18024: Leiderman: US policy toward Haiti, benchmark document (fwd)

[Bob Corbett <corbetre@webster.edu>]

From: Stuart M Leiderman <leidermn@cisunix.unh.edu>


http://www.haiti-info.com/article.php3?id_article=357

15 July 2003

Supporting Economic Development in Haiti
John B. Taylor Under Secretary of Treasury for International Affairs
Testimony before the Senate Foreign Relations Committee

Chairman Lugar, Ranking Member Biden, and other members of the Committee,
thank you for inviting me to discuss the Administration's efforts to
promote economic development in Haiti and to help address the most
critical humanitarian needs ofthe Haitian people.

The Economic Situation in Haiti

The people of Haiti are impoverished. Per capita GDP in Haiti is 1/5th the
average for the Latin America and Caribbean region
as a whole and 40% lower than the second poorest country in the
hemisphere, Nicaragua. Haiti has been poor for many years.
Real per capita income in Haiti has actually fallen over the past four
decades. Other indicators tell a similar story. Infant
mortality stands at 79 per 1,000 live births. Illiteracy is near 50
percent. And 54 percent of Haitis population lacks access to
clean water. These facts explain why Haiti was ranked 150th out of 175
countries on the UNDPs Human Development Index
in 2002.

Years of economic mismanagement, political instability, and weak rule of
law have produced this tragedy. Fiscal and monetary
policy mistakes have fed economic uncertainty and produced high inflation.
These macroeconomic factors combined with poor
infrastructure, irregular supplies of electricity, corruption, and customs
delays to create a poor investment climate. The most
basic needs of the Haitian people in the areas of education, health, and
personal security have not been met. Were it not for the
violence and instability that have characterized life in Haiti, the
Haitian people would have been able to apply their energies to
successfully build a better future for themselves and their children.
Indeed, Haitians outside of Haiti have done just that, sending
back remittances to relatives that total as much as 1/4th of Haitis GDP
per year.

As experience all over the world has shown, chronic, unsustainable public
deficits, misallocation of public resources,
corruption, and instability strangle growth and increase poverty. Aid
cannot overcome these obstacles. The Haitian government
must be accountable for its performance. In the absence of good policies,
development assistance does not improve the lives
of the poor.

In fact, a poor policy environment has undermined the effectiveness of
World Bank assistance in Haiti. In 2002, the World
Banks Operations Evaluation Department analyzed the World Banks activities
in Haiti in the mid-1990s. It concluded that
these projects had a negligible impact on improving the lives of Haitians.
To take one example, a $50 million Road
Maintenance and Rehabilitation Project-designed to address the urgent lack
of regular road maintenance in Haiti-suffered from
waste and diversion of funds to other projects. Even the improvement of
roads that did take place under the project was
judged unlikely to be sustainable, due to the lack of institutional reform
at the public works ministry and failure to establish a
fund for regular repairs.

We must commit ourselves to avoiding the mistakes of the past. We need to
deliver our humanitarian assistance so that the
people of Haiti actually benefit from that assistance. And we need to
focus our economic development assistance so that it can
help the Haitian people raise their living standards and achieve the
benefits of long-term economic growth.

This Administration seeks to help countries pursue policies that create
the conditions for increased economic growth, higher
living standards, and lower poverty. This is the concept behind President
Bushs Millennium Challenge Account (MCA). MCA
assistance is designed to reward those countries that are ruling justly,
investing in people, and promoting economic freedom.

The Government of Haiti has recently taken strong steps to reign in the
fiscal deficit, restrict monetary financing of the
government, and eliminate wasteful subsidies. The United States welcomes
these important actions. At the same time, Haiti has
a long way to go in creating an environment conducive to investment,
entrepreneurial activity, and growth of the private sector.

Establishing greater political stability, improving governance and
reducing corruption are central to this effort. Improved
governance has political, legal, and administrative dimensions, which
others have noted today. Rule of law is also critical if
people are to put their capital at risk. Haiti needs to take steps to
establish the integrity of the police and the judicial system for
matters both criminal and civil. On the administrative side, improving
governance entails steps to make the government
bureaucracy more effective and responsive in meeting the needs of the
public, whether in the area of education, health, or other
basic services. A key part of this is implementing better and more
transparent tracking of government spending, to ensure that
public resources are used for their intended purposes.

Outside donors can provide assistance in strengthening governance in
Haiti. For example, the international financial institutions
are encouraging Haiti to undertake audits of public enterprises so that
the managers are accountable for the resources under
their control and the resources are used in ways that serve public not
personal interests.

Progress on these critical issues will not only create a foundation for
the revitalization of economic activity in Haiti, it will also
help attract foreign investment. Foreign direct investment fell from $30
million in 1999 to about $5 million in 2002. The United
States is committed to helping the Haitian government put in place a
framework that will allow the country to promote the
private investment needed to raise living standards.

Recent Progress

I am pleased to report that progress has been made recently. The
Government of Haiti has taken important actions to
strengthen public finances and create conditions for greater macroeconomic
stability.

The Haitian government amended the draft budget for FY2002/03 to cut the
fiscal deficit by half, limiting central bank financing
of the government. Broad money growth is targeted to decelerate to 10%
during the period April-September 2003, down
from 26% from October 2002-March 2003. This helped launch a one-year Staff
Monitored Program (SMP) with the IMF
that outlines a framework to help stabilize Haitis economy, increase
accountability and improve economic governance.

