Press Release: IMF Executive Board Cancels Haiti's Debt and Approves New Three-Year Program to Support Reconstruction and Economic Growth

IMF News, July 21, 2010

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Canonical URL: Press Release: IMF Executive Board Cancels Haiti's Debt and Approves New Three-Year Program to Support Reconstruction and Economic Growth

The Executive Board approved full cancellation of Haiti’s outstanding liabilities to the Fund, of about SDR 178 million (equivalent to US$268 million).
The Board approved a new three-year arrangement for Haiti under the Extended Credit Facility (ECF) to support reconstruction and growth.
Both decisions form part of a broader strategy to support Haiti’s longer term reconstruction plans following the January 12, 2010 earthquake.
Cancellation of existing debt was advocated by IMF Managing Director Dominique Strauss-Kahn to help launch a “Marshall Plan” for reconstruction and to catalyze donor contributions.

Donor pledges at a high-level conference: US$ 9.9 billion pledged for Haiti’s reconstruction, of which US$ 5.3 billion is to be disbursed over the next 18 months.
Debt relief financing: the Post-Catastrophe Debt Relief (PCDR) Trust Fund.
ECF financing: SDR 40.9 million (about US$ 60 million) over three years to boost international reserves and help the central bank manage currency swings without adding to net debt.
ECF interest and repayment terms:
- Interest rate: zero interest rate until end-2011 and thereafter zero to 0.5 percent.
- Maturity: 10 years.
- Grace period: 5½ years.
The temporary interest waiver is financed from the IMF’s internal resources, including the use of resources linked to the gold sales, and through bilateral contributions.

Resources freed by IMF debt relief are intended to help meet substantial balance-of-payments needs exacerbated by the earthquake.
The new program aims to:
- Provide a coherent macroeconomic framework to support the authorities' reconstruction and growth objectives.
- Smooth the impact on the economy of large expected aid flows (projected to triple to about 15 percent of GDP over in the next 3 years).
- Raise domestic revenue, align the budget and its financing with reconstruction priorities, and continue strengthening fiscal governance.
- Upgrade monetary and exchange rate policies to facilitate absorption of aid inflows while avoiding large exchange rate swings and keeping inflation under control.
- Support a comprehensive medium-term technical assistance strategy.

The IMF will provide a comprehensive medium-term technical assistance program focused on:
- Tax policies.
- Revenue administration.
- Budget preparation and execution.
- Assisting with Haiti’s first ever issuance of government securities.
Technical assistance aims to strengthen state institutions, improve the business environment, and foster private credit and investment.

Dominique Strauss-Kahn: urged donors to deliver quickly so reconstruction can be accelerated, living standards improved, and social tensions soothed.
Ronald Baudin, Haiti’s Minister of Economy and Finance: “The new program will provide a coherent macroeconomic framework to support the implementation of our Action Plan and ensure efficient spending and absorption of aid inflows.”
Charles Castel, Governor of the Bank of the Republic of Haiti: emphasized improving the business environment and rebuilding economic institutions to support growth.
Naoyuki Shinohara, Deputy Managing Director and Acting Chair, highlighted eligibility for PCDR debt stock relief and stressed the dependence of reconstruction on timely disbursement of donor pledges.

Earthquake losses: estimated at 120 percent of 2009 GDP.
2009 growth: almost 3 percent (second-fastest rate in the Western Hemisphere).
Remittances: grew by 12 percent between January and May of 2010 (over the previous year).
Aid inflows: projected to triple to about 15 percent of GDP over in the next 3 years.
Main program projections and targets:
- Growth: GDP is projected to expand by 9 percent in fiscal year 2011-12, due mostly to reconstruction activity, and 6 percent by 2015.
- Inflation: expected to reach 8.5 percent in the current fiscal year and to decline to 7 percent by 2013.
- Fiscal strategy: boost revenue collection to 13 percent of GDP by 2013, from 10% percent currently.
- Monetary policy: build a sustainable external position while absorbing reconstruction-related foreign exchange flows; further steps to improve the Bank of the Republic of Haiti’s independence; gradual development of a market for government securities.

IMF Press Release No. 10/299, July 21, 2010