(1996) Crédit d'urgence pour le redressement économique d'Haïti : Rapport d'achèvement de la mise en œuvre

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 16166 IMPLEMENTATION COMPLETION REPORT HAITI EMERGENCY ECONOMIC RECOVERY CREDIT DECEMBER 9, 1996 Country Operations Division 2 Country Department III Latin America and the Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized CURRENCY EQUIVALENTS (As of December 2, 1996) Currency Unit Haitian Gourde (G) US$1.00 G15.3 SDR1.00 US$1.45 FISCAL YEAR October 1 to September 30 ABBREVIATIONS CAS Countr Assistance Strategy EERC Emergency Economic Recovery Credit EERP Emergencv Economic Recovery Program ERC Emergency Recovery Credit ESAF Enhanced Structural Adjustment Facility EU European Union FY IDA Fiscal Year GDP Gross Domcstic Product GNP Gross Nationial Product ICR Implementation Completion Report IDA International Development Association IDB Inter-American Development Bank IFC International Finance Corporation IMF International Monetary Fund OAS Organization of the American States TAP Technical Assistance Project UN United Nations UNDP United Nations Development Programme USAID U.S. Agency for International Development Vice President: Shahid Javed Burki Director: Paul Iseiiman Division Chief: Philippe Nouvel Staff Member: Axel Peuker (Country Economist) FOR OFFICLAL USE ONLY TABLE OF CONTENTS PREFACE ........................................................ ; EVALUATION SUMMARY ........................................................ iii PART 1: PROJECT IMPLEMENTATION ASSESSMENT ................................................... I INTRODUCTION ........................................................ I PROJECT OB3JECTIVES ........................................................ 2 ACHIEVEMENT OF OBJECTIVES ........................................................ 2 IMPLEMENTATION RECORD ........................................................ 4 PROJECT SUSTAINABILITY ........................................................ 5 IDA PERFORMANCE ........................................................ 5 BORROWER PERFORMANCE ........................................................ 5 ASSESSMENT OF OUTCOME ........................................................ 5 FUTURE OPERATIONS ........................................................ 6 KEY LESSONS LEARNED ........................................................ 6 PART II. STATISTICAL TABLES ........................................................ 9 TABLE 1: SUMMARY OF ASSESSMENTS ........................................................ 9 TABLE 2: RELATED IDA CREDITS ........................................................ 10 TABLE 3: PROJECT TIMETABLE ........................................................ 1 1 TABLE 4: CREDIT DISBURSEMENTS: CUMULATIVE ESTIMATED AND ACTUAL ............................ 11 TABLE 5: KEY INDICATORS FOR PROJECT IMPLEMENTATION .......................... 1........1................ 11 TABLE 6: KEY INDICATORS FOR PROJECT OPERATION ........................................................ 11 TABLE 7: STUDIES INCLUDED IN PROJECT ........................................................ 11 TABLE 8: PROGRAM FINANCING REQUIREMENTS AND DISBURSEMENTS ................. .................... 12 TABLE 9: ECONOMIC COSTS AND BENEFITS ........................................................ 12 TABLE 10: STATuS OF LEGAL COvENANTS ........................................................ 13 TABLE 1 1: COMPLIANCE W1TH OPERATIONAL MANUAL STATEMENTS ................... ..................... 13 TABLE 12: BANK RESOURCES: STAFF INPUTS ........................................................ 13 TABLE 13: BANK RESOURCES: MISSIONS ........................................................ 14 APPENDICES A. BORROWER'S CONTRIBUTION TO ICR B. A FRAMEWORK FOR A SUSTAINABLE ECONOMIC RECOVERY C. MAP: IBRDNO.17094R1 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed wiLhout World Bank authorization. | IMPLEMENTATION COMPLETION REPORT HAITI EMERGENCY ECONOMIC RECOVERY CREDIT (CREDIT NO. 2670-HA) PREFACE This is the Implementation Completion Report (ICR) for the EMERGENCY ECONOMIC RECOVERY CREDIT (EERC) in Haiti, for which Credit 2670-HA in the amount of SDR26.8 million (US$40 million equivalent) was approved on December 20, 1994 and made effective on December 23, 1994. The credit was closed on December 25, 1995, six days before the original closing date, December 31, 1995. It was fully disbursed, and the last disbursement took place on June 6, 1995, The ICR was prepared by Axel Peuker, task manager (LA3C2), and reviewed by Robert Crown, project advisor (LA3DR). Preparation of this ICR was initiated during an IDA mission in January 1996. Following a change in Government in March 1996, it was continued during a mission in June 1996. It is based on material in the project file. The Borrower contributed to preparation of the ICR with comments on the project and statistical data, and prepared a complementary Project Completion Report, which is included as an appendix. IMPLEMENTATION COMPLETION REPORT HAITI EMERGENCY ECONOMIC RECOVERY CREDIT (CREDIT NO 2670-HA) EVALUATION SUMMARY INTRODUCTION 1. In the aftermath of a coup d'etat in September 1991, in which elected President Jean Bertrand Aristide was forced from office and into exile, Haiti experienced a dramatic deterioration in economic and social conditions. After three years of military dictatorship, a negotiated solution was reached which allowed President Aristide to return to Haiti on October 16, 1994, and on November 7, 1994, Parliament confirmed the appointment of a new constitutional Government. At that time, Haiti was in a state of economic and social emergency, characterized by debilitated institutions, large macroeconomic imbalances, a severely dilapidated infrastructure, depleted productive assets, alarming social indicators, and pervasive poverty. 2. In November 1994, the Government prepared an Emergency Economic Recovery Program (EERP) in close cooperation with IDA, IDB, IVF, specialized agencies of the United Nations, and USAID, building on the work of a first multi-agency mission in June 1993. The objective of the EERP was to provide for basic emergency needs through import finance, civil works, and technical assistance. This program, together with the reactivation of ongoing projects, for which the Government received initial pledges of some US$1.2 billion, provided the main stimulus to growth during 1994/95. On December 19, 1994, Haiti's arrears to multilateral agencies of US$82 million were eliminated, allowing IDA, IDB and IMF to resume their operations. This paved the way for the Emergency Economic Recovery Credit (EERC), IDA's key initial contribution to the EERP. The Credit was approved by the Board the following day, on December 20, 1994, and became effective on December 23, 1994. PROJECT OBJECTIVES 3. The objective of the EERC was to provide urgently needed balance of payments support to reactivate Haiti's economy and initiate the economic recovery process in the context of the overall EERP. Specifically, the EERC was designed as a quick-disbursing emergency operation which would finance the CIF value of imports based on a positive list identified as necessary to the EERP. Within the confines of a positive list, EERC funding was not earmarked for specific sectors or activities. The project objective was clearly relevant in view of the binding balance of payments and budgetary constraints which the country was facing. While the overall recovery program was ambitious, the specific objectives of the EERC were modest and attainable. -Iv - IMPLEMENTATION EXPERIENCE AND RESULTS 4. The project was highly successful in achieving its objectives. It rapidly provided the country with the required external financing to initiate the economic recovery, and was fully disbursed by June 1995, six months earlier than expected. The EERC also demonstrated the commitment of the international community to the Government's effort, thus sending an important confidence-building signal to the private sector in Haiti. In addition, the policy dialogue accompanying the preparation of the project, helped to set the stage for a medium-term economic policy reform program. The EERC was further instrumental in establishing a successful Central Implementation Unit (CIU) for emergency projects. 