Haiti economic reforms of 1996
Encyclopedia
The Haiti economic reforms of 1996 were designed to rebuild economy of Haiti
after significant downturns suffered in the previous years. The primary reforms were centered around the Emergency Economic Recovery Plan (EERP) and were followed by budget
reforms.
from power, Haiti suffered from internal instability and was placed under an international embargo
. The embargo, coupled with the irresponsible economic and financial policies of the newly installed authorities, had devastating effects on the economy of Haiti
. It is estimated that in the years 1991-1994, GDP declined by over a third, and inflation at least doubled to 50%,and unemployment
reached over 80%. Deforestation
and land overuse became increasingly common. As a result of continuing economic problems, Haiti could not escape being poorest country in the Western hemisphere
.
The US troops restored
president Aristide to power in 1994. Next year, he was peaceful replaced by René Préval
, and the US troops were phased out by the United Nations Mission in Haiti
. At that time Haiti enjoyed a spotlight in front of the international community, and there was much international interest in helping to rebuild the country.
, the Inter-American Development Bank
(IDB), the United States Agency for International Development
(USAID), the United Nations Development Program (UNDP), and the Organization of American States
(OAS). The plan was aiming for rapid macroeconomic stabilization and to attract private foreign sector investments. EERP reforms included rebuilding of public administration, privatization
(selling off state-owned enterprises), private business promotion, investments in agriculture, municipal, transport, sanitation, health, and education infrastructures, and addressing environmental concerns (with reforestation
and soil conservation
).
EERP, seen as neoliberal, was criticized for insufficient attention to Haiti's dominant agricultural sector
, which employs about 65% of the population; less than 1% of the total funds were allocated for farmers (although more was allocated to supporting areas such as road infrastructure and irrigation
system). There was also criticism of unpopular reforms such as privatization, wage freezes and the lowering of tariff
s. Reduction in agricultural tariffs, while resulting in lowered food prices, also exposed local farmers to strong international competition.
After implementation of the EERP, Haitian real GDP
grew by 4.5 percent in the fiscal year 1994/95; inflation
slowed; and the value of the Haitian currency, the gourde, stabilized on the international markets. However despite signs of economic recovery Haiti faced the problem of a growing budget deficit. The external current account
deficit reached 19 percent of GDP fueled by the resumption of capital inflows and foreign aid.
(IMF) approved a three-year credit
for Haiti of SDR
91.1 million (about US$131 million in 1996 value) to support the Haiti's economic reform program for 1996-99. The planned reforms included increasing tax
es, and modernizing fiscal practices. The IMF noted that spending in social areas aimed at addressing the issue of poverty
should increase, with the help of foreign aid from "humanitarian organizations and external aid agencies.".
The reforms attempted by the Haitian Ministry of Economy and Finance were severely delayed by political instability in Haiti, such as the resignation of the government in June 1997 (see Haitian general election, 1997) and the suspension of all “new business” by Parliament. Some reforms proved unpopular with politicians, such as privatization and delays in implementations of the reforms led to freezes of the promised international assistance.
There were also various problems with budget reforms implementation. C. Bernard Myers enumerated them as follows:
Economy of Haiti
Haiti is the poorest country in the Americas. Two-thirds of all Haitians depend on the agriculture sector, mainly small-scale subsistence farming, and remain vulnerable to damage from frequent natural disasters, exacerbated by the country's widespread deforestation...
after significant downturns suffered in the previous years. The primary reforms were centered around the Emergency Economic Recovery Plan (EERP) and were followed by budget
Budget
A budget is a financial plan and a list of all planned expenses and revenues. It is a plan for saving, borrowing and spending. A budget is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs between two or more goods...
reforms.
Economic situation
Following the 1991 coup d'état which removed democratically elected president Jean-Bertrand AristideJean-Bertrand Aristide
Jean-Bertrand Aristide is a Haitian former Catholic priest and politician who served as Haiti's first democratically elected president. A proponent of liberation theology, Aristide was appointed to a parish in Port-au-Prince in 1982 after completing his studies...
from power, Haiti suffered from internal instability and was placed under an international embargo
Embargo
An embargo is the partial or complete prohibition of commerce and trade with a particular country, in order to isolate it. Embargoes are considered strong diplomatic measures imposed in an effort, by the imposing country, to elicit a given national-interest result from the country on which it is...
. The embargo, coupled with the irresponsible economic and financial policies of the newly installed authorities, had devastating effects on the economy of Haiti
Economy of Haiti
Haiti is the poorest country in the Americas. Two-thirds of all Haitians depend on the agriculture sector, mainly small-scale subsistence farming, and remain vulnerable to damage from frequent natural disasters, exacerbated by the country's widespread deforestation...
. It is estimated that in the years 1991-1994, GDP declined by over a third, and inflation at least doubled to 50%,and unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
reached over 80%. Deforestation
Deforestation
Deforestation is the removal of a forest or stand of trees where the land is thereafter converted to a nonforest use. Examples of deforestation include conversion of forestland to farms, ranches, or urban use....
and land overuse became increasingly common. As a result of continuing economic problems, Haiti could not escape being poorest country in the Western hemisphere
Western Hemisphere
The Western Hemisphere or western hemisphere is mainly used as a geographical term for the half of the Earth that lies west of the Prime Meridian and east of the Antimeridian , the other half being called the Eastern Hemisphere.In this sense, the western hemisphere consists of the western portions...
.
