124 supra- and sub-municipal entities. For the municipality and for each sub-municipal entity, the law defines the relevant authorities or governing bodies, as follows:

Municipality: Mayor (sindico), the chief executive of the municipality, and Municipal Council (Concejo Municipal), a rule-making and monitoring body.27 Municipal District (“Distrito Municipal”): Director and Municipal District Council (bbJuntade Distrito Municipal”).28 Municipal Sections (“Secciones ‘7: Mayor Pedaneo. Parajes Assistant to the Alcalde Pedaneo. Delegaciones Barriales: deconcentrated territorial administration.

31. The Municipal Law also stipulates a number of requirements for the creation of new municipalities and/or the modification of existing ones under Article 27. This provision constitutes an attempt to rationalize the Dominican municipal map particularly given the fact that the number of municipalities has increased by 40% over a period ten years. The Municipal Law requires, inter alia, a minimum population of 15,000 inhabitants, the existence of sources of financing exceeding 10% of the municipal expenditures in order to ensure financial sustainability, and the carrying out of consultations with the affected communities. Similarly stringent requirements have been established in connection with the creation of Municipal Districts (whose number has increased by 456% in 10 years).29

32. The Municipal Law also addresses mancomunidades, i.e., associations of municipalities aimed at carrying out works or providing services in a joint and cooperative manner. Various local governments had already resorted to this instrument prior to the enactment of Law 176-07, but the new law institutionalizes the practice and provides a basic legal fiamework. Article 72 of the Municipal Law recognizes the right of municipalities to enter into this type of association arrangements, including the possibility of creating corporations under public or mixed ownership. Mancomunidades do not necessarily need to comprise neighboring municipalities, although in practice this will be most often be the case. The law defines the procedures to create mancomunidades (which require, inter alia, approval by the municipal councils involved as well as municipal referenda), the mechanisms for new municipalities to join the mancomunidad and for members to abandon it, the basic content of the bylaws, and the steering bodies of the mancomunidad (headed by a Pre~ident).~’Pursuant to Article 73e), mancomunidades have the legal status of non-profit organizations under Law 122-05 (Ley sobre Regulacidn y Foment0 de las Asociaciones sin Fines de Lucro en la Republica Dominicana).

33. (viii) Role of the Dominican Municipal League (Liga Municipal Dominicana) (“LMD’Y).One of the key features of Law 176-07 is the redefinition of the role of the LMD. Prior to the new law, the LMD played a significant role in the Dominican municipal sector. In accordance with the previous legal fiamework, resources transferred from the central government to municipalities were channeled through the LMD.

27 See Articles 52-59 for the Municipal Council and Articles 60-66 for the mayor. ** The legal framework for the creation, functions, and other aspects regarding Municipal Districts are laid down in Articles 77-83 ofthe Municipal Law. *’See Article 78 ofthe Municipal Law. 30 See Articles 73-76 of the Municipal Law.

125 34. Article 105 of the Municipal Law now defines the LMD as an “advisory entity on technical and planning matters.” Consistent with this mission, Article 106 describes the different functions of the LMD and Article 107 further states that the LMD, “due to its condition as a technical advisory body, shall not control and intervene in the activities and decisions of municipalities” and that its role is limited to formulating recommendations to local governments.

35. Also, the Municipal Law provides for a major change in the financing of municipalities and of the LMD itself. First, Article 296 stipulates that revenue-sharing transfers to municipalities will go directly to the municipalities from the National Treasury, instead of through the LMD. Second, the LMD’s own budget will be determined by an annual assembly of municipalities, in cooperation with the SEEPyD, and the resources will come from the amounts assigned to municipalities in the national budget.31

C. LAWS GOVERNING THE INSTIUTIONAL FRAMEWORK FOR THE PROJECT i. Law 496-06 creating SEEPyD and Decree 231-07

36. Law 496-06 (Ley que crea la Secretaria de Estado de Economia, Planipcacidn y Desarrollo 2006) created the SEEPyD as the entity replacing the Technical Secretariat of the Presidency (Secretariado Thico de la Presidencia). This law was drafted and enacted in parallel with Law 498-06, which lays down the basic legal framework for the SNPIP (see Subsection ii.,below).

