RESTRICTED

Report No. WH- 1 50a.

This report was prepared for use within the Bank and its affiliated organizations.T'hey d-lo niot ac ept responsibility for 2it; acicuracy or completeness. IThle report maynot be published nor may it be quoted as representing their views.

T ERVNT IONA A L BANT A T EC AU AND 1CI DEVrDrTTrTTj A MTh ThFT frnAr=rTri± 1 Ux%.±NZ L %-. IXI~ P-. JJ IjJ J. AL %-.% A.L - %~ ± L%. £ kI A L J - LJ-'.. V AL~L~./L £L I. L

71T1rVnXT A T rT/r%T A T Dk-VELOT (PMAENTr A S IT A rTN'U. iAD 1'i% I l'...J4 lN.t.L LJL1- V VIA. Ji 'I.L4 I I

RECENT ECONOMIC SITUATION

OF THE

DOMINICAN REPUBLIC

July 19, 1965

Western Hemisphere Department

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GCURRENCY EQUIVALENT

UTT C .$! 00 =n DT1 peso% * .- .-1- 4 *- - ww % w i

TABLE 0F CONTEIhTS

Page _No.

BASIC DATA .. ... . i iii

SeMkgY kND CONCLUSIONS ...6.4................,z,0,t, i

I. INTRODUCTION ................... , 1

II. ECONOIIC GROWTH .................... ...... 0* 2

Agriculture .... 0...... 9000. ... 3

lanufacturing and Mining ........ . ...... . ... 7

III. PUBLIC FINANCES 9 .............. * .*..*........ 9

The Sugar Corporation .... . ............. .. 10

Central Government Finances ................... 12

IV. PUBLIC INVESTIMENT .... .. ................. 15

V. MONETARY AND BALANCE OF PAYMENTS DEVELOPMENTS.... 16

VI. CONCLUSIONS ....... ............ 22

APPENDIX 1: STATISTICAL TABLES

APPENDIX 2: TRENDS AND PROSPECTS IN AGRICULTURE

APPENDIX 3: EXPORT PROJECTIONS 1965-1970

APPENDIX 4: BALANCE OF PAYMENTS PROJECTIONS 1965-1970

BASIC DATA

Area: 19,300 square miles

Population (rid-1964): 3,452,000Rate o57 growth (l950-1964): 3.5%Population density (per square mile): 180

Gross National Product (1964) 850 millionRate of arowth 1950-1959 5.5%

1960-1963 41964 1%

Per capita GI1P (1964) US$245

Gross Domestic Product at factor cost (1964) 870 million

of which, Agriculture: 40%Manufacturing and Mining: 15%Central Government 25"Other 205'0

Total TOO?

Percntof. nf TP a±t. mnr1et nrices 196) 1962-6Lt 1950-',9

Gross investment 9-2 10.0 17.LGross savings 2.8 6.3 17.4Balance of payments current account deficit 6. A 3.7 0. -3 1/Investment income payrnents 2.2 2.4 2.0

1overmntL current revenus0 n 12 20. 9 -!

Resource gap a.s d of invesu.,,en' 69 A 37.3

Money and credit

Rate of ChELngeOctober 1964 1963-Oct.196 '-1

T.o o lri-ioney supp`y 1'wL4.V UI.L. -L..L. ±2

Time and savings deposits 38.3 mill. 4 h.25e 40hCommercial bank credit toprivate sector 79.0 mill. 32.3% 44%

Other lending to privatesector 3/ 57.0 mill. *-e h/ ... hi

Rate of change in prices +'U70 o/ + 5'

1/ Surplus2/ Annual average3/ Agricultural Bank and industrial Development CorporationE/ Operations started in 19625/ 1961-1964/6 1963-M1ay 1'364

BASIC DATA (Continued - ii -

Annual rate ofPublic sector operations 1964 change 1950-64

GovernmcnH current receipts 190.7 million 5.5%Government current expenditures 1°6.5 million 7%Surplus/deficit 5.8 million -Government capital expenditures '9.0 million 5. 6i 7/ -12.5p 8/Public investment expenditures 30.3 million 8.5% 7/ -6% 8/Total external assistance to

public sector 19.3 million 9/ 1962 10/ 15.4 million1963 10/ 21.8 million

External public debt (in US$) Dec.31, 1962 iviav 31. 1965

Total debt 36.6 million 153a6 millionTotal annual debt service 3.3 million 25.3 millioa

(1963) (1965)Debt service ratio 11/ 1.9% 15.7%

Balance of Payments (in US,") Annual rate of196 14 change 1950-SL

Total exports 180.0 million 5;T%Tot2l imports 1920 million 6 12/Net invisibles -56.9 million 6%Net current account balance -55<7 million 1950-61i: cumulaqtive

surplus

1963: -22.8 million

1955-1963 1964

Commodity concentration of exports 53% 53%G-ross forelign exc4hangse reserves 364 mil''ion '-L3/ L7.5'1 mi-Jl-li--on 14/

(or 3-4 months' (or 3 months'ir.ports) i-"mports)

i:12 er-nal fi.nanci.L-" assista-1-cts (inj U,).,)

Annua.l average 19v62-6 _-)

Conmitnents Disbursements Comrnmitients Disbursemrtits

Total h3.0 34.0 39.7 24.lSoft assistance -o. 32.0 0.4 13.7Hard assistance 4.2 2.0 23.3 10.4Major donor:

U.S. 37.3 32.1 38e5 24s1

II. IBD AIED !DA OPERATIONS (in US)

A) Past operations Amount committed Amount disbursed

IBRD None NoneIDA None None

Foctnotes on P,ge iii

BASIC DATA (Continued)

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Footnotes:

7/ i 95n-i gc;9/ 1960-1.964.9/ Includes 9.3 million foreiln grant! a to the

Central Goverrment budget10/ Ecternra assistance to public e-c-or comn..enced in 1962T1/ % of export earnings

13/ 1959-1.96321r11/ NTet- re.serr,es : TS -8M ,.l'o

SUJhARY AND CONCLUSIONS

1, On April 24i, 3965, the de facto Civil Government of the DominicanRepublic was overthrown. The widely publicized disturbances which ensuedhave still to be resolved, and the first steps toward political recon-struction are only now being taken. There is no basis yet for Judging howand in what context the Dominican Repuolic's serious economic problemswill be confronted, nor the extent to which the -revolu+tion will requiresubstantial special reconstruction assistance. In these circumstances,it would be nremature to appraise the econonnmt' prospects of the DoLminicanRepublic. The purpose of this report is simrply to report the findingsof a Bank mission which returned from the Dominican Republic shortlybefore the April 24, 1965 revolution, and thereby outline the majoreconomic and financial proble,ms th-at will have to be dealt wihby whatever Government is eventually established there.

2. During the 1950's, the Dominican Republic experienced a fairlyhigrh rate of ecoapomn-C ,ovt4- In thl .s period real. GN advanced by anannual 5.5 percent as compared to an annual 3.5 percent increase in popu-lation. C-ross n investment averageu about l7 percen't of 0'13? (rnore tLhan halfof which was undertaken by the public sector) and was largely concentratedin the agricultural export sector, in manufacturing and in supportinginfrastructure investments - roads, power and irrigation. As a consequenSe,agricultural exports (in particular sugar) rose markedly and a sizeableindustrial sector was built up, the greater part of which was controlledby the Trujillo regime, a tight and oppressive dictatorship that ran theGoverrnent and the economy as a family business. Public investment underthe Trujillo atnmilnistration was almost entirely financed out of internalsarings. Consumption wJas systematically suppressed through low. wages,high prices and heavy (largely indirect) taxation.

3. From the end of 1959 onwards resistance to the Trujillo regimemounted, culminating in the assassination of the dictator in 1961. Inthis period Trujill o lost interest in the development of the Dominicaneconomy and wTas primarily concerned to create large current externalaccount surplus,es which would permit the regime to transfer large amountsof capital to private accounts abroad. The most important measure toachieve this surplus was a substantial reduction of imports throughdirect controls. As, at the same time, defense and other current expendi-tures increased, investment outlays dropped sharply to about 10 percentof total Government expenditures in 1961, as compared to 4O percent in the1951-1958 period.

4. Economnic developments in the 1960-1964 period must be inter-preted in the light of the political unrest and transitional problemsfollowing Trujillo's downfall. Especially from 1961 onwards pressuresto increase consumption mounted. The ban on foreign travel and importcontrols were lifted, wages and salaries wiere substantially increasedand various successive Governments tended to solve the severe unemployment;problem by expanding the public workforce in the Central Government andin a large part of the nationalized industrial enterprises. As a result

- ii -

public savings virtually disappeared, public investment declined rapidlyand total gross in,restment fell from an average 17 percent in the1950-1959 period, because of rapidly rising sugar prices, to an average10 percent of GNP. RXport earnings increased on the average by 7 percentper year during these years. The rate of economic growth averaged 4 per-cent per year during 1960-1964.

5. But the financial situation deteriorated sharply, especiallytoward the end of the period: the increase in wages and salaries and theexcessive expansion of public employment resulted in rising agriculturaland industrial production costs. Together with a considerable expansionof bank credit, these developments led to rising prices and increasingbalance of payments deficits which were only partly covered by the infloa,;rof long-term canitalF. The publiclv-owned Sugar Corporation exneriencedincreasingly large operatuing deficits during these years, which werefinanced hy sh'ort-term domestic and foreign loans and bv Central Govern-ment subsidies.

6. To finance public investment, as well as part of the operatingdeficits of the Sugar Corporation and to cover the balance of pan1ent±..deficits, and refund accumulated commercial arrears, the Dominicanpub~ic~. ,.ir-.ced Pira TT U C.S lAn4rn.-11 newy ewrn. debts in the 1Qt)i156.

period. These debts, which were mainly short and medium-term, raised+ a public -+,-1 Aer ld,+ servAic burdr.A sa_.ly

7. .L" A;g J.7st1J4, UhLV IDIMi c.iarL (G-overnment eLnitere.d in+o a Standby

Arrangement with the International Monetary Fund designed to improve the...lance ol4 payments sita4 4- -

4.-- I- rest n i ,.al -. A. and andA cst

increases. At the same time, the Government initiated a program toimprove the financia position of the pLUblc seto r. S)!ine1 LUfihe, aL Ltota].J.

of U.S.$60.7 million in commercial arrears has been eliminated, and bankcredit and Gover-r-nment expendi-ureS reduced. U u. A.luugh these weastu-eswould have had the effect of reducing import demand considerably, theprospect wa, 9ti.1 for the current account deficit to continue at a highlevel.

8. Urgent attention will now have to be given to strengthening thebalance of paynents, noU only by promoting exporbs uy concentraling alarger share of public investment in the export sector, but also bytaking difficult measures to reverse the rapid ana serious aeteriorationof the balance of payments situation of the recent past. In view of theinternal cost increases of the last three years, such measures may nowrequire an adjustment in the exchange rate. Such an adjustment wouldpermit exports to grow faster, would tend to reduce the demand for foreignexchange for imports, foreign travel and investment income remittances,and would contribute to solving the financial problems of the S5ugarCorporation.

9. The previous economic report noted the relatively small amountof public external debt which was outstanding at the end of 1962 (U.S.$36.6 million). As of May 31, 1965 the debt outstanding had risen toU.S.$153.6 million. Service charges amount to about 16 percent of pro-jected export proceeds for 1965, to 10 percent by 1968 and decline toless than 4 percent by 1970. If repayments of U.S.$20 million short-

- jii -

term loans faLling due in 1965 which are to be amortized by the SugarGorporation and the RAnco de Reservas are .ncnude; 1965 debt SerViGewill absoro about 30 percent of probable 1965 exchange earnings. Giventhe balance of pa.ments prosptn+. for 1965, som.e resehadulinrg or re-funding or special financial assistance will clearly be called for ifdeful is to be avoided lat,er this year.

1. To 1 restorev.n e,o.r-rmnic rMn+ome4ti1m +4n ' hr D r.ni rn Pnniihl j n,r

permit expansion above the 4 percent achieved in the 1960-1903 period,measures --;ill ^a-nrl haeb-- .+o eoe 4-expor+s, -njra

public savings, and improve the planning and execution of public in-vest-0,51~5 U5A~ . L,± I V. I±U .LLL-. ±1 I 1LI'L1'.J. U±mlents ~and thale o,.jeration O.' Pubsce,e-Die. Th ,a;,to h

balance of payments will have to be improved correspondingly to permit-a~iLU±i~LUL' ma LIU U U(IjJV UO eLIIU UitJi Z)UIVL! U VI. ULeI jJLUOthel .n'.aenance of needed triorsan he serv-.c of presetdbspu

the new debts that will be needed to finance developmentali.-vestments. In brielf, more thanl Just the restoratio[, of politicalstability will be required to reverse the financial deteriora-tion of therecent past. If the present dsloca1ion persists, s-ubsvantal economicreconstniction aid on special temrs may also be needed to restore thebases of economic viability and grow-th.

I. INNTRODUCTION

1. After' the fall in 1961 of the Trujillo regime - a tight andoppressive dietnrql-ip that for about 30 vonrs ran the DlmininnnRepublic as a family business - the Dominican Republic experienced aperiod of politicAl ins+irlitly and change whnich profounnly anfec-tedthe economy. The various successive governments which were largely in-erXpeftenced in tnonAmic m++at-er +stried +f - n V f4'i fjf; re;1. -ne; +J n1 & nI A

. ,--r sli Lfl-_ *- wv a wV

social problems by substantially raising goverrnment salaries and privatemairtnms ~ '- wa6es 1,;c+ ha'ee i-tlw in the T-Ji era "hy roved

unable to cope with the problems of managing properly the large Trujilloenterpirises whic had bee0n -t[1JM l-en ove 4oa --- 4 4oe.,e'ate h - ln~1 5j~ ~ b¶L.J.~L~ LI U~~I UO.Z L~ V V V1.L J Ult V U L1L1.J;1~ G L.Z UV.L VAV L XL:~

over. The result was a serious disruption of internal and external finan-cial equiiruu Xled at illOvrlzn i-c cae4opori¼-~~L ~j.LJ±L.LLr UL11, Iiii Ut ±: LCL A)U %I±VJ.L. 8LJvulLfiAenU U vii±'.A LdJt, LA) VVVV~lve .J

September 1963 was well aware of the country's pressing financial problems.anrd LLU.LLaLdU a sdaU±LiLatL,.LUL1 proUgradm WI.JliI awLiUJ at U;LU Lh±Lnan-

cial situation of the public sector. In August 1964 this govern,mententered into a Standbyr Arrangemient with the InternaLional M'Uonetary ?unddesigned to improve tLe balance of payments situation by fiscal andmonetary means. Stens were also begun to prepare th-le way for initiatingimportant new development projects. However, on April 24, 1965, th4.sgovernment was ousted. Though the ensuing military conflict and bilood-shed have since been stopped, it is not yet clear when nor under wihatconditions more normal political and economic activity can be resumed,nor what the costs of reconstruction will be.

2. In these very special circumstances, the purpose of thisreport is not to appraise the most uncertain current econotmic situationand prospects of the Dominican Republic. It is, rather, to report onthe findings of a Bank mission which returned from the Dominican Repubblicshortly before the April 24, 1965 revolution, and thereby outline themajor economic and financial problems that will have to be dealt withby whatever government is eventually established there.

Structure and Characteristics of the economy

3. The Dominican Republic occupies the eastern two-thirds of theisland of Hispaniola in the Caribbean. The economy is heavily dependentupon the perfonnance of the agricultural sector which contributed byabout 40 percent to Gross Domestic Production in 1964. Agricultureprovides employment for about two-thirds of the active population andsupplies more than 90 percent of the country's export earnings. Inparticular, the sugar sector looms large: it accounts for roughly 15 per-cent of GDP, 60 percent of industrial investment and for over 50 percentof export earnings. Furthermore, the economy is relatively open: exportsaccount for about 20-25 percent of the Gross Domestic Product. Theprevious economic report (WH-130a, August 13, 1963) alreadv noted the lariTemagnitude of the public sector: it accounts for over one-third of GDPand includes - apart from the Central Government and municipalities -the Sugar Corporation, which produces about two-thirds of the country'ssugar, about one-half of the industrial sector and a large number ofpublic autonomous institutions.

-2-

it. Tr. jillo's longtime neglect of public education resulted in asevere short;ge of qualified manpower, particularly at the middle andhigher level. At present there are only a handful of agronomists, veter-inanians and economists. Perhaps the most serious result of Truiillo'scentralized decision-takin- procedures is the present lack of experiencedhigh-level public administrators, vhich goes far to explain the severeoperating deficiencies of the public sector.

II. ECOOTNMIC GWITTIH

<^ haDring t.he IQC501.q the Domin-ican Republic Ye-yeriencied a fairlyhigh rate of economic growth. In this period real GNP advanced by anann2ual 5.5 percent as compared to an annual 3.5 percent increase in popu-lation. Gross investment averaged about 17 percent of GNP, of whichmore than half was _ndertaken. by the public sec+or. It was large'y con=centrated in the agricultural export sector and in manufacturing. Agri-cult- -i 1 p-r.-oduction f.or dom,est. 4 1 c consi L'.ption was neglec-'ed and increasedby less than the rate of growth of population. At the same time large4-.es+ments wvere mmaAe in roadus, power, an' riain As a consequer,ce~~m ULIJ u u in ~ ~ aU ±L± ULiO.Aof these investments, agricultural exports (in particular sugar) rosemarkedly - at an annual rate of about 5 percent - and a sizeable industrialsector was built up, the greater part of which was controlled by theTrujillo regime. The public investment effort was almost entirelyfinanced out of public savings. Consumption was systematically suppressedwhrough low wagfes, high prices and heavy (largely indirect) taxation.

6. Economic developments during the 1959-1964 period were quitedifferent, however. From the end of 1959 onwJards, when resistance tothe regime began to mount and culminated in his assassination in 1961,Trujillo lost interest in the longer term development of the economy andmainly enacted ineasures which would permit him to ma!ce massive transfersof foreign exchange to accounts abroad. These measures included a sub-stantial reduction in imports through direct controls, a further supp-ression of consumption mainly through new tax measures, and a substantiallowering of public expenditures which marked the beginning of a steadyand rapid decline in public investment. After the fall of the regime,wages and salaries were substantially increased and thle various successivegovernments sought to solve the severe unemployment problem by expandingthe work force both in the Central Government and in the nationalizedindustrial enterprises. As a result, public savings virtually disappear-ed and public investment dropped to about 4.5 percent of GNP (largelyfinanced through drawings on foreign loans which became available from1962 onwards) as compared to 9.5 percent in the 1950-1959 period. As, atthe same time private investment fell from 7.5 percent of GIUP to 5.5 per-cent, the total rate of capital formation amounted to only 10 percentof GNP as compared to 17 percent in the 1950's. According to provisionalGNP estimates, the rate of economic growth during the 1960-1963 perioddropped to about 4 percent per annum. It was prevented from fallingfurther by an inpressive growth in export earnings, which rose on theaverage by 7 percent per year and thus made up for the substantial declinein gross domestic capital formation. The value of merchandise exportsincreased from U.S.$132 million in 1959 to U.S.$174 million in 1963,

- 3 -

entirely because of a substantial rise in the value of exports of rawsugar and its by-products constituting over 60 percent of 1963 exportearnings. This increase in the value of sugar exports reflected rapidlyrising sugar prices: the volume of raw sugar exports actuallv decreased.(Cf.para. 2, Appendix 2).

