Haiti - Economic Recovery Program Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-4411-llA REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT OF SDR 32.8 MILLION (US$ 40.0 MILLION EQUIVALENT) TO THE REPUBLIC OF HAITI FOR AN ECONOMIC RECOVERY PROGRAM FEBRUARY 9, 1987 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit - Courde (G) G 1.00 - US$0.20 US$1.00 - 0 5.00 The Gourde has been pegged to the U.S. Dollar since 1919 at this rate. WEIGHTS AND MEASURES Metric System FISCAL YEAR October 1 - September 30 This report uses FY for fiscal year. Thus FY87 refers to the period from October 1, 1986 to September 30, 1987. ABBREVIATIONS BC& Bureau de Credit Agricole (Agricultural Credit Bureau) BNDAI Banque Nationale de Developpement Agricole et Industriel (National Agricultural and Industrial Development Bank) CNG Conseil National de Gouvernement (National Government Council) CPNAP Commissariat a la Promotion Nationale et a l'Administration Publique (planning agency) ENAOL Enterprise Nationale des Oleagineux (vegetable oil factory) FDI Fonds de Developpement Industriel (Industrial Development Fund) IDB Inter-American Development Bank IMF International Monetary Fund SOE Statement of Expenditure UNDP United Nations Development Programme USN Usine Sucriere du Nord (sugar mill) USND Usine Sucriere Nationale de Darbonne (sugar mill) FOR OFFICIAL USE ONLY HAITI ECONOMIC RECOVERY PROGRAM Table of Contents Page No. CREDIT AND PROGRAM SUMMARY ........................................ I. The Economy .......................................... 1 A. Main Features...................................... B. Developments, FY80-85.............................. 3 II. The Government's Economic Recovery Program, FY86-88 .. 4 A. Political Background............................... 4 B. Overall Strategy................................... 5 C. Macroeconomic Stabilization........................ 6 D. Tax Reform........................................ 8 E. Public Expendituree................................ 9 F. Public Enterprises................................. 13 G. Competition and Industrial Incentives.............. 16 H. Agriculture........................................ 19 I. Economic, Environmental and Social Impact.......... 21 III. The Proposed Operation ............................... 25 A. History............................................ 25 B. Relationship to the Government's Program........... 25 C. Associated Technical Assistance.................... 28 D. Benefits and Risks................................. 28 E. Credit Size and Tranching.......................... 29 F. Disbursement, Procurement, Accounts and Auditing... 29 G. Monitoring ......................................... 30 IV. Bank Group Operations and Strategy ................... 31 V. Relations with the INF and with Other Donors ......... 32 VI. Recomendation ....................................... 33 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Table of Contents (continued) Page WO. TEET TABEES Table 1: Treasury Budgets, FY86 and FY87................ 11 Table 2: Public Investment Program, FY86 and FY87....... 12 Table 3: Summary Economic Projections With and Without Recovery Program.. ................. 22 AMIMES Annex 1: Economic Indicators and Projections........ 34 Annex II: The Status of Bank Group Operations in Haiti... 37 Annex III: Supplementary Credit Data Sheet.........a....... 39 Annex IV: Government's Tetter of Recovery Policy......... 40 Annex V: The Government's Program and the Proposed Annex VI: Public Investment Program, FY87................ 52 MAP Haiti (IBRD Map 17094R) HAITI ECOOMIC RECOVER PROGRAM Credit an Program Summar forrower: Republic of Haiti. Amount: IDA credit of SDR 32.8 million (US$40 million equivalent). Terms: Standard IDA. Description: The proposed credit would finance general imports in support of the Government's Economic Recovery Program, set out in its Letter of Recovery Policy, designed to reform public fiaances and economic policies, stimulate economic growth and establish conditions from which retrogression to the inappropriate policies of the past would be difficult. Measures include macroeconomic stabilization and the improvement of resource allocation through reform of taxes, public expenditure, public enterprises, competition and industrial incentives, and agricultural pricing and credit. The program is also being supported by an arrangement under the IMF's Structural Adjustment Facility, the policy framework paper for which was jointly prepared by the Government, the IMF and IDA. Benefits: Restored confidence, improved resource allocation, and improved consumer welfare, particularly of the poorest Haitians. Risks: Political instability and public sector wage demands could weaken the Government's ability to maintain fiscal discipline; influential protected manufacturers could resist trade regime reforms; and the Government that will take office in February 1988 could reverse the policy reforms. These risks would be reduced through tranching, the provision of technical assistance, and broad support and close monitoring, not only by IDA but also by the IMF and the donor community. - 11f - Esti~mted Fr87 FY88 Disbursement.: (USS million) 20.0 20.0 Appraisai Report: None. Mag£: IBRD 17094R INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMIENDATION OF THE PRESIDENT TO TUE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF HAITI FOR AN ECONOMIC RECOVERY PROCRAM 1. I submit the following report and recommendation on a proposed development credit to the Republic of Haiti for SDR 32.8 million (US$40.0 million equivalent) on standard IDA terms. The proposed credit would support the Government's Economic Recovery Program. PART I - THE ECONOMY 2. The assessment of the Haitian economy in this report is based largely on three documents already distributed to the Executive Directors and on the work of the appraisal mission (September/October 1986) for the proposed credit. Raiti: Policy Proposals for Growth (5601-HA) was distributed on June 18, 1985 and Haiti: Public Expenditure Review (6113-HA) on October 5, 1986. The joint Government/IDA/IMF Policy Framework Paper for an IMF Structural Adjustment Facility arrangement was discussed by the Committee of the Whole on November 18, 1986. All three were also made available to the members of the Caribbean Group for Cooperation in Economic Development, whose Haiti Subgroup met in November 1986. Annex I presents economic data. A. Main Features 3. Haiti is a small, densely populated, predominantly rural, and open economy. Its 5.4 million people occupy 28,000 square kilometers, the western end of the island of Hispaniola, and are among the poorest in the world. Absolute poverty in Haiti is unmatched in the Western Hemisphere. Life expectancy at birth is only 53 years, the infant mortality rate is about 120 per 1,000 live births, over 25 percent of children suffer from second or third degree malnutrition and 27 percent die before the age of five; about 65 percent of adult Haitians are illiterate. Economic and social conditions improved in the 1970s, but the economy stagnated during the 1980s, unemployment increased, and real per capita income fell; in 1985, it averaged US$350 (Atlas basis), and half the labor force is unemployed or underemployed. 4. Three quarters of the population live in the rural areas, and ultimately depend on agriculture, historically the principal productive sector. Since the early 1970s, however, the volume and value of agricultural output, including exports, have increased little. Physical production per capita has fallen steadily as relentless population pressure - 2 - has forced peasants to cultivate ever more marginal hillside land. Strenuous family planning efforts, largely by non-governmental organizations, have yet to show results. Only about 20 percent of the rugged, mountainous terrain is considered cultivable; nonetheless, about 30 percent is actually cultivated. The average farm size is below 1.1 hectares. This shortage of land, coupled with insecurity of tenure and the demand for wood and charcoal for energy, has generated a vicious circle of deforestation and soil erosion that has further intensified the shortage. Declining rur4l incomes have led to substantial rural-urban and international migration. The total population is growing at 1.8 percent per annum, net of emigration of 0.5 percent, while the urban population is expanding by four percent. 5. Past public policies in agriculture exacerbated the scarcity of land and the pressure of population. A million people on the hillsides depend on coffee, the major cash crop, expansion of which has been discouraged by an export tax. Reduced from 26 percent in the early 1980s, this tax was still about 22 percent in FY86, representing half the price received by the producers. Producer prices for foodgrains were increased to well above world prices by import restrictions. This fostered the cultivation of maize on the hillsides instead of coffee and worsened soil erosion. Cotton production was also discouraged by a producer price below the import parity price. Public agricultural investment and credit programs were occasionally targeted more to social relief than to stimulating either growth in productivity, output and employment or effective soil conservation. On the plains, where agricultural potential is much greater than on the hillsides, irrigation systems lack operating and maintenance finance, and are silting up from the erosion on the hills; much State and private land is unexploited; and peasants practice highly risk-averse production patterns. 6. These agricultural problems have resulted in Haiti's increasing dependence on imported staples to satisfy basic food requirements. In FY85, food imports accounted for about 24 percent of all official merchandise imports, compared to 20 percent ten years earlier. Substantial and increasing quantities of contraband food, particularly rice, maize and sugar, are also entering the country. 7. In recent decades, output and employment have shifted toward urban activity, largely as a result of a scarcity of cultivable land and the establishment in the 1970s of a labor-intensive, export assembly industry. Agriculture now accounts for only one third of GDP compared with one half in the early 1950s. Gross national savings are very low, averaging only about five percent of GDP since FY80. This deficiency of savings, which is particularly marked in agriculture, leaves the economy reliant on external savings in the form of concessional aid to attain levels of investment consistent with sustained growth. The economy has become much more open; by 1980, the total value of exports and imports of goods and services had risen to about 50 percent of GDP. - 3 - 8. Despite the expansion of manufacturing for export, the external payments position is weak; the export base remains narrow, leaving Haiti vulnerable to exogenous shocks. The assembly industry produces a very limited range of products--electronics, clothing, and sporting goods--yet accounts for over 50 percent of all exports; external factors, such as the 1980-83 world recession and the shakeout in the North American computer industry have contributed to the recent slowdown in Lhis subsector. Coffee, which accounts for about 25 percent of exports, is particularly vulnerable to world price fluctuations and to hurricanes. Tourism has virtually ceased as a result of publicity concerning AIDS and the only bauxite mine closed in 1982, when deposits were exhausted. 9. In the second half of the 1970s, economic growth, averaging 4.5 percent per annum, allowed for some improvement in real per capita income. A basic physical infrastructure was established and education and health received attention, virtually for the first time since the 1930s. Prudent financial policies were pursued and foreign development assistance was substantial. The economy was virtually on a dollar standard, with the Gourde remaining at a fixed parity of five to the U.S. dollar, and prices were relatively srable. These conditions helped engender private sector confidence and promoted the continued rapid expansion of the export assembly industry, largely based on Haitian entrepreneurial talent. Although it has enjoyed tax holidays and other investment incentives, this subsector's primary advantage has been the freely determined structure of wages in Haiti. Until recently it was the fastest growing assembly industry in the Caribbean Basin; over 50,000 jobs were created by 1980. In contrast, the private industrial subsector producing for the domestic market, which grew quickly in the early 1970s behind high walls of protection, quickly saturated this market and has stagnated for almost 10 years. There is little scope for this domestic subsector to expand into export markets without major restructuring. B. Developments, FY80-85 10. From FY80-85 the public sector expanded its influence in the economy through higher rates of taxation, even higher levels of public expenditure--the control and allocation of which was seriously deficient--and an increase in the number of public enterprises. Waste and inefficiency became endemic. Extrabudgetary expenditures rose disturbingly, as did the level of corruption. New and inefficient public industrial enterprises were formed, resulting in real resource losses equivalent to almost four percent of GDP each year. Too much spending went to salaries and non-development purposes, not enough to non-salary operating costs; too little went for development, and the returns on public investment were very low or even negative. Transfers from the Treasury to the investment budget were partly diverted to meet salary payments in ministries without development functions, reducing the availability of counterpart funds for aid-financed projects. Per capita public spending on health declined by 45 percent from FY80-86. The overall public sector deficit before grants averaged over 10 percent a year (6.5 percent after grants). Public savings dropped to less than one percent of GDP on average and recourse to nonconcessional financing, mostly Central Bank credit, increased to more than three percent of GDP on average. Thin in turn exerted heavy pressure on the balance of payments; official net reserves declined at an annual rate of US$22 million and had fallen to minus US$93 million by the end of FY85. Gross reserves had declined to less than three weeks' Import coverage. Payments arrears accumulated and n parallel foreign exchange market developed, with the Gourde selling at a discount which at times exceeded 20 percent. 11. The confidence of the laittan people, the private sector and the international aid donor community was eroded and the economy declined by an average of 0.6 percent per year from FY81-86, compared to the growth of the late 1970s. Per capita incomes in FY86 were 15 percent below those in FY80. There was increasing immiseration in the rural areas and emigration--the -boat people"--increased. Starting in April 1984, there was intermittent civil unrest. The assembly industry stagnated since 1983. Employment in this subsector peaked at about 60,000 jobs but is estimated to have declined by around 10 percent since, mainly in response to political uncertainty and civil unrest. Donors expressed concern over inappropriate public investments, the lack of overall public investment priorities, and poor policies in agriculture and industry. In the absence of a major overhaul of public investment, foreign aid declined from seven to five percent of GDP from FY83-85 and several donors allocated their aid away from the public sector toward non-governmental organizations. 12. The Government's increased revenue demands on the domestic economy in the 1980s were met through rent-seeking pricing policies by public industrial enterprises that enjoyed trade monopolies. Together with the intensification of import restrictions and of private production and importing monopolies, this inflated prices for basic consumer goods to well above world levels. The annual increase in consumer prices averaged eight percent in FY80-86, double that of Haiti's main trading partners. An outright ban on the importation of specific consumption items was first introduced in 1981 and then replaced by an administered system of import licensing after 1982. Both trade restrictions and pricing policies created price distortions with neiguboring countries, and encouraged contraband in imported consumption goods. PART II - THE GOVERNMENT'S ECONOMIC RECOVERY PROGRAM, FY86-88 A. Political Background 13. Coming to power in 1957, President Francois Duvalier closed the economy, conducted an effective reign of terror, and ended all hope of progress until his death in 1971. His son and successor, Jean-Claude, began a limited modernization process. The economy became more open, foreign aid - 5 - began to flow, and emigrants returned from the diaspora. The initial response of the economy was positive; by the late 1970s, as noted, it was growing at about 4.5 percent per annum. 14. The economic stagnation of the early 1980s, however, led to increasing political discontent. By Into 1985, civil unrest was widespread and the economy was deteriorating rapidly; by early 1986, the situation was unsustainable. The political system changed drnantically on February 7 with the sudden e.eparture from Haiti of Prenident Duvaller. A provisional National Government Council (CNG) came to power, pledged to hold elections and promote economic recovery. Civil cinlm was largely restored within a few months, although occasionnl disturbancen continue. An electoral calendar has been established and so far followed; presidential elections are scheduled for November 1987, with a new Government taking office on February 7, 1988. B. Overall Strategy 15. The Government's intentions for the Haitian economy are set out in its Letter of Recovery Policy (Annex IV): to reform public finances and economic policies in order to hand over a viable, growing economy to its elected successor and to establish conditions from which retrogression to the inappropriate policies of the past would be difficult. The essence of the program is to reduce the exploitation of the average Haitian, long impoverished by high consumer prices set to expropriate economic rents te benefit former regimes. An attempt is thus being made to end the past system of privilege and monopoly. These actions are also intended to lead to more sustained economic expansion; the overall target of the Economic Recovery Program is GDP growth of at least 4.5 percent a year through improved exports and agricultural performance. This target is to be promoted both directly by the removal of impediments to efficient resource allocation, and indirectly by the impetus to higher capital inflows that these policies should generate. Central to this strategy is the need to rebuild the confidence of Haitian workers, farmers and investors, on the one hand, and foreign investors and aid donors, on the other. 