The US troops restored
Operation Uphold Democracy
Operation Uphold Democracy was an intervention designed to remove the military regime installed by the 1991 Haitian coup d'état that overthrew the elected President Jean-Bertrand Aristide...
president Aristide to power in 1994. Next year, he was peaceful replaced by René Préval
René Préval
René Garcia Préval is a Haitian politician and agronomist who was the President of the Republic of Haiti from 14 May 2006 to 14 May 2011. He previously served as President from February 7, 1996, to February 7, 2001, and as Prime Minister from February 1991 to October 11, 1991.-Early life and...
, and the US troops were phased out by the United Nations Mission in Haiti
United Nations Mission in Haiti
For the current UN mission to Haiti, see the United Nations Stabilization Mission in Haiti.The United Nations Mission in Haiti — a peacekeeping operation carried out by the United Nations between September 1993 and June 1996. The Mission was reestablished in April 2004, after a rebellion took...
. At that time Haiti enjoyed a spotlight in front of the international community, and there was much international interest in helping to rebuild the country.
EERP
Following the lifting of the embargo and the reestablishment of democratic rule, the government of Haiti (Haitian Ministry of Economy and Finance (MEF)) initiated the Emergency Economic Recovery Plan (EERP). EERP was developed, alongside the MEF, by the World BankWorld Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
, the Inter-American Development Bank
Inter-American Development Bank
The Inter-American Development Bank is the largest source of development financing for Latin America and the Caribbean...
(IDB), the United States Agency for International Development
United States Agency for International Development
The United States Agency for International Development is the United States federal government agency primarily responsible for administering civilian foreign aid. President John F. Kennedy created USAID in 1961 by executive order to implement development assistance programs in the areas...
(USAID), the United Nations Development Program (UNDP), and the Organization of American States
Organization of American States
The Organization of American States is a regional international organization, headquartered in Washington, D.C., United States...
(OAS). The plan was aiming for rapid macroeconomic stabilization and to attract private foreign sector investments. EERP reforms included rebuilding of public administration, privatization
Privatization
Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...
(selling off state-owned enterprises), private business promotion, investments in agriculture, municipal, transport, sanitation, health, and education infrastructures, and addressing environmental concerns (with reforestation
Reforestation
Reforestation is the natural or intentional restocking of existing forests and woodlands that have been depleted, usually through deforestation....
and soil conservation
Soil conservation
Soil conservation is a set of management strategies for prevention of soil being eroded from the Earth’s surface or becoming chemically altered by overuse, acidification, salinization or other chemical soil contamination...
).
EERP, seen as neoliberal, was criticized for insufficient attention to Haiti's dominant agricultural sector
Agriculture in Haiti
Agriculture continued to be the mainstay of the economy of Haiti in the late 1980s; it employed approximately 66 percent of the labor force and accounted for about 35 percent of GDP and for 24 percent of exports in 1987...
, which employs about 65% of the population; less than 1% of the total funds were allocated for farmers (although more was allocated to supporting areas such as road infrastructure and irrigation
Irrigation
Irrigation may be defined as the science of artificial application of water to the land or soil. It is used to assist in the growing of agricultural crops, maintenance of landscapes, and revegetation of disturbed soils in dry areas and during periods of inadequate rainfall...
system). There was also criticism of unpopular reforms such as privatization, wage freezes and the lowering of tariff
Tariff
A tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....
s. Reduction in agricultural tariffs, while resulting in lowered food prices, also exposed local farmers to strong international competition.
After implementation of the EERP, Haitian real GDP
Real GDP
Real Gross Domestic Product is a macroeconomic measure of the value of output economy adjusted for price changes . The adjustment transforms the money-value measure, called nominal GDP, into an index for quantity of total output...
grew by 4.5 percent in the fiscal year 1994/95; inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
slowed; and the value of the Haitian currency, the gourde, stabilized on the international markets. However despite signs of economic recovery Haiti faced the problem of a growing budget deficit. The external current account
Current account
In economics, the current account is one of the two primary components of the balance of payments, the other being the capital account. The current account is the sum of the balance of trade , net factor income and net transfer payments .The current account balance is one of two major...
deficit reached 19 percent of GDP fueled by the resumption of capital inflows and foreign aid.
1996 reforms
On October 1996 the International Monetary FundInternational Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
(IMF) approved a three-year credit
Credit (finance)
Credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately , but instead arranges either to repay or return those resources at a later date. The resources provided may be financial Credit is the trust...
for Haiti of SDR
Special Drawing Rights
Special Drawing Rights are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund . Not a currency, SDRs instead represent a claim to currency held by IMF member countries for which they may be exchanged...
91.1 million (about US$131 million in 1996 value) to support the Haiti's economic reform program for 1996-99. The planned reforms included increasing tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
es, and modernizing fiscal practices. The IMF noted that spending in social areas aimed at addressing the issue of poverty
Poverty
Poverty is the lack of a certain amount of material possessions or money. Absolute poverty or destitution is inability to afford basic human needs, which commonly includes clean and fresh water, nutrition, health care, education, clothing and shelter. About 1.7 billion people are estimated to live...
should increase, with the help of foreign aid from "humanitarian organizations and external aid agencies.".
The reforms attempted by the Haitian Ministry of Economy and Finance were severely delayed by political instability in Haiti, such as the resignation of the government in June 1997 (see Haitian general election, 1997) and the suspension of all “new business” by Parliament. Some reforms proved unpopular with politicians, such as privatization and delays in implementations of the reforms led to freezes of the promised international assistance.
There were also various problems with budget reforms implementation. C. Bernard Myers enumerated them as follows:
- frequent delays in enacting the annual budget
- key components missing from the budget
- the budget not reflect the needs and resources of the government
- the budget focused on inputs with little accountability for results
- the inefficiency of the expenditure process and control