7. Provisional data for 1964 indicate that there was a continuingdecl ne in public invesfr,ent ependitu tres though a modest recoverv ofprivate investment. Gross domestic capital formation dropped furtherto 9 percent of G-DP and gross savings araed o.l 1 peir,nt of GDP.The external current account deficit amounted in 1964 to 70 percent ofgross i.nvestm,.ent as cov,pared to 37.3 percent in +he 1962=196) period.There was a modest increase in export earnings (3 percent) and a small(1 per-cenr,) increase in real GL. U Per c i cJ. . 4L .. eLUI- JUb+^d'E V deJ =

clined during 1964.

8. Economic growth since 1961 was accompanied by inflationary_3____-1 M11-- 2~- --- … - ---I -, _-.-. l -l . 4. . U _

UdVelopme[nt. El increaseL1LL in L1 U wagesLsar Ues toethr WULI CaIn

expansion of public eiployment, resulted in rising agricultural andindustrial production costs; bank credit was expanded substantially;prices rose - the general consumer price-index shows an annual 10 per-cent price-rise in the i961-1964 period - and there were increasingbalance of payments deficits during these years.

Agriculture

9. Agriculture is the mainstay of the Dominican economy. It pro-vides nearly all the exports, and employs about two-thirds of the laborforce. Its share of the gross domestic product amounts to about lh0 percent.

10. The Dominican Republic has natural conditions favorable toagriculture. These include a mild sub-tropical climate, generally goodsoils, and adequate rainfall in a large part of the country. The twomain produicing areas are the south-eastern coastal plain where most ofthe sugar cane is grown and which contains some of the best- cattle lands,and the central portion of the Cibao (Yaque del Norte and Yuna rivers)valley in the north where the rest of the major crops (rice, tobacco andbananas) are grown. The other producing areas are the Yaque del Sur basinin the southwest and the western tip of the Cibao valley that containsthe largest banana plantations.

11. The unevenness of rainfall in certain regions and the lightrainfall in the western part of the country make irrigation necessary.The area under irrigation increased from about 75,000 hectares in 1950to about 100,000 in 1964. Part of it, however, receives only intermittentirrigation due to the lack of reservoirs and other water control facili-ties. In addition, poor maintenance of the existing irrigation canalsystem substantially affected its irrigation potential. A program torehabilitate the system was initiated in 1964 by the Mlinistry of Agri-culture with financial and technical assistance from AID. Furthermore,a two-year program of feasibility studies of two large irrigationprojects in the Yaque river basins and in the Azua valley was about tobe undertaken with the U.N. Special Fund providing financial assistance

- h -

and the IBRD aciting as Executing Agency. These two projects would leadto a doubling of the area under irrigation and therefore to a substantialincrease in agricultural production, especially of high value exportproducts like fruits and vegetables.

12. DesDite favorable growing conditions, yields in Dominicanagriculture are generally low, mainly due to the system of private landtenure which is characterized by the verv large number of small andgenerally inefficiently managed units, which are not easily reached byextension servicpes which are, in any event, extremelv limited. As forthe State lands, except for the lands owned by the nationalized sugarmills,_ much of t-he S+.tate lannds which nrobhnhly ynpeda n t.nt.nl of nhoult400,000 hectare;s, have either been inadequately used or not used at all.These idle and tuinder-utilized lands could provide the basis fora consider-able expansion in agricultural output in the years ahead, especially if theDominicarn Agrarian Institute can continue to be effective. The Institute,which is mainly responsible for the execution of a land settlement program,

its establishment in 1962 but was finally operating effectively beforet.he cha..ge-over. ALeaU about L,7(UV0 ±JLes lve bleen settled ongovernment-owned land. The experience acquired by the Institute could lead

4.- 4- L. - ~~~~~~~~~~~~~~~~~ .4 4-1 4. 4J4UV U rL t ULUhWer txeCutiOn. of Ucarefully conceLiL-ied sJetU'Iren projecus au aprobable rate of about 2,000 families per year. In order to provide thesefi'ia±-es w1i.ui aclequate tecnrical and credi-t asistvance, the Inst butucollaborated with the Bureau of Community Development, the Institute forDe-velopment and Cooperative Credit, the Agricultural Bank and the Iiinistvyof Agriculture. The quantative impact of the program has not yet beenappreciable, but could become more important in tne years anead werefamilies settled in irrigated areas of the Azua valley and subsequentlyin the Yaque-river basins.

13. Farmers have received technical assistance from the .Iinistryof Agriculture (particularly in coffee and cocoa), the Tobacco Institute,the Agricultural. Bank and the Agrarian Institute. However, the supplyof these services is extremely limited, mainly due to the severe shortageof technicians, The authorities took some steps in intensifying agri-cultural education: an expansion of the (University level) Santo DomingoAgricultural and Veterinary School was planned, and the Governmentencouraged the establishment of a private medium-level agriculturalschool in the rich Cibao region. Although these were promising develop-ments, it was nevertheless clear that a substantial additional effortin agricultural education was required, especially at the lower andmiddle level. (A UNESCO mission recently surveyed Dominican educationalpriorities and is expected to report its findings shortly).

IL. The Agricultural Bank made a total of about RD $60 million inloans to the agricultural sector since its reorganization in 1962.Finance was provided to producers of rice, coffee, fruits, cocoa, peanuts,tobacco, corn, and poultry. The average loan amount generally has beensmall. In its three years of operations, the Bank experienced a highproportion of defaults in the short-term, small loan sector. The totalamount of unrecoverable loans were estimated to have amounted at the endof 1964 to about 30 percent of all outstanding 'Loans, largely as a result

- 5 -

of inadequa e loan supervision and inexperienced management. The Bankalready con ributed substantially with long-term loans towards the develop-ment of agr -culture, especially in the fields of poultry, tobacco andrice. However, lack of techricians has seriously limited the scope of theBank's operations, and has prevented it thus farm from implementing itsRD $11 million livestock development program.

15. Aggreigate data on agricultural production are not available.Partial indicators, however, show that while the prGduiction of tobaccoand rice rose ccnsiderablv the production of some major agricultural ex-port commodities - such as sugar, cocoa and bananas - decreased duringthe 1959-1963 Deriod. The oroduction of agricultural commodities forlocal consumption increased by less than the rate of growth in population.The increasing tendency of nominican workers to leave the land and to emi-grate to provincial towns, especially from 1961 onwards, has affected agri-cultural exnorts rnrticm0,r1-r_ nopnite the grarntina of' substantiallyhigher wages in certain agricultural activities, employment opportunitiesin thA ci ties behamo increasingly attractivej with the result that. onlypart of the coffee crop could be harvested, and the shortage of sugar caneGUtterS became inni- d. In addition, in densely npopulanted areas likethe Cibao valley, some low-yield agricultural export products (in parti-cular cocoa) are being replaced by higher_jield products for domesticconsumption, such as plaintains, yucca and fruits. This shrinkcing exportflft+ tTf+, l l',n a an r¶ 1 n, nfnn.nlne C +k1 fn,- 4

n.n Prnh poential has serious IVg+.- o,sqece o sWI nom-nic.-U 1Wul4c(See Appendix 3)

Trends and Prospects in the Main Crops 1/

16. The production of sugar which is the chief agricultural product_ _n__:___ __.0 &. L _ J_ _ _3 - _ _ _' - M _ -:-__e lLn___ of the DominiUcaUaX 1 nepubhiC eVrppeU stUeaUdiLy fromIII E 7UU U10 WdsUA; L 11.Th aUrea

harvested decreased rapidly and cane cutting, cane growing and sugar pro-duction techniques deteriorated seriously following Trujillo's downfallwhen his sugar holdings, which account for about two-thirds of thecountry:s production, were confiscated. Although a reform program wasinitiated in 1964, which could lead to a modest recovery of efficiencyandu production, price prospects ior sugar are so poor that sugar export,earnings will barely exceed, by 1970, the record 1962 level of U.S.$95.6million.

17. The production of coffee (the country's second largest exportcrop) did not change appreciaBI adring the past five years. Althoughthe authorities executed some extension programs, these merely compensatedfor the natural decline in production due to the high age of trees. Ex-port prospects for the 1965-1970 period are not encouraging as the Inter-national Coffee Organization plans to penalize the Dominican Republicseverely for the unauthorized exports which took place in 1963 and 1964.Stocks will accordingly accumulate and storage facilities will have to beprovided, the financing of which will pose a serious problem.

1/ For a detailed account of trends and prospects in agriculture,see Appendix 2.

- 6 -

18. The p )duction of cocoa and bananas decreased in the 1960-1964period. Coc-a :oduction droDped by about 10 Dercent largely as a resultof substitut1 ng other crops in densely populated areas. The Governmenthas been makir J efforts to stop this trend oy encouraging cocoa producersto shift prod c;ion to other parts of the island. Cocoa exports shouldrise moderate v largelr because of the expected closing of a large Govern-ment-owned co,oa by-products' factory which had operated at unacceptablelosses= TTnIeSA new VarieEieH Gan he introci-ed. the nroduction and exportof bananas will drop from 3.1 million stems in 1.96)4 to 1.5 million stemsby 1970j due0 ton the uncheck.ed s a f Pannimrra disease

19. W^.Tith its Cavorable soil and cllinate conritions, the TDomi ni canRepublic could become an important producer of dark-cured tobacco.'Prorioie -n nirr-,r'-A ar-ound 90-25,9r00nn tons in recent vears.- adTefforts hn.vebeen made to improve its quality. W1ith a continuing inprove 'ent in quality.nnd nadditionAl or tsn enhe na-rt. nf t%ho V1inistTy of' Agriclturn. eorxortsshould incrcase to about 25,000 tons in 1970, yielding about U.S,$i6vi I1or, -a c r *f4 TT o Z -SR 4 illion r in 1QA.

20. ts gnerl clmatcandgeobaphlal ituaionalso .,akes the~~ C~LJ s ge 'eal cJ CL.SL eq.'- CLI 44 rU V1XyiL,LS .. "CV-%1JCJ

Dominican Republic a natural grorer of fruits and vegetables which could* v a' ivU will i~ 1UAjJV± u iaCiLU u WilL JVUA- d X U6U ,id1 OUpJJ yJ aLAU D *av ^ W

quality can be guaranteed. But full scale exploitation of the country'spotential in this product line -wrill only- be possible when large areas inthe Yaque valleys are brought under irrigation. Feasibility studies ofthese irrigation projects are expected to be terminated in l9US. Giventhe poor prospects of most of the country's traditional export products,tulese projects are of thre highest priority.

21. espite good natural conditions, the production of cattie hardly-increased in the 1935-1964 period, mainly due to the lack of technicalknow-how and the lack of long-term capital preventing farmers from under-taking expansion programs. PTo expansion programs were being carried out,one by a private and one by an official bank. The successful impplementa-tion of these programs could lead to sufficiently large increases in cattleproduction in the years ahead to eliminate the need for meat imports by1970. Although the lack of trained veterinarians remains a problem, itcould be overcome if plans to expand the Veterinary School can oe vigor-ously pursued and the Agricultural Bank can succeed in contracting foreigntechnicians durinig the next two years or so. The planned expansion of theagricultural school should help to overcome the present shortage ofspecialists in animal husbandry and pasture management.

22. If agriculture is to make a strong contribution to the growthin gross domestic product i_n the years ahead, considerable progress isneeded in raising agricultural productivity and in bringing new landsunder cultivation, especially in view of the poor production and priceprospects of the country's traditional export products. The realizationof these objectives will require substantial additional public expendi-tures in the fields of agricultural education, extension services, irri-gation and agricultural credit. At the same time additional foreigntecimical assistance will have to be contracted to brZage the manpowergap. Both the magnitude of the problem and the variety of public insti-

- 7 -

tutions invol:ved in agriculture are sufficiently large to suggest thatan agricultural development plan shou'd be prepared as soon as feasibleto define a consistent and realizable action program for the coming years.

Manufacturing and iaining

23. In the last decade, a large and relatively diversified industriiAlsector was built un in the- Dominican Renublne. that mav have venerated asmuch as 15 percent of the gross domiestic product (1964). Althiough it isdominated by thAni gar industry, whinh acouinft for ahnut 60 Anprcent of toni-lcapital invested, other activities have grown at the same time. Theseincl ude thnf ag utural productsr the production of building,materials and of light consumer goods such as flour, beer, rum, cigarettesand text_iles. Much oft1he impetus for the industrial growth of the 1950'scame from thle Trujillo enterprises, which accounted for more than half of

tz ~inutial~ secor u.eavy lr+to and- u.g prcs low wages, andstrict labor discipline gave industry a profitable internal market.

24. While political unrest slowed industrial activity noticeablyi- '1/O 1c 4'I-oh- - 9--4o_ -4. _ - -n19,9/60, aVai.La.Le sLU a c UICC iUndicators shuow a rapid icrease in

industrial production and sales since 1961, exceeding an annual 10 percent.LndUerable increases in purc1hasiLng power, .ainlydue tU an average UU

percent increase in wage rates granted between 1961 and 1963 and to aLUWL-±i Dg or- UUoQJL_L1ng of certain taxes eUU to a rd -apLU d rise 1 uuaiuJ ±u

manufactures. Although industry could meet a large part of the higherdernand by utilizing substantial idLe capacity, which was particularlypronounced in the Trujillo industries which wrere confiscated in 1961,little new industrial investment was undertaken. As a result, imports Ofmanufactures soon began to rise markedly, and in 1963, when industryoperated at fuller capacity, further wage increases led to a sharp risein production costs and prices. However, because these cost increaseswere taking place behind a high tariff wall, prices could be increasedsufficiently to keep profits in private industry exceptionally high(20-30 percent of capital invested).

2d. As the larger part of Dominican industry had been owned by theTrujillo regime, upon confiscation of these holdings in 1961 public owner-ship of industry became pronounced. it now amounts to close to two-thirdsof the sugar industry and to about 50 percent of all other industries. Anumber of these enterprises, which (except for the sugar industry) havebeen brought under the control of the Industrial Development Corporation,have been operated at great losses since 1961, largely as a result of in-experienced management, political interference and ownership disputes(para.37). In general, efficiency is unduly low; in various enterprisesproduction has been declining and many are faced with a serious excesslabor problem. llthough the former Government had taken some steps toimprove operatingP efficiency, these were by no means sufficient to restoreproduction levels and profitability. If these industrial plants are tomake their full contribution to the Dbminican economy in the years ahead,an independent study of each of the major plants will have to be made soonto determine the most efficient way of running them.

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26. Although the internal market is small, there is still considerab]esnace fonr further mnrrt suhbsA ti-i tutin andA expansi. n -f indut rl produc=tdon. The Dominican Republic is endowed with a relatively dynamic entre-nreneurinl class fP%cznJv 4n. unstable no c1-t+ n 1m.4ae an t.A e uncer--r - er'.--~ ---- tlA US'tainty about the immediate future, numerous projects are in the planningor constrst+.on stacge,f cii.h as Se A cement pln-@, a bee bo-li, n g

..- -r- ior. __-5_1 *IA,UJ V _.OL U4 ~ VU_LJ.*g

plant, and plants producing milk and by-products, fertilizers, softrlinks, and other 14ight consumer goods. The executior. of a few largehousing projects should lead to an expansion of the production of build-

27. In u 1 t dustur-_al De-velopmLentI CorporaiVon ,mad e ar-range-ments to construct and operate 6 metal products plants and a plasticsplant. Total investm-ent requirements, amrounting to about RD $6 million,were to be financed by suppliers' credits. Furthermore, the Corporationintended to estaulish various industries to process coconuts. As theCorporation already had to assume substantial managerial responsibilitieswhich it found difficult to exercise adequately, tne management of thesenew industries would have unduly burdened the Corporation in carrying outits primary functions which include the financing of industry. In addi-tion, the economic justification of these projects, and especially themetal products industries, was insufficiently studied. A thorough re-appraisal of the Corporationts proper role in industrial development willbe required.

28. During the past few years an important obstacle to the expansionof industry was the limited supply of industrial credit. ihile therequirements for short and medium-term credit were adequately met by thecommercial banking system, the need for long-term industrial credit wasonly satisfied in part by the Industrial Development Corporation. Handi-capped by its pubLic status and constrained by its limited funds, theIndustrial Development Corporation only made a total of about RD $3 mill-ion in loans durinig its two years of operations. Furthermore, the averageamount per loan generally was very small-about RD $6,5o0.

29. In order to meet the high and rising industrial credit require-ments, a Private Investment Fund was established within the Central Bankin March 1965 to channel to industry (and also agriculture) through thecommerical banks and the Industrial Development Corporation funds origina-ting from an AID U.S.$5 million loan. But other schemes were also beinginitiated. In 1964, the Central Bank began negotiating with the Inter-American Development Bank for a U.S.$5 million loan - also for financingindustry - but under different conditions. At the same time, the estab-lishment of a private Development Finance Company was being prepared withtechnical support from the International Finance Corporation, and theIndustrial Development Corporation was negotiating a line of credit withthe Export-Import Bank to finance imports of industrial machinery forprivate industry.

30. The overall prospects for industrial development could befavorable especially if technical and vocational education are improvedsince the lack of qualified manpower has constituted a major obstacleto industrial exnansion. in particulnr- the processing of agricultural

- 9 -

products for exports could become a rapidly expanding industry if vigorouseffo-ts are made to develop the Yaque river basins and the Azua valley.

Mining

31. Mining consists mostly of bauxite, the production and exportof which is undertaken by a local subsidiary of the Aluminum Companyof Anerica (ALCOA). In 196L. exports amounted to abouu 1,000,000 tonsof wet ore, yielding about U.S.$3 million in net foreign exchange. Thevolume of' bauxite P-morts is not likely to increase soon as the companydoes not, as yet, plan to increase operations beyond its present capacity.

32. Reserves of about 50 million tons of nickeliforous lateriteha_ve been nrve in +th!e Dominican RerUlic and m.ay be exploitted byv Dominican subsidiary of Falconbridge Nickel Mines Ltd. of Toronto. An1m+rro 1 An t ; A1 ~vt-i A~ '9 1 v' Ar ; n m n _ _y +;, o~y' n +h rvn Ai2

^ h m,. .r+ i nn A _ AA

nickel which could have commercial acceptance. A larger pilot plant wasbeing planned to be operational by the end of 1966. Technic-, comm.er-cial and financial problems, however, need to be solved before fullsc 'e exp,loiLtati0n car. be .etkn

_JJ * L,L d jLIJU± I. a ± d hLiJ ;) Dd U E t; Q L. LJd .L.l 4v1 1VA aUi U ELi. LU LJ v aU l u-

ment is restored, the prospects for future agricultural and industrialexpan1si. are qie uu.certain. DZLLt e;Ven1 With W s, JIL wiLth adeate

infrastrcture facilities, systematic effort must begin to be devotedto providing adequate technical education Ln industryl and agrIculture ifthe chronic lac:k of trained manpower - a most serious development bottle-neck - is to be overcome reasonably soon.

