Haiti Request for Emergency Post-Conflict Assistance II

© 2005 International Monetary Fund November 2005 IMF Country Report No. 05/404 Haiti: Use of Fund Resources—Request for Emergency Post-Confl ict Assistance—Staff Report; Staff Supplement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Haiti In the context of the Use of Fund resources—Request for Emergency Post-Conflict Assistance by Haiti, the following documents have been released and are included in this package: • the staff paper for the Use of Fund Resources—Request for Emergency Post-Conflict Assistance, prepared by a staff team of the IMF, following discussions that ended on September 25, 2005, with the officials of Haiti on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on October 5, 2005. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF. • a staff supplement of October 14, 2005 updating information on recent developments. • a Press Release summarizing the views of the Executive Board as expressed during its October 18, 2005 discussion of the staff report that completed the request and/or review. • a statement by the Executive Director for Haiti. The documents listed below have been or will be separately released. Letter of Intent sent to the IMF by the authorities of Haiti* Memorandum of Economic and Financial Policies by the authorities of Haiti* Technical Memorandum of Understanding* *May also be included in Staff Report The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information. To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to publicationpolicy@imf.org . Copies of this report are available to the public from International Monetary Fund • Publication Services 700 19 th Street, N.W. • Washington, D.C. 20431 Telephone: (202) 623-7430 • Telefax: (202) 623-7201 E-mail: publications@imf.org • Internet: http://www.imf.org Price: $15.00 a copy International Monetary Fund Washington, D.C. INTERNATIONAL MONETARY FUND HAITI Use of Fund Resources—Request for Emergency Post-Conflict Assistance Prepared by the Western Hemisphere Department (In consultation with other departments) Approved by Christopher Towe and Mark Plant October 5, 2005 • Haiti meets the conditions for further post-conflict financial assistance from the Fund. The political conflict and an armed rebellion that led to a change in government in March 2004 continue to affect the economic, social and political situation in Haiti. While financial stability has been basically restored, Haiti’s institutional and administrative capacity remains weak, hindering the rebuilding of the country’s economic and social infrastructure, and external position remains vulnerable. • The discussions on the authorities’ request for Emergency Post-Conflict Assistance (EPCA) took place at the Fund’s headquarters during June 6–11 and September 19–25, and in Montreal during June 17–18, 2005. The staff team comprised P. Gajdeczka (Head), L. Jaramillo, G. Everaert, C. Sancak (all WHD), and J. Mathisen (PDR). The team met with Economy and Finance Minister Bazin, BRH Governor Magloire, and other senior officials. M. Rached (Resident Representative) assisted the team from Port-au-Prince. • On January 10, 2005, the Executive Board approved SDR 10.23 million (12.5 percent of quota) in Emergency Post-Conflict Assistance to Haiti. All end-December 2004 and March 2005 quantitative targets were met. However, most end-June quantitative benchmarks were missed, and there were delays in implementing key structural measures. • The 2005 Article IV consultation was concluded in May 2005. Directors welcomed Haiti’s satisfactory performance under the EPCA-supported program and expressed their willingness to support a second EPCA purchase. • The authorities are requesting another purchase of 12.5 percent of quota under the EPCA policy. The authorities’ policy commitments are stipulated in the attached Letter of Intent and Memorandum of Economic and Financial Policies (LOI/MEFP). • Publication. The authorities intend to publish their LOI/MEFP and the staff report. - 2 - Contents I. Background................................................................................................................... 3 II. Recent Economic Developments.................................................................................. 4 III. Economic and Political Risks ....................................................................................... 8 IV. Policy Discussions ........................................................................................................ 8 A. Key Macroeconomic Policy Issues......................................................................... 9 B. Governance and Transparency...............................................................................11 C. External Sector.......................................................................................................12 D. Program Issues.......................................................................................................13 V. Staff Appraisal .............................................................................................................14 Tables 1. Indicative Targets, September 2004–September 2005 ................................................17 2. Selected Economic and Financial Indicators...............................................................18 3a. Central Government Operations, 2004/05 (in million of gourdes)..............................19 3b. Central Government Operations, 2004/05 (in percent of GDP) ..................................20 3c. Central Government Operations, 2003/04–2005/06 (in millions of gourdes).............21 3d. Central Government Operations, 2003/04–2005/06 (in percent of GDP)...................22 4. Summary Accounts of the Banking System ................................................................23 5. Balance of Payments....................................................................................................24 6. Medium-Term Scenario...............................................................................................25 7. Indicators of Fund Credit.............................................................................................26 8. Stock of Arrears and Projected Debt Service ..............................................................27 9. Donor Pledges and Disbursements ..............................................................................28 10. Budgetary Financing, by Donor and Type...................................................................29 11. Millennium Development Goals..................................................................................30 Text Figures 1. Inflation......................................................................................................................... 4 2. Exchange Rate and NIR................................................................................................ 5 3. Nominal and Real Effective Exchange Rate................................................................. 5 4. BRH Bonds................................................................................................................... 7 5. Real Interest Rates ........................................................................................................ 7 Attachments I. Letter of Intent .............................................................................................................32 II. Memorandum of Economic and Financial Policies.....................................................34 III. Technical Memorandum of Understanding .................................................................48 Annexes I. Fund Relations .............................................................................................................54 II. Relations with the World Bank Group ........................................................................58 III. Relations with the IDB ................................................................................................60 IV. Statistical Issues...........................................................................................................62 - 3 - I. BACKGROUND 1. A transition government was formed in March 2004 and has received concerted international support to stabilize the political and economic situation and lead the country to national elections. A United Nations stabilization mission (MINUSTAH) has been deployed in Haiti since June 2004, and in July 2004 donors pledged US$1.1 billion of financial assistance through September 2006. The elections are scheduled to take place in November–December 2005. 