#873: From the IMF (fwd)

[Robert Corbett <bcorbett@netcom.com>]

From: Max Blanchet <MaxBlanchet@worldnet.att.net>

Public Information Notice (PIN) No. 99/92 
September 24, 1999 International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA

IMF Concludes Article IV Consultation with Haiti 

On September 3, 1999, the Executive Board concluded the Article IV 
consultation with Haiti.1 

Background

The administration that took office in March 1996 began implementing a 
three-year economic program in October 1996, with substantial 
international financial and technical support, including an ESAF 
arrangement from the IMF. The program went off course following the 
onset of a political crisis in the spring of 1997, which led to the 
resignation of the prime minister and adversely affected the 
implementation of structural reforms and the disbursement of external 
aid flows, all of which have constrained growth and efforts to reduce 
poverty. While attempts to reach a political settlement continued, the 
Fund has been monitoring Haiti's economic policies through 
staff-monitored programs (SMPs). The main purposes of the SMPs are to 
assist in maintaining sound macroeconomic policies and advancing in the 
structural area, so as to facilitate the disbursement of some external 
budget support and establish a track record that could help restart Fund 
support through an ESAF arrangement once parliamentary elections 
(planned for late 1999) are completed.

Performance under the FY 1997/98 SMP (year ending in September) was 
satisfactory. As a result of firm policy implementation, inflation was 
reduced, the external current account deficit narrowed, and official net 
international reserves rose. Output growth picked up to about 3 percent. 
Credit policy was tighter than programmed, while the fiscal deficit was 
slightly higher than in the program. Although structural reforms 
covering the civil service and the financial system were undertaken, the 
political crisis prevented the adoption of reforms in the areas of 
taxation and infrastructure improvement. 

The FY 1998/99 SMP takes into account the negative economic effects of 
Hurricane Georges, which struck Haiti in September 1998. It assumes 
output growth of about 2 percent and aims at containing inflation at 8 
percent. The program limits the central government budget deficit to 1.7
 percent of GDP (1.3 percent in 1997/98) and incorporates public sector 
expenditure to repair the hurricane damage, as well as to cover the cost 
of downsizing public employment.

Macroeconomic performance during the first three quarters of FY 1998/99 
has been broadly in line with expectations. The 12-month rate of 
inflation was 8.1 percent in June 1999, while economic activity has 
slowed as anticipated as a result of the effects of the hurricane on 
agricultural output. The main source of growth continues to be the 
strong expansion of exports (mainly from the textile assembly sector). 
The central government deficit was 0.4 percent of GDP in the first three 
quarters of FY 1998/99, compared with 1.2 percent of GDP envisaged in 
the program as revenues were higher and capital and wage expenditures 
were lower than projected. Monetary policy was also tighter than 
programmed, and net official reserves rose by US$32 million, compared 
with the loss that was envisaged. All quantitative benchmarks of the SMP 
for June 1999 were met with ample margins. 

Progress on structural reforms in FY 1998/99 has been mixed. In the 
financial sector, the central bank's supervisory capacity and the 
regulatory framework continued to be strengthened. Also a plan for 
restructuring an insolvent state-owned bank (BNC) was submitted to the 
government by the restructuring committee in May, and began to be 
implemented in August. In public expenditure management, procedures to 
restrict the use of the ministerial discretionary accounts were applied 
in nearly all ministries by May 1; these procedures have been effective 
in reducing discretionary spending. On strengthening tax administration, 
customs was authorized to collect the vehicle registration tax at the 
time of importation (rather than at the time of sale). Also in May the 
prime minister approved the sale of a 65 percent share in the Haitian 
Cement Plant, which had been awaiting signature since December 1997. 
However, progress in restructuring and privatizing other public 
enterprises has been slow and insufficient support has been given to 
bolstering operations of the large taxpayer unit. Most importantly, 
little progress has been made in strengthening the judiciary, which is 
critical to improving security.

Executive Board Assessment

Executive Directors commended the authorities for maintaining 
macroeconomic stability during the past year, notwithstanding the very 
difficult political environment, and the economic impact of the damage 
inflicted by Hurricane Georges. Inflation and the fiscal deficit had 
been kept under control, while official reserves had risen.

However, Directors continued to voice their concern about the effects of 
the political impasse on external assistance, investment, and the 
implementation of structural reforms. This had constrained growth and 
stood in the way of efforts to reduce poverty. In these circumstances, 
Directors strongly supported the government's intention to carry out 
transparent and democratic parliamentary elections before the end of 
1999 as an urgent priority. They noted that a functioning parliament was 
essential to approve the budget and external loans that had already been 
negotiated, and to enact important pieces of legislation, including on 
the justice system and the financial sector.

Directors emphasized that the key issue in the short term is to maintain 
macroeconomic stability, while seeking to finance the cost of the 
elections in a noninflationary way. They stressed that the government 
will need to continue to resist pressures for wage increases and hiring 
in the run-up to elections and to adhere strictly to the cash management 
system in order to achieve the fiscal target. In this regard, they 
encouraged the authorities to continue to implement procedures for 
limiting spending to revenue collection and programmed financing, and to 
step up actions to improve tax and customs administration and tighten 
control of exemptions.