III. PUBLIC FINANCES

34. The public sector has become increasingly important in theDominican economy. Central Govermnent revenues, which rose steadilyduring 1951 to 1958, averaged about 23 percent of the gross domestic pro-duct in this period and provided the funds for the hignh rate of publicinvestment - about 40 percent of total Government expenditures - of theseyears. In the :L959-1961 period that preceded Trujillo's downfall, theCentral Government's share of GDP declined. But after the change inGovernment in 1961, Central Govermnent revenues and. expenditures recoveredrapidly and, in 1964, expenditures averaged 25 percent of GDP. Moreover,in 1961 the sizeable industrial, agricultural and commercial holdings ofthe Trujillo regime were nationalized. Although precise data are notavailable, the public sector has since been generating rouglly one-third of the gross domestic product. It comprises - apart from theCentral Government and municipalities - two-thirds of the sugar industry,about one-half of the rest of the industrial sector, and a large numberof public autonomous institutions. The latter include the AgriculturalBank, the Banco de Reservas, the Agrarian Institute, the Housing Insti-tute, the Social Security Institute and the Industrial DevelopmentCorporation.

- 10 -

35. Though large, the financial operations of the public sectorhave been very noorly coordinated. The Central Government neither controLsthe budgets of the autonomous agencies and municipalities which it supports,nor does it review their financial operations. Although there are a fewautonomous agencies with their own revenues (notably the Sugar Corporation,the Industrial Development Corporation and the two publicly-owned banks)the greater part receive their funds as transfers from the Central Govern-ment. These transfers increased raDidlv from RD $9.2 million in 1961to RD $26 million in 1964, equivalent to 12 percent of total CentralGovernment exnenditures in that vear. In the same nAriod. profits trans-ferred from the publicly-owned enterprises to the Central Governmentdnrrasnd frorm RTh PI1)i millinon to Rn 56 milli nn

36. Post-1961 developnments in niihlie financs sqhouldi h vi.Tpd inthe light of the political unrest and transition problems which followedTrujillo's dowmfall. In response to mounting pressures to increaseconsumption, public wages and salaries were substantially increased andvari-ou successive 3 oovern,.ntn +ended +eo, s theLL. L,.s sve.re t,ner..o .

problern by expanding the workforce in the Central Government sectoritself as well as in a larTge part o + na+io rie enerries Inaddition, a large part of the publicly-owned enterprises and the SugarCorporation. s+ar-ed At4o ir.cur4- he oeaig eiis ublic~ saving

virtually disappeared and public investment declined steadily to a levelo.f abLout 11 V y),)U r,.L.L.i.onL (as LoUiIijJ-dtoU RD p65 O ,IIL.I.llUIL in 1958). D JJjs4pit e

the remarkable recovery of Central Government revenues after 1961, thec-ri.ulative budget deficit, d-urLng the years 1961-196hL, amounted toRD $85 million, of which about tw-o-fifths was financed through inflation-ary intuernal credit expansion. During this period, the Dominican Govern-ment also incurred large short and medium-term external debts to financesome public works and the operating deficits oI the bugar Corporation.

37. Tne serious lack of trained managers contributed much towardsthe heavy operating deficits of the publicly-owned enterprises. In theTrujillo era the greater part of these enterprises was managed by ex-patriate personnel. These managers were replaced subsequently by in-experienced Dominican managers and technicians and efficiency declinedrapidly. This experience is but a particular example of the verygeneral and pressing need for developing trained local persons in allfields of activity.

The Sugar Corporation

38. W-%ith assets of RD $190 million and a budget amounting toRD$84 million in 1964 (as compared to the Central Government budget ofRD $215 million) the Sugar Corporation has played an important role inthe Dominican public finances. Since its nationalization in 1961 itsfinancial operations deteriorated steadily to a point where, in 1964,the preservation of its solvency required heavy Government subsidies andthe renegotiation of the Corporation's sizeable short-termn indebtednessto foreign banks. A sharp rise in production costs (7.3w per lb. in1963/64 as compared to 3i in 1961/62) and unsatisfactory sales practices

which prevente the Corporation from obtaining the prevailing high sugarprices were the causes of the Jncreasing losses. As of September 30, 196%the Corporation's total short-term indebtedness amount3d to RD $5005million, of whiCh U.S.$24 million was outstanding with foreign banks.The latter fi.ure includes a 'oan o-f U.S.$18 million outstanding with aconsortium of three forei.gn banks wnich expires in October 1965. Theconsortium retains at present 61 percent of the Corporation's sugarexport proceeds for amortization and interest pavments, after havingagreed to a postponement of repaymients during the first quarter of 1965.The other U.S.6 mil'ion owed to another forei7n bank. and which hasbeen rolled over various times, is due for repayment in July 1965.

39. For the 1961-1964 period reliable profit and loss accountsare not avai.lnlej but the foIlmowina- table aivres an inrlintinn of'general trends:

F:ENANTCIAL OP3RATIONS OF THE SUGAR CORPORATIOIJ,

year ending September 30)

Projected- zl nZ6 62 196 -1964 196 -Ir-L;7 UL _L7r_ ±7u) ±L7U14

Revenues 47 57 56 72 15Costs 37 53 6u 8h 69

of which wages anasalaries (13) (26) (39) (45) (41h,

Profits or Losses (-) 10 4 -8 -12 -i4

Source: Dominican Sugar Corporation

Actual losses have been considerably higher as costs other than wzagesand salarles (e.g. depreciation) wnere substantially under-estimated.Since its nationalization in 1961 the Corporation has been subjected tointense political interference. Though wages and salaries were sub-stantially increased and the labor force was nearly doubled, productiondecreased and remained considerably below the record 1960 level. Profitbonuses were paid in years ashen the Corporation realized losses. As aresult, the wage bill rose from RD $13 million in 1961 to RD $45 millionin 1964. In addition, the lack of qualified staff and the appointmentof mana-ers and adrninistrators on the basis of their political affiliation.contributed heavily to the serious deterioration of cane growing and sugarproduction techniques and the consequent drop in production and increasein costs.

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40. In September 1964, measures began to be taken to correct thissituation, Wage payments were to be reduced by a large reduction inexcess labor and the traditional profit bonus was not paid out in October19640 In addition, the Corporation contracted the services of foreignconsultants to assist the managerment on all operational matters and incarrring out a reform progzram whffich aimed at an overall reorganization ofthe Corporation's operations and at improving production techniques,Ihe net effect of these measures were intended to lead to a 25 percentreduction in production costs. IHowever, preliminary estimates indicateda record level of lnosse for the 196/6 crop year_ (about RD $14 mnilllon' -

The Corporation will have to sell a large part of its 1965 production atlow worlri m2rki pric-es. In addition- 61 perrcent of the Gorporation'sexport proceeds are being retained by the consortium of foreign banks forservicin.g the TTU.,Se18 ,mnlli.on loan0 No end to +tle Corporation's continuousliquidity crises is thus yet in sight. The RD $22.7 million debt to theRTnhne% An Q +ch +fi,rv m1j-+ac Ael 4;+a +g; rbn'h+.c

can only increase, The U.S.$6 million, loan due for repayment in June 196',c' early ca,ot+ be "-n4 rA' +,,- r Corporatvion's I esouce.

41e. Despit;e~ the promi,sing efforts to rationalize the operations othe Sugar Corporation, it is unlikely that longer term cost levels cantJ4 ai9nLLV QV.W ,=A WV VfJ., VVJ~.. X.o *1 i.U. V z.I ¶J. 4.. UOLJ-LO C;. J..Jl' O41%A .z CAShS..L U,S

Corporation to liquidate its short-term indebtedness. At the present rateofL exc CLiLange. ad.LI. w tl. a~ j Lam ± PjJ jVOV%5.. LA 1..L- ou L v.L. L'..VO, jLL W AI.) VU.JF.ZC.L%

will probably ccntinue to require Central Government subsidies _n the formU.1 4~. ),'I~IU~VIj AULdA .'U.L .~&V4L ) ~. -AJ4L UVJ.1'_ _ 4. - 4 L.LV VLJyofL tax paymnsent exemlption andu d ̀-ect paym.ent of opera-uting deficits, the-Lby

reducing further the already limited public savings available for produc-15LVe InlvUSUnlertse;

42. Tne immediate future of the Sugar Corporation is higl-y uncertainaIn the first place, it is unlikely that the Central Government will be ableto cover the Corporation:s deficit, intimately linked as it is with theexecution of the overall public financial stabilization scheme. Secondly,it is not at all clear in the present unsettled situation that the foreignbanks will be willing to refinance the $24 million of repayments fallingdue during 19650

C'entral Government Finances

43. During the decade 1950-1960 the revenues and expenditures ofthe Central Government ranged from a fourth to a fifth of GDP. Budgetaryrevenues and expenditures were about evenly matched, and the cumulativedeficit amounted to only RD $14 million or a little over 1 percent oftotal expenditurese The first large deficit, about RD $21 million,emerged in 1961 when revenues dropped to their lowest level since 1954(mainly due to the verj large cat in imports) and expenditures were notproportionally lowered. Subsequently the fiscal deficit remained largeand ranged from 10 to 15 percent of total Government expenditures.Before 1962, the deficits were mainly financed by the banking system.From 1962 onwards, they were financed primarily by foreign grant assist-ance and drawings on foreign loans, largely to finance public investment.Of the cumulative 1962-1964 budget deficit of RD $6h.6 million, onlyRD $144. million was financed from the banking system.

- 13 -

Wi.. Al .hough Central Government revenues and expenditures declinedsubstantial>1 in the 3.952-1°61. period as a result of Trujillo-s policiesto cut impor.;s (through direct controls) and also to cut non-defense publicexpenditures, from 1962 onwards current revenues recovered rapidly andamounted to 22 percent of GDP in 1964. The steep rise in current revenueswas the result of encouraging Government action in the field of taxationand an extraordinary increase *.n imports. Expenditure also rose, to25 percent of GDP in 196h, but its composition chan;zed radically. Currentexpenditures increased from RD $100.3 million to RD $170.5 million between1961 and 1964 while investnent exDenditures rapidly declined from RD $29million to RD $19 million in the same period. Expenditures on the ArmedForces and the National Police t.ogethar ahsorhbd an increasing part of thetotal expendlitures and amounted to 32 percent of the total in 1964.

45. The f'ormer economic report noted that in the period 1961-1962the TThmininvin txsiru.i was substantially ro;i.fied. In 1961 theGovernment reduced or abolished a large number of taxes, such as exportt Y~es on coffee and cocoa, cer+ain production +tes ~an i'rsny levie9.These tax reductions amounted to an estimated RD $30 million on the basisof 1961 yields. At the sa e ti,.e,a persona.l inco.e tax was enacted forthe first time, in May 1962. By the end of 1964 the authorities hader-ted varios o4ther law -rvdn -o -nrae in -. e on -- rod-- -,---n

income,sales and increases in fees and public service recei4pts.

46. During the 1h961-1964 period Central Government revenues, which_ _~ _ _ L .- _ _ .n n I-- - t - n n _ _ _ _ . _ Irose sh1da'jply Ir-l- L A;)u._L {e .7 million t 1 7 Uo tD ll_. 1( .z_ri±nUO nf11g2._l1dy

became dependent on import tax revenues: these constituted about 40 per-cent of- total current revenues as compared to about 30 percent in 1961,and accounted entirely for the revenue increase in 1964. Revenues wereexpected to decline in l960, primarily oecause the authorities had takensteps to reduce the level of imports. However, the decline in dutieswas not to have been proportional to the decilne in imports as theauthorities had been reviewing import tax exemption policies. (Tmportsexempted from duties increased rapidly from 1962 onwards and reachedRD $78 million in 1964 out of total imports of RD $192 million. Theresulting loss in revenues may have amounted to about RD $20-30 mi.lionor 10 to 15 percent of 1964 revenues, according to Central Bank estimates).

47. Wh:ile there is no tax on urban property nor on unutilizedland, and although there is considerable scope for further improvementin administering the income tax and import taxation, the possibilitiesfor raising significantly the overall rate of taxation in the DominicanRepublic are limited. The tax burden is already high. The longer termprospects for revenues will be primarily determined by the overallfuture economic growth, which will in turn be heavily dependent uponcarrying out a sizeable development program (paras. 5L and 55) The authori-ties are, therefore, likely to face serious and chronic financial problemsin the years ahead unless tlhey can reduce the level and improve thecomposition of current expenditures, and increase public savings to levelswhich would permit reasonable contribution to the financing of highpriority investAiients.

- 114

48. rJnder the Trujillo regime, Govel-rment investment was financedalmost entirely from budgetary savUigs, with little resort to internalor external borrowing. Rapid growth in revenues provided the funds fora high rate of investment that averaged about 40 percent of totalGovernment expenditures and 9 to 10 percent of GNP from 1951 to 1958.After 1959, as revenues fell and defense and otlher current expendituresincreased, investment outlays fell sharply to less than half their 1959level. Though revenues recovered sharply from 1962 omTard, the increasewas virtually all absorbed by rising wage payments for uneconomic currentexpenditures, a large part of whichl was for the Armed Forces and Police.

49. In August 1964 the Dominican Government entered into a StandbysArrangement with the International 1ionetar-y Fund in order to strengthen

the deteriorating balance of navments situation (see para. 58) through4fiscal and monetary measures intended to restrain internal demand andcost increases- Government expenditures for both 106.1 and 1965 would befinanced without any recourse to bank credit, and the Sugar Corporation'sshort-term foreign in eltedness was to be frozen at the present U.S .$21million. At the same time, the authorities initiated measures to improvethi-e overall f Jn-anc ial pos it_on of' th- publ1oc sector.W .Some c.^,anges weremade in the administration of the budget, the chief one of which was thecreation of the Budget Committee. For the first time in 4 years amechanism oZ control over total expenditures was established to controlef fectivel- increases in the Ceral Governments floang debt (noC.estimated at about RD $25 million). As the two principal members of theCommittee Tere the Director of the Budget (who is responsible for -overn-ment expenditures under present budgetary arrangements) and the Einisterof Finance (wvlho is responsible for revenue collections),for the firsttime in four years total expenditures could be related to revenue perform-ance. In addUtion, salaries and wage payments were frozen at theJanuary 1965 level and vacancies wvere not to be filled.

50. The 1965 budget largely reflected the stabilization programreferred to above. lith revenues estimated at RD $188 mililon, expend--tures were budgeted at RD $182 million (includin- a RD O$8 million subsidyto the Sugar Corporation). The overall budget surplus of RD $6 millionwas to be used for amortization of Government debt held by the CentralBank, which in turn was to re-lend this sum through the Banco deReservas to the Sugar Corporation to cover the remainder of its operatingdeficits. However, there were doufbts even before the April revolutionthat this budget would be viable. Revenue collections for the firstthree months of 1965 indicated a level of revenues substantially lowerthan originally foreseen. Cash expenditures were only held to an annualrate of RD $180 million by increasing pending obligations. Expendituresalso proved to be under-estimated. The significance of these now out-dated figures is that a major problem of restoring some reasonablebalance to the CGovernment's finances awaits the next Government, quiteapart from the additional financial burdens which are certain to emergefrom the current disturbances. A key element of any program to restoreorder to the public finances and raise public savings will be a thoroughreview of the financial operations of the Sugar Corporation and the con-ditions, including the exchange rate, needed to enable it to operateprofitably.

- 15 -

IV. PUBLIC INVESTIEIT

51. airing the 1950's, especially the middle and latter years ofthe decade, public investment was high; both `Ln relation to NTIP anrd Sa proportion of total investments. From 195k to 1958 public investmentaveragAd about 11 percent of rGNP and about 60 percent of total ir.vest-ment. These outlays were almost entirely financed out of public savings.Public invARt+mPnt hbean to docline in 1959, as shrin kirg revenues andsteadily rising current expenditures diminished public savings.

52. Mluch of the country's infrastructure was built during the yearswhen the rate of p-'li^ in-v es4-m.en was T_. 1i tere wTas undoubtedlya good deal of misdirection and waste of public funds, the investments intransp-ort, po-wer and irrigatlon were m,JaJor factors n stlimulating thecountry's economic growth.

53. The level of public investment began its steep and steady de-cline in 1959 and dropped froml RD ^!) million in 1958 To an average annuallevrel of roughly RD $30 million in the 1962-1964 period. Public savingsdwindled to a minimum and public investment was largely financed by infla-tionary internal credit expansion, by foreign grant assistance and draw-ings on foreign loans whicn Decame available for the flrst time in 1962.Although public investment estimates are unusually rough, availableinformation from the National Planning Board and the Central Bank pointsto a level andcomposition of public investment in the last three yearswhich has clearly failed to meet the needs of the Dominican econorny. Thegreater part of the investment expenditures were destined to maintainor replace existing facilities particularly in the fields of agriculture,roads, bridges and industry. The only net public investment of conse-quence, amounting perlaaps to an annual average of less than RD $10 mill-ion, was in power and housing. Investments in education which deserveparticularly high priority, were unduly low and practically disappearedin 1964. The unsatisfactory state of project preparation and the lackof staff in the Dominican public sector since 1961 capable of executingexpansion programs, especially in agriculture, was responsible in largepart for the relatively low level of directly productive investmentexpenditures in the past three years.

54. Infoxnation available recently from the National Planning Board,the public autonomous agencies and the Central Bank -indicated that thevolume of public investment which the public sector planned to undertalceduring the coming years was at a substantially higher level than prevailedduring the 1962-1964 period. Gross expenditures were planned to rise fromRD $30 million in 1964 to an annual average of about RD $58 million in the1967-1969 period. These planned public investment expenditures would bemainly destined for the expansion of the irrigated area, particularly inthe Yaque valleys, for the construction of two major roads, for the re-habilitation and construction of a large number of bridges, and for substan-tially increasing the generating capacity of the Dominican Electricity Companythey would also include certain agricuiltural expansion programs, addi-tional production capacity of the Sugar Corporation, an expansion ofsecondary and university-level education, thie construction of the port of

- 16 -

PuLerto Plata and a substantial public nousing scheme.

55. It is most unlikely that this level of Dublic investment couldhave been achieved during the next five vears. even in the absence ofthe current disturbances. In the first place, not enough projects areavailahle to attain thpe level nroniected for the initial vears. and thelevels for subsequent years would also be unattai.nable unless a majorefnf'+. a+. n-proj+c pre ti"on_+Ann wore bhognnTnson. In .h qeonnnri nlace_ theavailability of qualified manpower limits substantially the volume ofinvestm.ents which the pubic seto can adq atel han1le.Frhrmoe

the size of the program appears excessive in the light of the savingswhich the public sector Might be exFected to generate and the nmount of'external finance it might be expected to obtain. In any event, the comp-

ositon ofP the por,adthe ecor.-d usiicto of large - m.erts

of it are open to serious question. Among the chief priorities for pub-J..LL, LL1VestU1,.eLL, d.t LAI%.t, Utr the UPi V.L UlAWtof L%dJ14 uat L n and voctioa'

training (mainly in the fields of agriculture, industry and public adminis-tration), the expansion of facilites directly conducive to increasingagricultural and industrial production for export and to substitute forim,,ports, and the adequate provision of traxinsort (mainly feeder roads) andpower facilities. Judged in this light, the distribution of the proposedinvestment vol-wne does not satisfy these priority constraints. For example,proposed expenditures for road construction and for the rehabilitationand construction of bridges are far higher than the level eve'-ch is reason-ably required and also substiantially exceed a level which can be financedand executed. Tne level of investment in education is inadequate to pro-vide educational facilities in keeping with the country's growing require-ments for trained manpower. A modified public investment program isclearly needed.

