#1771: Does Haiti Need A Structural Adjustment? (fwd)

[Robert Corbett <bcorbett@netcom.com>]

From: Guy Antoine <webmaster@windowsonhaiti.com>

That is the question put on Windows on Haiti this week, and answered in an
essay by Patrice Backer.  It should be of interest to most members of this
list.  For this article (reprinted here, but not as richly formatted) and
many other quite recent innovations on the site, please visit
www.WindowsonHaiti.com today.

N.B. The site offers you forms to submit your reactions to the author, or to
submit your own commentary.

Haiti Needs a Structural Adjustment
Patrice Backer
January 2000

"Un fait qu'aucun de ceux qui ont voyagé hors de notre pays ne peut dénier,
c'est qu'Haiti, malgré sa grande fertilité, malgré la beauté pittoresque de
ses sites, malgré les qualités laborieuses du peuple haitien, qui ne le cède
à aucun autre en travailleurs courageux, est actuellement tombée dans un
état de patente infériorité, quand on la compare au reste de l'Amérique
centrale ou de l'Amérique du Sud, parvenu à l'indépendance nationale bien
longtemps après nous." [1]

When Anténor Firmin wrote these words in 1905, little did he know that most
of his subsequent analysis of the Haitian situation would be applicable to
the multiple crises Haiti is facing today. I was reminded of this particular
book when I started paying attention to the multiple debates surrounding the
need for an economic development plan for Haiti. In particular, I paid
attention to the focus on Structural Adjustment Programs (SAPs) and their
effects on developing countries. In Haiti, this debate took on acrimonious
tones that masked the true issues surrounding SAPs. I will review the
arguments for and against SAPs in the Haitian context to determine whether
it would not be in Haiti's interest to undergo a homegrown structural
adjustment.

For the benefit of this discussion, let us review the main policy measures
of a World Bank/IMF-style structural adjustment program:

- decrease in tariffs and reduction of trade and investment policies;

- reduction of government spending and the establishment of a more efficient
fiscal policy (imposition of new taxes or collection of unpaid taxes);

- privatization of state-owned enterprises; and

- transformation of the agricultural sector, from the production of staples
and basic goods to the development of export-led agribusinesses.

Opponents of such a program in Haiti have argued among other things that:

- decreases in tariffs and the opening of local markets may lead to the
disappearance of many small- and medium-size enterprises;

- reducing government spending will lead to massive layoffs. Increased
unemployment and a reduction in government services will affect the poor
disproportionately;

- privatizations will benefit multinational corporations that will buy the
"crown jewels" of the country, leaving the state with no resources and
transferring wealth to a few individuals or monopolies. Such privatizations
may also be counter to the national interest or national security; and

- focus on export crops, if implemented by the government, will lead to the
demise of peasant agriculture and will contribute to environmental
degradation through the use of agro-chemicals and other
environment-unfriendly techniques.

It was my hope when these issues surfaced that questioning the propriety of
a plain-vanilla SAP for Haiti would lead to meaningful and fruitful debates
on important public and economic policy issues. However, I am now wondering
whether the groundswell of anti-SAP positions was not simply a smokescreen
for the protection of entrenched and petty self-interests and oligopolies
(political and otherwise) to the detriment of those who need help the most:
the poor of Haiti.

First, the greatest threat to the Haitian economy, and ultimately to job
creation and economic growth, is not the lowering of tariffs but a
combination of bad business practices, lack of investments, corruption and
contraband.

I fail to see how the Haitian economy can be hurt by a lowering of tariffs
because the country imports almost everything already. A survey of the
listings in Le Moniteur will show that at least 60% of newly formed
companies in Haiti are import/export ventures. Haiti is now importing sugar
(white and brown), fruits, and flowers from the Dominican Republic, cement
from Venezuela and Eastern Europe, processed goods, onions, and flour from
the United States, etc. The number of small Haitian-owned export business in
Southern Florida is increasing, with rice, beans, cereals, flour, onions,
frozen poultry, pet food (yes, pet food!) and other goods being routinely
shipped to the main ports of the country. The result? A staggering trade
deficit that has a profound impact on monetary policy.

Meanwhile, the Haitian business person interested in setting up a
manufacturing venture faces some daunting obstacles: a deficient
infrastructure (utilities, roads, communications) that greatly inflates the
cost of production and makes Haiti-produced goods less competitive,
bureaucratic impediments that frustrate even the most resolute entrepreneur
[2] , layers of middlemen whose demands for kickbacks erode the
profitability of any venture, and a judicial system that does nothing to
protect private property or to provide an impartial forum for dispute
resolution. Why go through the hassle? Just import!

