Haiti’s Ineluctable Election Tremors
As its post-earthquake IMF program ends with a request for a year extension, Haiti is finally gearing up for long-postponed senate and municipal which may further erode the President’s lack of majority support for priority economic legislation with structural reforms already blocked. The fiscal year 2013 GDP growth forecast has been halved to 3 percent on weather-related agricultural drag on inflation double that number. Trade has gone into deficit but aid and remittance inflows pushed reserves to five months import coverage. The currency has depreciated slightly against the dollar and the central bank has raised non-gourde reserve requirements to redress the trend and mounted $100 million in interventions recently. Private credit expanded 25 percent through mid-year from a low base with the average bank capital adequacy ratio at 15 percent. The budget gap is over 5 percent of GDP with government debt kept below a 30 percent ceiling under domestic and external borrowing, including through Treasury bill and Venezuela’s Petrocaribe oil purchase facility. Tax collection has lagged, energy subsidies are costly, and a debt management strategy is absent, according to the Fund’s latest inspection, which also encouraged greater exchange rate flexibility and trading competition. The financial sector still lacks a collateral law, commercial and supervisory regimes for insurance and microfinance, and stock exchange plans which could align with the cross-border Caribbean platform. The Dominican Republic bourse on the same island features corporate fixed-income listings as another possible link, as the sovereign placed a $1 billion external bond in April without IMF arrangement renewal. With the infusion reserves hit $4 billion on the way to the goal of meeting three import months. Economic growth is around 2 percent on solid tourism performance and lower interest rates. Gold finds have boosted exports, but mining rule shifts may alienate foreign companies and undermine the effort to achieve public sector fiscal balance by mid-decade. Electricity shortages remain chronic and the central bank has yet to be recapitalized despite a 2007 enabling law.
Trinidad and Tobago was ahead 15 percent on the MSCI frontier index at end-July on lackluster 1 percent GDP growth and 2 percent inflation, with the hydrocarbon-backed current account surplus conspicuous at 10 percent of output. Government debt is around 40 percent of GDP after the rescue of pan-Caribbean insurance giant CLICO, but banks remain liquid and can readily absorb primary bond issuance. Barbados in contrast was recently downgraded with its 100 percent debt load deterring further overseas taps. Honduras also fell into that category in February as it launched a maiden $500 million issue now yielding about 10 percent. Former President Zelaya’s wife leads in preference polls to succeed him in November and has pledged additional social and security spending. Violent crime there is among the hemisphere’s worst to further rattle the shaky story.
