Statement by Paulo Nogueira Batista, Jr., Executive Director for Haiti and Ketleen Florestal, Advisor to Executive Director

This 2007 Article IV Consultation highlights that the transitional government that took over in Haiti following President Aristide’s departure in February 2004 implemented prudent fiscal and monetary policies, and significantly improved governance and transparency in public sector operations. These efforts were supported by an IMF staff-monitored program and two successive arrangements under the Emergency Post Conflict Assistance (EPCA) facility between mid-2004 and late-2006. Executive Directors viewed that the key challenge in future will be to consolidate stabilization gains while establishing higher, sustained growth.


This 2007 Article IV Consultation highlights that the transitional government that took over in Haiti following President Aristide’s departure in February 2004 implemented prudent fiscal and monetary policies, and significantly improved governance and transparency in public sector operations. These efforts were supported by an IMF staff-monitored program and two successive arrangements under the Emergency Post Conflict Assistance (EPCA) facility between mid-2004 and late-2006. Executive Directors viewed that the key challenge in future will be to consolidate stabilization gains while establishing higher, sustained growth.

1. Fund Management and staff need to be commended for all the support provided to Haiti. Our authorities are appreciative of the balanced report, which reflects well the thrust of the discussions held in Port-au-Prince last May and the authorities’ own appraisal of key issues and challenges going forward. The selected issues paper provides useful inputs to ongoing domestic discussions regarding the appropriateness of the current exchange rate and monetary policies, and the authorities’ deliberations on how to further improve the tax system. The technical support provided by the Fund whether it is through TAs proper (e.g. STATS, LEG/MFD, public officials’ training through the Institute) or through constructive dialogues with the team working on Haiti is invaluable. The Safeguard Assessment for which there was a follow up mission last March has been helpful in supporting the Central Bank’s efforts to strengthen its capacity to carry out effectively its mission and mandate. The FSAP, which was launched last month, will be instrumental in shaping the reform agenda for the strengthening of the financial sector.

2. At this juncture, it is important to take stock of Haiti’s accomplishments and of the transformation of the macroeconomic framework. Growth has resumed, inflation has been reduced to a single digit level despite petroleum price increases, and the external position has become stronger. The banking sector has been strengthened. Salutary outcomes have been found for all the three banks, which had been in difficulty during the past year. Good public financial management practices have been adopted and are becoming the norm. The restricted use of discretionary current accounts, the avoidance of central bank financing, the annuity of the budget, the observance of transparent and harmonized national procurement rules, and the regular publication of data on budget implementation are noteworthy examples. More importantly, Haiti is being effectively governed. Problems are raised, discussed and addressed not just within the public sector but regularly in partnership with the private sector and other stakeholders.

3. The PRSP drafting process launched earlier this year has been an opportunity for the Government to perform an in-depth assessment of what needs to be done to reach the MDGs and to pull a significant portion of the population out of poverty with inputs from different segments of the population. The final document, which will be submitted to the Boards of the World Bank and of the IMF in the upcoming months, will embody Haiti’s development agenda as it will be the outcome of a wide participatory process and should become donors’ reference in designing future assistance strategies.

4. Haiti’s performance has been solid under successive programs supported by the Fund including the PRGF for which the authorities are requesting to conclude the first review today. Considerable progress has been achieved in consolidating macro stability and improving governance. Despite important capacity constraints, the comprehensive home-grown structural reform agenda is moving forward in a timely fashion. With the help of the international community, mostly through the UN forces, considerable improvements in restoring order and security have been achieved. The medium-term outlook is promising, however, several challenges lie ahead. The authorities are convinced of the need to push forward with the reform agenda, but they consider the acceleration of economic recovery critical to ensure the permanence of the reforms.

5. Economic expansion has been slower than envisaged during the first half of the fiscal year mostly because of delays in implementing the public investment program and a longer period of a “wait and see” stance from private investors. A noticeable increase in the speed of disbursements of the investment budget is observed during the second half of the fiscal year as several bottlenecks, which were identified earlier, have been addressed. Line ministries have acquired a certain degree of expertise in following budget procedures and the capacity to comply with new stringent procurement rules. New suppliers (foreign and domestic) have been actively sought to alleviate supply bottlenecks and facilitate the execution of public infrastructure projects. The authorities’ efforts have been supplemented by valuable TAs from several donors, some of which (USAID, Canada, the EU) have consented to help finance the return of qualified expatriates to alleviate the human resource constraint.

6. The high cost of doing business in Haiti constitutes a serious constraint to growth. With the assistance of donors, efforts are being made to address the inefficiencies in the energy, communication, and transportation sectors. The work of the CEMEP, the institution that had been responsible for the modernization/privatization of public enterprises in the recent past, has been relaunched. The CEMEP is entrusted with the immediate task of designing the means for the decreased involvement of the state in the public enterprises. The Telecom company (Téléco) and the electricity company (EDH) are at the top of the list. Administrative and legal bottlenecks are among the other factors constraining private initiative. The Center for Investment Facilitation (CFI), which has been inaugurated recently, will be instrumental in improving the business environment. Chief priorities in the CFI’s work program are the reduction of steps for company registration and the review of the legal framework for investment and trade. These are important steps for Haiti to take full advantage of the HOPE Act.

