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1997 Country Reports
On Economic Policy and Trade Practices

Department of State report submitted to the Senate Committees on Foreign Relations and on Finance and to the House Committees on Foreign Affairs and on Ways and Means, January 1998.

Income, Production and Employment	1995	1996	1997 1/
Nominal GDP 2/	2,327	2,660	2,713
Real GDP Growth (pct) 3/	4.5	2.8	1.8
GDP by Sector:
Agriculture	1,019	N/A	N/A
Manufacturing	309	N/A	N/A
Services	549	N/A	N/A
Government	450	N/A	N/A
Per Capita GDP (US$)	322	363	347
Labor Force (000s)	4,000	4,000	4,100
Unemployment Rate (pct, est.)	65	65	65
Money and Prices (annual percentage growth)
Money Supply Growth (M2)	29.2	9.1	14.7
Consumer Price Inflation	30.2	20.5	16.2
Exchange Rate (gourde/US$ - annual average)
Market	14.4	15.6	16.3
Balance of Payments and Trade
Total Exports FOB 4/	84	86	N/A
Exports to U.S. 5/	130	144	175
Total Imports FOB 4/	436	400	N/A
Imports from U.S. 5/	550	475	473
Trade Balance 4/	-352	-314	N/A
Balance with U.S. 5/	­420	­331	-298
Current Account Deficit/GDP (pct)	4.4	3.4	2.9
External Public Debt	898	912	1028
Debt Service Payments/GDP (pct)	1.6	1.1	1.0
Fiscal Deficit/GDP (pct)	4.8	3.2	1.0
Gold and Foreign Exchange
Reserves (net)	169	134	159
Aid from U.S. 6/	260	115	145
Aid from All Other Sources	430	266	428

Source: IMF ESAF document, except where noted
1/1997 figures are all estimates based on available monthly data in October 1996. Fiscal year is October-September. Fiscal year data used because calendar year data unavailable in many cases.
2/GDP at factor cost
3/Percentage changes calculated in local currency
4/Merchandise trade for calendar year; does not include U.S. goods imported for processing and re-exported under the Caribbean Basin Initiative.
5/Source: U.S. Department of Commerce and U.S. Census Bureau; exports FAS, imports customs basis; 1997 figures are estimates based on data available through October 1997. Figures include substantial amounts of U.S. goods imported for processing and re-exported under Caribbean Basin Initiative.
6/New commitments; USAID includes program assistance, budget support, and support for peacekeeping operations and police.

1. General Policy Framework

Haiti has a predominantly agriculture-based, market-oriented economy. Historically, Haiti's economic performance has been strongly influenced by the United States, its principal trading partner and largest bilateral aid contributor. Following the restoration of President Jean-Bertrand Aristide on October 15, 1994, Haiti embarked on an economic program based on macroeconomic stabilization, trade liberalization, privatization, civil service reform, and decentralization. The Haitian government slashed tariffs to a maximum of 15 percent and plans to cut tariffs in FY97 to a maximum of 10 percent.

Popular opposition to "structural adjustment" caused the Aristide government to slip on its commitments to the international financial institutions. In October 1995, inadequate commitment on privatization, civil service reform, and other structural reforms tied to loans from the IMF and World Bank thwarted a scheduled signing of the Structural Adjustment Credit (SAC) and the Enhanced Structural Adjustment Facility (ESAF), and prompted the resignation of Prime Minister Smarck Michel.

The new administration under President Rene Preval took office in March 1996 and immediately moved to implement the structural adjustment program. The government proceeded to control expenditures and eliminate some 1,500 "ghost employees." By September, Parliament passed civil service reform legislation and a modernization law to enable the government to proceed with privatization through the granting of management contracts, concessions, or "recapitalizations" (the forming of joint ventures with private investors through partial divestitures of state-owned enterprises).

The government's medium term macroeconomic goal calls for 4.5 percent real GDP growth in FY 1997/98, a rate the government believes it can sustain for several years thereafter. FY 1997's twelve-month rate of inflation was 18 percent, but inflation is expected to decline to single digits in FYs 1998-1999. The unprecedented amount of aid ($2.4 billion over the next three years) pledged by the international community for Haiti's social and economic reconstruction will give the Haitian government a unique opportunity to fund and implement systemic changes that will permit sustained economic reform. Strong pressure for greater expenditure on wage increases, rehabilitation of political and economic infrastructures, and social programs will heighten the need to maximize revenue collection. In FY 97 the government realized a 34 percent increase in customs and tax revenues.

Reserve requirements (which currently stand at 30 percent for primary reserves) have been the Central Bank's primary monetary policy tool. They have been used to control the money supply and to assist in the financing of the public sector debt. Since November 1996, the Central Bank has successfully conducted bond auctions to control liquidity in the economy, which allow for lower reserve requirements. The Central Bank has a rediscount facility and a lending facility for commercial banks. Use of the rediscount facility has been limited by a lack of eligible financial paper to rediscount. Use of the lending facility has been limited by the relatively high interest rate charged (usually the legal maximum), and low legal limits relative to bank capital on the amounts commercial banks can borrow. An interbank market also exists.