The Haitian government has also committed to steps to give the finance
minister more control over budget execution, so that he
can implement the budget as passed by the legislature and reduce
corruption. The plan envisages the consolidation of separate
ministerial accounts, which have undermined spending control. Furthermore,
the Haitian government has agreed to conduct
external audits of the five major public enterprises during the next year,
to ensure that resources within these public concerns
are being used appropriately.

The Staff Monitored Program gives Haiti an opportunity to demonstrate its
ability to implement economic policies designed to
promote macroeconomic stability. Finance Minister Faubert Gustave has
stressed the importance of the program for improving
economic policy and budgetary control in Haiti. We very much want the IMF
and multilateral development banks to support
those in Haiti who are working to strengthen its institutions.

To this end, we are pleased that Haiti took a crucial step forward last
week when it cleared arrears of $32 million to the IDB.
With arrears to the IDB cleared, the IDB can now move forward with a
number of projects already in train, and can reengage
with Haiti to discuss future lending. The IDB is strongly committed to
working with Haiti and in late July will send a staff team
to remain in Haiti as long as needed to outline a transitional lending
program.

Next week we expect that the IDB will approve a $50 million Investment
Sector Loan and disburse the first portion of that
loan in the amount of $35 million, which the Haitian government will use
to repay the loan provided by the central bank to clear
IDB arrears. We also expect the IDB to begin disbursing in subsequent
weeks on $146 million in previously approved project
loans for basic education, reform of the national health system,
rehabilitation and maintenance of roads, and investments in
water and sanitation systems. These funds would go directly to suppliers
and would disburse over time as progress is made
under each project.

With substantially better policy performance and financial accountability,
Haiti could tap into other development assistance as
well. Policy performance and governance are rightly key determinants of
the allocation of World Bank IDA resources, the
World Banks window for the poorest countries. The World Bank role in Haiti
has been sharply constrained by persistent
expenditure monitoring and control problems. The World Bank has not been
able to ensure that project assistance and budget
assistance will be used for their intended purposes. Haitis three-year IDA
allocation is only $6 million. With major
improvements in Haitis policy performance, Haitis IDA allocation could
expand considerably and enable Haiti to more easily
clear its arrears to the World Bank.

Haiti is not now eligible for the Presidents grants initiative in IDA-13,
except possibly for HIV/AIDS-related projects. We will
work with the international community for a substantial portion of Haitis
assistance from the World Bank and IDB to be
provided in the form of grants in the future.

One final point must be made in connection with assistance to Haiti from
the IMF and multilateral development banks. It stems
from legislation passed in 2000 related to trafficking in persons. Haitis
failure to take sufficient action to address trafficking in
persons has placed it in the Tier Three category for which sanctions
apply. The United States has urged Haiti to make a more
concerted effort in this area, but barring progress by Haiti before
October 1 or a presidential waiver, the U.S. Executive
Directors would be required to vote "no" and use their best efforts to
deny lending or other assistance to Haiti by the
international financial institutions. In the case of the IDB, a "no" vote
from the United States would block assistance to Haiti.

The Haitian government as taken positive first steps in improving its
economic policies. Fundamental challenges remain. The
Government of Haiti must now take the steps needed to lay the foundations
for sustained economic growth and improved living
standards for its people. Consistent with OAS Resolution 822, U.S. policy
does not link economic and financial support for
Haiti from the international financial institutions to resolution of
Haitis political issues. Rather, our objective is to encourage the
Haitian government to take the economic policy actions needed to form the
basis for effective engagement by the international
financial institutions in support of economic development in Haiti. The
United States is committed to helping Haiti in this effort.

U.S. Humanitarian Assistance to Haiti

At the same time, the United States has continued to provide substantial
humanitarian support to the Haitian people in recent
years through periods of political turbulence. Working through
non-governmental organizations in order to avoid misuse of
funds, the United States has delivered more than $120 million in
humanitarian assistance over the last two years and remains
Haitis largest donor. The United States has provided more than $900
million in assistance since fiscal year 1995. Between
fiscal years 1995 and 2001, the U.S. provided 28 percent of total external
assistance to Haiti, more than three times the
second-largest bilateral contribution from Canada.

U.S. humanitarian assistance efforts are geared toward alleviating the
dire conditions experienced by the Haitian people. In the
past year the United States delivered more than $3 million in emergency
assistance to respond to communities affected by
droughts and flooding. U.S.-backed health projects provide maternal and
child health services, child immunizations, and
assistance in the prevention of HIV/AIDS, including expansion of a
voluntary counseling and testing network to prevent
mother-to-child transmission of HIV. The U.S.-supported network reaches
approximately 2.7 million Haitians.

Haiti is one of two Caribbean countries eligible for assistance to fight
HIV/AIDS, malaria, and tuberculosis under the
Presidents Emergency Initiative, as embodied in the recently passed
HIV/AIDS authorization legislation-this assistance will
supplement the funds provided to Haiti from the Global Fund to Fight AIDS,
Tuberculosis & Malaria.

Next Steps

The United States will continue to work closely with Haiti and other key
players to help the Government of Haiti lay the basis
for economic growth and poverty reduction. Agreement on an IMF Staff
Monitored Program and the expected resumption of
IDB assistance signal progress in breaking the logjam in relations with
the international financial institutions created by Haitis
overdue payments. With arrears cleared at the IDB, concrete backing for
development efforts can now move forward.

We will work hard with Haitis government to maintain this positive
momentum. The pace of re-engagement with the
international financial institutions is largely in the Haitian governments
hands. For our part, we will work to ensure that the
international community provides maximum incentives for rapid policy
progress in Haiti.

John B. Taylor
Under Secretary for International Affairs
US Department of Treasury

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