Haiti’s Ineluctable Election Rumbles
Haiti’s presidential elections went into a second round amid continued violent protests that also complicated parliamentary runoffs, as allegations mounted of widespread fraud and manipulation despite observers’ presence, especially since President Martelly’s chosen successor was in the lead. He has fought with political opponents and civil society activists throughout his tenure coinciding with the record earthquake and donor-funded recovery program, and was forced to name a prime minister from a rival party after several candidates were rejected. Before the political transition, the IMF agreed to a new $70 million extended credit facility, with the GDP growth forecast lowered to 1 percent after severe drought, and inflation headed to double-digits with the food price shock and exchange rate depreciation. The budget deficit objective of 2.5 percent of GDP was in peril prior to the election cycle, with heavy state power company losses and declining aid from Venezuela’s Petrocaribe. The previous Fund line noted “disappointments” with structural and financial sector reform in particular, although it cited monetary policy progress. Per-capita income improvement since the 2010 temblor did not reduce poverty, and fiscal and current account gaps widened. External public debt below 9 percent of GDP with the earthquake writeoff had rebounded to 20 percent last year with Caracas’ concessional loans. The central bank has tried to limit currency devaluation to 3-4 percent annually, but the rate doubled in recent months with dollar hording over the poll period.
The World Bank’s “Doing Business” ranking is 177 out of 189 countries, and it is also at the bottom of competitiveness and corruption indices. Weak property rights and “predatory” commercial practices are binding constraints, according to the IMF’s recent Article IV report, and security, infrastructure, human capital and economic data foundations are lacking. Inflation is above trading partners, and the “crawling” peg currency regime may have to be revised with tapering assistance and remittance flows. Fuel taxes have not increased and VAT introduction is nascent with revenue/GDP below 15 percent, and a single Treasury account system is not yet in place. Bank effective reserve requirements over 30 percent are still hefty, and open market operations have just begun through bonds to include dollar-denominated issues. The foreign exchange market must be deepened, and banks are well-capitalized and profitable but credit in the absence of a functioning bureau is concentrated on aid-related customers as the rebuilding effort winds down. A Petrocaribe financing stop would cut 1 percent from output and authorities would have to draw on commercial bank deposits, further posing risk. The system must still also meet anti-money laundering and international accounting standards.
US investor curiosity has been diverted to Cuba with the mutual embassy opening and partial lifting of banking, travel and telecoms restrictions short of trade embargo elimination. Agricultural exporters believe they could quadruple sales with changes in the two-decade old Helms-Burton Act, and multinationals like Coca-Cola expropriated during the revolution have hinted at return. The Havana Trade Fair in November attracted North and South American, Asian and Russian interest and private equity firms such as London-based Redux have launched dedicated funds. However the closed-end Herzfeld Caribbean Basin offering is off 25 percent this year after early enthusiasm as island reconstruction difficulty there compounds.
