FIE 'CRY Report No. 1243-HA Current Economic Position and Prospects of Haiti (In Two Volumes) Volume l: Main Report flU L1A & fILE December 7, 1976 Latin America and the Caribbean Regional Office FOR OFFICIAL USE ONLY Document of the World Bank 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 Fank authorization. Currency Equivalents Currency Unit = Gourde (G) US$1 = G5.00 Gl = US$0.20 GI million = US$200,000 Fiscal Year October 1 - September 30 FOR OFFICIAL USE ONLY CURRENT ECONOMIC POSITION AND PROSPECTS OF HAITI. Latin America and the Caribbean Regional Office This Report is based on the findings of an economic mission which visited Haiti in April 1976. The mission was led by Alexandre Nowicki and included the following members: Alberto Eguren (Economist), Jean-Paul Pinard (Economist), Laszlo Garamfalvi (IMF - Public Finance) and Michael Zuntz (OAS - Balance of Payments). The mission also benefitted from the brief assistance of Gerardo Soto (Agriculture). TPA docwnSnt has a utricted diWibution UM may be wed by recipents only in the performance of their official duties. Its contents may not otlwise be diuciced without World bank authorization. CURRENT ECONOMIC POSITION AND PROSPECTS OF HAITI Table of Contents VOLUME I: MAIN REPORT Page No. COUNTRY DATA MAP SUMMARY AND CONCLUSIONS ................................ i-v I. INVENTORY OF RESOURCES FOR GROWTH ...................... 1 II. LONG-TERM TRENDS ....................................... 5 Fconomic fTLends ......................, 5 Social Trends ..................... 7 III. RECENT DEVELOPMENTS .................................... 11 Growth ...................... ...................... 14 Foreign Trade ..................................... 14 Private Consumnption and its Social and Economic Implications ..... ...................... 15 International Comparisons .......... .. ............. 16 IV. MANAGEMENT OF TIhE ECONOMY ......................... .... 19 Institutions .. ............ 19 Money and Prices ....... .......... ................. 26 Public Finance .................. .................. 30 Balance of Payments .................. 45 V. STRUCf[JRE,(DF TfIE ElCONOMY ................................ 63 Agriculture ................... .................... 63 Manufacturing .. 69 infrastructure .. ........... 72 Transport .. ....................................... 72 Telecommunications ................ ................ 73 Water Supply and Sewerage . . 74 Social Sectors ....... ........... .................. 75 Education .................... ..................... 77 VI. FUTURE PROSPECTS ....................... 81 Reorganization of Public Finance Management ... .... 81 Inivestment Requirements ........................... 82 Financing of Public Investment .................... 86 TABLE OF CONTENTS (Continued) TEXT TABLES (Continued) Page No. Table 22 Expenditures on Health 42 Table 23 Health Expenditures per capita 42 Table 24 Financing of Public Sector Development Expenditures 43 Table 25 Financing of the Public Sector Deficit 44 Table 26 Summary Balance of Payments 46 Table 27 Gross and Net Exports, 1970-75 47 Table 28 Small Industry Exports Including Assembled Components 52 Table 29 Tourism: Some Indicators of Trends, 1973-75 54 Table 30 Merchandise Imports 55 Table 31 Imports of Large Groups of Products 56 Table 32 Capital Goods Imports 57 Table 33 Estimate of Non-essential Imports 59 Table 34 Capital Movements and Reserve Position of the Banking System of Haiti 61 Table 35 Health Indicators in Selected Countries 75 Table 36 Public Investment 86 Table 37 Public Sector Finance, 1976-80 88 Table 38 Financing of Development Expenditures of the Public Sector: 1976-80 89 Table 39 Public Savings Requirements 89 VOLUME II: STATISTICAL APPENDIX TABLE OF CONTENTS (Continued) TEXT TABLES Page No. Table 1 Basic Aggregates of Haitian Development 13 Table 2 Financing of Private Consumption 16 Table 3 Basic Economic Indicators Compared with Expected Values 18 Table 4 Public Revenue Collection in Haiti 21 Table 5 Role of the Public Institutions In the Collection and Expenditure of Public Funds 22 Table 6 Execution of Investment Plans 24 Table 7 Money and Price Movements 28 Table 8 Transactions Demand for Money 29 Table 9 Sources of Financing of Net Domestic Credit of the Banking System 29 Table 10 Source of Expenditure Growth 31 Table 11 Public Finance Deficit and its Financing 31 Table 12 Consolidated Public Sector Savings 1974-75 32 Table 13 Revenues in Percentages of GDP 33 Table 14 Growth of Central Government Revenue, 1971-75, in Percentages Per Annum 34 Table 15 Composition of Tax Revenues 35 Table 16 Customs Duty Collections 36 Table 17 Central Government Revenue and Deficit 37 Table 18 Central Government Budgetary Current Expenditures by Function 38 Table 19 Central Government Extrabudgetary Expenditures - Development and Current 39 Table 20 Expenditures on Education 40 Table 21 Current Expenditures on Primary Education 41 Page 1 of 2pages ECONOMIC INDICATORS 11 GROSS NATIONAL PRODUCT IN 1975 ANNUAL RATE OF GROW1H (%, constant prices) US$ Mln. S 1960 -67 1967 -72 1972-1975 GNP at Market Prices 870.5 100.0 0.1 2.9 3.0 Gross Domestic Investment 98.0 11.3 .3.0 18.5 12.5 Gross National Saving 55.1 6.3 -16.5 44.2 -23.0 Current Account Balance -2.8 -0.3 Exports of Goods, NFS 118. 