37. Pursuant to Law 496-06, SEEPyD is the steering body of the SNPIP and has important competencies in the field of territorial management (ordenacidn del territorio). The SEEPyD’s mission focuses on the “[direction and coordination of] the formulation, management, monitoring and evaluation of macroeconomic policies and policies related to sustainable development, with a view to ensuring economic, social, territorial and institutional cohesion in the nation” (Article 2). The specific functions of SEEPyD are described in Article 4 of the law and they include “the formulation of the Development Strategy and the Pluri-annual National Plan for the Public Sector, including the necessary coordination at the local, provincial, regional, national and sectoral levels, in order to ensure consistency across policies, plans, programs and actions.”

38. Law 496-06 also describes SEEPyD’s organizational structure. Reporting to the Secretariat is the entity responsible for the implementation of the Municipal Development Project, the Sub-secretariat of Planning (Subsecretaria de Estado de Planificacidn, or “SSEPLAN”), together with two other Sub-Secretariats, one in charge of international cooperation and another dealing with technical and administrative matters (Article 9).

31 See Article 108 of the Municipal Law. This provision also provides for a transitional solution to determine the budget of the LMD while meeting the LMD’s existing financial obligations: it will be decided by the SEEPyD together with the General Secretariat of the LMD. 126 SSEPLAN, which replaces the old ONAPLAN (Oficina Nacional de Planf~cacibn),~~has the following mission, according to Article 12 of the law: “to propose public policies related to economic, social and territorial development planning, to coordinate, monitor and evaluate such policies, and to participate in the drafting and implementation of agreements between SEEPyD and the Secretariat ofState for Finance.”

39. SSEPLAN is in turn divided into three directorate generals (Direcciones Generales), one of which is the Directorate General for Territorial Management and Development (Direccidn General de Ordenamiento y Desarrollo Territorial, 6‘DGODT”).33DGODT’s mission is described in Article 13 as including “the management and formulation of public policies for territorial sustainable development.” The implementing regulation of Law 496-06, Decree 231/07 (Decreto que aprueba el Reglamento Organic0 Funcional de la SEEPyD), expands on the DGODT’s functions and elaborates on its general mandate as follows: “to formulate public policies for sustainable territorial development within the National System of Territorial Management [and] to coordinate, across sectors and institutions, the different levels ofthe public administration and private entities at the local, provincial, regional and sectoral levels, with an influence in the design, formulation, implementation, management and evaluation, of urban and rural management and land classification” (Article 15.A). ii. Planning Law 498-06 and Implementing Decree 493-07

40. A second piece of legislation defining the institutional framework for the implementation of the Project is the 2006 Planning Law (Ley de Planificacidn e Inversion Publica, Law 498-06). The Planning Law is the cornerstone of the new national planning system, the SNPIP, under the coordination of SEEPYD.~~

41. The SNPIP addresses the formulation, prioritization, monitoring and evaluation of the investment projects implemented by the public sector. The law defines the principles underlying the system in Article 3 and states that all bodies in the Dominican public sector, including municipalities, are subject to the SNPIP (Article 4). The SNPIP is implemented by a series of central bodies with national jurisdiction (Consejo de Gobierno, headed by the President of the Republic and in charge of the coordination of the system; Cornisibn Tkcnica Delegada, comprising Sub-secretaries in the different line ministries; and the SEEPyD, “steering body” or drgano rector ofthe system); as well as Development Councils (Consejos de Desarrollo) in each region, province and municipality, which are the fora for participation by social and economic stakeholders at each Articles 30-44 describe the different phases of the planning process (pre-investment, investment, and evaluation).