5. The contribution of the EERC needs further to be viewed in the context of the performance of the overall recovery program. Initial donor commitments of US$1.2 billion exceeded by far the estimated requirements of US$402 million for the EERP and US$261 million for arrears clearance, humanitarian aid and governance. In the course of Haitian fiscal years 1994/95-95/96, commitments for Haiti's development even increased to over US$2 billion. The level of disbursements over the first two years amounted to over US$1 billion, also exceeding expectations. 6. As a result of the recovery program, together with sound economic policies, Haiti's economic performance in 1994/95 was encouraging. Real GDP growth amounted to 4.5 percent, consumer price inflation declined from 52 percent by end-September 1994 to 18 percent by end-September 1995, and the Gourde recovered from over G20/US$ during the emergency to G14.5/US$. The Government also proceeded to implement important structural reforms along the lines of its "Framework for a Sustainable Economic Recovery," which accompanied the EERC. 7. Sustainability of the project and program achievements is closely linked to the sustainability of economic reform and recovery in Haiti. In spite of a six month hiatus following a change in Government in October 1995, Haiti's economic reform program is on track. The economic recovery in Haiti remains fragile, but there are signs of a revival of private sector interest. Nonetheless, as in many post-conflict societies, it is likely to take years until political stability will be ensured and the loss in welfare recuperated. 8. The performance of IDA through the project cycle is rated highly satisfactory. Overall, IDA demonstrated strong commitment, responsiveness and flexibility in preparation and implementation of the project. The performance of the borrower was fully satisfactory. Its participation in the preparation was highly satisfactory, which was reflected in the speed with which the operation was designed and made effective. Implementation, too, was highly satisfactory, as reflected in rapid disbursements. Compliance with covenants was satisfactory, even though the aforementioned change in Government led to delays in the preparation of the audit and the comments on the project for this ICR. -v 9. The outcome of the project is considered to be highly satisfactory. The EERC was presented to the Board within two months after the return to constitutional rule, and within a day of clearance of Haiti's arrears to IDA. It was fully disbursed within six months after Board approval. It fully achieved its objectives, and the objectives were highly relevant to address Haiti's state of emergency. SUMMARY OF FINDINGS, FUTURE OPERA1TIONS AND KEYLESSONS LEARNED 10. The implementation record of the project was highly satisfactory due to (i) simple project design; (ii) strong commitment by the Government; (iii) satisfactory management by the Government's Central Implementation Unit together with the Ministry of Finance; and (iv) technical assistance provided by IDA. 11. The EERC was part of an emergency assistance strategy by IDA to provide basic goods and services to address urgent needs and initiate the rehabilitation of priority infrastructure. As the restructuring of ongoing operations took longer than expected, IDA decided to launch another emergency-type operation, the Employment Generation Project, which focused on labor-intensive works. To sustain the economic recovery, IDA is emphasizing the need for sound macroeconomic policies and structural reforms. To this end, IDA is currently preparing a policy-based Second Economic Recovery Credit (ERC II), preceded by a Second Technical Assistance Project (TAP II) which was approved on September 17, 1996. 12. The crisis in Haiti was comparable to other emergency situations in post-conflict societies for which the World Bank Group has provided support through emergency recovery operations. The key lessons learned from this operation confirm that projects of this type can work well if they have well-defined objectives and a simple design. For the rapid preparation and successful implementation of this emergency recovery operation, strong Government commitment and very close communication proved essential. Another critical factor for the success of the EERC was its focus on most immediate needs. This indicates that medium-term development issues should be addressed in follow-up operations, and emergency operations themselves should not be seen as a mechanism to achieve those objectives. At the same time, however, the experience with the EERC suggests a pay-off for initiating a medium-term policy dialogue during the preparation of emergency operations. A final major factor in this operation was flexibility and responsiveness by IDA in the preparation of this operation. Nonetheless, the extent to which emergency recovery operations should focus on financing critical imports relative to implementing rehabilitation works should be judged in the context of the overall emergency program addressing the various needs of a post-conflict society. IMPLEMENTATION COMPLETION REPORT HAITI EMERGENCY ECONOMIC RECOVERY PROGRAM (CREDIT NO. 2670-HA) PART I: PROJECT IMPLEMENTATION ASSESSMENT INTRODUCTION 1. In the aftermath of a coup d'etat in September 1991, in which elected President Jean Bertrand Aristide was forced from office and into exile, Haiti experienced a dramatic deterioration in economic and social conditions. After three years of military dictatorship, a negotiated solution was reached which allowed President Aristide to return to Haiti on October 16, 1994, and on November 7, 1994, Parliament confirmed the appointment of a new constitutional Government. At that time, Haiti was in a state of economic and social emergency, characterized by debilitated institutions, large macroeconomic imbalances, a severely dilapidated infrastructure, depleted productive assets, alarming social indicators, and pervasive poverty. Already during 1980-91, the population had suffered a continuing decline in its standard of living, with real GNP per capita falling by about 2 percent per year. Between 1992-94, Haiti's real per capita income declined at a multiple of this rate, to well below US$250 -- making Haiti by far the poorest country in the Western Hemisphere. 2. Following the return to constitutional rule, the first priority of the Government was to address the overwhelming economic crisis. To this end, it: (i) prepared an Emergency Economic Recovery Program (EERP) to provide for basic emergency needs through import finance, civil works and technical assistance; (ii) cleared its external arrears; and (iii) initiated measures for an economic policy reform program. 3. In November 1994, the Government prepared the EERP in close cooperation with IDA, IDB, IiMF, specialized agencies of the United Nations, and USAID, building on the work of a first multi-agency mission in June 1993. This program, together with the reactivation of ongoing projects, for which the Government received initial pledges of some US$1.2 billion, provided the main stimulus to growth during 1994/95. On December 19, 1994, Haiti's arrears to multilateral agencies of US$82 million were eliminated, allowing IDA, IDB and IMF to resume their operations. This paved the way for the Emergency Economic Recovery Credit (EERC), IDA's key initial contribution to the EERP. The Credit was approved the following day, on December 20, 1994, and became effective on December 23, 1994. On March 31, 1995, the Government entered into a stand-by arrangement with the IMF, reflecting its commitment to economic policy reforms as outlined in its "Framework for a Sustainable Economic Recovery," which accompanied the EERC (see Appendix B). -2 - PROJECT OBJECTIVES 4. The objective of the EERC was to provide urgently needed balance of payments support to reactivate Haiti's economy and initiate the economic recovery process in the context of the overall EERP. Specifically, the EERC was designed as a quick-disbursing emergency operation which would finance the CIF value of imports based on a positive list identified as necessary to the EERP. The imports were to support emergency activities in all sectors covered by the EERP. Within the confines of a positive list, EERC funding was not earmarked for specific sectors or activities and would finance imports of consumption or capital goods for both the public and the private sectors. 