As if that were not enough, some corrupt customs officials facilitate the
entry of products and machinery for some while they make life very difficult
for others. Such arbitrary treatment cannot possibly encourage serious
investment unless you are willing to play the game, i.e. grease a few palms
and hope for the best. In addition, our porous borders are allowing a number
of products to enter the country tariff-free, threatening to bring to their
knees our few producing enterprises. For example, in its offering
prospectus, Les Moulins d'Haiti S.A. (formerly Minoterie d'Haiti) cites as
one of its main operating risks the possibility of contraband flour being
sold at a cheaper price than the flour they produce [3]. Why should an
investor think of buying this company's common stock when such a risk looms
at the horizon?

Last but not least, neighbors like the Dominican Republic, Jamaica and
Barbados are sowing the seeds for a new generation of workers by modernizing
their public education system, bringing computers to elementary and
secondary schools, and diversifying their industrial landscape. The
Dominicans, for example, have started construction on a cyberpark "a
public/private partnership" that will bring Dominicans squarely into the
21st century [4]. The Jamaican government is sponsoring a similar scheme
which will focus on training young Jamaican college students to specialize
in technology-related fields with an eye to capture part of the booming
Internet business. Barbados has begun a bold experiment to bring foreign
technology companies to the island by providing advantages and guaranteeing
a supply of well-trained local professionals. Is there anyone in Haiti
looking at the big picture and articulating a technology strategy for the
21st century, or do we intend to remain essentially an agricultural country?

Endogenous barriers to economic growth existed well before any talk of an
SAP surfaced and have had a more deleterious effect than the lowering of
tariffs and relaxed investment rules ever will. Consequently, the private
sector is incapable of generating the number of quality jobs that would lead
to a much hoped for increase in living standard. Unless there is a concerted
effort by the private sector to reform itself and by the government to ease
the bureaucratic nightmare that business people face, we will probably see
continued anemic growth in the years to come.

Second, it is hard to imagine how a reduction in government spending would
affect the poor as negatively as people claim.

A quick look at the current situation suggests that:

- the majority of the 45,000+ government employees that would be affected by
layoffs do not belong to the lower strata of Haitian society, simply because
the poor in Haiti are chronically unemployed. A study of the compensation
structure in the government would suggest that the lower-paid employees
still earn much more than those who are defined as "poor";

- it is estimated that about 3.4 million Haitians, mostly poor or very poor,
are employed in the informal sector [5]. It is this sector of the Haitian
economy that is the least served by the government today [6].

- in a country of roughly seven million inhabitants, the layoff of even half
of the government workforce will hardly affect the overall poverty picture
although the impact on those let go and their families will be very real and
very painful. According to the Haiti's Plan d'Action Gouvernemental
published in early 1999, more than 70% of the population lives below the
absolute poverty level [7]. It is hard to imagine this broad segment of the
population gainfully employed, much less employed within the government;

- decreased spending will not result in a reduction of government services
to the poor. Haitian public administrations have rarely if ever delivered an
adequate level of service to the Haitian population to begin with, let alone
to the poor who have suffered from discrimination and humiliation at the
hand of our civil service system.

The claims that Haiti's poor would suffer from a decrease in the size of
government just do not add up. The recent implementation of an early
retirement and voluntary departure program by the Haitian government
confirms that they too are aware of their bloated payrolls and need an
adjustment, SAP or not.

Third, while apprehensions over privatizations are well founded, their
outright rejection as "neo-liberal" and against the interest of the people
is simply hypocritical.

The record of privatizations throughout the world is decidedly mixed, but
privatizations in and of themselves are not to be blamed. Privatizations do
not occur in a vacuum; they require a long-term economic plan, well-defined
policies with respect to the economic sectors affected, and a regulatory
framework that will prevent a switch from a public monopoly (utilities,
telecommunications, etc.) to a private monopoly.

In Haiti, the situation is complex; many state-owned enterprises (SOEs) have
undergone a de facto privatization through corruption and political
patronage, some enterprises are "employment machines" that serve well in
times of social tension. The political class has shown remarkable unity, for
a change, by refusing to endorse publicly the privatization of SOEs. Their
ulterior motive is not really to preserve the assets of the Haitian people,
as they claim, but to hold on to the revenue-generating units that will
enable them to enrich themselves and their cliques. This explains why
Teleco, for example, will definitely not be privatized any time soon despite
public claims by the company itself that it would be sold "before the year
[1999] is finished." [8]

Meanwhile, what is the average Haitian citizen getting from these SOEs? Very
poor service ... when there is any service at all. While CAMEP has shown
some leadership in solving water distribution problems, the other
state-owned utilities are failing miserably, despite investments made
recently. This goes to show that money is not everything, that good
management and policies still count.