Haiti's fiscal record is weak. Tax collection historically has been quite poor and fiscal restraint equally lacking. Government deficits, caused by a bloated public sector, central government support for inefficient state-owned enterprises, and significant non-budgeted expenses, were all financed through Central Bank credit and/or foreign borrowing or grants. In April 1996 the Ministry of Finance and Central Bank put the government on a day-to-day cash basis. This was discontinued in FY 97. The government showed greater cash management system restraint in fiscal disbursements, and Central Bank credit to the government sharply declined. These actions, along with a successful effort to improve tax collection in FY 96, allowed the government to meet IMF performance benchmarks and to negotiate an ESAF agreement, which was approved by the IMF board on October 18, 1996. The long delay in approving a FY 97 budget and the delay in appointing a new prime minister and government during 1997 led to the need to renegotiate of the ESAF program in FY 98.

2. Exchange Rate Policy

For decades Haiti's currency, the gourde, was officially tied to the U.S. dollar at the rate of five to one. A parallel market for foreign exchange emerged in the early 1980s, but for several years the official exchange rate continued to hold for some transactions. On September 16, 1991, the Central Bank ceased all operations at the official rate. In April 1995, the Central Bank abolished the 40 percent surrender requirement of export earnings. Haiti now has no exchange controls or restrictions on capital movements. Dollar accounts are available at local commercial banks. The gourde is allowed to float freely relative to the U.S. dollar and other currencies. The exchange rate has gently declined from 15.5 to 17 gourdes per US dollar during FY 97. Some critics of tight central bank monetary policy, particularly in the banking and export sectors, feel the gourde has become overvalued and might face swifter depreciation in the future.

3. Structural Policies

The government's role in Haiti's market-oriented economy has been sharply reduced since 1986/87. In the few cases where the government has attempted to control prices or supplies, its efforts were frequently undercut by contraband or overwhelmed by the sheer number of small retailers. Consumer prices are governed by supply and demand, though the small Haitian market is imperfect for determining some prices. Gasoline pump prices and utility rates are more effectively regulated, and are probably the only exceptions to market prices. By law, gasoline pump prices are adjusted to reflect changes in world petroleum prices and exchange rate movements.

Haiti's tax system is inefficient. Direct taxes on salary and wages represent only about 25 percent of receipts. Moreover, tax evasion is widespread and taxpayers previously were not registered with the tax bureau (DGI, Direction Generale des Impots). Not surprisingly, the government has made improved revenue collection a top priority. The DGI has organized a large taxpayers' unit which focuses on identifying and collecting the tax liabilities of the 200 largest corporate and individual taxpayers in the Port au Prince area, which are estimated to represent over 80 percent of potential income tax revenue. Efforts are also being made to identify and register all taxpayers through issuance of a citizen taxpayer ID card. In addition, the value added tax has been extended to include sectors previously exempt (banking services, agribusiness, and the supply of water and electricity). Collection remains weak and inefficient, though receipts rose by 34 percent in 1997 (in nominal terms).

4. Debt Management Policies

Following the 1991 coup which ousted President Aristide, Haiti suspended all payments on its foreign debt. When President Aristide returned to office in October 1994, Haiti's arrears with the international financial institutions (IFIs) totaled some $84 million. The international community made it an immediate priority to clear Haiti's arrears with the IFIs so that new lending could begin.

On May 30, 1995, the Paris Club agreed to reschedule all of Haiti's bilateral debt to Paris Club members. Roughly two-thirds of this debt ($75 million) was forgiven under "Naples" terms. The balance was rescheduled over 26-40 years. An overwhelming percentage (91 percent in FY 1995, 85 percent in FY 1996) of Haiti's debt is in concessional loans from the IFIs. These loans typically have 10 year grace periods, 40 year payback periods, and negative real interest rates.

Haiti's external public debt will rise to about 40 percent of GDP in fiscal years 1998-1999 (from 34 percent at the end of FY 96). Haiti's external debt service will rise to about 19 percent of exports of goods and services in 1998 from 17 percent. With this modest debt service burden, the country should be able to meet all its obligations in a timely manner. However, debt service capacity is sensitive to unexpected changes in the rate of growth of exports and changes in import prices.

5. Significant Barriers to U.S. Exports

With the lifting of all economic sanctions against Haiti, the sharp reduction in tariffs, and the government's decision to remove all import licenses and the 40 percent foreign exchange surrender requirement on export earnings, there are no significant barriers to U.S. exports. The resumption of normal trade in October 1995 unleashed tremendous pent-up demand for U.S. goods. The import of firearms and other weapons into Haiti is controlled for foreign policy reasons. Haitian importers must obtain a license to purchase such goods from U.S. suppliers. Haiti, through the Presidential Commission for Growth and Modernization, is actively working to facilitate foreign trade and investment.

6. Export Subsidy Policies

Haiti has no export subsidy programs.