5. The project objective was clearly relevant in view of the binding balance of payments and budgetary constraints which the country was facing. While the overall recovery program was ambitious, the specific objectives of the EERC were modest and attainable. ACHIEVEMENT OF OBJECTIVES 6. The project was highly successful in achieving its objectives. It rapidly provided the country with the required external financing to initiate the economic recovery, and was fully disbursed by June 1995, six months earlier than expected. The proceeds of the credit were utilized within the confines of the positive list as follows: 25 percent for industrial equipment and spare parts; 24.7 percent for petroleum products; 17.7 percent for infrastructure equipment; 6.1 percent for health and nutrition products; 5.3 percent for agricultural equipment and inputs; 4.2 percent for power generation, and 17.7 percent for mniscellaneous products. The EERC also demonstrated the commitment of the international community to the Government's effort, thus sending an important confidence-building signal to the private sector in Haiti. In addition, the policy dialogue accompanying the preparation of the project, as reflected in the policy letter, helped to set the stage for an economic policy reform program transcending the immediate preoccupation with the emergency. In the context of the EERC preparation, the Government also established a Central Implementation Unit (CIU) in the Office of the Prime Minister, which became a key agency for the implementation of ongoing IDB emergency projects and IDA's Employment Generation Project. 7. The contribution of the EERC needs further to be viewed in the context of the performance of the overall recovery program. Initial donor commitments of US$1.2 billion exceeded by far the estimated requirements of US$402 million for the EERP and US$261 million for arrears clearance, humanitarian aid and governance. In the course of Haitian fiscal years 1994/95-95/96, commitments for Haiti's development even increased to over US$2 billion. The level of disbursements over the first two years also exceeded expectations (text-table 1). However, in some key sectors, disbursements in the first year were slow. In part, this reflected the extreme weakness of the corresponding line agencies. It also, however, reflected the fact that project restructuring proved more difficult than expected. -3- Table 1: Program Financing Requirements and Disbursements (US$ Million) Area Estimated Requirements ---Effected Disbursements- 1994/95 1994/95-95/96 EERP Balance of Payments 130.0 151.9 248.2 Sector Rehabilitation 238.1 141.4 443.5 Agriculture 31.9 5.6 53.5 Industry and Finance 29.4 0.3 16.2 Power 45.8 8.2 50.7 Transport 26.3 28.6 31.9 Water and Urban 26.7 22.2 58.5 Health and Nutrition 49.1 14.5 89.9 Education 25.9 4.9 31.6 Environment (*) 3.0 1.4 6.6 Multi-Sector (**) 0.0 55.7 104.6 Technical Assistance 34.3 (included in sector rehabilitation) EERP TOTAL 402.4 293.3 691.7 OTHER 261.0 222.2 356.7 Arrears Clearance 82.0 66.0 66.0 Humanitarian Aid 100.0 88.2 114.8 Governance 79.0 68.0 175.9 TOTAL 663.4 515.5 1048.4 Donors: Argentina, Canada, France, Germany, Japan, Mexico, Netherlands. Spain, Sweden, Switzerland, USA, Other Bilaterals, EU, IDA, IDB, IMF, OAS, UNDP, Other UN Agencies (*) Interventions to address environmental needs are also included in other sectors (**) Includes labor intensive works to prevent soil erosion and rehabilitate feeder roads, and small social infrastructure 8. As a result of the recovery program, together with sound economic policies, Haiti's economic performance in 1994/95 was encouraging. Real GDP growth amounted to 4.5 percent, consumer price inflation declined from 52 percent by end-September 1994 to 18 percent by end-September 1995, and the Gourde recovered from over G20/US$ during the emergency to G14.5/US$. Central Government current revenues reached 7 percent of GDP in 1994/95, compared to 3 percent in 1993/94, while current expenditure amounted to about 11 percent of GDP. Capital expenditure of the public sector, nearly all of which financed with external grants and concessional loans, amounted to 7 percent of GDP, compared to less than 1 percent in 1993/94. As anticipated, the current account deficit soared to about 20 percent of GDP as a result of the largely donor-financed recovery effort. Imports increased dramatically to US$430 million, whereas exports recovered more slowly, reaching US$85 million. In spite of the large current account deficit, net international reserves exceeded by far the initially programmed level of about US$70 million. 9. The Government also proceeded to implement a number of structural measures. Petroleum subsidies were eliminated and all public sector wage contracts signed with the unconstitutional Government established after May 11, 1994 were canceled. The sales tax was extended to cover services. The first phase of the trade reform was put into effect: the 40 percent export surrender requirement and the remaining restrictions on imports were eliminated; the import valuation basis was changed to the market exchange rate; and import tariffs were essentially reduced to the 4-19 percent range. The reserve requirements applicable to commercial banks were unified, and the statutory ceilings on interest rates were eliminated. To facilitate private sector development, the Government entered into an agreement with the IFC to increase efficiency of key public enterprises through private sector participation in management and ownership. In this context, the Government established an independent privatization unit under the Office of the Prime Minister. It further reduced staffing in the public electricity company and raised tariffs as envisaged. Also, the Government moved quickly to establish a Presidential Commission for Growth and Modernization with representation from a wide range of private sector interests. The principal objective of this commission, is to develop a framework conducive to private sector development. 10. Following a hiatus in the economic reform effort during the last 4 months of the term in office of President Aristide, and delays in the implementation of donor projects which resulted in a slow down in economic activity, economic performance recovered again under the successor-President Preval, who took office in February 1996. Nonetheless, real GDP growth for 1995/96 is estimated to have reached only 2 percent, and inflation to have remained at 16 percent by end-1995/96. Also, in spite of slow progress in the area of private sector participation in public enterprises, the key reforms envisioned in the "Framework for a Sustainable Economic Recovery" have been or are being implemented. IMPLEMENTATION RECORD 11. The implementation record of the EERC was highly satisfactory due to (i) simple project design; (ii) strong commitment by the Government; (iii) satisfactory management by the Government's Central Implementation Unit together with the Ministry of Finance; and (iv) technical assistance provided by IDA. 12. As a balance of payments operation, the EERC was compatible with the very weak institutional capacity of the Government. It benefited considerably from strong Government commitment. The Minister of Finance followed personally very closely the preparation and ratification of the project. It