Haiti Options and Opportunities for Inclusive Growth Country Economic Memorandum

Haiti Options and Opportunities for Inclusive Growth Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of the World Bank Latin America and the Caribbean Region Caribbean Country Management Unit Poverty Reduction and Economic Management Unit APN BRH CAE CAMEP CDD CEM CNIMP CNRA CPI CSCCA DR EDH EGRO EU FER FL FY GDP GNI HDI HERO HIV HLCS ICF IDA IDB IHSI IMF LAC LICUS MDG MEF MENJS MINUSTAH NGO OED PAHO PNH PRSP SME TELECO TI ABBREVIATIONS AND ACRONYMS AutoritC Portuaire National (National Port Authority) Banque de la RCpublique d’Haiti (National Bank of Haiti) Country Assistance Evaluation Centrale Autonome MCtropolitaine d’Eau Potable (Metropolitan Water Authority) Community Driven Development Country Economic Memorandum Commission National Interimaire des MarchCs Publics National Commission on Administrative Reform Consumer Price Index Cour SupCrieure des Comptes et du Contentieux Administratif (Supreme Audit Institution) Dominican Republic National Electricity Company (Electricite‘ d’Hai‘ti) Economic Governance Reform Operation European Union Fonds d’Entretien Routier (Road Maintenance Fund) Lavalas Family (Fanmi Lavalas) Fiscal Year Gross Domestic Product Gross National Income Human Development Index Haiti Economic Recovery and Opportunity Act Human Immunodeficiency Virus Household Living Conditions Survey (Enqudte des Conditions de Vie) Interim Cooperation Framework International Development Association Inter-American Development Bank National Institute of Statistics and Informatics (Institut Haitien de la Statistique et de 1’Informatique) International Monetary Fund Latin America and Caribbean Region Low Income Countries Under Stress Millennium Development Goals Ministry of Economy and Finance Ministitre de 1’Education Nationale, de la Jeunesse et des Sports (Ministry of National Education, Youth and Sports) UN Mission for the Stabilization of Haiti Non-Governmental Organization Operations Evaluation Department Pan American Health Organization Police Nationale d’ Haiti (Haitian National Police) Poverty Reduction Strategy Paper Small and Medium Enterprises Telecommunications utility Transparency International ... 111 Acknowledgements This report was completed under the leadership of Mauricio Carrizosa (Sector Manager, LCSPE) and Caroline Anstey (Country Director, LCC3C). The team, led by Antonella Bassani (LCSPR) and Katherine Bain (LCSPR), consisted of Carlos Mollinedo (LPBWB), Gabriel Demombynes (LCSPP), Linn Hammergren (LCSPS), Mary Morrison (LCSFP), Samuel Carlson (LCSHE), Gillette Hall (SDV), Luc Razafimandimby (LCSHS), Roberts Waddle (consultant), Manuel Orozco (consultant), Margarita Chgvez de Silva (LCC3C) and Constance Polite (LCSPR). Valuable contributions were provided by Guillermo Perry (LCRCE), Mathurin Gbetibouo (LCCHT), Chingboon Lee (LCSHD), Charles Feinstein (LCSFP), Garry Charlier (LCSER), Julio Velasco (LCSPE), Manuel Schiffler (LCSFW), Juan Navas-Sabater (CITPO), Nicolas Peltier (LCSFT), Joelle Dehasse (LCC3C), Stephanie Anne Kuttner (SDV), Ahmadou Mustapha Ndiaye (LCSFM), Patricia Macgowan (LCSPT), Dorte Verner (LCSEO), Clemencia Torres (LCSFE), Franka Braun (LCSPR), Massimiliano Paolucci (LCC3C) and Maria Beatriz Orlando (LCSPP). Peer reviewers were Ian Bannon (SDV), Brendan Horton (AFTP3) and J. Humberto Lopez (LCRCE). iv I . Growth. Poverty. Inequality and Education ........................................................ 118 I1 .The Provision of Education in Haiti: Current Constraints and Challenges ...... 121 111 . A Strategy for Improving Education Service Provision in Haiti ...................... 130 TABLES Table 1.1: Average Annual Real Growth Rates of GDP per Capita. 1961-2000 (in percent) ................................................................................................................................ 2 Table 1.2: Explaining Changes in Growth Between Decades (change in the average growth rate of real GDP per capita) ................................................................................... 10 Table 1.3: Volatility of Output per Capita (1961-2000) ................................................... 10 Table 1.4: Explaining Changes in Growth Between Decades in Haiti and Other LAC Countries (change in the average growth rate of real GDP per capita - 1990s compared to 1980s) ............................................................................................................................ 11 Table 1.5: Explaining Changes in Growth Between Decades in Haiti and Other SSA Countries (change in the average growth rate of real GDP per capita - 1990s compared to 1980s) ................................................................................................................................ 12 Table 1.6: Growth Simulations, 2000-2010 (change in the average annual growth rate of real GDP per capita) .......................................................................................................... 13 Table 1.7: Haiti’s Governments, 1986-2005 .................................................................... 14 Table 1.8: Selected Macro Economic Indicators (2000-2005) ......................................... 19 Table 1.9: VAT in Selected Countries .............................................................................. 22 Table 1.10: Summary Indicators on Hiring & Firing Workers ........................................ 23 Table 2.1: Household Income by Source .......................................................................... 38 (Means Percentages Across Households) .......................................................................... 38 Table 2.2: Amount of Remittances Received .................................................................... 51 Table 2.3: How Do Remittance Recipients Use the Money? ........................................... 52 Table Al: Headcount Poverty Estimates for Haiti ........................................................... 56 Table A2: Poverty by Population Subgroups ................................................................... 