3 13.6 -2.2 9.2 -1.2 Imports of Goods, NFS 154.4 17.7 0.2 7.0 11.0 OUTPUT, LABOR FORCE AND PRODUCTIVIITY IN 1975 Value Added Labor Force V. A. Per Worker US$ EIn. . % U Agriculture 398.3 45.4 ,, Industry 150.0 17.1 Services 329.0 37.5 * Unallocated Total/Average 877.3 100.0 ,. .. 100.0 GOVERET FINANCE General Goverrment 2/ Central Government G Mln.) __ of GDP ( G ln.) % of GDP 1 1975 197475 1-97 1975 1974- 75 Current Receipts 489.4 3/ 11.2 10.5 3/ 475.4 10.8 10.2 Current Expenditure 456.4 / 10.4 9.8 4/ 452.6 10.3 9.8 Current Surplus 33.0 O.o7 2 ob7 Capital Expenditures./ 288.4 6.6 5.7 213.9 4.9 L.1 External Assistance (net)4t 206.3 4.7 3.1 182.0 4.1 2.8 MONEY, CREDIT and PRICES 1970 1971 1972 1973 1974 l975 (Mllion G outstanding end periodT Money and Quasi Money 198.2 251.2 321.1 408.4 530.7 595.5 Bank credit to Public Sectorl/ 189.2 202.5 215.3 244.7 331.6 415.6 Bank Credit to Private Sector 6s.3 78.5 92.1 170.6 310.6 451.3 (Percentages or Index Numbers) Money and Quasi Money as % of GDP1 9.7 11.3 13.8 14.4 14.8 13.6 General Price Index (1965 - 100) - 109.8 112.8 116.2 145.8 164.3 201.6 Annual percentage changes ins General Price Index 3.3 2.8 3.0 25.5 12.7 22.7 Bank credit to Public Sector 7/ -2.1 7.0 5.4 13.7 35.5 25.3 Bank credit to Private Sector 9.9 20.2 19.6 85.2 82.0 45.3 NOTEt All conversions to dollars in this table are at the average exchange rate prevailing during the period covered. 1/ Data refers to fiscal years ending September 30 2/ Consolidated 4ccounts of.the-2entral Government and Puiblic Enterprises 3/ Includes net operating surpluses of public corporations / Includes net operating deficits of public corpcrations 5/ Includes technical assistance expenditures 6/ Net loans and grants 7/ Includes IDB and ID: credits to the nublic seeto' channeled through the National Bank 8/ GDP deflator not available not applicable TRADE PAYMENTS AND CAPITAL FL0WS BALANCE OF PAYMENTS MERCHANDISE EXPORTS '-AGE 1 Liyj 197 4 197 5 US $ Mln % (Millions US $) Exports of Goods, NFS 7.-0 115.2 118.3 Coffee 21.0 25.8 Imports of Goods, NFS 95.7 134.9 154.4 Sugar 4.7 5.8 Rsr GP(fi= -) - 7 Essential Oils 5.0 6.1 Resource Gap (deficit -17.7 -19.7 3 Sisal 3.0 3.7 Interest Payments (net) -o.6 -o.6 -0.5 Bauxite 7.9 9-7 Small Industries 37.9 46.5 Other Factor Payments (net) -3.c -5.3 -6.3 Net Transfers 19.1 26.9 40.1 All other comnmodities 2.0 2 4 Balance on Current Account -3.o 1.3 - Total .5 _ 00.0 Direct Foreign Investment 7.0 7.9 2.6 EXTERNAL DEBT DECEMER 31, 1975 Net MLT Borrowing Disbursements .2 8.4 22.4 US Mln Amortization -6.1 -4.8 -6,9 Subtotal -2.9 3- 1.2 Public Debt, incl. guaranteed 62.0 Non-Guaranteed Private Debt Total outstanding & Disbursed 62.0 Other items n.e.i -2.2 -2-7 -39.5 3/ Increase in Reserves (+) 1.1 -19.9 -23.5 DEBT SERVICE RATIO for 1975- Gross Reserves 2 20.1 14.7 12.8 Net Reserves 4 19.5 -0.b -24.1 Public Debt, incl. guaranteed 5-7 Non-Guaranteed Private Debt Fuel and Related Materials Total outstanding & Disbursed 5.7 Imports 4.3 12.4 11.2 Exports - - - IBRD/IDA LENDING, (I C -,157s (Million US $): IBRD IDA RATE OF EXCHANGE _ Outstanding & Disbursed - 1'.3 Throth -1971 Since -1971Unibre US $ 1.00-Undisbursed US 1.00 US = 1.00 G5.0 Outstanding incl. Undisbursed - 51.6 G 1.00 = TJS $ 0.20 G 1.00 = IJS $ 0.20 1/ Data refers to fiscal years ending September 50. 2' September 50 Ratio of Debt Service to Exports of Goods and Non-Factor Services. not available not applicable Country Programs I Latin America and the Caribbean Regional Office r'.tober 26, 19 76 73' 7; 7 72 ~~~~~~~~~~~~~~~~~~~~~~~~~~~IBRD 10955 s S A I' } A < rD ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~7772' i t ,, v ~~~~~~~~~~~~~~~~~~A T Z A N T C ot- _ OC A 2 \ r,: ~~~~~~~~A 7 I A N) t / O ¢C FA I Ch > nf 2 \ . oh o Posnt ]wQn ;v!eS t~~~~~~~~~~~~~~~~~~~~~~~~ORT.DE-?AIX , (_ > E , ' Xl,- ; '- > o C7c 05 i' MAJOR ROAD PROJECTS 1, T7':'. l 4--noLV'-s.;l N 5 f TH E RlN RO A D (R EC O 7N STR U C T IO N ) ; : \ l o 5 | X x J x ? ASPHALT, s f ' MUNTAIN RANGES . bwsqei ,;! xr° ~~~~~PILATEAU 'V rep. , ,r>el > > a 0;; DEPAvRTMENT BOUNDARIES __° " :*,1 INTERNATIONAL BOUNDARIES e ,i .r.M \ .. . -1: 0 ~--~RIVERS t+'i.>If e.eSA: Ip e r7 A9 7|0 __ _, 1 < < t $ / Sentul,# W , Si 7->+-<\ < < $ r ZL E7;E C KILO.ETERS ed < X f> z '~~~~~~7 , = NCW . P~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-\\:aIe.r fbvn0Svd &L) C ,4~~~~~~~~~~~T k'; / sSEf \ FAAs ir e1LS 7r30 '~~~~~~~~~~ i- 33 X 713 1 >iQy SUMMARY AND CONCLUSIONS 1. Haiti is at present among the thirty or so poorest countries in the world - overpopulated, with limited arable land, scant proven and commercially exploitable mineral resources and largely illiterate population. The rift between the cities and the rural areas, resistance to technical progress and to the need to modernize administration, long periods of insecurity and the existence of an elitist system of education are factors which explain the country's inadequate development. 