IMF Survey: IMF Plans Additional Help for Haiti

IMF News, June 6, 2008

Source details

The IMF maintained a permanent presence in Port-au-Prince through its Resident Representative and fielded several missions to discuss Haiti's needs and how the IMF can help.
The IMF modified Haiti's program targets to accommodate crisis spending proposed by the government, initially consisting mainly of a temporary subsidy on the price of rice.
Government programs providing more targeted assistance are being scaled up, including school food programs and public works employment, and programs to stimulate domestic food production.
Monetary policy and targets for the accumulation of official reserves were adjusted to help limit inflationary spill-over from higher international food and fuel prices to other domestic prices.
The IMF planned to 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 is intended to help soften the economic adjustment needed to correct Haiti's external imbalances caused by higher costs for food and fuel imports.

The IMF worked with other international financial institutions and bilateral donors to catalyze aid and to figure, together with the Haitian authorities, the financing needed to implement the planned budget and emergency measures.
For many donors, maintaining macroeconomic stability and its monitoring, undertaken by the IMF, are pre-conditions for their disbursements to Haiti.

Haiti, as a large net importer of food, was particularly affected by the sharp rise in international prices, which imposed enormous hardship and had a significant impact on domestic inflation and widened the trade deficit.
At the time of tariff reductions in the mid-1990s, inflation had accelerated to more than 40 percent, motivating authorities to reduce tariffs on rice and other foodstuffs to address the high cost of living.

Tariff reductions on rice occurred 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 proposing broad tariff reform and reducing 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 signed an agreement with the IMF in March 1995, after these tariff reductions were decided.
The IMF states it was supportive of general trade liberalization but not specifically on rice, and asserts it was not involved in decisions on schedules and rates for rice tariffs.

The decline in rice and other agricultural products reflects more fundamental problems, including:
- Poor rural infrastructure (irrigation, roads) due to faltering investment.
- Lack of adequate inputs.
- A poor business environment due to political and social tensions and uncertainty.
Public investment improvements were noted, with domestically financed investment reported as up by almost 140 percent in the first half of Haiti's fiscal year; such public investments are seen as key to overcoming bottlenecks for private sector activity, including agriculture.

The recently completed poverty reduction strategy paper (PRSP) provides a roadmap for strengthening social services, expanding infrastructure, and cultivating areas for growth and job creation; implementation with support from development partners and civil society would boost development prospects.
The IMF emphasizes the need for continued international engagement and political stabilization to allow authorities to focus on medium-term policies for stimulating growth and employment.

Haiti was benefiting from interim debt relief from the IMF associated with HIPC; combined with the Paris Club and others, Haiti was 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 would 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.
These measures 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 were working with the authorities to support implementation of the required conditions for the HIPC completion point, which the authorities hoped 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."

Source: IMF Survey: IMF Plans Additional Help for Haiti