57 Table A3: Returns to Education in Haiti .......................................................................... 58 Table A4: Summary Household Characteristics for Various Years ................................. 59 Table A4: (continued) Summary Household Characteristics for Various Years ............. 60 Table A5: Based on Poverty US$1-a-Day Poverty Estimates for Various Years Projection Exercise ............................................................................................................ 61 Table A6: Based on Poverty US$2-a-Day Poverty Estimates for Various Years Projection Exercise ............................................................................................................ 62 vi Table A7: Gini Coefficient Inequality Estimates for Various Years Based on Projection Exercise .............................................................................................................................. 62 Table A8: US$1-a-Day Poverty and Inequality Estimates from a Projection Forward from 1986 to 2001 ............................................................................................................. 63 Table 4.1: Haiti’s Infrastructure Compared ...................................................................... 96 Table 5.1 : Trends in Key Education Indicators. 1994-2000 .......................................... 121 Table 5.2: Top Five Reasons for Not Attending School. in Order of Importance. by Quintile ............................................................................................................................ 123 Table 5.3: Haiti’s Current Public Spending (2005/06) and EFA Medium-Term Targets for Education ................................................................................................................... 131 Table 5.4: Projected Costs of Achieving EFA by 201 1 (US$M) .................................. 132 Table 5.5: Estimated Public Financing Capacity and Financing Gap for Achieving EFA Under Scenario 2 ............................................................................................................. 133 FIGURES Figure 1.1: Per Capita Real GDP Growth. 1991-2004 ........................................................ 2 Figure 1.2: Growth Accounting Decomposition ................................................................. 5 Figure 1.3: TFP contribution to Growth in Haiti and LAC ................................................ 5 Figure 1.4: Investment to GDP Ratio and Per-capita GDP Growth (1995-2003) .............. 6 Figure 1.5: GDP Per-Capita in Haiti. Dominican Republic and LAC ................................ 8 Figure 1.6: Growth Accounting Decomposition in Haiti and Dominican Republic .......... 8 Figure 1.7: Most Problematic factors for Doing Business According to Entrepreneurs Operating in Haiti .............................................................................................................. 14 Figure 1.8: Haiti: Kaufman Indexes of Institution Quality .............................................. 15 Figure 1.9: International Comparison of Key Indicators on Infrastructure ..................... 17 Figure 1.10: International Comparison of Cost of Electricity ......................................... 17 Figure 1.1 1 : International Comparison of Key Indicators on Education ......................... 18 Figure 1.12: Emigration Rate of top 20 Skilled Emigration Countries, 2000 .................. 18 (percentage of total educated labor) .................................................................................. 18 Figure 1.13: International Comparison of Key Indicators on Saving and Financing ...... 20 Figure 1.14: Top 20 Developing-Country Recipients of Remittances, 2003 (percentage of GDP) .............................................................................................................................. 20 Figure 1.15: Concentration of Loan Portfolio .................................................................. 20 Figure 1.16: Credit by Activity (% of total loan portfolio) .............................................. 20 Figure 1.17: Bank Spreads ................................................................................................ 21 Figure 1.18: Assembly Sector Wage Costs (in US$ per hour) ......................................... 23 Figure 2.1: Headcount Poverty Rates in Haiti .................................................................. 28 Figure 2.2: Headcount Poverty Rates for Low Income Countries Worldwide Using US$1-a-Day Poverty Line ................................................................................................. 29 Figure 2.3: Headcount Poverty Rates and Concentration of Poor by Region Using US$l a-day Poverty Line ............................................................................................................. 30 vii Figure 2.4: The Consequences of Poverty for Food Consumption: Percentages of Households Facing Food Shortages ................................................................................... 30 Figure 2.5: Income Distribution in Haiti ........................................................................... 31 Figure 2.6: Household Size and Number of Children by Income Quintile in Haiti ......... 32 Figure 2.7: Dependency Ratio by Income Quintile in Haiti ............................................. 33 Figure 2.8: Average Years of Education by Age and Gender .......................................... 34 Figure 2.9: Average Years of Education by Income Quintiles (Adults Aged 25 to 65) .. 34 Figure 2.10: Mean Years of Education vs . Inequality in Years of Education (Adults Ages 25 to 65) for Countries in Latin American and the Caribbean ......................................... 35 Figure 2.1 1 : Literacy Rates by Age and Gender .............................................................. 35 Figure 2.12: School Enrollment Pyramids by Age and Level of Schooling .................... 36 Figure 2.13: Education Attainment Profile by Economic Status, Age 15-19, Haiti 1994- 95 and 2001 ........................................................................................................................ 