15618: Bellegarde-SMith: IMF Confirms Aid Agreement with Haiti (fwd)

[Bob Corbett <corbetre@webster.edu>]

From: P D Bellegarde-Smith <pbs@csd.uwm.edu>


IMF Confirms Aid Agreement with Haiti
Source: DJI - Dow Jones International News
May 13 16:07

PORT-AU-PRINCE, Haiti (AP)--Agreeing to cut spending and stabilize its currency, Haiti has reached an agreement with the International Monetary Fund that could pave the way for other institutions to release suspended funds, an IMF official said Tuesday.

Haiti, the Western Hemisphere´s poorest nation, has sunken deeper into despair since international financial organizations suspended more than $500 million in aid to the Caribbean nation.

Some institutions blocked loans after flawed legislative elections in May 2000. Citing increasing poverty, the Organization of American States urged financial institutions to normalize relations with Haiti but its arrears with the Inter-American Development Bank and the World Bank had already mounted to more than $60 million.

International financial institutions don't lend to countries in arrears, said Mounir Rached, the IMF´s representative in Haiti.

The agreement, reached on Monday after intense negotiations, obliges Haiti to present a plan that cuts deficit spending by nearly half from 5.2% to 2.7%. Yes. The deficit for the first six months of FY 2003 (October 1/02 to March 31/03) was G2.7 billion, and the Staff-Monitored Program with the IMF calls for a further G1.2 billion for the last six months, retroactive to April 1.  The plan also requires Haiti to reduce inflation from 13% to 10% and to monitor spending in public sector enterprises. I don’t know where this figure comes from. The inflation target for FY 2003 under the SMP is a whopping 42% for the year. Maybe the 13 to 10 percent figure means that for the last six months, the lower deficit will produce an additional 10%, instead of the 13% that the higher deficit would have produced.

Last year, Haiti didn't agree to such a program.
'It's a great step. Last year, they weren't ready to do it,' said Rached. 'This agreement with the IMF will help other donors like the IDB, World Bank, and (European Union) resume financial assistance.'

If Haiti fulfills its obligations during 12 months, which will be monitored by IMF staff, the Caribbean nation will have access to between $100 million and $150 million in IMF funds for poverty reduction and growth. This is very vague, to the point that my friend Mounir Rached could even be accused of “deceptive practices.” The reality is that (i) the SMP provides no money from the IMF; and (ii) only if the Government abides by the SMP targets over the next twelve months (which they’ve failed to do with both SMPs since 1998) and then can agree with the IMF on a series of serious economic and structural reforms (e.g., relaunch of privatizations, trade regime reforms, transparency in public spending – no more comptes courants to the Palace!) only then would you have a Poverty Reduction and Growth Facility (PRGF) loan from the IMF, which, based on Haiti’ s IMF quota, could be as much as $150 million over three years. In sum, getting to actual funds from the IMF is no certainty for this reform-adverse Government and President, and even then, it’s not for tomorrow.

The agreement sends 'a strong signal to the international community' that Haiti is putting its economic house in order, said Haiti´s Finance and Economy Minister Faubert Gustave.

Haiti owes the IDB about $30 million in arrears and owes about $30 million in arrears to the World Bank. Once the IMF agreement is signed, expected this month, Haiti will be eligible for a $50 million IDB budget support loan if it is able to come up with the money owed in arrears from donor nations or other sources. Haiti has about $25 million in exchange reserves. The $50 million referred to above is the amount in the Investment Sector Loan (ISL) that the IDB negotiated with the Smarth GOH, and even passed through the IDB board. But Lavalas then became uneasy about the reforms it called for – most notably, the privatization of BNC and of EDH – and never even sent the loan agreement to Parliament for ratification. To this day, the ISL has never been approved here, which is one of the many reasons why I laugh at the demagoguery of JBA, Ira K., Randall, CBC et al, who nevertheless include the ISL’s $50 million in their $500 million rack-up of “embargo” funds. In its eagerness to restart a program in Haiti, the IDB has proposed disbursing the first $25 million of the ISL once it’s ratified by Parliament (which JBA will of course order them to do), with no policy reform conditions (even though the ISL is supposed to be in exchange for implementation of policy reforms, and once the arrears, now about $30 million, are cleared. What that means, as a practical matter, is that if the GOH can get a loan from somewhere (CARICOM? Private Banks here?) to pay the arrears, it would shortly thereafter (assuming ratification) get the ISL’s $25 million to repay most of the bridge loan. So that part is a wash, in fact less than a wash: pay $30 million plus small interest, get back $25 million. But the clearance of the IDB’s arrears would allow IDB to restart the four loans (one road, one water, one education, one health) that are still technically active but were suspended due to the arrears. The balance of these four loans adds up to $145.9 million, but disbursements under the four over the next twelve months cannot be ex!
pected to be more than $20 million at best. Why, restart projects, getting out requests for bids, IDB approvals, demarrage, etc. And even then, of the $20 million, very little of the dollars – perhaps $5-8 million – would go to the BRH’s Net International Reserves, since that’ s about the share that would go to local costs, be paid in gourde sans allow the BRH to have the dollar equivalent. But there would be no point in clearing your arrears, then not staying current; you’d have a new suspension of IDB projects, right. So we need to add on the outflow side the $10-15 million or so needed for continued debt service to IDB over the next twelve months. The second $25 million of the ISL, to which the IDB has made clear that it would attach the serious reform conditions initially intended, would not be available until next spring at the earliest.