was presented to Parliament and ratified in a record time of only two days after Board approval. Incidentally, it was the first project ever to be approved by a democratically elected Parliament in Haiti's history. The CIU and staff assigned from the Ministry of Finance supervised the eligibility of goods imported by public or private entities. While the EERC did not include a technical assistance component, IDA assisted the Government in its implementation through supervision by staff and the assignment of a procurement specialist to help in the review of invoices and the preparation of withdrawal applications. PROJECT SUSTAINABILITY 13. The recovery program supported by the project appears to have taken hold. In spite of the hiatus referred to above, the Government's economic reform program is on track. The Government recently agreed on a three-year Policy Framework Paper, and on October 18, 1996, the Board of Directors of the IMF approved an ESAF arrangement for 1996/97-1998/99. A policy-based adjustment operation, the Second Economic Recovery Credit (ERC II) is currently under preparation by IDA, and is expected to be formally negotiated by end-December 1996. The economic recovery in Haiti remains dependent on donor assistance, and vulnerable to political developments, but there are signs of a revival of private sector interest. Nonetheless, as in many post-conflict societies, it is likely to take years until political stability will be ensured and the loss in welfare recuperated. IDA PERFORMANCE 14. The performance of IDA through the project cycle is rated highly satisfactory. Overall, IDA demonstrated strong commitment, responsiveness and flexibility in preparation and implementation of the project. This is reflected, for example, in the speed with which the EERC was presented to IDA's Board of Executive Directors following arrears clearance, and in the decision to authorize exceptional retroactive financing of 50 percent of the credit amount for eligible imports effected prior to Board approval. IDA's decision to take advantage of the EERC preparation to engage in parallel on a policy dialogue on medium-term reforms also facilitated the sustainability of the recovery process. IDA's contribution would have been further enhanced through more rapid project restructuring. BORROWER PERFORMANCE 15. The performance of the borrower was fully satisfactory. Its participation in the preparation was highly satisfactory, which was reflected in the speed with which the operation was designed and made effective. Implementation, too, was highly satisfactory, with the Ministry of Finance and the CIR demonstrating a strong commitment to ensure rapid disbursement of the Credit. Compliance with covenants was satisfactory, even though a change in Government led to delays in the preparation of the audit and the comments on the project for this ICR. ASSESSMENT OF OUTCOME 16. The outcome of the project is considered to be highly satisfactory. The EERC was presented to the Board within two months after the return to constitutional rule, and -6 - within a day of clearance of Haiti's arrears to IDA. It was fully disbursed within six months after Board approval, six months before the expected closing date. It fully achieved its objectives, and the objectives were highly relevant to address Haiti's state of emergency. In the context of the overall EERP, it alleviated the import financing constraints and helped initiate the recovery. It also established IDA's role in the policy dialogue, and, through the program it supported, allowed the country to move from overcoming the emergency to addressing medium-term objectives. FUTURE OPERATIONS 17. The EERC was part of an emergency assistance strategy by IDA to provide basic goods and services to address urgent needs and initiate the rehabilitation of priority infrastructure through this credit and the restructuring of ongoing operations. As the restructuring of the ongoing operations took longer than expected, IDA decided to launch another emergency-type operation, the Employment Generation Project, to create 40,000 jobs per month from September 1995 to early 1997. Unlike the EERC, this operation focused strictly on labor intensive works, and did not need to include further balance of payments support. To sustain the economic recovery initiated with the help of the EERP, IDA is emphasizing the need for sound macroeconomic policies and structural reforms. As already envisioned in the policy letter accompanying the EERC, IDA is currently preparing a policy-based Second Economic Recovery Credit (ERC II). This operation is supported by a recently approved Second Technical Assistance Project (TAP II), which was presented to the Board together with the World Bank Group's Country Assistance Strategy (CAS) on September 17, 1996. KEY LESSONS LEARNED 18. The crisis in Haiti was comparable to other emergency situations in post-conflict societies for which the World Bank Group has provided support through emergency recovery operations. The key lessons learned from this operation confirm that projects of this type can work well if they have well-defined objectives and a simple design. For the rapid preparation and successful implementation of this emergency recovery operation, strong Government commitment and very close communication proved essential. This implied higher than average staff resources being devoted to preparation and supervision. Judging by the delays in restructuring ongoing projects, which needed to reconcile emergency and medium-term objectives, another critical factor for the success of the EERC was its focus on most immediate needs. This confirms that reconstruction itself should not be seen as a mechanism to achieve medium-term objectives, which should be addressed in follow-up operations. At the same time, however, the experience with the EERC suggests a pay-off for initiating a medium-term policy dialogue during the preparation of emergency operations, to take advantage of the good-will created by a rapid donor response. A final major factor in this operation was flexibility and responsiveness by IDA in the preparation of this operation. This included streamlining review procedures and, in particular, allowing exceptional retroactive financing of 50 percent of the credit amount, which provided timely foreign exchange resources to rapidly finance critical imports. Nonetheless, the extent to which emergency recovery operations should focus on financing critical imports relative to implementing rehabilitation works should be judged in the context of the overall emergency program addressing the various needs of a post-conflict society. -9 - PART II. STATISTICAL TABLES Table 1: Summary of Assessments Substantial Partial Negligible Not applicable A. Achievement of obiectives Macro policies V Sector policies V Financial objectives Institutional development V Physical objectives V Poverty reduction , Gender issues V Other social objectives V Environmental objectives V Public sector management V Private sector development V Other: Financing critical imports Likelv Unlikely Uncertain B. Project sustainability V Highly Satisfactory Deficient C. IDA performance satisfactorv Identification V Preparation assistance V Appraisal V Supervision v -10- Table 1: Summary of Assessments (cont.) Highlv Satisfactory Deficient D. Borrower performance satisfactory Preparation Implementation Covenant compliance Highly Satisfactory Unsatisfactory Highly satisfactory unsatisfactory E. Assessment of outcome / Table 2: Related IDA Credits Credit title Purpose Year of approval Status Preceding operations n/a n/a n/a Following operations 1. Employment Short-term employment FY96 effective Generation generation 2. TAP II Technical assistance for FY97 approved economic management 3. ERC II Support for economic reform FY97 scheduled (policy-based) -11 - Table 3: Project Timetable Steps in project cycle Date planned (*) Date actual Identification (Final/Initial Executive Project n/a 08/20/93 Summary) Preparation n/a 09/06/93 Appraisal n/a 09/11/93 