37 Figure 2.14: Share of Dwellings Made of Low-Quality Materials by Income Quintiles 39 Figure 2.15: Infrastructure Access by Income Quintiles .................................................. 39 Figure 2.16: Percentage of Households with Access to Infrastructure by Region ........... 40 Figure 2.17: Infant and Child Mortality in Haiti and the Dominican Republic ............... 40 Figure 2.18: Infant Mortality Rates in Haiti by Region, 2001 .......................................... 41 Figure 2.19: Agricultural Technology and Credit Used by Farming Households, By Income Quintile ................................................................................................................. 44 Figure 2.20: Child Malnutrition in Haiti and the Dominican Republic ............................ 45 Figure 2.21: Household Assets and Services Over Time 1995-2001 ............................... 47 Figure 2.22: US$1-a-Day Headcount Poverty Estimates for 1986, 1995,2000, 2001. Point Estimates and Confidence Intervals ......................................................................... 48 Figure 2.23: Consumption and Workers Remittances (1985-2003) ................................. 50 Figure 2.24: Percentage of Households Receiving Remittances by Income Quintile ...... 51 Figure 5.1: Educational Attainment of Primary Breadwinner by Income Decile ......... 120 Figure 5.2: Non-Public Primary Enrollment by Type of Provider ................................ 122 Figure 5.3: Enrollment by Income Quintile ................................................................... 123 Figure 5.4: Stated Reason for Leaving School among 6-24 year olds .......................... 124 Figure 5.5: Household Spending on Primary Education Per Child by Income Quintile 125 Figure 5.6: Average Primary and Secondary Education Spending Among All Households, as a percent of average household revenue, by quintile ............................. 126 Figure 5.7: MENJS Licensing by Type of Non-Public School ..................................... 134 viii EXECUTIVE SUMMARY 1. The Haitian population has demonstrated resilience and creativity in the face of severe challenges. Marred by political instability, economic mismanagement and exogenous shocks, Haiti has suffered negative economic growth in three decades of the last forty years. Even when economic growth has taken place, it has not been sustained. Haiti’s pattern of socio-economic development has also been characterized by marked inequalities in access to productive assets and public services, the result of exclusionary policies and ineffective public institutions. The resulting widespread poverty has meant that less of the gains from growth, when this has materialized, have been shared by the poor. In turn, the inability of poor Haitians to exploit growth-promoting opportunities for investment in physical and human capital has created a vicious circle of weak economic growth and persistent poverty and inequality. 2. Following the 2006 presidential and parliamentary elections, the Government of Haiti and the international community have before them new opportunities to promote inclusive growth. Within this context, the challenge is to identify and implement actions to overcome the legacy of past decades and set Haiti on a path to high, sustained and broad based growth. Constraints to growth and poverty reduction are widespread and severe, and they are interrelated and mutually re-enforcing. As discussed in Chapter one, in addition to political instability, the key constraints are: (i) ineffective institutions and poor economic governance, (ii) inadequate infrastructure, and (iii) poor access to and quality of education. Chapter two highlights Haiti’s widespread poverty and high inequality in income and in access to basic services. The constraints to growth discussed in Chapter one and the poverty and inequality characteristics reviewed in Chapter two point to the need to ensure that the benefits of growth are shared through polices which, on the one hand, provide equal access to services for the poorest regions and households and, on the other, build institutions that are responsive, effective and accountable to their citizens. 3. Chapter three provides a historical overview of the development of the Haitian state and its impact on institutional capacity and economic governance. It sets out the foundations for a state building agenda in Haiti which, based on experience in fragile states around the world, is known to be the priority in helping such countries to set the basis for broad-based growth. This chapter presents a set of recommendations aimed at building the institutional capacity of core public agencies and limiting the opportunities for elite capture and corruption. It then outlines a new role for the state in terms of service delivery and in engaging users of services and citizens more broadly. Chapters four and five provide a more detailed discussion of how service delivery in infrastructure and education can be improved by strengthening the capacity and accountability of service providers and ensuring that users, especially the poor, have access. In doing so, the report lays out a short and medium term agenda for improving basic state functions in an efficient, transparent and accountable way, as well as expanding basic infrastructure and improving access to and quality of primary education. The successful implementation of this agenda would require close partnership and sustained commitment of both Government and donors. Table 1 attached below summarizes the main i recommendations contained in the above chapters. These are consistent with the broad thrust and build on the interventions identified in the Interim Cooperation Framework prepared in 2004 by the Government with the support of the donor community. I. Trends, Determinants and Constraints of Haiti’s Economic Growth 4. Haiti’s economy is in a long-term slump. Between 1961 and 2000, Haiti’s real income per-capita fell by an average of 1 percent per year, resulting in a per capita real GDP reduction of 45 percent over the period. Positive growth rates have been observed only in the decade of the 1970s as a result of greater political stability, paradoxically achieved during a dictatorship. Indeed, Haiti’s economic performance has been one of the worst in Latin America and the Caribbean (LAC) region and similar to that observed in the worst performing sub-Saharan African (SSA) countries. 