16. The policy measures to achieve the Government's objectives are, first, macroeconomic stabilization and, second, the improvement of resource allocation through reform of taxes, public expenditure, public enterprises, competition and industrial incentives, and agricultural pricing and credit. These are discussed in subsequent sections of Part II; reform of the trade regime is a principal vehicle for many of them. The public sector's scope is to be reduced, and it is to be made more efficient. In addition, the Government is working to reduce external obstacles to Haitian exports. In September 1986 it successfully negotiated a major increase in the Unyted States' import quota for Haitian textiles. If the new U.S. import ceilings are achieved, Haiti's export assembly industry could expand its output by some 45 percent and create 10-12,000 new jobs. 17. The present Governmat ' reonomi Recovery Program wi ll not , of course, renolve 1iti' I many Nevere development prnblempi. Th1is will take much more tinw. thnn thie ltrr IIt ni thia Goveran-nr, ain it well recogii1zvs. Thitri 1ttH program in deSigned to pave the way for Inture de veo I pmnt . 18. A longf-r t4-rm devilopmnit utrategy wil l have to be b4ned on lini ti 's people; thi' cotn try ham Ivw tuirti rimotireetn. I.*i t I 't compi ra i ve adwantage I ln 11i n the devclopmnt of urban indtutrial, expuirt-orientrid produkruion; its Init-riinal IIy o t lvi wnge t4ructure has alrnrdy led I:t the it4tall iIahm-Ant nI the export anemhly iuharecLor, the mont dynomic t-L4metit of the itonleny. A le,vt'lopmnit t4trimegy haed on himan renoiireen Impliva mijor ILuveimournis ai iium:m i-ApiLi1, through improved edientIoa nd heal I h. It also Imp 1-in rainfing ngr.culttiral productivity, prod ontit and employntvnt., is Lhe bulk id thl- 1iI1ti-n p0opic will Continue to depend on agriculture for at least another generation. This to turn wil iiniCCHRiltatLe aileviat-ing the prtissurv ot population onl the land through the idtroduction of effctive fainly planiing and through aiigration from the hillsidet to the pl la[15 and tLies. Tht development of urban indnistry and of agriculture on the plains will requirv major improvemwnts I liiaiti's physical litfrastrutcttre--especinl.ly its urban capita] stock, its export facilities and services, and Its Irrigti-on systOM1s--aid in its deteriorating natural eu-ii roamenct- C. Macroeconomic Stabilization 19. Performance in FY86. The public sector's financial position improved significantly ii FY86. The year began in October 1985 with approval of a budget that called for a reduction in the overall public sector deficit (after grants) from 4.0 percent of GDP in FY85 to 1.7 percent; Central Bank financing was to be limited to 0.4 percent of GDP, compared with 2.2 percent in FY85 and 3.5 percent in FY84. When the present GoverUment came to power in February 1986, the deficit and financing plan were broadly on track. The composition of expenditure, however, was noticeably different from that budgeted as sound budgetary procedures were being ignored. 20. The Government took drastic steps to redress the budgetary situation. [rom February on, both expenditures and taxes were cut and a balanced budget was maintained, except for concessional financing. Many wasteful current expenditures and unjustified "development" projects, equivalent to some three percent of GDP on an annual basis, were eliminated. About half of the savings were reallocated to priority sectors (health, education, agriculture and internal security). The rest enabled excise taxes to be reduced on basic consumption items such as flour, sugar, vegetable oil, and petroleum products, and certain taxes, previously earmarked for special projects of the previous regime, to be eliminated. In total, current and development expenditure came to only 17 percent of GDP compared to the 23 percent foreseen in the previous Government's budget. 21. As a result, Haiti's financial situation improved substantially. In FY86 the public sector was able to make net repayments on its external commercial debt and to reduce the stock of debt to the domestic banking - 7 - system. The overall public sector deficit before grants was 5.2 percent of GDP, compared to 7.5 percent in FY85; the deficit after grants was 1.0 percent of GDP. The reduction of the public sector deficit was accompanied by a marked improvement in the balance of payments. The current account deficit narrowed by two percent of GDP to 4.8 percent in FY86 and, after six years of deficits, the overall balance of payments registered a surplus of over US$20 million. The discount on the Gourde on the parallel foreign exchange market fell back sharply after July 1986 to about 5-7 percent. Inflationary pressures have also ended; the consumer price index fell by four percent from February to September 1986. 22. Objectives. The Government recognizes that without continued stabilization, the other elements of the recovery program will be ineffectual. It aims to reduce further its outstanding stock of nonconcessional debt, both external and to the domestic banking system; to generate overall balance of payments surpluses equivalent to almost 1.5 percent of GDP in FY87 and close to one percent in each of the following two years; and to keep inflation below about four percent, as in Haiti's main trading partners. The centerpiece of this effort is fiscal policy. The overall deficit (after grants) is expected to increase in FY87 to 1.8 percent of GDP from the low of 1.0 percent in FY86 and to remain close to this level in the following two years as higher levels of concessional financing are sustained. Assuming a favorable response of donors to its Economic Recovery Program, the Government will limit the overall public sector deficit, before grants, to about seven percent of GDP. The anticipated level of grants and concessional aid will more than finance this deficit, permitting the reduction of nonconcessional debt. Haiti's nonconcc :-tonal debt and liabilities to the IMF should decline sharply, falling by US$27 million or 16 percent in FY87 and by similar percentages in the following two years. The Government and the monetary authorities do not intend to contract or guarantee any nonconcessional external credit within the 1-12 year maturity range, other than the refinancing of arrears. 23. This fiscal stance will set a sound basis for monetary and credit policy by facilitating a reduction in the stock of Central Bank credit to the public sector. This in turn should allow an expansion in credit to the private sector without either jeopardizing the inflation objective or placing pressure on the balance of payments. 24. Program for FY87. In line with these broad objectives, the Government has established a continued stabilization program for FY87, supported by an IMF Structural Adjustment Facility arrangement which includes quarterly benchmarks for Treasury receipts and outlays, net financing of the public sector, and credit. 25. This program projects Treasury revenue at 10.2 percent of GDP, compared vith actual collections of 11.5 percent in FY86. A similarly cautious approach has been followed in making budgetary provision for outlays financed with external cash grants. Although expectations are that these may be as high as G 180 million, for programming purposes grant disbursements have been set at G 140 million. TMe budget places a limit on Treasury expenditures of 11 percent of GDP, permitting it to run a surplus of G 40 million, which will be used to reduce Government eebt to the Central Bank. The public enterprises are expected to make net repayments to the domestic banking system and reduce somewhat their indebtedness to external - 8 - commercial creditors. The overall public sector surplus (after grants) is to rise to G 60 million, from G 48 million in FY86. Including public investment, overall public expenditure should recover to about 20 percent of GDP. 26. The Central Bank and the state-owned National Credit Bank will be subject to ceilings on their net domestic assets and on credit extended to the private sector. As a result, the Central Bank's net credit to the public sector will be reduced by two percent, while commercial bank credit to the private sector is projected to increase by 14 percent. The program also calls for an overall balance of payments surplus of US$32 million which will allow some reconstitution of net international reserves. External arrears, which stood at US$14 million at the beginning of the fiscal year, will be rescheduled or settled with cash payments by its end. By December 31, 1986, all first quarter benchmarks had been achieved. D. Tax Reform 27. Despite measures to overcome their sluggishness, including a value added tax introduced in FY83, tax revenues remained low, at around 10 percent of GDP, through FY85. Besides Haiti's poverty, several factors accounted for this. First, exemptions increased as part of industrial investment and export promotion. This increased the difficulty of assessing and collecting income taxes and customs duties. Second, the structure of these taxes was too complex with unrealistically high marginal rates. Third, taxes on agricultural exports, notably coffee, reduced farmers' incentives to expand output. Fourth, too much reliance was placed on a vast array of excises, fees and charges which depressed the buoyancy of the system. Fifth, and above all, evasion and fraud were increasingly widespread, largely reflecting the common perception that taxes were used to finance inappropriate public expenditures. 28. Starting in February 1986, the new Government embarked on a program of far-reaching reforms aimed at improving the equity of the tax system and increasing its responsiveness to economic growth. The Government believes that evasion can be reduced by broadening the tax base, lowering rates and managing public finances in a transparent manner. The FY86 reform measures were relatively modest while more important ones were being prepared. As noted, excise taxes on consumption goods were reduced and certain taxes, mainly ancillary taxes on wages, previously earmarked for special projects of the previous regime, were eliminated. The revenue loss from these latter sources, estimated tentatively at G 70 million, represented a benefit for wage earners in Port-au-Prince and the other main towns. In addition, a variable excise tax was imposed on petroleum products to capture the difference between import costs and the domestic fixed prices. Finally, as discussed in Part II.G, quotas on 76 imported goods were replaced with ad valorem tariffs. 29. More fundamental measures were adopted in early FY87. The export tax un coffee was reduced from 22 to 10 percent and other export taxes on cocoa and sisal were eliminated. The Government intends to eliminate the coffee export tax when overall revenue and expenditure performance has improved sufficiently. Also effective in early FY87, the Income tax system - 9 - was simplified, with fewer tax brackets, fewer exemptions, lower marginal rates, a greater degree of consistency between the treatment of individuals and corporations, and improved collection procedures, the latter including the dismissal of non-performing staff from the internal revenue service. Administrative procedures are also being improved, in particular by systematic cross-checks between income, value-added and trade taxes. In the longer run, the Government intends to replace most excise taxes by the value added tax. Finally, the Government implemented in early FY87 a further round of import quota and tariff changes, replacing quotas and specific tariffs with ad valorem tariffs, and intends to improve customs valuation and enforcement procedures. E. Public Expenditure 30. From a development perspective, there were two major resource allocation and expenditure control problems of the central Government before FY86. First, the four development-oriented ministries--agriculture, public works, education and health--suffered from inadequate non-salary operating funds. Agricultural extension workers could not get to the fields, irrigation systems were not properly maintained, schools were without furniture and books, and public health clinics without drugs. Since the internal efficiency of these ministries was low, the returns to existing private and public investments in their areas of responsibility were much lower than expected. The four ministries at the same time spent too much on salaries. They had recruited too many unskilled employees, largely for social or political reasons, and found it difficult to attract the skilled staff they needed because of relatively low salary scales compared to other parts of the Government. Fraudulent wage payments were also a serious problem, espccially in education and health. 31. Second, the size and composition of the public investment program has been determined more by the availability of externally packaged and aided projects than by careful consideration by the Government of national priorities and domestic resources likely to be available as counterpart funds for these projects. The availability of foreign funds was consistently overestimated. In addition, local resources earmarked for investment included too many socially-oriented projects with low economic returns in terms of their contribution to output and exports; many represented disguised salary support. Shortages of local counterpart funds were therefore common during project implementation. Overall implementation of past programs never exceeded 70 percent of that forecast. During the first half of the 1980s, the public investment program also included inappropriate, resource-losing public industrial enterprises, as discussed in the next section. Among justified projects, too many suffered from insufficient technical design and poor implementation. In agriculture, public investments were not accompanied by necessary pricing and structural changes. 32. Reflecting these two problems was a complex system of planning, budgeting, monitoring and disbursing public investment, which provided numerous opportunities to divert funds. The situation regarding current expenditure was little better. - 10 - 33. The present Government has embarked on a widespread program of reforms designed to begin to tackle these problems. Its aim is to manage public finances transparently, to reallocate current expenditure toward development-oriented ministries and the non-wage needs of development projects, while concentrating public investment on the consolidation and rehabilitation of existing and ongoing investments. These objectives are modest but well chosen, given the limited life of this Government. By February 1988, it should have achieved substantial results by comparison with the past, but much will remain to be done, especially in the complex and difficult areas of rationalizing public employment and establishing efficient procedures for planning, budgeting, disbursing and monitoring public expenditure. 34. FY86 Reforms. After February 1986, Treasury expenditure, which is mostly current, was cut from an average monthly level of G 111 million to G 84 million. Expenditure for the political support of the former regime was eliminated; audits of several ministries and agencies identified wasteful expenditures. The public investment program was severely pruned; preliminary estimates indicate that only about 60 percent of the G 1,113 million forecast in October 1985 was actually implemented. In August 1986, the former Ministry of Planning was replaced with a more streamlined National Promotion and Public Service Commission (CPNAP), charged with improving the public investment program and, together with the Ministry of Economy and Finance, with examining development projects' recurrent financial needs. Finally, toward the end of the fiscal year, the salary question was addressed. First, wage payments were controlled in the education sector to eliminate fraud; the Government intends to extend this review to health and other sectors once the necessary staff and procedures can be put in place. Second, untaxed fringe benefits were eliminated. 35. During the last four months of FY86, the Government allowed Treasury expenditure to rise again to an average monthly rate of about C 100 million. The G 16 million increase on the average of the previous four months was intended to be used both for sorely needed salary increases and for operating supplies in the education and health sectors. This intention was, however, defeated. After teachers' and health workers' salaries were raised, Government employees elsewhere went on strike for commensurate increases. The end result was that the G 16 million was.almost fully allocated to raising salaries, not only in education and health, where the functional need was greatest, but also in the armed forces and the departments of customs, internal revenue, agriculture, interior and justice. Very little was left for the purchase of operating supplies in education and health. The effect on the Government's wage bill was permanent. Resolving this problem is not feasible in the short term, however. The Government is considering establishing a mechanism at the highest political level to develop a policy to rationalize the public wage bill and public employment. 36. FY87 Treasury Budget. The Treasury budget for FY87 includes a complete allocation of expenditures, abandoning the practice of reserving large sums for unspecified programs; unallocated expenditures comprised almost one fifth of the FY86 budget. There will be no extrabudgetary Treasury spending and no transfers to public enterprises. The auditing program is continuing, including audits of both the Ministry of the Economy and Finance and of the Central Bank. Public sector accounting will be - 11 - improved by monthly reconciliations of the accounts of the Ministry of Finance and the Central Bank. The current Treasury budget (i.e. excluding debt service and transfers to investment) more adequately reflects the non-wage recurrent needs of development projects, particularly in education and health. These two sectors' share of total current expenditure has increased from 19 percent in FY86 to 32 percent. A lesser increase is provided for agriculture because of administrative constraints. Table 1 compares the FY86 and FY87 current budgets. Table 1: TREASURY BUDGETS, FY86 AND FY87 (G million at current prices) Ministry or Agency FY86 Budget FY87 Budget Percentage Change Education 98.3 161.6 64 Health 89.5 144.4 61 Agriculture 37.5 42.2 13 Public Works 77.3 78.0 1 Armed Forces 96.3 142.0 48 Other 589.6 385.1 -35 Current expenditure 988.5 953.3 -4 Debt service 324.4 236.7 -27 Transfer to investment 136.0 100.0 -27 Treasury expenditure 1,448.9 1,290.0 _11 Source: Ministry of the Economy and Finance. 37. The FY87 budget establishes a limit of G 676 million on wage payments to civil servants, compared to last year's G 561 million. This increase not only reflects salary increases but also the reclassification of remuneration previously included in other budget categories or paid outside budgetary channels. The official figure for central Government employment in early FY86 was 32,400; the actual figure may well have been over 50,000, however. The Government intends to review the staffing levels of all ministries and agencies; streamlining has already occurred at the Ministry of Economy and Finance, the internal revenue service and at CPNAP. 