Post-appraisal n/a 11/06/94 Negotiations n/a 11/15/94 Letter of development policy n/a 11/18/94 Board presentation n/a 12/20/94 Signing n/a 12/20/94 Effectiveness 01/31/95 12/23/94 Final Disbursement/Completion 12/31/95 06/06/95 Credit closing 12/31/95 12/25/95 (*) Partly unavailable, due to political developments setting the pace for the preparation and implementation of the project Table 4: Credit Disbursements: Cumulative Estimated and Actual (US$ million) FY95 FY96 Post-appraisal estimate 30.0 40.0 Actual 40.4 40.4 Actual as % of estimate 133 100 Date of final disbursement 06/06/95 Table 5: Key Indicators for Project Implementation not applicable Table 6: Key Indicators for Project Operation not applicable Table 7: Studies Included in Project not applicable -12 - Table 8: Program Financing Requirements and Disbursements (US$ Million) Area Estimated Requirements ---Effected Disbursements------ 1994/95 1994/95-95/96 EERP Balance of Payments 130.0 151.9 248.2 Sector Rehabilitation 238.1 141.4 443.5 Agriculture 31.9 5.6 53.5 Industry and Finance 29.4 0.3 16.2 Power 45.8 8.2 50.7 Transport 26.3 28.6 31.9 Water and Urban 26.7 22.2 58.5 Health and Nutrition 49.1 14.5 89.9 Education 25.9 4.9 31.6 Environment (*) 3.0 1.4 6.6 Multi-Sector (**) 55.7 104.6 Technical Assistance 34.3 (included in sector rehabilitation) EERP TOTAL 402.4 293.3 691.7 OTHER 261.0 222.2 356.7 Arrears Clearance 82.0 66.0 66.0 Humanitarian Aid 100.0 88.2 114.8 Governance 79.0 68.0 175.9 TOTAL 663.4 515.5 1048.4 (*) Interventions to address environmental needs are also included in other sectors (**) Includes labor intensive works to prevent soil erosion and rehabilitate feeder roads, and small social infrastructure Table 9: Economic Costs and Benefits not applicable -13 - Table 10: Status of Legal Covenants Agreement Section Covenant Present Original Revised Description Comments type status fulfillment fulfillment of covenant (*) (**) date date Credit 4.01(b) 1 CD 01/31/95 04/11/96 Audit Delayed by Agreement Government change Credit 3.03 5 C 12/23/95 12/20/95 Establish Core unit in Agreement Implement. place by Board Unit presentation Credit 3.04 9 C 04/30/95 n/a Progress Agreement Report Credit 3.05(b) 9 n/a 06/30/95 n/a Midterm Project already Agreement Review fully disbursed (*) 1: accounts/audits; 5: management aspects of executing agency; 9: monitoring, review, and reporting (**) C: completed; CD: completed with delay Table 11: Compliance with Operational Manual Statements There is no evidence of non-compliance Table 12: Bank Resources: Staff inputs Stage of Project cycle Planned (*) Revised (*) Actual (**) Weeks US$ Weeks US$ Weeks US$ Preparation to appraisal 20.7 59.784 Appraisal and post- 81.8 162,731 appraisal Negotiations through 6.0 11,979 Board approval Supervision 8.8 21,855 Completion 4.1 13,656 Total Direct Costs 121.4 270,005 Indirect Costs 57,100 TOTAL 121.4 327,105 (*) Not available, as dependency on protracted political developments made it impossible to anticipate needed staff resources (**) Includes Japanese PHRD Trust Fund -14- Table 13: Bank Resources: Missions Performance rating Stage of project Month/ Number Days in Specialized Implement. Development Types of cycle year of persons field (*) staff skills Status objectives problems Through 05/93 1 15 TM (Macro) n/a appraisal _ . Appraisal 09/93 7 100 TM n/a through Board Macro approval Infrastructure Social Sector Public Sector Procurement l ~~~~~~~~~~..................... ............................ ........................ ................................. .................................. ................................. ..............:.............. 10/93 4 45 Infrastructure mission curtailed, ..................... ........................... ......... ......... ................................. .................................. ................................. pol instab 11/94 4 44 TM n/a Infrastructure Social Sector Procurement 12/94 4 28 TM n/a Social Sector Legal Procurement Supervision 0 1/95 1 14 Procurement HS HS n/a 02/95 2 35 TM HS HS n/a Procurement ........ .............. ..............I............. ........................ .............................. ..................... ............. .................................. ............................ 05/95 1 5 TM HS HS n/a Completion 01/96 1 5 TM new Gov., hiatus in ............... ... ........................... ....... ...... .................. ...... ............................. ......... ............................. .......... ............................... ......... co o p e ra It. 06/96 1 5 TM --0/6. 1........... .5TM........ ........................... .......... ................... ....... ..... .. .. .... ............................ 09/96 1 3 TM (*) tentative; excluding travel, stop-over in Washington, DC, and secondment of local consultants to Government (**) HS: highly satisfactory IMPLEMENTATION COMPLETION REPORT HAITI EMERGENCY ECONOMIC RECOVERY CREDIT (CREDIT NO.2670-HA) APPENDIX A: BORROWER'S CONTRIBUTION TO ICR 1 MINISTERE DE L'ECONOMIE ET DES FINANCES ACCORD DE CR1tDIT IDA 2670-0-HA RAPPORT FINAL (Project Completion Report) Introduction, L'Accord de Cr6dit 2670-0-HA a et6 sign6 entre la R6publique'Haiti et I'Association Internationale de D6veloppement le 20 D6cembre 1994, dans ie cadre du Programme d'Urgence et de Redressement ltconoigque (PURE) entrepris par le Gouvernement Constitutionnel de la R6publique des la restauration et le retour du President Aristide au pouvoir le 15 Octobre 1994. Le Programme d'Urgence et de Redressement ltconomique comprenait plusieurs volets: * Une composante de travaux d'urgence, (Pret BID 942/SF-HA), d'un rmontant de vingt huit millions cinq cent mille dollars am6ricains ($US28.500.000) dont l'ex6cution a ete confi6e a 1'Unit6 Centrale de Gestion (UCG), entit6 sous tutelle directe du Premier Ministre. * Une Assistance Technique Non remboursable, (BID-ATN/SF-48 15-HA), d'un montant de quatre millions de dollars am6ricains ($US4.000.000), a la mise en place et au fonctionnement de l'Unit6 Centrale de Gestion. * Une composante sectorielle a deboursement rapide, ( Pret BID 9411SF-HA), d'un montant de quarante millions de dollars arn6ricains ($US40.000.000) consistant en un appui a la balance des paiement et au Budget de la Republique. Version finale (13 septembre 1996) c:\...\2670-O.rap 2 Et enfin, Une composante sectorielle a deboursement rapide, (Accord de Credit IDA 2670-0- HA),d'un montant de vingt six millions huit cent mille Droits de Tirages Speciaux (DTS26.800.000) consistant en un appui a la balance des paiement et au Budget de la R6publique. Objectifs du Programme. L'objectif du Programme etait d'initier des reformes institutionnelles et de politique g6nerale afin d'am6liorer le fonctionnement de l'Etat, de parvenir a une croissance durable dans un contexte macro-6conomique stable, et de reduire la pauvrete et les in6galites sociales. Ce Programme est decrit dans la lettre du Ministre de l'Economie et des Finances de la Republique d'Haiti au President de la Banque Mondiale en date du 18 Novembre 1994. Ruts du projet 2670-0-HA Le but du projet etait de fournir un appui d'urgence n6cessaire a: * La reactivation de l'Economie HaYtienne, = La mise en place du processus de recouvrement de cette Economie, et, * La stimulation immediate de la croissance economique. Le projet consistait a financer les importations d'urgence pour les composantes sectorielles cl6s du Programme d'Urgence et de Recup6ration Economique mentionn6es dans l'annexe 4 de l'Accord de Credit correspondant soit: Version finale (13 septembre 1996) cA ...\2670-o.rap 3 * Agriculture, * Industrie, * Energie, * Routes et ponts, * Ports et transports maritimes, * Eau potable, assainissement et traitement des d6chets, * Infrastructures urbaines et gen6rales, a SantW et nutrition, * Education, et, * Autres importations. Mise en place et signature du contrat. L'Accord de Cr6dit 2670-0-HA a 6te con,u, r6dig6, sign6 et finalement approuve par le Parlement dans des d6lais records. En effet, sign6 le 20 D6cembre 1994, cet accord a ete approuv6 par le Parlement le 23 D6cembre 1994 et le premier d6caissement a pour date de valeur le jour suivant. Cette efficacite a ete principalement due au climat de grace qui a entoure le retour du President Aristide. Version finale (13 septembre 1996) c\....