5. As discussed in Chapter one, Haiti’s growth experience in the 1970s and the second half of the 1990s shows that the country is capable of experiencing rapid growth. However, these spurts in economic activity were not sustained due to either restrictive or ineffective economic policies, or political instability. Rapid economic expansion during the 1970s was achieved through the interaction of private sector dynamism in exports of agricultural crops and assembly manufactures, and public sector investment in infrastructure. This spurt in economic activity was not sustained in the early 1980s as the Government increasingly intervened by employing fiscal and trade policies that were restrictive of the private sector and biased against exports, created monopolistic public enterprises and spent public funds without increasing the country’s productive or absorptive capacity. The 1990s showed two opposite trends: in the first half, the economy entered in a profound recession (due to high political instability, a donor imposed trade embargo and natural disasters); after 1995, the economy recovered, boosted by a significant but short lived increase in external aid. Yet the per-capita real GDP growth was negative for that decade. Growth performance in the first half of 2000s remained poor as a result of continued political instability. 6. The relatively better growth performance in the 1970s is associated with growth in total factor productivity (TFP), while in the rest of the period of analysis (1960-1969 and 1981-2003) TFP contribution to growth was negative. Haiti’s contribution of physical capital went from one of the lowest in the region in the 1960s to being at about the regional standards in the 1980s, and it declined afterwards. The contribution of human capital shows only a slight upward trend since the 1960s. The above trends are linked to declining productivity in the agricultural sector, the unproductive nature of investment and measurement difficulties facing the country’s national accounting system, and the limited contribution of human capital throughout the period. 7. This chapter also reviews the empirical evidence provided by Loayza et al. (2005) on the determinants of economic growth in Haiti. This shows that the bulk of the change in real per capita growth is not explained by the traditional growth determinants as currently measured and that there is a large negative effect on growth not captured by the panel regression. A comparison with other LAC and SSA countries points to the model’s inability to capture the negative effects of political instability and violence on growth. Forecasting Haiti’s economic growth under an ambitious reform scenario (with policy .. 11 determinants of growth moving to the top 25 percent of the LAC region and the world), Loayza et al. project a significant potential change of 6-8 percent, with both structural and stabilization policies playing a role in supporting an increase in growth. Within these, improvements in public infrastructure and education would render the largest contribution to economic growth. As discussed in this Chapter, these forecasts tend to underestimate the impact of improved political stability and reduction in violence on economic growth. 8. This chapter’s analysis of the constraints to growth in Haiti in a comparative perspective depicts the country as one of the most difficult environments in the world in which to do business. It identifies inadequate infrastructure, political instability and inefficient bureaucracy, and education as the critical constraints to growth in Haiti. Political instability has weakened private sector confidence and the quality of public institutions. While sustained political stability will be a necessary condition for restoring growth in Haiti, an improvement in the quality of public institutions and economic governance will also be critically needed to improve the business environment. Infrastructure limitations are also significant, but would need to be addressed with a strong emphasis on rehabilitation and maintenance. Similarly, much needed improvements in human capital need to be accompanied by the lifting of other restrictions to growth, least a swift improvement in education will only result in increased brain drain with a limited impact on growth. 11. Poverty and Inequality 9. The analysis of poverty conditions and trends in Haiti detailed in Chapter two highlights a number of key points. The country is the poorest in LAC and among the poorest in the world, with more than half of the population (54 percent) living below the US$1-a-day and 78 percent living below the US$2-a-day line (2001 data). In terms of other human welfare indicators, Haiti ranks at or near the bottom in the region, and among the worst in the world. An overwhelming portion of the rural population lives in poverty (86 percent). There are also large pockets of urban poverty in slum areas in Port au-Prince, while many intermediate cities and small municipalities have low poverty rates. Wide disparities exist regionally, with poverty being the lowest in the Ouest region (34 percent), which includes the capital of Port-au-Prince, and highest in the Nord-Est region (81 percent). Nonetheless, even in the Ouest region poverty is extremely high by international standards. Indeed, the poverty rate for the Ouest region, the richest in Haiti, is higher than that of any country in Latin America and the Caribbean. 