V. MONETARY AND BALANCE OF PAYMENTS DEVELOPMENTS

Monetary Developments

56. Thle Dominican banking system comprises (apart from the Govern-ment-owned Agricultural Bank and the Industrial Development Corporation,both being development finance institutions) the Central Bank, a Govern-ment-owned commercial bank (the Banco de Reservas) and five privatecommercial banks. Four of the five private commercial banks are branchesof foreign banks, two of which began operations in the Dominican Republicin 1962. The fifth is a small domestically owned bank.

57. Three distinct periods of monetary developments can beidentified since 1950. During 1950-1958, monetary expansion was in linewith the growth in the level of economic activity. Between 1959 and 1961,sharp contraction in commercial bank credit to the private sector andheavy capital fLight reduced the supply of money and quasi-money by 18 per-cent to an unusually low rate of 18 percent of GNP in 1961 as compared to23 percent in 1958. The 1962-1963 period was marked by a pronounced expansior.

- 17 -

c commercial bank credit: The supply of money and quasi-money rose byDl .A0 rnillirc r by 3v' Tric-ent Ther OmmnrrG 1 bankVs aoufnted lnraplv

for the domes;ic credit expansion, which they channelled mainly to theprivate t ThA hn-nLns werable +- rn t he-iri loar- 1rtnfn l des-

pite the institution of higher reserve requirements in November 1962 (i;henthese were raised from 30 percent against sight deposnts and5l percentagainst time and savings deposits to a uniform level of 50 percent, the

and in commercial ar'ears to foreign suppliers. These arrears had increasedfrom U.S .$l mlllion at the end of 1960C t U-ST 3.7 mil1 on a' Ile en' of1963 and had the same monetary effect as an increase in short-term borrow.-n;g abroad4. MU- mehai P of- crdi exasorwsasflow.Te_etaA& L ~u L.LItz;I; di±~I ViL k;1-UL± L UAPUdT1_UL± WdO Uj iULIWIVu kdL1 Ud.L_;L

Bank failed to remit to the local commercial bankls the foreign exchangefor the pesos w,hich Dom,,inIcan importers had deposi-ted with -tnese banlsto pay for imports. These deposits wiere considered as normal demiandA e_ s -_ .s _ - . L . 1 -. ^ -- -- _ _ . _ .Li L dL, agaLs wnci -uuie 5U percent reserve requirements was applieu,thus offering the commercial banks the opportunity to axpand their creditportfolio on the basis of these counterpart deposits. The inflationarycredit expansion contributed to the 18 percent r-ise in prices which thecountry experieneed in this period and to a substantial deterioration inthe balance of payments position in spite of rapidly rising exports.

58. In AugJust 1964, the Dominican Government entered into a U.S.$25 million Standby Arrangement with the International iM4onetary Fund inorder to strengthen the balance of payments through fiscal, monetary andother measures intended to restrain internal demand and cost increases.As the Central I3ank's foreign exchan,e assets were insufficient toeliminate commercial arrears to outsiders, which had soared to U.S.e'60.7million by the end of July 1964, the authorities wished to assure them-selves of access to the resources of the Fund. Up to April 1965, U.S.$20 million was drawn under the Standby. They also obtained a total ofU.S.$40 million in lines of credit from a consortium of foreign bank:s,the U.S. Treasury and AID. As the full repayment of the arrears wouldreduce the commercial banks' liquidity substantially, reserve requirementswere lowered to 40 percent in order to offset in part the resulting con-tractionary effects augmented or reduced by one half of any change frorathat date in its net foreign exchange position. Other measures whichwTere contained i.n the Standby Arrangement included the establishment ofa Central Bark credit ceiling at the hlay 1964 level. In addition, theCentral Government budget for both 1964 and 1965 would be financedwithout any recourse to bank credit in either year and the Sugar Corp-oration wioulcd limit its short-tenr foreign indebtedness to U.S.e24 mill-ion during the life of the Standby Arrangement, Moreover, Central Bankcredit to the Ce,ntral Government and to the Sugar Corporation would atno time exceed its respective level of iay v31 19614, and would be reducedby any debt repayment during this period. The program did not contem-plate any chanrge in the exchange rate.

59. Ui fcrc;unately, monetary developnents continued during theremainde- of '. 64 to be character-zed by a pronounced expansion of bankcredit. Tald ig the year as a whole, the private commercial banks' domesticcredit incre 3ed by RD $1L million, or 35 percent, the Government-ownedBanco de Reservas, despite its persistent legal reserve deficiencies,expanded its domestic credit by RD $20 million, or 54 percent, mainly tothe Sugar Corporation. The monthlJy rate of commercial bank credit expansionduring the seven months preceding the Standby Arrangement was about 2 per-cent, while during the following five months it was 5 percent. The expan-sion in the first half of the year was largelv financed by increasedshort-term borrowing abroad in the form of increasing commercial arrears,and in the senond hnlf from a redcltion in res.erve requirements. theincurrence of reserve deficiencies, increased Central Bank re-discountsto the RBncno de Reervas and inncrena fonrign borroiing by commercialbanks. Although it was originally envisaged that the lowering of reserverepnni -rvnts would be sAnchronized it+.h +tie i1-IiiiAniAon of cnommernialarrears, legal reserves were rel]ased to the commercial banks ahead of theelmination of the arrears and were used to finance afurther e ocredit, largely to finance imports. When the payment of arrears -wasaccelerated in late October, t-1e banls incrred he-ij. res e deficiencies

but instead of reducing their loan portfolios proportionately, the privatecoMM-er ciial ban'cs instuead tOransf-PLerred" Xfunds AS Vo. 4 "r ^a off jroA

under swap arrangements, increasing still further their external indebted-r.ess. Only sbsqun-y with. th,e pat evra ofP the swa ps , A+1.o

private commercial banks reduce their portfolios considerably, and during4.- _- -4 A F _|. _z- D n ntr' : A____ 1- 1 __|S|-A 1 -- 44UL1U ±±_ L -U Wo monu A1' UI J.7U; ) L;?V PVdU .v c=tu- Udl.Si1 -UUVI,i L '± U ULL

declined by 11 percent. In November 1964h, further monetary restrictionswere introduced, in agreement with , in the formI of subjecting m,nostimports to a 40 percent import deposit.

60. Although prices continued to rise by about 10 percent during thefirst five months of 1964, suDsequently no significant changes in theprice level could be observed. In addition, wage rates in most industriesrose much less than in the previous year, with increases averaging iessthan 8 percent, as compared to 17 percent in 1963. An important contribu-ting element was the Sugar Corporation's decision not to pay the cropbonus and the Government's policy of not raising the minimum wages. Sub-stantive improvements were thus beginning to be made when the A;pril L965revolution abruptly altered the course of events.

Balance of Payments

61. During the years 1961-1964 the balance of payments situationdeteriorated seriously, largely as a result of economic policies whichtransformed the Dominican economy from a high saving to a high consumptioneconomy. In this period the country incurred increasing current accountdeficits, which were on;y partly covered by the inflow of foreign capital..Foreign exchange reserves, therefore, fell to dangerously low levels, andcommercial arrears outstanding to foreigners rose to the record level ofU.S.$60.7 million at the end of July 1964, seriously affecting the country'sinternational credit-standing. The arrears were since cleared withthe help of lines of credit from a consortium of foreign banks, loansfrom the U.S. Treasury, AID and drawings on the International Monetary Fundlunder the August 1964 Standby, and the authorities took comnmendablesteps toward reStoring external equilibriumr In view of tUle past

- 19 -

increase in ci imestic costs, the spectacular rise in iriport demand, espec-ia11ly for serices and of the poor enport prosrpcts, reonsiAeratlon of theexchange rate of the peso will probably now have to be included among theme asures *T,4 *C.1 ll b1 requil-,ired too re storc e+ -1 f4 ne -nci bln ce +bo

the Dominican economy.

62. Balance of payments developments during the l950's mirrored thei+---I 'financi - 1 -~ ' ', ev r- ,-- 41,of - -h pe ,od.4 it cumn-CLat i ve c u,r ren t accountntem4 a lJ ±L.LLCLAI.I...A.. V%JU4.LJ.LJI. LLUAJ .J.L LiJ..L FV J.J4 t&L UiU.a1LV '.14 L IS Q '-.. 1.14.i

surplus of U.S.$45 million in the first half of the decade was followed'll v_* _: - _r 4T C- & 7 T Q e: 1: _ -Jl _1 'I -' - - ! -__ _4.__ T- -i r1n1t Zi 4u _ I.: i n

L.4) a Ue.L±0;.L S U .L .a0&tP_ ±± L ±1± s LiA ±iI - Y tjr 'O III S ±7JU -. ul eZ 11 UJ X L_ 9

regime severely restricted imports by exchange controls to make possible theexVorIJ ou± Large anriounrus of cap±ital. Tihe resulting comipression VI £u1JVpoUV -

to their lowest level since 1950 - and higher sugar exports led to a currentaccount surplus in these two years totalling U.S .$804 million, or about 30percent of exports. From 1962 onwards, however, the balance of paymentssituation deteriorated serioulsly, as noted below-.

63. Sugar, coffee and cocoa dominate the export earnings of theDominican Republic. Sugar has been accounting for 50-60 percent of totalannual exchange earnings, and coffee and cocoa another 20-30 percent.Between 1961 and 1963, export earnings increased by 25 percent, from U.S.$139 million to U.S.$174 million, entirely because of a rise in the value ofraw sugar and its oy-products; in this period the export volume declined.Sugpar prices fell in 1964, but export earnings continued to expand to anestimated U.S.$180 mi"lion because of rising exports of tobacco and (unaut'Ior-ized in excess of quota) coffee exports. But while eyport earnings wereincreasing, import demand was rising even faster because of increased wiageand salary levels and expanding domestic credit. In 1962, when import con*-trols were lifted and the administration of exchange controls was loosenedconsiderably, imports soared from a level of U.S,$72.1 million in 1961 toU.S.$132.3 million in 1962. Subsequently imports rose on the average by anannual 20 percent and reached U.S.$192 million in 1964 (22.5 percent of GM'as compared to 19' percent in 1956-1959). The increase was largely facilitatedby a liberal treatment of applications for import duty exemptions, whichaveraged about 4( percent of total imports in 1964. The consumer goods'content of imports rose from 30 percent in 1961 to 48 percent in 1963, andprobably even higher in l964.

64. The rapid rise in the volume of imports, together with a con-siderable increase in freigiht and insurance rates (resulting from higherport charges largely due to wage increases granted to dock workers andirregularities in the Santo Domingo port) led to a fourfold increase intwo years in foreign exchange pavments for freight and insurance. At thesame time, when the long-established ban on foreign travel tJas lifted in1962, the Dominicans started to travel abroad in large numbers. Netexchange payments for travel increased between 1961 and 1963 fromU.S.$2 million to U-S.$16 million. Tt was as a rAsult of these develonments,and others of lesser magnitude, that the current account deficit jumped fromU.S.$1315 million in 1962 to the reorrd levpl of TT_.$55=7 million in *96)4,or over 30 percent of total exports.

65. During this period of increasing current accolunt deficits, thegross …sn:, J vi " sstm. irs rl U.S.

$12.9 million in 1961 to U.S.447.5 million by the end of 1964, becauseof' capi+tal .- flo.^* a1nd necauce of the Central Ba'5;'s a p1i.-' to pe~mitcomweicial arrears to rise rapidl:- t.Ll &u!y r-S ather Li^an drF.w dowmi's f',v,.z,.4 ex, ~ -n.Le. reserves. In .-A, _A s-e.kn,e .,, on offl ;a!n '-oans

together with the inflow; of private long-ente capital produced a smallo-,erl- i '1 --eX Pa&Jr1UenbJ surLp_lus. In1 1963_, aL U.S.$2?44 [H_.l1.onL shiorU-term loan was secured by the Sugar Corporation and largely determinedthe U.S .$23.6 mLllionL external payments surplus. During thrs period,cormercial arrears rose from U.s.$l4.0 million (in 1961) to U.S.$33.7M"illion (in ;1963). In l964, the inflow oI oIIicia1 capitai droppedsharply, there wTas capital flight and an overall payments deficit of U.S.$36.8 million was incurred. To finance this deficit and to clear out-standing arrears - which had risen to U.S.$60.7 million by July 1964 - newforeign loans were obtained from a consortium of five foreign banks, theU.S. Treasury and AID (largely of a medium-term nature) totalling U.S.$40.25 million and U.S.$15 million was drawn from the International Mone-tary Fund. The arrears have been cleared since. But as a result thebanking system's external liabilities (now mainly medium-term) soaredfrom U.S.$43.9 million in 1963 to U.S.$84.4 million by the end of 1964.

Balance of Payments Prospects

66. The balance of payments prospects for the coming years arenot encouraging. The authorities will be faced with major foreign ex-change shortages unless adequate corrective measures are taken or ex-ternal support is provided on specially generous terms. Strong measureshad been taken late in 1964 to reduce import demand considerably. Themeasures taken under the Standby Arrangement included the tightening ofcredit by a strong enforcement of reserve requirements and by limitingthe Central Bank's credit expansion, the institution of a 40 percentdeposit requirement on imports, a RD $30 travel tax, higher tax rates onnon-essential imports, the review of import tax exemption policies anda reduction in (,overnment expenditures. But despite these com,mendablemeasures, the external current account defi.cit was expected to continueat a very high level in the light of the severe drop in export earningsexpected in 1965.

EXPORT PROJECTIONS 1965-1970

(millions of US$)

Actual Proieot.d1963 19614 1965 1066 1970

Sugar 79. R I9 73.1 RR 2 96. Sugar by-product;s 19.0 11.1 9.0 10.0 11.0Coffee 18.5 300 26.1 20.6 22.7Cocoa 11.2 9.0 7.9 9.5 10.1COcOa by-products 5.6 6.0 5.4 2 .6 2.8

TOh2CR 8.4l 15,0 11.*3 lL * 16.3

Bananas 8.6 5.5 4.5 3.2 2.4R11Y.+e~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. 14 8.9 1-0 100-0.

Other 4.1 9.6 12.7 16.5 18,2

Total 174.1 180.0 160.0 170.0 190.0

- 21 -

67. Thle large drop in su-ar prices, 1.hich at present oscillatebetween U.S.2 ard 3 cents per pound, as compared to over 7 cents in1963 and the beginning of 196)4, the cut in coffee exports as aresult of penalties imposed on the Dominican Republic, and a sizeablereduction in tobacco exports together Jith the effects of the recentpolitical upheaval are the main determinants of the U.S.$20 million dropin exports expected for 1965. After 1965, exports could increase by anaverage annual h percent, but even so they will only reach U.S.$l90 mill-ion by 1970. a little over 5 nercent above 1964 exports. E.;ven theseprojections imply considerable effort by the Dominican authorities:continuing sugar yield imnrnv?mn.nts n stfnnpd un Pxpcution of cocoa andtobacco extension programs to increase quality and to reverse dowJnwardproduction trendss A fuirther dnil-np in hbnana nrrduction is likelvunless new varieties are introduced. The projections also assume theimprovernent annd paYnnion nf the irrigation systam to permit rising ex-ports of fruits and vegetables (including processed commodities), as well

R t.ho ho;i-nnino nfs mon1+. ovrnrn -+c hvr 10Q7fl RwiYl+l nr ril1r+.;rai 11 nroh-n

bly remain at the level of 196k.

68. Projections of the entire current account for the period 1965-1970, on the assumption hat the - - -a_. program will be effective-

ly applied and that the exchange rate will remain unchanged point towardsthe L A VJLAiruQ of 'a. r uLd J.d eLxI%,ha ng deficits tJ(J1LAiAJ.J- 4);, thLisL

is clearly not a viable situation.

69. These projections raise a basic question about the appropriate-ness of the present exchange rate. Since 1961 s-ubsantial were granted in the private as well as in the public sector, causing cost;to rise to levels which prevent exports from increasing at a higher ratethan the projected 5 percent. Exports of low quality tobacco to SouthernEurope and Horth Airica have iargely diminished because competitioncannot be met at the present rate of exchange. In addition, given thelonger range world prices for cocoa and sugar, it is unlikely that invest--ments will be undertaken for the expansion of cocoa and sugar productionat a rate as witnessed in the past decade as long as the exchange rateremains as is. In fact, farmers are steadily diminishing cocoa produc-tion, and the production of cocoa by-products will decrease substantiallybecause producers at present operate at unacceptable losses. Thereappears to be a clear case for devaluation on the export side, thougn theimpact of a change in the exchange rate on exports will only yield resultSin the longer run. But the main immediate effect of a more realisticrate of exchange would be to reduce further the demand for exchange forimports, especially of non-essential consuner goods, for foreign traveland for foreign investment income payments; and to encourage tourism tothe Dominican Republic (once stability is restored). It would also con-tribute to solving the financial problems of the Sugar Corporation, reduceits dependence on Central Government subsidies, and thereby releaseGovernment funds for priority pub'ic investments and help reduce the rateat which the Dominican Republic needs to borrow abroad.

- 22 -

70. Tle previous economic report noted the relatively small amountof public external debt outstanding as of December 31, 1962 which totalledU.S.$36.6 million, of which about U.S.$20 million was undisbursed. As ofDecember 31, 196,4 the debt outstanding had increased to U.S.$142 6 million.Subsequently a U.S.$15 million loan was obtained for irrigation purposesand a U.S.$10 miLlion loan for balance of payments support, both from AID.As most of this debt was incurred at fairly short maturity, with a pro-nounced bunching of maturities in 1965, service charges amount to U.S.$25.3 million in 1965. eauivalent to about 16 percent of projected exportproceeds for 1965. Between 1966 and 1969, debt service ranges betweenU.S.$15 million (1969) and U.S.$20 million (1967),. and is eauivalent in1967 to 12 percent of presently expected earnings. The debt service burdenfalls sharnlv in 1970 to UTS $?75 million or less than EL nAroent of 1970earnings, and declines gradually thereafter. The 1965 figures do not in-r-hdn rPnavmPnt..s of ITT..;t;S million short_tPrm loans falli nv dun i;n 196qwhich are to be amortized by the Sugar Corporation and the Banco deRnservas. These npamyn..s raise totnl servinc in 16qt to U=S-lAN 3 million.or about 30 percent of probable 1965 exchange earnings. Given the balanceof' paymaents prospects for 1965, some rescheduling or refunding or specialfinancial assistance will clearly be called for during 1965 if default is

ITT rnKTrT TTTSOTq

I -L.e blj.L11 UJL1; C"OU'L4.UDE 4ICV ." ULLLL IJQ. WIWI U.41~ XJ..L.A &Ld42 L.J

revolution have still to be resolved and the first steps toward politicalrecons.-uctin ar-eor3v- ,vr. bing ta;ken, it4 wou'd be inappropriate- 4to

recons4U.±-U%.U VJ CLLV JLYIV LJt:."r L-MUL ± WUU4.LAUf L1CJLJ1UYjJ.CL W

attempt to appraise the prospects for the Dominican economy at this time.Lure -eis no basiis y-Yiet .LUO Jrjudgir.L16 how ardLU in WJII Uc Lt, oLLU.ira.