32 SSEPLAN has also absorbed since July 31, 2008 two other entities, the Oficina Nacional para 10s Fondos Europeos de Desarrollo (“OWED”) and the Consejo Nacional de Asuntos Urbanos (“CONAU’)). See Articles 21 and 22 of Law 496-06. 33 Another is the Directorate General of Public Investment (“DGIP”), which is the entity within SSEPLAN responsible for the management of SNPIP. 34 Law 498-06 still refers to the Technical Secretariat of the Presidency, the predecessor of the SEEPyD (see, e.g, Article 17). 35 See Article 6 et seq. of Law 498-06. 127 42. At the local level, Law 498-06 establishes a series of institutions and procedures for the implementation of the SNPIP by municipalities. These institutions and procedures can be summarized as follows: 0 Municipal Development Councils. Municipalities shall establish their own Municipal Development Councils with the composition described in Article 14.I.C of the law (including the mayor and other local authorities, as well as representatives fiom the local business associations, education institutions, trade unions, and civil society organizations). As noted above, the Municipal Law has used a different terminology for these councils by calling them Social and Economic Councils. Municipal Development Plans (“Planes Municipales de Desarrollo ” or “PMDs’Y. Municipalities must prepare medium-term and long-term MDPs including all investment projects implemented by local governments. These projects must be subject to a prioritization process before their approval by the municipal authorities. 0 Registry with the SNPIP. All investment projects included in each annual budget must be registered in the SNPIP. Also, municipalities must report periodically on the execution of those projects to SEEPyD so that those projects can be included in the monitoring system. Municipal Planning and Development Units. According to Article 21, paragraph I1 of Law 498-06, each municipality shall maintain a Municipal Planning and Development Unit (Unidad Municipal de PlaniJicaciBn y Desarrollo) whose main function is the preparation of the MDPs and the monitoring and evaluation of the investment projects to be included in the municipal budget. Possible Agreements with SEEP-yD. Article 47 of Law 498-06 states that local governments can enter into “technical assistance agreements” (convenios de asistencia tdcnica) with SEEPyD in order to “strengthen their capacity to generate and design investment projects and monitoring and evaluation systems for their own project portfolios.” Those municipalities that implement the above agreements in a satisfactory manner will be eligible for co-financing programs for the implementation ofmunicipal investment projects.

43. Implementing Decree 493-07 (Decreto No. 493-07, que aprueba el Reglamento No. I para la Ley 498-06 de Planijkacidn e InversiBn Pziblica) constitutes a first step in the implementation of the Planning Law and the SNPIP. The Implementing Decree contains a number of provisions describing in detail the SNPIP’s institutional framework and the procedures for the identification, formulation, preparation, and evaluation of investment projects covered by the SNPIP. However, the decree itself states that most of its provisions are optional (i.e., not binding) for municipalities, with two exceptions (see Article 1, paragraph I1 of the Implementing Decree): 0 The composition, functions and operating procedures of the Municipal Development Councils, which are detailed in Articles 4 to 15 (as well as in Law 498-06 - see above); 0 A series of provisions that simply reproduce the articles of Law 498-06 summarized above (including the possibility of entering into agreements with SEEPyD).

44. This means that, in practice, municipalities have considerable flexibility in implementing the processes established under Law 498-06.

128 D. OTHER LAWS WITH A DIRECT IMPACT ON MUNICIPALITIES

45. In addition to the basic municipal legal framework and the provisions governing the entities that will be responsible for the implementation of the Project and the SNPIP (see Sections B. and C., above), there is another set of laws that have a very direct impact on municipalities and their day-to-day operations. These laws are generally applicable to all Dominican public sector entities, including municipalities, and are particularly relevant in connection with the financing of municipalities and the fiduciary aspects of the Project (e.g., procurement, financial management). In many cases, they are also the product of the broad reform of the Dominican public sector implemented since 2005, just like the Municipal Law and Laws 496-06 and 498-06. Specific attention should be paid to the following laws: Accounting: Law 126-01 creating the Directorate General of Governmental Accounting. 0 Procurement: Law 340-06 on Procurement of Goods, Services, Works and Concessions, as amended by Law 449-06 0 Budgeting, Financial Management: Budget Organic Law 423-06, Law 5-07 on Integrated Financial Management, Law 567-05, on the National Treasury, Law 6-06 on Public Credit, Law 10-04 on the Court of Accounts, and Law 10-07 on the National System of Internal Control and the Republic’s General Comptroller Office. i. Accounting

46. Law 126-01 (Ley mediante la cual se crea la Direcci6n General de Contabilidad Gubernamental) is part of the series of laws adopted in recent years to reform the Dominican Government’s financial administration. The law establishes the Directorate General for Governmental Accounting as the entity within the Secretariat of State of Finance in charge ofthe Governmental Accounting System (Sistema de Contabilidad Gubernamental, or “SCG”). The SCG must be used not only by the central government, but also for decentralized entities, state- owned enterprises, and municipalities (Article 2).