\2670-O.rap 4 Toutes les parties concernees 6taient intimement convaincues du fait qu'il fallait aller vite compte- tenu de l'etat de d6labrement dans lequel se trouvait 1'economie du pays apres les trois annees du coup d'6tat: Du c6te de la Banque Mondiale, les repr6sentants et 6missaires ont collabor6 avec une efficacit6 et une comprehension qui m6ritent d'etre soulignees. Du c6t6 du Gouvemement, les responsables et representants n'ont m6nag6 ni leurs efforts, ni leur temps, pour arriver a mettre en place ce programme dans les meilleurs delais. Du c6te du Parlement, qui etait en vacances, les membres de la Chambre des Deputes et du Senat se sont r6unis des publication de la convocation a l'extraordinaire et ont ratifi6 l'Accord de Cr6dit avec c6lerit6. N Ex6cution du Contrat. Le contrat a ete execut6 dans les d6lais et conditions pr6vus initialement. L'assistance de la firme "CARRINT", engag6e par la Banque Mondiale pour realiser la compilation des documents de douane devant servir de base aux demandes de d6caissement, a 6t6 d6terminante en ce qui concerne la facilit6 et la rapidit6 avec lesquelles ces decaissements ont et effectues. De meme, la coop6ration des membres des diverses missions de la Banque Mondiale, a ete complete et sans faille. Le fait que les documents justificatifs des importations 6ligibles aient ete compiles par une firme ind6pendante specialisee choisie par la Banque Mondiale a ete certainement la principale raison du climat de confiance qui explique la rapidit6 avec laquelle les decaissements concemant l'Accord de Credit 2670-0-HA ont ete effectu6s. En raison de son efficacite. cette maniere de proceder meriterait d'etre retenue, Version finale (13 septembre 1996) c:\...\2670-O.rap 5 Le retour a l'ordre democratique et la mise en place du gouvernement constitutionnel ARISTIDE/MICHEL en octobre 1994 ont permis de reddfimir les grandes orientations macro- economiques: Une croissance du PIB de 4% I'an lie en grande partie A un vigoureux Programme d'Investissement Public. Une reduction de l'inflation a 15% Un accroissement des reserves de change de& 68 millions de gourdes a 1.622 milliards de gourdes. L'elimination des arri6r6s fiscaux. Des mesures sectorieles pour arriver I une stabilisation de l'economie ort ete prises et un accord de confirmation a 6t6 signe avec le Fonds Mondtaire International (FMI). Bilan Succinctl La plupart des critres de performance de l'accord de confirmation ont et6 respect6s a la fin de septembre 1995. * La croissance du PIB a ete estirn6e a 4,5% en terme reel, * L'objectif d'augmentation des reserves internationales a 6t6 largement depasse, Vaeno inale (13 eptembne 1996) c:d...2 670 0ap 6 * L'indice des prix a la consommation a baisse de 52% en septembre 1994 a 24% en septembre 1995, et, Les resultats obtenus dans le domaine des Finances Publiques ont Wte plus que satisfaisants. Un programme fiscal a ete adopte en vue de trouver les voies et moyens pour financer le programme de depenses. Les grandes lignes de ce programme se r6surnent coimme suit: * Rdvision du Code Douanier * Valorisation des marchandises import6es au taux de change de reference de la BRA.H. * Elargissement de la Taxe sur le Chiffre d'AfTires (TCA). * Introduction d'un acompte de 2% d6ductible de l'Impot sur le Revenu et applicable aux marchandises importees. a Reduction du tarif douanier a l'importation. * Creation d'un droit variable sur les produits petroliers et 6limination des subventions. Des progres significatifs ont et6 realis6s en matiere de lib6ralisation financiere: Unification des taux de Reserves Obligatoires pour les Banques Commerciales. Decret 6liminant le plafond statutaire sur les taux d'interets. Annulation par la Banque de la Republique d'Haiti (BRH) de la mesure obligeant les exportateurs a retroceder 50% des devises. Version finale (13 septembre 1996) c:%...A2670-.amp 7 La reforme administrative n'a pas et n6glig6e. Si la loi sur les departs volontaires n'a pas 6t6 adoptee celle sur la retraite anticip6e I'a ete et de nombreux fonctionnaires ont pu en b6n6ficier en quittant la Fonction Publique. Une Commnission Pr6sidentielle pour la croissance et la modemisation a et6 cr66e pour marquer 1'engagement du gouvernement au principe d'un partenariat entre le Secteur Priv6 et le Secteur Public. Une s6rie de mesures d6coulant du Symposium Economique a pu etre adopt6e dans le but de faciliter le cadre r6glementaire des affaires: * Exon6ration du droit du wharfage a l'importation pour les industries de sous-traitance, a Enlevement des int6rets sur les arrieres fiscaux, * Extension de cinq annees de privileges fiscaux et douaniers pour les entreprises travaillant sous l'6gide du code d'investissement, * Disposition exceptionnelle de franchise douaniere pour les h8tels, * D6cret sur le gage sans d6placement par acte notarie ou signature priv6e, * D6cret sur les formalit6s de constitution des societes anonymes, * D6cret sur les cartels et, * D6cret de sanction de la convention portant cr6ation de l'Agence Multilat6rale de Garantie des Investissements. Version finale (13 septembre 1996) c:\...\2670-O.rap 8 Le Fonds d'Assistance Economique et Social (FAES), outil de lutte contre la pauvret6, a ete restaure avec la nomination d'un nouveau Directeur General, la reconstitution du staff et redemarrage de cet organisme qui a fourni, depuis, des resultats d6passant les attentes des bailleurs de fonds. L'Unit6 Centrale de Gestion (UCG) a e cr66e et mise en place pour assurer la gestion centralis6e des grands programmes sectoriels gen6rateurs d'emplois. Les r6sultats obtenus par cette Unit6 ont &6 tres satisfaisants et la Banque Mondiale a decide, en accord avec le Gouvernement, de lui confier la gestion de nouveaux fonds non pr6vus initialement (Programme de Cr6ations d'emplois). Durant l'exercice fiscal 1994-95, les ressources du Tresor ont atteint des niveaux jamais realis6s dans le pass6. , La Direction Generale des Imp6ts (DGI) et I'Administration Generale des Douanes (AGD) ont collect6 2.276 milliards de gourdes, les Entreprises Publiques ont transfer6 a l'Etat 200 millions de gourdes, le Gouvemement a r6cupere 400 millions de gourdes qui etaient gel6s dans les comptes d'assignation (escrow accounts) et la Communaut6 Intemationale a d6caisse pres de 3.523 milliards de gourdes sous forme d'aide a la balance des paiements et de supports budg6taires. En 1994-95 le Tr6sor Public a g6r6 pres de 6.4 milliards de gourdes. Cette forte expansion des ressources a ete utilisee pour: * Allouer des frais de fonctionnement aux differents Ministeres, * Am6liorer la qualite des services offerts dans les domaines de la Justice, I'Education et la Sante, * Rehabiliter les infrastructures du pays, Version finale (13 septemnbre 1996) c:\...\2670-O.rap 9 Assurer le service de la dette externe suspendue depuis septembre 1991, et, Lancer des progranmmes d'investissement publics generateurs d'emplois, en faveur des couches les plus d6favorisees de la population. L' Unit6 de D6mocratisation des Entreprises Publiques (UDEP) a 6te creee et mise en place. Le processus entame s'est poursuivi avec la loi sur la Modernisation des Entreprises Publiques, dans laquelle le Gouvernement opte pour un traitement au cas par cas, qui a 6t6 ratifi6e par le Parlement. CONCLUSION, On peut toujours penser que les resultats auraient pu etre meilleurs. Neanmoins, compte-tenu du contexte socio-politique qui a prevalu durant l'exercice 1994-1995, Le Gouvemement estime que le Programme d'Urgence et de Redressement Economigue a ete un succes. Verion finale (13 septembre 1996) c:A....