Typical street scene in Santa Ana, El Salvador. (Photo: iStock)
June 6, 2008
The IMF is planning additional assistance for Haiti, which has been badly affected by the recent sharp rise in commodity prices.
Market in Port-au-Prince, Haiti, where food shortages earlier this year provoked civil unrest (photo: Eric Thayer/Getty Images)
HIGHER FOOD PRICES
The IMF Survey magazine spoke to the IMF's Andreas Bauer and Laure Redifer about how the Fund is helping the government in Port-au-Prince tackle the crisis. They also respond to criticisms of the IMF's role.
IMF Survey online: How is the IMF helping Haiti address soaring prices, increase national food production, and create jobs?
Bauer: As a large net importer of food, Haiti has been particularly affected by the sharp rise in international prices, which continues to impose enormous hardship on the country's population. This shock has also had a significant impact on domestic inflation and caused a widening of the trade deficit.
The IMF has worked closely with the authorities, maintaining a permanent presence in Port-au-Prince through our Resident Representative—including during the time of the riots—and fielding several missions to discuss Haiti's needs and how we can help.
In response to the shocks, we have modified Haiti's program targets to accommodate crisis spending proposed by the government. Initially, this consisted mainly of a temporary subsidy on the price of rice.
Since then, government programs providing more targeted assistance to the most vulnerable people are being scaled up, including school food programs and public works employment, as are programs to stimulate domestic food production. Monetary policy and targets for the accumulation of official reserves are also being adjusted to help limit the inflationary spill-over of increased international food and fuel prices to all other prices in the economy. This is important, because higher overall inflation will worsen the situation of the poor even more.
Beyond these modifications to the design of the Fund-supported program, we will propose to the IMF Executive Board in the coming days a significant increase in our financial support to Haiti under the Poverty Reduction and Growth Facility. The disbursement of additional financial resources will help soften the economic adjustment needed to correct Haiti's external imbalances, which have been brought about by the much higher cost for food and fuel imports.
IMF Survey online: The IMF has said it is deeply concerned about the social impact of higher food prices and firmly committed to support efforts to ease this burden. How is the IMF working with other agencies to increase assistance for Haiti?
Redifer: The IMF is very worried about the negative consequences of higher commodity prices for the population and the economy. We are therefore firmly committed to stay engaged with Haiti through this difficult period, in order to help limit human suffering, safeguard the economic gains achieved in the past years, and create the conditions that will allow sustainable growth and jobs creation to take hold.
In this context, we are working with other international financial institutions and bilateral donors to catalyze aid. Our main focus is to figure, together with the Haitian authorities, the financing needed to implement the planned budget and emergency measures, and communicate this to donors so that they can step up support accordingly. For many donors, maintaining macroeconomic stability and its monitoring, which is undertaken by the IMF, are pre-conditions for their disbursements to Haiti.
IMF Survey online: Some critics have said that the IMF's focus on trade liberalization has undermined food security. Has this made things worse in Haiti?
Bauer: We are aware of claims that the IMF "forced" Haiti to reduce tariffs and even to abandon agricultural production, particularly for rice. This is not true, and it is important to get the facts right. The liberalization that brought tariffs on rice down to current levels took place in two steps in the mid-1990s.
In November 1994, the tariff on rice was reduced by the government from 50 percent to 10 percent. A law that proposed a broad tariff reform and reduced the tariff on rice further from 10 to 3 percent was submitted by the authorities to Parliament in December 1994, and approved in January and February 1995.
Haiti only signed an agreement with the IMF in March 1995, after these tariff reductions were decided.
IMF Survey online: Even if tariff reductions were initiated by Haiti before an IMF-program was in place, did the Fund in fact encourage tariff reductions for rice?
Bauer: The IMF was supportive of trade liberalization in general but not specifically on rice, and we were not involved in any decisions taken on schedules and rates. Our institution's support for general trade liberalization—in both developed and developing countries—reflects the clear evidence that countries open to trade do better and grow faster than countries with restrictive regimes.
In the specific case of rice in Haiti, it was the high cost of living that motivated the authorities to reduce tariffs, even before broader tariff reform was undertaken. At the time, inflation had accelerated to more than 40 percent and was causing considerable hardship. Reducing the tariffs on rice and other foodstuffs provided an avenue for the authorities to address the situation.
IMF Survey online: So why has rice production lagged in Haiti?
Redifer: It is not just rice, but many agricultural products that have been in decline, including export crops. This suggests the presence of more fundamental problems that have contributed to a steady decline in competitiveness, including factors such as poor rural infrastructure (irrigation, roads) due to faltering investment, lack of adequate inputs, and more generally a poor business environment due to political and social tensions and uncertainty.
IMF Survey online: What are Haiti's prospects now? What are the chances for economic recovery in the country?
Redifer: The authorities have made remarkable progress in a number of areas. For example, budget execution, a weak point in the past, has improved considerably. As a consequence, domestically financed investment was up by almost 140 percent in the first half of Haiti's fiscal year. These public investments are key to help overcome bottlenecks for private sector activity, including in the agricultural sector, and to reap the potential benefits that expanded U.S. trade preferences could provide for textile exports.
The recently completed poverty reduction strategy paper (PRSP) provides a roadmap for strengthening social services, expanding infrastructure, and cultivating potential areas for growth and job creation. Its implementation by the government, with broad support from international development partners and the civil society, would provide an important boost to Haiti's development prospects.
We must keep in mind that the international community must remain engaged to help Haiti get through this difficult time. Stabilization of the political situation will also be essential in order for the authorities to retain the needed focus on implementing medium-term policies for stimulating growth and employment. [For more on Haiti's medium-term growth prospects and challenges see the 2007 IMF Article IV consultation staff report]
IMF Survey online: What are Haiti's prospects for full relief of its debts with international institutions?
Bauer: Haiti is already benefiting from interim debt relief from the IMF associated with HIPC. Combined with the Paris Club and others, Haiti is being provided with about $24 million in debt relief and debt rescheduling for this fiscal year, reducing its debt service by a third.
Once the HIPC completion point is reached, Haiti will benefit from a debt stock reduction under the enhanced HIPC initiative, MDRI, additional bilateral assistance, and quasi-MDRI assistance provided by the Inter-American Development Bank.
This would roughly halve the stock of Haiti's debt in net present value terms, and lead to a further reduction in debt service. The IMF and the World Bank are working closely with the authorities to support them in the implementation of the required conditions for the HIPC completion point, which they hope to achieve as quickly as possible after November 2008, which is when Haiti will have reached its first anniversary for implementing a poverty reduction strategy.
Comments on this article should be sent to imfsurvey@imf.org