2. Following a successful completion of a Staff Monitored Program (SMP), the authorities requested an Emergency Post-Conflict Assistance (EPCA) from the Fund. The SMP spanned the April–September 2004 period, and the EPCA-supported program— covering the period October 2004 to September 2005—was approved by the Executive Board on January 10, 2005. The program sought to consolidate macroeconomic stabilization that had been gained in the earlier six-month SMP and provide a framework for continued donor assistance. 3. The EPCA-supported program was on track until May 2005. All end-December and end-March targets were observed, inflation declined, the exchange rate stabilized, and net international reserves were increased. However, following expansionary fiscal and monetary policies during May–June, most end-June targets were missed. Also, while many structural measures were implemented as envisaged, progress on key structural measures— including the census of public employment and domestic arrears—was delayed. 4. Despite progress in stabilizing the economy and restoring the government’s authority over the country, economic recovery has fallen short of expectations. The impact of the conflict in early 2004 was initially compounded by the devastating floods in May and September, which caused the loss of thousands of lives and extensive material damage. Subsequently, the recovery has been hampered by disappointing progress in dealing with the security situation, slow external disbursements, and long-standing administrative and infrastructure constraints. As a result, activity has been sluggish and large portions of population continue to live well below the poverty line. 5. More recently, there are signs that the political and security situation has improved. MINUSTAH and the national police have succeeded in bringing down violent crime in Port-au-Prince and reducing the climate of insecurity. Also, prospects for holding safe and fair elections later this year have improved as all key political parties submitted their candidates to the electoral council. However, the slow pace of voter registration has delayed elections to November 20 and December 11, 2005. 6. The Haitian authorities have requested a second purchase under the Fund’s EPCA policy. The authorities would like the Fund to remain closely engaged in Haiti and have proposed a financial program that would cover October 2005–September 2006, with indicative targets set through March 2006, and which would be supported by the second EPCA purchase. The new government is expected to be in office in early 2006, at which time - 4 - 0 5 10 15 20 25 30 J an-04 Apr - 04 Jul-04 Oct-04 J an-05 Apr - 05 Jul-05 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 Monthly (right scale) Annual (left scale) Non-food monthly (right scale) Text Figure 1. Haiti: Inflation 1/ (In percent) it could initiate discussions of a future PRGF arrangement, subject to a satisfactory performance under the second EPCA-supported program. 7. Haiti continues to meet the conditions for post-conflict assistance from the Fund. 1 In particular: (i) there remains an urgent balance of payments need; (ii) Haiti’s institutional and administrative capacity has been disrupted, so that it cannot implement a program with upper-tranche conditionality; (iii) there is, nonetheless, capacity for policy planning and implementation, as well as demonstrated commitment on the part of the authorities; and (iv) Fund assistance would continue to be part of the international effort to address the aftermath of the conflict that includes assistance from the World Bank, the Inter- American Development Bank (IDB), the European Union (EU), the United States, Canada, and other donors. II. R ECENT ECONOMIC DEVELOPMENTS 8. The macroeconomic situation and outlook have deteriorated in recent months. Following a year of improvement, worsening security conditions, slower than anticipated donor disbursements, and rising oil prices began to weigh more heavily on confidence and key activity indicators such as tax revenues and credit growth. These factors also contributed to an unprogrammed fiscal expansion in mid-year and a slackening of monetary discipline. As a result: • The growth projection for 2004/05 (October–September) has been lowered to 1½ percent. There are downside risks to this projection, especially with a recent tightening of financial policies that has been needed to compensate for shortfalls in donor support, and political and security situation could deteriorate. • Inflation has picked up. Consumer prices rose by about 6¼ percent during April-August, and the end-September objective of reducing the 12-month inflation rate to 15 percent is at risk (Text Figure 1). 1 See Haiti: Use of Fund Resources—Request for Emergency Post-Conflict Assistance (IMF Country Report No. 05/65). - 5 - 30 40 50 60 70 80 90 100 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 Aug-05 35 36 37 38 39 40 41 42 43 Exchange rate, end-of-period (Gourde/US$, right scale) Text Figure 2. Haiti: Exchange Rate and NIR NIR (millions of U.S. dollars , left s cale) Text Figure 3. Haiti: Nominal and Real Effective Exchange Rates 1/ (1990=100) 10 60 110 160 210 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 0.01 0.02 0.03 0.04 0.05 0.06 0.07 Nominal ef f ective exchange rate (left scale) Exchange rate (US$/gourdes, right scale) Real ef f ective exchange rate (left scale) • The exchange rate has come under pressure. The increase in violent incidents over the summer reduced confidence and led to capital outflows, and drop in private remittances and visitors. As a result, following several months of stability, the gourde depreciated by about 10 percent during May-September 2005 (Text Figure 2). In real effective terms, however, the gourde remains 19 percent above the March 2004 level (Text Figure 3). • The external position has remained vulnerable. The central bank has avoided purchasing foreign exchange since April to ease pressures on the gourde, and the government’s foreign exchange needs caused net international reserves (NIR) to fall to US$49 million by end-July, and gross reserves dropped to the equivalent of only two weeks of imports. Subsequently, two IDB disbursements have helped NIR to rebound to about US$75 million in mid- September. 2 • The use of central bank financing of the budget is being eliminated. Earlier in the year, the government borrowed from the central bank to cover higher outlays as well as revenue shortfalls caused by worsened security conditions and a strike by customs 2 During August–September 2005, the IDB disbursed two budget support loans totaling about US$25 million. - 6 - officials. 3 However, stricter expenditure controls implemented since early July, strong revenue performance in August and recent IDB disbursements are expected to bring cumulative central bank financing to a surplus by the end of the fiscal year in September. • Liquidity growth has been excessive. Gourde deposit rates have been negative in real terms and until mid-August were below dollar deposit rates, contributing to a decline in gourde term deposits and rapid growth in currency in circulation and dollar deposits. • Commercial banks’ asset quality has continued to deteriorate. Credit to the private sector has remained stagnant in real terms while the share of non-performing loans, increased from 8.3 percent in December 2004 to 9.6 percent in June 2005. Also, one of the largest banks experienced a deterioration in its portfolio and the central bank intensified supervision of its operations. However, according to official statistics the financial position of the banking system appears stable as capital adequacy ratio at end-June was 15.7 percent and banks’ profitability has improved. • Most quantitative targets for end-June were missed. Targets for end-June and end-September were to be confirmed in the context of the authorities’ request for a second EPCA purchase that had been originally intended for Board consideration in early July 2005. 