Economy of Haiti - Economic History

Economic History

Before Haiti established its independence from French administration in 1804, Haiti ranked as the world's richest and most productive colony. In the formative years of independence, Haiti suffered from isolation on the international stage, as evidenced by the early lack of diplomatic recognition accorded to it by Europe and the United States; this had a negative impact on willingness of foreigners to invest in Haiti. One very significant economic obstacle in Haiti's early independence was its necessary payment of 150 million francs to France beginning in 1825; this did much to drain the country of its capital stock. In 1838, France agreed to reduce the debt to 60 million francs to be paid over a period of 30 years. In 1883, Haiti made the final payment to France. Since then, and even in recent years, public spokesmen in Haiti as well as international academics and statesmen have denounced this event as the payment of an illegitimate debt, in several cases calling on the French government to repay it (the French government has never been willing to repay it, though there was a hoax following the 2010 Haiti Earthquake involving a fake website purporting to offer reparation payment on behalf of the French Government).

Since the demise of the Duvalier dictatorship in 1986, international economists have urged Haiti to reform and modernize its economy. Under President René Préval (President from 1996 to 2001 and from 2006 until 14 May 2011), the country's economic agenda included trade and tariff liberalization, measures to control government expenditure and increase tax revenues, civil-service downsizing, financial-sector reform, and the modernization of state-owned enterprises through their sale to private investors, the provision of private sector management contracts, or joint public-private investment. Structural adjustment agreements with the International Monetary Fund, World Bank, Inter-American Development Bank, and other international financial institutions aiming at creating necessary conditions for private sector growth, have proved only partly successful.

In the aftermath of the 1994 restoration of constitutional governance, Haitian officials have indicated their commitment to economic reform through the implementation of sound fiscal and monetary policies and the enactment of legislation mandating the modernization of state-owned enterprises. A council to guide the modernization program (CMEP) was established and a timetable was drawn up to modernize nine key parastatals. Although the state-owned flour-mill and cement plants have been transferred to private owners, progress on the other seven parastatals has stalled. The modernization of Haiti's state-enterprises remains a controversial political issue in Haiti.

External aid is essential to the future economic development of Haiti, the least-developed country in the Americas. Comparative social and economic indicators show Haiti falling behind other low-income developing countries (particularly in the Western hemisphere) since the 1980s. Haiti's economic stagnation results from earlier inappropriate economic policies, political instability, a shortage of good arable land, environmental deterioration, continued use of traditional technologies, under-capitalization and lack of public investment in human resources, migration of large portions of the skilled population, and a weak national savings rate.

Haiti continues to suffer the consequences of the 1991 coup. The irresponsible economic and financial policies of de facto authorities greatly accelerated Haiti's economic decline. Following the coup, the United States adopted mandatory sanctions, and the OAS instituted voluntary sanctions aimed at restoring constitutional government. International sanctions culminated in the May 1994 United Nations embargo of all goods entering Haiti except humanitarian supplies, such as food and medicine. The assembly sector, heavily dependent on U.S. markets for its products, employed nearly 80,000 workers in the mid-1980s. During the embargo, employment fell from 33,000 workers in 1991 to 400 in October 1994. Private, domestic and foreign investment has been slow to return to Haiti. Since the return of constitutional rule, assembly sector employment has gradually recovered with over 20,000 now employed, but further growth has been stalled by investor concerns over safety and supply reliability.

If the political situation stabilizes, high crime levels wane, and new investment increases, tourism could take its place next to export-oriented manufacturing (the assembly sector) as a potential source of foreign exchange. As of 2010, remittances from abroad constitute a significant source of financial support for many Haitian households.

The Haitian Ministry of Economy and Finance designed the Haiti economic reforms of 1996 to rebuild the economy of Haiti after significant downturns suffered in the previous years. The primary reforms centered around the Emergency Economic Recovery Plan (EERP) and were followed by budget reforms.

Haiti's real GDP growth turned negative in FY 2001 after six years of growth. Real GDP fell by 1.1% in FY 2001 and 0.9% in FY 2002. Macroeconomic stability was adversely affected by political uncertainty, the collapse of informal banking cooperatives, high budget deficits, low investment, and reduced international capital flows, including suspension of IFI lending as Haiti fell into arrears with the Inter-American Development Bank (IDB) and World Bank.

Haiti's economy stabilized in 2003. Although FY 2003 began with the rapid decline of the gourde due to rumors that U.S. dollar deposit accounts would be nationalized and due to the withdrawal of fuel subsidies, the government successfully stabilized the gourde as it took the politically difficult decisions to float fuel prices freely according to world market prices and to raise interest rates. Government agreement with the International Monetary Fund (IMF) on a staff monitored program (SMP), followed by its payment of its $32 million arrears to the IDB in July, paved the way for renewed IDB lending. The IDB disbursed $35 million of a $50 million policy-based loan in July and began disbursing four previously approved project loans totaling $146 million. The IDB, IMF, and World Bank also discussed new lending with the government. Much of this would be contingent on government adherence to fiscal and monetary targets and policy reforms, such as those begun under the SMP, and Haiti's payment of its World Bank arrears ($30 million at 9/30/03).

The IMF estimated that real GDP was flat in FY 2003 and projected 1% real GDP growth for FY 2004. However, GDP per capita— amounting to $425 in FY 2002 — will continue to decline as population growth is estimated at 1.3% p.a. While implementation of governance reforms and peaceful resolution of the political stalemate are key to long-term growth, external support remains critical in avoiding economic collapse. The major element is foreign remittances, reported as $931 million in 2002, primarily from the U.S. Foreign assistance, meanwhile, was $130 million in FY 2002. Overall foreign assistance levels have declined since FY 1995, the year elected government was restored to power under a UN mandate, when the international community provided over $600 million in aid.

A legal minimum wage of 36 gourdes a day (about U.S. $1.80) was set in 1995, and applies to most workers in the formal sector. It was later raised to 70 gourdes per day. Actually this minimum is 200 gourdes a day(about U.S. $4.80). 39.175 gourds= a U.S dollar.

Haiti's economy suffered a severe setback in January 2010 when a 7.0 magnitude earthquake destroyed much of its capital city, Port-au-Prince, and neighboring areas. Already the poorest country in the Western Hemisphere with 80% of the population living under the poverty line and 54% in abject poverty, the earthquake inflicted $7.8 billion in damage and caused the country's GDP to contract 5.4% in 2010. Following the earthquake, Haiti received $4.59 billion in international pledges for reconstruction, which has proceeded slowly.

US economic engagement under the Haitian Hemispheric Opportunity through Partnership Encouragement (HOPE) Act, passed in December 2006, has boosted apparel exports and investment by providing duty-free access to the US. Congress voted in 2010 to extend the legislation until 2020 under the Haitian Economic Lift Act (HELP); the apparel sector accounts for about 90% of Haitian exports and nearly one-tenth of GDP. Remittances are the primary source of foreign exchange, equaling nearly 20% of GDP and more than twice the earnings from exports. Haiti suffers from a lack of investment, partly because of limited infrastructure and a lack of security. In 2005, Haiti paid its arrears to the World Bank, paving the way for reengagement with the Bank. Haiti received debt forgiveness for over $1 billion through the Highly-Indebted Poor Country initiative in mid-2009. The remainder of its outstanding external debt was cancelled by donor countries following the 2010 earthquake but has since risen to over $600 million. The government relies on formal international economic assistance for fiscal sustainability, with over half of its annual budget coming from outside sources. The Michel Martelly administration in 2011 launched a campaign aimed at drawing foreign investment into Haiti as a means for sustainable development.