47. Law 126-01 describes the main objectives and the basic characteristics ofthe SCG, which is conceived as a “single, uniformed, and integrated” accounting system to be used by all public sector entities. The Directorate General is vested with the power to determine the books and accounts as well as the methodology to be used in governmental accounting (Article 8). The law sets forth an accounting system based on financial reports recording each entity’s assets and liabilities, as well as the economic results of the activity of the entity and the execution of the budget (both in terms ofrevenue and expenditure^).^^

48. Specifically regarding municipalities, Law 126-01 stipulates that municipalities shall provide all financial information requested by the Directorate General through the LMD (Article 10). This provision needs to be amended in light of the new Municipal Law and the new role of the LMD as an advisory body.

36 Decree 605-06 elaborates and expands on the provisions Law 126-01 129 ii. Procurement

49. Law 340-06 (Ley sobre Compras y Contrataciones de Bienes, Sewicios y Concesiones) contains the basic legal framework for public procurement in the Dominican Republic. The law was enacted in August 2006, and four months later, an amendment (Law 449-06) was passed to adapt the procurement regulations to the trade agreements entered into by the Dominican Republic, the U.S. and CAFTA, as well as to clarify some aspects ofthe original law.

50. Article 2 of the Procurement Law defines the scope of application ofthe law as including the entire Dominican public sector, including municipalities. The law applies to all public procurements conducted by these entities, with some exceptions (including procurement carried out in connection with “loans and grant agreements with other States or public international law entities, as provided in those agreements, in which case the agreed rules will prevail” (Article 6.1). The Secretariat of State for Finance is, according to the law, the “steering body” (drgano rector”) ofthe public procurement system.

51. The law sets forth a number of general principles underlying public procurement (e.g., efficiency, competition, transparency, equity, etc.), describes the different procurement methods, the thresholds for the application of each of them and the procedures to be followed in the submission and evaluation of bids and the award of the contracts, as well as the content and format ofthe different procurement documents.

52. Under the new Municipal Law, the LMD will no longer carry out procurement on behalf oflocal governments, which has been a very common practice in small municipalities in the past. This will require a significant effort on the part of municipalities to ensure that the procedures established in the applicable procurement rules (the Procurement Law or the Bank’s Guidelines) are complied with. iii. Budgeting, Financial Management

53. A final set ofrules includes various laws regarding the preparation and implementation of the budget and the external controls over municipal finances.

54. First, Law 423-06 (Ley Organica de Presupuesto para el Sector Pziblico) establishes the Budget System (Sistema de presupuesto), as the set of rules governing the budget process in all public entities, including municipalities, including its formulation, discussion and approval, implementation, and monitoring and evaluation. The Budget System is the central piece of the SIAFE (Sistema Integrado de Administracibn Financiera del Estado). Law 423-06 contains some provisions specifically dealing with municipal budgeting (Articles 7 1-73). These are the most re1evant : Municipal budgets shall be approved by the Municipal Councils (Salas Capitulares), in accordance with the laws regulating municipalities (Le., the Municipal Law). After approval, budgets must be forwarded not later than January 15 of each year to various entities within the central government (including SEEPyD, the Court ofAccounts and the Comptroller General’s Office). Municipalities shall also provide information to

130 the same institutions in connection with budget execution at the end of the budget year. 0 Municipalities shall follow the Manual of Budget Categories (Manual de Clasijcadores Presupuestarios) and apply the technical rules and methodologies adopted by the SEEPyD, the Directorate General for Budget, and the Directorate General for Governmental Accounting.

55. Second, Law 5-07 (Ley que crea el Sistema Integrado de Administracidn Financiera del Estado) contains general provisions on the basic principles of the SIAFE and its information system, the SIGEF (Sistema de Informacidn de la Gestidn Financiera). These provisions have been adapted to the municipal level through Law 176-07.

56. Third, Law 567-05 (Ley de la Tesoreria Nacional) regulates the Treasury System as part of SIAFE. The Treasury System comprises all principles, rules, bodies, and procedures through which the following activities are carried out: collection of revenues, registry and custody of funds and assets under the responsibility ofthe public entities, the management ofbank accounts, and the ordering ofpayments. The law contains the basic principles and rules for the operation of the entire system. According to Article 2, paragraph I1 of the law, municipalities can apply its provisions by adapting them to their own financial management processes.