4 9. Fiscal policy discipline is being restored. The authorities issued a supplementary budget for April-September 2005 in early June that would have required G1.5 billion of additional financing (0.9 percent of GDP) for April–September 2005. However, they subsequently responded by scaling back or canceling several programs, such as compensation to victims of cooperatives fraud, as well as a new program of government support to the private sector (0.3 percent of GDP). 5 The fiscal position has strengthened further as revenue shortfalls in April–June were more than offset by a strong overall revenue performance and large unanticipated one-time tax payments (arrears and licenses) in August– September 2005. 6 3 The program also allowed for temporary increases in BRH financing to cover debt-service payments until programmed disbursements in the following quarter. 4 Information on performance under the previous EPCA-supported program was provided in IMF Country Report No. 05/206. 5 The program envisaged capital injections to support establishment of new small enterprises, tax cuts, and interest subsidies for private sector enterprises. 6 The exceptional revenues (0.5 percent of GDP) were payments for new licenses by cellular phone companies and petroleum and other tax arrears. - 7 - Text Figure 4. Haiti: BRH bonds 0 1000 2000 3000 4000 5000 6000 7000 8000 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 0 5 10 15 20 25 30 35 40 BRH 91-day rate (percent, right scale)Stock (millions of gourdes, left scale) -20 -15 -10 -5 0 5 10 15 20 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 91-day BRH bond Gourde time deposit Gourde lending Text Figure 5. Haiti: Real Interest rates 1/ 10. Monetary policy is being tightened, albeit haltingly. By end- March 2005, excess reserves of the banking system reached 25 percent of required reserves, while interest rates remained negative in real terms. 7 The central bank’s (BRH) initial steps to tighten monetary conditions in late April in response to emerging pressures on the exchange rate were reversed in May. However, in the face of continued exchange rate pressures by end-June, the BRH absorbed G2.1 billion of liquidity from the banking system, and raised interest rates on central bank 91-day bonds from 7 percent to 13 percent; interest rates were increased again to 15.6 percent in August (Text Figure 4). Interest rates are still negative in real terms (Text Figure 5), the BRH’s net domestic assets substantially exceeded program ceilings and base money increased by 5¼ percent during July-September 2005 (Table 1). 11. Key structural measures have been implemented, although with some delays. For example, a census of employment in the police, education, and health sector was completed only in September, past the initial end-March due date and in a less comprehensive manner than expected. 8 The authorities published three notifications of the registration of domestic arrears, but the initial notification provided only a short deadline for reporting claims to relevant ministries. Also, the list of beneficiaries of government- backed programs for the private sector were published much later than envisaged. On the positive side, spending through discretionary ministerial accounts has been limited to below 7 Since June 2001, reserve requirements are 31 percent of deposits at the commercial banks. 8 The census of employment was expected to address the issues of ghost workers and irregularities in the check distribution process. In view of the security situation, capacity constraints, and absence of donor technical support, the census was largely based on attendance lists rather than actual head count. - 8 - 10 percent of budgetary credits, central government accounts for 2002/03 have been transmitted to the Cour Superieure des Comptes et du Contentieux Administratif (CSCCA) for audit, and systematic pre-audit of government spending was eliminated as of July 1. 12. International donors reiterated their support for Haiti at conferences in Cayenne and Montreal but actual disbursements fell short of expectations. During October 2004–June 2005, total donor budgetary financing (grants and loans) was US$196 million, US$44 million lower than programmed. The shortfall was mostly accounted for by lower project disbursements, reflecting delays in project preparation by donors and the authorities, and security concerns. III. E CONOMIC AND POLITICAL RISKS 13. Haiti continues to meet the conditions for post-conflict assistance, but there remain significant risks to macroeconomic stability and to the Fund’s involvement. • Security. Despite continued deployment of the United Nations (U.N.) security forces, the government’s authority is not fully established in some provinces and kidnappings and violent crime continue, in particular in the Port-au-Prince area. • Political process. Security concerns, delays in the voter registration process, and low participation may undermine the success and legitimacy of the elections scheduled for late 2005. • External position. Sluggish donor support, coupled with weaker foreign exchange inflows from remittances and visitors and the rise in world oil prices, have increased pressures on the exchange rate and have caused large financing gaps to emerge into the medium term. IV. P OLICY DISCUSSIONS 14. The authorities re-iterated their commitment to maintaining financial stability through the period of political transition and to revive economic activity. The proposed program for October 2005–September 2006 would be consistent with the authorities’ pledge to avoid central bank financing of the budget over time and to strengthen Haiti’s external position. 9 However, the authorities noted that this task had been further complicated by continued insecurity, a slower-than-anticipated pace of donor disbursements, pressures on the exchange rate, and a sizable external financing gap. 9 The program for October 2005–March 2006 assumes the use of net BRH financing (corresponding to a cash surplus accumulated during 2004/05), while still leaving the end-March 2006 stock of BRH credit to the central government below its end-March 2004 level. - 9 - 15. The main focus of discussions was on the policy corrections needed in light of the more difficult macroeconomic and security situation and delays in donor disbursements. The authorities emphasized their commitment to modify their fiscal plans for the 2005/06 budget in order to ensure these were consistent with available resources, and to also tighten the monetary policy stance in order to preserve macroeconomic stability. It was recognized, however, that the changed circumstances would require significant amendments to the quantitative objectives that had been set earlier. 