2. During the last five years of the new Haitian adanirlistrAtion, some major positive departures from the practices of the recent past have taken place. In particular the country became open to foreign expertise and direct foreign investment and sought to obtain substantial concessionary financing for new and important projects. 3. In spite of these favorable indicators, a number of constraints to economic and social development persist. Chief among these constraints is the slow growth in agriculture, which contributes almost one-half of Haiti's GDP and provides a livelihood to 80 percent of its population. The growth of the sector, which was negative during the decade of the sixties partly because of natural disasters, has somewhat accelerated in the seventies, reaching 1.2 percent per annum in 1971-75. As population growth in rural areas was on the order of 1.1 percent per annum there was practically no increase in per capita income in rural areas for a long time. The average income of about 90 percent of the population of rural areas was not more than US$45 in 1970, a level considered as below the threshold of absolute poverty in HaitL. While this level is calculated to have attained presently about US$80, this increase could be attributed almost exclusively to the price inflation. 4. The growth dynamics of sectors located in the urban areas provides more reasons for optimism. In particular, the manufacturing and construction sectors while still in their infancy, grew at more impressive rates. The manufacturing sector which presently accounts for only 12 percent of GDP, grew at 6.8 percent per annum since 1971. Besides a few medium-sized plants producing simple goods for the domestic market, it also consisted of about 150 export-oriented small plants assembling imported inputs and largely owned by foreign capital. The construction industry was buoyant. It grew by some 18 percent per annum and catered in the last year or so to the new large infra- structure projects financed to a large extent by foreign assistance agencies, and otherwise to the middle and high income population of Port-au-Prince, who were the first beneficiaries of the urban centered growth of the last few years. 5. Haiti has an open economy. There are no controls on foreign capital flows and on foreign exchange movements. Its domestic currency is fully convertible. With the international community's revived interest in Haiti, the movements of private and public capital accelerated and began to have an impact on the country's economy and social life. Thus, firstly, the net current transfers into the country attained by 1975, a record level of US$40 million, equal to 4.6 percent of GDP and were sufficient to fill the wide - ii - foreign resource gap of that year. These transfers consisted partly of capital repatriated by returning Haitian residents and partly of grants received from official agencies and private organizations. Secondly, net disbursements of medium and long-term capital, mostly official, amounted to US$21 million in 1975 and compare favorably with hardly US$3 million annually during the preceding four years. Thirdly, the borr6wing abroad by the Haitian banking system has also been substantial. The net foreign liabilities of the banking system increased by some US$20 million annually during the last three years. Most of it was used to finance increases in domestic credit, predo- minantly to the private sector and exclusively on short-term. Fourthly, private direct investment started to establish itself in the country. The amounts were relatively small, never exceeding a total of US$8 million annually but this investment was widely distributed over low cost equipment installed in many small enterprises. 6. Effects of these capital movements were widely divergent. In the broad sense they substantially increased the resource availability of the country. Thus while the GDP in Haiti grew, according to Mission estimates, by only 2.5 percent annually during 1971-1975, its resource availability grew by 5.2 percent during the same period. This helped to step up the public invest- ment effort and public investment began to grow at 32 percent per annum since 1971. A part of the resources contributed by the foreign sector was also chan- nelled into an increase of consumption, reflecting, no doubt, the fact that some private transfers were destined originally for this purpose. Overall consump- tion was growing by more than 4 percent annually, and private consumption was growing by more than 5 percent, while at the same time public consumption underwent a steady decline. In turn, practically the entire increase in private consumption accrued to the population of Port-au-Prince, where the per capita annual growth of consumption reached about 10 percent per annum. 