38. FY87 Public Investment Program. The size and composition of the FY87 public investment program were determined by the needs to meet the local counterpart requirements of projects and to consolidate and rehabilitate existing and ongoing investments. Unfortunately, the process began late and was rather disorderly. The attempt to do better than in the past was, however, genuine and by and large effective. The overall public investment program is estimated at G 1,140 million, to be financed by public savings (G 280 million) and concessional external aid (G 860 million). Likely disbursements of project aid are still overestimated. However, considering both the increased level of overall public savings because of untied aid for budgetary support and improvements in project preparation and administration, actual disbursements may well result in an overall implementation rate of about 80 percent, or between G 900-950 million, consistent with the Government's macroeconomic stabilization target of a - 12 - public sector deficit before grants of about seven percent. Table 2 summarizes the sectoral composition and financing of the program and compares it with that for FY86. Table 2: PUBLIC INVESTHER PROGRAM, FT86 AND FY87 (percentage shares) FY86 Program FY87 Program Total Program Cost (G million) 1,113 1,140 Financing Public savings 25.5 24.5 Concessional external aid 74.5 75.5 Sectoral Composition Agriculture 18.5 21.2 Industry, including mining 11.9 4.8 Electric power 15.0 12.7 Transportation a/ 10.5 12.2 Telecommunications 5.6 11.2 Urban development 5.4 6.5 Water supply 6.0 4.8 Education 5.8 7.1 Health 10.5 9.6 Other sectors 10.8 9.9 Implementation Rate (percent) 60.3 80.0 (est.) (proj.) Sources: CPNAP; Annex VT. a/ Excludes proposed Cap Haitien airport project (para. 39) 39. Details on the sectoral composition of the program and the largest projects are given in Annex VI. In brief, agricultural projects concentrate on irrigation rehabilitation (including where necessary protection of associated watersheds), feeder roads and input delivery. Soil conservation and reforestation are maintained at financially sustainable levels and increasingly linked to treecrop rehabilitation or expansion. There are no new irrigation projects in the program. Similarly, there are no investments to expand the capacity of public industrial enterprises, although there are some productivity enhancing investments at the public flour mill and cement factory. Projects to benefit industry are those which improve the physical infrastructure and public utilities serving the private sector. The transport data exclude a proposal to construct an international airport at Cap Haitien. This would represent at most two percent of public investment in FY87. No cost estimation or feasibility analysis has been carried out for this project, which has not yet started. The Government does not, however, intend to use any funds for this project other than those available to the National Airport Authority from one third of a G 75 user charge levied on air passengers, about G 5 million per year; no external concessional or commercial financing will be used. Development expenditure - 13 - in the social sectors is concentrated heavily on the completion of ongoing projects in education, training and health, and on urban development and water supply. 40. On the financing side, Treasury development expenditures are almost exclusively devoted to meeting the counterpart fund requirements of foreign aided projects. All projects are financed exclusively with concessional external aid. The program is by and large appropriate for Haiti's development needs. In addition to this program, the Government has presented to external donors a list of 26 new projects proposed for external financing of C 217 million (US$43 million). These modest projects are within Haiti's absorptive capacity and will be added to the program as financing is secured. 41. The Government intends also to continue to strengthen the planning, budgeting and disbursing of public expenditure through improved procedures. These will include the elimination of fraudulent wage payments at the Ministry of Public Health and Population, the improvement of recurrent budgeting at the Ministry of National Education, and the preparation of the public investment program for FY88. This last will be based on a joint review with IDA staff of actual progress made in the first nine months of FY87 and of preliminary proposals for FY88, and will start much earlier than has previously been the custom. F. Public Enterprises 42. Policy toward public enterprises has undergone a radical change. There were in early 1986 five major public industrial enterprises: Entreprise Nationale des Oleagineux (ENAOL), a vegetable oil mill; two sugar mills, Usine Sucriere Nationale de Darbonne (USND) and Usine Sucriere du Nord (USN); Ciment d'Haiti, a cement plant; and La Minoterie, a flour mill. All five used to enjoy trade privileges which, in each case, protected grossly inefficient operations and enabled financial procedures inconsistent with sound business practices. Annual real resource losses were equivalent to almost four percent of GDP during FY82-85, a period in which the Haitian economy never grew by more than one per cent per year. In addition, the two sugar mills and the vegetable oil mill incurred heavy financial losses. To stem and eventually reverse this economic and financial waste, the Government has combined the closure and restructuring of enterprises with market liberalization and the introduction of financial monitoring. 43. ENAOL. This enterprise, which produced semi-refined vegetable oil from oilseeds by crushing and solvent extraction, was never economic. Since beginning operations in 1981, it had a negative balance of payments impact of about US$16 million each year. The scale of the crushing and solvent extraction was too small to be economic; the plant also carried out second stage refining to fully refined oil, a process already amply catered for in Haiti through the existence of six other private refiners. 44. The mill was accordingly closed on July 31, 1986. The approximately 300 employees were offered either generous severance pay or the option to form a private cooperative to run the factory; about 60 - 14 - percent opted for the former, each receiving about nine months' salary. The remainder, including most of ENAOL's previous managers, will lease the plant from the Government for 25 years at a nominal rent. If the cooperative is to survive, it will have to adapt to a highly competitive market environment: the Government has pledged not to grant it any subsidies, privileges or loan guarantees. Moreover, the market for vegetable oils has been liberalized: ENAOL's import monopoly was dissolved with the company itself; licencing requirements for importation have been eliminated, and a tariff of 20 percent has been imposed on vegetable oil imports. 45. USND and USK. Until mid-1986, Haiti had four operating sugar mills, two private and two public. The two latter, USND and USN, operated at a loss despite the high price of US$0.24 per lb paid for raw sugar at the factory gate and the low price of US$13 per ton paid for cane. If prices and costs are adjusted to reflect long term international values, then neither mill is economically viable even under highly favorable assumptions concerning raw material supply and efficiency. USND was built directly by the state in 1982; the equipment was supplied on a turnkey basis at prices well above those prevailing on world markets. Capacity utilization has been low because of insufficient cane supply, while operating costs were inflated by a labor force of about 700, some four times as many as required to run the plant. 46. The USND mill was therefore closed in July 1986. The 700 factory employees were, like those at ENAOL, offered the choice between indemnization and the formation of a cooperative to run the mill; all opted for the former, again receiving about nine months' salary. The plant would in any case have required between G 10-20 million of expenditure on rehabilitation and maintenance to reopen and could not have been operated for the FY87 harvest. Farmers in the surrounding Leogane plain, who previously supplied the mill, can either sell their cane to the small artisanal "guildives", which use it to manufacture cane spirit, or to one of the private mills which used to purchase cane from the area before USND's establishment. This mill has both the necessary capacity and logistic support to absorb the Leogane crop. The Government is actively encouraging the planting of alternative crops, principally rice and vegetables, in the Leogane plain to supply the nearby Port-au-Prince market. 47. The case of USN is more complex, since the plant is located in the north of the country, far from the main market and where technically and economically viable alternatives to cane are difficult to identify. Several thousand families depend for their livelihood on supplying or working for the mill. The Government will undertake a study of alternatives to cane, including improvements in watershed and erosion control which they might imply. In the meantime, to identify ways in which mill operating expenses might be reduced, the Government has ordered an independent audit of the company. 48. Ciment d'Haiti. This company, 90 percent Government-owned, supplies most of Haiti's current consumption of cement, about 250,000 metric tons per year. Until recently, a licence was required to import cement and a - 15 - specific tariff of G 300 per metric ton was levied, equivalent to over 100 percent ad valorem at current CIF prices. This gave the company a de facto monopoly on the production and legal importation of clinker, cement and by-products. The company was exceedingly inefficient: annual operating expenditures, net of taxes, were about US$83 per metric ton, some 66 percent higher than the estimated landed cost of imported bagged cement. There were two main reasons for these high costs. First, personnel costs, at some US$17 per metric ton, were over twice industry standards. This was due both to excessive e.ployment and high wages and salaries. The plant employed in September 1986 about 380 persons on a regular basis, plus a similar number of "temporary" workers, as against efficient industry standards of about 200. It paid unskilled workers more than twice what they would have earned in the private sector, while some managerial staff earned extremely high salaries. Second, energy consumption was high due mainly to the plant's antiquated power generating equipment. New equtpment, which may take up to a year to order and install, will still only reduce costs by about US$8 per metric ton. 49. Options under consideration for Ciment d'Haiti include partial divestiture, and switching from the local production of clinker to its importation. The Government has approached IFC about the former. The latter would imply additional investments in storage and handling facilities, and perhaps also in port works, which would have to be subjected to detailed engineering studies. For any option for the plant's continued existence to be economic, it is essential to reduce personnel and administration costs, which amount to about 25 percent of total operating expenditures, and to subject the factory to competition from imports. As a first step, personnel were reduced by 120 by the end of January 1987, and a detailed plan to reduce the company's wage bill has been prepared in connection with an independent financial and management audit. Second, the cement market has been liberalized. Import licencing requirements have been lifted and a tariff of 33 percent placed on imports of bagged and bulk cement. 50. La Minoterie, the Government-owned flour mill, has a monopoly over both the importation of wheat and the legal sale of wheat flour, except for specialized products directly imported by bakeries. Wheat cannot be grown in Haiti's climate. The mill has an effective capacity of about 2.8 million 100-lb bags of flour a year. Production has remained near this figure in recent years. La Minoterie has been financially profitable, but only because of a controlled price for wheat flour more than twice border parity. La Minoterie's declared operating costs appear to be about 52 percent above the border price for imported flour. However, while there are undoubtedly major operating inefficiencies and considerable overstaffing--employment of some 1,200 in September 1986 was over ten times industry standards-the cost data on which this analysis was based is unreliable. A recent audit was unable to verify the company's financial statements, partly due to the non-observance of standard accounting practices, but mainly due to significant abuses. Large sums, in some cases totalling several million U.S. dollars, had been siphoned off from the company; moreover, cash management and purchasing and sales procedures were maintained in a deliberately disorganized fashion to facilitate the misappropriation of funds. Despite this, there is no doubt the mill could be run more efficiently and economically in either the public or the private sector. - 16 - 51. Privatization is under consideration, among other options. The Government changed the management team in October 1986 and separated the Board and the management. The new team, pledged to restructure the company, has engaged consultants to implement the key recommendations of the audit, including the preparation of a plan for wage bill reduction, the consolidation and reorganization of cash and bank accounts, the establishment of a cost accounting system, and the reform of purchase, production and sales procedures. By the end of January 1987, the wage bill at the mill had been reduced by some seven percent. 52. In addition the Government has liberalized the wheat flour market by revoking La Minoterie's monopoly on wheat imports. Import competition will encourage efficiency and facilitate continued supply of the market when demand increases above La Minoterie's current capacity. 53. Financial Monitoring. To improve its financial monitoring of all public enterprises, the Government has established a unit in the Ministry of Economy and Finance to review the enterprises' budgets, financial results and the execution of their programmed investments. All public enterprises will also be subject to regular, independent, external auditing. The objective of this more systematic financial monitoring is not to increase state interference in the day-to-day management of the enterprises, but rather to enable the state, as the shareholder, to ensure that the enterprises' operations are consistent with the wider aims of economic policy. C. Competition and Industrial Incentives 54. The dynamic export assembly subsector grew up without protection, though with tax holidays and other incentives. There has, however, been little linkage between it and the rest of the economy, except through wages, partly because Haitian local industry has been so inefficient that its products are not competitive as intermediate inputs to the assembly subsector. 55. Starting more than 15 years ago, however, import-substitution policies followed by balance of payments constraints led to progressively higher tariffs and barriers to trade as well as to discretionary fiscal incentives for investment. The resulting trade regime created an incentive structure for industry producing for the local market that deterred competition, efficient production and exports. It also led to high domestic prices for many basic consumption items. There were export taxes on agricultural products, import quotas and licenses, high import tariffs, an overly complex and inefficient Customs system and staff, and a complicated administrative structure facing any investor, exporter or provider of services to exporters. The arbitrary operation of the system provided further major disincentives to the establishment of efficient exporting industries. Industrial firms tended to rely on rents from the narrow, protected domestic market rather than investing to correct inefficiencies - 17 - and compete in the international marketplace. As a result, local industrial production is stagnant with excess capacity, obsolete equipment and low quality products sold at high prices. Tariffs as high as 180 percent combined with quantitative restrictions on imports resulted in effective protection levels averaging about 100 percent, with more than 10 percent of industrial production enjoying effective protection of over 300 percent. 56. Until mid-1986, more than 100 goods, most produced locally, were subject to import quotas and licencing. In addition, 25 were subject to price controls fixed by the Ministry of Commerce, mostly for monopolistic markets such as milk, soap, matches and fish. Import prohibitions affected several products, such as tomato paste, used cars and used newspapers. De facto import monopolies were enjoyed by the public industrial enterprises for vegetable oil, cement, sugar and flour. More than a dozen petty taxes were also levied on imports by the Customs service, each yielding less than G 500,000 per annum. 57. The Investment Code, revised and simplified in 1985, guarantees various domestic tax holidays and tariff exemptions on imported inputs or equipment to encourage new investments. As with the trade regime, these incentives did not stimulate the development of efficient industries but rather increased the protection of existing firms at the expense of fiscal revenues, consumer prices and the unemployed. While the assembly industry created over 40,000 jobs since 1975, local industrial employment stagnated at around 25,000. 58. The wide range of customs regimes could not be controlled by a weak Customs administration, already burdened with complex import documentation and procedures and afflicted by widespread corruption. Actual collected import duties bore only a coincidental resemblance to official rates. Total collections in FY86 corresponded to 12.5 percent of dutiable imports. Ar tariff rates rose, contraband increased; it is now virtually endemic. 59. To lower prices, reverse past distortions and stimulate the economy, the Government embarked in July 1986 on a thorough program to liberalize trade, stimulate competition and revise the incentive structure. Its objective is a stable, neutral incentive system to channel resources toward competitive rather than rent-seeking activities. The narrow domestic market means that industrial expansion has to be driven by exports. The Government is thus progressively reducing the average level of effective protection and harmonizing its distribution across sectors through various reforms. Lower tariffs will also be easier to collect than the previous complex system. 