Haiti - Current economic position and prospects

DESTRICTE D II be. 40 aI I a %F I & W Report 1o. WH-110a This report was prepared for use within the Bank. It may not be oublished nor may it be quoted as representing the Bank's views. The Bank accepts no responsmily Tor ne accuracy or compoefnss OT he conTenTs or The report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT CURRENT ECONOMIC POSITION AND PROSPECTS OF HAITI September 8, 1961 Department of Operations Western Hemisphere CURRENCY EQUIVALENTS U. S. $1 = 5 Gourdes Gourde 1 = U. S. 20 cents Gourde 1 million = U. S. $200, 000 TABLE OF CONTENTS Page No. BASIC DATA SUYMARY AND CONCLUSIONS i I. TRODTTCTTON 1 II. ECONOMIC GROWTH 3 TTT BA;Tr RERTTnR 10 IV. FINANCIAL DEVELOPMENTS 12 V.TRATSnlDEWELRNNT VI. THE BALANCE OF PAYMENTS TTTT UnnvTnMT nVnM CDITTTOU V L.L I UlUilLU1l _u.L "LA -QL U: CU APPENDIX I Prospects for Foreign Exchange Earnings A nnrnTnlTrV T- DUaU.LsU-LLa- T---'e ZA,dt±~jbLd± au-Lj - ± PAqTr T)ATA ~~ ~V*'~--L%j. IJV,2 OqUC IQ-, J±.JL 1960: 3.7 million OSS IIjI=L. L~ULICdj. F.UUULU ; U :Pt VLL-L-11 ,51 1954 345 1960 (Prov.) 255 Per Capita G.N.P.: 1960 $69 Balance of Payments: U.S. $ million 1959 1960 -.Exports f.o.b.) 25.9 38.1 Imports (c.i.f.) -31.5 -33.3 Earnings from tourism 6.6 7.0 Other current items (net) -1.6 -7.7 Current Balance -0.4 4.1 Donations 10.8 5.6 Capital inflow -4.0 1.9 Errors and omissions -9.0 -9.2 Surplus/Deficit -2.6 2.4 Composition of Exports by Value: CoffeQ Sisal Sugar 1959 50% 19% 1% 1960 54% 12% 10% Foreign Exchange Reserves:(net): A $ 11o Ue.jo o million Denmbr 1949 -1 -4 1960 0.9 Government Revenues and Expenditures: Millions of gourdes 1959 1960 1961 (Rro-vi sinnal (Buelpt) Budget revenues 105.6 130.0 110.0 Other revenues 59.h L1.1 5h.0 Total Revenues 165.0 171.1 114.0 Budget exDenditures 1)I 1T3.0 IA6-A Other expenditures 42.1 37.7 36.0 Deficit Price Index, 1959: Cost of Living (1953=100) : 107 - i - PUMMARY AND .nr.T.TJFOTnM. 1. 1. W ai, wit alos 3TA p3 Anc+ Ceo Qns pe ri Iquarem miIe, is. t.he mos de + n velyV settled of the Latin American republics. It is also the poorest and the lae+ Arranve A .,4+I-, +I 1_tr_+ a.n4+ .rm,+. (41n ToAAV +I-,h lowest per capita income (less than $70 in 1960) and the highest rate of 2. Ha-; ti i Qs an . agri; cutua .14,,,.,1-nt 07. 00 of a h pe + paa, Lul ati+on Mr ,, cnrort-n- try dwellers, making their living off the land and agriculture produces: -4"oA.1 Me thn 0/0 "./o ofJ exports L IJI .. U onras Lio ± teJpoor, .largel ruraIl, population, there is a small urbanized clite enjoying relatively LJ.l1 LV .4L6 C)VLJALL 1AO 10 UVVL1.I L .L LL kjJ.:'.Lt_LL16, ULIV J.CL.rV tUOLL1UOO ~LiJ prises and playing a prominent role in the professions and in Government. 3. Subsistence production is the primary concern of the bulk of the jpopL uiL.LVt, _Lt WLt! P1-LLULJJCL.L t-,&PU1-U~ LUP P.LOV_LU_L11r' UVL L1L O I.tL.J exports. It is grown by the peasants for whom it is the main source of cah income. Sisal is grown on large estates, and tere hs been in more recent years a relatively rapid development of tourism and of mining, witu vauxite ana copper being produced for export to the uned aUcoe. 4. Over the first post-war decade, Haiti benefitted greatly from the rise in prices of her principal exports, coffee and sisal. Between l945 and 195, the value of exports trebled. Coffee growers obtained the major share of the rise in coffee prices and enjoyed a substantial rise in real income. Their prosperity spread through the economy. Government revenues reached unprecedented levels, public and private investment rose and the expansion of the domestic market provided the stimulus for the establishment of new manufacturing industries. By 1954, per capita income is estimated to have reached 100. 5. With the decline in the prices of Haitian coffee from 1954, the period of relative prosperity came to an end. Coffee production had not increased in response to the earlier rise in prices and with no increase in export volumes, the value of exports fell by 30% between 1954 and 1960. Falling exports brought declines in income, Government revenues and in- vestment, and renewed political instability in the past four years added to the difficulties of the economy. Tourism declined, private investment fell, and with a flight of capital the country was left without foreign exchange reserves despite the imposition of austere fiscal and monetary policies. As a result, the authorities could not take measures to off- set the effect of declining exports on income and employment and it is estimated that per capita income during this period fell by approximately 30%. 6. This decline in income has been sustained notwithstanding the coming to fruition in recent years of some major investment projects, financed largely from abroad, and the receipt of substantial technical and economic assistance from the United States and international organ- izations. - 11 - the Haitian people will depend largely on their own subsistence production, arrested and reversed, an expansion in production for the market will be necesay, an present ex-&pe-Ucationsb, the: Va-LUe: ofeprsUhoglcu ating from year to year, will show no appreciable upward trend in the next five years, and while some steps are Veing taken uo expand pruon for the domestic market, the resulting growth of income will be modest. 8. In the subsistence economy continuing erosion and impoverishment of the soil will, unless checked, bring declining yields and falling out- put. With a rapidly growing population, the decline in subsistence pro- duction could not be allowed to continue but the task of reversing this trend will be one of great difficulty. The density of settlement, the low levels of education and technical skill, the insecurity of land tenure, the traditions and outlook of the people are all factors hampering the adoption of new techniques, without which agricultural production cannot be increased. The resources made available so far for rural education, agricultural extension, and soil conservation have been totally inadequate and, indeed, the task is beyond the capacities, both technical and finan- cial, of the Haitian Government. 9. In these circumstances, increased foreign aid will be required if the growth of production is to be accelerated in order to permit even a modest rise in per capita income. As the domestic market is small, the expansion of production should initially be oriented towards the export market, and it will depend primarily on Haiti's ability to increase agri- cultural exports. To achieve this, a substantial increase in technical and financial assistance to farmers will be necessary, and at the same time the transportation system, particularly highways, must be further improved. If growth in the export sector pan be achieved, a renewed expansion of production, especially of manufactures, for the domestic market may be expected, particularly if the Government takes the steps necessary to restore the confidence of private investors in Haiti, and if impediments such as the present serious shortage of electric power in Port-au-Prince can be overcome. 10. It is not possible at present to estimate precisely how much exter- nal aid Haiti could use effectively in the next five to ten years, but it is clear that the need could not be met by borrowing on conventional terms. Haiti has not met in full its obligations on the external public debt. The service on the existing debt (exclusive of payments of past arrears) will represent about 15% of estimated budget revenues and 9% of estimated foreian exchange earnings in 1962. the peak year. By 1966, service on the existing debt will represent about 6% of estimated foreign exchanLe earninos. If settlements are reached on debt service payments in arrears, the total debt service may be significantly increased, but it is unlikely that the debt service ratio will exceed 10% in the foreseeable future, except possibly in 1962. Nevertheless, for a country as little develPd a Hait. -vith qn InNr a pr anita income and such limited growth prospects, the service on the existing external debt already constitutes a hevy urdn o foeignexcang eanins,nnd there isq c-learlyv little - iii - room for ne -y borrow"ngson uonvuvnuional termto during the next five yecrse Aid from abroad should, therefore, take the form rai.ly of grants and "oft" loans, anu if it is to be used effctively, t so essenvial thatt it be associated with appropriate technical assistance to the Haitian agenies turough which the adu is cuanneleu, I. INTRODUCTION 1. The Republic of Haiti occupies the western third of the island of Snn+o noming, thue ,manrn 1'o' +. lnr rf .hp Chribben- The coun- try is mountainous with three principal and many secondary ranges which together- _ 4+1 r +Jc, +rn+.01ni a nf~ 10-700 qur miles. The rugged topography, with elevations reaching nearly 9,000 Pe - 4 n 4- 4 - -. - ,- ~-., - ~ AA-r ,--;~+Nr v..* *o i f~ nrrAiiir m 7P t L _LL U11-l Sol i4 -h ~VLL L~ vatiations in rainfall, with precipitation ranging from 20 to more tlan A L .L - -ir r -------- - . ___ -4 4 -1 1 Tin- vq+p I-kU bL1 -)V UtLZj.U i, Ullte JJUPU_Lc.LU-VL1 VVCO *)-J L L.Lh'~L f* of natural increase is not known exactly, but it is thought that the population may now U Letwee alU _?,U 1;"L±L_L1, WiULL6aI Wi um is as high as 4.0 million. A population of 3.7 million would mean an average rate of grownth 0 1. 7o per annum,and an average deunsiy of the order of 350 persons per square mile, the highest in any Latin American republic. 