10. Haiti also suffers from substantial inequality, with nearly half of the national income going to those in the richest 10 percent of the population. Little variation is seen in the quality of living conditions across the poorest 80 percent (which encompass the group defined as poor in the US$2-a-day poverty line). Inequality in Haiti is among the highest in the LAC region, which in turn has higher levels of inequality than any other area of the world. Due to the country’s widespread poverty, lack of security, frequency of natural disasters and dearth of formal private or public insurance mechanisms, most Haitians face high vulnerability. While one cannot expect absolute poverty to fall in Haiti without positive high growth, the country’s high inequality has meant that less of 111 the gains from growth, when this has materialized, have been shared by the poor. Inequalities in access to infrastructure and social services and in ownership of assets have made it harder for poor Haitians to take up the opportunities afforded by the limited economic growth that the country has experienced. In turn, high inequality and poverty have been a constraint on the country’s growth as poor Haitians’ inability to exploit growth-promoting opportunities for investment in physical and human capital has perpetuated the low growth-high poverty circle. 11. Although recent data offers a clear portrait of poverty in Haiti in recent years, the picture of what has happened over time in the country is much hazier. Growth figures calculated from national accounts data show a near continual decline in GDP per capita over the 1990s. At the same time, two pieces of evidence suggest that individual welfare may have improved along some lines during that decade. Indeed, Demographic and Health Survey (DHS) data show improvements in asset ownership, housing conditions, some child health measures, and child nutrition and school attainment between 1995 and 2000. Additionally, estimates based on household surveys suggest that poverty and inequality rates have not changed substantially over the last two decades. Chapter two suggests that part of the explanation can be found in the fact that, while GDP per capita declined, consumption levels were maintained by remittances. In particular, the Haitian population has become increasingly reliant on the money sent by the Haitian diaspora living abroad. The acceleration in the growth of remittances since the mid 1990s likely accounts for the fact that poverty may not have changed substantially during that period and some welfare measures may have improved modestly, even while GDP per capita continued to decline. Indeed, many Haitians have avoided falling into complete destitution in the face of many shocks (both domestic and exogenous) by using remittances for food consumption, and education and health services. 111. State Building, Security and Institutions 12. Contemporary Haiti lacks a set of public institutions capable of carrying out the basic state functions in an effective, responsive and accountable fashion. In recent years, institutions have lost trained personnel and other resources, have not modernized their procedures and provided few incentives for staff performance. Political instability and budget constraints are part of the explanation but, as Chapter three describes, the institutional gap has its roots in Haiti’s historical development. Since independence, the lack of effective and accountable institutions and of rules that are aimed at addressing and responding to public interest have placed the country in a perennial cycle of contested governments, political instability, popular uprisings and violent regime changes. 13. Chapter three argues that Haiti’s overarching challenge is to reform public institutions. This entails strengthening the role of the state in four key areas: (i) capacity to guarantee citizen security within a rule of law, (ii) capacity for economic governance (sound macro-economic management, public administration, and market formation and regulation), (iii) capacity to plan and oversee basic service provision and infrastructure development - whether the state provides services and infrastructure directly or works through NGOs and private firms, and (iv) transparency and accountability. These areas iv are key since they address the basic functions of any state and have the potential for reducing poverty and inequality while promoting broad-based growth. 14. Since state-building is an incremental process, the Government will need both a medium term strategy and a short term program of priority actions. Ensuring public security and the rule of law is the area where state failure is most critical in Haiti, both for its direct consequences and for its indirect impact on institution building. Indeed, ensuring a dramatic improvement in security will be critical for the success of any other intervention in the country. This chapter recommends that short term actions focus on: improving coordination between MINUSTAH and the Police Nationale Haitienne (PNH), accelerating the reform of the PNH and targeting slum areas with multi dimensional development interventions. Over the medium term, it is recommended that the Government sustain police reform with elements to improve the relationship between the PNH and citizens, and strengthen other elements of the judicial and penal system, starting with criminal courts in urban centers and gradually broadening coverage to other geographic areas and jurisdictions. 15. In the area of economic governance, the chapter highlights recent advances made in Haiti to increase transparency and efficiency in the use of public resources and external assistance, notably changes in the legal framework for budget formulation and execution, the setting up of critical institutions and agencies, and efforts at disseminating basic information and engaging some groups to monitor the implementation of the economic governance reforms. Going forward, Chapter three recommends that the short term focus of Government efforts be on ensuring the full implementation of the new legal framework by building capacity of central government agencies for revenue, expenditure and human resource management and then gradually extending coverage to offices handling financial management and planning functions in sectoral ministries. Ensuring these core institutions function appropriately and in coordination is key for encouraging both a steady flow of resources (including those of donors) and their efficient use. The chapter also points to the need for redistributive policies--through increased collection of progressive taxes to mobilize much needed public resources, improved efficiency and targeting of public spending, and the provision of public transfers to the poorest linked to incentives to build human capital. 