IMF Press Release No. 10/299

The Exec­u­tive Board of the Inter­na­tional Mon­e­tary Fund (IMF) today approved the full can­cel­la­tion of Haiti’s out­stand­ing lia­bil­i­ties to the Fund, of about SDR 178 mil­lion (equiv­a­lent to US$268 mil­lion). The Board also approved a new three-year arrange­ment for Haiti under the Extended Credit Facil­ity (ECF) requested by the author­i­ties to sup­port the country’s recon­struc­tion and growth program.

Both deci­sions form part of a broad strat­egy to sup­port Haiti’s longer term recon­struc­tion plans, fol­low­ing the dev­as­tat­ing earth­quake of Jan­u­ary 12, 2010. The can­cel­la­tion of exist­ing debt was advo­cated by IMF Man­ag­ing Direc­tor Dominique Strauss-Kahn in the days fol­low­ing the dis­as­ter as part of a con­certed inter­na­tional effort to launch a “Mar­shall Plan” for the recon­struc­tion of the coun­try. The new pro­gram pro­vides a strong and forward-looking frame­work to sup­port eco­nomic sta­bil­ity and recon­struc­tion in the coun­try, and will also help cat­alyze donors’ contributions.

“Donors must start deliv­er­ing on their promises to Haiti quickly,” Mr. Strauss-Kahn said, “so recon­struc­tion can be accel­er­ated, liv­ing stan­dards quickly improved, and social ten­sions soothed.” At a high-level donors’ con­fer­ence in March, the inter­na­tional com­mu­nity pledged US$ 9.9 bil­lion to Haiti’s recon­struc­tion, of which US$ 5.3 bil­lion is to be dis­bursed over the next 18 months.

Resources freed by IMF debt relief will help Haiti to meet sub­stan­tial balance-of-payments needs exac­er­bated by the earth­quake. The debt relief is financed by the Post-Catastrophe Debt Relief (PCDR) Trust Fund, recently estab­lished by the Fund to help very poor coun­tries hit by cat­a­strophic nat­ural dis­as­ters (see attached factsheet).

The new ECF arrange­ment will pro­vide SDR 40.9 mil­lion (about US$ 60 mil­lion) over three years to boost Haiti’s inter­na­tional reserves and help the cen­tral bank man­age poten­tial swings in the value of the local cur­rency — impor­tant to avoid raises in the prices of basic com­modi­ties con­sumed by the poor — with­out adding to the country’s net debt. Financ­ing under the ECF car­ries a zero inter­est rate until end-2011 and there­after zero to 0.5 per­cent, with a matu­rity of 10 years and a grace period of 5½ years. The tem­po­rary inter­est waiver is part of the pack­age that was approved in July 2009 to sup­port the IMF’s lend­ing to low-income coun­tries, financed from the IMF’s inter­nal resources, includ­ing the use of resources linked to the gold sales, and through bilat­eral con­tri­bu­tions (see Fact­sheet “Financ­ing the Fund’s Con­ces­sional Lend­ing to Low-Income Coun­tries”). The new pro­gram also includes impor­tant pol­icy com­mit­ments from the author­i­ties that will help pro­tect macro­eco­nomic sta­bil­ity, and strengthen fis­cal governance.

“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,” Haiti’s Min­is­ter of Econ­omy and Finance Ronald Baudin said.

Tech­ni­cal Assistance

The IMF will also pro­vide a com­pre­hen­sive medium-term tech­ni­cal assis­tance pro­gram aimed at strength­en­ing state insti­tu­tions, con­cen­trat­ing in the areas of tax poli­cies, rev­enue admin­is­tra­tion, bud­get prepa­ra­tion and exe­cu­tion, and help­ing the coun­try in orga­niz­ing its first ever issuance of gov­ern­ment securities.

“Improv­ing the busi­ness envi­ron­ment and fos­ter­ing pri­vate credit and invest­ment will be essen­tial to sup­port growth,” Charles Cas­tel, Gov­er­nor of the Bank of the Repub­lic of Haiti said. “The Fund’s tech­ni­cal assis­tance will help rebuild eco­nomic insti­tu­tions and build capacity.”

Fol­low­ing the Exec­u­tive Board dis­cus­sion on Haiti, Mr. Naoyuki Shi­no­hara Deputy Man­ag­ing Direc­tor and Act­ing Chair, issued the fol­low­ing statement:

“The Jan­u­ary 2010 earth­quake was dev­as­tat­ing for Haiti, after sev­eral years of progress in main­tain­ing eco­nomic sta­bil­ity, resum­ing growth, and imple­ment­ing essen­tial reforms. The author­i­ties are to be com­mended for good pol­icy imple­men­ta­tion in the six-month period since the earth­quake, in spite of lim­ited finan­cial resources and weak­ened capacity.