7. The limited access to credit and other financial services are also important factors constraining growth. The recent easing of monetary policy (through the gradual decrease of interest rates on the Central Bank Paper and, more recently, through a reduction of its total stock of bonds) should help stimulate private investment. Several other impediments to private credit growth are being addressed such as the absence of a credit registry, the difficulties to realize collateral, and the poor registry of property. Accordingly, pertinent legislations have been drafted and/or submitted to Parliament. These include a draft law on chattel mortgage. Concurrently, the Central Bank wants to ensure that credit growth is not accompanied by a deterioration in the quality of the portfolios of the banking system and a weakening of the financial system. Accordingly, the Central Bank is upgrading its monitoring and regulatory capacity and releasing itself from non-essential activities. Draft laws have been submitted to Parliament to eliminate BRH participation in the Port Authority (APN), the Industrial Park (SONAPI), and the state-owned bank BPH.

8. The laws governing banking activity today were enacted in the nineteen eighties. They have become inadequate in view of the changes that have occurred in the banking system and insufficient to cover innovations introduced in the financial market during the past decades. A new draft Banking Law was submitted to Parliament this past month. The changes that were introduced herein seek to give the Central Bank strengthened authority to regulate the banking system and extend its power over a wider portion of the non-bank financial institutions. The draft legislation accommodates the financial innovations fashioned by the technological changes that have taken place during the past two decades. The banking system’s obligation to have the appropriate infrastructures to combat money laundering is also reinforced in the draft law.

9. The authorities are advancing well in achieving HIPC completion point triggers. Poverty-reducing expenditures are being tracked through a new mechanism adopted during the first half of the fiscal year. Draft legislation on asset declaration of public officials has been submitted to Parliament. The plan to extend customs control to the provinces adopted during the first half of the fiscal year is moving forward in its implementation. The PRSP drafting process is approaching its final phase of intense consultations with stakeholders throughout the country. While efforts to boost fiscal revenues will continue to be strengthened, donors’ assistance will inevitably be needed to carry forward identified programs and projects. It is the Government’s hope that a donor conference will be held early in FY08 to address additional financing needs for the first year of implementation of the PRSP.

10. Enhanced donor coordination will be crucial to the successful implementation of the PRSP. We encourage the Fund to play an amplified role in supporting the Government’s efforts to ensure greater efficiency in the supply of external assistance. More predictable and reliable disbursements will enhance the effectiveness of the Government’s fiscal, monetary, and exchange rate policies.

11. Before concluding, we would like to briefly touch on the three policy issues raised during the Article IV discussions and covered in detail in the selected issues paper. As noted in the staff report, the authorities concur with the need to raise domestic revenues to fund higher levels of expenditures in the medium term. They have already launched an aggressive plan to strengthen fiscal agencies and have taken measures to broaden the tax base. These actions have yielded commendable results during the first half of the fiscal year (30 percent increase in revenues). During the second half of this fiscal year, they will pursue efforts to boost revenues through additional improvements in tax administration with an emphasis on combating tax evasion and fighting contraband. In time, due consideration will be given to selected increases in tax rates, but only within the context of a comprehensive review of the tax system and after having taken full account of undesirable social impacts and considered the necessary changes to adhere to CARICOM policies. At the present time, the authorities are studying the possibility of modifying the present system of cross-subsidies in petroleum product taxation with a view to increasing efficiency and equity.

12. The Central Bank is cognizant of the limitations of the policy tools presently at its disposal and is grateful for the technical assistance the Fund is providing to support its efforts to improve the monetary policy framework. It concurs with staff that the slow pace of base money growth has offset to a certain extent the easing of monetary policy through the decreased interest rates on Central Bank paper and that, in theory, this could have led market participants to have difficulties inferring the bank’s monetary stance. However, in practice, the Central Bank is in continuous dialogue with the banking system and financial market operators explaining its policy stance and objectives, and formal meetings are always held to discuss changes in policy. Market participants are very aware of the Central Bank’s constraints and often provide valuable inputs in final decisions.

13. The recent accelerated appreciation of the exchange rate, even if it is considered an equilibrium phenomenon, provides cause for some concerns. Indeed, in the short term, it is associated with a decrease in the purchasing power of recipients of remittances, and may adversely affect the export sector. However, the authorities will not seek to offset the appreciation trend through market interventions, but are looking instead into ways to bolster competitiveness via the implementation of appropriate energy policies and increased planned public investment expenditures, for example.

14. Finally, we would like to seize this opportunity to thank our colleagues for their support in approving last month the rephasing of the performance criteria relating to the Central-Bank’s relinquishing of its involvement in Teleco and adopting a strategy for its recapitalization.

Haiti: 2007 Article IV Consultation, First Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Requests for Waiver of Nonobservance and Modification of Performance Criteria: Staff Report; Public Information Notice and Press Release on the Executive Board Discussion; and Statement by the Executive Director for Haiti
Author: International Monetary Fund