16. Finally, this chapter highlights the importance of promoting a transparent, results based approach to public service delivery and engaging stakeholders in a way that promotes voice and accountability around public action. This requires building ministerial capacity to plan and track basic service delivery, whether by public or private providers at the central or decentralized level. This should focus on equalizing access to productive assets for the poorest. Where private sector provision of services is working, it should be supported and scaled up. To ensure accountability and responsiveness, in the short term the Government should share basic information on service delivery, initiate efforts to improve public expenditure tracking, and enact a Freedom of Information Law to establish the general principles of transparent government and citizens’ right to information. Medium term efforts could focus on using a more decentralized, territorial approach for planning public investments to better integrate the country and organize its development around the growth potential and needs of the various regions; further V mobilizing civil society groups to monitor government performance in service delivery and economic governance through social accountability initiatives at the local and national level; and enhancing the role of the Parliament in the economic governance agenda, most notably in budget approval and control. 17. Donors’ assistance for state building and institutional development will be important. Lessons from past experience in Haiti and other countries facing similar institutional challenges point to the need for such assistance to be better coordinated, focused on the broad priorities highlighted above and sustained over time. Notably, donor-financed activities will need to be more disciplined about not competing with government for essential staff, working through government channels, and helping to fix, rather than circumventing, what does not work. IV. Building Infrastructure to Last 18. Dramatic improvements in Haiti’s currently poor levels of infrastructure quality and coverage are essential to restart economic growth and reduce poverty. Infrastructure reform must also be a central part of any state building strategy, both because the provision of infrastructure services (as public goods) is a central, defining function of the state and because the malfunctioning of current infrastructure institutions is a major source of current state weakness. The electricity sector represents a massive drain on scarce government resources; the telephone utility has historically been an extra budgetary source of financing for politicians; and poor security and management of ports result in a significant loss of government revenues. 19. The underlying argument of Chapter four is that a two-pronged approach is needed for infrastructure reform in Haiti: on the one hand swift execution of projects by donors to produce rapid results, in the form of actual service delivery to the population and, on the other, medium to longer-term improvements in public capacity to pursue not just sustainability of investments, but a more effective and transparent government role. For the shorter term, this chapter discusses the need for more effective donor involvement. While some important successes - such as the setting up of the road maintenance fund - were achieved recently, the lack of an integrated, strategic approach and poor coordination in implementation have slowed progress. The chapter also considers the need for urgent donor efforts, built around infrastructure, to address the socio-economic causes of violence in Haiti’s slums. This issue is of particular relevance both because of its implications for state building and national stability, and because, while slum upgrading was an expressed priority of the ICF, little has been done. Efforts to strengthen the Road Maintenance Fund to ensure effective road rehabilitation and maintenance are also urgently needed. 20. The medium to longer-term emphasis on governance and capacity strengthening builds first on the main lesson of past donor interventions in infrastructure: that works are not sustainable without maintenance, which requires institutional capacity to organize and pay for it. The analysis also considers the need to strengthen the minimal functions required of the state in infrastructure: designing strategies and policies, setting and enforcing the rules for public and private operations, and coordinating national and international actors engaged in the sector. This does not imply a larger role for the state vi but a cleaner and more effective one than played at present. Six specific priority areas are highlighted for infrastructure reform: Improving donor involvement. This involves both better coordination and securing longer term donor commitment. There is a need for better information sharing among donors and the government, through stronger central capacity to compile and disseminate this information. Reinforcing the coordinating capacity of the existing sectoral tables is considered, as well as the option of introducing some kind of donor resource pooling system for infrastructure. Slum upgrading to prevent violence. Cross-sectoral slum upgrading projects/programs can prevent violence through mainstreaming violence prevention into the design of infrastructure projects (e.g. including labor-intensive construction, street lighting, and community centers) and through providing a vehicle for specific anti-violence