Statement of Anoop Singh, Director, IMF Western Hemisphere Department, at the Donors' Conference on Haiti

July 20, 2004

Statement of Anoop Singh
Director Western Hemisphere Department
International Monetary Fund
at the Donors' Conference on Haiti
Washington D.C., July 20, 2004

I. Introduction

1. Let me start by thanking the sponsors of this important conference. It comes at a crucial stage in the political and economic recovery of Haiti, to which we are all absolutely committed. I was very encouraged by the presentation that was just made by Prime Minister Latortue that augurs well for the success of this conference. His government's commitment to work closely with the international community to secure political and economic stability will help create the necessary opportunities for the Haitian people to build a better and more prosperous future.

2. We at the IMF are pleased that we have already been a part of this effort and are committed to working with the transition government and donors in the road ahead. We are developing a comprehensive strategy for Fund involvement and, toward this end, we have already begun to work intensively with the transition government. The challenge is clear: to develop a framework that would facilitate political and macroeconomic stability, strengthen governance, and ensure poverty reduction. Let me now go on to describe how we see the road ahead.

3. Yesterday's presentations on the economic setting and the humanitarian situation were sobering reminders of the tasks that lie ahead. The economic impact of the recent political crisis has been severe. The conflict resulted in property damage in both the public and private sectors that is now estimated at 5½ percent of GDP. Additional losses (including the loss of over 1,000 lives) have resulted from the devastating floods in the southeastern part of Haiti in late May. These events interrupted the progress that was being made under Haiti's last Staff Monitored Program (SMP) with the IMF in 2003. Under this last program, Haiti demonstrated its capacity to control inflation, stabilize the exchange rate, and contain fiscal pressures. While the political events resulted in the program moving off-track, the SMP's earlier success has helped provide an important basis for preserving macroeconomic stability through the recent transition.

4. The response of the transition government has been key to maintaining macroeconomic stability. Appropriately, the government has given high priority to containing fiscal pressures and avoiding inflationary financing. Its room for maneuver has been very small. With international reserves low, and aid disbursements yet to fully recover, the government has been forced to curtail sharply nonessential expenditures and implement an emergency spending plan. The authorities have also shown strong commitment to strengthen governance in the public sector and improve tax collection, and these efforts are expected to help improve the fiscal situation over time.

5. We believe that the government's commitment to macroeconomic stability and to creating the conditions for broader political and economic recovery deserve strong international support. The government has set a clear timetable for elections in 2005 and, as we have seen in other political transitions, macroeconomic stability is key to the orderly implementation of the political process. However, recent expenditure cuts have been very ambitious and have adversely affected the ability of the authorities to deliver basic public services. Moreover, there is a pressing need to restore security, rebuild key institutions, and rehabilitate infrastructure. Substantial resources will be required for these and other priority purposes, as well as to prepare the ground for fair and safe elections. There is no doubt that a concerted international effort is needed to help the authorities marshal the necessary resources, and it is a recognition of this fact that has brought us here today.

6. Let me now give a brief perspective on how I see the next steps and the role of the Fund in facilitating their achievement. As I have just indicated, the immediate priority is to relieve the pressing financing constraint on the government. In the short term, the fiscal authorities face a financing gap of up to US$71 million (2.0 percent of GDP) in the second half of the fiscal year, mostly to cover rehabilitation and reconstruction expenditures. Filling this gap will be essential for the authorities to balance critical social needs with financial stability. Moreover, additional external financial assistance will be required to facilitate clearance of World Bank arrears and to regularize arrears to other creditors. Early clearance of these arrears is important in order to normalize relations with the World Bank and restore full World Bank support for Haiti.

7. Meeting the short-run financing challenge while establishing a sound macroeconomic framework for building progressive economic recovery is at the core of the SMP that has just been agreed with Haiti. The new SMP is for a six-month period, basically covering the second half of the fiscal year that runs through September 2004, and provides the macroeconomic framework for the bilateral and multilateral financial support that will be needed in the period immediately ahead.

8. I can be brief in reporting on the essential objectives supported by the SMP, as my colleague yesterday explained the macroeconomic framework underlying it. The key priorities are to contain inflation at around 14 percent (six-month basis) and to strengthen the external position. Toward this end, monetary and fiscal policies have been agreed, and the exchange rate will remain flexible, although the central bank will need to maintain a disciplined monetary policy to achieve the inflation objective. Fiscal policy provides for some moderation of the spending cuts, provided international financing can be secured in a timely way to meet the projected gap. The authorities have shown a commendable determination to strictly limit inflationary financing from the central bank. At the same time, the authorities have begun to focus on improving governance and transparency in Haiti, which in the past have been significant impediments to sound, growth-enhancing policies. For this reason, the program also focuses on improving central government expenditure management and carrying out audits of public sector enterprises. A determined implementation of these measures will be essential for maintaining confidence of domestic and external stakeholders.

9. Looking forward, the current SMP will provide an important framework for the Fund's future support of Haiti. Under the Fund's guidelines, an SMP is intended to provide a basis for eventual access to IMF financial resources. Let me now share with you some early thoughts on how we see the roadmap ahead for Fund involvement in Haiti.

10. The authorities have already expressed interest in access to Fund resources, initially under the Fund's Emergency Post Conflict Assistance (EPCA). Provided economic developments evolve as anticipated under the SMP, our preliminary assessment is that Haiti's interest in EPCA assistance would likely be consistent with precedent. The Fund has provided EPCA assistance to nine countries since 1995, and Haiti's circumstances appear broadly in line with these other cases. Briefly, the EPCA's eligibility criteria include demonstrating that there is an urgent balance of payments need and that there has been a significant disruption to institutional and administrative frameworks, but that there remains the capacity for policy planning and implementation. In addition, emergency assistance from the Fund would need to be in the context of a concerted international effort in support of Haiti, a criterion that I have every confidence will be met.

11. Against this background, we hope to initiate discussions with the authorities toward EPCA assistance in the fall of this year, which would allow the associated program to be in place by the end of the year. Although it is too soon to specify the amount of financial assistance that could become available under the EPCA, the precedent of other countries suggests that such disbursements have averaged about 25 percent of quota. In Haiti's case, this would suggest financial assistance from the Fund of about US$30 million, with scope for a subsidized rate of charge, although a larger amount could be considered depending on circumstances.

12. Looking beyond a possible EPCA, there can be little doubt that the PRGF is best suited for Haiti's circumstances. As many of you are aware, the PRGF provides for concessional assistance from the Fund in the context of a country-owned, medium-term strategy for growth and development. A medium-term program under the PRGF also would help catalyze resources from the World Bank and the rest of the international community. Key pillars of such a program typically include a sound macroeconomic framework, pro-growth structural and sectoral policies, policies for social inclusion and equity, and improved governance and public sector management. The development of such a program, however, requires a broad participatory process. In Haiti's case, this consideration, as well as the need to secure medium-term policy commitments, suggests that a PRGF could be considered following the 2005 elections.

13. I am confident that, with the help of the international community, Haiti can establish a successful basis for sustained growth and poverty reduction. Certainly, the authorities are off to a good start toward preserving macroeconomic stability under difficult circumstances. Looking forward, it is clear that political stability and good governance will be vital pre-requisites for sustained progress toward sustained improvements in the welfare of the Haitian people, and we welcome the new authorities' evident commitment to these goals. The international community has a critical role to play in supporting the authorities' efforts, and I can assure you that the IMF will continue to do its part to work with both the transition government and donors to promote macroeconomic stability, sustainable growth, and a sound institutional framework.


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