Haiti’s Musical Chair Chafing

Haitian musician Martelly was inaugurated as President after an outsize election victory despite slim turnout and declared the island “open for business” in his accompanying address as an historic first peaceful party transfer took place. However, as he names his government and attempts to introduce new laws and policies to reinvigorate immediate rebuilding and long-term anti-poverty efforts, his grouping is a minority in parliament and more forceful judicial review could also act as a check. As he entered office the IMF, which extended a $40 million adjustment loan as part of donors’ 2-year $5.5 billion package, completed an initial assessment of program implementation which cited delays despite overall solid commitment and performance.  Outside debt relief, less than one-third of the aid has been disbursed awaiting the poll results, and dedicated reconstruction has been “slow,” according to the document. GDP decline in fiscal year 2010 was 5 percent compared with the original 8.5 percent estimate as agriculture stabilized, while inflation is over 7 percent on higher food and fuel costs which spurred riots under the Preval administration. The budget deficit excluding grants was 5 percent on better tax collection, and the current account gap also improved to 2.5 percent of GDP as international reserves topped $1 billion. Since last September the currency has appreciated 5 percent, and private sector credit has increased by the same figure on good bank liquidity and profitability indicators. Retail petroleum costs were hiked 30 percent in March to reflect global trends without social unrest, although inflationary pressure and exchange rate softening could follow. Next year’s public investment spending for post-earthquake related and humanitarian purposes will be financed in part from the Petrocaribe loan arrangement with Venezuela, with $200 million still in the account after Caracas cancelled twice that amount in outstanding obligations.

The central bank will be repaid through special bond issuance for old finance ministry borrowing as Treasury bill and broader government securities markets take shape with outside technical assistance. Foreign exchange trading will also be modernized, and a law on monetary authority independence will be introduced by year-end. A medium-term debt strategy should be devised as non-concessional access evolves, and officials have already committed to overhauling the state electricity network to stem losses and prepare for a new Northern industrial park which has emerged as the main showpiece post-disaster venture. Land title and business registration reform are likewise on the priority list to move up in World Bank rankings as President Martelly presses to realize a campaign promise of moving voters into durable housing and jobs.