60. Quantitative Restrictions. In July 1986, the Government reduced the number of products subject to licensing, quotas or prohibitions from 111 to 35. In December 1986, it abrogated the import licensing and quota law. No import monopoly remains in effect. Two products are restricted for sanitary reasons: used newspapers and used clothes. A new import licensing law, without formal ceilings, was introduced for seven agricultural products: rice, maize, millet, beans, sugar, chicken parts and porkmeat parts. - 18 - 61. Tariffs. The quantitative restrictions removed in July 1986 were replaced by ad valorem tariffs averaging about 20 percent with a maximum of 40 percent. At the same time, specific tariffs were replaced with ad valorem ones or ad valorem tariffs were lowered for approximately 300 of the 2,000 tariff positions. In February 1987, following the abrogation of the remaining quantitative restrictions, the Government implemented a complete revision of the entire tariff structure. All specific tariffs were replaced with ad valorem ones. With five exceptions (rice, maize, millet, flour and petroleum), rates range between 0 and 40 percent. Their application takes into account the ending of quantitative restrictions. Exemptions allowed by the Investment Code will be ended by December 1987. Medical supplies and agricultural imports are exempted. 62. The cascading of the rates followed a physical input/output rule rather than the necessities of the existing industrial base to avoid as far as possible ex ante negative protection or sectoral biases. Consumer and final goods are subject to a maximum rate of 30 percent whereas equipment, raw materials and some inputs are subject to 10 percent. A 5 percent rate was used to provide a little protection to locally produced essential intermediate goods (such as packaging, cans, and metal working) without overburdening downstream industries. The targeted average tariff rate is 20 percent. 63. The level of effective protection for existing firms has been drastically reduced by these measures from an average of over 100 percent to below 40 percent; 95 percent of industrial firms now have less than 60 percent effective protection. The state of Haitian trade statistics and customs data and the prevalence of contraband make it impossible to predict accurately the likely impact of the trade regime changes on either the balance of payments or fiscal revenues. Insofar as lower protection should discourage contraband, however, both recorded imports and fiscal revenues may well increase. 64. In addition to these major changes, the Government is streamlining the various Customs procedures and rationalizing petty taxes on trade. Import notifications are now processed quickly and automatically at the Ministry of Commerce and Industry. Customs clearance procedures are being simplified. Further institutional strengthening of the Customs will, however, be necessary. An administrative charge of one percent of CIF value has been extended to all imports except pharmaceuticals and petroleum to cover the costs of an independent, foreign firm that is responsible for import verification. Petty taxes on imports and exports will be eliminated by the end of FY87. The maximum tariff for imports from non-GATT countries is being reviewed. 65. Investment Code. The Government intends to revise the Investment Code to harmonize with the above measures. In particular, general exemptions of import duties will no longer be available and existing ones will be progressively eliminated. Eligibility criteria will be neutral in terms of sector, years in business, value added content and market share. - 19 - 66. Price Controls. The Ministry of Commerce and Industry has eliminated its price control office. Price controls remain in effect for very few products, notably sugarcane, sugar and petroleum products. 67. Export Promotion. The Government is also reducing the bias against exports. Taxes on agricultural exports are being progressively reduced (Part 11.H). In addition to the revised Investment Code, the Government intends to implement an endorsable drawback system by the end of 1987 to reduce anti-export bias. Export promotion is being stepped up and, as noted, a new textile agreement has been reached with the United States. 68. Restructuring Assistance. The Government is making available both technical and financial assistance to industrial firms that wish to restructure to operate in the new incentive environment. The Industrial Development Fund (FDI) has been charged with this responsibility; a program of technical assistance has already begun, offering diagnostic surveys to enterprises to advise on priority areas for restructuring and following this up with detailed consulting services and credit to finance new investments. R. Agriculture 69. The stagnation of agriculture, its declining ability to satisfy minimum nutrition requirements, and the loss of non-renewable natural resources (Part I), are major preoccupations of the Government. Ralf the mountain land, which accounts for 60 percent of Haiti's total area, has a slope greater than 400 and is suitable ecologically only for forest cover. Nevertheless, much of the forest has been removed for energy and to permit cultivation. Farm technologies are rudimentary. The topography, small size and scattered location of most farm plots offer little scope for mechanization. Investments such as reforestation and terracing are logistically difficult, because of the priority given by farmers to food crops, the insecurity of tenure in many places, and the sheer immensity of the erosion problem. The lowland plains represent about 15 percent of the total land area; 90,000 ha are irrigated. Most systems are in disrepair, however, as a result of inadequate operation and maintenance. Watershed protection is virtually nonexistent, leading to the siltation of irrigation channels after heavy rains. 70. Overcoming Haiti's agricultural crisis will take much time and investment. Reforms should aim at increasing productivity, production and exports; improving nutrition; preserving non-renewable resources; increasing fiscal revenues; and improving equity. The present Government has made a determied start in addressing problems of pricing, policy-induced rents and deficient public services to agriculture. Much remains to be done, however, for many years to come. 71. Pricing. Prices have been affected by four major Government interventions: (a) prices and tax levels established at food processing plants for wheat, sugar and vegetable oils (Part II.F); (b) export taxes; (c) quantitative import restrictions and tariffs; and (d) administered - 20 - farugate prices for sugarcane and cotton. Their combined effects have been to tax agricultural producers--mostly in coffee, sugarcane and cotton--and consumers--mostly in sugar, wheat flour, rice and vegetable oils. 72. Despite coffee's comparative advantage over maize and sorghum, it has been subject to an export tax of around 25 percent of FOB prices. Prices of maize, sorghum, rice and wheat flour have hovered in recent years at some 20-30 percent above import prices because controls resulted in negligible imports of the first three while La Minoterie required high flour prices for financial viability and the extraction of rents. Hy August 1986, farmgate prices for maize were around 100 percent higher than CU' import prices, 30 percent for rice and 40 percent for wheat flour. These policies--of "supporting" grain and flour prices above world levels and suppressing coffee prices below world levels--have had negative results. In the competition for scarce hillside land, many farmers have replaced their coffee trees with maize and sorghum, exacerbating soil erosion. 73. The previous Government made a hesitant effort to deal with the coffee export tax, reducing it to about 22 percent by 1985. It also eliminated the 5 percent export tax on essential oilr in 1985. The present Government has moved more forcefully, reducing the coffee exprt tax to 10 percent, and eliminating the export taxes on cocoa (6%) and sisal fibre (C 1.25 per 100 kg). Provided overall revenue and expenditure performance remain satisfactory, the Government intends to eliminate entirely the coffee export tax by the end of FY87. 74. The Government reduced the excise tax on wheat flour in February 1986, has permitted wheat flour imports, and has replaced import quotas with import licensing restricted to seven products: rice, maize, millet, beans, sugar, chicken parts and porkmeat parts. Even before this, domestic grain prices fell substantially in the second half of 1986, following the unprecedented decline in international prices (and pervasive contraband) and possibly the strengthening of the Gourde on the parallel foreign exchange market. The Government also intends to free the producer price of cotton. 75. Policy-induced reats. Past Government policies for State lands created rents for a privileged few, rather than capturing them for the fisc. Substantial areas of public lands were leased at nominal rates to influential individuals, who in turn subleased them to small farmers or sold the lease rights, both at market rates. The law provides that annual rents on State lands are to be assessed at six percent of the fair market land value. Yet most primary leases have been assessed at G 15-60 per ha, compared to fair market rental assessments of G 250-2,000. The Government is thus foregoing some G 100-200 million per annum in revenues. The Government intends during FY87 to introduce a scheme to raise rents on all new and renewed leases according to the fair market value of the land. 76. Credit. Only 10-15 percent of the rural population has access to institutional credit. Past primary sources have been the Agricultural Credit Bureau (BCA), which lends mainly to sallholders, and the National Bank for Agricultural and Industrial Development (BNDAI), which has been - 21 - geared to medium and large farmers engaged in caPital-intensive production, notably of irrigated rice. 77. The loan portfolios of toth credit agencies ha/e deteriorated. According to a recent audit, BCA had 6,470 borrowers in August 1986, many associations each averaging 1i farmerp, 4nd a portfolio of G 52 million, 50 percent in arrears. An audit of BNDAL is also unde:ra,; arrears on its portfolio rose from around 45 percent in mid-1965 to 70 percent a year later. Most of BCA's and BNDAI's arrears are considered uncollectable. During FY87, the Government interds to close BNDAI and will, with assistance from the Inter-American Development Bank, establish a new agricultural credit bank, to include BNDAI's performing agricultural portfolio. I. Economic, Environmetual and Social Iapact 78. Economic Impact. The Government's Economic Recovery Program, especially the elimination of financial imbalances and price distortions, is having its intended effects. As discussed above, the public sector's affairs are now more transparently managed, it has reduced its stock of nonconcessional debt, the balance of payments is running an overall surplus, the discount on the rourde on the parallel foreign exchange market has declined significantly, and consumer prices have dropped. Assembly industry exports, which fell in the second quarter of FY86, have picked up again. Confidence is returning and should continue to increase, so long as there is reasonable political stability. The endorsement of the program by external donors and the IMF has also provided a powerful boost to confidence, stimulating private investment and aid flows. 79. Resources have been freed by the reduced burden of public enterprises and the more effective management of a leaner public sector. In the medium term, the public investment program should yield higher returns, though time and major reforms are still needed. The elimination of the coffee and other export taxes, the raising of rentals on State lands, and the reorganisstion of credit should help to sustain agricultural growth. Furthermore, as commerce becomes less attractive relative to production--as trade liberalization reduces opportunities for rent-seeking activities--Haitian industrial entrepreneurs can be expected to produce more efficiently for export or to suppl: the exporc assembly industries. Above all, the consumer will benefit from the reduction of economic rents and the fall in prices of basic consumption goods. 80. Haiti's economic prospects, like those of most small countries, also depend heavily on two external factors: market access and international prices for its exports, and the flow of concessional aid. While the first is largely beyond the Government's control, the second is directly liaked to the policies it pursues, as the experience of the early 1980s demonstrated. Table 3 summarizes projections of economic indicators through FY90 for two cases, with and without the Economic Recovery Program; uncertainty about political developments after February 1988 necessarily makes them very tentative after FY88. Table 3: ECONOMIC PROJECTIONS WITH AND WITHOUT RECOVERY PROCRAM (percent) Average Annual Growth Rate Share of CDP at Market Prices (Z at constant prices) (2 at current prices) FY76-81 FYI1-85 FY8-90 FY86-90 FY76 FY81 FY86 FY90 FY90 With Without (est.) With Without Program Pro"ram Program Program Gross Domestic Product 3.4 -0.6 4.6 -0.8 100.0 100.0 ioo.a 100.0 100.0 Agriculture 0.8 -1.6 5.5 -0.7 38.4 33.8 32.1 33.2 32.2 Industry 5.2 0.2 5.1 -1.0 19.4 22.2 23.0 23.4 22.8 Other 4.3 -0.2 3.7 -0.8 42.2 44.0 44.9 43.4 45.0 Consumption 3.9 -1.2 4.4 0.6 93.1 98.3 93.9 93.7 100.1 Gross Domestic Investment 6.3 -3.7 13.9 -3.1 15.8 16.9 12-1 17.0 11.0 Public 9.7 -9.5 15.4 -1.4 9.5 11.9 6.2 9.1 6.0 Private 0.1 -4.8 12.4 -5.0 6.3 5.0 5.9 7.9 5.0 Exports of CNFS 3.2 0.1 4.4 0.9 16.8 16.8 13.8 13.7 1L.6 Coffee 4.9 -0.3 7.1 4.7 5.0 2.2 2.6 2.1 2.3 Other Agricultural Goods .. .. 2.7 0.5 2.5 2.0 1.5 1.4 1.6 Assembly Industry .. .. 6.2 - 2.8 5.4 5.8 5.6 5.3 Imports of GNFS 6.8 -4.4 9.5 5.3 -25.7 -32.0 -20.3 -24.4 -25.7 Gross National Savings -32.2 -7.8 14.5 -69.2 6.1 0.7 4.9 7.2 1.A Balance of Payments Current Account -6.5 -11.8 -4.8 -5.8 -5.6 Public Sector Deficit ad -7.6 -12.9 -5.2 -6.0 -10.0 Debt ServicefGDP Including IMF 1.2 1.7 3.4 1.3 1.6 Excluding IMF 1.2 1.4 2.3 1.0 1.2 Debt ServLcelExports of Goods & NFS Including IMF 6.9 9.9 24.4 11.0 12.5 Excluding IMF 6.9 8.4 16.4 8.2 9.3 a/ Before grants. 12-Dec-86 - 23 - 81. The With Program case assumes improved allocative efficiency and the restoration of confidence among both the private sector and Haiti's external aid donors; details of the projection are included in Annex I. Macroeconomic stabilization would remain effective and GDP could grow at an average annual rate of 4.6 percent in FY86-90. Lower input and consumer prices resulting from the reform of the trade regime would stimulate the economy while domestic industry would restructure in line with the new incentives and would, by the end of the period, start to increase its exports. Subsequent growth would be fueled by new investment, restoring investment's share of GDP to the level of the early 1980s but with a much greater proportion coming from the private sector. Public investment could rise from about six to about nine percent of GDP, financed by increased aid flows, and would become more efficient, being focused on the rehabilitation and expansion of the existing capital stock; the neglect of maintenance would slowly be overcome with the provision of more adequate recurrent funding. By FY90, the public sector deficit before aid could be about six percent of GDP, financed entirely with concessional aid. 82. Export growth and foreign aid would finance the increased imports resulting from increased investment and trade liberalization. The current account deficit would widen slightly from the artificially low FY86 level but could be easily financed by foreign aid. Reserves would begin to increase and should turn positive during FY87 for the first time since FY80. Assembly industry exports could expand by over six percent per annum in FY86-90 due to restored confidence and the new textile agreement with the United States. Coffee production would ride the peak of its agronomic cycle in FY87 and FY88, benefiting also from relatively high world prices, and the reduction and elimination of the coffee export tax would promote replanting and sustained export growth averaging seven percent per annum. 83. The Without Program case, by contrast, would be characterized after FY87 by a return to the ineffective policies and zero growth of the early 1980s. This is not likely in FY87 because of the anticipated coffee crop and the relatively high levels of aid promised at a November 1986 meeting of the Haiti Subgroup of the Caribbean Group for Cooperation in Economic Development. Despite good coffee yields and prices in FY87, agricultural production would well fall because price disincentives would remain and rehabilitation of neglected irrigation systems would not occur. Local industry would continue to stagnate in the small protected domestic market, and assembly industry confidence would likely flag. Public investment and non-wage recurrent spending could very well be crowded out by popular pressure for public sector wage and employment increases. Increased public sector employment would become an obstacle to more effective public administration and would offset restructuring efforts at public enterprises, which would again become a major drain on the economy. The public sector deficit would widen, perhaps to 10 percent of GDP, and external concessional aid would be inadequate to finance it because policy-based external aid, which accounts for some 30 percent of projected aid inflows in the With Program case, would be lost and project aid disbursements would lag. The deficit would be financed by Central Bank credit which would lead anew to financial disequilibrium, inflation and a loss of confidence. Private investment could drop back to the very low level of FY81. While exports would stagnate, imports would continue to increase, likely provoking - 24 - a balance of payments crisis and the continued loss of reserves. Such a collapse of the Economic Recovery Program would not only leave the economy in recession, it would undermine the basis for future growth. 