16. The authorities stressed the importance of a Fund-supported program during the coming political transition. A second EPCA program would help discipline policies during the forthcoming political transition and provide a necessary framework for donors’ support and would facilitate a move to a possible PRGF arrangement in 2006. Against this background, it was agreed to establish a financial program through September 2006, with indicative targets set through March. A. Key Macroeconomic Policy Issues Fiscal policy and reforms 17. The mission welcomed that the supplementary budget for April–September 2005 had been implemented in a manner that avoided recourse to central bank financing. The authorities agreed that the potential threat to financial stability outweighed the possible benefits of fiscal expansion in the present circumstances. Accordingly, central government outlays were limited to high priority areas—wage bill, interest payments, and necessary funding of public sector entities, as well as G220 million for domestically funded public investment. The budget also provided G178 million of transfers for fuel purchases for the electricity company (EDH) to ensure power supply in Port-au-Prince of maximum 12 hours a day. The authorities agreed with the staff that in particular in view of tight budget constraints, the new program of support to the private sector and the payments to the victims of the cooperatives fraud should be postponed. 18. The authorities and staff agreed on a 2005/06 central government budget that would permit some increase in social services and infrastructure investment. The budget is based on relatively conservative macroeconomic parameters—real GDP would grow by 2.5 percent, CPI inflation would decline to 10 percent, and the overall deficit (excluding grants) would be 6.3 percent of GDP, to be fully financed by external assistance. In addition: • Revenues are targeted at 9.3 percent of GDP. The mission agreed that such a conservative revenue projection was appropriate, given the risks related to the security/political situation and donor support. The authorities viewed this target as consistent with historical trends and attainable, especially once customs controls were extended to all border points. • The expenditure ratio would rise to 15.6 percent of GDP, from 14.1 percent of GDP this year. This would mainly reflect increases in externally-financed projects, - 10 - including in social sectors, and recent wage increases. 10 The authorities agreed not to further increase wages and salaries during the next fiscal year until payrolls are adjusted according to the results of the census of public sector employment and adequate budgetary resources are available. The budget would also include resources to strengthen the position of the central bank (see below), and to prepare a strategy to address domestic arrears based on the survey to be completed by December 2005. • The authorities have requested additional donor support. This support is needed to close the remaining financing gap for April–September 2006 which is estimated at US$30.6 million or 0.7 percent of GDP. 19. Measures are being taken to strengthen revenue performance and expenditure management. In the area of tax policy and administration, pre-shipment verification will be extended to all ports of entry and borders of Haiti and the use of central taxpayer file on the basis of tax payers’ Fiscal Identification Number will be introduced. On the expenditure side, the authorities are committed to: (i) ensuring that all new recruitment and promotions are within budget allocations of the spending ministries; (ii) limiting discretionary spending through ministerial current accounts to below 10 percent of budget non-wage credits; and (iii) completing by the Anti-Corruption Unit of their investigation of corruption in the check distribution process by December 2005. 11 Monetary and Financial Sector Policies. 20. The mission urged the authorities to tighten monetary conditions. In particular, base money growth appeared excessive and—coupled with interest rates that were negative in real terms—threatened the achievement of the program’s inflation objective and exchange rate stability. Therefore, the mission recommended that the BRH absorb excess liquidity sufficiently to bring real interest rates to positive levels. 21. The monetary authorities stated that they were committed to achieving the program’s external and inflation objectives. They explained that the earlier relatively lax policy stance had reflected a desire to support economic activity as well as concern that issuing central bank paper to withdraw liquidity would worsen the BRH’s losses. However, the BRH had recognized the need to stem the growing pressures on the exchange rate and by end-June acted to absorb liquidity by issuing bonds and raised interest rates. During 10 The 2005/06 budget assumes a 26 percent increase in the government wage bill, of which 10 percentage points reflect the carry-over effect of the 2004/05 salary increase, and the remainder is for new hiring (police in particular) and inflation adjustments. 11 These measures were recommended by the April 2005 FAD technical assistance mission on public financial management. - 11 - discussions, the authorities indicated their commitment to taking further steps, as needed, to raise interest rates to levels positive in real terms. 22. The authorities requested Fund assistance in developing a strategy for financial sector reform. In the near term, a price-based bond auction mechanism, as recommended by the MFD technical assistance mission, would be re-established to help provide clearer signals about market conditions and the stance of monetary policy. The authorities have revised drafts of a new central bank law that would establish independence of the central bank and of a banking law, and are working on a medium-term strategy to reduce reserve requirements and enable more efficient financial intermediation. 23. The authorities are developing a strategy to address BRH losses. 12 A MFD technical assistance mission recommended that the government convert its outstanding liabilities to the BRH into government bonds and that all future credit to the government bear a market based interest rate. A strategy for recapitalization of the central bank is being prepared and as a first step, increased payments by the Treasury to the BRH have been included in the 2005/06 budget. The Fund is providing technical assistance to develop a plan for a more fundamental recapitalization of the central bank over the medium term. B. Governance and Transparency 24. The authorities agreed with the staff that continued efforts are needed to achieve a lasting improvement in the management and transparency of the public sector. These could build on the following actions implemented so far: • Census of public sector employment. Census reports have been completed in 68 ministries and other public sector entities, including in the ministries of health and education, and the national police; and public sector payrolls are being adjusted accordingly. The authorities recognize that a full-fledged census should be implemented as soon as security conditions and resource availability permit; • Survey of domestic arrears. Public announcements were issued for registration of unpaid claims on the central government and a program for their settlement will be developed during 2005/06; • Transparency of government operations. The information on budget execution as well as the list of beneficiaries of a government-backed scheme for businesses that suffered losses during the early 2004 conflict and from the June 2004 fires will continue to be published in local newspapers and on the government’s website; 12 These losses reflect the fact that the interest rate on BRH credit to the central government is below the interest rate on the BRH’s interest bearing liabilities. - 12 - • Transfers to EDH. A monitoring mechanism for the use of government transfers to the EDH has been put in place in consultation with World Bank staff, monthly reports on transfers and associated electricity output will be published, and independent audit of these reports will begin by end-October 2005. Furthermore, competitive acquisition procedures will be applied in the electricity sector; • Audits of public sector accounts. The report for the central government accounts of 2002/03 will be published after their audit by CSCCA is completed. This will be followed by an audit of 2003/04 accounts; • Consumer price index. A new price index was introduced in June 2005, to better capture price developments beyond the Port-au-Prince area. 25. The mission urged the authorities to continue with implementation of a flexible price-setting mechanism for petroleum prices. The authorities explained that less than full adjustment in petroleum prices in recent months reflected their intention to gradually phase in the recent sharp increases in international prices. However, they agreed with the staff that delaying adjustment would have negative fiscal and resource allocation effects and reiterated their commitment to implement this mechanism as envisaged. 