Statement at Donor Meeting

Haiti -- Donors' Meeting in Port-au-Prince, Statement by Przemek Gajdeczka, Advisor, Western Hemisphere Department, IMF

July 25, 2006

I. Introduction.

1. Objectives. This donor’s conference provides a timely and important occasion for the international community to express its commitment in support of the political and economic renewal of Haiti. This can be an important turning point in Haiti’s turbulent history, and a strong and focused continued engagement of the international community is crucial. We have been encouraged by the President’s commitment to entrench recent reforms, focus on the needs of Haiti’s poor, and improve the security situation. These are important preconditions to get the economy growing and to improve the country’s prospects for sustainable higher living standards over time. We at the IMF have been pleased to be part of the effort thus far to stabilize the economy, and we look forward to continued and intensified involvement. The main objective of our engagement will be to enable higher economic growth through a set of focused reforms aimed at securing macroeconomic stability and strengthening institutional capacity needed to support the development of social and economic infrastructure.

II. The Setting.

2. Better policies. The transition government made an important contribution by stabilizing the economy, and improving governance and transparency in public sector operations. Reliance on central bank financing of the budget and the use of ministerial current accounts were reduced dramatically, government budgets were approved before the start of the fiscal year, annual auditing of government accounts resumed, and information on budget execution was published on the government’s website. Revenue buoyancy and lower-than-anticipated spending to date could reduce the budgetary gap through September 2006, although the authorities have expressed their confidence that spending on the programme d’apaisement social and other projects would to leave the budgetary gap at US$18.5 million as previously estimated. Also, I am glad to report that the macroeconomic program established with the support of Fund Emergency Post-Conflict Assistance remains on track. Finance Minister Dorsainvil recently confirmed that, according to available preliminary data, the end-June indicative targets have been met comfortably. IMF staff projections suggest that end-September targets are also likely to be met.

3. Better outcomes. These efforts were fruitful and macroeconomic stability has been strengthened. Although exports have slowed, after a very good performance in 2005, and credit to the private sector has weakened somewhat, construction and manufacturing have strengthened. Inflation has eased to 14 percent per year; while this is still well above the original program’s end-September target of 10 percent, the authorities expect a further gradual decline supported by stable fiscal and monetary conditions. The gourde has remained broadly stable, and net international reserves are around US$115 million at end-June, well above target.

4. External support. These achievements required tight fiscal discipline, including on the part of the new government. But at the same time, it is clear that the new government’s agenda of reform, particularly in the crucial area of social spending, cannot be fully carried out without additional external financing. In particular, the financing needs include direct external budgetary assistance, or, alternatively, donor support for specific budget items (e.g., Canada covered debt-service payments to the IDB).

5. Financing needs. Even assuming a relatively tight fiscal stance, the budgetary gap for FY 2006/07 is estimated to be in the order of US$112 million. A number of donors have expressed their intentions, and potential budget support could be US$35 million. Preliminary estimates of HIPC interim assistance--if approved by the IMF and World Bank Boards--could be US$14 million in the first year, and other potential contributions could be US$22 million. If realized, these contributions would leave a remaining gap of around $41 million. As I said, meeting these needs will be essential if the authorities are to balance critical social and security needs with continued financial stability. Also, filling the financing gap is a precondition for approval of a program supported by the Poverty Reduction and Growth Facility (PRGF) by the IMF.

III. The Road Ahead and the Role of the IMF

6. Fund support. Building on two successfully-implemented EPCA programs, the Fund is working diligently with the new government on a PRGF-supported program and participation in HIPC. At the authorities’ request, Fund staff visited Haiti in June to begin discussions on a program that could be supported by the PRGF. Good progress was made toward a broad outline for the 2006/07 budget, a macroeconomic framework for the medium term, and a structural reform agenda. Following this conference, we will have additional discussions on the draft budget, and another mission is envisaged to conclude program discussions in late August. If everything falls in place, a PRGF arrangement could be considered by the IMF Executive Board in October.

7. PRGF.The PRGF-supported program will focus on sustaining macroeconomic stability through fiscal discipline and prudent monetary policy. More specifically, strengthening revenues will be necessary to underpin increases in social spending and public investment. Structural reforms will aim at strengthening economic governance, enhancing the efficiency of the financial system, and creating conditions for private sector-led growth. Sound macroeconomic policies, sustained donor support and rising private sector investment could enable medium term real GDP growth of 4 percent per year, similar to the level achieved in the 1970s. the amount of subisidized financial assistance to be provided under the PRGF has yet to be determined, but could amount to as much as US$70 million, spread over the three years of the arrangement.

8. Technical assistance. The program will also be accompanied by substantial technical assistance from the IMF. Our technical assistance will be largely in public sector financial management, financial sector reform, monetary policy, and central bank recapitalization. Moreover, the IMF and World Bank are planning to conduct a comprehensive Financial Sector Assessment in Haiti early in 2007; this should provide a number of useful recommendations that will be incorporated into the PRGF-supported program thereafter.

9. HIPC/MDRI. The IMF team also discussed with the authorities, together with World Bank staff, possible completion point triggers for Haiti’s participation in the enhanced Heavily-Indebted Poor Countries Initiative. In the past months, the authorities worked intensively with the two staffs to reconcile debt data with creditors, and the staffs have now produced a draft preliminary HIPC document which is now under internal review in both institutions. The preliminary HIPC document will propose completion point triggers that must be set at the stage of the decision point. Consideration of the preliminary document by the two Executive Boards is scheduled for early September, and the HIPC decision point could be considered simultaneously with approval of the PRGF arrangement. After the HIPC completion point—typically two-three years down the road—Haiti could become eligible for a Multilateral Debt Relief Initiative (MDRI) which could lead to a further substantial reduction in Haiti’s external debt.

IV. Conclusion

10. In conclusion, please let me reiterate the IMF’s support for Haiti. Two years ago at the donor’s conference that established the Interim Cooperation Framework, we expressed confidence "that, with the help of the international community, Haiti can create the conditions over the next two years that would lead to the successful adoption of a program under the PRGF." Indeed, in the past two years the authorities made significant progress toward restoring macroeconomic stability under difficult circumstances, and we are about to conclude program discussions.

11. Looking forward, it will be essential that the authorities sustain macroeconomic stability based on fiscal discipline, stay the course of economic reform, and make further substantial progress in improving transparency and governance in the public sector. I am confident that vigorous pursuit of the reform agenda will help mobilize generous support of the international community, which will be necessary if Haiti is to create the conditions over the next few years that will lead to more stability and security, higher sustainable growth, and perceptibly higher living standards. Within the bounds of its mandate, the IMF is determined to do its utmost to help to make this happen.