3. Haiti is an agricultural country: 90% of the popuLauUi ilI country dwellers making their living off the land and agriculture provides more than 907% of exports. In colonial times Haiti was the largest exzor- ter of sugar in the world and a major exporter of coffee. After the coun- try achieved its independence in 106o, the large estates were bpi-U Up into a great number of small holdings by the former slaves and the produc- tion of export crops, particularly sugar, gave way before the neeas 0.1 Un population to produce food for their own subsistence. Exports of sugar ceased but coffee continued to be grown by the peasants in mountain areas and for most of the past hundred and fifty years has been the chief export of the country. 4. The patterns of land holding and land usage established at the time of independence have remained largely unchanged until today. Subsis- tence production has continued to be the primary concern or the people. Production techniques have changed little and the growth of population, which has increased seven-fold, has meant an increasing density of gettlenent, in the highlands after the fertile plains had been occupied., Cultivation of mountain lands by primitive techniques and the continuing removal of tree cover has in turn resulted in serious erosion and inpcver- i3hment of the soil. 5. The mass of the people are very poor. Average per capita income is estimated at only $65-$70 but peasant incomes are lower than this. Standards in education and health are low: approximately 90% of the rural population are illiterate; malnutrition is wide-spread; malaria is preva- lent; and there is a heavy incidence of tuberculosis. 6. In contrast to the large rural population, which is mostly very poor, there is a small urbanized "elite", enjoying relatively high standards of living, owning or operating the larger business enterprises and playinga prominent role in the professions and in Government. This grou has been mostly - 2 - dependent on the production of export crops by the peasants although in recent years the degree of dependence has been lessened with the devel- opment of cultivation of sisal on large estates and of the country's tourist trade. Government operations have also been primarily dependent on revenues derived from taxes on peasant production or consumption. Notwithstanding this dependence, few measures have been taken to promote the expansion or improvement of peasant production. As a result, outpdt has slowly declined and export volumes have apparently never surpassed the levels achieved at the end of the colonial period. 7. A major factor contributing to this decline has been the inabil- ity of successive governments to establish and carry through effective programs to improve agricultural productivity. This failure has been due in part to the lack of qualified personnel in Government service but, more important, to the waste of human resources which has resulted from repeated changes of personnel for political reasons. There is no established civil service in Haiti; civil servants change with changes in the government. A long history of political instability has meant frequent disruption of the administrative machine, and standards of public administration have in consequence been very low. 8. This situation has affected not only the agricultural services of the Government, but also the development of other basic economic services. Roads have been built but not maintained, and even the main highways have often become impassable some years after construction. No substantial imorovements have been made at the wharf of Port-au-Prince since it was built about 50 years ago. A telephone system was installed in the cnnital but for nractieal nurposes it is now useless. While electric power is produced by a private company, Government policies have so hampered the conanv' operations that there is now a severe power shortage, particularly in the area of Port-au-Prince. 9. In contrast to the generally poor performance in public admin- istration, the Naioa Bank, which opeate both as t.he central bank and the largest commercial bank in Haiti, has been well managed, and the fiscal deartment of .he Itank, which collects Government revenues from import and export taxes, has also operated effectively. 10. The sound management of the National Bank has been one legacy of +he help given b +he United States during the neriod of the AmpriTan occupation (1915-1934). Much greater assistance - both technical and financial " has been provided by the United States during the past ten years. From 1950 to 1959, U.S. aid totalled more than J60 million, of which just less than half was in the form of loans for specific develop- ment projects. Of the remainder, a third was spent on technical assis- administrationj a half was special assistance including budget support grants an .UUI U~IL ~d the~ balanc was food prvie une P.L. 48. - 3 - I1I Add1rio nnl ni.d hncas ben p--ridedob thei+h Unite N.rlATins i n he past decade. Over this period more than one hundred experts in a stationed in Haiti by different agencies of the United Nations, and grantsIdA hav been1 madeLU to enabUle~ _"UY 1da-LULar~is to. s,Luuuy CIVIO~CIL0 VILtIC211 cial assistance has been made available also in the form of a loan of qy. .'d 11I1.J.L Lrom,I LI the LJ CUIU UU1I-Ur ULlt: YcdLOU J.ULL.L ~YCC%J.Z 0 . CL DULL' of standby arrangements with the IMF. 12. The assistance from the United States and international organi- za[ious has unuouubeuy uougnu - uusanu-a- vueo- uo na±. A major irrigation project has been developed in the valley of the Artiboni.te, naiUiPs largest river; a campaign againsu yaws, organizeU by the oUrL Health Organization has been almost completely successful; progress has been made in rural and adult education; roads have been improveU anU a road maintenance organization established. These are some of the bene- fits received. 13. Nvevertheless, aid on the scale provided has not been suificient to make a substantial impact on the structure of the Haitian economy, nor on the living standa:ds of the people. A greater impact was made by the increase in export values resulting from the rise in the prices of coffee and sisal in the years following the Second World war. ine extent of this increase and its effects on the economy are considered in the following sections. II. ECONOMIC GROWTH 14, The fifteen years ending in 1954 brought a dramatic rise in Haiti's income from foreign trade. The value of exports rose from an average of $6.6 million in the thrae years before the Second World War to almost $49.0 million from 1951 to 1954. In the immediate post-War years a rapid expansion in banana production contributed most to the growth of exports, but after 1947 continued growth resulted from the expansion of sisal production and the rise in nrices of sisal and coffee. The most important of these factors was the great rise in coffeprices: with a moderate increase in volume the value of coffee exports rose from $3.6 million in 1939 to $12.0 million in 1947 and 44 million in 1954, and coffee regained the dominant role in the composition of exports that it had held until the mid-1930's. 15. Booming exports and the favorable change in Haitits terms of trade brought a substantial rise in the living standards of the people. Coffee producers,who obtained the major share of the rise in coffee prices, increased their consumption but invested little in expanding production. Their prosperity spread through the economy, imports rose, Government revenues reached unprecedented levels and the expansion of the domestic market provided the stimulus for the development of new manufacturing industries producing textiles, clothing, soap, edible oils and cement. 16. The Government which took office in 1950 embarked on an expanded program of public works in which the main emphasis was on road construc- tion and the development of the irrigation project in the Artibonite River Valley. Public investment expenditures rose from $6.5 million in 1951 to $27 million in 1955. The greatly expanded public works program and the investments in new industries and tourist facilities in the private sector brought grc s investment in the years 1953-1955 to the highest levels yet recorded. Nevertheless it is estimated that invest- ment still represented less than 9% of the Gross National Product during these years. and the major part of the increase in real income which Haiti enjoyed during the first ten years after the War was devoted to expanding consumption. 17. The rapid expansion of the economy was not maintained after 195h. The prices of Haitian coffee have declined almost continuously since 1954 and prices of sisal have remained much below the levels of the boom years of the Korean war. Thevalue of exports has fluctuated with the biennial cycle of good and bad coffee crons but the trend in the nast six years has been downwards: for 1960 exports were estimated at $38 million by comnarison with 45.5 million in 1950. 180 Wile eorts have heen falling, inteornal ativity has also declined. A rapid expansion of Bank credit to the Government in 1955 and 1956 led to fears for the stability of the Gourde and a flight of capital which gained momentum in 1957, a year of acute political insta- bility.* By the end of that year foreign exchange reserves were exhaus;ed, The Government was forced to take drastic measures and in cooperation writh +h+ Tn+erna+inal M anet+- Fn n+ tArceA austerity oprog+am which has been maintained since then. Government expenditures were The cut in Government expenditures fell most heavily on investment; ppkax-t Xrr a.-JJ roa cosruto an1 AI~11.IL 4UIdi maI itenance.. proU1gam, undert± akwen,~ wVi-.11 the help of a loan from the IBRD, and some further work on the Artibonite AU.ley) ro~ject, speing.4. on now publi worksLL has.