26. The authorities agreed with the staff on a plan to strengthen data reporting and reliability. A committee established last May has met regularly and recommended steps to improve reporting of data required for program monitoring. Regarding the monetary data, the internal audit mechanism has been strengthened and a process established to improve the timeliness of reporting. A plan will be agreed with Fund staff based on a comprehensive review of fiscal and monetary data collection and reporting, leading to regular and automated data transmissions to the Fund. C. External Sector 27. The authorities and mission agreed on the need to revise downward the original NIR targets. The authorities stressed that in the context of an unsettled security situation and rising international petroleum prices it would not be possible to make up for reserve losses to date without putting undue pressure on the gourde. For these reasons they could only commit to increasing NIR to US$84 million by end-September 2006. Moreover, the external assistance that had been pledged to Haiti thus far would help cover Haiti’s external debt- service obligations, fuel purchases for maintaining electricity supply, and other priority government needs, but would not allow any further increase in NIR during the period to March 2006. While recognizing these constraints, the mission stressed that this would leave NIR at low levels and that it would be essential for the BRH to maintain a steady pace of foreign exchange purchases to avoid any shortfall in the revised NIR targets. - 13 - 28. The staff recognized the importance of timely disbursements of budget assistance. Two IDB loans (US$24.5 million) have been recently disbursed, and conditions for disbursements from the World Bank (US$14.5 million) and the IDB (US$10 million) expected before end-2005 have been largely completed. The authorities agreed that it was important to work closely with donors to avoid procedural and other delays in disbursement of existing pledges, and also to seek additional assistance to fill the financing gap of US$30.6 million that was estimated for the second half of the fiscal year 13 In this context, the authorities have requested donor assistance in the preparation of capital investment projects for 2005/06, including to address capacity constraints in line ministries that hamper project preparation. Steps are also being taken to strengthen aid coordination with donors, including by improving the flow of information about on-going and planned projects. D. Program Issues Access and capacity to repay the Fund 29. The proposed purchase under the Fund’s EPCA policy is for SDR 10.245 million (12.5 percent of quota). The rate of charge on the proposed purchase would be subsidized to an annual rate of 0.5 percent, consistent with Haiti’s PRGF eligibility. The proposed access is consistent with the revised EPCA policy and with Haiti’s financing needs during July 2005-March 2006, taking into account the resources pledged by other donors. 30. Haiti is expected to meet its financial obligations to the Fund in a timely manner. The country has been current on its debt-service obligations to the Fund since the early 1990s. Taking into account Haiti’s purchase of 12.5 percent of quota under the EPCA in January 2005, the proposed purchase in October is consistent with the annual access limit under the EPCA (25 percent of quota); Fund credit outstanding would peak in 2006 at 27 percent of quota and 5¼ percent of exports of goods and services. Debt service to the Fund would remain below 2 percent of exports of goods and services. Program monitoring 31. The authorities’ economic program would cover the fiscal year October 2005-September 2006. However, the financial program and quarterly targets were agreed for December 2005 and March 2006. Targets for April–September 2006 would be confirmed with the new government by March 2006 either as interim targets in the context of PRGF negotiations or some alternative monitoring arrangement. 13 This gap could be covered from resources that would become available to Haiti from the European Union, the IDB, and the World Bank. Haiti will continue to accumulate arrears to some bilateral creditors until a PRGF program is in place, based on an informal agreement confirmed in the context of the first EPCA purchase in January 2005 (IMF Country Report No. 05/65). - 14 - 32. The staff will monitor program execution based on quarterly indicative targets, structural benchmarks, and quarterly staff visits. Quarterly indicative targets for end- December 2005 and end-March 2006 will be set as presented in Table 1 of the MEFP. Attachment II presents policy actions to be implemented by March 2006, including those that would be introduced as structural benchmarks. Technical assistance 33. Haiti’s institutional and administrative capacity has been adequate for program implementation under the policy on EPCA, but large technical assistance needs remain. Recent Fund missions prepared summaries of the needs in areas of public finance and monetary management, and with the authorities’ consent these have been shared with other donors to improve coordination and effectiveness of technical assistance to Haiti. The Fund is also preparing technical assistance to strengthen the financial position of the central bank, and a multi-topic statistical mission is planned later this year. This latter mission will be particularly helpful in improving data reporting to the Fund and for program monitoring. Safeguard Assessment 34. A safeguards assessment of the Banque de la République d’Haiti was completed in August 2005. It identified a number of vulnerabilities, in particular in the areas of financial reporting, internal audit and controls. To address these vulnerabilities staff proposed various measures, including a strengthening of the accounting function of the bank and of procedures for the compilation, reporting, and verification of monetary data reported to the Fund, as well as improvements in the operations of the BRH’s Internal Audit Unit. The BRH has indicated that it has already started to implement some of the recommendations and progress will be monitored by staff. V. S TAFF APPRAISAL 35. Haiti is entering a crucial period in its political transition and in its economic stabilization and recovery program. Considerable improvements in the security situation and in economic performance had been achieved last year and in early 2005. However, the deterioration in the security situation earlier this year has contributed to delays in the preparations for national elections scheduled later this year and this has also a negative impact on the economy, as well as on donor and other inflows of foreign exchange. 