\2670-O.rap IMPLEMENTATION COMPLETION REPORT HAITI EMERGENCY ECONOMIC RECOVERY CREDIT (CREDIT NO.2670-HA) APPENDIX B: A FRAMEWORK FOR A SUSTAINABLE ECONOMIC RECOVERY RUIWJ O14Am MINISTERE )E L DECONOMIE ET DES FIN4NCES s1 Nt4'I. 1,9- .S.Powr/AtI.P3 mc.I.... .............. Mr. Lewis T. Preston President Intemational Development Association Washington, D.C 20433 A FRAMEWORK FOR A SUSTA INABLE ECONOMIC RECOVERY Dear Mr. Preston 1. The Republic of Haiti has suffered through a long period of economic decline and political instability. This period was marked by high inflation, rising poverty and a critcl deterioration in the ability of the state to provide basic services. On the occasio of the return of President Aristide and the restoration of a constitutional government, we bave the opportunity to begin anew. Out first and fundamental objective is the restoradon of law and order within the country, the amelioration of social conditions, and the resusction of the economy in the context of the Emergency Economic Recovery Program (EERP). Onec this has been assured, our economic objectives will focus on policies that wifl impfe the functioning of the state, achieve sustainable growth in a stable macroeconomic context, and reduce poverty and social inequalities. I would like to take the occasion of this letter to outline an economic policy framework for the next twelve to eighteen months, deigned to ensure the sustainability of the economic recovery process supported by the EERP. EMERGENCY ECONOMIC RECOVERY PROGRAM 2. In 1993, a multi-agency task force, including panicipation by the Internatinal Development Association (IDA), the Inter-American Development Bank (IDB) and other multilateral organizations, laid out the basis of our EERP which we are beginning to implement, taking into account the findings of the recent up-dating mission. This progm has identified about USS394 million of budgetary/balance of payments support, techni assistance and emergency measures to be carried out uver the next twelve to eihteen months. It focuses on social programs directed at poverty alleviation, repair of basic infrastructure, protection of the environment, support for private sector development andi restoration of key central government functions. We estimate quick-disbursing funds of at least US$130 milion will be required during the first year, in order to restore the functions and services of the central government. A small part of the program, amounting to about US$28 million, is aimed at providing technical assistance to help reorganize the public sectoi, strengthen economic management and assist in carrying out the EERP. Of the remaining USS236 million for sectoral programs, nearly two-thirds involve expenditures for labo)r intensive works. In the social sectors, our activities will be aimed at improving the supptr of basic supplies, such as drugs and school books, increased staff training, and targetecd programs of nutrition and maternal and child health. In infrastructure, our objective is tci rehabilitate existing infristructure which has been neglected in the past, including roads, water supply, ports and electric power. In order to carry out the EERP as expedidously a*; possille, an emergency implementation unit (EIU) will be established linked to the officc, of the Prime Minister. The Prime Minister will provide general oversight of the EERP, supported by a Steering Committee including the Ministers of Finance and Planning, ancl the Governor of the Central Bank. Also, existing sectoral implementation arrangements vwll be utilized, and all sectors of the Civil Society will be invited to participate in the implementation process. 3.. We hope that this program will attract support of multilateral and bilateral donors. The proposed Emergency Economic Recovery Credits of IDA and 1DB will be impotan contnrbutions which will permit us to finance critical imports for the private and public sector under the umbrella of the EERP. We intend to make a full report on progress on the EERP, and discuss additional financing needs, during the forthcoming Consultative Group, meeting in early 1995. 4. In addition to the emergency measures described above, the Government will need external support in the areas of governance and humanitarian assistance, as well as funds to clear Haiti's arrears. To clear arrears with the multilateral lenders, a support group meeting chaired by the U.S. Treasury has been convened, and a financing plan for the clearance of these arrears has been established. The Government of Haiti has allocated US$13 million of its own funds to this effort, and we expect the clearance of arrears to be effected soon. MACROECONOMIC STABILITY 5. In order to ensure a stable and productive environment for the private sector, we are. taking steps necessary to stabilize the economy. Working with the IMF, we are identifying, measures necessary to contain the overall public sector deficit. We are also taking steps to reduce monetary growth based on credit by the Central Bank, and expect overall inflation to be substantially reduced in 1995. Ceilings on interest rates will be abolished so as to effect market determined interest rates on loans. The Government will at the same time explore ways to revitalize the system of credit unions and broaden access to credit. We hope to finalize our overall macroeconomic program in the next few weeks and reach agreement with the IMF on a new Stand-by Arrangement by early 1995. This agreement will outline -3- our objectives for monetary growth, the public sector deficit, and external accounts, within the objective of reducing inflation and laying the basis for economic recovery. THE ROLE OF THE STATE 6. The past decade has seen a marked deterioration in the ability of the state to provide basic services. While public sector employment increased considerably, government revenues declined, resulting in a deterioration of services, particularly in the social sectors. At the same time, the Government expanded its reach into the productive sectors through public enterprises, which preempted private investors. We are committed to refocus the role of the state on its legitimate functions of providing security, justice, basic economic infrastructure and essential social services targeted at the poor. To do this, we must make some fundamental changes in the way the state operates. 7. Revenues. Tax evasion, avoidance and corruption have become endemic, and we estimate that the tax to GDP ratio has fallen to 4 percent in 1994, one of the lowest in the world. We intend to raise this ratio at least to the level of 8 percent of GDP attained in 1991. The priniary focus will be on tax administration and compliance. First, overdue payments to the Treasury will be collected and steps taken to reduce tax delinquency. Second, the high cost of tax collection, relative to revenues generated, will be reduced through budget reallocations, administrative reforms and staff training. Third, in view of the high concentration of tax payments on a few entities, we will immediately establish a unit specializing on the largest taxpayers. This will improve the ability to cross-check fiscal information with the customs administration as well as within the internal revenue administration. Fourth, we want to broaden our tax base, specifically through including professionals. Finally, steps will be taken to eliminate bribery and corruption in tax and customs administration. 8. Expenditures. The level of public expenditures has been so eroded by inflation that the Government is unable to adequately discharge most of the basic functions that are the proper responsibility of the public sector. Furthermore, the current pattern of public expenditures is inappropriate in view of the urgent needs of the social sectors. The Government intends to make major steps to improve delivery of health, nutrition and education services. Particular focus will be given to increasing non-salary operating and maintenance expenditures, including medical supplies and equipment, school textbooks and supplies, and targeted nutrition programs. High priority will be extended to augmenting allocations throughout the public sector for maintenance and operating expenditures, so as to prevent further deterioration in the stock of infrastructure. We will also undertake a major review of the public sector investment program, focusing on high priority rehabilitation investments in infrastructure. Our overall objective is to have a significant increase in public sector investment in fiscal year 1995, consistent with our overall macroeconomic targets which will be outlined in the IMP Stand-by Arrangement. At the same time, the Government will eliminate unnecessary and wasteful expenditures, particularly by eliminating 4 - spending from discretionary accounts and fraudulent employment practices, and tly introducing procurement procedures that ensure accountability. 