~ v1dirQAl ceasU~.LJ ed. With4 a declining internal market and continuing political uncertainty, private Product are.available for recent years, but the evidence points to a a decline of the order of 25% between 1954 and 1960, and a drop in per capita income from approximately Ou0 to less than $70 over this period. Agriculture 19. Coffee is naitis principal export crop providing about 507 of total foreign exchange earnings. It is estimated that there are about 150,000 peasant producers, each producing on the average between 20 lbs and -40 lbs of coffee, depending on the season. The coffee trees grow more or less wild, yields are very low, and there are great fluctuations in the size of the crop. In recent years a regular pattern has emerged of one good crop being followed the next year by a crop little more than half as large. - 5 - 20. While accurate production figures are not available, the long- term trend of coflee exports has been downward. Irom 1900 to 1910, average exports were slightly above 30,000 metric tons a year as com- pared with an average of 26,000 tons between 1950 and 1960. This de- cline reflects some increase in internal consumption; production may have remained approximately constant or may even have increased slightly., The volume of exports has also declined slightly in the past ten years, and exportable production is currently below the level of Haiti's quota under the International Coffee Pgreement. 21. As coffee plays so crucial a role in the Haitian economy, attempts have been made from time to time, so far with little success, to expand plantings and increase yields. At present, the coffee expor- ters, under pressure from the Government,are preparing a program to grow coffee in demonstration plots using modern techniques, in the hope that the peasants will be encouraged to adopt the same methods. The scale of the program as envisaged at present is small and its impact is likely to be quite limited, but should the program be enlarged and prove suc- cessful, an expansion in production might be expected after four or five years. 22. A substantial increase in the returns on coffee would result from improvements in quality. This depends in part on the processing methods emloyed. At present only 10% of the crop is orocessed in modern "washing" plants, although a price differential of the order of 5 U.S. cents per lb.-or 16% of the current market price of Haitian coffee,exists between washed and unwashed coffee. New plants have been established in the nast year. but the remoteness of most coffee growing areas, the lack of adequate transportation, and the conservatism of the neasants are serious obhtacles to further imnrovement. 231. Tn nontrasqt to the- donwnwa-rdl tKrend3 in roffpe 5ex-nnot.s- nrcitinnL of sisal, Haiti's second principal export, has risen from a few thousand tons during the Ol931s to an avora of 30,000 tons a veaqr dring the past ten years. Sisal is grown mainly on large estates, and one producer, the Plnntntion Dannhin_ nmnrnrec nnraximately hlf the mtnnut of the country. The major expansion in production occurred in the late 1940's in rponnnse to the sharn rise in ricet Pt.hat. time The fall in prices after the Korean war brought some reduction in output, but in the maintained, new sisal plantations are being established and plans are twine, for export to the United States. 24. Cacao has been exported from Haiti for many years. Like coffee, it cessing techniques are poor and the quality of much of the crop is low. 4,, -b ,~,,,- ,.,- years--.- "e a.r,veraged,, -- o-- t 0 000 tonsr a year, higher than in the 1930's but lower than in the early years of otpus ctTy. ther arment hofve e p North, the IC. mis t Hai output. In the Department of the North, the .C. mission to Haiti - 6- adoption of improved cultivation techniques, and is establishing modern process±ing p.lants. VI1 Uld LdbS±3 01 IALL6 1*JZQ81';U1, itL -L,- UAPiet;U UII±dt cacao exports can be doubled in volume by 1966 and the quality of the product should be greatly improved. S. Sugar was naiti's major export in colonial times; it is esumated that exports at the end of the eighteenth century were approximately ou,uuu tons a year. After independence, the lands were used to grow subsistence crops, the irrigation works fell into decay, production was greatly reduced and exports during the nineteenth century virtually ceased. The stimulus to recovery was given in the early years of this century when the Haitian American Sugar Company built a mill near Port- au-Prince. Exports increased slowly during the 1920's and by the middle 1930's exceeded 30,000 tons. This level was again reached in the early 1950's. A second mill was built by Cuban interests in 1953 but with adverse seasons in some recent years and a growth in domestic: consump- tion, exports have declined. In no year has Haiti been able to fill her export quota of 44,000 tons in the world market. In 1960, however, a favorable season enabled her to take advantage of the opportunity to expand exports to the United States in excess of her quota of 9,000 tons following the cessation of sugar imports from Cuba. As long as the ban on Cuban sugar continues, market prospects for Haitian sugar in the United States are likely to be favorable, and there is a large poten- tial for expanding sugar production in Haiti. It is uncertain, however, how long sugar can be exported in quantity to the United States market, and it is doubtful whether an expansion of production would be profitable on the basis of the present world sugar price. For these reasons, a sus- tained expansion in sugar exports appears unlikely. 26. Production of cotton in Haiti reached its peak of 6,000 tons in the years 1L932-±935 after a steady build-up during the 1920's. The whole output at that time was exported. A perennial variety of cotton was grown and when infestation by the Mexican boll weavil started in 1935 the proolem of control proved unusually difficult. No effective steps were taken by the Government or the industry to control the spread of the pest and production declined. Subsequently, with the establishment of a domestic textile industry after the Second World War, increasing quantities of cotton were used at home. The effect has been to reduce exports to only a few hundred tons in recent years, and in the current season cotton may have to be imported to meet the needs of the textile industry. Expert opinion appears to be agreed that a recovery of cot- ton production could be achieved if an annual variety were to be grown and if measures were to be taken to control the boll weavil. There is no program, however, for assisting the peasants to plant new varieties and adopt improved techniques so that no recovery in production can at present be expected. 27. Exports of bananas increased steadily during the 1930's after the Standard Fruit Comnanv established nlantations in Haiti. Besides operating its own plantations in the Artibonite river valley, the Com- n,nv hid the sole ripht tx exncrt banannas grown by other nroducers. -7- The market offered by the Company provided a stimulus to production by peasant producers, and although exports declined during the Second World War., they expanded rapidly to a peak of 7.3 million stems in 1946-1947, when bananas represented 20% of Haiti's total exports. Sub- sequently. the Government refused to renew the Company's contract, dividing it between a number of Haitian businessmen. The company with- drew from Haiti: the new contractors were unable to ship and market the bananas satisfactorily, exports declined even more rapidly than they had risen., and by the late 195O's. were less than 50.000 stems a year. Some recovery in production is, however, now possible. In the past two vears the West Tndia Frit and Rtpmmrnphin Comnwnv has established new banana plantations in the Department of the North. Disease, inadequate and owing to difficulties of securing land, it appears at present unlikely that the noprat.inn ill anal in sie that.r +.of t +.andard Frit Cnmnany. Production of bananas from the 1,100 acres already planted is estimated to be about- AA_,A0 stems and -with additional are still to be planted, production might reach about 650,000 stems in two years from now. The eX_ S e.Ce of th nemT M'..,t ng cl.&J ±Mel ^-rfA.W"n UJ tDLSr +1in lLjCfS r.ILC.J mn% n 1- stimulate increased production by peasant producers. On the other hand, unl e ba - afl p-4 - ste ngthen a4l- n p r oductJoA, n d - AAP-C-icult-i -s .~ 1-4- ,r encountered are quickly overcome, it is possible that the Company will and potatoes. Accurate figures are not available on the trends in produc- tioor of these crops, bUt it isb YIVoWL tiat the ProuctionLU1 ofL iLtc%has increased substantially with the development of the irrigation project in the Artibonite River valley. Tnis project is the largest in naiti; an Export-Import Bank loan helped to finance the damming of the river and the construction of primary irrigation and drainage canals for an area of 45,000 acres. Subsequently secondary and tertiary canals were built to serve rather less than half this area: they were not well planned, and land settlement in the area was not adequately coordinated and controlled, so that the potential of the project has been only partly realized. Plans are in hand, however, to develop the project further. With the help of a loan from the DL made in 1Y59, primary irrigation and drainage canals are to be built to serve a further 30,000 acres, and the new work is expected to be completed by July 1962. Rice has been the principal crop produced so far, and output is sufficient to meet the demand in Haiti. 