7. This contributed to a further polarization of differences between the city and the rural areas. While per capita consumption in Port-au-Prince was twice that of rural areas in 1970, this ratio had increased to 3.2 times by 1975. The number of jobs in productive sectors in the metropolitan area increased since 1971 by some 9,000 in the manufacturing industry and by 12,000 in the construction industry, compared to an increase of about 80,000 in the metropolitan area's labor force during the same period of which over two thirds came from the rural areas. While, outside the above sectors, additional employment outlets were found in the quickly growing services and in marginal activities, the level of open unemployment in the Port-au-Prince area was estimated to be in excess of 16 percent. As much as 60 percent of the city's population resides in quarters where the living space per person does not exceed 8 square meters and where per capita consumption of electricity is limited to 0.4 kw/h per month. 8. The difference between per capita incomes in the lowest and highest income groups in Port-au-Prince is 1:27, with 2.5 percent of the population receiving almost 20 percent of income and 54 percent of population receiving only 15 percent of income. The middle income group, which in Haitian condi- tions represented income brackets of US$240 per capita per annum in 1970, was - iii - growing quickly. It is composed to a large extent of middlemen and employees in various services in the capital city. A rapid injection of wealth into the Port-au-Prince area and its unequal distribution spilled over in the import bill and the highest and middle income groups accounted for substantial imports of non-essential consumer goods. 9. WThile the difference between the lowest and highest incomes is considerable, unlike in other developing countries, the number of those who receive annual average incomes from labor of about US$1,200 (1970) is small -- about 4,000 persons in all, of whom three-quarters are in the capital city. As they get a relatively small fraction of the entire income of the country, policies aiming to redistribute incomes could alleviate the lot of the poor only if the revenue from increased taxation of luxury consumption is used to assist the rural sector in increasing agricultural production. 10. The balance of payments situation is precarious. Firstly, the net current transfers consist of temporary components, such as donations of private organizations and repatriation of Haitian capital from abroad, and it cannot be expected in future that these components could be maintained at the high level of the last year. Secondly, the growth of profits in industrial and construction activity and the increasingly divergent domestic and foreign price trends, make it both possible and profitable for Haitians to place their capital earnings abroad. The balance of payments residual item of unrecorded transactions, while a rather imperfect measure of this phenomenon, might be considered as an indicator of this trend. They in- creased markedly from around US$9 million annually in the early 70's to over US$40 million annualy in the mid-70's. 11. Recent trade trends make the balance of payments situation even more vulnerable. Haiti's volume of exports of traditional goods--coffee, sugar, cocoa and sisal--was declining or, at best, remained stagnant. The parallel increase in industrial exports contributed only to slow down the decline in overall exports to some two percent annually in real terms since 1971. Exports of light manufactures, assembled from imported inputs, grew from US$13 million in 1971 to US$38 million in 1975, but only one half of these exports could be considered as domestic value added, of which a part of the profit was also often transferred abroad. Conversely, Haiti's imports grew quickly, at 9.1 percent per annum in real terms during 1971-75, and the elasticity of imports to GDP reached a high level of 3.6. A substantial part of these imports, about one half of the total, were consumer goods, of which about 45 percent were of non-essential type. Imports of non-essential goods, equal to US$30 million in 1975 and destined predominantly for consumption in Port-au-Prince, exceeded imports of capital goods by a wide margin. 