November 20, 2006

1. On behalf of our Haitian authorities, we thank staff, Management and the Executive Board for the continued support provided to Haiti, including technical assistance, throughout the past two years. Lots of hard work and fruitful dialogue between the authorities and the IMF and the World Bank have gone into the preparation of the PRGF, HIPC Initiative Decision Point and Interim PRSP documents. They mark an important achievement and are a testimony to the effective engagement of the international community in Haiti since 2004. Nevertheless, as all parties are fully aware, even more daunting challenges lie ahead.

2. By requesting a PRGF arrangement and approval of the decision point under the HIPC Initiative, the Government of Haiti is reiterating its strong commitment to sound macroeconomic management, promotion of sustainable growth, and poverty reduction. Between 2004 and 2006, the economy has been stabilized and a good track record of macroeconomic management has been established with the successful implementation of two EPCA programs. With support from multilateral and bilateral donors, reforms were undertaken to strengthen economic governance, particularly the financial management capacity of the public sector. The improvements already obtained in budget preparation and execution, public procurement, and the financial practices of the public enterprises deserve emphasis. Examples include the avoidance of central bank financing of budget deficits, the substantial reduction of the use of current accounts in the execution of public expenditures, the reestablishment of the annuity of the budget, and the approval of the budget before the beginning of the fiscal year. Preliminary data indicate that the quantitative targets and benchmarks set in the EPCA for end-September 2006 have been attained or surpassed.

3. While acknowledging that it will continue to rely greatly on external assistance, the Government is striving to mobilize a larger amount of domestic resources and to ensure that they are put to the best use. In the tax area, the priorities are a total overhaul of the Internal Revenue Agency (DGI) and putting in place effective controls in customs offices, which will also be modernized. On the expenditure side, the medium-term program includes a comprehensive reform of public financial management, with the objective of creating permanent structures to ensure that public resources are at all times used transparently, efficiently and equitably, in a manner that reflects government priorities as set out in the budget, the I-PRSP and other official documents.

4. Enhanced transparency and accountability will help prevent misappropriation and waste of public resources. For the first time, detailed information on all aspects of the approved budget (FY06–07) has been posted on the website of the Ministry of Economy and Finance (MEF). It includes subsidy allocations per beneficiary, financing sources and geographical coverage of both the operations budget and the PIP, and a detailed wage bill per entity with salary and headcount of public servants on each grade level for the entire country. The authorities are now using competitive bids for the purchase of fuel for electricity production. They have also instituted a mechanism to monitor the use of Treasury’s subsidies to the electric company (EDH) and are committed to conduct quarterly independent audits of this mechanism. Data on the Treasury’s subsidies to the electricity sector have actually been posted on the MEF’s website and are updated monthly, accompanied by the corresponding data on electricity generation.

5. Still aiming for greater transparency and accountability in the use of public resources, all ministers and other high level public officials were advised, upon taking office, that they would be required to comply with regulations regarding the formal registry of personal assets. Before the end of the fiscal year, new legislation will be adopted with exact provisos on asset declaration, compliance and continuous monitoring of the personal wealth of public officials. Also, in accordance with 2005 legislation on budget preparation and execution, a new body of public accountants is being created with nine members already nominated and dispatched to several public institutions including the Prime Minister’s office and the Presidency. Thirty additional public accountants are to be deployed in Ministries and other public entities during the course of this fiscal year. Public accountants are now personally liable for the propriety of the expenditures they execute.

6. The authoritie’ efforts also aim at containing the parafiscal deficit and improving the delivery of public services. In the recent past, public enterprises have too often played the role of social assistance agencies and were not, in general, managed with the objectives of efficiency and maximizing results. As a consequence, most of them have fallen into bankruptcy and became incapable of covering operating costs and offering reliable services at competitive prices. Financial audits and accounting rehabilitations of main public utility companies (the telecom and the electric company) and of the Port Authority were completed during the past year. Further restructuring is ongoing and individually tailored solutions for the government’s withdrawal from the management of the public enterprises are being considered. These include management or leasing contracts and the sale of assets to foreign and local investors.

7. Expanding and improving social and economic infrastructure is fundamental in the fight against poverty. In effect, lack of public and social infrastructure has constituted an important impediment to growth and severely eroded the quality of life of Haitian citizens. In order to effectively reach the poorest segments of the population, policies bearing on the distribution of basic services are being structured around the smallest operational administrative unit (the municipalities). Similarly, the budget has been designed to reflect the geographic distribution of public interventions.

8. Security and social and political stability are also crucial prerequisites for making sustainable progress in all other areas. The disarmament program with the assistance of MINUSTAH has been intensified. Nevertheless, long lasting peace and stability will depend on the expansion and professionalization of the Haitian National Police and on a thorough reform of the justice system.

9. The banking sector’s stability has been a topic of great concern for the central bank (BRH) this past year. Three banks holding roughly 13 percent of total assets were in difficulty. The BRH took several measures to avoid a weakening of the banking sector as a whole and to ensure that depositor’ interests were preserved. These included, in the case of one troubled bank, encouraging its acquisition by one of the larger local banks, and, in another, promoting the injection of fresh capital by local and foreign investors. In the case of the largest troubled bank, the BRH acquired a majority stake and subsequently changed the board of governors of the bank. A timetable of specific steps to be taken for the complete withdrawal of BRH’s financial involvement in this commercial bank has been drawn, together with a contingency plan in case things do not evolve as envisaged.