29. Notwithstanding the expansion in rice production, output of food grains in recent years has not been sufficient to meet the needs of the population in all parts of the country, and foodstuffs have been imported into some areas by CARE and various church organizations for free distri- bution. These areas were those most severely damaged by the hurricane "Hazel" in 1954 and more arid parts of the country which have suffered in recent years from adverse seasons. - 8 - ,U. Local snortages 01 1000 graing are likely o coninue -uniess more active steps are taken to increase production in areas liable to drought, or to reduce the heavy losses of grains which result from poor storage. Experts of Point IV believe that if these losses could be substantially reduced, a surplus of grains would result. They are working on a program to improve storage facilities, and are hoping that it will be possible to use the expected grain surpluses in the development of the livestock industry. At present income levels, it is doubtful whether the domestic market could absorb a significant expansion in meat production, but there is a possibility of exporting meat to some neighboring countries and a modern abattoir, built recently in Port-au-Prince, could be employed in this trade. Grain surpluses might be used also in the development of the dairy industry. Production of dairy products for the market is at present small and imports have been valued at more than $1.0 million in recent years. Forestry 31. Haiti used to have very large timber resources which were ex- ploited for domestic use and for export. From the late 1880's to the 1920's there was a substantial export of logwood (campeche) which during this period held third place in Haitian exports. Subsequently demand. overseas declined and with a depletion of supplies, exports were greatly reduced. Timber resources have also been seriously depleted by cutting for domestic uses, particularly for fuel and construction purposes. Accurate figures are not available, but it is probable that over the past hundred years timber lands have been reduced from well over two- thirds to less than a fifth of the total area of the country. 32. Apart from the exploitation by the peasant population, sawn timber is being produced for the domestic market from pine forests in the southeast of the country. Output is at the rate of 8-10 millicn board feet a year, which appears to be adequate to meet the local demand for unworked timber. Fishing 33. The fish catch in Haitian coastal waters has been estimated at about 4 million lbs. a year. This is small in relation to the local demand, and imports of preserved fish, mainly cod and herring, have amounted in years of prosperity to the equivalent of approximately 30 million lbs. of fresh fish. Even in lean years, imports have been equal to about half this amount and have been valued at almost $1 million. 34. There is little doubt that with improved techniques the local fish catch could be greatly improved, and the United Nations provided technical assistance to enable the basis for expanding production to be worked out. The trpes of local fish most readily marketable in Haiti were deterriined,'and a program ias started to select the waterswhere Thee tVnes 74(re most Trolific. Subseauently there was to be a selec- tion of the most appropriate methods for preserving the fish for transport -9- tO inland markets* 7nfortuiate ly, n W'u- Udoance u :..Z7 i!withdrain in the spring of 1961, an the w-Tork came to a stop. 35. An expansion of fish production could come also from the devel- opment of fish culture. Demonstration projects have proved successful, and a number of rivers and ponds have been stocked. Little progress has been made, however, in the marketing of fresh water fish, and pro.- duction is still small. 36. There is at present a small export of lobsters to the United States. This trade could expand as there is a considerable potential for increasing production. Mining 37. No comprehensive survey of Haiti's mineral resources has yet been made, but deposits oflignite, bauxite, copper and manganese have been found. Of these, bauxite and copper are being exploited at present. The Reynolds Metals Corporation has been mining bauxite near Miragoane in the southern peninsula for the past four to five years, and produc-, tion is currently at the rate of 350,000 metric tons a year. The ore is marketed in the United States. 38. Production of copper concentrates started in October 1960. The company concerned is an affiliate of Consolidated Halliwell Ltd. of Toronto, Canada. Production is expected to be 25,000 short tons of concentrate in the first year of operation, rising to an annual rate of 36,000 tons thereafter. The value of exports of these two minerals to- gether is exoected to be of the order of .4 million annually. Manufacturing 19. Manufacturing industry in Hiti has been .aqed mainly on the processing of local raw materials for sale in the domestic market. The most notable exenption to thiq has been th -igar industry but in more recent years, an increasing share of sugar production has been consumed locnly qnd trnort. now nnount for much less than hqlf total outnut- ho- Othe r majonr industq+ries of t.he cour.vyp re.hose produciiing cemnt,+ wheat flour, and cigarettes, and the complex comprising oil expressing and refining, oann making and manufa nr of nt.nn +.V+ile The oil expressing industry was started thirty years ago by the major cotton RYnnrtArR to nrnnez nntfnn qpH hiut. with +.h,- d3n1inn in ,ton nrnt.fn tion, the industry has turned increasingly to importing crude and semi- re,finedi oils_ fonr finnl pronncssing. The great epan%inn of' them domest.i market in the post-war years stimulated the entry of these same firms inrtrn +.hc, rel' +. fi cide of eman manuf tnv andr +ha ne, Ao +4ciov rvf rr+tr., textiles, and they now supply approximately half the domestic requirements of soap and between 10% and 1' % P of the countt --conmp+on of cotton cloth. Both the cement plant and flour mill have also been established An aonnc + m +h ewar+ nt +rr An er+4 m + an + res+ +nn prong Aart from the few larger enterprises, there are small factories producing - 10 - for the local market, clothing, Plastic articles, aluminum and enamel house- hold utensils, and building materials; essential oils and unsweetened choco- late are produced for exports. The export market also provides the main outlet for the considerable output of handicrafts. 41. Although the Government has assisted industries by granting tax concessions, reductions in customs duties. and protection in certain cases. political -uncertainties appear to be inhibiting further private investment in industry at nresent. Relizinv the reluctance of nrivate investors to start new enterprises, the National Bank is promoting a number of projects, of which the most imnortant is one to nrnnoin Athi'h'p nil.- frTm lonlly crron eil seeds. The domestic market for such oils is large, imports being valued in recent. ears a0+..0A000700nn annnully. The National Bankis nrsent has two parts: the construction and operation of the oil expressing plant and the stimn,Oation of production of Suitable nil cds T the nrojct in successful, a further development might be the production of hycirogenated ve-etabl fats; ,~ - a annua J-prso ri 1 p nc )iqrp Inn %rmli ii in I-nren 1:> n- . An lble _ _Im _ b e l --+ hd in _e nt years at. well over $1.0 million. The National Bank is also financing the consruct,n - of n + "nna-r'r 4 , Po -PI,e nnA 4 - c+.iiel-rinry +1in nnc2Qih4i1i+.-r of utilizing sisal waste and other waste materials to produce cellulose for Touu-rnihsmat te e ou i - ha eo e a -;Im s important source of foreign exchange earnings. The growth in the trade wasd. espeUcally raiL -n U " -L' L.,V WLVZiI UUJ,VJUV UVUL.LZ UZ V± L_Lt,-L 1I"lL C"11LVZ)U six times as many as in 1950. Income from tourism rose from $1.5 million tO MiLilio OU±U ver ULLIS Period. h3.L Ths rapi g Awt wasLLULU_ no anane fe 95.Pltc l i' t bility deterred potential tourists and earnings from tourism declined to $uU llion in 19U, but bnere has Ueen some recovery in the past Uwo years. In recent months, however, renewed political difficulties have again deterred visitors,and some of the better hotels have been forced to close. As a result, tourist earnings are likely to fall in the current year. AIny subsequent recovery,which coul be quite rapid, wUill epenU mainly on an improvement in the political climate in Haiti. MI. BASIC SEVICES Transportation 44 Transportation in Haiti is principally by road. Railway traffic, apart from the carriage of cane over the lines of the Haitian American Sugar Company, is negligible. There are in all more than 3,000 Kilometers of roads of which 1,100 kilometers have been gravelled and 400 kilometers paved. The improvement of roads was one of the main objectives of the development program initiated in 1951, and during the past ten years more than t9.0 million has been borrowed from abroad, $2.0 million of it from the IBRD, for road construction and maintenance. In addition, the - 11 - Haitian Government has contributed substantial sums from its own resour- ces to the road program, which has consisted largely of reconstructing or improving existing roads, especially those linking the principal towns of the country. Until recently, however, there has been no ade- quate road repair and maintenance organization, and roads have rapidly deteriorated, in some cases becoming partly or wholly impassable a few years after construction. The loan from the IBRD was designed to asbist in establishing a road maintenance organization which has now been oper- ating effectively for about three years. It has reopened and maintained the main road from Port-au-Prince to Cap Haitien, the principal port on. the north coast, as well as other roads in the northern and central sec- tions of the country. It has not worked in the southern peninsula where the roads have deteriorated so seriously in recent years that many of them, including the main road from Port-au-Prince to Les Cayes, the principal port on the south coast, are now impassable. In 1960 the DLF made a loan of $300,00C to finance engineering studies for the reconstruc- tion of the road to Les Caves and it is expected that the DLF will soon give consideration to financing the reconstruction of this road. Port-au-Prince is the nrincinal nort of Haiti, handling about 70% of the external trade of the country. The pier was built some fifty years ago and mair rePairs were made in 19l. Tt ann anonnmdatP medium size ships, but the facilities provided at the pier are such that efficient handling of raoe is very diffinnr+. R+iaifn-V +.ho r nm+.rnation or enlargement of the pier were made in 1956 and again in 1958, but no fi- pier are clearly necessary, much could be done to speed the flow of the handling of goods by the customs authorities. 