Republic's serious economic problems will be confronted, nor the extentw which the problems described in tirs repori, wil±L be aggravated by thephysical and economic consequences of the still unresolved revolution.

72. But if the prospects are most unclear, the preceding analysisof recent UcOn1aIILic doevelOpments 111 tIhe 1Tu.Mf1Uaf nRapubJ'Lc U.LeUrdL.y LIIU.L-

cates that, at the minimum, a comprehensive program of measures will beneeded to restore economic momentum of the Dominican economy and permitexpansion above the 4 percent rate achieved in the period 1960-1963: toencourage exports, to raise public sector savings and to improve theplanning and execution of public investments and the management of publicenterprises. In fact, unless these measures are taken, growth may welldecline below the high level of population increase (3.5 percent). Thepublic sector, and especially the Sugar Corporation, must improve itsfinancial position (cf. para.40/41) if the already high external debtburden is not to worsen further (cf. para.69) and if high priority invest-ments are to be carried out (para. 55). The Dominican Republic can nolonger plan to suipplement deficient savings (or dissavings) by resort toexternal borrowing as in the past. Debt service charges for 1965 arealready so high that default can only be avoided if some rescheduling orrefunding takes place (cf. para.69). The management of the balance ofpayments must be improved correspondingly to permit the maintenance ofneeded imports and the service of present debts plus the new debts thatwill be needed to finance developmental investments. (cf. para.68). At the

- 23 -

same time, efforts in the educational field are needed urgently toover2ome the serious lacl of trained manpower (cf.para.37).

73. Rich natural resources, an excellent location close to largepotential markets for the high value food products it could produce forexport, and the nucleus of an entrepreneurial group give grounds forhope that the Dominican Republic can look forward to better days once itemerges from its gravely troubled present. But the analysis of thisreport indicates clearly that much more than the restoration of politicalstability will be required to move in this direction. Difficult measureswill have to be taken to reverse the financial deterioration of the recentpast. The improvement that was just beginning under the stabilizationprogram was interruD-ted by the revolution, and will now be more difticultto resume because of that interruption and the associated economicdislocation. The dislocation may turn out to be such that the DominicanRepublic may even require substantial economic reconstrucuion aid onspecial terms to restore tihe bases of economic viability and Prowvth.

. PPFq'T DTX [

II9T OF T!~BLES

Tpble i;0.

External Public Debt

1. External Public Debt Outstanding2. Estimated Contractuel Sorvice l96q-1979

Population. Natiional Income and Production

3. Population Trends 1950-l9704. Trends in Cross National Product 1950-19635. Basic Data on Production and Exnorts of Raw Susr

and its By-Products 1956-19646A Production of Ma-or A.Jriculturnl Items 1950-19(07. Production of iAajor Industrial Goods 1950-19638. 1 t.nera - Pror.tntion 15- 69. Characteristics of Industry and Mining, 1961

10- In-hiczt.rill Tn.rpqs1mpr.en,'ls aaisn9 -Tg

and Number of Employees 1957-1962

12. Electric Power Consumption 1958-1963 and

~ *~.s ~ ~.ici.aY s.' -V .1kJP.JF!,1*$14 j IQ L'.UJ. LA. ULCJ., C~ILA- Ln1AL4.5.Ld.LC- 'JIeU..LUEsm,fie C'os.to eo T9z 19 -4nd196

"3 onsumer P.Lice Inde in J,--nto Tib .9416LJv '~ii~LUiItJ. ~ ±e-: ini !-TI UU .XA1JLL11CU -1.7~)U--L;J4

14. Retail Prices of Staple Products 1960-1964leo fnde=U.L Lof I^ae in PLr1U.pe-l .tndustie 196C-1963

16. Sunmary Accounts of the Banking System 1958-1)64170 Internat.lio-l -L eser%re V oL.L-L11n 0of 'the DIliLA±L1K )ysUeUln LYU3-.)1964180 Lending OPere't'ions of the Corporecion de Fomento Industrial,

Iiay lyu2 _ July L>U1419. Lending Q?erations of the Agricultural Bank 1961 - October 1964

Public Finances

20. Central Government Revenues 1961 - 196421. Ce-ntral Government !:penditu-res 1961-196422. Composition of' Central Government Erpenditures 1961-196423. Fiscai Operations oI the Central Government 1961-1961,24. Estimated Gross Public Investment 1962-1969

External Finances and Trade

_5. Balance of Payments 1959-196426. Foreign Exchange Reserves 1959-196427. Brinclpal Exports, Value and Volume 1958-196428. Imports by Major Categories 1958-196329. Terms oi Trade 1950-1963

TABLE 1

DOIiINICAN REPUBLIC: EXTERNAL MEDIUM- AND LONG-TERM 1/ PUBLIC DEBT OUTSTAND:ENGTNCLUDTMr TNDTSIMfRSED AS OF DErWMEE U -9-1,wrTH MAJOR REPORTED ADDTTTON:,

JANUARYI, 1965 - MAY 31, 1965

Debt Repayable in Foreign Currency

(In thousands of U.S. dollar equivalents)

Debt outstanding Major reportedDecember 31, 1964 additions

item Net of including january 1, 1965 -

undisbursed undisbursed May 31, 1965

TOTAL EXTER1AL PUBLIC DEBT 96,688 142,551 11,000

Privately-placed debt 51,513 63,673 -Suppliers' credits 3,456 10,291 -Other 48,057 53.382 2/ -

Inter-American DevelopmentBank loans 605 h,900 -

U.S. Government loans 4h,570 73,978 11,000Export-ImDort Rank 2,994 15,33h -AID 25,914 32,600 11,000Denartment of Aorriculture 9.;412 19. 794U.S. Treasury Department 6,250 6,250

1/ Debt with an or:Lginal or extended maturity of one year or more.2/ Includes $e,600,000 guranteed for exchangen r

Sourc-e: TIRPD CPni-mcs.c Dern tmentm StatisticS Division.

TABLE 2DOMINICAN REPUBLIC: ESTIMATED lCONTRACTUAL SERVICE PAYMENTS ON EXTERNAL MEDIUM- AND LONG-TERM P'UBLIC DEBT.

OUTSTINDING I]CLUDING UNDISBURSED AS OF DECINBE-R 31,T9T W I1H MAJOR REPORTED ADDITIONS JANUAlRY 1 - MiAY 31, :L965 1/

Delbt Repayable in Foreign Currency

(TIn thousands of U.S. dollar euvent,

- 'V-eDtU -anta ]Ln- -

'Year (begin. of' period) Payrments durinfg, Period Privately Placed Debt IDB United. SteLtes GoverrnmentirLcluding Amc er- Suppliers" Loans 0-ort-

undLisbuLrsecl zation est Total Total Credits Other Total rtundisbursed Bank ~~~~~~~~~~~~~~~~~~~~~~Othier

1965 136951 21375 3930 25304 231506 95,4 22552 93 1705 863i 8421966 1265 76 12388 37:L5 161L02 11093 1787 9306 300 4709 166,3 301461967 1.14189 16272 31483 19755 11824 21439 9335 946 6985 21214 48611968 9791.7 156148 2802 1841449 10.1521 2233 8287 962 6966 2138 48281969 82269 12853 21153 15(06 7673 1710 5962 979 6355 20522 14 303

1970 6941.6 5911 1637 75148 1.367 1367 - 948 5233 1968 32'651971. 6350)6 5(69 11478 65'47 1117 1117 - 897 4532 1237' 3'951972, 583437 14398 1370 5769 36 316 - 8147 14886 119C0 36I961973, 514039 4769 12'50 6019 34 3,4 - 796 5188 1146 L44219714 149*- iro 5792 11014 6896 33 33 - 745 6118 1095; 5023

1975 143478 58714 972 68147 31 31 - 6914 6121 10147 507L1976, 376()3 4858 822 5680 15 1:5 - 386 5280 720 145601977 327145 14586 703 5289 - - - °9 5190 689 1451978 28160 14586 591 5:L77 - - - 77 5099 6571 4L4421979 23574 41486 479 5065 - - - 55 5010 626 4 384

1/ Includes service on all debts listed in TabLe 1 prepared June 22, 1965 except the following loans f'or which theanortization terms are not avallable:

1. '.,O(00,()0 from Export-Import Banik to) Corporacion de Fomeanto de la Republica Dominicana, 5 3/4%, 1962.2. $14,600,000 from Chase Manrhatl%n Bank to ]Domex, 5 1/49, 1964.

Source: IPRD Economics Departmnent. Sta .i- tics Division.

TABLE 3

Thn?MT^ErT\T.A?T PPPTTPT.Tr.. P)PTTT.A TTlT T\T Tf 1 o01A01 07n)

- I - . ._.. -v.BLI . T - D. . , , / 1,,

Mid- Population % in- Crude birth Crude death Recorded 5/ Recorded 57year l W A ( Chus_.0s creos VC rate rUs brth rales death aeS UJU.SJW~~~.4.~/ ~..L ~~ Jd.UUD J.- tL4tj LJL.-L UII ±d.Lz-l U ll L.L,± dU~Q

1950 / 2,136 -1951 2,201 3.0 ) , )1952 2,276 3.4 j 44•/ j 9.4•!1953 2.354 3.4 J )1954 2,436 3.5 ) ) 42.3 8.5

1955 2,522 3.5 ) ) 41.6 9.11?5r6 2j617 3.5 ) n-) 405 9.11957 2,704 3.6 ) 45-50 2/ ) 15-20 2/ 40.8 8.6,Ie 2,801 36i ) ) 41.3 0 8.

.L7-"u C-,U'JJ. .V I ~4 .) u .41959 2,900 3.5 ) ) 39.7 10.4190u V/!l/ 3,014 3.9 n.a. n.a. 36.7 9.01961 3,110 3.2 33.0 8.41962 3,220 3.51963 3,334 3.5

14 3452 3.)1965 3,573 3.51966 3,697 3.51967 3,825 3.51968 3,957 3.51969 4,092 3.41970 4,231 3.4

1/ Niational Census.2/ Estimate United Nations.-/ Estimate ECILA.4/ Population growth projected from 1960 onwards.2/ UN Demographic Yearbook 1963.g/ Direccion General de Estadistica - estimates.

TABLJE 4

DXO1INICAN REPUBLIC: GxROSS NATIONAL PRODUCT 19.50-1963O(RDS'ooo. C0OOJ

Private Public To'tal Private Public Total E-xternal GNP at Cost of GI?P at •Consump.- Consur-p Consump.- inves't- Invest- Invest- Current Current In- living' 1955 In_

ti on tion tJion mnent ment ment Account Mlark-et crease 1941=100 prices creaseSurplus Prices

'1950 24'7 42 2839 29 24 53 +1J 3g1 - 219.7 332 _

1951 22'2 4;5 315 19 28 45 -6 368 1.9 238.3 359 *-- 6 .1952 296 50 346 35 48 83 - 5 424 15.2 240.6 410 14.21953 31.9 5() 369 30 37 68 + 3 439 3.5 237.2 430 4.91954 332 51 382 30 50 80 +22 484 lo.3 232.4 484k 12.61)55 352 C 63 41 5 36 76 112 -1| 517 6.8 232.4. 517 6.8F.1956 381 82 463 45 64 109 - 6 565 9. 235.i 55c9 8,:1957 403 97 50 51 61 11;2 +20 631 11.7 246.c 594 6,31953 431 109 539 54 65 119 -14 645 2.2 242.1. 619 4.1959 44)3 114 561 54 51 105 -21 645 - 241.8 62o C .2196o 451 118 569 32 41 73 +50 692 7.3 233.0 69c0 11.1,61 463 94 557 27 36 63 +41 660 -4.5 224.1 684 -0.91962 560 129 6B9 51 20 71 -+13 773 17.1 2.45. r 732 7.01963 588 14,8 736 56 1 714 +10 820 6.1 26231 727 -0.7

Source: Direccien Oreneral de Estadistica y Censes and Central Dank

TABLE 5

DOiKNLDICAN REPUBLIC: BAlSIC DAnTA )ON PRODUCTION AND EXPORTS OF RAAJ--U,TGAR AND ITS BY-PRODUCTS 1956 - 1964

1.956 19517 1958 1959 1960 1961 19,62 1.963 196Li

Area Harvested. ('C00 hectaLres) 123 135 1-33 131 183 141 1.81 142 140Production. ('000 mretri.c tons) 780 83 6 8:38 809 1,112 873 902 806 907Total Exoorts ('000 metric tons) 717 795 691 tS94 1,099 793 846 671 771To US ('000 metric toy.) 44 68 89 .118 425 344 820 534 357US Price f.a.s. Cuba - 5.10 5.3() 5.41 5.35 5.35 5.36 5.56 7.29 6.ooFree Narket Price f.a.s. Cuba '.47 5.16 3.W5-; 2.97 3.14 2.70 2.78 8i.29 5.727JS Quota Premium 1.63 0. 14 1.'91 2.38 2.21 2.66 2.78 -1.00 0. 28Value of raw sugar exports

(millions of' US$) 51;4 74.0 49.0 51.0 68.9 63.1 95.6 89.3 814.9Value of molasses exports

(millions of' US$) 3.0 5.4 3.8 4.4 4.6 5.6 4.4 9 .5 7.1Value of f'urfural exports

(millions of' US$) 1-5 3.1 3. L 3.6 3.2 2. 4 2.6 4.2 2.7Value of exports of other sugar

by-products (millions of' US$) 3.4 5.8 2.2 5.3 3.9 2.7 4.2 5.3 1.3

1/ 1950 to 1960 New York Coff'ee and Sugar Exchange Contract No. 6 Spot Quotation Averages minus freight,insurance and du,ty; and 1961 to 1964 New York Coffee a2nd Sugar Exchange Contract No. 7 Spot Quotationaverages minus freight, insurance and duty.

2/ 1956 to 1960 New York Coffee and Sugar Exchange Contract No. 4 Spot Quotation averages and 1961 to 1964InternationaLl Sugar Council Daily Price averages.

Source: Central EBank, Department of Economic Studies, International Sugar Council and IJ.S. Department of'Agriculture.

TABLE 6

Thn,rUr,T-r uP. ir n lfll1TmT r, - nTTnnnr nrn -r.r ^vr, -n n i . rAYn T" rnrTr -r T rnr'rCJViIfJJAlal £li rUDLjiU: rrUiUijUUI Ur rihtjuv lULtlUlu±iUrLAl i1fLPIED

(;000 metric tons)

1950 1955 1960 1961 1962 1963 1964

Mainly for domestic use:

Beans 23 23 24 19 n.a. n.a. n.a.Sweet potat.oes 82 78 87 72 n.a. n.a. n.a.Rice 60 74 n.a. n.a. 68 82 115Corn 83 90 101 102 105 n.a. n.a.Yucca 143 131 153 140 148 n.a. n.a.Peanuts 16 53 62 44 52 n.a. n.a.Cotton - - 4 4 n.a. n.a. n.a.Coconuts (million units) n.a. n.a. 44 44 45 n.a. n.a.Oranges (million units) n.a. n.a. 118 101 109 n.a. n.a.Pineapples (million units) n.a. n.a. 2 3 3 n.a. n.a.Plantains (million units) n.a. n.a. 395 351 n.a. n.a. n.a.Onions n.a. n.a. 2 3 3 n.a. n.a.Garlic n.a. n.a. 1 1 1 n.a. n.a.Potatoes n a na= 1 1 2 n= na

Mainly for export:

Coffee ( 0 bag) 365 557 636 485 638 617 660Cocoa 33 29 39 32 32 35 n.a.Tobacco 22 18 23 26 25 32 22Bananas (million stems) 1.5 1.7 6.9 6.2 6.7 5.1 3.1

smir: ni Dre-ccion Ge,nera1 rli dE i+.sti y Censos, Secretaria deAgricul-tura and Banco Agricola.

TABLE 7

DOMIHIIC'N REPUBLIC: PRODUCTION CIF' YAJOR ITD)USTRIAi"L GOODS 19 j9H93

Unit 1950 1955 1959 1960 1961 1962 1963(million)

Peanut oil liter 2.8 9.0 13.2 1'34 12.9 23.1 23.6Milled Rice Kg. 3599 51.4 68.3 74.9 ,73.4 94.D n.a.Sausages and otherMeat products Kg. 0.9 0.9 2.3 2.7 2.3 2.6 2.4Cornflotur Kg. ( 1 2.1 3.4 2-5 2.7 1.4 1.0IUheatflour Kg. ( I D o.,6 15.3 23.8 30.7 43.6Cheese Kg. 1.0 1.0 1.,2 -L.1 1.2 n.a. n.a.Cigarettes units 673; 902 845 826 86D1 :1305 1722Gigars 3J 9 30.2 26.9 29.8 28.9 37.'7 n.a.Rum liter 3.3 4.5 3.4 3.8 4.4 7.2 7.7Beer 6.6 7.1 12.,5 9.3 8.7 22.5 ?8.6lextilesn meter 0.6 2.7 3.5 7.0 9.2 9.1 8.3Fertilizers Kg. 4.90 8.4 48.6 20.7 50.9 51 .1 31.7Glass unit - 1.7 9, 4 14.0 1LO.5 17.4 20).1Cement Kg. 71.5 234.5 189,5 169.7 236.8 242.'7 22f.2Lumber square feet 24. 0 23.6 33.,0 2:L.8 20.0 21.1 n.a.Chocolate Kg. n.,a. n.a. 10,,5 1(.5 :L2.5 8.7 n.,a.Bananapulp Kg. .. _ 1.6 '3.1 3.2 2.2 3. 6I'atches Box n.a. n.a. 39.4 39.1 '39.7 64.'1 83.6Soalp Kg. n.a. n.a. 8.9 8.0 8.6 11.1 n.a.

1 1952

Sou-rLe: `* e :ioL Oii Jej'erl -le 1s5t,adl U-a CeanSGs.

rTABLE 8

DOMINICAN REPUBLIC: MINERAL PRODUCTION 1959-1963

1959 1960 1961 1962 1963

Bauxite (1000 metric tons) 488.9 787.2 869.3 869.2 946.9

Gypsum ( " ) 158.5 327.8 452.8 455.9 35.1

Salt ( " ) 84.0 88.7 117.4 30.0 23.0

Iron ( " ) nca. 122.7 - -

Granite ( " ) 0.3 0.2 0.2 0.2 n.a.

Lime ( " ) 14.8 7.5 6.5 6.5 n.a.