84. Neither case considers the exchange rate. The Government considers it of paramounc importance to maintain the fixed parity of five Gourdes to the U.S. dollar. In the transition to new democratic institutions the Government judges that the preservation of this rate provides a firm anchor for fiscal and monetary policy in the immediate future. Moreover, in the late 1970s this fixed exchange rate regime, together with the pursuit of prudent fiscal and credit policies, created a climate of confidence which led to the establishment of the assembly industry. For several years beginning in 1979, the link with U.S. dollar led the Gourde to appreciate in real effective terms against the currencies of Haiti's main trading partners. This had little effect on Haiti's export performance because the domestic wage structure remained largely market-determined and highly competitive. Recently, as noted, real wages have increased as prices have fallen, without affecting Haiti's international competitiveness. Indeed, aside from protection, the principal obstacle to expanded exports has been market access, a situation now improved with the new U.S. textile agreement. Moreover, the recent depreciation of the dollar against other major currencies has brought about a decline in the real effective value of the Gourde of over 10 percent during the last 12 months, offsetting to an important extent the earlier rise. However, the Government recognizes that its commitment to trade liberalization while maintaining a stable exchange rate implies the maintenance of demand management policies to avoid excessive growth in imports. 85. Environmental Impact. The reduction and ultimate elimination of the coffee export tax should increase the incentives for hill farmers to maintain and replant soil-binding coffee trees and decrease those to grow crops like maize that contribute to erosion. This shift in relative prices will be complemented with several programs, financed with external aid, to improve coffee yields and promote reforestation. 86. Social Impact. The immediate adverse social consequences from the program affect the employees of public enterprises that are shut or restructured, and for some employees of private industrial firms that may not prove viable once protection is reduced. These direct consequences will be more than offset by resulting benefits to Haitians as a whole, especially the very poorest members of the society. 87. Severance pay of about nine months salary has been provided to employees of the ENAOL and USND factories. According to a recent study, less than a dozen of the approximately 200 industrial firms producing for the local market (averaging 90 employees each) may find it difficult to survive the reforms of the trade regime. These are largely firms whose products are not economic in the Haitian context, such as milk processing, metal working and packaging. Technical and financial assistance would be available to facilitate the restructuring of the vast majority of firms that are not at present competitive internationally but have the potential to be so. - 25 - 88. Against these negative social consequences, there are five major social benefits from the Economic Recovery Program. First, real resources equivalent to some two percent of GDP are being released by the reform of public enterprises for investment in productive activities and the creation of productive employment. Second, the reform of these enterprises, the reduction of excise taxes, and the reform of the trade regime have already lowered the cost of living for the Haitian consumer, particularly the poorest, without hurting farmers, especially as prices of basic consumption goods fell; the retail price of vegetable oil has dropped by 40 percent since February 1986 and that of flour by 11 percent. Decreases may also be anticipated in the price of cement and hence in the cost of construction. Lower consumer prices not only improve welfare, especially of the very poorest, they raise real wages and so reduce the pressure to increase wages and help maintain Haiti's international competitiveness. Third, small scale industrial enterprises now stand to benefit from the advantages, such as low tariffs on inputs, that larger firms have enjoyed in the past; the trade reform thus eliminates many monopolies and barriers to entry. Fourth, the program should increase the income of over a million people who depend on coffee as their principal cash crop and should result in the encouragement of new directions for farmers locked into the vicious poverty circle of sugarcane production. Fifth, equity will be improved by the reform of the income tax, especially by stepped-up collection efforts and by the capturing of former private rents through the trade regime reforms and the raising of State land rents toward market levels. PART III - THE PROPOSED OPERATION A. History 89. The proposed operation would support the Government's Economic Recovery Program. It was prepared during an intensive dialogue with the Government since May 1986, based on IDA's economic, public expenditure and agricultural reports. Preparation of some public enterprise and agricultural pricing components benefited greatly from earlier work during 1985 on a possible agricultural sector operation, much of the proposed policy content of which is now included in the present operation. Appraisal was completed in October 1986 and negotiations were concluded on January 28, 1987. The Haitian delegation was led by Mr. Leslie Delatour, Minister of Economy and Finance. Annex III is a supplementary credit data sheet. B. Relationship to the Governmnt's Program 90. The proposed operation would support measures taken by the Government during FY86 and early FY87 and to be implemented during FY87 and early FY88. Actions taken so far reflect understandings reached with the Government during IDA's continuing policy dialogue. Certain components of the Government's program have our approval but are best directly supported - 26 - by others with more specialized monitoring capability, e.g. the IHF in the case of tax reform. The specific actions supported by the proposed credit were reviewed in detail during appraisal and are summarized in Annex V. 91. Actions already taken include macroeconomic stabilization measures and those listed below: Public Expenditure (a) Elimination of wasteful special projects to provide political support to the previous regime, and the ending of reserved budgetary sums for unidentified purposes; (b) Increased recurrent spending on agriculture, education and health; (c) Improvements in the FY86 public investment program, including the elimination of unproductive projects with little or no investment content; (d) Preparation of an improved public investment program for FY87, including (i) a list of 26 projects submitted to donors for possible financing, and (ii) agreement not to use any resources for a possible Cap Haitien airport project other than one third of those accruing to the National Airport Authority from the departure tax. Public Enterprises (e) Closure and formal dissolution of ENAOL and replacement of its import monopoly and of the quota on vegetable oil with a 20 percent tariff; (f) Closure of USND; (g) Policy not to extend any subsidies, privileges or loan guarantees to any private cooperatives or companies that may run the former plants of ENAOL and USND; (h) Audits, management changes and commencement of programs to reduce fixed costs and improve cost competitiveness at La Minoterie and Ciment d'Haiti; (i) Removal of Ciment d'Haiti's import monopolies and of quota and licence requirements to import cement and their replacement with a 33 percent tariff; (j) Removal of La Minoterie's wheat flour import monopoly and replacement of flour import quota with a 50% tariff; (k) Ending of subsidies to public enterprises; (1) New organic law of the Ministry of Finance includes financial monitoring of public enterprises. - 27 - Competition and Industrial Incentives (a) Elimination of all import monopoly rights, all import quotas, and most import licenses and regulations (except for sanitary reasons on used clothes and newspapers and licensing of rice, millet, maize, beans, chicken parts and pork meat parts); (n) Law establishing new tariff structure, ending all specific tariffs and introducing a structure with an average tariff of about 20 percent and a maximum of 40 percent, with four exceptions; (o) Extension of one percent administrative charge to cover all imports except pharmaceuticals and petroleum products. Agriculture (p) Reduction of export tax on coffee from 22 to 10 percent; (q) Elimination of export taxes on sisal and cocoa; and (r) Audit of BNDAI. I 92. In addition to maintaining the above actions in place, the following measures which are expected to be taken during FY87 and early FY88 would, together with continued satisfactory macroeconomic stabilization, be conditions of release of the second tranche of the proposed credit: Public Expenditure (a) Preparation of a satisfactory public investment program for FY88. (b) Improvements in recurrent budgeting for education; (c) Completion of ongoing audits of the Ministry of Finance and the Central Bank; Public Enterprises (d) Implementation of auditors' recommendations and further improvements in cost competitiveness at Ciment d'Haiti and La Minoterie; Competition and Industrial Incentives (e) Elimination of petty taxes on imports and exports; - 28 - Agriculture (f) Elimination of coffee export tax;1/ (g) Dissolution of BNDAI and legal establishment of a new agricultural credit bank; and (h) Preparation and implementation of a program to raise rentals on State lands. C. Associated Techuical Assistance 93. A proposed Technical Assistance Project would complement the proposed operation. Annex V also sets out its proposed relationship to the Government's program. The major component would be the provision of technical assistance through FDI to industrial firms that wish to restructure to meet the new incentives that the reforms to the trade regime will bring about (para. 68). This is already underway with financing from the Project Preparation Facility, and will continue after the Technical Assistance Project through a proposed Industrial Restructuring Project. In addition, the proposed Technical Assistance Project would provide modest technical assistance for macroeconomic management; the programming, control and monitoring of public expenditure, including the wage bill and the public investment program; the financial monitoring of the public enterprises; the restructuring of Ciment d'Haiti; the design and implementation of a trade drawback system; the design and implementation of a system to increase rents on State lands; a study of alternatives to sugarcane production in the area around the USK sugar mill; and a review and development of preliminary policy and investment proposals to arrest the alarming rate of degradation of Haiti's natural environment. In addition to strengthening Haitian institutions, the project's results would also help the Government meet the second tranche conditions of the proposed operation and define programs which could be supported by future IDA lending. D. Benefits and Risks 94. The main benefits of the proposed operation are the financing of imports and the support of the Government's Economic Recovery Program discussed in Part II: the improved allocation of resources, the resumption of sustained economic growth, the improved welfare of the mass of Haitians, including farmers, through lower prices, and the restoration of confidence. 1/ IDA will assess the Government's fiscal situation prior to release of the second tranche to ascertain that this reduction is feasible. If it is not, this condition will be waived. - 29 - 95. There are three principal risks. Chief among them is the implication for fiscal discipline of the relatively fragile political situation; some continued instability is almost inevitable. Popular expectations were that the February 1986 change of regime would lead to a very rapid improvement in living standards. While modest improvements are occurring, there is a risk that unrealistic and hence unfulfilled expectations could translate into unmanageable civil disorder, given the lack of societal structures, particularly in the run-up to the November 1987 elections. This could weaken the fragile confidence that is now beginning to return. Further, the Government might not, under such circumstances, be able to contain expenditure, especially the public sector wage bill, and reform public enterprises as it has until now. 96. The second risk is that influential protected manufacturers might successfully resist the full introduction of the trade regime reforms. This is not very likely as the existence of contraband means that they already face increased competition, and less than a dozen firms are likely to suffer severely from the reforms. It should be directly mitigated also by the technical and financial assistance that will be made available for industrial restructuring, by tbe existence of a progressive element among industrialists which is vocal in its support for reform, and by consumer support for lower prices. The third risk is that the policy reforms might be reversed by the new Government that should take office in February 1988. 97. These risks should not be exaggerated, however. The Government has so far shown itself resolutely determined to reform economic policies, and the Haitian people expect this. Moreover, the risks should be reduced through tranching, through the proposed provision of technical assistance, and through broad support and close monitoring of the Government's program by the IMF and the donor community as well as by IDA. E. Credit Size and Trancing 98. The proposed credit of SDR 32.8 million (US$40.0 million) would be disbursed in two equal tranches, the first upon effectiveness in April 1987. The specific conditions for release of the second tranche are listed in paragraph 92. A second tranche review is forecast no later than September 30, 1987 with tranche release no later than October 31, 1987. Each tranche would cover about five percent of Haiti's merchandise imports in the relevant fiscal year. F. Diubursemeut, Procurement, Accounts and Auditing 99. Disbursement. The proposed credit would finance goods imported by the private and public sectors into Haiti from eligible countries and - 30 - territories. Excluded would be goods financed by other sources and a specific list including military and para-military items, alcoholic beverages, tobacco, precious stones and jewelry, gold and nuclear reactors and parts. Proceeds of the credit would be disbursed based on satisfactory evidence of (a) physical entry of the imports into the country; (b) actual payment in foreign exchange for such imports; and (c) evidence that the quantities imported match the invoiced amount. This evidence would be compiled by an independent inspection company already in place in Haiti (para. 64). 100. Since retroactive financing to November 1, 1986 of SDR 16.4 million (US$20.0 million) corresponding to the first tranche is proposed, a revolving fund would not be necessary as claims would be made on a reimbursement basis for payments already made. Only contracts with a minimum value of US$10,000 equivalent would be eligible for financing. Disbursements would be made on the basis of Statements of Expenditure (SOEs), duly certified by a specialized inspection company satisfactory to IDA, and authorized by the borrower, responsible for the submission of withdrawal applications to IDA. A minimum value in US dollars equivalent will be established for SOEs submitted. Detailed documentation evidencing expenditures would be retained by the borrower and made readily available for inspection by IDA staff and the required audit process. 101. Procurement. Procurement of general imports by both the private and the public sectors would use international competitive bidding in accordance with IDA guidelines. Exceptions would be for contracts valued below US$3.0 million and for petroleum products. Procurement of imports by the private sector in the case of contracts valued below US$3.0 million would be made following regular commercial practices. Procurement of imports by the public sector in the case of contracts valued below US$3.0 million would be on the basis of comparisons of written quotations solicted from a list of three suppliers eligible under IDA guidelines. Procurement of petroleum products would be carried out either under bilateral arrangements based on prevailing market prices, or on the spot market through direct negotiations in accordance with local practices. 102. Accounts and Auditing. The Ministry of the Economy and Finance would maintain records of all transactions under the credit in accordance with sound accounting practices. Not later than four months after the end of each taitian fiscal year, all accounts would be audited by independent auditors acceptable to IDA. Audit reports would include a separate opinion with regard to the claims submitted to IDA on the basis of the SOEs and state whether such claims have been effected in accordance with the credit agreement. G. Monitoring 103. The progress of the Government's Economic Recovery Program, of the measures supported by the proposed operation, and of the linked Technical Assistance Project would be closely monitored through regular supervision, including continued close cooperation with the IMF and with other aid donors. Specific supervision would determine compliance with the conditions for release of the second tranche. - 31 - PART IV - BAW GROUP OPERATIONS AND STRATGY 104. Operations. Since beginning operations in Haiti in 1956, the Bank Group has extended one loan and 23 credits totalling US$ 279.0 million equivalent and IFC has made one investment (US$1.5 million). As of September 30, 1986, the total of credits outstanding was US$271.4 million equivalent, of which US$62.0 million equivalent was undisbursed. Annex II summarizes Bank Group operations in Haiti as of September 30, 1986. Since then, a US$20.0 million equivalent credit for a transport project has also been extended. The Bank Group has financed projects in transport (7), power (4), education (4), rural development (2), agricultural rehabilitation (1), industrial credit (1), ports (1), water supply (1) and urban development (1). A pilot project in forestry is also underway. Some of these projects have enjoyed cofinancing or parallel financing from the aid agencies of Canada, France, Germany, and Switzerland. IFC's investment is for an integrated poultry project. 105. Overall, project implementation and disbursement performance are satisfactory. Bowever, a lack of counterpart funds has in the past delayed IDA disbursements. The establishment of revolving funds in recent projects has improved this. IDA is in addition carefully monitoring Haiti's absorptive capacity for external assistance, with particular attention to projects' local cost counterpart financing requirements. 106. The Bank also chairs the Caribbean Group for Cooperation in Economic Development, whose Haiti Subgroup provides a framework for cooperation among donors. 107. Straty. Within the last two years, IDA has prepared an economic memorandum, an agricultural sector study and a public expenditure review. These documents identify the major obstacles to economic recovery and the specific actions needed to achieve and sustain financial stabilization, reduce resource losses, increase agricultural and industrial production and exports, save foreign exchange, meet the infrastructure and training needs of agriculture and industry, increase the efficiency of public institutions and, for the longer term, improve basic education. A population, health and nutrition sector report is currently under preparation. 