57. Fourth, Law 6-06 (Ley de Cridito Pziblico) regulates the Public Credit System (Sistema de Cridito Pziblico), which is the part of SIAFE that deals with public debt. The law is also applicable to municipalities. In particular, Law 6-06 provides for various procedural and substantive conditions that must be met for municipalities to issue debt (see Articles 20 et seq.).

58. Finally, municipal finances will be subject to external control by two separate entities: the Court of Accounts (Cdmara de Cuentas) and the Republic’s General Comptroller’s Office (Contraloria General de la Repziblica) in accordance with the Municipal Law. These entities, as well as the controlling mechanisms they will use are regulated in two different laws: 0 Law 10-04 establishes the Court of Accounts as the institution responsible for the external audit of the entire Dominican public sector, including municipalities. The law provides that all public institutions shall be subject to four types of control: (a) external (through the Court itself); (b) internal (through the General Comptroller’s Office); (c) legislative (through Congress); and (d) social (through civil society organizations). Specifically regarding the first type of control, the law lays down the foundations of the National Audit System (Sistema Nacional de Control y Auditoria), led by the Court of Accounts. The Court will be responsible for the “examination of the general and specific accounts of the Republic through audits, studies and special investigations.” As far as municipalities are concerned, Law 166-03 (providing for the transfer of resources from the central government to municipalities, see above) requires all municipalities to submit quarterly reports to the Court of Accounts, the LMD, and the General Comptroller’s Office describing the amounts and the end use oftheir expenditures. 0 Law 10-07 (together with its implementing regulation, Decree 491-07) is the legal text governing the National System of Internal Control and its “steering body”, the Republic’s General Comptroller Office. This Office is responsible for the control over

131 the revenue and expenditures of the different departments of the public administration, as well as municipalities. The control the Office exercises over municipal accounts takes place through the submission of accounting information on a quarterly basis (see above). At the municipal level, this role is complemented by the municipal comptroller, a position required for all municipalities under Law 176-07.

132 Annex 18: Lessons Learned DOMINICAN REPUBLIC: Municipal Development Project

1. The Project was requested by Government following the Law Municipal approval (2007) aimed at promoting social and territorial cohesion of local governments, improve public services provision and municipal institutions’ performance.

2. Many of the lessons by the Bank’s experiences in newly decentralized countries are incorporated in the Project design. Experiences supporting the implementation of municipal services in transition economies were examined where particularly local accountability is encouraged and promoting strong central-level coordination to ensure Project implementation (e.g. Georgia, Macedonia and Bulgaria). Recent projects approaches supporting municipalities that are fostering collaborative management arrangements for municipal and regional development, with wide consultation and direct participation by stakeholders were used to prepare the Project. The Project was built on several key recommendations of similar experiences in Latin America as those fiom Brazil, Colombia, and Peru.

3. The Project builds upon the approaches of the Dominican Republic PROCOMUNIDAD project which finances small works with both municipalities and communities. One key lesson from the project is to involve local engineers as service providers to support the implementation ofworks. This approach has assured appropriate local technology is used in the design and implementation of small works investments. The proposed Project will be utilizing the network of local service providers that PROCOMUNIDAD has developed over the last twelve years. The Project also incorporates lessons learned by the Dominican Republic PARME project which has focused on providing municipal strengthening technical assistance. The primary lesson is related to the importance of having communities and municipal authorities define their institutional strengthening needs. Another is the imperative need for a proactive mayor to commit to institutional strengthening and reform for local capacity building to be successful.

4. The Project also builds on the Bank’s extensive experience with municipal development projects which contributed to territorial development and improved the public services provision. Development projects by the World Bank which have established similar approaches were examined in Peru, Ecuador, Bolivia, and Chile. The design of municipal development projects entailed a previous consideration of regional typologies for the Project intervention. For example in Peru the project design involved a rigorous ex-ante analysis for the intervention in selected territories affected by the violence; in Ecuador the priority was given to diverse geographic and productive composition territories, and in the case of Bolivia the areas selected look at its economic potential and clusters ofmunicipalities.