36. Looking forward, there is a critical need to improve security conditions in Haiti. This will be essential for ensuring fair and safe elections, and for implementing the social and economic agenda agreed with donors last year. In this context, the recent decision by the United Nations to increase its stabilization force in Haiti is a welcome development. - 15 - 37. Stringent fiscal discipline and good governance will be crucial for fostering private sector-based recovery and for assuring donors that external assistance will be used effectively. It is encouraging, therefore, that the authorities have decided to implement fiscal policies consistent with the principle of avoiding central bank financing of the budget. This has required scaling back the outlays from the levels envisaged in the supplemental budget, and strictly limiting spending to high priority areas, including for basic social services, security, and domestically-funded investment. The staff also welcomes the authorities’ and donors’ commitments for the 2005/06 budget which would increase the provision of social services and public investment using external assistance while also avoiding central bank financing over time. 38. The BRH needs to ensure that monetary conditions are tight enough to protect the program’s inflation and external objectives. Welcome steps have already been taken to absorb excess liquidity in the banking system and to raise interest rates. However, these were taken only after market pressures had already built and it will be important for the central bank to conduct its operations in a more forward-looking and pre-emptive manner. The authorities are also strongly encouraged to re-establish a price-based bond auction mechanism, since this would help provide clearer signals of the policy stance. The staff welcomes the authorities’ intention to cover the losses of the BRH and to develop a plan to recapitalize the central bank, and encourages publication of the audit of the BRH’s accounts. 39. The staff welcomes the recent steps to improve transparency and governance in the public sector. The recently completed census of employment in key ministries and public sector entities has helped demonstrate a commitment to strengthening good governance and should also yield budgetary savings by eliminating ghost workers from the government’s payroll. A full-fledged census should be implemented once the security situation allows and resources are available. Also encouraging are the steps to address domestic arrears and the publication of information on budget execution and government programs of support to the private sector. The authorities’ intention to publish the audits of the central government accounts for 2002/03 and the forthcoming audit of 2003/04 accounts are also welcome. Of critical importance is the establishment of a mechanism to ensure that government transfers to the EDH are linked to electricity supply targets, and that all new contracts on electricity production are based on open and competitive bids. As important is rapid progress in extending customs control to all border points of entry to further improve revenue performance. 40. The staff supports the authorities’ efforts to mobilize additional donor financing and to accelerate disbursement of the pledged assistance. The first priority would be to make every effort to ensure that policies are consistent with agreements reached with donors so that budgetary assistance can be disbursed as envisaged. At the same time, donor support is needed to alleviate capacity constraints within the line ministries to prepare and implement capital investment projects. Nonetheless, a large - 16 - financing gap of US$30.6 million remains for 2005/06 and the authorities and donors are encouraged to work together to fill this gap on a highly concessional basis. 41. Further improvements are needed in data reporting to the Fund for program monitoring and surveillance. The staff welcomes the establishment of the committee to strengthen data reporting, and the steps taken to improve the timeliness and integrity of monetary data, and supports the authorities’ request for technical assistance to improve Haiti’s economic statistics. The implementation of the new consumer price index is an important achievement of Haiti’s statistical services. 42. In the staff’s view, Haiti continues to meet the conditions for post-conflict assistance. Haiti’s balance of payments needs remain urgent, while the present institutional and administrative capacity is not sufficient to implement a program that could be supported by a Fund arrangement. However, performance to date under the SMP and the EPCA- supported program demonstrates that the authorities have sufficient capacity and commitment to implement the program they are presenting as a basis for Fund support. The proposed purchase from the Fund would support a macroeconomic framework to underpin a broader international support to Haiti. Taking into account the authorities’ commitment and the performance under the SMP and the EPCA, the catalytic role Fund resource would play, and notwithstanding the risks that arise in the present difficult political and security situation, the staff supports the authorities’ request for Fund assistance under the post- conflict emergency assistance policy. - 17 - Table 1. Haiti: Indicative Targets, September 2004–September 2005 1/ EPCA I Actual stock at Cumulative flows since September 2004 end-September 2004 Prog. Prog. with adjustor Actual Prog. Prog. with adjustor Actual Prog. Prog. with adjustor Actual Prog. Prog. With adjustor Actual 4/ Dec. 04 Mar. 05 June 05 Sept 05 Net central bank credit to the NFPS (in millions of gourdes) 21,581 -74 -330 -805 378 378 -136 339 494 731 0 280 -324 Of which: Central Government 21,659 -74 -330 -773 378 378 -95 339 494 737 0 280 -380 Rest of NFPS -79 0 0 -33 0 0 -41 0 0 -6 0 1 56 Net domestic banking sector credit to the nonfinancial public sector 21,097 -115 -370 -807 297 297 -167 217 372 736 -163 117 -319 (in millions of gourdes) Net domestic assets of the central bank (in millions of gourdes) 6,612 806 551 169 741 741 515 251 406 1,218 34 314 1,766 Domestic arrears of the central government 0 0 ... 0 0 0 0 0 0 0 0 0 0 Nonconcessional external loans contracted or guaranteed by the central government (In millions of U.S. dollars) Up to one year 0 0...0 000 000 000 Over one-year maturity 0 0...0 000 000 000 Net international reserves of central bank (in millions of U.S. dollar s 55 71436 3 320 12 8 -1 292210 External arrears accumulation (in millions of U.S. dollars) 2/ ... 0 0 0 0 0 0 0 0 0 0 0 0 Memorandum items: 3/ Government total revenue (in millions of gourdes) … 4,027 ... 3,611 7,979 ... 7,774 11,964 ... 11,202 15,921 16,103 Government total expenditure (in millions of gourdes) … 5,893 ... 5,553 11,764 ... 11,303 18,732 ... 16,891 26,084 23,118 Sources: Ministry of Finance, Central Bank of Haiti, and Fund staff estimates. 1/ Refer to technical memorandum for definitions of indicative targets. 2/ To all creditors except those who agreed on debt service deferral. 3/ Not targets. Cumulative flows over the program period. 4/ Estimated from weekly data provided by authorities. - 18 - Table 2. Haiti: Selected Economic and Financial Indicators Fiscal Year Ending September 30 2001 2002 2003 2004 2006 Prog. Revised Prog. Prog. (Annual percentage change, unless otherwise indicated) National income and prices GDP at constant prices -1.0 -0.5 0.5 -3.8 2.5 1.5 2.5 GDP deflato r 11.6 10.1 26.9 21.9 15.0 15.3 9.6 Consumer prices (period average) 16.8 8.7 32.5 27.1 16.6 16.7 13.3 Consumer prices (end-of-period) 12.3 10.1 42.5 22.5 12.0 15.0 10.0 External sector Exports (f.o.b.) -7.8 -10.5 21.0 12.8 4.8 11.6 6.7 Imports (f.o.b.) -2.9 -6.9 13.6 6.0 24.4 30.8 11.3 Real effective exchange rate (+ appreciation) 7.8 -9.0 -8.5 31.6 ... ... ... Central government Total revenue and grants 5.2 15.4 37.5 31.0 ... 