108. The present Government's Economic Recovery Program, described in Part II, follows closely the principal recommendations of the three recent reports, all of which were submitted to the new authorities. Consequently, IDA's program, in close collaboration with the IMF and with other donors through the CGCED, aims at supporting the Government's Economic Recovery Program with both policy-based operations and investment project credits. 109. Indeed, since May 1986, IDA has been involved in an intensive policy dialogue with the Haitian authorities which has led to four operations now underway or proposed to provide specific support for the Economic Recovery Program: - 32 - (a) The Government prepared jointly with IMF and IDA staff a Policy Framework Paper to underpin an IMF Structural Adjustment Facility Arrangement that was approved by the Executive Board of the Fund in December 1986. The paper was discussed by IDA's Executive Directors meeting as the Committee of the Whole on November 18, 1986. (b) The proposed Economic Recovery Operation. (c) The proposed Technical Assistance Project. (d) A proposed Industrial Restructuring Project, scheduled for Board presentation in IDA FY88, which would provide financial and technical assistance to industrial firms which need to restructure or invest to operate under the new set of incentives that the reforms to the trade regime described in Part II will establish. 110. IDA would maintain an active policy dialogue with the Government through monitoring the proposed Economic Recovery Operation and supervising the proposed Technical Assistance Project. Further policy-based operations are envisaged as long as an appropriate policy framework remains in place. Future investment credits now under preparation include electric power and water supply projects. 111. IDA's share in Haiti's external debt disbursed and outstanding is estimated at 38 percent as of September 30, 1986. This is high only because grants constitute a very large share of the external assistance Haiti has received. IDA's share of external public debt service was about five percent in FY86. PART V - RELATIONS WITH THE INf AND ITH OTHER DONORS 112. IEW. Haiti has been a member of the IMF since September 1953 under Article VIII status. Its current quota is SDR 44.1 million. In December 1986 the Executive Board of the Fund approved a three-year structural adjustment arrangement, and the first annual arrangement thereunder, under the Structural Adjustment Facility. The macroeconomic stabilization and structural reform program that this supports was described in Part II; the IMF will monitor particularly closely the implementation of the stabilization program. IDA and IMF staff will continue their close cooperation while monitoring the Government's Economic Recovery Program. There are no ongoing Stand-by arrangements; the last was approved in November 1982. Haiti made a purchase under the Compensatory Financing Facility in 1981. As of December 31, 1986, total Fund credit outstanding was SDR 54.7 million, or 124 percent of quota, and Trust Fund loan disbursements totalled SDR 18.6 million, of which SDR 9.3 million is outstanding. A resident representative has been stationed in Port-au-Prince since 1972. The last Article IV consultations were held during September 1986 and were concluded in December 1986. An IMF expert on bank supervision - 33 - and credit control is presently on assignment at the Central Bank; a tax administration adviser has been assigned since early 1937 to assist the Government to implement the income tax and customs tariff reforms. 113. Other Donors. Many public and private aid agencies are active in Haiti. With the proposed credit, IDA disbursements would amount to about 25 percent of total aid flows to Haiti in FY87. Among the most important agencies are the Inter-American Development Bank, the United States (about 50 percent of disbursements), France, the Federal Republic of Germany, Japan, Canada, and the United Nations Development Programme (UNDP). All are members of the Haiti donors Subgroup of the Caribbean Group for Cooperation in Economic Development. At its meeting in November 1986, donors announced their support for the Government's Economic Recovery Program and also substantial increases in their intended levels of financial support for Haiti. In addition, the Government presented a list of 26 projects proposed for external financing, drawn up with the assistance of UNDP and IDA staff. This list also formed the basis of the UN Secretary-General's appeal for Haiti in October 1986. Direct donor assistance for the Government's Economic Recovery Program includes the United States' Economic Support Fund grants, which are policy-based operations supporting many of the same reforms as the INF Structural Adjustment Facility Arrangement and the proposed IDA Economic Recovery Operation. Other support is detailed in Annex V. PART VI - CMM OM 114. I am satisfied that the proposed Development Credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve it. Barber B. Conable President Attachments Washington, D. C. February 9, 1987 лNNFК Т - -i4 - РяRе ]. uf 3 11AIT1 i F:{X1Nl1M1C 1ИП]САУОИI: АNП P1101SC710MR М1иии1 Av■rwRв Апnивl Пruvth Яв1• t:hu• пГ СПР .1 Mnk.f 1'Г1пм ((1Вlэ m1111mi) (>< rf лппвГwlи pr1r..) (К .1 rurrwlы 1�г1пв,) NYBn >''У7Ь-й1 вУ81-Нп РУпы vб КПо УУП1 Уriц� PY��U (вв1 , ) (1�гиlви.w,I) (вл1 � 1 {l�га.1 • ) Nв11.ни! А••лиипСв дг�iлл Uoiмвtln 1'пЧl+гг1 7141.0 1.4 •П.б 4,Г 1ri��.0 UV,1 11111,11 11111.П 1+и11гвr1 Тrхв■ 111.У б.р -У.О 4,Г, 4.П 4.? 4�U 4.Ч А1tГlг11111Ч• г�П9..'. 10П.П •1.M1 S.; 1ti.4 17.М 92.1 1;'.1 lnды■rry и0i.8 П.2 П.т �.1 1Ч.4 '!^..2 77.и 71.п qlhм• П78.1 а.1 о.1 У.г, '1и.7 w..1 40.ч аи.�. CoмwniHlиn 2023.6 1,V -1.2 4.Ь V7.1 ц11.� ч7.ч ц].и Grure Uпп.■t1c lnvwetrwnt ?.1и.7 Ь�7 -з.7 1].д )}.8 1г.и 1J.1 1"1..1 Rxpuct■ oI CNFS 291.1 .1,: П.1 4: 1R.R 16.Н 17.Н 1:1.ri 7триг[в of CNFS 4зз.4 б.х -4.4 9.S •23.' -з2.0 �-70.7 •'1U.1 Сrовв Nа[l.ом! SвУlпав 1П1.4 -.17.т -7.Н 14.� 6.1 О.! 4,v !„ 1!xtwrn■! Trвdw Mвrchandlxw Export■ 212.] .. .. ].v 12.7 1П.7 9.9 Ч.1 culfwa 54.9 .. .. 7.1 3.0 2.2 2.г� 2.1 Othwr A�rlculturвl Expocts 77.2 .. .. 2.7 2.5 2.D 1.} ].ь АsаатЫр Induв[r� 12Ь.2 .. .. Ь.2 2.В 5.а 5.8 5.6 Мlпвrвlа - .. .. - а.4 1.1 - Иггсhвnдlав Ierpartв 245.1 .. .. 9.Е -18,7 -21.4 -11.б -1з.0 РсLси 1гУВ1 FУВт FYBy FYBi (<УВ5 FY86 FY87 FY9B FYtl9 FY9U (ost.) ---------(Р[о)e�ted)-'---`---- CDP Dв21а[ог (1986�100) 67.0 69.7 75.9 Вь.Э В8.8 100.0 104.D 108.2 :12.5 117.U Сопвитег Рг1ев Упдвх 67.0 72.3 78.6 84.9 92.1 109.0 {198Ь�100) Ехрогг Pr1cw Indвx (19В6�100) 84.2 80.8 В7.0 91.1 92.9 100.0 9В.6 94.2 ]U1.7 10Э.4 iaport Pr1ca гпа.х (19вь-1о0у ав.в 91.9 9з.е 1оо.1 101.ь 1оо.о 9Ь.1 9s.1 9s.x 9ь.7 Твrтв oi iгадв Indrx (19В6�100) 96.9 87.9 92.8 91.0 91.6 100.0 102.U 1а4.3 106.i 109.2 --------Pubilc Sвcto r----- -----Свпtгвl Covarмиnt---- ------А■ Х of GDP----- ------А 1 oI GDP----- РиЫ lc Flnвnce FУВЬ FYBO FYB6 NY9D FУ8б FYBD FY86 FY90 (ввL.} (ввt.) (рго]_} (ев[.) (aat.) (рго).у Curcent Авевlрtв а1 19В9.1 14.9 18.5 14.В 1129.0 4..'. 10.5 11.5 Currвnt ExpвndLture 1885.0 14.7 17.6 11.7 1297.0 10.1 11,5 9.4 сиггеаг surPlu, 1об.1 0.2 1.а з.1 -�оа.а -а.б •_0 т.1 Capltal ExpandL[итs 661.1 8.2 6.2 4.1 Sëi.4 6.3 •.9 8.I Forelsn Fsn.nctп� Ь! s9a.2 3.о 5.s б.П 5гн.s 4.2 а.9 Ь.о =1 Central Cowrnlnвnt Current Rauiptв 1лсlидеs tzanafers fгarr риЫ1с antarprlses. bJ Includes Sогвlап sranc,. 09-Dвс-86 HAITI: ECOSOMIC INDICATORS AND PROJECTIONS (percent) PopulatLow 5.4 Million (1985) GRP per Capita: US$33o (1985, Atlas methodcloSy) FYCC FY81 FM P ya 3 TY94 FY85 FY66 YY87 FY" IrY89 TY90 (est.) --------- (projected) ----------- GDP Growth Rate 7.6 -2.8 -3.4 0.8 0.3 1.1 -l.L 4.5 3.0 4.5 4 5 GDY Growth Rate 7.9 -3,0 -3.4 2.0 -o-2 1.3 0.2 4.9 5.2 4 .,; 4 . 9 COY per capita Growth Rate 6.4 -4.4 -6.8 a.2 -1.9 -0.5 -116 3.0 3.4 7.9 3.0 Consumption per capita Growth Rate 10.9 -1.9 -11.1 0.4 -3.9 0.3 -0.2 3.1 2.3 1. Consumer Price Growth 19.0 8.2 8.2 8.4 8.0 $14 9.5 4.0 4.0 A.C 4.0 Debt (including IMF) Debt Service (US$ MLMOTI) 20.5 24.5 Is.% 18.7 24.4 3E.7 72.5 62.9 552.7 43.5 39.9 Debt ServLce/Exports of G&NFS 6.5 9.9 fi. ff 6.6 7.7 !2.7 24.4 20.5 l(.3 22.6 11.0 Debt ServLce/GDP 2.4 1.7 1.3 1.1 1.3 2.-1 3.4 2.7 2.1 1.6 1.3 DODfGDP 18.2 27.1 31.3 32.3 31.9 31.5 29.4 29.2 28.3 28.1 27.5 Debt (excluding IMF) Debt Service (US$ million) 20.5 20.8 15.0 14.1 17.6 20.2 .49.7 35.0 29.2 28.8 30 0 1 Debt ServIce/Exports of G&NFs 6.5 8.4 3.1 4.9 5.6 6.6 16.4 11.4 9.0 8.4 9.2 W Debt ServiceMP 2.4 1.4 1.0 0.9 1.0 1.0 2.3 1.5 1.1 1.0 1.0 Gross Domestic InvestmentiMP 16.9 15.9 16.6 16.3 15.9 14.6 12.1 14.6 16.3 17.0 17.0 Gross Domestic SavLngs1GDP 8.1 1.7 6.1 6.0 6.9 6.0 5.6 5.6 6.2 7.3 7.6 Gross National S&vLngs/GDP 7.0 0.7 5.0 4.5 5.8 5.3 4.9 5.0 5.7 6.8 7.2 Public InvestmentiGDP 9.2 11.9 9.8 20.4 12.2 8.5 6.2 8.0 9.1 9.1 9.1 Public S&vLngs/GDP 0.2 -0.9 0.6 1.2 0.6 1.0 1.0 1.2 1.9 2.3 3.1 Private InvestmentfGDP 8.3 5.0 6.8 5.9 4.7 6.1 5.9 6.5 7.2 7.9 7.9 Pcivate SavirLgs/GDP 6.8 1.7 4.4 3.4 5.2 4.2 4.0 3.8 3.8 4.5 4.1 Ratio 99 Public to Private Investment 0.9 2.4 1.5 1.8 2.4 1.4 1.0 1.2 1.3 2.2 1.2 Government RevenusIODP 9.5 8.9 10.1 10.4 10.1 11.6 10.5 10.2 10.9 11.5 11.5 Gavernment ExpendLture/GDP 16.6 21.2 20.4 18.7 19.9 19.2 16.5 16.4 17.1 17.5 17.5 Public Sector Deficit/GDP al -7.9 -12.9 -9.2 -9.2 -10.0 -7.5 -5.2 -6.8 -7.2 -6.8 -6.0 Exports GLW8 Growth Rate bt 66.6 -42.1 22.7 -9.5 6.2 -6.0 -9.2 4.% 5.9 3.8 3.9 Exports of G&NFSIGDP 21.6 16.8 19.7 17.5 17.5 15.7 13.8 13.9 13.9 13.8 13.7 Imports of GLNFS Growth Rate bi 60.0 -24.0 -11.4 0.5 -0.9 -4.0 -5.7 29.5 11.1 3.7 4.5 Id Impacts of GLNFS1GDP 30.5 32.0 29.9 27.9 26.5 24.2 20.3 23.2 24.5 24.4 24.4 0 Current Account (US$ milLion) -93.5 -174.7 -118.1 -151.6 -139.0 -130.7 -102.2 -i53.1 -179.3 -177.0 -173-8 QQ z CD Current AccountfGDP -6.4 -11.8 -8.0 -9.3 -7.7 -6.9 -4.9 -6.6 -7.0 -6.4 -5.8 To%= of Trade Index (1986-100) 99.8 96.9 87.9 92.8 91.0 91.6 100.0 102.6 204.3 106.4 109.2 0 a/ Before grants. b/ In volume terms. 09-Dec-86 HAITI: BALANCE OF PAYMENTS, EXTERNAL CAPITAL AND DEBT (US$ million at current prices) FY80 FY81 FY82 FY83 FY84 FY85 FY86 FY87 FY88 fY99 FY90 (est.) ---------(projected)----------- Current Account Balance -93.5 -174.7 -118.1 -151.6 -139.0 -133.7 -105.3 -154 -179 -177 -176 Exports of Goods, NFS 316.1 248.6 293.0 285.5 317.3 302.4 294.0 303 320 340 360 of whichs coffee 90.9 33.1 35.9 52.5 54.0 48.0 55.0 54 56 59 63 Issambly Industry 77.2 79.6 98.9 100.4 124.7 126.6 121.0 130 141 153 165 Imports of Goods, NFS -445.7 -473.4 -444.0 -455.1 -481.5 -469.6 -435.4 -498 -548 -567 -590 Factor Incom -15.9 -14.7 -16.8 -24.5 -19.5 -14.6 -14.0 -14 -13 -13 -13 Net Private Transfers 52.0 44.5 49.7 42.5 45.0 45.1 50.1 54 59 63 66 CapLtal Account Balance 80.3 119.6 104.6 139.6 118.4 110.5 128.4 276 258 254 247 ----------------------- Net Official Transfers (Grants) 33.4 66.1 69.2 69.3 78.2 67.3 117.2 163 155 153 153 Official Capital MET 65.2 102.0 30.3 75.9 55.3 22.7 22.7 113 103 101 94 ' of which: Amortization -11.5 -10.7 -16.1 -13.6 -13.8 -5.7 -6.8 23 17 17 18 Other Official Capital 3.2 1.7 - - -8.1 13.5 -10.0 - - - - Private Capital & Errors & Omissions -21.5 -50.2 5.1 -5.6 -6.8 -4.1 -1.5 - - - - Overall Balance -13.2 -55.1 -123.5 -12.0 -20.4 -14.2 23.1 122 79 77 71 Net 1N Purchases (decrease - -) .. 17.5 12.1 22.3 21.8 -9.4 -18.8 -23 -20 -13 -9 Changes in Arrears (decrease - -) - 20.5 0.4 -12.2 -6.3 9.6 5.0 -15 - - - Other Reserve Changes (increase- *) 13.2 17.1 1.0 1.9 4.9 14.1 -9.3 -38 -25 -31 -27 Official Reserve Level (net) 32.5 -2.0 -20.8 -58.0 -74.0 -92.9 -75.9 60 85 115 142 Off. Res, as Months' Importa (gross) -1.1 -0.5 -1.0 -0.7 -0.7 -0.5 -0.6 1.8 1.6 1.1 0.7 Exchange Rate (since 1919) Public External Debt (US$ a.) Public Debt Service Ratio (M) IDA Leading, Sept. 30, 1986 (US$ m.) US$ 1.00 - G 5.00 9j30186: 631 (IncLuding IMF) FY86: 24.7 (Including IMF) OustandLng and Disbursed 209.3 G 1.00 - US$ 0.20 555 (Excluding IMF) 16.6 (Excluding IMF) UndLsbursed 62.0 outstanding nct. Undis. bt 271.4 aI Including IMF. b/ Total does not equal sum because of SDR exchange rate changes. 29-Oct-86 - 37 - ANNEX II Page 1 of 2 THE STATUS OF RANK GROUP OPERATIONS IN HAITI A. STATENEET OF ZAMK I.AMS AMD IDA CREDITS a (as of September 30, 1986) Amount in US$ million (Less cancellation) Credit Fiscal Number Year Borrower Purpose Bank IDA Undisbursed One loan and 12 credits have been fully disbursed 2.6 124.2 1131-HA L981 Republic of Haiti Industrial Credit 7.0 0.4 1220-HRA 1982 Republic of Haiti Highways VI 14.0 3.3 1257-HA 1982 Republic of Haiti Forestry 4.0 2.5 1281-iHA 1982 Republic of Haiti Power III 26.0 1.4 1305-RA 1983 Republic of Haiti Education III 9.0 b 1.4 1338-HA 1983 Republic of Haiti Urban Development 21.0 _/ 14.7 1410-HA 1984 Republic of Haiti Rural Development II 19.1 9.5 1527-HA 1985 Republic of Haiti Fourth Power 22.1 18.2 1592-RA 1985 Republic of Haiti Fourth Education and Training 10.0 10.6 TOTAL 2.6 256.4 of which has been repaid 2.6 TOTAL now held by Bank and IDA 271.4ff Amount sold 0.6 of which has been repaid 0.6 TOTAL undisburscd 62.0 a/ In addition, a credit of US$20.0 million for a Seventh Transport Project was approved by the Board on February 3, 1987. b/ Includes US$13.0 million Special Fund. c/ Difference due to SDR exchange rate. - 38 - ANNEX II Page 2 of 2 HAITI B. STATENUKT OF IMC INVKSTMETS (as of September 30, 1986) Investment Fiscal Type of Number Year Obligor Business Loan Equity Total ----US$ Million-- 620-RA 1982 Promoteurs et Integrated 1.35 0.15 1.50 Investisseurs Poultry Associes, S. A. Total Gross Commitments 1.35 0.15 1.50 Less cancellations, repayment, and sales 0.06 - 0.06 Total commitments now held by IFC 1.29 0.15 1.44 Total Undisbursed 0.75 0.04 0.79 - 39 - ANNEX III RAITI ECOOKIC RECOVERY OPERATION SUPPLEIENRARY CREDIT DMT SHEET I. TIETABLE OF KEY EVENTS (a) Preparation: Initial request for IDA credit: May 1986 Identification mission: July 1986 IMF-IDA Policy Framework mission: September 1986 (b) Appraisal mission: September/October 1986 (c) Negotiations: January 1987 (d) Planned effectiveness: April 1987 II. SPECIAL IDA INPI.ETATION ACTION None. III. COM ONS OF DISBURSEMW OF THE SECOND TRANCHE Conditions of release of the second tranche of the proposed credit would include the continued implementation of actions already taken (para. 91), continued satisfactory macroeconomic stabilization, and the actions discussed in para. 92. -40 - ANNEX IV Page 1 of 7 GOVERNMENT'S LETTER OF RECOVERY POLICY REPUBLIOUE [FHAITI MINISTERE DE LECONOMIE ET DES FINANCES No..E.- 141 PORT-AU-PRINCE,LE. .9.1.i.1. Mr. Barber B. Conable President International Development Association Washington, D.C. U.S.A. Dear Mr. Conable: The Government of Haiti requests an Economic Recovery Credit from the International Development Association .to support its program of development policy reforms detailed in this letter. The provisional Government which came to power in February 1986 has scheduled elections for November 1987, with the then elected Government taking office in February 1988. The present Government is reforming public finances and development policies to stimulate economic recovery, to hand over a viable, growing economy to its successor. It intends therefore to maintain in force all actions so far taken and to be taken. The Government's program seeks to promote economic expansion through export-led growth and improved agricultural performance. These objectives are being fostered both directly by the removal of impediments to efficient resource allocation and indirectly by the impetus to higher capital inflows that such policies should generate. Central to our strategy is the need to rebuild the confidence of Haitian workers, farmers and investors as well as the external aid donors. Macro-economic management and stabilization Our medium-term macro-economic objectives are (a) to generate a real GDP growth rate of at least 4.5% per year; (b) to reduce inflation to the level of our main trading partners, currently estimated at some 4% per year: and (c) to achieve an overall balance of payments surplus equivalent to almost 1.5% of GDP in FY87 and close to 1% in each of FY88 and FY89, so as to permit the strengthening of official net international reserves and some replenishment of the Central Bank's gross foreign assets. ANNEX IV - 41 - Page 2 of 7 After February 1986, the Government took drastic steps during the rest of FY86 to redress the budgetary position. Wasteful current expenditures and unjustified development projects, including special projects of the former regime, were eliminated, and resources were reallocated to agriculture, education, health and the armed forces. The cut in current expenditure amounted to more than 3% of GDP on an annual basis, of which about half was reallocated to priority sectors in the form of wage increases and sorely needed non-wage expenditure. The other half was used to reduce excise taxes on basic consumption items such as petroleum products, sugar and flour. Severe pruning of the FY86 development program resulted in a 60% implementation rate compared to original expenditure forecasts. In total, current and development expenditure came to only 17% of GDP compared to the 23% foreseen in the previous Government's budget estimates. As a result, Haiti's financial position improved substantially. In FY86, the public sector made net repayments to the domestic banking system and reduced its foreign commercial debt. The balance of payments recorded a substantial overall surplus of US$23 million compared to a US$14 million deficit the previous year. Prices dropped by 4% from February to September 1986, the end of the fiscal year. The discount on the Gourde on the parallel market for foreign exchange declined from over 20% to 5-7%. However, the economy remained in recession. The Government continues to exercise fiscal restraint in FY87. As in FY86, its main objective is no Central Bank financing of the public sector. In the FY87 budget, Treasury receipts and expenditures are both set at G1290 million and the public investment program amounts to G1140 million. Assuming an 80% implementation rate of this program, which would be a significant improvement on the past, overall public expenditure should recover to about 20% of GDP with corresponding foreign exchange requirements covered by external aid. Estimated Treasury receipts of G1290 million include agreed upon disbursements from the IMF's Structural Adjustment Facility and USAID's Economic Support Fund. Treasury Gourde expenditures include a GOO million transfer to the public investment program, which is financed in its entirety by this transfer, the internal cash generation of public enterprises and disbursements of concessional external aid. The overall public sector deficit (before aid) will be held to about 7% of GDP in FY87 and beyond, well below the average level of recent years. This deficit will be more than offset by external aid, enabling the non-financial public sector as a whole to reduce its indebtedness to the domestic banking system