DEVELOPMENT PROGRESS

For nearly two decades, Haiti has struggled to emerge from a cycle of internal conflicts that have devastated its economy and inflicted severe hardship on its population. Occupying the western third of the island of Hispaniola, Haiti is the poorest country in the Western Hemisphere and one of the most disadvantaged in the world, as social, economic and environmental indicators reveal:

• GDP per capita of US$361 (2003);
• 146th on the human development index;
• 65 percent of the population lives under the poverty line;
• life expectancy is 53 years;
• under-five mortality rate of 123 out of 1,000;
• half the population does not have access to clean drinking water and only 28 percent have access to decent sanitary equipment;
• nearly half the population is illiterate;
• highest incidence of HIV/AIDS outside of Sub-Saharan Africa (5 percent); and
• 97 percent deforestation.

Despite a remarkable history as the first and only slave colony to gain national independence, and the second free republic in the Western Hemisphere after the United States, Haiti’s path to development and democracy has been hampered by political instability. After growing at an average annual rate of 2.3 percent in real terms in the 1970s, real per capita GDP fell an
average of 2.4 percent per year in the 1980s and continued to decline in the 1990s at an average annual rate of 2.6 percent.

The early 1990s were marked by a military overthrow of the democratically-elected president Jean Bertrand Aristide and a subsequent international embargo that sought to restore constitutional rule. During this period, activity in the textile and export-oriented assembly industries—responsible for over three-quarters of export earnings and a significant share of jobs—virtually ceased, tax collection and expenditure control systems collapsed, and maintenance of economic and social infrastructure was all but abandoned.

Between 1994 and 2000, the combined effect of US$2.6 billion in external aid and a gradual increase in remittances led to significant improvements in certain social indicators, particularly in the net school enrollment rate, the literacy rate, infant malnutrition, and access to safe water. After the return to constitutional order in 1994, the government adopted an Emergency and Economic Reconstruction Program (EERP) that allowed a certain degree of economic recovery and improvement in the economic indicators during the 1995-1998 period. Unfortunately, the economic recovery was unable to withstand the political crisis of 1997. Political discord, lack of commitment to reforms, weak institutions and loss of investor confidence resulted in the gradual decrease of much needed external assistance and private investment in the late 1990s and early 2000s. This period was characterized by a fall in private investment and external aid as well as a stalling of structural reforms.

Nevertheless, private transfers, mainly remittances from Haitians living abroad, more than doubled—from US$256 million in 1997 to US$650 million in 2002, totaling 19 percent of the GDP—and partially offset the negative impact of the economic crisis by providing a safety net to the poorest groups of society. In the early 2000s, the dearth of publicly-funded social programs and safety nets and the dramatic contraction of donor assistance led to significant declines in the delivery of basic services, from safe water to critical and basic health services. Real GDP did not grow at all during the period 2000-2003, inflation averaged 17 percent(including the increase in the price of basic products), and the fiscal deficit (excluding grants) averaged 3.1 percent of GDP. The deficit was financed primarily by Central Bank advances as well as by the accumulation of external arrears.

The social and economic situation deteriorated sharply earlier this year when efforts to broker an accord between the governing party and a coalition of opposition groups came to a head. On January 12, 2004, with a political dispute over May 2000 legislative elections still unresolved, the term of Haiti’s contested parliament expired, leaving President Jean-Bertrand Aristide to rule by decree. Growing civil unrest followed by an armed rebellion that seized the northern half of the country in February 2004 culminated with President Aristide resigning and leaving the country. UN Security Council Resolution 1529 was subsequently adopted which, inter alia, recognized the resignation of President Aristide and the swearing-in of President Boniface Alexandre, the Chief of the Supreme Court, as acting President, in accordance with the 1987 Constitution’s provisions for the transfer of power.

