Haiti’s Petulant Petro Caribe Pillar
The IMF was reticent about Haiti’s future 4 years after the earthquake as the original loan will soon expire, as it acknowledged criteria observance as well as new vulnerabilities from political infighting and potential cutbacks in Venezuela’s Caribbean-wide discounted oil program. As donor post-calamity aid fades more generally the housing shortage is still severe and many government ministries are in ruins. The President and parliament agreed to hold long-delayed elections after passage of an updated law which should also facilitate budget passage. The main target breach involved deficit borrowing from the central bank through repos as T-bill issuance was delayed. GDP growth was 4.5 percent the last fiscal year on good construction and textile export performance, on the same inflation level propelled by marginal currency weakness. The current account gap was 6.5 percent of output covered mostly by remittances and Venezuelan funding as Western assistance declined. The fiscal shortfall was of similar magnitude with a fuel price freeze and continued state electricity company support, and the central bank tightened monetary policy with reserve requirement hikes and dollar intervention. Private sector credit was up 15 percent, but bank capital adequacy and NPL ratios averaged 12 percent and 3 percent respectively. The Fund warned of rising external debt from tapping Caracas’ “concessional resources” for public investment as customs and tax revenues lag with the risk of a “sudden stop.” Central government banking system deposits will be drawn down to cover next year’s deficit aggravated by promised civil servant salary raises as short-maturity T-bills must be rolled over. Despite bilateral and multilateral cancellations after the tragedy, debt sustainability is in doubt with the slim export and revenue bases, according to the review, with Petro Caribe inflows potentially “in jeopardy.” It urged exchange rate smoothing restraint with reserves only meeting five months’ imports and establishment of an electronic trading platform. Financial system commercial loan concentration is high and micro-providers should be better regulated. If a follow-up facility is negotiated in the coming months power industry and tax administration reforms must accelerate, the update added.
Cuba is also reassessing its Caracas connections as the parliament there adopted a new foreign investment law designed to attract the same $2.5 billion as in annual remittances including from expatriates. It modernizes a two-decade old statute with lengthy tax holidays provided the state employment agency supplies labor. Miami-based firms remain subject to the embargo, with potential loosening now entangled in clashes over Washington’s human rights and social media advocacy in Havana. President Castro’s opening will still prohibit small proprietors from accessing foreign capital, even as he moves to resolve $15 billion in old debt due the Paris Club which has a special working group excluding the US. The island seeks further relief and may consider equity swaps, but Western creditors have demanded more details of national accounts treated as state secrets to unlock strained relations.