54.2 11.2 Total revenue 1/ 3.8 20.2 37.3 15.9 27.8 29.3 7.0 Total expenditure 8.7 20.6 39.8 17.5 46.5 30.5 24.6 Money and credit Net domestic assets 2/ 9.4 17.0 26.2 10.6 6.9 8.7 3.9 Credit to public sector (net) 2/ 8.5 9.4 9.3 4.6 -0.3 -0.5 0.6 Credit to private sector 2/ -3.5 5.9 13.0 3.4 7.2 7.3 3.4 Broad money (including foreign currency deposits) 5.2 17.2 39.8 9.1 12.8 16.6 6.6 Velocity (GDP relative to broad money) 2.7 2.5 2.3 2.5 2.7 2.5 2.6 Average interest rate on time deposits 13.5 7.6 15.0 7.5 ... ... ... (In percent of GDP, unless otherwise indicated) Gross investment 25.9 24.9 30.7 27.3 27.5 27.3 29.8 Gross national savings 22.3 22.4 29.8 26.5 24.8 25.7 24.7 Of which: Public sector savings -0.6 1.0 -0.3 1.0 0.2 -0.2 -0.2 Savings-investment balance 3/ -3.6 -2.5 -0.9 -0.8 -2.7 -1.6 -5.1 Central government overall balance (including grants) -2.4 -3.0 -3.5 -2.4 -1.2 -0.6 -2.3 Central government overall balance (excluding grants) -2.8 -3.2 -3.6 -3.7 -6.0 -4.3 -6.3 Central bank net credit to the central government 2.6 3.1 3.1 2.0 0.0 -0.2 0.2 External current account balance (including official grants) -2.0 -1.0 -0.1 0.4 0.5 0.5 -1.5 External current account balance (excluding official grants) -6.5 -4.9 -4.8 -2.8 -7.5 -7.5 -10.3 External public debt (end-of-period) 32.6 35.3 44.0 37.2 30.7 31.4 31.0 Total public debt (end-of-period) 4/ 35.8 38.7 47.8 39.5 32.6 34.6 34.4 External public debt service (in percent of exports of goods and nonfactor services) 8.7 7.9 8.8 9.2 9.2 9.0 9.2 (In millions of U.S. dollars, unless otherwise indicated) Overall balance of payments -7.9 -68.5 -10.9 33.0 80.1 50.7 -5.7 Net international reserves 5/ 108.8 53.0 38.8 54.5 85.4 64.5 83.6 Liquid gross reserves 6/ 227.3 177.7 157.1 206.9 271.0 223.6 264.7 In months of imports of the following year 2.2 1.5 1.2 1.3 1.7 1.3 1.4 Exchange Rate (gourdes per dollar, end-of-period) 25.5 29.7 42.0 36.8 ... ... ... Sources: Ministry of Economy and Finance; Bank of the Republic of Haiti; and Fund staff estimates. 1/ Excluding grants. 2/ In relation to broad money (including foreign currency deposits) at the beginning of the period. 3/ External current account balance excluding official capital grants. 4/ Includes external public sector debt, outstanding Central Bank bonds, and credit from commercial banks to the NFPS. 5/ Excludes commercial banks' foreign currency deposits with the BRH. 6/ Gross reserves excluding capital contributions to international organizations. 2005 [... middle sections omitted for long document ...] - 2 - “The key objectives of the 2005/06 program are to strengthen the fiscal position, while avoiding central bank financing, to strengthen Haiti’s external position, and to advance key structural reforms. In particular, revenue performance and expenditure management will be strengthened, and monetary policy will be tightened, to stem pressures on domestic prices and help ensure that the program’s net international reserves target is met without undue pressure in the foreign exchange market. In support of these objectives, the authorities will take further measures to achieve a lasting improvement in the management and transparency of the public sector. These include: a more comprehensive census of public employees, based on a full headcount, once the security situation allows and resources become available; implementing a program to settle domestic arrears; continuing to publish the budget execution and the list of beneficiaries of government programs in support of the private sector; and moving ahead with the audit of public sector enterprises. The authorities are also committed to implementing a monitoring mechanism of fuel purchases and to ensure that new contracts on electricity production are based on open and competitive bids. “Looking ahead, additional assistance from the international community will be required to support the authorities’ 2005/06 program, the ongoing electoral process, and Haiti’s longer-term development needs. In addition to providing a framework for donor support, it is anticipated that continued success in policy implementation under the EPCA-supported program will provide a basis for a possible PRGF-supported program and HIPC debt relief,” Mr. Carstens said. Statement by Eduardo Loyo, Executive Director for Haiti and Ketleen Florestal, Advisor to Executive Director October 14, 2005 On behalf of our authorities, we wish to thank management and staff for their continuous engagement with Haiti and for their extraordinary efforts in catalyzing donor support for the country. Our authorities also appreciate the continued provision by the Fund of much valued technical assistance, in spite of security concerns. We would particularly like to thank the Statistics Department for trying its best to design a way to deliver on its promised assistance, undertaking a thorough assessment of needs in the real, monetary, BOP and fiscal sectors. We would also like to take this opportunity to reiterate our authorities’ request for an FSAP. 1. Recent macroeconomic developments Under the Emergency Post-Conflict Assistance (EPCA) covering the period from October 2004 until September 2005, the Haitian authorities made substantial progress in stabilizing the economy and strengthening institutions, notwithstanding adverse external shocks and a problematic security situation. Benchmarks and targets were largely met during the first two quarters of the program. In the second quarter of 2005 (third quarter of the program and of the fiscal year), following low levels of revenue collection and lower than expected external financial assistance, the Government temporarily resorted to financing from the Central Bank. Concerns regarding the risks to the IMF program posed by such financing further delayed the disbursement of much-needed budget support and caused Haiti to deviate from the quantitative targets that had provisionally been agreed with the Fund for end-June. The authorities promptly took corrective measures, however, to reverse the situation. Expenditure controls and record tax revenues in August and September, due in particular to administrative efforts and to the collection of arrears from cellular phone companies, allowed the Government to reverse earlier Central Bank financing more than in full by the close of FY05, while at the same time postponing to the first quarter of the new fiscal year the disbursement of US$ 15 million from a World Bank structural adjustment loan. Monetary policy also had to be tightened to mop up excess liquidity and ease pressure on the exchange rate. That pressure was exacerbated by the sharp increase in oil prices and by delays in the disbursement of external assistance. The Central Bank progressively increased interest rates on its paper – first by 2, and then by 5 further percentage points, respectively, in June and in August this year. This past October 10 th , the rate on its 91-day bond was raised from 15 to 18 percent per year, firmly in positive territory in real terms when compared to a consumer price inflation that is projected, under the program, to be 10 percent in the fiscal year extending from October 2005 to September 2006. Under the prevailing circumstances, however, the Central Bank found it difficult to intervene in the foreign exchange market to meet quarterly NIR targets, and during the last quarter of the program these targets had to be relaxed in consultation with the Fund. The observance of the modified program targets during - 2 - the last quarter of the fiscal year was achieved through fiscal adjustments and the disbursement of the second tranche of an IDB Policy-Based Loan. 2. Progress with structural reforms On the structural front, all programmed measures have been implemented, including key policy actions that were delayed during the first two quarters of FY05. The authorities have completed a census of employment in the National Police, Ministry of Health and Ministry of Education for the Port-au-Prince metropolitan area. As for the census of domestic arrears, a significant amount of claims on the government have been registered in the Ministry of Economy and Finance following the publication in the newspapers of three notices inviting the public to make such registration. The authenticity of the claims is presently being verified by a Ministry task force. A strategy to deal with domestic arrears, including a payment schedule, will be laid out once their outstanding stock is officially determined. In the electricity company EDH, a mechanism for continuous monitoring of the use of budgetary transfers has been put in place. It includes an independent audit to be carried out by a private firm. Furthermore, competitive acquisition procedures will be adopted to replace