46. Apart from Port-au-Prince, Cap Haitien on the north coast is the 'JILL IJ~± V VLLV. a CE DL'. U11, U[JJ9.P1.J OV IdVOI VLJ U11V X,101 V VJ.V~1LJVV.' in 1953 and its capacity is more than sufficient for present needs. At all.1 other ports loading andunloading i done.ylheg. 14 ( kILL.L.L1= 1JIU Uua LOJLI oA. VJ t i..~ L 11 .LL J.J-. U LLC% t- JL'J.V'Jk_ I.d..IUi.y .11 recent years, the consumption per capita at 18 kwh in 1958 was among the 1.4- f T . Z- A----'.... - - - L-u. LIU 'p1JIoU.Lpca puwa Un1Uaita.1g Lz a privave coIfjumpaly Zjervin1g roru- au-Prince and Cap Haitien. The generating capacity of the company's installations is 13,300 KW of Wih rather less tan ha-L has been in- stalled in the past ten years. Power costs per unit sold are high, partly as a result of very large thefts of power which at present amount to about 40% the current sent out. The company's concession expires in 1971, when all its assets pass to the Haitian Government without compensation. Partly for this reason and partly becadse of its unfavorable financial position,, the company has been unwilling to invest in major additions to capacity in spite of a growing power shortage. Studies of the power market made by consultants in 1956 indicated a demand in the city of Port-au-Prince and - 12 - its environs of approximately 18,000 kw by 1960. This compares with a present effective capacity in Vort-au-Prince of less than 11,000 kw. 49. Haiti has no natural fuels (the present generating plants use imported diesel oi but with its rugged topography and good rainfall it has the opportunity of developing hydroelectric power. The dam built at Peligre as part of the Artibonite irrigation project was designed to permit the subsequent construction of a hydroelectric power plant. Such a plant would, in the view of consultants, probably provide the most economical way of meeting the power needs of the capital and other adja- cent areas, but no progress with the project has been possible because the Government hasapparently been unable to decide whether to undertake it itself or allow the power company to do so. IV. FINANCIAL DEVELOP'MNTS 50. The Haitian banking system consists of the Government-owned National Bank, three private commercial banks, two of which are branches of foreign banks, and the Haitian Agricultural and Industrial Credit Institute. 51. Until the Second World War, bank lending was confined mainly to the financing of foreign trade. Credit advanced directly to producers was very small. This pattern of lending reflected the economic structure of the country. Production of primary products both for export and for domes- tic consumption was overwhelmingly in the hands of small peasant farmers, who had neither the skill nor the resources to utilize bank credit; there was very little manufacturing industry and the borrowing powers of the Government were severely limited in torms of' the agrement with the U.S_ Government concluded in connection with the dollar loan of 1922. With this nattorn of nrodntion and of hank lnrira_ the mrnev qiinn1v was deter- mined primarily by changes in foreign trade and payments. The system n noly -n-nmat.l-ur _naliv* - "ic onr f-qll in Pvr-r+._ mriel in nirrohni ini' power was soon reflected in a rise or fall in imports. Apart from seasonal fluict,ation c * eXchMge M-eM,_rs w.ere --nnt--ied atahg erel; th e. change rate remained stable at five gourdes to the dollar, the rate fixed in 1919* and +.no time s there nod for oehance onntrol. tion of the U.S. dollar loan of 1922, the restrictions on the Government's mission to Haiti recommended the greater use of bank resources for devElop- term capital through a new development institution. In 1951, the Haitian Agiutrland InuUstria.l CredLi _InsitutLLLe was estUablisOhJd, With U1capitl L- subscribed by the Government and the National Bank. The Institute has lent medium- and long-term capital to agricultural and industriaJ enterprJses and also invested heavily in new tourist hotels. 53. From 1950 the commercial banks and especially the National Bank adopted expansionary policies. Wnith the growth in foreign trade and the establishment of new manufacturing enterprises credit to the private sector more than doubed between l950 and 1956. During this tine also, the Government embarked upon an ambitious development program which it was unable to finance solely from current revenues and external assistance. It therefore borrowed fron the National Bank, and creait to the public - 13 - sector expanded almost sevenfold between 1950 and 1956. These changes are shown in the following tAble DOMESTIC CREDIT OUTSTINDING - 1950-1960 (million gourdes) End of September 1950 1956 1960 To Government (net) I98 92-1 97. To other public sectors (net) - 3.5 -1.4 To nrivntp qpt.or 91A 0 . A11 Net unclassified assets -8.4 -19.8 -24.3 27.0 126.1 132.6 5h. gotwithRtnndin the rnnii ennn.qin of rrlit. hpt:vPn 1QO qni 1956, foreign exchange reserves were well maintained, averaging .511.0 million over the n-.riod- ni the n-ri level incrPn.r very moderntely. This was due in large part to the accumulation of savings through the banking qv.t..m nnd to the sorption h th Prinnmy of incrPAsina nmniints of cash. Nevertheless the credit expansion had brought a great increase in 1liniiiHri t.i --nl T.Than nnnf-i c,=nf- in +1io Tnr- rla .Tn w nrLnm0rc1e in 1 Ql ( and the political situation deteriorated in the following year, there was aq fl igcht. of cap-nita +.n TAi r0n -ricnti ng+ Pvi --r n-v- 1i n" ' ~ ve w r ± 1. : T to zero. Since 1957, under the guidance of the IMF, more conservative credit policies have 'been fo'llowred T-I - - 4n~ 'IQAr)960 credit to the public sector hardly changed and although with the private sector increased by 20%, the average annual credit expansion was in 4 0.. .L V V.LC, MkJ.L C V1ILOI .Lo.) I I"-LILALL1 JUL t O CLO I. ILI-)4 cx VV "- 1 0J I . C. A of 16.5 million gourdes in the preceding six years. 55. The policy of credit restraint has been reflected in an improve- menu in Lfle vaance o1 paymen±us on curreau EaKcoUL1U noUUw±tUiuenLEaLug ULne substantial decline in the value of exports in recent years. The exchange value of the gourde has remained stable,and complete freedom of foreign payments has been maintained. There has, however, been a continuingflight vi. capia a nu neU LO-ULgn exAcIange re6ve nave Lucreaseu only fractUn- ally. Had it been possible to control the outflow of capital, a more Lberal credit poicy Iigh neve been followea, with the oueU U temper- ing the decline inincome and employment which resulted from the sharp fall in export earnings. Under hauLan conditions, nowever, an effective control of capital movements would be very difficult to operate in practice, so that a credit policy different from that actually followed would hardly have been feasible. V. FISCAL DEVELOPMENTS Trends in Public Finance 56. Balancing of the budget was a principal objective of the fiscal administration established during the period of the United States Occupation. The Haitian authorities agreed that during the currency of the 1922 dollar loan the service of the loan should constitute a first charge on Government - 14 - revenues, and that the public debt should not be increased, except in agreement with the U.S. Government. The balance of the 1922 loan was redeemed in 1947 and the Government was then free to adopt a more flex- ible financial policy, but until that time, and even for several years thereafter, expenditures were closely adjusted to current revenues, with small deficits in some years being balanced by surpluses in others. With the exception of a loan of $).5 million imade by the Export-Import Bank in 1938 to finance public works projects, and a small loan from the National Bank in 1947, current revenues were the only resources available to the Government. A marked change in policy came about in 1951 when the new administration embarked upon an expanded economic development program. By 1955, expenditures at 285 million gourdes had nearly doubled by com- parison with 1951. but current revenues had increased by only 13%. In the five years ending in 1956, the Government incurred a cumulative current deficit of' 220 million gourdes which was financed partly with foreign borrowings (61%), partly by borrowings from the National Bank (38%), ani partly by a small increase in the floating debt. q7. In snite of th. ranid changes of governments in 19 7 and the ac- companying administrative disruption, under the influence of advisers from -i ntprnt±i nnnl rn-'rnni 7.qti nr ne- nnri t.iivP- .pr qThnrnl-, -nrip+rl h,-.1 n-w thp levels of preceding years, and a small surplus was achieved. Since then, with the es+blishmen+.. of clo wr.king "altnnhin with the TVP t.he Government has been under pressure to reduce expenditures in response to the clin1 in. ri 'nnn,rfern,mt n1n-~ -,iob r-11++ 7n11lie-~ investment expenditures sharply reduced, the urgently needed expansion in suspended. As a result, Government expenditures were reduced by about :30% years, the 1960 deficit was reduced to only 10.5 million gourdes, less awO uL epeud-Itures, auu te three year c-muL-nav veUvoya o± tu mILzOn gourdes was very much smaller than in the earlier period; it was financed mainly by budget support grants from neuneu uates and by an increas e in external borrowing (see Table 15). 