Typical street scene in Santa Ana, El Salvador. (Photo: iStock)
July 21, 2010
The IMF Executive Board approved new debt relief for Haiti and additional financial support for the Caribbean nation as it rebuilds after a devastating earthquake struck in January.
IMF debt relief is part of the global effort to help Haiti rebuild after the January 12 earthquake (photo: Carl Juste/Miami Herald)
DEBT RELIEF FOR HAITI
Within days of the earthquake IMF Managing Director Dominique Strauss-Kahn called for a Marshall plan for Haiti, and promised to work with all donors to help cancel Haiti’s debt.
The July 21 decision to deliver new debt relief of $268 million cancels all of Haiti’s outstanding debt to the IMF and was granted under the Post Catastrophe Debt Relief Trust Fund. The debt relief is part of a broad international effort to alleviate the country’s debt burden following the disaster.
“Donors must start delivering on their promises to Haiti quickly,” Strauss-Kahn said, “so reconstruction can be accelerated, living standards quickly improved, and social tensions soothed.”
The decision adds to the $1.2 billion of debt relief for Haiti delivered by the IMF and other financial organizations in June 2009 under the Heavily Indebted Poor Countries and Multilateral Debt Relief Initiatives.
In the days after the devastating earthquake hit the Caribbean country, the IMF responded rapidly to Haiti’s needs, and quickly approved $114 million in assistance, the first international organization to provide financial support in the aftermath of the quake.
The money was used to get cash circulating in the economy so that people could buy food and employees could be paid. The funds were also used to allow Haiti to pay for urgently needed imports.
The IMF also provided immediate technical assistance to help restore the government’s capacity to collect revenue, and better manage its limited resources.
IMF continues to help aid flow to Haiti
Today’s decision by the IMF supports Haiti’s 10-year plan to rebuild the country and raise economic growth. The new three-year arrangement under the Extended Credit Facility will help release donor support by ensuring economic stability and fostering transparent use of the funds promised by the international community.
“The IMF support will act as catalyst for other donors, and our program has a number of objectives to increase growth, which we expect to reach 10 percent next year,” said Ronald Baudin, Haiti’s Finance Minister, in a conference call with reporters after the IMF announcement.
Baudin said the focus would be to rebuild the country’s economic infrastructure to attract companies back to Haiti to develop the textiles and tourism industries, which would create jobs for Haitians and add to the overall economic growth of the country.
The program includes extensive technical assistance to help increase domestic revenue, align the budget with reconstruction priorities and create a domestic Treasury bill market. Better reporting will increase the transparency of public spending.
The program also provides an additional $60 million in reserves to the central bank, so that it can intervene to avoid excessive fluctuations in Haiti’s currency, the gourde, stemming from potentially volatile flows of foreign aid into the country.
Swings in Haiti’s currency could cause further suffering for the country by affecting the value of remittances, as well as the price of staple items and imported commodities.
The IMF is the only international organization mandated to provide this kind of help to maintain a country’s financial stability.
The funds are provided at zero interest rate until the end of 2011 and thereafter zero to 0.5 percent, with a maturity of 10 years and a grace period of 5½ years, and will be held in reserves by the central bank.
Support for reconstruction
In March at a United Nations donors’ conference, Strauss-Kahn encouraged donors to provide Haiti with the $350 million in budget support needed in 2010, according to IMF forecasts.
Although donors promised large amounts of resources for reconstruction, a small share of these funds has been disbursed. In particular, lack of funds to support the government’s budget has prevented delivery of basic services to the population, including relocation of displaced and homeless families, preparation for the new school year in September, and the ongoing hurricane season.
The IMF will help the government rebuild its capacity to prepare and execute the budget and align it with reconstruction priorities. It will also support government efforts to improve revenue collection.
Details on government expenditures and revenue collection efforts will be reported regularly on the website of the Ministry of Finance, including poverty-reduction and investment spending. These improvements will help international aid agencies better channel funds to Haiti.
In the financial sector, the IMF is helping Haiti establish a Partial Credit Guarantee Fund to restart credit and create jobs, develop a domestic government bonds market, and design regulations for the insurance industry.