5. Evidences have also shown that starting with regional strategic planning, as the instrument for economic coordination and efficient investment plans provide an accurate framework for the project delivery and the focus needed for improved social services delivery. Other important lesson include the need to find the appropriate entry point as for example

133 infrastructure (Ecuador) and rural alliances (Peru and Bolivia); information technology (Extremadura); tourism (Calabria, Northern Spain) focused the type of project investment priority. The project defined the “minimum services” investments to be supported given by the legal framework and though a competitive fund where alliances and cooperation among municipalities could be established.

6. Lesson learned incorporated in the Project include: (i)overlapping responsibilities and competencies of different levels of government present a challenge for the Project; (ii) including regional strategic planning as the instrument for economic coordination and issuing efficient investment plans; (iii)adopting a multi-sectoral approach which entails to support cooperation across sectors and consensus vision of the future ; (iii)identifying territorial or regional typologies through territorial analysis; (iv) defining the criteria for competitive funds include the technical economic feasibility, as well as innovation and ways to strengthen human capital and knowledge sharing; (iv) disseminating information on planning methodologies and roles and responsibilities ofvarious public administrative levels.

7. Additionally, lessons learned from other municipal development projects in Latin America Asia and Africa are:

(i)Keeping municipal participation criteria at a minimum is key to reducing project complexity and making the project implementable;

(ii)It is important to have minimum municipal staff hired before technical assistance activities begin;

(iii)Signing of Municipal Contracts which clearly define the commitments of both the municipalities and the implementing agency is key to reduce implementation delays;

(iv)Learning by doing approach which mixes institutional capacity building and technical assistance with investment support produces more sustainable outcomes;

(v) Committing municipalities to a maintenance budget scheme for existing, project supported and future investments is key to sustainability and upkeep of the municipal infrastructure stock; and

(vi)Assisting municipalities to define, adopt and implement a municipal procedures manual with functions and responsibilities for municipal administration strengthens the municipal administration.

134 MAP SECTION

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information DOMINICAN REPUBLIC shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. MUNICIPAL DEVELOPMENT ATLANTIC OCEAN PROJECT – PRODEM FIRST 5 PILOT PROJECT CITIES OTHER 25 PROJECT CITIES Monte Cristi Puerto Plata MAIN CITIES AND TOWNS MONTE PROVINCE CAPITALS CRISTI PUERTO PLATA NATIONAL CAPITAL 3 PROVINCE BOUNDARIES Dajabón Mao ESPAILLAT MARÍA INTERNATIONAL BOUNDARIES Santigo 1 Sabaneta 4 TRINIDAD Moca Salcedo SÁNCHEZ 2 Nagua Sabana San Francisco Iglesia de Macorís SAMANÁ SANTIAGO La Vega DUARTE Samaná A HAITI IÑ P Cotuí S LA VEGA ÍA Sabana Grande L Bonao 5 HATO E SAN JUAN de Boya Las Matas MAYOR de Farfan Juan de Herrera 6 MONTE PLATA Elías San Juan Esperalvillo Monte EL SEIBO Piña Plata Hato El Cercado Padre Guayabal Yamasa Bayaguana El Seibo Las Casas Mayor Vallejuelo Las Yayas San Jose 7 Higüey Los de Viajamas AZUA de Ocoa LA RRíosíos Villa BAORUCO 9 Jaragua Villa Peralta 8 10 ALTAGRACIA Galvan Tabara Estebania Jimaní Tamayo Azua Neiba Las Charcas San Cristóbal IN Pueblo Viejo SANTO San Pedro La Romana DEP DOMINGO de Macorís ENDEN CIA Baní LA ROMANA Las Salinas DISTRITO NACIONAL Barahona PERAVIA

Polo La Ciénaga 1. DAJABÓN Pedernales 2. SANTIAGO RODRÍGUEZ BARAHONA ParaParaísoíso 3. VALVERDE PEDERNALES Enriqillo 4. HERMANAS MIRABAL 5. SÁNCHEZ RAMÍREZ DOMINICAN REPUBLIC 6. MONSEÑOR NOUEL Caribbean Sea 7. SAN JOSÉ DE OCOA

8. SAN CRISTÓBAL IBRD 37034

JULY 2009 9. SANTO DOMINGO 10. SAN PEDRO DE MACORÍS