12. Generally, the country's economic administration needs to be strengthened if the important economic problems accumulated over a long period of time are to be solved. This required improvement of public ad- ministration cannot be achieved unless the recent decline in the salaries of public servants is arrested and reversed so that the public sector can attract and retain qualified personnel. The influence of the public institutions - iv - in their respective areas of economic activity is unclear, whether because it has not been redefined for a long time or because centrally-taken decisions cut across these areas, or, finally because of inadequate flows of information available at the highest levels of economic decision-making. There were only 200 civil servants in Haiti receiving salaries in excess of US$400 per month in 1972 and incomes of the preponderant majority of civil servants were about 40 percent below the average labor income in Port-au-Prince. The Ministry of Finance holds accounts of and exerts control over only 47 percent of revenues collected by its agencies and over 32 percent of total public current and development expenditures. The Planning Agency (CONADEP) directly controls about one-tenth only of total public investment expenditures; not unrelated to this is the fact that investment targets set by it for the key goods-producing sectors, mainly for agriculture, were achieved only to an extent of 52 percent during 1971-75. 13. The key to Haiti's immediate future lies in the development of agriculture. This development should help the Haitian economy along the way toward. regaining an equilibrium between imports and exports at first by halting the tendency of increasing food imports and later by providing addi- tional agricultural products for exports. It should also help in restoring a proper balance between urban and rural incomes and consequently between urban and rural consumption levels. If these objectives are to be achieved, development expenditures in agriculture must increase substantially from their low 9 percent share of total development expenditures during the 1973-75 period. The Government declared in mid-1975 its intention of raising the share of agriculture to an average of 20 percent of development expenditures during the 1976-81 period. 14. An equally important task for Haiti is to restore the leading role and effectiveness of public administration. At present about US$48 million or more than one-third of total public expenditures is made outside the system subject to official recording and accounting. It is desirable that a large part of this expenditure return to the official budget during the forthcoming period, so that it be at least partly utilized to increase public servants' salaries and to provide adequate funds for investment maintenance, the absence of which provoked disrepair of major irrigation and road networks of the country. 15. The international agencies have already committed or are about to commit substantial credit funds to Haiti. These funds are expected to amount to US$60 million annually - US$41 million in credits and US$18 million in grants - contributing the major part of US$87 million necessary for the public sector to finance investment, technical assistance and to provide transfers to private agriculture and industry. To assure that savings of the public sector reach an annual average of US$28 million during 1976-80 up from the level of about US$7 million attained during the last two years, a substantial effort will have to be undertaken by the Haitian administra- tion to increase custom duties, the imposition and collection of which are lagging behind the trend of quickly growing imports. - v - 16. A Joint Commission representing the Haitian Government and foreign aid agencies was created last year to coordinate implementation of foreign assistance to Haiti. The Haitian authorities attach considerable importance to the operation of this Commission and in turn, the participating foreign agencies maintain a close contact between one another. Also, the highest authorities of the Haitian Government seem to be increasingly aware of the country's urgent priorities and may decide to undertake necessary action aimed at designing and implementing new policies, hopefully along the lines suggested above. CHAPTER I INVENTORY OF RESOURCES FOR GROWTH 1. Haiti is the poorest country of the Americas and one of the thirty poorest countries in the world. It is also an overpopulated country. With a total area of only 27,750 square kilometers and a population of about 4.6 mil- lion inhabitants in 1975, the average population density is about 170 persons per square kilometer, comparable to that of the most densely populated countries in the world. The scarcity of arable land worsens the situation of Haiti's population. Arable land hardly accounts for one-third of total land and, if this is taken into account, the average density of Haitian population would amount to about 515 inhabitants per square kilometer, com- pared to 445 persons per square kilometer of arable land in El Salvador, the second most densely populated country in the Western Hemisphere. 2. The country's proven mineral wealth is limited both in scope and extent. Bauxite, the most plentiful mineral, has been mined since 1957. About 700,000 tons of bauxite are exported annually. Copper ore--sedimentary and in veins and usually found in Haiti associated with gold and molibdene-- has been mined since the early 1960's and exported in small quantities. Further copper exploration by two major international copper mining concerns is being carried out at present as well as off-shore oil prospecting. Commercial exploitation of these resources would most probably begin at the end of this decade. In various parts of the country moderate quantities of limestone, sand, gravel, clay, building stone and salt are intermittently extracted for local consumption. Lignite deposits are extensive and there are some manganese deposits, but both remain undeveloped. 