Haiti’s Resigned Rebuilding Retreat
The Prime Minister resigned amid continuing election standoff as the IMF emphasized “downside risks” in its last program installment on the fifth anniversary of Haiti’s epic earthquake. The US and other major donors dispatched envoys to urge holding of long-delayed parliamentary polls before President Martelly’s term expires later this year as he tapped a former mayor as the PM’s interim replacement. The government reshuffling accompanied 2014’s 3.5 percent GDP growth and 5 percent inflation with slowing clothing exports and 5 percent currency depreciation. Both the fiscal and current account deficits over 5 percent of GDP were mainly funded by Venezuela’s Petrocaribe inflows along with remittances and government bank deposits. The central bank raised the gourde reserve ratio to 37 percent and the benchmark bond rate 200 basis points, but the tightening may have encouraged dollarization as annual lending growth fell to single digits on NPLs at 3 percent. The international oil price drip aids the terms of trade but could curtail Petro Caribe lines at 3 percent of output thus requiring further changes in the loss-making state-run electric company, the Fund cautions. In 2015 growth may slip slightly but the budget gap may narrow on higher tax revenue at 15 percent of GDP. Domestic debt service will increase to clear arrears and Treasury bill issuance will go toward paying a civil servant wage hike. On utilities the fuel subsidy burden should ease with lower global prices but progress has been slow in modernizing the sole hydroelectric plant with Inter-American Development bank support. International reserves just over $1 billion meet fourth months’ imports but future currency intervention should more selective, according to the final program report. Financial intermediation is constrained by the stiff reserve requirements and related party credit is another weakness. Preferential US trade legislation can be better tapped with infrastructure and skills improvement, and investors are also deterred by poor economic statistics which could be a focus of future assistance. While progress since 2010 has been satisfactory “continued fragility” has stifled reform and fiscal consolidation is still at an early stage and could be pressing with Venezuela’s aid withdrawal, the Fund admonishes.
The Dominican Republic sharing the island managed good growth and tourism performance and Jamaica rounded out frontier Caribbean sovereign bond success with decent adherence to its IMF rescue plan. They diverted interest from Ecuador after it was dropped from the EMBI and the rest of the Andean group on commodity and currency setbacks. Their corporates however experienced spread widening as Latin high-yield names began 2015 with defaults. A Brazilian construction firm caught in the Petrobras and Olympics construction scandals went into restructuring as a holdout fund spearheading Argentina litigation served notice on the state giant it was in violation of covenant terms without audited financial statements. The CDS premium jumped on the filing as the derivative joins Mexico’s Pemex and Venezuela’s PDVSA in popular refuge from oil spills.