To recap: Over the next twelve months:

Take in: $25 milllion of ISL
                  $5-8 million in project funds
Total in: $30-33 million

Pay out: $30 million of arrears
            : $10-15 million in ongoing debt service
Total out: $40-45 million

Once its arrears are paid to the IDB, Haiti will be eligible to receive four IDB loans totaling $146 million that were frozen at first because of the elections, and remained stalled because of the arrears.

Once the arrears are paid, more than $300 million in additional IDB-loans will become available. Very deceiving, for we’re talking here about IDB allocation for Haiti into the distant future, for possible projects that have not even elaborated, much less negotiated with the GOH, still less approved or ratified. But JBA has fallen into his own demagogic trap, since this too is part of his notorious $500 million.

The World Bank, which has temporarily pulled out of Haiti, requires Haiti to comply with the IMF-monitored plan, payment of its arrears and a political settlement before it revives loans.

The E.U. terminated its EUR 14 millions budget support grant for Haiti in 2001. For it to receive another grant, the Caribbean nation first has to comply with the yearlong IMF plan and show progress in ending a political stalemate. True, so again, not for tomorrow
(Copyright (c) 2003, Dow Jones & Company, Inc.)
Received Id DJI0313304012 on May 13 2003 16:17

My recap follows:
After a ten-day mission, the IMF team departed Port-au-Prince last Friday, having come to agreement with the GOH on a set of targets and measures for an FY 2003 Staff-Monitored Program (SMP). The SMP is in theory for a period of twelve months (retroactive to last April 1), but with a built-in evaluation by the IMF of GOH performance for the second half of FY 2003 (to September 30, 2003). If the GOH has applied the measures and adhered to the program targets at that point, Minister of Economy and Finance Gustave will seek to initiate discussions with the IMF for a Board-approved (i.e. cash) program to supplant the latter six months of the SMP.  The major elements of the SMP are:

Targets:
- Inflation (%): 42%
- Exchange rate (G/$1): 45
- Central Bank Financing (G): 4 billion
- GDP growth (%): 0

Measures:
- GOH deficit financing (Central Bank, plus external and domestic arrears) will be limited to 4 billion gourdes
- Net International Reserves will remain above $30 million, their level on March 31, 2003 (with the Central Bank purchases of the past month, NIRs are today at $41 million)
- Transparency in the petroleum pricing system will continue to increase
- Haiti’s arrears to the IDB will be cleared (to be covered by some bilateral donors and the CARICOM)
- Negotiation will begin on a plan to clear Haiti’s World Bank arrears (a meeting between GOH officials and the World Bank economist stationed in the DR is scheduled for the third week of May to launch the process).
To assure that the Public Treasury stays within the agreed-upon deficit levels, a Cash Management Program has been put in place between the Ministry of Economy and Finance and the Central Bank. Under the Cash Management, the Central Bank will impose weekly ceilings on expenditures, based on revenue projections for the period.
Since the fiscal and monetary tables of the GOH register a deficit financing of G 2.759 billion to March 31 (of which G 2.377 billion from the Central Bank), the deficit financing target of G 4 billion means that the parties have agreed to another G 1.2 billion of deficit financing for the second half of FY 2003 – a non-negligible reduction from the first half, but still on a path that will make for a deficit-to-GDP percentage of almost 4% for the year. The only way to keep inflation from going well past the already-worrisome target of 42% and to keep the gourde from plunging to new lows will be through severe monetary policies (read continued high interest rates) that will further crowd out productive investment.
According to Minister Gustave, the GOH is hopeful that the CARICOM-led attempt to put together a loan for the clearance of the IDB arrears of approximately $25 million will bear fruit.  If it does not, however, he believes that he will be able to float the loan domestically, among Haiti’s commercial banks. That remains to be seen.
Minister Gustave is assured of GOH support for the SMP, having made sure that the IMF team met with both the Prime Minister and the President, both of whom approved it. Once the IMF team’s own review with senior management completed, the SMP will be signed.
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