3. Agriculture was and remains the exclusive source of livelihood of four-fifths of the Haitian population. The principal food crops are rice and corn, which account, together, for 40 percent of the value of agricultural production. The main export products, coffee and sugar cane, account for another 30 percent of production. Agricultural yields are strikingly low. The soil suffered much from erosion, as trees were cut down to be used for charcoal. Agricultural methods used are those of the past century. With the average farm size estimated at no more than 1.4 hectares and with 88 percent of the peasants still illiterate, there was hitherto little inducement nor, indeed, possibility for modernization of agriculture. The average value of annual crops is about US$290 per hectare at present, and with two-thirds of the rural population holding on average 0.64 hectares per family, average annual income per capita on these small holdings is about US$45 (in 1975 prices) or about one-fourth of the country's GNP. 4. The existing productive capital in Haiti and the country's infra- structure are both scant and underutilized. During the last two decades, 1955-75, the incremental capital output ratio for the entire period amounted to 5.2. Given the length of time, for which this ratio has been calculated, the integral capital-output ratio may be very close to the incremental one. This compares rather unfavorably with the capital-output of 3.2, calculated for developing countries for the 1950-64 period. 1/ 5. The country has about 2,300 miles of roads, of which only 350 miles are paved. Of these, the main highway linking Port-au-Prince with Cap Haitien - the northernmost port - accounts for 170 miles. To travel this short distance, a seven hours' trip is necessary. There was no major highway construction since the mid-1950's until 1974 and in the meantime the road network has deteriorated badly because of an almost complete lack of maintenance. The country's inventory of transport equipment is low. There are, for instance, three passenger cars per 1,000 inhabitants. Of a number of Haitian ports, which in the past assured coastal and international connections, only the port of Port-au-Prince is, at present, being expanded. Despite the increase in the number of cruise ships which might call at Haitian ports and even though coastal shipping accounts for 18 percent of all freight, Cap lHaitien, the second largest port and the principal tourist attraction, can harbor only one ship at a time. 6. Fixed capital in the manufacturing industry is distributed among a few medium sized plants--a cement plant, a flour mill, one large and two small sugar refineries, and a cotton ginning mill. Some amounts of fixed capital were invested in numerous small-size enterprises producing consumer goods (soap, footwear, clothing) and in assembly shops, assembling export goods from imported inputs. 7. Electrical energy capacity is still at its inception, about 70 MW in all. This includes 47 MW of installed hydroenergy, with the remainder distributed among old diesel plants. National average of per capita elec- tricity consumption is at present 32 kwh, about one-third of the consumption level in India. The telecommunication network is scant, with only 14,500 telephone lines, of which all but 500 are situated in the metropolitan area. 1/ The incremental capital-output ratio for 1960-70, calculated for 37 LDC's was 3.2, according to Hollis B. Chenery and Nicholas C. Carter in the "Internal and External Aspects of Development Plans and Performance, "1960-70, Table 6, Development Policy Staff Working Paper No. 141, World Bank, Washington, D.C., February 1973. While it is clear that the marginal capital-output ratio depends on the rate of growth of the economy, and while the latter does not depend exclusively on capital but on such exogenous factors as influence of weather on crops or influence of international market situation on a country's exports, it is also true that the capital-output ratio calculated for the group of 13 countries showing the slowest growth rates was still as low as 4.0, far more favorable than the Haitian ratio. Of all 37 countries only two (Ghana and Argentina) show a capital-output ratio comparable to that of Haiti. - 3 - In per capita terms there is one line per 45 inhabitants in the Port-au-Prince area, compared with one line per 7,200 inhabitants in the rest of the country. While there are 16 active broadcasting stations, and a 2-channel TV station, availability of receivers amounted to only 17 radios per 1,000 persons in the early 1970's, one-seventh of that in Guatemala or El Salvador. 