Effectiveness and economic development impact of policy-based cash transfer programs : the case of the Dominican Republic

First, background information is provided on macroeconomic trends during the period 1978-88 and on the stabilization and structural adjustment programs initiated during the early 1980"s (including those of the International Monetary Fund and of other donors). The study then explains the theory behind cash transfers, which provide balance of payments assistance in support of policy reform programs. Although the Dominican Republic program, begun in 1982, has had multiple and broad-based policy objectives, the country"s persistent macroeconomic disequilibrium has made fiscal and exchange rate policies the primary focus of the program. Hence, the Cash Transfer program must be judged primarily in terms of progress towards economic stabilization. By this criterion, the program has provided crucial support to government policy reforms designed to attain this goal. In fact, the A.I.D. policy role has been the single most important influence in convincing the Government to maintain stabilization policies in the face of tremendous odds. Five elements contributing to this success are identified: the size of the cash transfers, the terms of the transfers, the timing of disbursements, the use of sanctions to enforce conditions precedent and covenants, and effective policy dialogue. In conclusion, the cash transfers have resulted in sustainable economic growth, stimulated exports and agricultural production, and promoted equity by benefiting rural, relatively poor people, including women.