components, such as mediation services. They also provide a channel for community organization. Pilots should be attempted before larger projects. Strengthening the functioning of the Road Maintenance Fund through: enhanced coordination on the programming of road maintenance activities; ensuring regular and adequate budgetary transfers to the FER account of proceeds from earmarked taxes for road maintenance; and developing expertise in FER to promote an efficient model for routine and emergency road maintenance, using either small firms or community based micro-enterprises. Making the Ministry of Public Works, Transport and Communication (MTPTC) more effective: a new institutional diagnosis should be undertaken for the MTPTC, and a firm plan developed for implementing its recommendations. Greater sectoral specialization is needed to develop the Ministry’s ability to make policy and strategy and plan investments, through a strengthening of the cadre technique and appointment of merit-based, non-political staffing. It needs to better oversee and coordinate with, and interfere less, in state-owned infrastructure companies. Some decentralization of functions to regional offices would make these more effective. Overhauling state utilities. There is a need for strong government leadership of reform, in particular to implement the recommendations of the audits and organizational diagnostics underway on the key state enterprises. Funds must be channeled to the rehabilitation of existing dilapidated assets and improving service to existing customers before coverage can be expanded. Maintenance must be provided for by ensuring adequate funding and training staff. Transparency and accountability require better information systems, a more active role for boards of directors and open contracting, and regular public disclosure of information on levels and quality of services provided to the public and the performance of public utilities. And realistic strategies are needed for involving the private sector, where possible. Enhancing the legal and regulatory framework for public and private service provision. This requires not just updating laws but actually enforcing them. Structures are needed in particular to improve oversight, promote competition where possible, and set the ground rules for all operators. vii V. Investing in Children 21. Education is a well documented condition for growth and also has beneficial impacts on nutrition, health, empowerment of girls and poverty. It provides a means for avoiding the inter-generational transmission of poverty and thus offers hope that children will help families break out of the vicious circle of poverty. Educational access in Haiti has declined in recent years and disparities between urban and rural enrollment have worsened. The costs of education for poor families is a major deterrent that prevents them from enrolling their children in schools. In addition, the public sector suffers weaknesses similar to other sectors and as a result education services are offered primarily through a range of private providers with negative implications for equality, quality and efficiency within the sector. Ninety-two percent of schools in Haiti are operated by a diverse group of private actors ranging from commercial entities to faith based schools who have stepped in to “fill the gap” in the education sector. While it is helpful that this gap has been filled, the sanitary conditions and the quality of teaching in several private schools are major drawbacks due to a weak institutional capacity of the Ministry of Education in performing its normative role, providing a policy framework and a strategy that engages public and private actors, and ensuring some minimum accountability. This along with the low levels of public spending for the sector and the constraint on the demand side has resulted in some of the poorest educational indicators in the world. 22. Chapter five recommends that the sector agenda focus on a re-defined role for the state in education in order to attain the goal of having every Haitian child in school. As in the infrastructure sector, this report does not advocate a larger role for the public sector but a more effective and facilitating one, whereby public agencies set the sector strategy, provide the rules, regulations and incentives for public and private actors, respond to private demand by providing sufficient inspectors to license and accredit non-public schools, and ensure that donor investments in the sector are used in a coordinated and transparent manner. Priorities for the short-term include: increasing the share of public spending on education to strengthen the state’s capacity, and investing in primary education; strengthening the newly established National Partnership Office (NPO) which was launched by the Transition Government in an attempt to improve dialogue, strategic planning and accountability in the sector; and launching an effort to scale up enrollment of children by providing public transfers (including through a major scale up of donor assistance) to private schools; emphasis would be put on those schools which can increase enrollment of the poorest children and ensure quality improvements. 