existing contracts at their expiration and to convert protocols for electricity supply into contracts by end-December 2005. An Anti-Corruption Unit, created by ministerial decree and entrusted with corruption prevention and awareness, information dissemination and administrative investigation, has been operational since September 2004, with a clearly established work program and operational plan. Several corruption cases identified by the Unit have been referred to the judicial authorities for prosecution. The Unit has also recently completed, in partnership with IDA, a comprehensive diagnostic survey on corruption practices with a view at incorporating its conclusions into a medium term anti-corruption strategy. A key element of the reform efforts is the strengthening of the central bank. The authorities have taken decisive measures to decrease the constraints on the BRH’s ability to conduct monetary policy. The losses of the central bank, estimated at 1 percent of GDP in 2004, have been reduced by more than two thirds. Recognizing the heavy toll that subsidized credit to the central government has had on the central bank’s balance sheet and the risks to the economy of the bank’s deficit, the Ministry of Economy and Finance has agreed to begin making payments to the BRH on outstanding credits that will at least cover the bank’s operational costs. A recapitalization plan, which includes the conversion of subsidized credit to the government into interest-bearing bonds, is to be implemented starting this fiscal year. In line with the recommendations of the Fund’s Safeguards Assessment report published last June, the board of the BRH approved in August 2005 the bank’s internal audit charter, so as to increase the effectiveness of the Internal Audit Department. Simultaneously, the accounting function is being strengthened and the central bank continues its practice of publishing interim and annual audit reports. A new Central Bank Law with provisos consolidating central bank independence and reinforcing the bank’s ability to supervise the financial system has also been drafted. - 3 - 3. The new EPCA The authorities seek Board approval, at this time, for a program under which they will continue to carry on the reforms initiated under the previous EPCA. It covers the six-month period ending in March 2006, when the next government is due to take office and will hopefully be in a position to agree to a program that could be supported by the Fund’s Poverty Reduction and Growth Facility. During these six months, the authorities are determined to consolidate the institutional and macroeconomic framework established during the past two years. The underlying thread of the reforms is to improve transparency, accountability and efficiency in the management of public affairs. The extensive reform agenda contemplates not only actions under the EPCA program but also with the World Bank and the IADB, through Structural Adjustment (EGRO) and Policy Based Loans (PBLs). On the fiscal and governance front, the reform agenda encompasses: • continued reinforcement of budget management and expenditure controls, including a review of the computerized system of public expenditure management and return to the regular practice of producing an annual audit; • reestablishing the annuity of the budget: for the second year in a row, the budget for FY05 was adopted by the Council of Ministers before the beginning of the fiscal year; • eliminating recourse to central bank financing: notwithstanding the immense needs of the public sector to meet urgent and important social and political priorities, and the scarcity of resources, the interim government has insisted on establishing a tradition of fiscal discipline by fixing and observing a target of zero central bank financing; • reinforcing customs controls and fighting fraud and corruption at the Internal Revenue Service (DGI) in order to bring tax collection closer to potential; • substantially reducing the use of current accounts in the execution of public expenditures and making their residual use stringently regulated and transparent; • involving the public in the budgeting process, with data dissemination through the internet and the press and consultations with civil society and donors; • improving transparency and efficiency in procurement, with the creation of a National Procurement Board (CNMP) and publication of results of all tendered contracts; • enhancing transparency in the management of public enterprises through financial and management audits and the reestablishment of sound accounting practices; • safeguarding key social and investment expenditures and improving their efficiency: among other measures, a private/public partnership office was created with a mandate covering mechanisms of subsidization of private educational institutions in poor communities. - 4 - 4. Donor support Economic recovery has been significantly weaker than expected, reflecting the impact of insecurity on business confidence, delays in donor project disbursements, and weaknesses in institutional and administrative capacity. While the authorities are committed to continue with reform efforts, particularly those geared to improve revenue performance, governance and absorptive capacity, stronger budgetary assistance is crucial for the sustained improvement of social conditions in Haiti and for the fight against extreme poverty. Over time, increases in tax revenues should help decrease the dependency on donor funds. The transition government is keenly aware that the new elected government will take office in the middle of the fiscal year and considers it most important that the financial means be readily available for the new administration to operate during the first six months of its term. The Haitian authorities have been forcefully seeking donor support to cover the remaining financing gap for FY06. A donors’ meeting will be held in Brussels on October 20- 21. Haiti is hopeful that donors will be sensitive to the necessity to commit early to ensure timely disbursement of budget support within the 2006 fiscal year. Parliamentary and presidential elections are now scheduled to take place by mid-December 2005 and a new President is to be sworn into office on the constitutionally-mandated date of February 7, 2006. The Haitian National Police and the United Nations Mission for the Stabilization of Haiti have been working together to improve security and to prepare the ground for fair and safe elections. The electoral process could not take place without the support of the international community and they are a key step for Haiti’s future. Strengthening donor coordination, streamlining procedures and improving implementation support will be crucial for effective and timely disbursement of external assistance. In particular, efforts on the part of donors to strengthen local capacities to facilitate project preparation and execution would be welcome. Haiti is thankful to the European Union for its recent unblocking of a significant amount of funds, some of which, it is hoped, will go towards closing the financing gap of the second half of the fiscal year, estimated at present at more than US$ 30 million. We wish to express the authorities’ appreciation for the additional support that Canada, France and Spain have offered to close the financing gap of the first six months of FY06, allowing the conclusion of this EPCA, and also for the US$7 million to be disbursed by the United States in the second half of the new fiscal year. Haiti’s track record of program implementation has greatly improved despite the complexity of the problems the country has to cope with. Going forward, it would be important to expedite as much as possible, with the collaboration of the Fund and the World Bank, the steps necessary for a PRGF program and leading to the decision point under HIPC. More immediately, this would imply renewed efforts in drafting the I-PRSP, which has been initiated by the Haitian authorities.