Haiti's economy gets worse; Nation plagued by spending, inflation

By Don Dohning dbohning@herald.com, The Maimi Herald,
Thursday 20 April 2000

PORT-AU-PRINCE, Haiti -- A government spending binge, the lack of a parliament, higher petroleum prices and political turmoil have plunged the Haitian economy to depths not seen since an international embargo against a de facto military regime that ruled from 1991 to 1994.

If an economist wants to see for himself what development is not, he should visit Haiti right away, says Claude Beauboeuf, an economic consultant, university lecturer and commentator with a doctorate in economics and international affairs from the University of Miami.

A foreign economist characterized the current economic situation as dire, with little prospect of improvement in the near or midterm future.

Remittances by Haitians from abroad are among the biggest source of dollars for Haiti, estimated between $400 million and $1 billion annually. Drug money also is a significant but unknown contributor to the economy.

International financial assistance has dried up because of the lack of a parliament required to approve many projects and increasing international frustration with the government. By some estimates, it has lost at least $500 million in aid in the last three years.

In addition, the U.S. Congress has put a hold on what little direct U.S. assistance was going to the government.

Yet, observed one international financial official, they [the government] are spending money like it's going out of style. We're wondering how best to react to the situation so the poor people in Haiti don't suffer.

But, added the official, the donor community is not really willing to give the money to the government in Port-au-Prince. We're trying to be careful so that our actions are not seen as a vote of confidence in the government.

There are few economic bright spots, although Haiti's assembly industry -- mostly value-added apparel -- is holding steady at about 20,000 employees, construction is still strong, and most little new investment there is going into wireless communications.

The gourde, the Haitian currency unit, has depreciated from about 16 to one U.S. dollar late last year -- where it had been for the past several years -- to between 20 and 21 recently. Some are predicting the exchange rate could reach 40 to 45 gourdes to the dollar in coming months.

The gourde's depreciation, say economists, has been fueled by deficit government spending and a growing concern about the current uncertainty that has prompted people to convert gourdes into dollars.

The gourde's fall has brought an upsurge in the cost of living, with inflation now running at an annual rate of nearly 24 percent, based on a 1.9 increase in February, compared with about 8 percent for the last fiscal year. It had been as high as 40 percent under the military.

An informal survey of market prices for several basic commodities show recent increases ranging 12 percent for rice to 25 percent for sugar and cement.

Despite the crunch, government spending has gone unchecked, according to economists. An International Monetary Fund agreement had called for a deficit of 800 million gourdes for the current fiscal year. That was reached in the first three months -- October through December. The IMF revised the deficit spending upwards to a 1.1 billion-gourde deficit, which was nearly reached by the end of January.

The spending spree began about 10 months ago, including road work, beautification of public squares and other such items, among them more than $700,000 for 13 Mercedes taxis and 12 four-wheel-drive Isuzus, even though there are no tourists.

The vehicles were turned over to the chauffeurs union, which is close to the government, and which is expected to eventually repay the government for them.

At the same time, the government refuses to raise the price of gasoline at the pump, where at $1.60 per gallon, it is among the lowest in the hemisphere.

They have lost $6 million a month in incoming revenue [because of no petroleum price increases] that they could use for government expenditures and that figure is 25 percent of their domestic government revenue source, according to one economist.

Meanwhile, a privatization program that would help attract new investment by upgrading such rundown state-owned facilities as the port, airport, telephone and electric companies, is dead in the water.

Under a timetable given by the government to the World Bank a year ago, bids were to have been called for and contracts signed for all but the electric company by late last year. Nothing has happened in months.

The World Bank, in a March 17 letter to the U.S. Agency for International Development, which had been funding a technical assistance credit for the privatization effort, said it was ending the program March 31.

No concrete progress has been made since last autumn in moving the program forward due to [the] lack of political will...to advance these reforms, said the letter signed by Raj Nallari, director of the Bank's Caribbean Management unit.

It added there there was no reason to grant U.S. aid for the program under present conditions.

There's no way I can see things getting any better over the next couple of years, said a foreign economist. Even if we had elections, it would take until next year for international aid money to start flowing in here.