58. In addition to the decline in revenues in recent years the budget- ary problem has been made more udificult by the sharp revenue fluctuations which have reflected the year to year variations in coffee exports. About oU0 of fisca. revenues are uerived from import anu export duties and variations in the size of the coffee crop affect Government revenues directly thrcugh the export duties on coffee, and indirectly through their effects on imports and on receipts from import duties. In 1958, a year of a good coffee crop, fiscal revenues were about 30% greater than in 1959 when the crop was poor. U.S. budget support grants filled the gap in 1959 and in the 1961 fiscal year, with another small coffee crop, the U.S. Government has provided further budget support aid of more than 20 million gourdes, which will be sufficient to cover about two-thirds of the expecLed overall fiscal deficit. 59. The budgetary problem has been eased slightly in recent years by the slow increase in the proportion of revenues derived from sources other than taxes on foreign trade, and revenues could be increased by raising - 15 - increasing selected taxes without adversely affecting production. Never- and taxes on exports, particularly on coffee, are probably already too high. For these reasons, no substantial inraei eene slkl in the next few years, and without a continuation of U.S. budget support grants the fiscal position in poor* cuJt year, WuU vU LrivaLe Patterns of Revenues and Expenditures 0. Before considering the pattern of revenues and expenditures, it is necessary to distinguish between the budgetary (or "fiscal") and non- budgetary (or "non-fiscal") operations of the Government. The former include the bulk of tax proceeds, income from public land and public enterprises, fees, all of which together have contributed about four-fifths of total Government revenues in recent years. Budgeted.. expenditures include the spending of the Government departments, contributions to inter- national organizations and to programs undertaken jointly with external agencies, certain transfer payments and part of the public debt service. 61. Non-budgeted revenues include contributions from the State Lottery, the State tobacco monopoly and the National Coffee Office, and allocations from the budget. Expenditures cover, inter alia, certain health, educa- tion and public works projects, and some pensions and subventions. Some exoenditures financed from foreign loans and floating debt are reflected neither in the "fiscal" nor "non-fiscal" accounts, nor are the proceeds of a number of taxes, most notably the special coffee tax of $4 per bag which is paid direct to the National Bank for servicing certain Government bond issues. Owing to the paucity of data, it is not possible to obtain a clear picture of non-budgetary operations and in the following para- graphs the discussion is limited to budgeted revenues and expenditures. 62. Indirect taxes yield more than 70o of the budgetary revenues of the Government. Import duties alone contribute about 40%, export taxes 20% and excise duties 10% of revenues. By comparison direct taxation on the incomes of businessmen and individuals yields less than 8% of budget revenues and of this amount individual income taxes yield only one-fifth. Statistics are not available on the distribution of personal incomes in Haiti, but it is clear that the burden of direct taxation on the wealthier classes is very light. 63. On the other hand. the burden of indirect taxation falls most heavily on the poor. Taxes on coffee, which are passed back to the pro- ducers, represent almost 30% of the current f.o.b. price. Coffee taxes do not vary with variations in the market price so that the share taken in taxation rises as the market nrice falls. At nresent levels. coffee taxes are most probably a disincentive to production. With regard to import duties and excise taxes. the maior nart of nroeeds comes from taxes on foodstuffs (notably flour, sugar and edible oils), textiles, soan. nigarettes and soft drinks. which are t-onsimPd minlv by th no-nrpy classes. In 1959, excise duties on flour, sugar and edible oils alone accoiinted for three-frtr-hsq of thei vield of all eisedutie in t.hat+ - 16 - vaxr Mrnver, thes +nvae n nn+ renpresnt.+he full bnrden on conmers, for in case of tobacco, soap, edible oils and flour, Government-sponsored monoponIJer 'haver beenn eQstab h -jli which wiea l substa!nt+il q* reinue tomiic t%+h state. 64. On the side of budget expenditures, the armed forces absorb the fall in total expenditures in the past four years,recorded mid.tayspending proportional decline in spending on economic development and public works, wn. i.Ac h . ow a c t f - LJ -- -111(all _LkJ/Q 01J DUGIV in-.jJEL4 I U. C" VA t,JCI- t~ AAJ. more than 25% from 1952 to 1956. This decline indicates a sharp fall in 'JL± _L£ V il LlILIV yAJIU4 U _L L41= t ~L U'Vt.;.Ll1U1Ut=LI1U, L)LLL',± IlUliS Wlt-, LL"LJ1L 1 .L%JA1£ available, it is not possible to determine precisely what investment expen- %ALL" UD LICtV Z ULJZ%,i L11 ZL, t:Il CU 0 * . Pt:j11IU_Lir U11 6 Lt. ULU " ctL. OUI V-LLU -, LICE0 increased slightly and, together with the contributions to agricultural prj±uect Ludertak-Ven. wdLl a0Z'Si±.LdOUJL L_1U U11U UlLLUt:U Jl.aUt::Z, noUW alUOUIU6 for about 12% of the total. Health and education services together absorb about one-fourth of budgetary expenditures, a somewhat higher proportion than in the past. 65. With regard to the broad pattern of revenues and expenditures., the resources available to the Government are very limited in relation to the level of public services which would be desirable, and no major reduc- tions in taxation can be contemplated. On the other hand, in view of the program for expanding coffee production and of the expected further decline in coffee prices, a gradual lightening of the coffee tax is desirable, and it should be possible to make up for the consequent loss of revenues by increasing direct taxation on individuals and businesses. On the side of expenditures, priority should be given to promoting increases in agricul- tural productivity, upon which Haitils future well-being will primarily depend. It is necessary, therefore, that greater emphasis should be given in the budget to expanding agricultural services and those basic services, such as transport, without which production cannot expand. At a time when the prospects for an increase in resources are poor, unless additional aid is received from abroad, this can be achieved only if allocations to other services are cut. In this connection the increase in spending on the amed forces is disquieting, and the relative increases in expenditures on social services is perhaps difficult to justify in spite of low health standards and a high rate of illiteracy, while inadequate provision is being made! for agricultural extension and road construction. Some re-allocation of Government expenditures is, therefore, desirable, but it must be recog- nized that under Haitian conditions such a re-allocation by itself would achieve little, unless it were accompanied by a marked improvement in standards of administration and technical competence in the services of the Government. External Public Debt 66. The consolidation of external debt undertaken in 1922 with an issue of $23.7 million of dollar bonds, enabled Haiti to settle almost all of its existing obligations. No new borrowing occurred until 1938 when the Export-Import Bank made a loan to the Government of $5.5 million to finance public works. In 1941 the Export-Import Bank made a further loan - 17 - of $5.0 million to SHADA, a Government-owned corporation,for agricultural develonment, and in 19hA n lon of $h.2 million for thp revPlnment nf the Artibonite irrigation system. The second of these loans was subsequently incresed b starges to 427 mil-on adin _j .,T-n H external debt. After 1950 new debts were incurred through commitments to Appendix II, Table 1), amounted in total to .12.6 million and, being short- tm, impo-sed a heaT burden on (,overnment fLinanCes B0Dy Wim t5ju u± o- ' the total external public debt amounted to 113.2 million, which included the loan of 2 .6 million from theI TnTln for- ro_a aitennc . 1- folloiring year a loan of '.0 million was obtained from Cuba, and two loans VU 4.\ IIILL.LU11 Wt ULdL1tU I Ufl UiuI LL 11 1 ;0 ) al7 u i UU. iIle last two are repayable in local currency. By the end of 1960, the external public 4.4 -.- deb to Ale <.h. n_ 1- -_ mi n ,n April -161 th nfnter -merica Development Bank agreed to lend 93,6 million to finance agricultural and ndustr4a' development projects. In-s loan is also repayable in local currency. . n -S UCou u1 GeO Sevce Wasg UL e guru ui ui. By that time, difficulties had been experienced in servicing the Export- impor Bank loan to SlAkA and the terms of repayment were re-negotiatea in 1951 and 1952, interest beirgwaived for a period of ten years. The terms of repayment of the $27.0 million Export-import Bank loan for the Artibonite project were also re-negotiated in 1956. The revenues yielded by the pro- ject have, however, been very small in the absence of hydro-electric power development, and its contribution to foreign exchange earnings has been negligible. Notwithstanding the easing of the debt service burden, there- fore, Haiti has not met in full its obligations on the Eximbank loarsin recent years, and payments on some suppliers' credits are also in arrears. The extent of the arrears is shown in the following table: ARREARS OF DEBT SERVICE PAYIMENTS AT DECEMBER 31, 1960 (U.S. $ thousands) Interest Principal Eximbank loans 853 600 Suppliers' credits Undisputed by Haitian Government 500 300 Disputed by Haitian Government ? 