A Tripartite Council made up of a representative of the Fanmi Lavalas party, a representative of the Democratic Platform (a coalition of opposition groups), and a representative of the international community, designated a Council of Wise Men composed of seven eminent personalities representing key sectors of Haitian society. Following a participatory process, the Council of Wise Men designated Gerard Latortue as Interim Prime Minister. The Prime Minister was sworn in on March 12. On April 4, the Transitional Government, political parties (with the exception of Lavalas) and civil society representatives signed a political pact agreeing, inter alia, for elections to be organized in 2005 and for the elected government to be inaugurated in 2006.

       
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 RECENT ECONOMIC DEVELOPMENTS

The economic impact of the recent political crisis and armed rebellion has been severe. The conflict resulted in property damage in both the public and private sectors that is now estimated at 5.5 percent of GDP. Property losses and the closure of business disrupted economic activity for weeks, resulting in severe disruptions in the supply system, and private sector confidence has remained weak amid persistent security concerns. As a result, monthly inflation picked up to 6.5 percent in April from 1.5 percent in February, reflecting widespread supply constraints (closure of ports and looting of warehouses) and increases in international commodity prices. Net international reserves (NIR) fell to a historic low of US$17 million at end-March, though they have recovered somewhat since then, reaching US$30 million as at end-May, and GDP is projected to decline by 5 percent this year. Additional losses (including the loss of over 1,000 lives) have resulted from the devastating floods in the southeastern part of Haiti in late May. The Gourde has strengthened since the end of the armed conflict in March 2004 reflecting the effects of a recovery in remittances and a collapse in imports, as well as expectations of foreign aid inflows. The Authorities implemented expenditure cuts required to keep the fiscal position in check. Faced with substantial revenue shortfalls, uncertainties regarding external budgetary support and the need for some emergency outlays, the authorities cut recurrent and capital expenditure during April–May 2004 by about 0.9 percent of GDP. However, since these cuts exceeded revenue shortfalls, they led to a positive fiscal position and a decline in central bank credit to the government.

Initial steps have been taken to strengthen governance in the public sector with new managers appointed in public sector enterprises, tax officers from the large-taxpayer unit assigned to oversee their tax payments, the use of discretionary current accounts now subject to close scrutiny, and an anti-corruption unit to be established. Although activity appears to be picking up in some sectors, commercial banks remain reluctant to extend new credit to the private sector mainly because of concerns that non-performing loans could rise owing to the conflict’s impact on creditworthiness. Haiti has continued to accumulate arrears to some multilateral and bilateral creditors. However, the new Authorities are in consultation with their major creditors and there are indications that they are determined to resolve the arrears issues within a reasonable timeframe. The authorities have reached agreement with the IMF on a short-term Staff-Monitored Program (SMP). The main objectives of the program are to preserve financial stability, support economic recovery, and establish a track record of macroeconomic management.

THE INTERIM COOPERATION FRAMEWORK

The Transitional Government of Haiti, donor agencies, and international and regional organizations agreed in March 2004 to launch a new partnership to respond to the country’s urgent social, economic, and institutional needs. In April 2004, the Transitional Government launched the preparation of an Interim Cooperation Framework (ICF) in coordination with the European Commission, the Inter-American Development Bank, the United Nations and the World Bank. Over 250 national and international experts from 26 bilateral and multilateral agencies, UN agencies, civil society and the private sector participated in the exercise.

To support a process of national reconciliation and ensure a coordinated and rapid response to the country’s urgent and medium term development needs, the Interim Cooperation Framework identifies four priority areas for action:

1. Improving political governance and promoting national dialogue: this includes security, police, and demobilization, disarmament and reintegration; justice, prisons and human rights; and the electoral process.

2. Strengthening economic governance and promoting institutional development: this covers economic governance, strengthening institutional capacity, and regional, urban and local development and decentralization.

3. Promoting economic recovery: this includes macroeconomic stability, electricity, private sector development and SMEs, rapid job creation and micro-finance, agriculture, roads and transport, and environmental protection and rehabilitation.

4. Improving access to basic services: this covers urgent humanitarian aid and postdisaster reconstruction; water and sanitation; health and nutrition; education, youth and sports; culture, the media and communication; food security; slum upgrading; solid waste; and safety nets and social protection.