10. The BRH will seek to strengthen its supervisory capacity, ensure its financial viability and strengthen its administrative and financial autonomy. Accordingly, a timetable has been established to implement by March 2007 the recommendations of the Safeguard Assessment, which were adopted by the central bank’s board. The measures to be implemented include those necessary to guarantee the production of reliable data for program monitoring, such as the revision by internal and external auditors of the processes involved in the production of monetary statistics and the automation of such processes. There is also a timetable to relieve the central bank of most of its non-core functions, including the divestiture of the telecom company TELECO and the public commercial bank BPH. Recapitalization of the BRH should be achieved primarily through the securitization of claims on the Treasury. The conclusions of the FSAP planned for early 2007 are expected to help the authorities finalize reform measures such as the draft banking and central bank laws.

11. The BRH will maintain its prudent management of monetary aggregates and noninvolvement in the foreign exchange market. It will also take steps to increase the efficiency and diversity of monetary policy instruments and to promote a healthy growth of credit to productive activities. In time, the BRH intends to decrease statutory reserve requirements and the relative share of the gourde component of required reserves against foreign currency deposits, while endeavoring to expand the market for its paper (BRH bonds). In addition to technical assistance from the IMF, the authorities are counting on a policy based loan from the IADB to move ahead with their reform efforts. The strengthening of the central bank’s capacity in the supervision of the financial sector, including savings and loans institutions, and the creation of a credit bureau to improve the detection and management of default risks are also supported by the IADB loan.

12. A number of objectives set out in the Government’s program can be considered ambitious and the self-imposed calendar is very tight. The authorities recognize that there is no room for complacency and that significant risks are present. Even with the application of the flexible pricing system for petroleum products, the budget remains extremely vulnerable to external shocks while the pace of growth of monetary aggregates (therefore the level of inflation) and the path of the exchange rate are still strongly impacted by the timing, size and use of dollar inflows from remittances and external assistance. The authorities are cognizant of their capacity constraints, which are especially binding as far as human resources are concerned. They are aware of the level of effort required to achieve the goals of the medium-term program, in particular with regard to the implementation, in the course of FY06/07, of the structures necessary for the timely attainment of the completion point triggers. Such sense of urgency is underscored by the requirement of a whole year of implementation of the full PRSP before completion point, and that of proven compliance for a full year with the law to be adopted on asset reporting by public officials.

13. Yet, the Government is convinced that the social and economic reforms set forth in the LOI, in the MEFP and in the I-PRSP are essential to improve the lives of the Haitian people. Their expectation of success in implementing such an ambitious agenda is grounded on their faith in maintaining a broad-based national consensus and a long-term partnership with the international community. Strong ownership of the PRSP and of the PRGF program by government entities, interest groups and stakeholders will be a determining factor in their successful implementation.

14. The Government is thankful for the important bilateral support being given to Haiti by the international community, which has pledged in this past July US$750 million in external assistance for FY07 and is largely committed to participating in the debt relief effort within the framework of the HIPC initiative. The authorities stress that a key determinant for the successful implementation of their medium-term program will be donor’ timely disbursement of committed funds and prompt delivery of promised technical assistance. The lack of financing for the local and legislative elections of December 2006 and for the resulting democratic structures at the local level remains a source of concern.

15. The authorities have taken important steps in improving efficiency and transparency in the use of donor funds and in enabling them to exercise leadership in the allocation of external assistance. A committee for the coordination and monitoring of external assistance has been established with the Prime Minister as chair, and a transparent mechanism to keep track of poverty reducing expenditures has been put in place in the MEF. In the run-up to the November 30^th donor’ meeting in Spain, multiple assessments of external assistance projects and programs have been undertaken in collaboration with multilateral and bilateral cooperation agencies. Going forward, the authorities would hope to see simplification and greater harmonization of procedures and enhanced coordination and predictability in the delivery of assistance, in conformity with the spirit of the Paris Declaration and the conclusions of the last donor conference of July 2006.

16. The authorities wish to reassure donors that they are putting in place new measures to ensure the non-accumulation of domestic debt and the adequate management of domestic and external debt. These measures include tighter controls on expenditures to prevent the emergence of domestic arrears and the drafting of new legislation designating a single entity to become responsible for borrowing decisions within pre-established ceilings and for the monitoring of debt service. Furthermore, the requirement that grants be sought to finance government activities before having recourse to borrowing will be consistently observed.

17. In conclusion, our authorities wish to take this opportunity to call for assistance and support in the ongoing efforts to extend the benefits of the MDRI to the debt owed by Haiti to the Inter-American Development Bank. The IADB holds no less than 40 percent of Haiti’s external debt. Governors and Executive Directors of FSO/HIPC countries at the IADB visited Haiti this past 8 and 9^th of November, in an effort to garner international support for the prompt adoption of an MDRI framework at their institution, with particular attention to the interests of Haiti. Relieving Haiti from IADB debt with a cutoff date of end-2004 would significantly change the perspective for the attainment of the MDGs, which are currently bleak.