9. Civil Service Reform. We intend to transform the civil service to make it an efficiernt instrument for the delivery of services to society. To this end, cmi service management will be improved, the size of the civil service reduced, and the level of professional competence increased. Personnel management practices will be revamped to make processes transparent, clear criteria and qualifications for employment will be established, and more up-to-date personnel records will be assembled. Voluntary separation and early retiremert schemes wil serve as a means to eliminating redundant employment. The phasing of thM cil service retrenchment will depend critically on the financial means available to thc. Govenmnent to cover up-front costs. In order to attract qualified people to the civil service, part of the medium-term savings realized from the above programs wull be used to) increase key salaries. On a pilot basis, and to improve the effectiveness of government services, we will start decentralizing some positions and functions to the local authorities. 10. Democratization of Asset Ownership. State control of substantial productive asset; has resulted in mismanagement and corruption and imposed serious political, economic anm! financial costs on Haiti's society and economy. The consolidation of a democratic order anm! the desire to foster economic growth and efficiency compels the Government to dispose of these assets. 11. The intended comprehensive divestiture needs to be accompanied by this inplementation of an appropriate regulatory framework and anti-trust legislation. To prment undue concentration of wealth within the country, the Govemment will seek out foreign investors, members of the Haitian Diaspora, and small domestic savers. Additionally, arrangement will be made to ultimately transfer part of the ownership to traditionally excluded segments of society, including the victims of the unconstitutional rule. To further support the redistribution objectives, the Government will give priority to investing proceed; from the divestiture so as to benefit the poor, including in infrastructure, low-cost housing, and a permanent trust fund for education and health. 12. International Trade. The country's exchange system is free of restrictions and transactions are taking place at the free (Interbank) market rate. The Government i; committed to continue this policy and to allow the Central Bank to purchase foreigu exchange only for its operations. 13. While steps have been taken in the past to reduce effective protection, our trade: regime compares unfavorably to that of many other countries, and thwarts our goal of achieving a competitive and open economy. In addition to having many different rates and exemptions, the import duty structure is too high and encourages contraband and corruption, and benefits domestic monopolists. High tariffs on agricultural products particularly raise the price of food for the poor. To correct this situation and promote economic efficiency, the Government plans to eliminate the remaining quantitative restrictions and move towards the elimination of all tariffs except for those on a small number of sensitive goods including rice, corn, beans and sorghum. The tariff reform will be phased so as to facilitate the transition to a free trade regime with a view to a concurrent reduction in the relative tariff dispersion. In conjunction with the tariff reform, the system of import valuation wil be modified and moved to the free market exchange rate, and the duty-free franchise sytem will be reviewed to eliminate abuses. To reduce uncertainty, the respective legislation will be submitted to Parliament by early 1995. We will ensure that these reforms take place in the context of a viable fiscal regime. To this end, we already revised taxes for petroleum products and eliminated the implicit subsidy by making sales to the private sector at the market exchange rate. 14. Any revenue losses from the trade reform will further be offset by implementing higher excise duties on luxury consumer goods, alcohol, tobacco, and automobiles. As we undertake the liberalization process, we will also negotiate with our major trading partners better access to their markets, including maximum favorable treatment with respect to quantitative restrictions and tariffs for the next ten years. In addition, the Government intends to mobilize international assistance to improve the competitiveness of the agricultural sector, particularly focusing on rice production. The legislation incorporating the tariff reductions for agricultural products would be introduced concurrently with measures to support this sector. 15. Poverty and the Social Sectors. Regretfully, Haiti remains the poorest country in the western hemisphere. While a strong and sustained recovery of growth will do much to raise incomes and provide employment for the poor, this must be complemented with effective programs in health, nutrition and other social services that will eliminate the worst manifestations of poverty, and provide a safety net for those most affected by the current severe recession in the Haitian economy. As stated above, we will make a major reallocation within our budget to increase the funding for health, education, nutrition and other social programs, although we hope that some of these expenditures will be financed by foreign grants as well. We intend to revitalize the Economic and Social Fund, instituting more flexible procedures and seeking additional external financing. We appreciate the role of grass roots organizations and NOOs in delivering essential services, and will continue to count on their support. To more effectively integrate these organizations in our effort to alleviate poverty, we would like to request that IDA and IDB undertake a Poverty Assessment, to assist in the formulation of social development and poverty alleviation policies and programs. AID COORDINATION 16. We sincerely appreciate the support of IDA and IDB, as well as other multilateral and bilateral agencies during the recent transition period. We recognize, however, that steps are necessary to improve our aid coordination efforts, in order to ensure that aid funds are used to maximum effect and that aid projects are consistent with implementation capacities -6- and avaiable counterpart funds. We look forward to the forthcoming Consultative Group Meeting for Haiti in early 1995 as an opportunity to further explain our program and objecdves, and to dicit support from the donor community. In addition, we intend to develop, with the staff of the relevant multilateral agencies, a Policy Framework Paper (PFP) which will lay out in more detail our policy objectives descnbed here and a timetable for their implementadon. We hope that the PFP would provide the basis for a future dialogue on adjustment lending from MDA, IDS, the IMP and other donors. Maric Michele Re r' 1'F Minister v'Kt MAP SECTION IBRD 17094R1 i4, 20' A T A N TI C OCE A N 20 F 4 N ~~~~~~~~~~~~~~~~~~Port do Pon "e/ CUBA 2_ DMiNICAN HAITI E jAMAI(CA- PUERTC SICC HAITI Main Highways Secondary Roads ----Teroray Roads R,,,ers ,d.56 -.' -cr r Intrematio,,al Borndornes Ele,,oion in Mlters o n v a _I 1600 800 In' ~~~~~200 K oCETR 10 20 30 40 50 MILOEERS OLA ArtIO no,r 3r a.0~~~~~~~~~~~~~~~~~~~~~~~~~~~t PO't Ab P,,,ce ~ ~ ~ ~ ~ ~ ~ ~ ~ EPEM8I 18 I IMAGING Report No: 16166 Type: ICR