Limestone ( " ) 357.3 n.a. n.a. n.a. n.a.

Marble (cubic meters) 75 65 88 88 n.a.

Source: Direccion General de ,MLineria.

TABLE, 9

DOC'INICAN REPIUBLIC: CHAP?lCTFRISTICS OF INIDUSTRY hND ]VIINIG, '1961

No Invested '%b of tota'L ' of investment ; oi totalIN:DUST:RY firrIs capital indus-tria:L owned by incdustrial

(R 'C'OOCt) rnt) inTestment government sales

SuL ar 6) 183.1] 59.7% 64 30.7Foods other than sugar 74c9 23., 7.7 33 27.7Electric:ity 1 17.1] 5.6 100 3.cExtraction of metalic mrinerals 3 16.1 5.2 4 3.7FTabrication of non-metalic prod. 68 13.2 4.4 74 3.4Cherm:icals and fertilizers 84 10.3 3,. 4 5 5.4Textiles 22 9.2 3.0 66 3.0Beverages 24 6. 2.1 2 7'.9Extraction of non-metalic

minerals 2 5.0 1.6 100 1.2Paper and pa]per products 1 3. 3 1 ,1 67 1.4"rude Petroleum 1 3-0) 1.0 33 .0Footwear anrd clothing 412 3.2 1.0 8 2.5'Wood and corlk 161 2. 6 , 8 0 1.2I'cundx'y work 9 2.3 .7 4 .3Printing 78 1.9 .6 0 1.0Tobacco 44 1.1 .4 59 3.7LIeather 66 1. .3 30 .6Fabrication of retral nroducts 48 1.0 .3 0 .6Automobile repairing 181 .7 .2 0 .4Rubber rroducts 45 .7 .2 8 .6Furnture 199 .6 2.3i.'arble extraction 1 *5 .2 0 .0M4 iscellaneous manufacture 23 .4 .1 15 .4Asphalt 1 .3 .1 8 .1Laundries 31 '2 .1 0 .1Battery m aanu.'acturing1.,0

TOTALS 2,32a. 307. 2 100.0 60 100.0Source: EstaUistica Inc.Iustrial d.e la Re,:,ublica Dominicira, 1961, and La Corporacion de Fomento Tndustrial

TABLE 10

DOMIINIClAN REPUBLIC: _IDUSTRIJiLINVE3TE SAL,S P AiiLD '!TCES

AID NUU-JBER 0F E1- PLOYES: 97'-1962

Yebar -I]rvesteu capil IndQusti ul J I a,7mLiber of -alaiies and wages

I000Is of RD$ '000's of ?D$ empl.oyees paid '000's of P.D$

1957 228,424 244, 549 86,811 37,65(

1958 239,155 21.9, 567 85,439 38,264

1959 266,884 222,467 83,625 39,040

1960 279,988 271,64 5 89,591 39,068

1961 307,209 2 53,443 80, 05'4 38,271

1962 307,420 33' 5,5(67 76,517

Source: Estadistica Industrial de la Reputlica DominicannSanto Domingo, 1963, and":Reporte sobre la Industria en la,Republica Dominicana con recomendaciones para estimular elDesarrollo Industrial", Santo Domingo, J uguSt 1964, byViarren J. Bilkey Ph.D.

TABLE 11

DO.ZiUTICAN REPUBLI3C: T- '07 -GT xi-D CliNMUHCjICT ITO JS

1]956 1957 1958 1959 1960 1961 19c62 1963

Nunber of automobiles 7,074. 7,209 8,321 9,616 9,879 9,851 13,940 19c,680)trucks, buses and jeeps 7,513 7,011L 8,054 7,661 7,439 7,114 8,804 10,301of£ficial vehicles 2,439 2,404 2,895 3,312 3,597 3,161 3,234 4,400motorcycles & scooters 1,253 1L,419 1,896 2,326 2,019 2,331 4,128 8,462

GTasoline consumption (mill. gals.) 29.8 32.8 35.6 34.0 32.8 29.7 4l1.7 59.,/Port traffic thrcugh Santo Domingo

('000 metric tons), n.a. 1 ,183 1,019 909 1,210 635 1,155 ],70()Traffic through other ports

('000 metric tons) 1/ n.a. L ,Oll 993 1,669 2,439 1,642 2,495 2,094'/Nurnber of Telephones 11,033 12,76'7 14,665 17,065 19,361 20,463 23,936 29,47(Incoming tourists ('000) 44.8 n.a. n.a n.a. n.a. 13.5 42.6 43.9

1/ Largely sugar, banana and bauxite exports.

2/ Estimated.

Source: Direccion Gene.ral de Rentas Internias y Direccion General de Estadistica y Censos.

TABLE 12

DCIi`INICXNY REPU,BLIC: ELECTRIC 0 IE-R CICNSUI- PT 1 91(, 913 A,.DESTIK4TED COflSUT' PTTOIC FOR 1964 1966 AND 1969

E'TIH9TED (end of year)

1958 195c' 1960 1961 1962 1963 1964 1966 1969

Gene:rating capacity (1MT) 57.7 70.3 70.3 70.3 71.9 71.'9 94.81/ 180 235iPeak Load (I-.) 53.7 55 59."9 64.8 70.2 71.0D 88.01/ 120 175Consumption (1 million K•T"I)Residential 5,2.7 58.8 64.9 681.3 84.2 :17.3 1"3.6 184.0 335.2Commiercial 26.2 28£.8 31.,6 31L.3 35.6 42.2 '-6.5 59.9 87.3Industrial 75.0 74.6 81.2 97.5 103.2 112.2 121.4 142.8 182.0Public Lighting 11.6 12.8 13,8 15.2 15.0 14.2 16.5 17.5 19.0Governmrent and hunicipalities 20.7 24.4 26.,3 27.5 27.8 28.'7 30.0 32.2 35.7

-1OTAL 1''6.1 199.4- 217.,9 239.8 265.9 304.5 338.0 436.4 659.2

2/ June 19646ource: Corporacion Dominicana de Electricidad

TBLEJ 1

1-l IC .N REHJiBLIC: CONSUM>'R PRTCE IIDEX liN SMITO CiiGlIiT!GO

(1958 ioo)

Years Total Food Housing Otphearel Cter Fuel

wei!--ht 1.'00 0. 40 0.24 0.16 0.1,7 0.,03

1.958 100.0 C100.0 100.0 100.0 10C.0 100.0

1959 99.9 98. 8 100.0 101.1 104., 8 .5

1.960 96.3 96.8 .9.1 92 g. 4 107.,3 102 . 3

1.961 92.7 88.7 73.4 95.1 123.5i 1 04.2

1.962 101.0 96.2 85.0 113.4 117.9 12'.2

1.963 109.6 :l7 .3 85.0 118.5 131.1 15. 3

1964iay 120,8 n.a.. n.a. n.a. n.a. n.a.

Source: Direccion General de EstadiS3tica y Censos

TABLE 14

DONTJTCAN 'REruLIC: P3TAT > PRICES~ OF OT!IJTE 11'CADUThm C1961-.1.96

1960 Average Price Novernber(cents per unit) 1961 1962 1963 1964

Rice 0.15 (lb) 82 80 93 99

Beans 0.13 (lb) 102 111 124 150

Plantains 1.56 (100) 105 118 128 109

Meat 0.36 (lb) 107 85 133 138

Eggs 0.05 (one) 108 122 115 110

Milk 0.17 (bottle) 78 82 89 90

Peanut oil 0.63 (bottle) 97 92 9)4 87

Bread .0g (lhb) 298 355 333 333

Rum 1 09 (1/2 hn+. 1. p 1n0 18 107 1in

Charcoa 1 -. (Ting) 102 130 158 160

G.ig ettes 0.*r20 (20 fnits) 100 9a) 75 75

Source: Central Bank , Department of Economic Studies.

TABLE 15

DOMMl'ICAN R7PLTBT Tr.* Th]EX OF W,.AGES !NT PR.TC PA L TNnTDSTRUS

PinAn -Irv-)

Dec. Dec. Dec. 7% increase1961 1962 1963 1962 1963

1. General Index 106 154 180 45 17

Electricity production 113 210 262 86 25Food Products 103 1h7 181 43 23Tobacco and soft drinks 107 157 169 47 8Textiles 1o4 150 181 44 12Forest products 76 91 116 21 27Leather products 72 92 120 28 30Chemicals 105 142 172 35 21Services 97 163 185 68 13Other 116 129 149 11 16

2. Sugar-indlustiry(sample ineieases in

wages and salaries):

Cutting of one ton ofcane 100 200 n.a. 100Daily field work 100 1)5 n.a. 45Factory vorkers 100 190 n.a. 90Salaried workers

lower categorv 100 l115 n.a. 45medium category 100 ]Ito n.a. 40

Solr-ce- TD-"recin Gr.enanl e stadisia ycensos

TA`,LZ 16

)OMTlHICANI; REPUBL:[C:_ 'TGt, ACCODUNT'S OF "IIE BAIiKII-J( SY`-TZY

UR-D$m:illion )

October October1958 1959 1960 1961 1962 1963 1963 1964

A. Net international reservres 2'3. 5 -2.9 6.6 -21.8 -19.r 5.1 -6.9 -_9.9

1. Foreign assets 55.7 4I,6.3 37.8 16.6 31.3 49.0 33.6 47.32. Foreign liabilities -32.2 -49.2 -31.2 -38.4l -_50.8 -.43.-9 -40.,5 -77.2

of which commercial arrears ( - ) (-1.2) (-1.0) (-14.0) (-23.5) (-33.7) (,-244) (-7.2)

B. Domestic credit 123.8 1'3 122.2 V 11 159.0 163.7 .2 18 5. 11 T mO Government (net) -12 . 5 3.0 1.3 15.8 2.6 75.8 67.,1 ,79.

a. Credit (6.5) (15.5) (15.0) (24.2) (20.5) (93.9)1/ (93,?7)1l (9 2.0)b. Treasury currency iLSSUe (2.7) (2.8) (3.1) (3.6) (4.2) (4.3) (4.,3) (5.2.)c. Deposits (-2 1.7) (-15.3) (-16.8) (-12.0) (-2 2.1) (-.22.4 ) ( -30.,9) ( -:L.2)

2. To NationaLl S'ugar Corporation (net) - - - 27.0 18.0 21.3 17.,7 22.0a. Credit ( - ) ( - ) ( - ) (27.0) (18.0) (22.5) (27.,0) (26.0)c. Deposits (-) (-) (-) (-) (-) (-1-2) (-9.3) (-4.0)

3. To other official entities (net) 45.6 42.8 36.2 27.9 46.2 18.5) 16.,5 17.2a. Credit (4;9.9) (47.1) (40.4) (34.8) (52.0)l/ (21.9) (21.0) (22.?)c. Deposit;s (-4.3) (-4.3) (-4.2) (_6.9) (-,5.8) (3 3.4) ( 4.,5) (. 5.5)

4. Tc, Agricultural Bank 28.1 28.6 49.9 451.4 47.7 4.3 4,7 5.5a. Cre!dit (28.'9) (30.0) (50.7) (47.9) Q.8.1)lj (6.6) (6.6) (5.7)c. Deposits (-0.8) (-1.4) (-0.8) (-2.5) (-.0.4) (-2.3) (-1,9) (.-0.2)

6. To private sector 71.8 69.1 39.2 31.6 5u0.2 59.7 64,,3 j79. 08. Of'ficial capital and surplus -10 .1 -11.6 -9.9 -11.5 -12.5 -.15. 2 -16,8 -'18.59. Net unclassified assetls :1.2 1.9 5.5 4.8 3.3 5.8F 8, 0 6.0

10. Undisbursed counterpart flunds - - - - -.0.8 -5. '; -5,.3 - 5.11. Net interbank float -0.3 -0.1 - - _.0 7 -1.0) 2.0 -

C. Liabilities to private sector 14q2 1'30.8 128.8 119.2 1%! 168.8 l850.3 1'22. Currency iLn c-irculation 50.2 50.5 48.4 51.6 62.4 74.0 68,,8 64.12. Demand deposilts 56.3 4o0. 52.7 45s.2n 0 0.4 53 9 47.6 50.7

1imne atnd savirngs (leposis -J -*-_ _Capitc41 arid surpluls _ _0 04 °5 0. _ .7.C()92 _1/Claims assumed by Government(RD$,72.6 r.illion) from:official entities V1 2g. 5ilion;Banco hgricola FD'42.4 milliLon

Flota 4_ercante, Dorinicana RDP.9 *1> and accuimulated interests RDI .o iMl1icn.Source: International Monetary Fund,

TABLE 12

:DOMINICVIN REPUBLIC: INTET.11ATIONAL RESBREVE POSITION OP THE BANKING SYSTE7i:DiECEi iLi, l 97 1'CV.2'E:3EL1 i64

…

nD¢ CE? BE r1 n R ,1, l9o62 N O 2L E 1I 3 L? R ' 3 0 Chan,e fron

Central Com-ercial Total Centrcl -r--" T, DeceTher 1963Bank Banks T3ank Banks _/ tillovelber 196/t

1. As5SE~ts

a, Gold 3.0 _ 3.0 3.0 - 3.0 0.0b. ForeiLgn currency 0.2 C.5 0.7 0.0 (.3 0.3 -0.4c. Deposits with foreign banks 35.0 3.8 38.- 8 31.9 3.8 35 7 -3.1d. Other assets - 1.7 1.7' 2.0 2.0 0.3

TOTAL: 38.2 6.0 44.2 34.9 6.1 41.0 -3.2

2. Liabvilities

a. llF _ _ - 1-5.0 - 15.0 15.0b. US Treasury - - - 6.3 - 6.3 6.3c. US Banks' Consortium - - - 30. °- 30.( 3).0d. Royal Bank of Canada 3.7 - 3.7 - - -3-7e. Capital account - 4.5 4.5 - 9.7 9.7 5.2f. Bank acceptances - 2.0 2.0 14.0 14.0 :12.0

TOTAI.: 3.7 6.5 10.2 51.3 2'3.7 75.( 64.8Reserves: 345 -0.5 34.C -1.6.4 -17.6 .-34.0 -68.0

Commercial arredrs -33.7 33.7 1.9 1.9 -31.8Net foreign exchange position 0.8 -0.5 0.3 -18.3 -17.6 35.9 <36.2

1/ CoŽresponds; to October 1964

Source: Central Bankk, Department of lic(noric Stuclies.

T,]3T,E 8

DOY.INI_(,PN REPUB-E LIC: LENPIN(Il O[:FRA P17l' OF THE COTPOOCICTN DE FOiEIWNTOIHDUSTIRLh:L. I>AY 1962-JULY 1964,

Number of Total amount L ' of total Average armount.Sector lent Lper loarn

loans RD$ 'I00 value rY)

Food processing, and handling of agr. products 51 341 .5 11.2 6,700

Extractive Industries 90 575.4 19.0 6,4-00

hianmifucturin<, industries 2b9 1916.7 63.2 7,100

Services 45 109.2 6.6 4,1400

Total 455 3032.8 100.0 6,700

Source: Corporacion de Fomentc Inclustrial

TABLE 19

nnMRTTrG.MJ RR.PTTPT.Tf., TMDnTJG OPRPA1TTCVNTq OF nPTHTE ArPRTvfjTTT.TAT. BAMNK

1 961 = Ocoe 19oli

TIT. rP ~~~m. 4- 'I N4 -I,lbe- Toal Averageof amount loan

_Oans __.p rad-L _ .L:n : RD,

1962 37,086 11.2 3021963 )OO,(`70 26.4 44L1964 (Jan. - Oc-t.) 49., 8 25 22.5 46o

Ja-nu--- October 9J

Total amount Number Average sizelent % of total of of loans

(RD$'COOs) loans RD$ appr.

Rice 6,275 27.3 8,800 713Livestock 4,100 18.2 3,573 1,]147Coffee 2,279 10.1 10,094 225Fruits 1,952 8.7 9,021 116Cocoa 828 3.7 3,243 256Peanuts 821 3.7 7,646 107Tobacco 548 2.4 2,028 270Poultry 1,167 5.2 82 14,231Others 4,537 20.7 5,338 850

TOTAL 22,507 100.0 49, 825 46o

Source: Banco Agricola de la Republica Dominicana.

TABLE 20

DOMINICAN REFIBLTC: CENTRAL GC7ERL.TMET REVENUES l96l-1964

( RD$ million )

Estimated1961 1962 1963 196h

Current Revenues 117.7 146.0 173.7 190.7

1 Taxes 97=7 117=6 1)2-q 159.7

Dirctni; t~axe.s 19.) 17.8 9

Income and profits (17.8) (16.5) (29.1) (31.2)Ot;her ( 16) t 1.3) ( 1.8) ( 1.3)

Indirect taxes 78.3 99.8 111.6 127.2

EX-OIltS (13,2) ( E.)). ( .) ( 8.6)

Imports (36.1) (59.4) (60.7) (78.1)I.^l; ron a ti). ON (o iO 0 (9rsn rnP. odv,;w Cti0_ -. , % s9 ,,* / S ._

Sales and fees ( 7.7) (20.1) (23.1) (20.5)

2. Nontax receipts 20.0 28.4 31.2 31.0

Public Service Receipts( 7.4) ( 8.4) (12.2) (12.0)

Othler (12.6 ) (20.0) k-L (1.0 (-19,0

Revenues as % of GNP 17.8 18.9 21.2 22.4oAvercge 1I ta-190!21 F n f i

qrbiurc> Tn+nrn:l+;rn:-l.lTrno+.nqr Riinri nnri -S+.fsf +.mt.

TA3LE 21

DOvITINT=1CN T?EPITRIC CENTRAT GQTOERPI.VNT EXDENDITIJRES 1961-n196),

(Rn.t T.ni Ijnon)

E.stimated

TOTAL EXPENDITURES; 138.5 169.3 190.2 215.5

A. Current Expenditures 100.3 132.1 144.7 170.5-, .T-____ n_ n ................ //, o D \ /n 0- O% /nn , m /| . 'iges ailu aiarieq k U-5 . e) J u f ac k. I e 6 J -L-L, 9 U)

2. Fixed chargeE: (2.4) (2.6) (2.3) (8.0)3. Variable expenditures (34.7) (42.1) (27u4) (30.0)4. Other - - (2.2) (19.5) 1/

13. Transfer Payments, 9.2 17.7 25.5 26.0To official entities (4.4) (11.3) (906) (9.0)To Municipalities (4.8) (6.4) (15.9) (17.0)

C. Investment Expenditures 29.0 19.5 20.0 19.0

Rxpenditures as % of GN4P(Average 1955-1960: 24.6) 21.0 21.9 23.2 25.4

1/ The 'Larger part is likely to constitute payments for wages and salaries.

Source: Central Bank, fIF Resident Adviser and Staff estimates

TABLE 22

DOM=TICAN 1REP-IBLIC: COMPOSITION OF CENTRAL GOIT.RNIFHEIT EXPENDITURES 1961-196h

(RD8 inillion)

Budget Actual1961 1962 1963 1961? jan-Oct.

