Journal Issue

Statement by Paulo Nogueira Batista, Executive Director for Haiti and Renato Perez, Senior Advisor to Executive Director January 27, 2010

International Monetary Fund
Published Date:
February 2010
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On behalf of our Haitian authorities, we would like to thank Board members and the governments they represent for their expressions of sympathy, their rapid relief efforts and offers of support for the recovery and reconstruction of the country. We would also like to thank the team working on Haiti for their diligent response to the present emergency. The Managing Director struck the right note when he called for a major multilateral aid plan to rebuild Haiti. We also welcome his decision to work with donors to try to cancel all the country’s debt, including the augmentation that is now being submitted to Board consideration.

Casualties from the earthquake could reach 200,000 people, according to staff. In Hiroshima, some 70,000 people probably died as a result of the explosion of the atomic bomb and, because of radioactive fallout and other after effects, the death toll was probably over 100,000 by the end of 1945. In Nagasaki, it is estimated that 40,000 people died initially, and that the total number of deaths probably approached 70,000 by January 1946. The staff report presents a preliminary evaluation of the damages ahead of a more detailed assessment. In 2008, four successive hurricanes left Haiti with a material loss estimated at close to 15 percent of its GDP. This time, the damage in terms of GDP loss is much larger. Significant human capital has also been lost, including the death of numerous experts from both the private and public sectors, as well as prominent figures of Haiti’s intelligentsia.

The current disaster is very different from the external shocks of 2008, not only for its unprecedented magnitude but above all because the earthquake struck the most central part of the government’s infrastructure and the country’s economic activity, including its second tourist destination (Jacmel). All three branches of government lost their main headquarters. Vital business infrastructures, such as the port, airports, banks, transports and communication, were severely damaged.

But this disaster is also unique because of the speed with which the international community pledged more than a billion dollars for relief and recovery. Our authorities welcome the rapid convening of a donors’ conference and the fact that more than half of the UN’s initial flash appeal of $575 million has already been contributed and pledged. The Executive Board of the IMF can play a role in helping to ensure that the commitments made materialize into fast disbursements aimed at financing the authorities’ defined priorities.

Despite the overwhelming personal suffering—officials have lost close relatives, friends and collaborators—the government has demonstrated an enormous ability to rapidly react to the crisis. The authorities have made their own needs assessment. An emergency plan has been put together for the immediate resumption of economic and financial activities. A crisis committee composed of ministers is working under the leadership of the Prime Minister. The government has also issued a public bulletin with a preliminary evaluation of damages and casualties, as well as information on the temporary measures taken to address the emergency. These include the rationing of electricity and fuel and the reestablishment of traffic at Port-au-Prince’s port and airport.

The emergency plan aims at (i) making the payment system function again; (ii) mitigating the banking sector’s losses; (iii) getting the credit market rolling; (iv) ensuring that the customs office and internal revenue service use exceptional procedures to facilitate trade and economic activity; and (v) making the port partially operational. Security and public safety have been given the utmost priority. This has already allowed a gradual resumption of some vital commercial activities such as the distribution of water, the reopening of certain supermarkets and the sale of food products. Several transfer houses reopened their cashiers on the 20th and 21st of January to deliver remittances in the Port-au-Prince metropolitan area. Remittances are a key element of the relief and recovery efforts.

The earthquake struck at a time when economic performance was strong. Before the disaster, Haiti was in a good position to overcome long-standing difficulties and begin fulfilling its potential as a country.

The country had been registering considerable progress in terms of macroeconomic stabilization. Growth had restarted, albeit at a modest rate. The government was moving forward in the implementation of structural reforms. It should be noted that these considerable achievements were made in spite of exogenous shocks (notably the food and fuel price shocks and the 2008 hurricanes) and what staff calls “volatile external support”. As mentioned in the staff report, that budget support fell short by US$ 50 million in FY 2009. Moreover, 90 percent of disbursements occurred during the last week of the fiscal year. Nevertheless, Haiti met all quantitative performance criteria for end-September.

During fiscal year 2009, ending September, GDP growth accelerated to almost 3 percent, the highest in the Caribbean, according to staff. The current account deficit fell from almost US$ 300 million in FY 2008 to US$210 million in FY 2009. International reserves rose from 2.9 to 3.7 months of imports, due in part to the SDR allocation. Inflation was minus 0.8 percent in the 12 months to November.

Haiti proved to be more resilient to the international crisis than might have been expected. It is noteworthy that in a crisis period exports increased by 12 percent. More importantly, remittances held up remarkably well.

The country has now suffered what amounts to a massive supply shock. Staff’s very preliminary calculations indicate that GDP will fall by as much as 10 percent and inflation will shoot up to 15 percent in FY 2100. Exports are expected to decline by about 30 percent. The current account deficit (excluding official grants) will rise to almost 20 percent of GDP. Since as much as 85 percent of revenues were collected in the capital area, staff estimates that revenues (excluding grants) will collapse, falling by 43 percent in FY2010. The central government’s deficit (excluding grants and externally financed projects) will almost double as a proportion of GDP.

The good track record that the Haitian authorities have established during the past five years should encourage donors to use the budget as a means to channel their assistance. It is essential that disbursements match pledges this year. The authorities should not have to resort to monetary financing because of shortfalls in committed external budget support.

The authorities are requesting an augmentation equivalent to US$100 million under the Extended Credit Facility. These resources, together with the last disbursement under the current arrangement, will help the country face immediate balance of payments needs, as explained in the staff report.

Haiti is requesting a waiver for the non-observance of the performance criterion on external debt on non-concessional terms. After protracted negotiations, the government has recently contracted a loan for the rehabilitation of the Cap Haitian that is crucial for the development of the northern part of the country. The loan has very favorable terms, but changes in international financial conditions led to a reduction in the discount rate used by staff to calculate the element of concessionality. As a result, the degree of concessionality of this loan (30.2 percent) falls somewhat short of the 35 percent benchmark established in the program. However, the difference is not large and Haiti remains committed to seeking financing on concessional terms. Before the earthquake, the authorities had been in discussions with the IDB in order to improve the financing terms for the Cap Haitian project.

There is an ongoing discussion about different types of recovery and reconstruction plans. Some have rightly noted that this crisis could be turned into an opportunity “to build better”, decentralize, modernize and give the rest of the country and the agricultural sector a chance to flourish. But the key to success in the upcoming months will be national ownership. The Haitian government has designed its short-term relief strategy and is developing its recovery plans. We should stand ready to support Haiti’s home grown plan.

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