8. A housing inventory of Haiti shows that there were 908,000 houses in the country, of which 721,000 are in the rural areas. The national ave- rage is, therefore, 4.7 persons per house, and this ratio is roughly comparable between urban and rural areas. Most of these houses are small, however, and when converted into a number of rooms, the overcrowding in the country becomes evident by any standards, with 2.3 persons per room (2.5 in the metropolitan area). 9. Squatter settlements proliferate around Port-au-Prince and there are indications that in the early 70's no more than one-fifth of the popula- tion was adequately housed. While no quantitative data are available with respect to the material used in housing construction, surveys indicate that both in the countryside and in the working-class urban communities, the most frequently encountered material is "clissage" (wattle), usually covered with a layer of mud or plaster and sometimes whitewashed. Few of the urban and almost none of the rural housing have electricity. A majority of the popu- lation relies for lighting on kerosene lamps. Water is obtained from streams or wells in the countryside and, in the cities, many domestic households rely on water vendors. 10. Finally, the health equipment is also grossly inadequate. On average, there is one hospital bed per 1,300 inhabitants. Outside urban centers where district hospitals are located, there are few personnel and facilities available. 11. Labor is probably the most important--and certainly the least utilized--resource of the country. Haiti's population was, in 1975, about 4.6 million. There were 1.9 million people in the country in 1919 and 3.1 million in 1950. Its crude birth rate is high, 3.6 percent, but this is largely offset by one of the highest crude death rates in the world, 1.6 percent, (the rate of infant mortality at 150 per 1000 live births exceeds that of India) and by a 0.4 percent emigration rate. Net population growth is estimated to be 1.6 percent per annum. The age structure is that of a young population, with 42 percent below 14 years of age. 12. Unemployment is rampant, and open unemployment alone was estimated at 12.3 percent in the whole country in 1971 and even higher, 16.2 percent in Port-au-Prince. Almost 80 percent of the active population is employed in agriculture, at a rate of 1.7 laborers per hectare, out of 5 inhabitants per hectare. It is calculated that with the use of appropriate crop rota- tion method, the real need for labor in agriculture could be reduced to only 0.4 laborer per hectare. While this indicates that some underemployment in agriculture may now be as much as 75 percent of the active rural labor force, the reality is somewhat less dramatic when one considers that family help has been included in the calculation, that between 10 and 20 percent of farmers have also other occupations beside that in agriculture and that cattle, forestry and fishing could provide 10 to 15 percent of employ- ment not included in the above calculatien. But even the most optimistic estimates yield strikingly high rates of open and hidden unemployment equal to some 49 percent for agriculture and to 62 percent for the entire country. 1/ 13. Only 19.6 percent of the country's population was literate in the early 70's. While the school enrollment is, at 37 percent, still low, the rate of attrition is high. Only five percent of children entering school reach the end of the primary education. The difficulties in gaining access to education, to support oneself throughout school, to graduate and to find employment afterwards are compounded throughout the process. This notwith- standing, a generally high value is placed by the Haitian people on education. But even while beirng largely deprived of the benefits of education, Haiti's population is remarkably perceptive, easily trainable and hard working. 1/ From "Haiti - Problemes de main d'oeuvre et d'emploi, OIT, Geneve, 1976," p. 16. - 5 - CHAPTER II LONG-TERM TRENDS 14. If past long-term economic trends were not favorable to Haiti, it was only partly on account of the country's scarcity of proven exploitable resources, soil aridity or over-population. Other reasons of a less immedi- ately perceptible nature existed. They reside in the sociological background of Haiti. This report would be incomplete if these reasons were not, at least lightly, touched on. Economic Trends 15. The country's present statistical base is still severely inadequate and the information relating to its past is even more so. Suffice it to men- tion, however, that the production of each of its two principal export crops-- coffee and sugar--more than a century ago was as high or higher than it is at present. 