196h

Legislature 0.7 0.4 0.7 0.1 0.1Presidency and Executivre 12.0 9,6 9.4 6.1 6I8Transfers to mwniciLpalities - 6.4 15.9 17.0 14.6Governmrent Departm ents I 125.9 1.46.7 152-I 165.1 152 .1of which:In-terior and Po.Lice O5,;.9 57 .8 20.8. 12.3

Armed Forces 31.6 33.1 34.0 38,0 37.7Agricult-ure 7.8 ;.5 -1-I. -14.8 11

Public W%orks 24.6 22.3 25.7 22.1 17.3Im -L ~ .1. -- -- -I r-' ,1 *1 'I I nL _.

Public Health andSocial Welfar-e 10.2 11.7 12.9 15U0 15.0

Finance 25.3 28.1 25.6 14.0 11.0Other / 1O.0 13.2 11.1 14.3 15.3Discreparncies *' -0.1 6.2 11.8 -

Total 138.5 169.3 190.2 188.3 173.6

/ Forei gn affairs, Justice, industry, Labor.2/ Statistical discrepancies in combination with omission of externally-

financed expenditures fron this table.

Source: Central Bank, and staff estimates.

TABLE 23

nnMThTjlTCAN RPpTTRT.Tl.- TFIGr.AT. rPE OFl m-rv GENI 1PA.P mUF .T,'TT 196t•1-1'QAT

Estimated.L~7L).L .J7'.JL L;, J) -L7 ~JL4

Current Revenues 117.7 146.0 173.7 190.7

Current Expenditures / 100.3 132.1 144.7 170.5

Savings 17.4 13.9 29.0 20.2

Less: Investments 29.0 19.5 20.0 19.0

Less: Transfer paynents j 9.2 17.7 25.5 26.0

Deficit (-) or Surplus (+) -20.8 -23.3 -16.5 -24.8

Financed by:Foreign grant assistance - - 9.3 9.3

Gross foreign borrowing - 14.2 6.8 7.7

Domestic financing 20,0 9.5 -0.9 5.8

Bank credit (net) j (15.0) (9,5) (-0.9) (5.8)

Sale of govermnent-heldsecurities (5.0) (-) (-? (-)

Discrenancies o.8 -o..L 1.3 2.0

Includes -debt service.9/ Ahrml-. +S.To-;r'ds of these pa.n ts 1 are qlkely ton 'h for rnrpirrpnt

expenditures.t nent.ral BannL aned Batncro d Poese,rnas

Suce *O fla+n".l lRr1, T+,__t er M+.,4- ..-,. A nnA e+ 4 e to+; ,.+AO

TABLE 24

DOMI-NICAN ,RE?UBLTC: ESTIK4ATED GROSS PTUBLIC INTVISTMENT 1962-1969 1/

(Total cost in millions of RD$)

Actual _lanned Ani-a Avrage1962 1963 1967 1965_ 196 1967--1969-

Total FOreg Total Foreign.2/rotal Foreign 2Cost Exclhange Cost Exchange Cost Exchan.ge

Agriculture 6.7 11.0 7.9 10.0 4.3 14.0 6.2 15.0 6.7Roads ) 7.0 3.8 6.0 2.6 5.5 1.6Bridges )7.0 8.2 7.4 2.0 0.7 3.0 1.0 9.7 3.3J;fer 2.7 3.1 6.8 10.0 6.4 9.0 5.1 9.1 5.9ndVstry 2.6 4.7 3.2 h.0C) 2.0 C.0 2.5 3.3 1.7

Education 2.5 2.8 0.8 3.0 2.0 q.0 3.0 q.0 2.7Housing 3.1 4.2 3.8 5.0 3.8 6.0 3.4 6.7 3.3Ports ) 2.0 1.0 2_0 ' 7 0-7 0n3Otlher )2.1 0.2 0.4 2.0 1.0 3.0 1.5 3.0 1.5

TOJfal 26.7 34.2 30.3 b5.0 25.O 53.0 27.0 58.0 27.0

Financed bv:

PuIhli 2.2 12.0 3.2 20.0 26.0 - 31.0Savings - - - - - - -

Drawings onforeign loans 15.4 12.5 10.0 25.0 - 27.0 - 27.0

Loans - - - -a

Foreign granta -- iq-t n -.- e0 -4 0 .'

Bank credit 9.5 - 0.9 5.8 _Discrepancies= 0 .4 1.3 2.0 - - - - -

1/ Thes est,.t es were .,.ade in the begin.rirg of 196-5 ar.d QonsLI Lute

revisions of the public investment totals of Table 4.

2/ Subject to revision

Source: Nationa:L Planning Board, Central Bank and Staff estimates

TABLE 25

DOINTICAN REPUBLIC: BALANCE OF PAYMENTS 1959-1964

(m[LL.LiLUon US$)J

1959 1960 1961 1962 1963 1964

Exports f.o.b, 131.8 157.4 138.9 169.6 174.1 180.0Imports f.o.b. 111.5 9 7 13.3 157.7 1-2.0

Trade balance 20.3 67.1 66,8 37=3 16.h -12.0

Services -23.1 -21.4 -23.0 -54.5 -59.2 -56.9

Freight and merchandise insurance (- 7.0) (- 4.5) (- 3.9) (-13.6) (-18.1) (-20.1)Foreign trave' (- 6.0.) (- 21) - 1.7) 3.7.9)

Foreign investment income (-14.2) (-12.6) (-13.2) (-21.3) (-19.9) (-19.0)Other (- 0.9) (- 2.2) (- 4,2) (_ 5.9) (- 5.2) (- 0.9)

Net goods and services _ 2.8 45.7 43.8 -17.2 -42.8 -68.9

Transfer payments - 3.3 - 3.1 - 2.0 3.7 20.0 13.2

Private (- 3.4) (- 3.0) (- 1.8) ( 0.7) ( 4.5) ( 4.5)Central Government ( 0.1) (- 0.1) (- 0.2) ( 3.0) ( 15.5) ( 8.7)

Balance Current Account - 6.1 42.6 41.8 -13.5 -22.8 -55.7

CAPITAL ACCOUNTPrivate short-term 7.4 -10.7 4.0 - 0.5 23.6 - 4.0Private long-term 6.3 - 5.2 -30.4 8.4 7.6 10.0Official long-term - - - 11.9 18.5 12.9Net errors and omissions -33.9 -17.2 -43.8 - 5.9 - 3.3 -

Surplus or Deficit f-) -26.3 9.5 -28.4 0.4 23.6 -36.8

INTEBNATIONAL RESERVE MOVEMENTS

Central Bank assets (increase -) 2.0 12.1 16.8 -11.7 -17.6 - 5.7uIJ1iuIIerL.Lii -n'ks! asse's (Lncrs-) 3. - 3.6 4.L7 - 3.0 0.9 = 0.1

Central Bank liabilitiesdecrease -) 4.8 -11.7 12.7 10.4 1.2 15,8

Commercial Banks' liabilities(decrease _) 15,8 - 6.3 - 5.5 3.9 - 8.1 26.6

TOTAL 26.3 - 9.5 28.4 - 0.4 -23.6 36.8

Source: International Monetaryv Fund and Central Bank estimates,

DOMINICAN REPUBLIC: FOREIGN EXCHALNGE RESERVES, i959 - 1964 /

(mllion US9i)

C E N T R A L B A N K COfMIERCIAL Bk±'IKS B A N K I N C, S Y S T E M

Assets 2J Liabilities ex- Cqmmercial Total liet exchan-- Assets Liabili- Net ex- AssetsJ Liabi]i_ Total Commer- N'tcluding commer- Arrears Liabi- ge reserves ties change ties ex- Reserves cial Reservescial arrears lities reserves cluding arrears

_ _……………………… arrears -

1959 37.8 25.5 1.2 26.'7 11,1 4.7 22.5 -17.8 42.5 48.0 - 5.5 1.2 - 6.7

19S60 25.7 14.0 1.0 15.0 10,.7 8.3 16.2 - 7.9 34.0 30 .2 3.8 1.0 2.8

1' 61 9.0 1 13.7 14.0 27. 7 -18,7 3.9 10.7 - 6.3 12.9 24.4 -11.5 14.0 -25.5

1962 20.6 12.7 23.5 36.2 -15,6 6.9 i4.6 - 7.7 27.5 27.:3 0.2 23.5 _23.3

1963 33.2 3.7 33.7 -17.4 0,8 6).0 6.5 - 0.5 44.2 10. 2 34.0 33.7 0.3

1964 41.4 5I.3 1.) 53.2 -11.8 6.&1/ 33.lQ/ -27.02i 47.5 84.4 -36.9 1.9 _38.8

1/ Cf. Table 17.

2,! Excludes gold subscription to the LIF (3.8 million for the period 1959-1963, $6.3 million for 1964).

3 Assets as of October 31, 1964.

Source: Int.ernational lionetary Fund and Central Bank.

DO1I'-NIC('id REPUBLIC: P1RTCTF-'hL EXP0IRTS, VALUE .iV0UWIPE, 195P-1-964

Estimated1958 1959 1960 19561 196S2 196'3 1964

Value of exports(millions of US) 1'6.6 _157.4 138.9 _169,6 27L1-L 180.0sugar andL suEgar by-products 58.1 64.3 80.6 ".8 106.8 108. 3 96.00)ther Products '2 67.'j Z6.8 65i.1 62.8 63.8 84.0

raw -ugar 49.0 51.0 68.9 63.1 95.6 89.3 84.9furfural 3.1 3.6 3.2 2.4 2.6 4.2 2.'7molasses 3.8 4.4 4.6 S.6 4.4 9-5 7.1other su, ar by-products 2.2 5.3 3.9 2.7 4.2 5.3 1..3cacao 20.6 15.1 13.9 3.0 7.6 11.2 9.0Chocolate 8.0 7.2 5.7 5.6 3.6 3.0 3.6bother cacao b,y-products -- -- 1.5 4.2 2,3 2.6 2. 4Coffee ;?3.8 17.5 22.6 14.4 19.9 18.5 30.0Tobacco 4.8 5.0 6.7 9. 5 10.1 8.4 15.0Bananas 4.8 6.0 11.2 11.3 11.5 8.6 5-6Eauxite -- 5.1 8. 5'.4 8.7 9.4 9.0Cther nrcduct,s 16.5 11.6 7.2 5.7 9.1 4.1 -L5Volurue of' exports;(1000 rnet ric tons)

Raw sugar, 691.0 694.0 1099.0 '793.0 8)46.0 671.0 771'.Furfural 1L3.7 17.4 14.9 10.1 12.3 20.8 13.)Cocoa 24.1 21.7 26.1 11.7 18.6 23.8 22.4Chocolate 7.8 8.6 8.8 10.4 6.6 5.1 6.7Coffee 25.8 21.9 29.2 20.1 29.3 27.4 30.6 1/Tobacco 11.5 12.2 15.2 22.0 17.8 16.3 16.6 T/Bananas (mlns of stercs) 3.6 4.1 6.9 6.2 6.7 5.1 3.1LBauxite -- 489.0 787.1 8695.3 869.2 9' 6.9 924.7 1/

1/ 11 monl-ths2/ Janiuar,y-September 1964

Source: Centra:l Bank a,nd External Sector 14orking Group.

TABI,E 28

D0KINICf4Ai ? L;. 'IC: IIv'1141ORTS BY iTAJOP. C.lTECiC)RI' 19'58-1('3

(millions of' US,;)

1958s _ 1959 1960 l?61 1Q62 1963

Food products 11..9 10. 8.5 . 18.9 26. .3

Miachinery and Equipment 21.2 23.3 12.7 r8 0 9.7 14.5Vehicles 14.0 11.2 5.6 :3.4 13.5 21.0Iron, steel and manufactures .5 7.1. 6.4 ,.0 7.9 10.0

Electrical equipriment andappliances 9 .3 9. 8 5.8 4.0 6.7 13.3

ru-Ildin- materials 6.1 2.7 2.5 ; 4.0 4.41.lineral oils and gasoline 9.2 9.5 9.1 7.9 9.5 11.4

Chenical and pharmaceuticalproducts .0 9.() 7.4 7.8 11.2 10.9

Cotton and ranufactures 9. 7.'i 7.7 6.6 15.8 11.9S11k and manufactures 2.4 1.8 1.6 :1.3 2.9 2.8Paper and rnanufactures '.5 4.2 3.5 2. 9 5.4 5.7Rubber and r:.nufactures 3.5 3. 2 3.1 4.3 3.6Other products 20.4 17.9 13.1 11.1 19.1 24.6Balance of payments adjustments 4.8 -6.0 3.3 ;2.6 3.4 -2.7

TOTAL (f.o.b.) 134t.4 111.5 90.3 72.1 132.3 15 7.7

Source: Direccion Gleneral cle Est.adistica y Censos.

TABLJZ 29

DCT,ITNICANT PEPUYLIC: T Lt,; OF TRJDD7, 1950-196-l

Export Frices (Sltar) (coffee) (Cococ) TInnort Prices T7erm<s of trade

1950 89 100 103 77 76 1171951 123 151 115 82 8 1401952. 104" 114 109 66 g9 ]of1953 9;2 91 122 73 94 2381954 109 87 142 134 91 120195i5 95 86 126 87 96 91956' 96 el9 134 5; 4 1021957' 121 138 1]26 66 94 1291958 100 100 100 100 ]00 10019559 89 7 87 82 10C 821960 90 84 62 10' 861961. 92 96 78 50 101 911962 108. 1 33 74 48 lCl 1071/196 3 121 1 70 73 55 107 113L/

1J Corrected.

Scource. Cxternai Sector lTorking Group Centrael Bank and National Planning L:ureau.

APPENDIX 2

TRENDS AND PROSPECTS IN AGRICULTURE

1. Tnhe foLlowing projections of production and exports have beenmade on the assumption that the nrpsenit exchange rate will nrevailthroughout the period under revi.ew.

2. Sugar is the chief agricultural product of the Dormiinican Republic:.At the neak of the sea.son, 0o0,0o workers (or over in nercent o:F the laborforce) are employed in the sugar sector, which accounts for about 15 percentef' GDY and for ro?re than 50 percent of export earnin-. s eproducer is thle goverirment-owned sugar corporation (CAD) which controlsl<t .Q +.tr +r.1r%_+hiV'fq m:> i% -A - A - . +.Tr r,V.4 a t- ,- - - 7-nom

1960 onwards (when raw sugar production reached a peak of 1.1 millionmetric tons p-o4uct --- dr - a t lev^v of 900 000 to- Jn 10 otfwhich only 771,0CC tons were exported as compared to nearly 1.1 million

uxports have been the reduction in the area harvested together with at-, I AA U tU L- tiI A1 UW '1kg, L<diI -U U L, dLI 1I dJU 1UI1

techniques following Trujillo's downfall when his sugar holdi.ngs wereconfriscated0 At the sane ti-fe, pOlit-ical tensions between Haiti and theDominican Republic led to a reduced seasonal inflow of cane-cutters. Thearea harvested therefore decreased as the general reluct-nce of Dominicansto cut cane (which is considered undignified wor,k) increased. From theend of l964 onwards the management of the Sugar Corporation was assistedby a foreign team of consultanits in carryin,g out a comprehensive developmentprogram which could lead to a modest recovery of efficiency and productionduring the next f'ew years.

3. The future of sugar exports from the Dominican Repub'ic isuncertain. With present and expected world market prices being lower thanpresent and prospective costs for the industry and with an expected U.S.quota which does not permit the industry to cover losses on world marl:etdeliveries with profits on sales to the United States, significant in-creases in the vol-Ime of sugar production and exports cannot be expectedduring the coming years. A reasonable estimate would be an export volumeof 800,OCO metric tons for 1965 rising to about 970,000 tons by 1970, atotal substantially belowr the 1960 record export level of 1.1 million tons.In terms of value, 11970 exports are expected to yield U.S.$96.5 million ascompared to U.S.484.9 million in 1964 (and U.S495.6 .million in 1962).

4. The annual production of coffee (the country's second largestexport crop) oscillated between 500,00O0and 650,000 bags during the pastfive years, of w¢hich about 400,000 to 500,Coo bags were exported. In thisperiod productiion did not change appreciably. The limited supply oftechnical assistance and credit facilities extended to farmers who -enerallycultivate small plots merely compensated for the natural decline of produc-tion due to the high age of trees. At the same time part of the cropremained unharvested as workers became reluctant to pick coffee.

5. The basic export quota for the Dominican Republic. in accordancewith the 'nternational Coffee Agreement, is Lh25,000 bags with a quarterlydistribution allowing the country to export only 35 percent of its annualproduction in the October-December period when nearly the entire croD riDens.

AnnV'NM ,i V r

Page 2

As storage fa ilities ere not. rvo1 nal sizeahle exports took nlace inexcess of the authorized quota in 1963/64 and during the first quarter ofI …A,/AC… Thn on ffee Organization n pl 2t

to deduct 41.3 tho'isand bags yearly durinn: the period 1965/66 - 1968/69.''JtLsX43u4't'k , e venS after a g 4r a 3 percer.t annual rise in the expo.rt-

quota, stocks will accumulate and storage facilities will have to be pro-rided reqiring substantial investment outlays. By the endof 1964 nofirm plans for financing these outlays were available although the Agri-cu-I 4 , _ - Bank-wa neo n a .. 3 r,<lli '"on two year Ioan -;tha_LUU tLULd. JJC:tL1!'%. WUj±d IIUgUU LatI ,LLI, d U.'* -) AILL.L.L.LU)I UVVU-.yCa .1AJL1I vWV~ vJ

foreign bank.

6. The future of coffee exports is not encouraging. According topresent information, the excort volume is expected to rise from 385uCObags in 1966 - allowing for the penalty imposed - to 478,000 bags in 1970.With the expected longer-term decline in prices, the value of exportsshould rise from U.S.$20 million in 1966 to about U..3.$23 million in 1970,as compared to an average U.S.$19 million during the 1962-1963 period(and to an artificially high value of U.S0$30 million in 1964)o (Furtherdetails in Appencix 3, para. 6.)

7. The production of cocoa decreased by about 10 percent during the1960-1963 period largely as a result of tree-cutting in densely populatedareas such as the Cibao valley where cocoa is being replaced by hi.ghervalue products as bananas, yucca and fruits. The Ministry of Agriculturehas been trying to stop this downw.ard trend by enccuraging a shift inproduction to eastern parts of the country, by the introduction of newhigh-yield varieties and by demonstrating improved cultivation and storagetechniques, but a serious lack of trained manpower prevents it from ex-panding this very modest program. Consequently, during the next three tofive years the volume of production is likely to remnain constant - at bestunless ways and means are found to design and implement a larger scaleextension program. This could be achieved by establish-.ng a cocoa insti-tute (a plan which has been under discussion for some time) which couldcentralize all ertension efforts and effectively contract foreign techni-cal assistance. The volume of exports - under the present coriditions -should rise from about 22,000 tons in 1965 to 25,000 tons in 1968 and 1970,yielding abWut U.S.$10 million by then, as compared to U.S.$9 million in1964. (The rise in export volume only results from an expected closing ofa large government-owned cocoa by-products factor-y which at presentoperates at unacceptable losses).