On monetary policy, Directors welcomed the authorities' intention to 
focus on controlling inflation mainly through open market operations. 
Directors welcomed the important measures taken in the past year to 
improve the supervision of the banking system and encouraged the 
authorities to extend supervisory power to nonbank financial 
institutions. They urged the authorities to accelerate the restructuring 
of the troubled state-owned bank, and to reaffirm their commitment to 
privatizing the institution.

Haiti's balance of payments position will remain highly dependent on 
official grants and loans, and Directors emphasized the importance of 
maintaining a floating exchange rate and of implementing key structural 
reform measures aimed at reducing domestic production costs and 
enhancing the economy's competitiveness. Directors welcomed the 
authorities' intention to maintain a relatively open trade regime and 
their efforts toward promoting cooperation with their CARICOM partners.

Directors urged the authorities and the political parties to make 
strenuous efforts toward a political settlement that would allow rapid 
progress in restructuring and privatization of the port, airport, and 
telephone and electricity companies; the approval of legislation for 
reforms at the ministries of justice, health and education; and reforms 
of direct taxes, tax exemptions, and the investment and commercial 
codes. They noted that all of these measures were important for raising 
investment, especially in the priority social sectors. In view of 
Haiti's resource constraints, Directors emphasized the need to mobilize 
technical assistance, from the Fund and other sources, to help in the 
implementation of structural reforms.

Directors welcomed the authorities' request for a follow-up 
staff-monitored program (SMP) that would help them maintain monetary and 
fiscal discipline during the electoral period. They stressed that 
continued implementation of the SMP would be expected to help mobilize 
donor support and facilitate an early start to discussions on a program 
that could be supported by a new ESAF arrangement.
Directors welcomed the authorities' intention to participate in the 
pilot project for the publication of Article IV consultation reports. 

Public Information Notices (PINs) are issued, (i) at the request of a 
member country, following the conclusion of the Article IV consultation 
for countries seeking to make known the views of the IMF to the public. 
This action is intended to strengthen IMF surveillance over the economic 
policies of member countries by increasing the transparency of the IMF's 
assessment of these policies; and (ii) following policy discussions in 
the Executive Board at the decision of the Board. As part of a pilot 
project, the staff report (use the free Adobe Acrobat Reader to view 
this pdf file) for the 1999 Article IV consultation with Haiti is also 
available. 

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Haiti: Selected Economic Indicators
  
Fiscal Year Ending September 30

1994	1995	1996	1997	1998
            
Domestic economy
          
Real GDP (annual percentage change)

-8.3	4.4	2.7	1.4	3.1

Consumer prices (annual percentage change, 
end of period)

50.5	18.2	20.1	17.0	8.3

Gross domestic investment (percent of GDP)

3.4	8.7	9.5	10.2	10.7

Gross national savings (percent of GDP)

-1.6	-7.9	-2.7	3.3	4.8
             
(In percent of GDP)
            
Public finances
          
Central government balance

-3.7	-4.3	-2.5	-0.6	-1.3

Overall public sector balance

-1.8	-8.3	-7.6	-3.8	-4.0

Public sector savings

-1.4	-2.3	-2.1	1.9	2.0
      
(Change in percent of beginning period broad money)
            
Money and credit 
          
Net domestic assets

17.0	-12.5	13.7	10.6	11.4

Credit to the nonfinancial public sector (net)

9.6	-4.6	9.5	-4.9	3.2

Credit to the private sector

2.3	16.6	8.3	17.5	7.6

Broad money

21.2	29.2	10.2	15.4	14.7
        
(Annual percentage change unless otherwise indicated)
            
External sector
          
Exports (f.o.b. in U.S. dollars)

-17.5	27.3	7.6	32.4	45.4

Imports (f.o.b. in U.S. dollars)

-31.7	152.2	-0.9	4.4	12.1

External current account balance (percent of GDP)

-5.1	-16.7	-12.1	-6.9	-5.9

External public debt (end period-percent of GDP)

49.7	29.7	30.6	30.0	28.7

External public debt service
          
(percent of exports of goods and services)

27.6	12.3	9.7	11.7	8.4

Net official reserves (end period-months of 
          
imports of goods and services)

1.7	2.8	2.1	2.4	2.4

Real effective exchange rate (appreciation +)

11.5	17.8	15.3	11.1	14.2
  

Sources: Bank of the Republic of Haiti; Ministry of Economy and Finance; 
and IMF staff estimates. 

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1 Under Article IV of the IMF's Articles of Agreement, the IMF holds 
bilateral discussions with members, usually every year. A staff team 
visits the country, collects economic and financial information, and 
discusses with officials the country's economic developments and 
policies. On return to headquarters, the staff prepares a report, which 
forms the basis for discussion by the Executive Board. At the conclusion 
of the discussion, the Managing Director, as Chairman of the Board, 
summarizes the views of Executive Directors, and this summary is 
transmitted to the country's authorities. In this PIN, the main features 
of the Board's discussion are described.