and foreign commercial creditors. This in turn will permit an expansion in credit to the private sector without risking either our inflation or balance of payments objectives. Any increase in expenditure above these levels will be met by a corresponding and equal increase in public receipts from nonbank sources; similarly, any shortfall in receipts will be offset by an equal decrease in expenditure so that the level of nonconcessional debt can still be reduced. ANNEX IV -42 - Page 3 of 7 Tax Reform The Government is continuing in FY87 to implement the program of tax reform begun in FY86, which aims at irreversibly improving the equity of the tax system as well as at increasing its elasticity and buoyancy. The Government believes that by broadening the tax base and lowering rates the current high levels of evasion can be reduced. In FY86 an:illary taxes on wages were eliminated and a variable excise tax was imposed on petroleum imports. Effective in early FY87, the export tax on coffee was reduced to 10% and other export taxes were eliminated, a new corporate and personal income tax decree was enacted simplifying the rate structure., clarifying the tax base and strengthening collection procedures. Administrative procedures will be improved in particular by facilitating cross-checks between income, value added and trade taxes. Starting in FY87, the value added tax will be more stringently enforced in order to reverse the recent slowdown in collection. In the long run, this tax should replace most excise taxes, already a number of excise taxes have been eliminated or reduced. Steps are also being taken to improve both tax and customs revenue collection. Public Expenditure The budgeting and control of current Treasury expenditure are being reinforced progressively, as competent staff can be assigned to these tasks. Significant diversions of public funds to fraudulent or wasteful uses have been stopped, the effort in this direction will be firmly maintained. At the same time the systematic reallocation of resources to priority areas is being pursued. The recurrent needs of past development projects are being more adequately met than in the past. A start has been made to reduce the excessive share of wages in current expenditure. Fraud in wage payments is being reduced with significant savings for the Treasury. The Government will in FY87 limit staff levels and wage increases in ministries and other public bodies. In addition, the Government-is carrying out an extensive series of audits of ministries, public agencies and public enterprises, including of the Ministry of Finance and the Central Bank. Following the establishment of the Commissariat a la Promotion Nationale et a 1'Administration Publique in August 1986, public investment is being both improved and expanded. Our objective is to ensure that priority ongoing projects are completed, that counterpart fund requirements and the recurrent needs of development projects are adequately provided for, and, more generally, to improve the quality of public investments. Allocations to agricultural development projects favor irrigation rehabilitation (including where necessary protection of associated watersheds), feeder roads and input delivery. Soil conservation and reforestation are maintained at financially sustainable levels and increasingly linked to treecrop rehabilitation or expansion. For industry, public investments are concentrated on restructuring the public industrial enterprises which remain and, ANNEX IV - 43 - Page 4 of 7 especially, on improving the physical infrastructure and public utilities serving private industries. Development expenditure in social sectors is concentrated heavily on education, training, health and urban development. Less useful social projects have been curtailed drastically. On the financing side, Treasury transfers are almost exclusively devoted to meeting the counterpart fund requirements of foreign aided projects. Should the proposed Cap Haitien airport project go ahead, we will finance it only out of the proceeds of one-third of the passenger departure tax that accrues to the National Airport Authority and will not apply any foreign grants or incur any external indebtedness to its construction. All other new projects are being financed exclusively with concessional external aid. We intend to maintain this pattern of public investment expenditure in the future, in close consultation with IDA and the members of the Caribbean Group for Cooperation in Economic Development. The Government, with assistance from UNDP and IDA, prepared a list of 26 small new projects, the total cost estimated at US$43 million. These projects, which concentrate on productive employment generation in the short term, were submitted to aid donors at the November 1986 meeting of the Haiti Subgroup of the Caribbean Group for Cooperation in Economic Development. They will be included in the public development program as and when they receive firm financing commitments from donors. Public Enterprises The Government is fully cognizant of the need to reverse previous policies toward public enterprises which led to substantial losses, not only in terms of fiscal revenue but also of real economic resources, amounting to almost 4 percent of GDP each year from FY80-85. Yet the economy declined over this period. No new public industrial enterprises will be established and investments at existing ones will be confined to those necessary for restructuring. The Government will continue its policy of not subsidizing public enterprises. To stem losses, the Government has adopted a policy of market liberalization, closures and restructuring of the public industrial enterprises and is taking measures to improve financial monitoring and performance evaluation of all public enterprises. In accordance with this new policy, all import monopolies and licensing requirements affecting all products except sugar imported or manufactured by public enterprises have been removed and import tariffs placed on the products concerned. Most public enterprises are also being externally audited. The vegetable oil mill, ENAOL, and one of the two publicly owned sugar mills, USND, ceased operating in July 1986; neither will be operated as a public enterprise. In both cases, the employees were given the option of forming a private cooperative to operate the plants or to accept an indemnity. At USND, all workers opted for an indemnity. This plant will therefore be offered for sale or lease to the private sector; it will not operete during FY87. Alternative arrangements have ANNEX IV Page 5 of 7 been made for cane growers to supply one of the two private sector mills. At the same time, alternatives to cane production in the Leogane plain are being developed and encouraged. ENAOL has been dissolved and a cooperative formed by about 30 percent of the previous employees to run the plant. No subsidies, public credit, loans, loan guarantees, protection or market privileges of any kind will be extended to any cooperative or private enterprise which may run either the former ENAOL or USND plants. At Ciment d'Haiti, a cement factory, and La Minoterie, a flour mill, major restructuring measures will be undertaken, in addition to the market reforms, in order to make these two enterprises more efficient and competitive. During FY87, these will include substantial reductions in excess staff and wages, especially in the upper echelons, regular external auditing and, in the case of La Minoterie, improvements in accounting and management procedures following the key recommendations of a recent external audit. During FY87, the Government will in addition conduct external audits of TELECO, the telecommunications company, and of USN, the second public sugar mill. Alternatives to sugar cane production in the area surrounding the latter will also be examined. Trade Regime Starting more than fifteen years ago, import substitution policies, balance of payments constraints and fiscal revenue requirements progressively led to high taxes and barriers to trade and to discretionary fiscal incentives for investment. Protection for local producers made exporting relatively less attractive; measures included high import tariffs, quantitative restrictions on imports, import licensing, import monopolies and prohibitions and price controls. As discussed below, taxes on agricultural exports further deterred exporting. In addition to these consequences for production, domestic prices were kept high, placing a heavy burden on the Haitian consumer. The Government is reversing these trends. The narrowness of the local market means that industrial expansion can only occur through exporting and through increased demand as a result of lower domestic prices. Both imply increased efficiency and competition. The Government has therefore adopted a major program to reform the trade regime and stimulate efficiency through a revised incentive structure. The objective is to reduce the average level of effective protection below 40%, harmonize its distribution across sectors, and lead to a more stable and neutral environment which will stimulate investment in efficient production rather than rent-seeking activities. The local cost of goods will be reduced in the process, as it will through a thorough revision of tariffs on products not produced in Haiti. ANNEX IV - 45 - Page 6 of 7 To reach these objectives the Government is progressively eliminating all export taxes, has ended all but one import monopoly (sugar), has abrogated completely the law imposing import quotas and licensing requirements for industrial products, has limited import prohibitions to only two products for sanitary reasons, has eliminated quotas for all products but retained import licensing for seven agricultural products, and has started to implement a major tariff reform to replace all specific tariffs with ad valorem oxies and to reduce the levels of nominal tariffs. Tariffs range between 0 and 40%, the majority between 10 and 30%. Medical supplies and agricultural imports are exempt. The average level of effective protection has been drastically reduced from over 100 to about 40%. The new tariff will be fully in effect by December 1987. In addition to these measures, the Government is reviewing the tariff structure for imports from non-GATT countries and has extended the 1% minimum administrative charge to all imports except pharmaceuticals and petroleum. During FY87, we shall also eliminate petty taxes on both imports and exports and revise the Investment Code to harmonize it with the above measures. We intend to introduce an endorsable drawback system to place production for both the local and export markets on the same footing. We further intend to improve the operation of the Customs. The Government intends to provide financial and technical assistance to industrial enterprises restructuring in viable ways to operate in the new business environment. Finally export promotion measures are being stepped up. We have also recently negotiated a significant expansion in Haiti's quotas for imports of textiles into the United States which should greatly benefit our textile industry. Agriculture The agricultural sector, which contains the vast majority of our people, is in a state of crisis. The volume of agricultural production has increased little, if at all, in recent years, while the real value of agricultural exports has declined sharply. Production per capita has also fallen and the Government is increasingly concerned about deteriorating levels of nutrition for some segments of the population. At the same time, increasing population pressure on the land, insecure land tenure and felling of forests for fuel and construction, have resulted in soil erosion and environmental degradation of catastrophic proportions. The causes of these discouraging phenomena are rooted in history and are socio-economically complex. They point to basic structural distortions and to an absence of proper technical support. The Government plans to refocus production toward those products and technologies for which Haiti has a comparative advantage, thereby increasing productivity, production and exports. Our strategy for this is one of improved production incentives, investment programs and - 46 - ANNEX IV Page 7 of 7 technical support. The Government intends also to maintain efforts to address the pervasive problems of deteriorating non-renewable resources and nutrition levels. Trade in agricultural products is being liberalized. First, we have reduced the export tax on coffee to 10% and intend to eliminate it once overall revenue or expenditure performance permits; all other export taxes on agricultural products--on cocoa, essential oils and sisal--have been abolished. Second, all imports of agricultural inputs are to be admitted free of restrictions and duties. Third, it is also our intention to free the producer price of cotton in order to revive cotton production. The Government intends as soon as possible to establish a new agricultural development bank to replace BNDAI and BCA, the two existing credit institutions. Following a recently completed audit, BNDAI will be dissolved before the end of FY87. By that date, we will also establish a system setting rents on State lands related to market value. Sincerely, Leslie Delatour Minister of the Economy and Finance A"IX V Page 1 of 5 TRE COVERNMENT'S PROGRAM AND THE PROPOSED OPERATION Sector and Policy Area Issues and Objectives Measures Taken Future Actions Related IDA. IMF ad [A a Supported by the Proposed Operation ] Doc.r Support MACROECONOMIC STABILIZATION a. Overall purforance Need to maintaLn satisfactory FY65 resulted in reduced *ContLnued satisfactory IDA TA to provide macro macro framevork in which to inflation and overall balance performance cansulting services implement policy reforma of payments surplus past policies led to econoic IMF Structural Adjustment stagnation, inflation and *Agreement with IMY and IDA an Facility approved Dec 86 balance of payments problems policy framevork for IMP Structural Adjustment Facility Proposed U.S. Ectnmic Support has targets of 4.51 real F=d grant for FT87 to be growth, inflation at level of contingent on appropriate trading partners, and overall macro framverk as agreed balance of payments surplus of vith DW and IDA about 21 of GDP in FY87 b. Fiscal policy Inadequately controLled and Public sector deficit Overall pubLic sector deficit . extra-budgetary spending reduced in FY86 before scants to be held to Led to fiscal deficits about 7X of GDP in TY87-89 c. Monetary policy Past fiscal deficit financed PubLc sector's stock of Further reduction in public DOF TA banking adviser at largely with Central Bank nonconcessLanal debt reduced sector's stock of non- Central lank crediti excess liquidity in FY86 concessional debt in FY37 spilled over into balance of payments TAX REFORM System lacked buoyancy and Reduction of excie taxes Improved collection and D3F TA rax administration equity vLth high excise taxes systematLc cross-checklg ad-iser at Ministry of FLnance on basic consumption items and Variable excise tax placed amona Lacoe5 and value added extensive income tax evasion. an petroleum products taxes Objective is to improve collections, buoyancy and Elimination of taxes ear- equity marked for special projects Reform of incoe tax ANE V Page 2 of 5 THE GOVERNMn'S FROGRAM AND TE PROPOSED OPERATION Sector and Policy Area Issues and Objectives easures Taken Future Actions RalAtEd IDA, IF and [a a Supported by the Proposed Operation D amor Support PUBLIC EWENDITURE a. Recurrent Fast spending doamated by sElisintion of wasteful Improvements to wage psyuent IDA TA for programming, wages, poorly controLled, and special political projects control in health and to control and maitorlas of not oriented enough to *recurrent budgeting Ln p.*blic azpa:aiture, including development and non-vage *Ending of reserved budgetary education wags bill needs. Much past expenditure sums for unidentified purposes wasteful, inefficient and for Completion of further asdits, IDA Educatio IV project special political purposes. Reduction of fraudulent wage *including of the Minstry of includes TA to cprcrt Objective Ls to control payments, especially in Finance and of the Central education budgeting ad spending and reorient it to education Bank control priority purposes wIncreased recurrent spending CSAID fi-ssad audits of or. agriculture, education and several ai-istrias aA health Agencies b. Public Investment Past program included *FY6 program Lamred, VL?.h tPraparatLon Ot a satisfactory IDA TA for progra=ing. inappropriem and unsconevic sliminAtLn at unproductive p:-gcA for F8g cntl and El=-11rtZg of entcrpT3es, and diffused over projects with ittle or no pregra and for project to aeny uncompleted and inveun.ant roarer: aastion unproductive projects: project selection poor and returns *FY@7 program is relatively M5? ass!sted preparan of low. Quality at program sound, including Lizz of 26 list of 26 projects is to be improved br &&all ne projects for doncr limiting number cf projects 2inancing and agreement not Voild I&a:k chaired Nw" tS and completing priority to use resources other than Caribbean crw.p for ongoing anus from N.irport tax for Cap CoAeratioo in EcoMMLic Battles airport Devatopme: min. of Esalt Subrorp AM2IX " Paie 3 of 5 TgE GoVE RTvs PROGAM An TK PROPOSED OPEA7104 Sector and Policy Area Iss.es an. 3bjeetivea Measures Taken Future Actic.s Related IDA, IMF and ** Supted by the Proposed Operation I 5.t: 0 Supor: PUBLIC ENTEvPR1$Z9 a. Agro-industrias and Inspprcpriate, inefficient 'Ending of subsiies to 4udLts of several public 7AID financs sewwral .f the industrial enterprises and unaconomic enterprises publIc enterprises enterprises audirs operating vLth privileged and monopoly status led to real 'Closure and dissoLutIon of resource losses, fiscal losses ENAOL vegetable oil plknt and and high consumer prices far replacocot of its Import basic items. Objective t4 to sonapoly ard quota on imports stta thee toss and Iower with 203 tariff prices *Closure of USND :uaer Mill IDA TA to fLawse studF of alternativss to sugarc&rn *Decisia net to extend any in area surrounding the seemad substiies, privileges or loan public ss& mill, US guarantees to any private P- comantes or eooperatives 'o that may run the former ENAOL and USID plants *Audits, managesnt changes *Iplementatiou of auditors' IDA TA for CLsant d'EairL and coeneeamnt of progreas recamendations and further pover and other advice to improve coast improvements in cost caupatitL7aniss at La competitiveness at La CCCE considering financia MinotersL as. ClMent d'Hati Mlntsrle and Ciant d'EaLtL new power ganerator for Cien= d'Eati *Reptacamant of La MinotrLe's mnapuly on flour imports with tariff. 