8. The rproduction and export of bananas increased raoidlv in thefifties to 6.9 million in 1960 yielding about U.S.$11 million in grossforeign exchange earnings- Production has since fal]en to 3.1 :millionstems in 1964 due to the spread of Panama disease in the Yaque del Nortevalley, ths principll produring area. Unless new vanrieties are introuced -

and a recently established government institution is surveying this possi-hilitv - exnports- will rh'orp to 1.5 million, se+.,ms byr 107r, +.he etimn+ed

maximum production potential of the Azua valley, at present unaffected bythe diseasev The gross value of eports would then am.ount to abou+ U. TS.$2.5 million (allowing for an expected drop in prices) as compared to U.S.$5 million in 19604.

APPENDIX 2Page 3

9. With its favorable soil and cl1n-iate conditions, the DominicanRepublic could become an -mportan- produ.cer of dar.-cured t. production averaged around 20-25,COo tons in recent years of wihich antr.ra1. o pa. U rJtLa eP. J'. v,, J,4U.A SU U%.1u%J 'v J vu -rwL <.~ .Jv'--

Efforts have been and are being made to improve quality in order to safe-guardu Luture xporls to thi UnII tU States Uwhere the ± LOiM.Lc.4L ebLLiL

could hope to increase its share of the market for cigar tobacco. Underthe auspices of the Mini str-y of Agriculture, Live experimental staIion-sare promaoting the adoption of advanced growing and handling techniques.Tih au- 2- in q_l+ and _n efforts o

of the Ministry of Agriculture, exports should increase to about 25,000un - - ~ ~ ~ ~ 1 T +O Itons in 1970, yielding about U.S.$ million as compared to u*O.$8U4

million in 1963.

10. Due to the successfnl efforts of the Agricultural Bank and theMinistry of Agriculture, rice production nearly doubled between 1962 and1964. Consumsption in this period, however, outstripped production andrice had to be imported under PL.480. The execution of a rice developmentplan - which aims at yield improvements on existing acreage - should elim-inate the need for imports by 1970. Efforts to increase the productionof corn, however, have not been equally successful, the increase in con-sumption having eliminated corn exports and requiring the country to importcorn under PL.480. Efforts are being stepped up and the gradual introduc-tion of hybrid corn on the former banana lands in the Yaque del Nortevalley should help to cover local consumption by 1970.

11. Its general climatic and geographical situation makes the Domini.canRepublic a natural grower and exporter of fruits and vegetables, which havea promising export market whenever a regular supply and stable quality canbe guaranteed. Important developments already are underway in the Azuavalley and around Santo Domingo. Full scale exnloitation of the country'spotential in this product line will only be possible when large areas inthe Yaque valleys are brought under irrigation. In fact, feasibilitystudies of these irrigation projects are expected to be terminated in 1968,and - given the poor prospects of most of the country's traditional exportproducts - the execution of these projects deserves the highest priority.

12. Despite good natural conditions, the production of cattleonly increased by about 10 percent during the 1935-1960 perioT. m-ainlv onaccount of small ownership, the lack of technical know-how (aggravated bya severe shortage of veterinarians) and a lack of long-term capital Dre-venting farmers from undertaking expansion programs. When meat consumptionincreased rapidlv since 1962 due to a substantial increase in nurchasingpower, the Dominican Republic became an importer of meat and meat products.At present tuo exnansion plans are being carried out: one by a private andone by an official bank. The Chase Manhattan Bank successfully introduceda cattle lonn nronrnm accomnqniPd bhy torhnicnl aqsistannce Tn the bhignn-ing of 1965, however, restrictive monetary policies prevented it from ex-panding th.e program.. Thoe high nri r+M which the program. deserves shouildlead the Central Bank to so formulate credit policies as to give themnr-fnirm posibc e ih1m fror +to -thsec+-tle l,an%C2 The'Q RT $11 millionn

expansion program which the Agricultural Bank started in 1963 has beenQsTr iroUl A1 -nA hkn-- v - r..-4 -P m -.14, -'- *- e-hUU..* y . eayU4i..J.J '.4VJuse o'L aJ.I. ~ a..or'J e iL Uc.II c , w.c.. can ' e over=

APPENDIX 2Pa;e 4

come in the years ahead provided that present plans to expand the Veterin-ar 3- o are vlgorou31y4 purnu nircwri+.n+3i etinn of the t.Trr,ar ,1VV aJ.-U N J.V . L 3'Q- JJU~ ~ V - ___-- --

programs (which requires the Agr-cultural Bank to contract foreign tech-nicians durinlg i,±he nex tw yer or so hudla i r nraei

cattle production of about 25 percent during the next five years, therebyel.iLmLnat.iUg thIe neeu fLrL zIIVpV.ots adIU 1ItU..LV.L Cll6 for eorts

provided that the present severe shortage of specialists in animalhusbandry and pLsture management can be overcome.

APPENDIX 3

ERXPORT PROJ,GCTTO1\S 1965-197o

TABT..1: Export Prosnpects 1965-1970C_eItated volume in thousands of metric tons)

Actual Projected1960 1961 1963 196I 1965 Q65777 19 7

RawJ sugar 1,099 793 8A)6 671 771 798 883 971Molasses 1/ 62 55 52 49 58 60 64 68

Flre ral 15 10 12 21 rI 15 ~18 20Coffee 2/ 487 335 488 457 510 275 410 478

Chocolate .9 10 7 5 7 6 - -

by-products 3 10 6 6 6 5 5 5Tobacco 1 22 18 16 22 23 24 25Bananas 3/ 6.9 6.2 6.7 5.1 3.1 2.5 2.0 1.5D1-uxL ue 1/ 7(V o8y 869 Y4uo y92 1,000 , 1uu 0 -,uU

1/ Millions of U.S. gallons,/ Thousands of bags of 60 kilos

3/ Millions of stems4/ Wet ore

TABLE 2: Export Prospects 1965-1970(esti.mated value in millions of U.S.$)

Actual Projected1960 1961 1962 1963 1964 1965 1968 1970

Raw sugar 68.9 63.1 95.6 89.3 54.9 73.1 83.2 96.5Molasses 4.6 5.6 h4h 9.5 7.1 h.8 5.1 5.hFurfural 3.2 2.h 2.6 h.2 2.7 3.0 3.6 4.0Other sugarby-products 3.9 2.7 h.2 5.3 1.3 1.2 1.3 1.6

Coffee 22.6 1h.4 19.9 18.5 30.0 26.1 20.6 22.7Cocoa 13.9 5.0 7.6 11.2 9.0 7.9 9.5 10.1Chocolate 5.7 5.6 3.6 3.0 3.6 2.9 - -Other cocoaby-products 1.5 h.2 2.3 2.6 2.l 2.5 2.6 2.8Tobacco 6.7 9.5 10.1 8.h 15.0 11.3 1i4. 16.3Bananas 11.2 11.3 11.5 8.6 5.6 4.5 3.2 2.4Bauxite 8.0 9.h 8.7 9.4 9.0 10.0 10.0 10.0Other 7.2 5.7 9.1 4.1 9.6 12.7 16.5 18.2

Total 357.4 138.9 169.6 174.1 180.0 160.0 170.0 190.0

Of which:Sugar and itsby-products 80.6 73.8 106.8 108.3 96.0 82.1 93.2 107.5(% of totalexports) (51) (53) (63) (62) (53) (51) (55) )57)

APPME_3IX 3Page 2

1. The projections of raw sugar exports have been made on thefollowing' basis:

Volume of exnorts Price oer lb. Value of exports(metric tons) (U.S.$) (millions of Uj.S,$)

To l!orld Vrrorld U.S. ProrldTotal To U.S. larU.rket UTS_ TvInrket Total Mahrke.t. 14,qket

1965 798-7M4l 361,359 - .37,37 2 5.3 3.2 73.1 42.2 0 91968 883,000 380,000 503,000 5.3 3.5 83.2 W4.4 38.81970 971,n0 0 360,000 '91,300 5.3 -0 96.5 X}. 1 '2.1

The reform and development program which has been in operation tonmporesuga- r eld Ac nn lea AtoA+ a rn'A, 1ann,naln necovec ofl e

4-nupt

971,000 metric tons by 1970, 25 percent above 1964 exports.

2. The U.S. Sugar Act's foreign quota provisions lapsed at the endA l.7UG4 and 9f.or l965 ar, a," hoc quoa haCs LJLL UbeeLnL1U VLI Uln th basis V.L

export performance in 1963 and 1964. The final basic quota for 1965 forLi, £AJUiLL1Lcan TRepoublc U i 398,323 uuIto (361,35 r,,eur.± 1A)) iirris so far no indication as to when a new sugar act will be enacted. Althoughthe recent Joint approach by the U.S. Sugar, Sugarbeet Producers and the

Cane Producers may hasten the enactment, it will be hazardous to guess thefuture quota of the Dominican Republic under the new act. However, it isreasonable to expect that the U.S. Government will keep a certain propor-tion of its total internal consumption for supplies from foreign sources.Asssuming -that the Dominican Republic will have a share in the U.S. quotaand will share in deficit reallocations, exports to the U.S. may averagearound 380,000 metric tons (418,800 short tons) over the period 1965-1970.The U.S. preference price is assumed to approximate 5.3£ per pound, whichis comparable with the average price of the years 1952-1961.

3. In the years 1956 to 1964 (except for 1962 and 1963), the DominicanRepublicis sugar exports to the world free market varied between 60 to85 percent of total sugar exports. ^1ihether the Dominican Republic would b_able to maintain its past proportion in the world free market is hard topredict. It will very much depend on the outcome of the proposed UnitedNations Sugar Conference in the autumn of 1965 to negotiate a new inter-national sugar agreement, with export quota provisions as the rnain toolto regulate the world free market. Since the abandonment of the economicprovisions of the 1958 International Sugar Agreement in 1961, quite a fewnew countries have become exporters and many others have expanded theirproduction. All of them will be seeking a higher quota. For the momentit is assumed that the Dominican Republic will be able to obtain a basicexport tonnage of- 655,000 metric tons, which would permit exports at alevel as projected, The free market price is projected to vary between3.2 to 4.oo U,S./ per pound in the years 1965-1970.

APPENDIX 3Page 3

4. Growtth in production of sugar and molasses can normally beexpected to keep pace with each other from year to year. In the past,molasses has been primarily used to make potable and industrial alcohol.However, molasses is facing growing competition in this field from othercarbohydrate sources and from synthetic alcohols developed by the petro-leum refining industry. In view of this a very gradual increase in theexport of molasses can be expected. In addition, although the f.o.b.New Orleans price for the 1956-1964 period averaged out at 14.87i pergallon, for the 1965-1970 period prices may average 8U per gallon.

5. Exports of furfural should recover rapidly to 20,000 metrictons by 1970 generating by then U.S.$UL million. assuming unchangina prices.

6. Estimated exnorts of coffee. acenrding to present informationmay develop as follows:

Thousand Price per Price per Export ValueY ar Bags_ 1R7 (TlqA.) ponnd (TTU.S<) (TS mnllion)

1965 507 51.48 39 26.11966 385 51.48 39 19.81Q67 1400 51.1)8 39 20.61968 410 50.16 38 20.6

1969 A23 .7 2n. 7

1970 1478 47.52 36 22.7

The basic auota for the Dominican Republic, in accordance with41, T- 4 :-4~~A I.er' Ann U__ r'_ a%Mae JL.Lt.ernr.ation'Lal Coffe Agree. , is C,U'J'J bags for coffe yearOctober - September. They exported 6,800 bags in excess of authorizedquota irn 1963/6-4 and 152,000 bags in excess during t-he first quarter of1964/65. For 1963/64, the final quota was 530,000 bags. For 1964/65 theDominican Republic quota could finalize at 507,000 bags, i.e. the adjustedHay 1965 quota of 405,000 plus the waiver granted recently (amounting to62,000 bags) for the plannled penai , plus an additional f!emergencyn quotaof 40,000 bags also granted recently. During the coffee years 1965/66,1966/67, 1967/68 an.d 1968/69, the International Coffee Organization plansto deduct 41,300 bags yearly to compensate for earlier excess shipments.for purposes of quantity projections, for 1966 tne volume nas Deen takenas the 1964/65 quota minus the penalty; for 1967 the current basic quotaraised 3 percent (allowing for a 3 percent rise in world consumption) lessthe penalty; for 1968, another 3 percent increase minus the penalty; for1969 and 1970, a continuing 3 percent increase but only a penalty for1969. Price projections for the next five years are based on projectedN.Y. Santos 4 prices adjusted for the difference between the New YorkSantos 4 quotation and the 1963 Dominican Republic unit value of exports.

7. Exports of cocoa and its by-products should develop as follows:

APPETIDLY 3PJge k

Cocoa Chocolate Other By-products TotalPrice Price

Volume Price Value Volume per Volume per Value('000 per (mill. ('000 metric Value ('000 metric (mill. Valuemetric pound of US metric ton (mill. metric ton of US US$

Year tons) (USe) $) tons) (US,$) of USi) tons) (US$) $) mill.

1965 22 16 Is9 6 490 2.9 5 490 2.5 1:3-31968 25 17 9.5 - - - 5 520 2.6 12.,l1970 25 18 10.1 - - - 5 550 2.8 12.9

The volume of cocoa exports should rise fron 22,000 tons in 1965 to 25,000tons by 1970, assuming that govermaent activities to halt declining pro-duction trends continue. The increase in cocoa exports will result fromthe expected closing of a government-owned chocolate factory which operatesat unacceptab:Le :Losses. Wlith cocoa prices expected to rise from 16' to18£ per lb. the ralue of exnorts should rise to U.S.$10.1 million by 1970.Exports of other cocoa by-products should remain at a level of 5,000 metrictons. With orices exnected to rise in line with the cocoa price, theexport value should rise from U.S.$2.5 million to U.S.$2.9 million by 1970.

8. Exports of tobacco should gradually increase to 25,000 metrictnns hy 1970. nrrovidedfth-nt continuing quality imnrovpment efforrts aremade, which should lead to increasing exports to the U.S. market. Theim-nruvrm.nti. ivi nii+t,r_ in ndtltiinj shourld larid to a rise -n the avprareprice received which is projected to rise from U.S.$50 per 100 kilos inIQ965 to T._S.$65 prtnIr 100 r% kilos r 1970.

Vlums,e Price per Price per V^u1 oin metric 100 kilos pound exports

Year7ton (US$)J~ (U)(U$.ilon

1968 24,000 60 27 14.4.4./ I -' C-f wa jpc / _e

oe 9 nle exportJ. o bn..L I nJas bas fal'ers -fror, 6 .9..mIlion stem,s i.n J19607to 3.1 million in 1964 due to the spread of Panama disease in the Yaque delart-e Vadey, WAC pr -LXUL_j. jJpVUtLU±Ig ar'a. UIIess ne-w variu±eu as-eintroduced, exports will drop to 1.5 million stems by 1970, the maximumproduction potential of the -qua valUey, at present unafiecT,ed by the disease.As the price per stem is expected to drop from U.S.$1.80 in 1964 to U.S.$1.60 by 1970, he ex-port value will drop to U.S.$2.4 million by 1970;

Export Value ofvolume Unit Exports

(millions Valu.e (miiilionsYear of stems) (US$) of US$)

1965 2.5 1.80 4.51968 2.0 1.60 3.21970 1.5 1.60 2.4

APPENDIX 3Page

10. Exports of bauxite sho-ald increase to about 1,000,000 tons ofwet ore in 1965 and will probably be maintained subsequently. With pricesexpected to remaLin unchanged, the gross value of bauxite exports shouldaverage out at about U.So$10 million during the years 1965-1970.

11. Exports of "other" products include cement, copra, w,ood,peanutcake and minor agricultural products, such as fruit and vegetables.The programs already undertaken in the Azua valley and around SantoDomingo should lead to a substantial expansion of exports of agriculturalproducts, and by- 1968 of processed agricultural commodities. The exportvalue of "other" product-s, therefore, should double between 1964 and 1970.

APPENDIX 4

BALANCE OF PAYMENTS PROJECTIONS 1965-1970

1. The following balance of payments projection incorporatesthe export projections outlined in Appendix 3. For the purpose ofillustratina the dimensions of the prospective balance of pavmentsproblems, it assumes that the present exchange rate will prevail through-out the neriod under review.

CURRENlT ACCOUNT PROJECTIONS 1965-1970

(millions of JS$)

Actual Pro;ected1963 196f 1955 l9 1970

Exports f.o.b. 174.1 180.0 160.0 170.0 190.0Tmports f.o.b. le747 19200 160.0A A 80 20r5.0

1 V.~.z J. -1-_) I * I r- p WJ ~LJ~ a~ LAI * .'.

Trade balance 1612.0 -o-

_ _ _ )7-. f -l - I)2 -r . \ -,0 .0 -in'- \ f _-_ \

Frei,t, andu MrharT-e -18---o .1)*-LJ (-20U.1)( k-1.0 ) (-197.0) (-21.. )

InsurancerFore'Lgn Ura-vel _-L6.0U) --16.9)(-15-;.0V) (-12.0) ( -10.0J)Fbreign investmient income (-19.9) (-19.0)(-15.0) (-20.0) (-20.0)-u e vi - k.ej v -u.9y)v J.uj V 4 i -o.0jNet Goods and Services -42.8 -68.9 _50.0 - 70.0 -73.0Transfer Payments 20.0 13.2 T. ->.U -_.-Private (4-5 (45 ) (50 ° ) ('°)Official (15.5) (8.7) (10.0) (10.0) (10.0)Current Account Deficit -22.8 -55.7 -35.0 .55.0 -58.

2. Tnese projections inciude a drastic cut in imports in i965.Thereafter imports are projected to rise by an annual average 5 percent.Freignt and merchandise insurance are projected at about 10.5 percentof imports, assuming unchanging rates. Net foreign travel paymentscould decrease on account of increasing tourist receipts and foreigninvestment income payments could drop to U.S.$15 million in 1965, there-after rising to UeS.$20 million. The latter presupposes a moderatereinvestment of profits even if transfer payments should remain at theU.S.$15 million level during the entire period, then the current accountdeficit could rise from U.S.$35 million in 1965 to U.S.55 millian in1968, thereafter rising to U.S.$58 million.

3. Despite the projected large inflows of official capital thecurrent account deficit is unlikely to be covered, especially sinceservice charges on existing public debt are large. A continuingexchange loss is likely to arise throughout the entire period.

APPEINDIX 14Pag7e 2

CAPITAL ACCOUNJT PROJECTIONS l965-1970

(nillions of IJS.,$)

Actual Projected1963 1964 1965 1964 1970

Current 11ccount. Deficit -22;. -5= 7 -35.o -55.0 -58.o

Privat;e st;=terr 2 -) .0 -6.0 _ _

Private long-term 7.6 10.0 10.0 10.0 10.0DIrawings on official

loans 18.9 13.3 25.0 27.0 27.0Qer-, ice or; ext ernal21

public debt; -0.3 -0.4 -25.3 -13.14 - 7.5Ne t errors arnd

omissions -3,3 - - - -

Surplus or Deficit (-) 23.6 -36.8 -31.3 -36.h1 -28.6