“Haiti meets the eli­gi­bil­ity and qual­i­fi­ca­tion con­di­tions for debt stock relief under the PCDR Trust Fund. Resources freed by debt stock relief under the PCDR Trust Fund are crit­i­cal to meet­ing the large and pro­tracted balance-of-payments needs exac­er­bated by the earth­quake and sub­se­quent recov­ery efforts, and to plac­ing Haiti’s debt on a sus­tain­able path. Debt relief from the Fund is part of a con­certed inter­na­tional effort to can­cel Haiti’s remain­ing debt after the earthquake.

“The newly approved ECF-supported arrange­ment pro­vides a coher­ent macro­eco­nomic frame­work to sup­port the author­i­ties’ recon­struc­tion and growth objec­tives. The macro­eco­nomic out­look, and imple­men­ta­tion of the author­i­ties’ recon­struc­tion plan, depends cru­cially on the timely dis­burse­ment of the large donor pledges. Fur­ther­more, improve­ments in infra­struc­ture and the busi­ness envi­ron­ment will be essen­tial to raise medium-term growth, by attract­ing pri­vate invest­ment and expand­ing the export base. The estab­lish­ment of a par­tial credit guar­an­tee fund will help restart pri­vate sec­tor credit

“The Fund-supported pro­gram aims at smooth­ing 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. Fis­cal objec­tives are to raise domes­tic rev­enue, align the bud­get and its financ­ing with recon­struc­tion pri­or­i­ties, and con­tinue strength­en­ing fis­cal gov­er­nance. Mon­e­tary and exchange rate poli­cies will be upgraded to facil­i­tate the absorp­tion of aid inflows, while avoid­ing large swings in the exchange rate and keep­ing infla­tion under con­trol The pro­gram is sup­ported by a com­pre­hen­sive medium term tech­ni­cal assis­tance strat­egy, coor­di­nated with Haiti’s devel­op­ment partners.”

ANNEX

Recent Eco­nomic Developments

The earth­quake of Jan­u­ary 12, 2010 caused unprece­dented destruc­tion of human and phys­i­cal cap­i­tal, with losses esti­mated at 120 per­cent of 2009 GDP. The dis­as­ter struck the coun­try at a time when its out­look was improv­ing after sev­eral years of pru­dent macro­eco­nomic man­age­ment. In 2009, Haiti’s growth reached almost 3 per­cent, the second-fastest rate in the West­ern Hemisphere.

A still frag­ile recov­ery is tak­ing place after the earth­quake. Agri­cul­tural pro­duc­tion, con­struc­tion and tex­tile man­u­fac­tur­ing are sup­port­ing eco­nomic activ­ity, while remit­tances, which grew by 12 per­cent between Jan­u­ary and May of 2010 (over the pre­vi­ous year), are sup­port­ing con­sump­tion and imports. Exports are recov­er­ing, although the trade deficit is still widening.

Main Pro­gram Objectives

The pro­gram is focused on macro­eco­nomic poli­cies that can sup­port growth and the Hait­ian author­i­ties’ recon­struc­tion plan, as well as help man­age the aid inflows. It includes improv­ing the effi­ciency and trans­parency of spend­ing, increas­ing rev­enues, mod­ern­iz­ing mon­e­tary and exchange rate oper­a­tions, and enhanc­ing credit growth.

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: to boost rev­enue col­lec­tion to 13 per­cent of GDP by 2013, from 10% per­cent cur­rently. The author­i­ties’ objec­tive is to enhance the qual­ity and effec­tive­ness of recon­struc­tion spend­ing and rebuild a more mod­ern and effi­cient tax administration.

Mon­e­tary pol­icy: the pro­gram aims at build­ing a sus­tain­able exter­nal posi­tion while absorb­ing the reconstruction-related for­eign exchange flows. To enhance the effec­tive­ness of mon­e­tary pol­icy, fur­ther steps will be taken to improve the Bank of the Repub­lic of Haiti’s inde­pen­dence. The author­i­ties also aim at grad­u­ally devel­op­ing a mar­ket for gov­ern­ment securities.

http://www.imf.org/external/np/sec/pr/2010/pr10299.htm