'Removal of Ciment dHaIti's iport monopolies and of quota and licence requirements zo import cement and their replacement with 301 tariff b. Financial monitoring Inadequate past nonitoring of *New organic law of the !:A 7A to assist MinLstry of public enterprises Ministry of Finance includes .ina±:e renitering financial monitoring -f pub La enterprises ANWZX T Pase k of 5 THE GOVERMENT'S PROGRAM AND TEE PROPOSED OPERATION Sector and Policy Area Issues and Objectives Measures Taken Future Actions Related IDA, IM and [* - Supported by the Proposed Operation Deonor spport COMPETITION AND INDUSTRIAL INCENTIVES a. Trade regime High protection of domestic *ELimination of all import IDA TA to support tecnLea. market led to uncomaetitLve monopoly rights, assistance for firms local production, high all import quotas, restructuring consumer prices and anti- and most import Licenses and export bias. Objective is to regulations (except for Proposed IDA Industrial reduce nominal and effective sanitary reasons an used Restructuring credit to protection on local market to clothes and nevapapers and finance fir-a restructurins reduce consumer prices and licensing of rice, sorghum, increase relative . maize, beans, chicken parts profitability of experts sad park mat parts) *New tariff structure, ending all specific tariffs, and I introducing a structure with an average tariff of about 20Z and a maximan of 402, with a few exceptLons, and includins Introduce dravback system transitianal measures far products made in Haiti through December 1987 *Extension of 1 'E1Lmnation of petty taxes on administrative charge to all exports and imports iaports except pharmaceuticaLs and peroletum products b. Piscal incentives Past system of discretionary Revisions to the Invastment IDA TA to assist introduction tax exemptions led to Code and its uniform of dravbtak scheme privileged status for some application firms. Objective is to harmonize treatment across sectors and firms ANNEX V Page 5 of 5 THE GOVER0ENT' S PROGRAM AND THE PROPOSED OPERATOW Sector and Policy Area Issues and Objectives Measures Taken Future Anions Related IDA, ID0 and (* - Supported by the Proposed Operation I Donor Support AGRICULTURE a. Pricing Prices and taxes at food *Export tax en coffee *Eimination of coffee export USAID and French aid support processing pLants, export reduced from 22 to 10Z ta if overall revenue and coffee develop t projects taxes, import quotas and expenditure performance permit tariffs, and administered *ElimLnation of export taxes prices have set incentives sisal and cocoa which diverge free comparative advantage, deterring output *Replacement of Import monopoly and export expansion, and on flour with tariffs IDA TA to rcriev environmatal inducing soil erosion. degradation and develop policy Objective is to reverse this and investmant proposals by shifting relative producer prices b. Policy-Lnduced rents Production discouraged by low *Preparation and implementation IDA TA to assist design and L rents on State lands, of program to raise rents on implementation of system to ' permitting intermediaries to State lands raise rents extract high economic rents from subtenants. Objective is to raise rents to market levels c. Credit Access to credit has been 'AudLt SNDAI *Dissolution of ZKDAI and legal IDS considering supporting very limited and credit establishment of a new my credit bank agenoies portfolios are agricultural credit bank heavily in arrears, largely uncollectable loans. Objective is to Improve access to and efficiency of credit system - 52 - ANNEX VI Page 1 of 7 PUBLIC TN PROGRAM, Fr87 1. The overall program is estimated by the Government at G 1,140 million. Historically, however, implementation has averaged about 70 percent; in FY86 it was only 60 percent. For FY87, a rate of about 80 percent, or G 900-950 million, would seem feasible, considering the increased availability of untied aid to the current budget and improvements in program preparation. This total excludes a list of 26 new projects, requiring commitments of G 217 million (US$43 million) that was presented to external donors for possible financing in late 1986. It also excludes the proposed Cap Haitien international airport. 2. The four tables in this annex present the program by sector and source of financing; by sector and type of investment; by executing agency and source of financing; and also the 34 largest projects which account for 71 percent of the total program in financial terms. Sectoral highlights are presented below. 3. Agriculture. Expenditure reforms cannot produce results in agriculture if they are not accompanied by pricing and structural changes. Especially important are an increase in non-salary operating funds, now partially built into the FY87 current Treasury Budget, and major improvements in the management of staff resources at the Ministry of Agriculture as well as in project preparation, selection and implementation. These measures, while fully agreed by the Government, will take time to implement. 4. The share of agriculture in the total public investment program is thus increased moderately compared to FY86 because of management and other constraints. The program, which amounts to G 241.9 million, focuses on irrigation system rehabilitation, rainfed agriculture development, feeder roads (which also appear under transportation) and input delivery to farmers. There are no new irrigation projects. Soil conservation and reforestation are kept at financially sustainable levels and increasingly linked to treecrop rehabilitation and watershed protection. Pre-investment studies amount to G 18.1 million and support activities (mostly salaries) are kept at G 5.7 million. 5. The FY87 agricultural program is satisfactory as a transitional, consolidation effort out of past errors In agriculture. It cannot, however, be considered satisfactory when viewed against the considerable potential for growth and export of agriculture in Haiti, especially under irrigation. As the Government's reforms of agricultural pricing, credit and management are carried out, the sector should be able to absorb substantially higher levels of public investment. 6. Industry. The 787 industrial program is sharply reduced both in absolute and relative terms compared to FY86. The Government has disengaged itself from ill-advised public industrial enterprises. The FY87 program - 53 - ANNEX VI Page 2 of 7 covers modernization and rebalancing investments at La Minoterie and Ciment d'Haiti (G 7.5 and G 15.0 million, respectively), as well as the construction of an industrial park aided by IDB (G 25 million). 7. Electric Poer. With G 20 million for pre-investment studies and G 6.0 million for managerial strengthening, the G 145.2 million electric power program in FY87 is reasonable and well balanced. Electricite d'Haiti (EdH), while competently run, needs to reduce the number of employees per customer but achieving this agreed objective is slowed by social sensitivity in a country where unemployment and underemployment are extremely acute problems. 8. Transportation. The road transport program (G 91.0 million) is mainly devoted to feeder road construction and to main road rehabilitation. Improvements at the Port-au-Prince airport (G 28.0 million) are justified. The National Port Authority (G 16.0 million) will improve security at the Port-au-Prince harbor, complete minor works at Cap Haitien and construct two cabotage ports. The total transportation program thus amounts to G 139.4 million and contains only well justified projects. The road to Jeremie is still at the technical design stage. 9. Telecommunications. The bulk of the telecommunications program (G 127.3 million) is to introduce digital exchanges to the Port-au-Prince telephone network and improve the telex service. The cost of this equipment is high by international standards because it is procured under tied aid. TELECO, the public company, needs to improve the number of employees per exchange line, like EdH. 10. Urban Development and Housing. Port-au-Prince urgently needs an urban development plan. Its absence greatly duplicates the major urban investment, a drainage program (G 29.5 million in FY87), as well as the planning of water supply investments. More attention should also be paid to urban transport, minor works and traffic management to relieve congestion that impedes workers' access to industrial assembly plants and through traffic to the southeastern part of the country. Sites and services projects are also included in the program, some in Port-au-Prince and others in provincial towns. The total program amounts to G 79.6 million. 11. Water Supply. The sector has three public executing agencies (CAMEP, SNEP and POCHEP). Their FY87 programs (G 49.8 million in total) are regionally balanced as between the capital, provincial towns and villages. They are well justified but CAMEP, the Port-au-Prince utility, needs to reduce excess staff and to accelerate its metering program so as to be able to collect charges on actual rather than estimated water consumption. 12 Bducation. With the large increase of its current budget in FY87, the Ministry of National Education could now begin to tackle the problems of low teachers' salaries and insufficient school supplies which caused - 54 - ANNEX VI Pale 3 of 7 inefficiency in basic public education and public training; due to past negligence and irresponsibility, success will not come easily. However, the bulk of primary education is in the private sector and this will remain so. The FY87 investment program adds up to G 81.1 million compared to G 65.0 million in FY86. This program is on the whole well related to urgent needs and not too costly. 13. Health. The health sector has also benefited in FY87 from a very large increase in its current budget so that it should now be able to deliver medical supplies and services more adequately than in the past and make more effective use of its staff and physical facilities. The FY87 health investment program is slightly smaller, as it should be, than the FY86 program which included expensive special projects of the past regime; it amounts to G 110.0 million (G 116.5 million in FY86) with three large ongoing projects to extend rural health services, control malaria and provide maternal and child care. The investment program includes, as one would expect, a large share (84 percent) of support activities, representing wages and medical supplies financed by foreign donors. Sizeable fraud in wage payments will have to be eliminated from the ministry and its agencies since it can only demoralize those willing to work for the pay they receive and discourage continued external donor support. Table 1: FY87 PUBLIC INVESTMENT PROGRAM B SECTOR AND By SOURCE OF FINANCIMG C million) ---Domestic Financing*--- --*-***External Financing------ Overall tar of Sector No. of Treasury Public Total PL-480 Other Project Total Total Pro=ra Projects Ents. Food Aid Aid Cost (3) 01. Agriculture 40 16.9 0.0 16.9 37.3 4.3 183.5 225.1 241.9 21.2 02. Mining 4 1.5 0.0 1.5 0.0 0.0 6.6 6.6 8.1 0.7 03. Industry 5 0.0 21.7 21.7 0.0 0.0 25.2 25.2 48.9 4.1 04. EnArgy 7 0.0 68.6 68.6 0.0 0.5 76.2 74.6 145.2 12.4 05. Mater Supply 10 6.4 0.0 6.4 0.5 0.0 47.9 48.7 5.1 4.8 07. Transportation 20 14.9 12.0 26.8 22.5 30.0 60.1 112.6 139.6 12.2 08. Cemmincations 7 1.1 77.2 76.3 0.0 0.0 49.0 49.0 127.3 11.2 09. Urban Developeant 13 19.2 0.0 19.2 0.0 0.0 55.3 55.5 74.6 6.5 10. Education 21 7.7 0.0 7.7 1.6 0.9 70.8 73.4 31.1 7.1 11. PopuLatlon, Health and Nutritution 14 2.3 0.0 2.3 26.0 0.0 81.7 107.7 110.0 9.6 12. SociaL Affairs 3 0.8 0.0 0.E 0.0 0.3 1.8 2.0 2.8 0.2 13. ComunLty Development 15 1.9 0.0 1.9 14.6 1.E 31.3 47.9 49.8 4.4 14. Youth and sports 1 1.0 0.0 1.0 0.0 0.0 0.0 0.0 1.0 0.1 15. Statistics and Information 3 1.6 0.0 1.6 1.6 0.0 0.7 2.3 3.9 0.3 16. Other Administrations 17 8.2 0.0 8.2 2.0 0.0 17.8 19.8 28.0 2.5 17. Cosmerce 2 0.0 0.0 0.0 0.0 0.0 0.2 0.2 0.2 0.0 18. Regional DeveLopment 6 16.6 0.0 16.6 0.0 3.1 4.9 8.0 24.6 2.2 TOTAL 186 100.0 179.5 279.5 106.5 40.9 713.2 860.6 1140.1 100.0 Share of Total Program Cost (1) 8.8 15.7 24.5 9.3 3.6 62.6 75.5 100.0 at0 i Table 2: FY87 PUBLIC INVESTMENT PROGRAM BY SECTOR AND TYPE OF INVESTMENT (C million) Sector Pre-Investment --Investment-- --- Support --- -----Total----- Number Amount Number Amount Number Amount Number Amount 01. Agriculture 12 18.1 26 218.2 2 5.7 40 241.9 02. Mining 3 3.6 0 0.0 1 4.5 4 8.1 03. Industry 0 0.0 3 46.7 2 0.2 5 46.9 04. Energy 2 20.9 4 118.3 1 6.0 7 . 145.2 05. Water Supply 0 0.0 10 55.1 0 0.0 10 55.1 07. Transportation 4 2.2 16 137.2 0 0.0 20 139.4 08. Communications 0 0.0 7 127.3 0 0.0 7 127.3 09. Urban Development 1 1.0 12 73.6 0 0.0 13 74.6 u 10. Education 0 0.0 7 57.4 14 23.7 21 81.1 " 11. Population, Health and Nutritution 2 1.9 5 15.6 7 92.4 14 110.0 12. Social Affairs 0 0.0 3 2.8 0 0.0 3 2.8 13. CommanLty Development 0 0.0 12 13.9 3 35.9 15 49.8 14. Youth and Sports 0 0.0 1 1.0 0 0.0 1 1.0 15. Statistics and Information 3 3.9 0 0.0 0 0.0 3 3.9 16. Other Administrations 9 8.2 2 7.3 6 12.5 17 28.0 17. Commerce 0 0.0 0 0.0 2 0.2 2 0.2 18. Regional Development 1 0.6 3 24.0 0 0.0 4 24.6 TOTAL 37 60.5 111 898.5 38 181.1 186 1140.1 Share of Total Program Cost (t) 19.9 5.3 59.7 78.8 20.4 15.9 100.0 100.0 Ll Tabi 3: FY87 PUBLIC INVESTMENT PROGRAM BY EXECUTING AGENCY AND SOURCE OF TINANCINO (C mLLLlon) ---Domeatic FinancinS--- ------- Esternal FinancLng ------ Overall Project Project Agency No. of Tceasury Public Total PL-480 Other Project Total Total Code Ttle Acronym Projects Ents. Food Aid Aid National Airport Authority AAR 2 0.0 8.1 8.1 0.0 0.0 19.7 19.7 27.8 National Port Authority APH 5 0.0 3.7 3.7 0.0 0.0 20.3 10.3 14.0 Port-au-Prince Metropolitan Water Authority CAMEP 1 3.5 0.0 3.5 0.0 0.0 27.4 27.4 50.9 Planning Comissariat CPNAP 14 12.1 0.0 12.1 3.0 0.6 18.6 22.2 34.3 Center For Planning Technique And Applied Econcies CIPEA 1 2.2 0.0 2.2 0.0 0.0 0.0 0.0 2.2 Halti, Elsecricity Eda 6 0.0 68.6 68.6 0.0 0.0 73.3 73.3 143.8 Public Housing Znterprise EPPLS 7 6.6 0.0 6.6 0.0 0.0 28.6 28.6 .35.2 Agronmy And Veterinary Faculty AVNY 1 1.3 0.0 1.3 0.0 0.2 3.9 4.1 5.4 Haitian Statistical Institute Iasi 5 1.6 0.0 1.6 1.6 0.0 0.7 2.2 3.9 Institute For Preservation Of the National Heritage ISPAN 2 1.6 0.0 1.6 0.5 0.1 3.0 3.8 5.1 1 Ministry of Agriculture MARNDR 46 16.3 0.0 16.3 45.2 5.5 210.4 261.1 277.4 vi Ministry of Social Affairs HAS 3 0.8 0.0 0.8 0.0 0.3 1.8 2.0 2.8 Ministry of Commerce And Industry MCI 8 0.5 21.7 22.2 0.0 0.0 25.4 25.4 47.6 Matry of National Education MEN 20 7.2 0.0 7.2 1.1 0.9 67.8 69.3 77.0 Ministry of Ecanomy And Finance M 2 0.0 0.0 0.0 0.0 0.0 1.5 1.5 1.5 Ministry of The Interior And National Defense HID 1 7.5 0.0 7.5 0.0 2.5 0.0 2.5 10.0 ministry of Justice NJ 1 3.0 0.0 3.0 0.0 0.0 0.0 0.0 3.0 Ministry of Health and Population NSPP 17 1.9 0.0 1.9 26.0 0.0 92.8 118.8 120.7 No Zzecuting Agency NONE 6 0.0 0.0 0.0 5.2 0.5 0.8 6.4 6,4 National Civil Aviation Office OFNAC 1 0.0 0.0 0.0 0.0 0.0 1.8 1.8 1.8 Popular Education Office OPEP 1 1.2 0.0 1.2 0.0 0.0 0.5 0.5 1.7 National Water Service SNEP 7 1.8 0.0 1.8 0.8 0.0 11.3 12.0 13.8 Haiti Telecommunioations Company TELECO 5 0.0 77.2 77.2 0.0 0.0 49.0 49.0 126.2 National Television Of Haiti TNH 1 0.7 0.0 0.7 0.0 0.0 0.0 0.0 0.7 Ministry of Public Works, Transport and Communicetions TPTC 24 28.9 0.2 29.1 23.2 30.5 62.6 116.2 145.3 State UnLzsity of Haiti UES 1 1.5 0.0 1.5 0.0 0.0 0.0 0.0 1.5 TOTAL 186 100.0 179.5 279.3 106.5 40.9 713.2 360.6 1140.1 7Q N o 1 Table 4: 1Y87 PUBLIC INVESTMENT PROGRAM BV S11E OP PROJECT AND SOURCE OP FINANCINO (G million) ---Deeia iFinancing--- -------Externai linant" ------- Overall Projeet Project Exmc. Donor Treamury Publie Total PL-480 Other Direct Doc total Code Title Agency ai Enta. Food Aid Aid Aid 08 V 06 MODER. 6 INsTALL. CENTRAUX TLEPHOIQUES TELICO CCCE 0.0 0.0 0.0 0.0 0.0 49.0 49.0 A0.0 01 07 AMEfNAEMT BASSINS VERSANTS MA US.VP 0.0 0.0 0.0 3.0 0.0 45.0 48.0 48.0 04 V 03 PROGREM DE DISTRIBUTION (P-AU-PIPROVINCES) Ede CCCE 0.0 13.4 13.4 0.0 0.0 27.0 27.0 40.4 01 V 09 ORGANISATION DE DEVELOPPEMENT DU NORD MA IDA.GER.FR 2.0 0.0 2.0 0.0 0.0 36.2 36.2 38.2 Il A 10 ET.PR0.PROT.HATERN.INFANT.-PLAN.AN<IL. MSPP US.VUO.UN 0.0 0.0 0.0 5.0 0.0 32.5 37.5 37.5 07 V 73 PROGRAM TRANSPORT VII TPTC IDA 4.0 0.2 4.2 0.0 30.0 0.0 30.0 34.2 13 A 09 GESTION AIDE ALIMENTAIRE PAM MA WFP.Us 0.7 0.0 0.7 3.3 0.0 30.0 33.3 34.0 04 V 05 INVESTISSEMENT DE ROUTINE EdM - 0.0 33.1 33.1 0.0 0.0 0.0 0.0 33.1 04 V 01 PROGRAE DE PRODUCTION Edà IDA 0.0 f.5 4.5 0.0 0.0 28.5 28.5 33.0 05 V 18 DESSERTE EAU POTABLE ZONE METROPOLITAINE CAMEP CCCE 3.5 0.0 3.5 0.0 0.0 27.4 27.6 30.9 07 V 21 DEVELOPPENNT ROUTES SECONDAIRES TPTC US 0.0 0.0 0.0 20.5 0.0 6.8 27.3 27.3 10 V 10 EXPANSION SYSTED ECOLES PRIMAIRES . NORMALES NE IDS 3.5 0.0 3.5 0.0 0.0 23.2 23.2 26.7 os V 88 CGOUTATION ET TRANSMISSION TELECO - 0.0 26.6 26.6 0.0 0.0 0.0 0.0 26.6 03 V 35 EKTEhSION DU PARC INDUSTRIEL MCI IDS 0.0 0.0 0.0 0.0 0.0 25.0 25.0 * 25.0 10 V 40 EDUCATION 9 IV Et FIN BOUC. III ME IDA 1.4 0.0 1.4 0.0 0.0 23.0 23.0 24.4 07 V 62 AMLIORATION NAVIGATION AIENN AAP FR 0.0 4.3 4.3 0.0 0.0 19.7 19.7 24.0 11 A 08 COTRLE DE LA KAIARIA KSPP US,JAP 0.0 0.0 0.0 5.0 0.0 18.2 23.2 23.2 08 V 89 BATINENTS DE LA TELECO TELECO . 0.0 22.7 22.7 0.0 0.0 0.0 0.0 22.7 0 V 87 RESEAUX EETERIEURS TELECO - 0.0 21.7 21.7 0.0 0.0 0.0 0.0 21.7 04 P 04 PROGRA« D'ETUDES EdM 0.0 5.2 5.2 0.0 0.0 14.4 14.4 19.6 I1 A 02 EXTENSION SERVICES SANTE RURALE MSPP US 0.0 0.0 0.0 10.0 0.0 9.2 19.2 19.2 09 V 28 DRAINAGE DE PORT-AU-PRINCE Il TPTC IDI 3.5 0.0 3.5 0.0 0.0 14.6 14.6 18.1 03 V 32 INVESTISSEKENT CIMENT D'HAITI NCI - 0.0 14.7 14.7 0.0 0.0 0.0 0.0 14.7 01 V 08 RENPORCEMET DU CREDiT RURAL MA US,GER 0.0 0.0 0.0 7.5 0.0 7.0 14.5 14.5 10 A 51 FORMATION A L'INACHEI ME CAN 0.0 0.0 0.0 0.0 0.0 14.0 14.0 14.0 01 V 32 O.D. VALLEE DE L'ARTIBONITE (RICE) A IDB,TaLwan 1.5 0.0 1.5 0.0 0.0 11.8 11.8 13.3 07 V 37 REIAILITATION ROUTE NAT. I TPTC IDA 4.0 0.0 4.0 0.0 0.0 g.0 9.0 13.0 01 V 33 0.D. PLAINE DES GONAIVES MA GER,WFP 1.5 0.0 1.5 0.0 0.0 11.2 11.2 12.7 01 V 83 AUMàENTATIN PRODUCTION AGRICOLE MA JAP 0.0 0.0 0.0 0.0 0.0 12.5 12.5 12.5 04 V 02 PROJ S SPECIPIQUES PAPIPROVINCES EdE 0.0 11.2 11.2 0.0 0.0 0.7 0.7 11.8 01 V 12 DRI-RIVIERE BLANCE (CUL DE SAC) MA IDB 1.0 0.0 1.0 0.0 0.0 10.0 10.0 11.0 09 V 16 LINTEAU I PHASE Il EPPLS CER(Kft) 1.0 0.0 1.0 0.0 0.0 9.1 9.1 10.1 01 P 05 ADS-Il SUPPORT AU DEV.AGRICOLE MA US 0.0 0.0 0.0 3.5 0.0 6.3 10.0 10.0 18 V 03 EQUIPEMT DES COMMIUNES MIDN Taiwan 7.5 0.0 7.5 0.0 2.5 0.0 2.5 10.0 TOTAL Or LARGE PROJECTS 34 35.1 157.6 192.7 57.8 32.5 521.7 612.0 804.6 TOTAL OP ALL PROJECTS 186 100.0 179.5 279.5 106.5 40.9 713.2 860.6 1140.1 LAME rRmECTs AS PERCENTACE OP ALL PROJECTS 16.3 35.1 87.8 68.9 54.3 79.4 73.1 71.1 70.6 '- ai Rter to Table 3 for full name of executins agencies. 14 U.S.A В�^ 20• • . ! �р� ys .� сииА ' "�� '� г, Jвал;у,_ ❑OMINICAN • • > 1 кf1'Ul3uC Mo1.5t.Nicalas " 4,f�'•� j i�.л.1�i л _ 1 : ,"• 1 , ` 1AMд�Gt г РиЕкт0 i' ь,l� 1`� �' �.:._ R1C0 j t 1-�� �• � � l � �.� 8о1� д.�`' ВапЬаггJоDа�а г_.,. �1.�����д.``� �г- 70.' 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Th«m"ve värreir IW VI 0 NAY Mi rebolais pu. Cohcbcs 0 Arcohuie CabäKet -, r<,2 Bon PORTAU PRINCE mm de Bwquels Gan thoer ~ne PétiånWie Q Grand GoåTe pOtL N FonclWerro~ Trouin 0 0 des P..% )iR Jomel - - inot j OCTOBER 1986