February 11, 2009

The setting within which the PRGF program was implemented during the period under review was exceptionally difficult. The second half of FY08 was a period of protracted political stalemate as it took four months and three nominees for the Parliament to approve the Prime Minister who was to succeed PM Alexis, whose dismissal in April 2008 was set off by the food and oil price crisis. Within the period under review, four tropical storms and hurricanes have caused considerable damage to Haiti’s infrastructure and agriculture and inflicted increased hardship on the population. In addition, the global financial crisis is likely to impact negatively on the flow of remittances (about 25% of GDP) and exports. Despite these turbulences and severe external shocks, the Haitian authorities have managed to maintain macroeconomic stability and move forward with the structural reform agenda, including significant progress in the realization of completion point triggers.

This fourth review of the PRGF represents an opportunity to take stock of Haiti’s strong performance under the program and to restate our concerns about the adequacy of the IMF’s response. It is disconcerting that, in spite of Haiti’s track record, it took close to four months of negotiations to bring to the Executive Board the request of access augmentation under the PRGF. Moreover, despite extremely difficult economic, social and political circumstances, repeated external shocks and important balance of payment needs, the augmentation was capped at the present ceiling for normal access under the PRGF (140 percent) and is being disbursed in two tranches.

The authorities are strongly committed to respecting the engagements taken for this third year of the program. However, the austerity of the program and the challenges or opposition it may face in its implementation need to be underscored. The program for FY09 leaves very little room to address the urgent post-hurricane reconstruction and humanitarian needs and has the potential to stifle future growth. The Fund should make good on its promise to show flexibility if the impact of the global crisis worsens or other external shocks make it necessary to recalibrate the parameters of the program.

The IMF’s traditional catalytic and signaling role also needs to be revisited. The staff report repeatedly and rightly underscores the tininess of donor support relative to Haiti’s increased needs following the serious infrastructure and crop destruction caused by natural disasters. Even though the government has scaled back considerably reconstruction and development investments, the financial gap remains substantial for FY09 (US$ 50 million) and the financing of the PRSP continues to be uncertain. The United Nation’s humanitarian flash appeal -- after back-to-back storms and hurricanes that had destroyed infrastructure and crops equivalent to about 15 percent of GDP -- led to the pledging and disbursement of the equivalent of only a little over 1 percent of GDP. Sustained donor support is crucial for maintaining economic, social and political stability, which has been achieved with large-scale financial and technical assistance coupled with strong international political support. We encourage the Fund to strengthen its efforts to disseminate information on Haiti’s impressive performance under the PRGF program and to help secure additional financial assistance. The success of the upcoming donors’ conferences in March and April 2009 will need to be measured not only by the level of new pledges but also by donors’ willingness to realign their programs to the nationally defined priorities and to design efficient aid delivery strategies.

The Haitian authorities are thankful to Haiti’s friends who have scaled up their financial and technical support in response to recent disasters. They are particularly appreciative of the IDB’s efforts to double its grant allocation for FY09. We urge bilateral donors as well as regional and multilateral donors (World Bank, IDB, EU) to revisit their traditional allocation benchmarks, to find innovative ways to increase their support to Haiti, and to adapt their aid programs to the new circumstances and the government’s strategy. We encourage the Fund’s management and our colleagues in the Board to stress to donors the need for an increased share of budget support in order to close the program’s financial gap. At the same time, donors should be urged to direct investment funding towards priority sectors defined in the PRSP, which the government is revising in light of the recent shocks. Any reluctance to work within the PRSP framework would not only be costly to Haiti, but could also be considered a setback to the IMF’s (and the World Bank’s) credibility as the PRSP approach has been adopted by Haiti with the support of the Bretton Woods institutions.

At the time of the third review of the PRGF, some Directors expressed concerns about the potential risk of Petrocaribe financing to debt sustainability, although these loans are highly concessional. The Haitian authorities are committed to the prudent management of external debt, but they wish to ensure that sound growth and poverty reduction opportunities are not needlessly forgone. It would not therefore be advisable to completely exclude debt contracting, especially when loans are highly concessional. Notwithstanding the important external shocks that hit the economy during the past year and Haiti’s strong track record, assistance in the form of grants has not been sufficiently forthcoming. During the period under review, Petrocaribe’s funds have not only allowed the observance of performance criteria, as staff observes, but have also been the main source of financing of the government’s emergency program to respond to the population’s immediate needs after the natural disasters. It would be important in future Debt Sustainability Analyses (DSAs) to take into account not only the amounts of debt contracted but also the quality of the investments these loans help finance, particularly in terms of offsetting some of the negative impact of shocks.

The challenges ahead are numerous and the downside risks to the program are indeed abundant. They stem chiefly from the indefinite length and severity of the global crisis and the unknown outcome of the upcoming donors’ conferences. The impact of the current decline in fuel prices on the flow of resources available through Petrocaribe is also a concern. On the upside, the absorptive capacity has been significantly increased and respectable growth levels can be expected if investment funds are made available and the HOPE initiative is fully exploited.

All completion point triggers are projected to be achieved by June 2009, with the exception of the one relating to the procurement law. Postponing the delivery of full debt relief, even if only by two months, will be very costly to Haiti. The delay in the submission of the procurement law to Parliament is mainly due to the political stalemate of 2008, and the authorities expect the draft law to be voted before the end of February. We call on the Boards of the World Bank and the IMF to be flexible on the length of implementation of the procurement law necessary to reach the completion point. It is important to recall that the procurement legislation has undergone significant transformations since 2004. The changes included in the draft legislation pending approval by Parliament are additional improvements the authorities are committed to implement in order to achieve international standards.