7. Protection of U.S. Intellectual Property

Infringement of intellectual property rights has not been a significant issue in Haiti. The economy produces a small variety of products, most of which are for export to the United States and other countries that do not tolerate open infringement. Most manufactured goods sold here are imported. The most obvious example of intellectual property rights infringement is the handful of video outlets where poor quality pirated videotapes compete with legitimate products. Pirated music cassettes are also widely available and the outside walls of many schools are brightly painted with (generally poor) representations of licensed animated characters.

Although the legal system affords protection of intellectual property rights, weak enforcement mechanisms, inefficient courts, and poor judicial knowledge of commercial law dilute the effectiveness of this statutory protection. Moreover, injunctive relief is not available in Haiti, so the only way to force compliance (should it become necessary) is to jail the offender. Efforts to reform and improve the Haitian legal system, now being undertaken with the assistance of international advisors, may prevent more extensive abuse of intellectual property rights as Haiti's economic recovery progresses.

Haiti is signatory to the Buenos Aires Convention of 1910 and the Paris Convention of 1883 with regard to patents, and to the Madrid Agreement with regard to trademarks, and is a member of the World Intellectual Property Organization. However, Haiti is not a signatory to the Berne Convention on copyright.

8. Worker Rights

a. The Right of Association: The constitution and the labor code guarantee the right of association and provide workers, including those in the public sector, the right to form and join unions without prior government authorization. The law protects union activities, while prohibiting closed "union shops." The law also requires unions, which must have a minimum of ten members, to register with the Ministry of Social Affairs within 60 days of their formation.

Six principal labor federations represent about five percent of the total labor force, including about two to three percent of labor in the industrial sector. Each maintains some fraternal relations with various international labor organizations.

b. The Right to Organize and Bargain Collectively: The labor code protects trade union organizing activities and stipulates fines for those who interfere with this right. Unions are theoretically free to pursue their goals, although government efforts to enforce the law are non-existent. Unions complain that employers do not allow unions access to workers, and individuals who attempt to join unions risk being fired. Organized labor activity is concentrated in the Port-au-Prince area, in state enterprises, the civil service, and the assembly sector. The high unemployment rate and anti-union sentiment among some factory workers has limited the success of union organizing efforts. Collective bargaining is nearly nonexistent, especially in the private sector. Employers can generally set wages unilaterally.

Haiti has no export processing zones, and the labor code does not distinguish between industries producing for the local market and those producing for export. Employees in the export-oriented assembly sector enjoy wages and benefits above the legal minimums. Wages appear to be somewhat higher in the more capital-intensive industries producing for the local market.

c. Prohibition of Forced or Compulsory Labor: The labor code prohibits forced or compulsory labor. However, some children continue to be subjected to unremunerated labor as domestic servants. Rural families are often too large for the adult members to support, and children are sometimes sent to work for urban middle-class families in exchange for room and board. Reports of abuse are common, but the Ministry of Social Affairs rarely exercises its authority to remove children from abusive situations.

d. Minimum Age for Employment of Children: The minimum employment age in all sectors is 15 years. Fierce adult competition for jobs ensures that child labor is not a factor in the industrial sector. As in other developing countries, rural families in Haiti often rely on their children's contribution of labor in subsistence agriculture. Children under 15 commonly work at informal sector jobs to supplement family income. The International Labor Organization has criticized the Ministry of Social Affairs' enforcement of child labor laws as inadequate.

e. Acceptable Conditions of Work: The legal minimum daily wage is 36 gourdes (about $2.12). Annually, a minimum wage worker earns about $670, an income considerably above the per capita gross domestic product, but sufficient only to permit the family to live in very poor conditions. The majority of Haitians work in subsistence agriculture, a sector where minimum wage legislation does not apply.

The labor code governs individual employment contracts. It sets the standard workday at 8 hours, and the workweek at 48 hours, with 24 hours of rest on Sunday.

The code also establishes minimum health and safety regulations. The industrial and assembly sectors largely observe these guidelines. The Ministry of Social Affairs does not, however, effectively enforce work hours or health and safety regulations.

With more than 50 percent and possibly 75 percent of the active population unemployed or underemployed, workers are often not able to exercise the right to remove themselves from dangerous work situations without jeopardy to continued employment.

f. Rights in Sectors with U.S. Investment: U.S. direct investment in goods-producing sectors in Haiti is limited, consisting of ownership of two garment factories and a very few joint ventures in export-substitution industries. In general, conditions differ little from other sectors of the economy. Wages paid in these industries tend to be above the legal minimum, and in the case of industries producing for the local market, often a multiple of the legal minimum. Employers in these sectors frequently offer more benefits than the average Haitian worker receives, including free medical care and basic medications at cost.

Category	Amount
Petroleum		(1)
Total Manufacturing		(1)
Food & Kindred Products	0
Chemicals & Allied Products	0
Metals, Primary & Fabricated	0
Machinery, except Electrical	0
Electric & Electronic Equipment	0
Transportation Equipment	0
Other Manufacturing		(1)
Wholesale Trade		0
Banking		2
Finance/Insurance/Real Estate		0
Services		2
Other Industries		0
TOTAL ALL INDUSTRIES		45

(1) Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis

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