2,400 1,353(?) 3,300 Some interest payments have been made on the Cuban loan but there has been no repayment of principal, as no requests for payment have been received from bondholders. Interest Dayments on the loan from the IBRD have so far been met. The first amortization payment is due on July 1, 1961, and al- thouah no nrovision for this navment has been made in the 1960/61 budaet. assurances have been received that the payment will be made. 68. If debt service were to be resumed in full, service payments on Haiti's external nnulin rbt. wuld amountt+.o AL- million in 1QAP the peak year, excluding any payments of arrears of interest and principal. iQ 'LMtIAA IErvcttr+ ^-ht,i 1 n c---+nrl f'i ortl "n-fa,ni-Q in +.'nt. - 18 - +Ar A1-%ht an-vrr-in ianivll f 'nll -ni +c -n ii l-vr +., §~9-A millinn in 1966 and to $2.0 million in 1970, again excluding payments of past arrears. T rUV n/IT AKTl r1 DAVNTMCPQ is shown in the table below: SUMMARY OF THE BALANCE OF PAIENTS (Two-year averages - U.S.' millions) 1951/-5z I-Z3/54 _1555/56 1957/58 1959/60 Exports (f,o.b.) 51.2 46.7 h0.7 37.5 32.0 Imports (c.i.f.) -47.2 -46.1 -51.7 -42.5 -32.4 Foreign Travel Earnings 1.4 2.2 6.6 6.3 6.9 Other (net) -6.o -6.1 -5.3 -1.6 -4.7 Current Balance -0.6 -3.3 -9.7 -0.3 1.8 Donations: Private 0.1 -0.3 -0.2 -0.3 1.2 Official 0.9 0.7 4,5 3.9 7.0 Capital: Private (including 2.5 -1.7 -6.8 -8.4 -10.6 errors & cmissibns) Official -0.3 4.0 9.1 1.5 0.5 Surplus or Deficit +2.6 -o.4 -3.0 -3.7 -0.1 wat necU 11 prce U.L coUe eLU sis l _aUaUer Ly4y, exporUs were a high levels during the early 1950's. Imports responded to the rise in exports, and the period of the boom, as indicated earlier, brought an in- crease in investment, financed largely from foreign loans. During these years, imports of capital goods accounted for approximately a fifth of total imports, almost double the proportion of the late 1940's. 70. Although exports fell sharply after 1954, with heavy drawings on foreign loans and rising earnings from tourism, imports rose further in the next two years. Subsequently, the decline in exports was accompanied by a fall in receipts from tourism and foreign loans, and witn the exhaus- tion of exchange reserves in 1957, the need to reduce imports became urgent. The policy of fiscal and monetary austerity then introdaced was pursped with vigor; imports fell by approximately 40% between 1955/56 and 1959/60, and the adverse balances of payments on current account which had character- ized the years 1952/57 were changed to small surpluses in 1958 and 1960. In spite of these efforts, and notwithstanding an increase in grant aid from abroad, there has been little recovery in exchange reserves. This appears to have been due primarily to a continuing flight of capital at a rate which may have been of the order of $5.0 million a year. The loss of capi- tal on such a scale has deprived Haiti of vitally needed investible resources at a time of a sharp decline in economic activity, and through its effects on the foreign reserve position has prevented the authorities from attempting measures to offset this decline. - 19 - I-L.1,V. ULI Ui JLIL I L IL L ;,AJ±IIZ I~I~~ .L Z; V Z; _"I~7 I , IIC"V O U5 1 assistance in the form of a standby agreement with the IMF. Standby ~~agreet's hiave been conc111Ued in tea--11 bUO5t;4U _I1U jYed±II ~ULIL1 VJ_L',II ,l1%: current agreement which expixes on 30th September next. Haiti drew $5.4 rilI±on betwee[n ,yt an - y- y and has repurcasea I.-.. m-Irnin. - M current agreement makes available a further $6.0 million. 72. For the future, export earnings will continue to depend primarily on coffee whose snare in total exports is unlikely to fall below u% in good crop years. With the expected downward trend in coffee prices, the value of coffee exports will drop by perhaps one-eighth within five years, but this decline should be slightly more than offset by increased exports of sisal,, cacao and copper concentrates. By 1965/, total exports are likely to be somewhat greater than in 1959/60 but on present expectations it seems quite unlikely that exports will recover to the high levels of 1952 and 1954 in the foreseeable future. 73. Earnings from tourism and other invisibles will probably rise over the next five years, provided that there is a reasonable measure of political stability and, as shown in the table below, total foreign exchange earnings are estimated to be 13% above the 1959/60 level by 1965/66. The rate of growth of exchange earnings will, however, be small, and the increase over the next five years is not expected to be sufficient to make good the decline which has occurred since the mid-1950's. BALANCE OF PAYMENTS - CURRENT ACCOUNT (Two-year averages - U.S.$ millions) -I/ 2! o 1955/56 1959/60" 1961/62t 1965/66~ Exports 40.7 32.0 33.0 34.0 Earnings from tourism and other invisibles 12.0 13.7 13.5 17.0 Total 52.7 45.7 46.5 51.0 Debt service -1.0 -1.0 -4.5 -3.5 Other service payments -9.6 -10.5 -8.0 -9.9 Balance available for imports 42.1 34.2 34.0 38.5 Actual imports 51.7 32.4 Current balance -9.7 1.8 I 4 . ; 1 1 A - 1J. 1.L 0/ J IS~4. - 20 - 7J, Tf Prren+. srvice nn the external nblic debt is met in the next five years, and if efforts are made to pay off past arrears, these charges million in 1965/66. After deducting other expenditures on current services, ther'e wo%1 d --earr to b1e room Jr I1 M9 A n fo arsmalIj increrans in i YnrMo?+.s over the level of the past two years, and for a sizeable increase by 1965/. NeverthelesS, vd-thu+ SubStntial ai d from anro- a imti wold hte able to import the capital and consumer goods required to sustain more than a mod'Anest , incr-s-se in ~v, incme i.rn, n t+ie fu,ie, a. ndA+i thl dr-,-:Ini c. .1-1 p-e i,4..ncm of the past four years could hardly be made good before the end of this decade TP cie ,+4n n4~n 4A4- n.I n4 n, t'n i., A inn n rapid, but much of the benefit of this aid might be lost if capital flight .~LF..J.L. LJJ UAi L .. U L~ULUL _L Ul I ~ UL!, scale of theii !JLU* J.L J I LL reason, it is of great importance that the Haitian Government should take stp uo resorue the confidence1of ri vaue UU~ii - U-Lk; .JAIVCO LUJ 0 C%1"IUCLLI CLU~ climate favorable to the investment of private savings in new productive ent-e.se-J VII. FOREIGN DEBT SERVICE 75. The service on Haiti's external public debt in the peak year 1962, will amount to 4-3 million (exclusive of payments of past arrears). This will represent almost 9% of estimated foreign exchange earnings in that year. By lyo, the service on tne existing debt (again excluding payments of past arrears) should represent about 6% of foreign exchange earnings. Recent loans from the DLF and the IADB will be repayable in local currency and will not add to the external debt service. Some settlements will pre- sumably have to be reached in respect of debt service payments in arrears, which may add significantly to the total foreign debt service over the next five years. It seems unlikely, however, that the ratio of debt service to foreign exchange earnings will exceed 10% in the foreseeable future except possibly in 1962. Nevertheless, for a country as little develcped as Haiti, with so low a per capita income and such limited growth prospects, even a debt service ratio substantially less than 10% would represent a con- siderable burden on foreign exchange earnings, and it is clear that the bulk of the aid from abroad which Haiti will need if she is to achieve any sig- nificant rise in per capita income over the next decade could not take the form of borrowings on conventional terms. Aid from abroad shoula tal-e the form mainly of grants and "soft" loans, at least during the next few years or until the burden of servicing the existing external public debt is substantially reduced. APPENDIX I PROSPECTS FOR FOREIGN EXCHANGE EARNINGS Merchandise Exports 1. While coffee will continue to be Haiti's principal export in the forseeaole fuLure, accounting in good crop years for about UO% of total export earnings, with the expected growth in exports of sisal, copper concentrates and cacao, and with the expected decline in coffee prices, the share of coffee will slowly fall. 2. Production prospects for coffee have been discussed in Chapter II. The average export price of Haitian coffee is expected to decline gradu- ally to about 28 cents a pound (f.o.b.) by 1966 as compared with the present price of approximately 35 cents a pound. This decline is expected to be partly offset by a modest increase in productign and some improve- ment in the quality of the crop. There has been some recovery in world market prices of sisal in recent months, and market prospects are such that this recovery is expected to be maintained for several years ahead. Prices of cacao on the other hand have fallen sharply in recent months. The future course of prices is very hard to predict, but in view of the probable increase in world production, no significant recovery in prices has been assumed. On the other hand, Haiti should obtain a price advan- tage from improvements in quality as a result of the introduction of improved varieties. 