However, the true cost of maintaining the status quo, i.e. ruling out the
privatization of the SOEs, is almost never mentioned: subsidies that hurt
the Haitian people in the end. The government is spending scarce resources
to employ a relatively large number of people in inefficient or unproductive
enterprises while starving other sectors (like education or needed
infrastructure projects) that would have positive effects on the population.
At a time when international aid is not forthcoming [9], judicious policy
choices and resource allocation require that extremely tough choices be
made. So far, Haiti seems to have made the wrong choices.

In the end, privatizations must be viewed in the context of whether the
government can deliver services superior to what the private sector can
deliver. In the case of utilities and telecommunications, for example, the
answer is an emphatic "no." However, convincing private companies to
purchase some major Haitian SOEs will be another issue altogether.

Fourth, reforms in the agricultural sector are already occurring and will
benefit the environment, not destroy it.

It is disingenuous to assert that an SAP will hurt the Haitian agriculture
sector when the situation is already so dire. No one highlighted the
problems better than the Haitian Minister of Agriculture himself did [10]:

- the agricultural sector was in trouble well before an SAP was being
discussed for the country;

- environmental degradation has been caused by slash-and-burn cultivation;
"each year, 36 million tons of soil are lost to erosion" in Haiti;

- land use and ownership problems still persist;

- crop yields are extremely low; and

- cheap imports have wiped out local producers.

It is interesting to note that the minister sees hope ... in export crops,
the very crops that supposedly would ruin the Haitian agriculture according
to SAP critics! While rice growers in the Artibonite Valley cannot compete
with American rice"which is partly subsidized by the U.S. government"the
Haitian government is focusing on coffee and mangoes, products targeted for
export that are "revolutionizing prospects for the country's farmers." [11]
Coffee is also viewed as a plus in the uphill struggle against environmental
degradation [12].

Haiti needs to compete where it can. If the country cannot produce some
staples as cheaply as imported ones, then the government should not penalize
consumers, especially poor ones, by erecting barriers to protect an
inefficient local industry. On the other hand, staples produced with foreign
government subsidies should be taxed enough to adjust for their true cost of
production. Developed countries such as the United States and European Union
members have been less than honest in trade negotiations in this one area. I
wonder whether the decision by the Ministry of Agriculture to turn to export
crops is a result of pressures from international donors or the realization
that changes were needed in a crisis-prone sector. I suspect the latter is
the correct answer.

Faced with these facts, we should ask ourselves a few questions:

Was the rejection of profound economic reforms ideologically motivated or
driven by the need to protect the interest of some?

If Haiti is to emerge from its economic problems, can it afford to ignore
the need for major adjustments both in the public and private sectors?

Even if a standard SAP is not suited to the Haitian situation, aren't there
reasons to consider real reforms in a number of areas within the economy?

Does anyone in the public or private sector have a coherent vision of where
Haiti should be in 10, 20, 50 years?

Why isn't there a more pressing need to strengthen the informal sector and
provide it with the support it needs to grow and prosper?

How Haitians answer these questions will determine whether the country will
face its economic challenges in a responsible manner or whether Anténor
Firmin's prophetic words unfortunately will ring true again come the year
3000.

Patrice Backer

Please send us your thoughts on this article.
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Footnotes:

[1] Lettres de Saint-Thomas, Anténor Firmin, p.2. Les Editions Fardin.
Réédition de la première publication de 1910, Port-au-Prince, Haiti

[2] Interview with Jean-Edouard Baker in "Haiti: a young democracy", A Miami
Herald supplement produced by Newslink, Ltd., Friday, October 1, 1999, page
6, 2nd column

[3] Offering Memorandum prepared by Unifinance for Les Moulins d'Haiti, S.A.
(Risks section)

[4] President Leonel Fernandez's keynote address to the CLAA Conference in
Miami. December 7-10, 1999; also 4-page publication by the Dominican
Republic Office for the Promotion of Investment entitled "The Dominican
Republic's Cyberpark 2000"

[5] Investir dans l'Humain - Livre Blanc de Fanmi Lavalas, Collective
Document under the Direction of Jean-Bertrand Aristide, p. 68. December 16,
1999

[6] idem, p.69

[7] Plan d'Action Gouvernemental, CONTEXTE, section 1.2.2. Published in
early 1999. Visit www.haitilink.net for copy.

[8] Interview with Julio Cadet in "Haiti: a young democracy", A Miami Herald
supplement produced by Newslink, Ltd., Friday, October 1, 1999, page 6, 3rd
column

[9] Interview with Jacques Edouard Alexis in "Haiti: a young democracy", A
Miami Herald supplement produced by Newslink, Ltd., Friday, October 1, 1999,
page 4, 1st column

[10] "Hope grows anew on barren ground" in "Haiti: a young democracy", A
Miami Herald supplement produced by Newslink, Ltd., Friday, October 1, 1999,
pages 12-13,

[11] Idem

[12] Idem