23. These efforts would then need to be expanded over the medium-term and be accompanied by actions to strengthen the capacity of the Ministry of Education to design and implement sector policies, notably with a focus on providing incentives for public and private actors and effectively discharging its role of sector regulator and accreditation. The chapter presents the results of a costing exercise to assess the financing requirements for enrolling all Haitian children in school and improving the ... Vlll quality of education over the next ten years, The chapter also discusses the option of introducing a pilot approach to targeting cash transfers to the poorest households that are least able to afford the costs of education in exchange for their commitment to send their children to school and having them vaccinated and well-fed. There is now significant experience in such cash transfer type of programs in many middle income countries in the region and new results also show that they can be effective poverty reducing programs in low income countries and fragile states. However, providing public transfers to schools or cash transfers to poor families will require that a solid fund channeling mechanism be set up as well as an information data base to ensure that internal and external accountability mechanisms guarantee that resources are well targeted and used transparently and efficiently. VI. Other Interventions 24. This report is focused on a select list of cross-sectoral binding constraints to growth and poverty reduction which also constitute the minimum functions that a state must fulfill to provide its basic, pure public goods. This means only that these constraints and these functions require priority attention, not that they should be addressed to the exclusion of others that are more sector specific. Indeed, policies aimed at improving additional aspects of the climate for private sector activity in agriculture, manufacturing and services, as well as enhancing the provision of other social services, will need to be implemented, once the critical bottlenecks identified above have started to be tackled. The Interim Cooperation Framework, prepared in 2005 by the Transition Government with donor participation, identifies priority interventions in several sectors. Also, several recent studies have examined sector specific constraints to growth and poverty reduction which, therefore, have not been discussed in this report.' However, the recommendations of those studies need to be part of the elaboration of a comprehensive medium-term growth and poverty reduction strategy for Haiti. Table 1: Summary of Policy Recommendations State Building, Security and Institutions Priority Recommended Policy Actions Security and Judicial Reform: Accelerate reform of PNH (police), incl. establishing new rules and operating standards, vetting and training personnel, and improving oversight arrangements and career management. Pilot slum upgrading projects with a focus on violence prevention (also see recommendations for Infrastructure). Medium-Term Reform Actions Sustain police reform efforts, with elements to improve the relationship between the PNH and citizens, including greater accountability of police officers for areas under their jurisdiction and professionalization and training of the force's members. Reform the judicial and penal system with emphasis on personnel selection, monitoring Several of these studies are listed in the Bibliography; these include a review of existing constraints and priority interventions for rural development (World Bank, Haiti-Agriculture and Rural Development, 2005), an assessment of existing social protection mechanisms (World Bank, Haiti-Social Protection Policy Brief, 2005) and a review of Haiti's conflict poverty trap (Haiti-Country Social Analysis, 2006). ix Economic Governance: Focus on ensuring full implementation of the new legal framework by building capacity of central government agencies for revenue, expenditure and human resource management: 0 Continue to keep unprogrammed expenditure through “current accounts” at minimum level and reduce administrative lags in expenditure processing; develop standard formats for budget preparation and reporting, train staff in their use, and monitor compliance; strengthen CSCCA including support in preparation of budget execution reports for the new legislature. Strengthen tax administration with main focus on enforcement expanded to provinces and ports - restoring security and presence of customs in sea ports in and outside Port au Prince will be critical for this. Creation of registry of state employees and of agency overseeing application and further development of rules on appointment, remuneration, evaluation and overall career management; identify critical needs for new hires and training. Ensure compliance with new procurement decree and promote training of staff and potential bidders. Service Delivery: Start to develop in core ministries systems for tracking service delivery, starting with review of information already collected, specification of services and qualitativelquantitative goals and indicators, and determining additional information needs; engage sectoral tables established under ICF in this effort. X and evaluation, and provision of personnel adequate salaries; provision of additional material and technical assistance; reform of legal codes. 0 Repeat, since most of the benefits have been lost, the 1990s program of prison and prison staff upgrading. Continue to ensure full implementation of the new legal framework, with expanded focus to financial management and planning functions in sectoral ministries: 0 Ensure a more redistributive and efficient pattern of public expenditures by basing Government budget on a multi-year framework, adopting procedures for preparation and selection of investment projects; and adopting program budget approach for key ministries. Institute procedures that embody the broad principles lacking in the Organic Budget Law (i.e., transparency, performance, responsibility and consolidated cash management); continue to strengthen the CSCCA. Implement tax policy reform to broaden the tax base and enhance revenue collection by fighting evasion, reorganizing tax collection functions along functional lines and creating ownership for reforms. Elaborate inventory of all positions, elaboration of simplified job classification scheme, standardized salary grid, description of duties and needs based training programs. Improve legal framework for procurement. Develop, with donor assistance, mechanisms for citizen collection of data or evaluation of services; use citizen input to set new targets and agree with them and donors on indicators and monitoring process. Pilot territorial approach to participatory planning, building on existing initiatives and use it as basis for planning public investments. Infrastructure Education Transparency, Accountability and Participation: Share informati