3. As indicated in Chapter II, sugar exports from Haiti will depend greatly on the opportunity of selling in the United States market. The prospects are very difficult to predict, but some decline in exports from the level of $3,6 million in 1960 has been assumed on the basis that the advantages arising from the Cuban situation may not continue. 4. In relation to the newer exports, it has been assumed that the New York price of refined copper willweaken from the present level during the early 1960's, but will subsequently recover to about 30 cents a pound by 1965 or 1966. The price of Haitian bauxite has, on the other hand, been assumed to remain approximately stable. 5. small increases in minor exports have been assumed for the next five years. 6. The value of past and prospective merchandise exports is shown in the following table. Two year averages have been calculated in order to even cut good and bad coffee crops. - 2 - MEPC.UMA)EUb EAXURS (U S _; mnilIirnn f -n- Metallic Year Coffee Sisal Sugar Cacao Ores Other Total 1957/58 25.8 5.7 1.6 0.9 3.5 37.5 1959/60 166 417 20 1.2 7. '2.0 1961/62* 16.2 5.2 3.4 1.0 3.6 3.6 33 O 1965/66* iIn 6.21 9 1-7 5.0 nAj 3_.n -Estimated Invisibles 7. In recent years the most important sources of foreign exchange earnings on accountnd~ have been---. Uhr receipts from transportation services and expenditures by foreign diplo- ~ ~L.L J UL~4 ~IL.~~AJIO* L L L- kCIDUD LIIUIV LA(2VV V MJ~L %AO~E\ ~ ~ VL~.J in past years. If political conditions are stable, an increase in tourist crease in receipts from transportation services Some increase in spending by loreign missions, particularly those of the unued States, seems likely, 8. The estimated growth in current receipts in non-merchandise account is shown below: RtULIT Uil NUN-HE'UATHDlE AUNUUUN V.S. $ millions) Year Foreign Transportation Expenditures Y and by Foreign Niscell. TotaL 1v insurance Missions 1957/58 6.3 2.1 2.0 0.4 10.8 1959/60 6.9 3.4 2.7 0.7 13.7 1961/62* 6.8 3.3 2.8 0.6 13.5 1965/66* 9.0 3.9 3.3 0.8 17.0 * Estimated 9. The total earnings of foreign exchange on current account are shown in the following table: - 3 - TOTIAL CUFRENT FOREIGN EXCHANGE EARNINGS (U.S. ( millios) Year Merchandise Non-Merchandise Total 1957/58 37.5 10.8 48.3 1961/62* 33.0 13.5 46.5 965/*t34.017 *Estimated APPMTY TT .qTåTP'TrTAT. TåRTRq LIST OF TABLES Table No. External Public Debt 1. Summary of External Public Debt 2. Service on External Public Det, 1961 - 1975 Trade and Balance of Payments 3. Foreign Trade: 1938 - 1960 I Valu oi Eri nrtc hy nmmndities* 19i1 - 1960 5. Volume of Principal Exports by Commodities: 1951 - 1960 61 Unit Pricre of Prinrinal Tport .Cormmoditie * 191 - 1960 7. Exports by Country of Destination: 1952 - 1960 Principa Tmpof+e. 1950 O 9. Imports by Country of Origin: 1952 - 1958 10A Touim: 1Ofl I00 11. Balance of Payments: 1951 - 1960 1951 - 1958 Government Finance 14. Government Revenues and Expenditures: Fiscal Accounts: 15. Government Revenues and Expenditures: Fiscal and Non-Fiscal; rinancia and rice Statist.ics .Lo. Summary Accounts of the Banking System: 1950 - 1961 17. Domestic Prices: 1951 - 1959 TABLE 1 HAITI - 7STTIATED EX'r-!RNAL FULIC DEBT (TTrPQmAKTWTA TY-07.17 7r 1AO (In thousands of U.S. dollar equivalents) Outstanding Outstanding including net of arrears arrears TOTAL DEBT INCLUDING CONTINGENT LIABILITY 13,813 M38,7 Total debt excluding contingent liability 39.813 1T.7hh Debre+oirr0 7nQa Arh O00 77 0h,000,000 to Banco de las Colones, 51,00,000 Plantation Dauphin y%, 7J 2 , ) L 7 %. . c L , . L 4 7 . L 4 4 7 2,b.00,000 to Societe des Grands 1radvau.x Ut:, f'1dE'L IIt: _3/0, 1955-1968 1,537 1,162 n Ln4 ,lr. -1. r' T-% )~I7L~ LL U U ,_ L tjt.L '.bILL; Ul Coventry, 4%, 1954-1960 2,306 - 9UUV,uuu to lupI-pagm-le Suariere des Cayes, 1956- 30 - wl,3o9,u:L, no ±wau-on, Ziegele, Marhoffer International, 1952-1956 230 - %>,uuu,uuu to Compagnia de Industrias Maritimas 31%, 85,932 to Freeman H. Horton, 1 ,802,628 to Caribbean Construction Supply Corp., l95- 8 !BRD loan .2,6oo,ooo, WYbf, 1956-1967 2,600 2,6c Export-Import Bank loans 27,50 26,867 85,000,000, 37, 1941-1972 3,225 3,050 $25,029,933, 3,%, 1948-1986 24,279 23,817 Contingent liability /b '10,000,000 Emprunt Exterieure (series B) 5%, 1954-1964 b.coo L-.000 /A MoInpnf +f' hi- dipbtis tepchnica1lir in n-rreanrc_, sincennsaraen provided for service whenever the bondholders can be located. b Part of this bond issue is believed held by a New York bank to the account of various Haitian creditors and would become external debt were it transferred to non-Haitians. Source: TBRD Economic Staff IABLE 2 HAII - ESTIMATED SMRVICE PAYENTES ON ETRNAL PUBLIC DEBT OUTSTADING DECEMER 31, 1960 (NET OF ARREARS) (In thousands of U. S. dollar equivalents) Total debt excluding contingent liability --Contingent Liability Debt out- Payments during year Service Payments by ppe of Loan Year .evc Paymets by-ype-f-Loa standing Amorti- In- Privately IBRD Export- Debt Service January 1 zation terest Total placed loan Import Bank Outstanding Pay- debt loans Jan. 1 ments 1961 3.,744 1,735 1,226 2,961 925 308 1,728 4,oo 1 200 1962 33,009 3,173 1,175 4,3h8 2,062 500 1,786 3,000 1,150 1963 29,836 2,234 1,171 3,ho5 9)43 500 1,962 2,000 1,100 1964 27,602 2,365 1,078 3,bh3 981 500 1,962 1,000 1,050 1965 25,237 1,754 997 2,751 289 5oo 1,962 1966 23, 83 1,811 939 2,750 288 500 1,962 1967 21,672 1,620 880 2,500 288 250 1,962 1968 20,052 1,415 836 2,251 288 1,962 1969 18,637 1,228 734 1,962 1,962 1970 17,09 1,270 692 1,962 1,962 1971 16,139 1,314 648 1,962 1,962 1972 114,825 1,275 603 1,878 1,878 1973 13,550 1,064 564 1,628 1,628 1974 12, 486 1,102 526 1,628 1,628 1975 11,384 1,140 488 1,628 1,628 a/ Includes service on all debt included in Table 1 prepared March 6, 1961 TABLE 3 FOREIGN TRADE (U.S. M Millions: Fiscal year to September 30) Exports Imports Balance of Trade 1938 6.9 7.6 - 0.7 1939 7.2 8.2 - 1.0 1940 5.4 7.9 - 2.5 1941 6.6 7.4 - 0.8 1942 8.5 8.4 0.1 1943 10.6 9.8 0.8 1944 16.1 16.0 0.1 1945 17.1 13.2 3.9 1946 22.8 15.9 6.9 1947 31.5 27.2 3 1948 30.8 32.2 - 1.4 1949 31.0 31.4 - .4 1950 38.4 36.2 2.2 1951 49.6 44.0 5.6 1952 52.9 50.4 2.5 1953 37.8 44.6 - 6.8 1954 55.6 47.6 8.0 1955 34.9 52.1 -17.2 1956 46.5 51.4 - 4.9 1957 32.9 40.8 - 7.9 1958 42.1 44.2 - 2.1 1959 25.9 31.5 - 5.6 1960 38.1 33.3 4.8 Source: National Bank of Haiti and International Monetary Fund. TABLE 4 VALUE OF ETORTS BY COMMODITIES (U.S. $ millior8 - Year to September 30) 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 coff 26co 32c7 25e1 _3p6 23.0 33Ji 20.2 31. 13.0 :20.1 Sisal 12.1 10.3 4.7 4.9 5.h 6.3 5.8 5.6 4.9 4.4 Sugar 4.0 3.3 2.3 1.2 1.,2 2.5 2.4 0.7 0.3 3.6 Molasses 0.6 0.6 0.3 0.2 0.12 0.4 0,6 0.3 0.1 0.3 Cacao 1.3 1.2 1.2 2.0 1.2 0.6 0.6 1.3 1.2 1.1 Essential oils 1.0 1.2 0.6 0.8 1.0 0.8 0.5 0.6 0.6 1.2 Cotton fibre 0.6 0.6 0.8 0.6 0.9 0.2 0.1 0.1 0.3 - Castor oil seed C.9 0.8 0.8 0.5 0.4 0.3 0.3 0.1 0.1 0.2 'Bananas 1.0 0.4 0.3 0.2 - 0.1 0.1 - - - Handicrafts 0.9 1.2 1.3 1.0 1.0 1.2 0.9 1.0 0.9 1.6 Other 2.0 0.9 0.8 1.7 0.6 0.7 1.4 1.0 4.5 4.8 Total 50. 53.2 38.2 56.7 34.9 46.5 32.9 42.1 25.9 37.4 Source: Fiscal .Departmntet,- National Bank of Haiti TABLE 5 VOLUME OF PRINCIPAL EXPORTS BY CCMMODITIES (Thousand netric tons: year to September 30) 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 Coffee 25,.4 31.3 23.1 31.8 19.6 31.1 17,5 34.6 16.7 28.2 sis al 31,3 25.9 20.0 23.9 31.2 35.9 36.5 37.5 31.2 22.7 Sugar 34.4 32.14 28.5 15.4 16.4 32.8 24.3 6.5 3.2 31.2 Molasses 17.3 18.2 .17.1 13.3 15.6 20.8 23.1 16.o 5.9 27.5 Cacao 1.9 1.9 2.1 2.2 1.5 1.2 1.6 1.9 2.0 2.0 Scource: F scal Departient, National Bank of Haiti. TABLE 6 IJNIT PRICES OF EXPORT C 00f40DITIES (Gourdes per kilo: year to September 30) 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 Coffee 5.12 5.22 5.44 6.85 5.85 5.35 5.78 4.53 3.91 3.57 Sisal 1.93 1.98 1.18 1.03 0.86 0.88 0.79 0.75 0.80 0.97 Sugar 0.60 0.51. 0.b. 0.40 0.32 0.38 0.50 0.57 0.54 0.58 Molasses 0.18 0.17 0.08 0.07 0.07 0.07 0.14 0.10 0.07 0.06, Cacao 3.28 3.05 2.77 4.38 2.33 2.31 2.26 3.55 3.18 2.75 3x)urce: Fiscal Department, National Bank of Haiti. TABLE 7 EXPORTS BY COUNTRY OF DESTINATION (Percentage shares: Year to September 30) 1952 1954 1956 1958 1960 U.S.A. 58.o 45.3 33.6 49.4 50.9 Belgium 22.7 22.2 20.4 18.2 13.2 Italy 8.0 8.0 17.9 17.5 17.4 Holland 5.2 5.0 5.3 23.5 3.3 Germany 0.6 0.6 2.5 2.2 1.8 U.K. 0.9 2.1 2.0 0.8 0.3 France 0.3 10.8 9.5 3.6 5.9 All others 4.3 6.0 8.8 4.8 7.2 Total 100.0 100.0 100.0 100.0 100.0 Source: Fiscal. Department, National Bank of Haiti TABLE 8 PRINCIPAL IMPORTS, 1950 - 1958 (U.S. 8 millions) Fiscal Year 1950 1952 1954 1956 1958 Wheat flour 3.2 5.3 5.1 4.7 5.4 Other foods 3.6 6.1 5.8 6.0 5.9 Cotton cloth 7.8 7.9 7.4 7 2 Other textiles 3.4 5.0 1.9 3:1 ) 9.2 Shoes 0.5 1.2 0.7 0.8 0.6 Soap 1.3 1.6 1.8 0.8 0.9 Chemicals and Pharmaceuticals 1.0 1.2 2.5 1.2 2.0 Oil Products 1.4 2.3 2.0 2.0 2.6 Iron and Steel 1.9 2.9 4.1 3.6 2.4 Machinery 2.1 6.0 5.3 5.92. Vehicles 1.3 2.1 2.3 2.7 2.3 Cement 0.6 0.7 0.6 - - All Other 8.2 8.4 7.7 13.9 8.3 Total 7i-+.. 36.2 50.7 07.2 51.9 L2.T Source: Fiscal Department, National Bank of Haiti TABLE 9 IMPORTS BT COUNTRY OF ORIGIN (Percentage shares: Year to September 30) 1952 1954 1956 1958 U.S.A. 69.4 63.2 61.9 63.2 U.K. 4.4 4.4 3.5 3.8 Germany 2.6 3.6 4.5 4.2 Belgium 2.7 2.7 2.5 2.1 Canada 6.4 8.2 6.6 4.7 Curacao 3.5 3.5 3.8 3.9 France 1.8 2.4 2.9- 2.6 Holland 1.4 2.4 2.0 2.2 All others 7.8 9.6 12.3 13.3 100.0 100.0 100.0 100.0 Source: Fiscal. Department, National Bank of Haiti TABLE 10 TOURISM Fiscal Year Numbers of Tourists Gross Income from Tourism (hotsanc U.S (U. $ millions) 1951 16 .9 1.5 1952 21.1 1.3 1953 34.4 1.9 195L 48.1 25 1955 54.9 5.9 1956 65.8 7,. 1957 6o.h 6.7 1958 57.9 6.0 1959 67.1 6.8 Source: Institut Haitien de statistiques and International Monetary Funde