The ICF exercise was inspired by similar needs assessments undertaken in post-conflict countries such as Afghanistan, Iraq, Timor Leste, and Liberia, with government leadership giving it increased country ownership. The ICF was prepared with close government and donor coordination and with civil society input to identify and carefully cost the country’s social, economic and political priorities from July 2004 to September 2006. Donors are expected to pledge their financial support to the ICF at the ministerial-level donors conference on Haiti at the World Bank on July 19 and 20, 2004.

(To learn more about the Interim Cooperation Framework, visit http://haiticci.undg.org or go to www.worldbank.org/haitidonors2004.)

 WORLD BANK ASSISTANCE TO HAITI

Haiti became a member of the World Bank in 1953. While the first loan, made in 1956, was from the International Bank for Reconstruction and Development (IBRD), all other financing has been channeled through the Bank’s soft-loan arm, the International Development Association (IDA). From 1956 through the mid 1980s, some US$260 million was disbursed for infrastructure projects (transport and power), rural and urban development, agriculture, forestry and education. From 1987 to 1991, IDA disbursed some US$142 million for projects to support fiscal and trade reforms and projects for basic health services (including HIV/AIDS and TB prevention and treatment), water supply, power services, transport infrastructure, social and economic funds, and industrial restructuring and development.

IDA projects were suspended in 1991 and resumed when constitutional order was restored in 1994. From December 1994 to September 1997, IDA disbursed about US$100 million to finance an economic recovery program, emergency employment creation, road rehabilitation and maintenance, and a forest and parks protection technical assistance project. IDA disbursements to Haiti peaked at US$56 million in 1997. From 1997 to August 2000, with no fully constituted Parliament to ratify new credits, IDA disbursements steadily declined, with less than $9 million disbursed in 2000. In September 2001, Haiti fell into non-accrual with the World Bank. On December 31, 2001 the Forest and Parks Protection technical assistance project and the Road Rehabilitation and Maintenance project  closed as scheduled.

In March 2002, an independent evaluation of Bank assistance to Haiti from 1986 to 2001 concluded that the development impact of IDA lending had been negligible. The report argued in favor of a future focus on building institutions, strengthening economic governance and working with local communities. In September 2002, a World Bank Task Force on Low Income Countries Under Stress (LICUS) concluded that the Bank should remain engaged in countries with weak institutions using a mix of knowledge activities and grant financing to support improvements in policies, institutions, governance, and the provision of basic social services.

On January 9, 2003, the Haiti Country Brief, an approach paper for the World Bank, was discussed informally by the Executive Board of Directors. The Country Brief outlined a LICUS approach to Haiti, including to strengthen the knowledge base on economic governance and provide grant financing for basic social services and local development and institution building. The Bank is providing a US$2.5 million Grant from its Post Conflict Fund (PCF) for an Emergency Health Interventions and Healthy Schools project implemented by the Pan American Health Organization in collaboration with the Ministry of Health and other partners. A second PCF grant of US$1 million for a Community Driven Development pilot project is being implemented by the Pan American Development Foundation in coordination with the Ministry of Planning in two isolated communities along the border area with the Dominican Republic. The World Bank also sponsors consultations with civil society, government and donors to promote dialogue and regularly chairs informal donors meetings on Haiti in Washington, DC.

The Bank is seeking to mobilize an additional US$5 million in grants from the LICUS Trust Fund for economic governance, disaster management and emergency recovery support, social safety net programs, a community-managed rural water project, a solid waste pilot project, and communication and consultation activities. These projects will emphasize strengthening transparency and accountability in public resource management, job creation and delivery of basic services at the local level, institutional strengthening at the local and central level, and piloting approaches that can be scaled up when IDA resumes lending to Haiti. The Bank is preparing a two-year strategy for IDA assistance to Haiti to resume once the Government clears its arrears. The proposed program will be presented to the Executive Board in a Transitional Support Strategy in the fall of 2004.

Updated July, 2004