1/ 16. Comparisons limited to a somewhat shorter period, including only 50 years of the current century, are equally unfavorable. Thus, during the 1916-26 period, Haiti's annual exports were equal to US$15 million. Since then, prices for Haitian exports grew 3.8 times and its population 2.3 times. Therefore, if per capita exports in real terms were to be maintained, they should have attained in nominal terms some US$131 million by 1975. Actually, their value was only US$93 million gross or US$76 million net. The latter, instead of counting the entire value of sales, includes only the value added of reexported assembled products. The real value of export per capita was declining, depending on the method used, by 0.6-1.0 percent annually during the last half of the century. 17. Success or failure of exports always had a strong influence upon the business cycle of the Haitian economy. Therefore, the slow long term decline of exports combined with cyclical fluctuations resulted in the economy having suffered, during the 36 years between 1921 and 1956, from 8 years of acute crises, 9 years of depression, and 13 years of recession, with only 6 years of relative prosperity. 2/ 18. In these circumstances, per capita income could hardly have been expected to increase. There is no reliable quantitative information on the period preceding 1955, except that economic growth took place in only six years between 1921 and 1956. During the following two decades of 1955-75, 1/ Ragatz, L.J. Fall of the Planter Class - A Study in Social and Economic History (New York, 1928. p. 125). 2/ J. Vilgrain, Les fluctuations cycliques de l'economie haitienne: etude econometrigue, Port-au-Prince (no date) p. 45. - 6 - the Haitian domestic product has been increasing, in real terms, by about 1.7 percent per annum, which implies that there has been practically no increase in per capita income. 19. The main reason for the quasi-stagnation prevailing over this long period of time is the slow development of agriculture. Production of the agricultural sector, which accounted for 49 percent of GDP in 1955 and for 45 percent in 1975, was growing at 1.3 percent per annum during the whole period. The principal compensatory influence came from three sectors-- manufacturing, construction and commerce---the combined growth of which was 2.4 percent per annum during the same period. The fruits of growth contributed by these three sectors benefitted principally the urban minority of Port-au-Prince. 20. During the 1955-75 cycle, the long-term growth of exports of goods and non-factor services, calculated at 2.7 percent per annum, was more favor- able than that of domestic production. However, it should be recalled that an increasing part of exports in the most recent period consisted of goods assembled from imported components, which inflate the gross value of export figures. The specific export dynamics of other exported products is less impressive. Thus, during 1955-75, 1/ the volume of exported coffee was dropping by 1.8 percent annually, that of sugar by 2.2 percent annually and that Qf sisal by as much as 7.1 percent per annum. Cultivation of these products which accounted together at the beginning of the 20 years' cycle in 1955 for as much as 88 percent of total exports, benefitted mainly the rural population and exports were therefore, the main growth incentive of agricul- tural production. The relative importance of these products was displaced by bauxite, and by reexports of products assembled by small scale industries, which, together, accounted for some 45 percent of total exports at the end of this cycle. The assembly of products by small-scale industries benefitted some 20,000 2/ workers employed in Port-au-Prince or if dependents are added, some 80,000 persons in all, compared to some 3.4 million inhabitants of the rural areas who participate in the production of coffee, sisal and sugar cane. It is true that a country should diversify its exports but Haiti is not, and will not for some time, be in a situation where diversi- fication of exports implies a displacement of one item by another. With its labor in abundant supply, the diversification of exports by Haiti should have implied an addition of new items, with existing items con- tinuing their upward trend. This has not happened. 21. During the last two decades or so, the process of urbanization of Haiti became particularly pronounced. The population of Port-au-Prince was 1/ To eliminate the influence of unfavorable crop years, the average of two years was taken at the beginning and at the end of the twenty years cycle. 2! From "Haiti - Problemes de main d'oeuvre et d'emploi, OIT, Geneve, 1976". growing at 5.8 percent per annum, compared with the 1.1 percent per annum growth of the rural population. The professional composition of the active population shifted somewhat during this period. The size of the middle class increased modestly. If liberal professions, technicians and office employees are considered as representatives of the middle class, their share in total employment increased from 1.1 percent in 1950 to 1.8 percent in 1971. At the same time, however, the relative share of population aspiring to enter the middle-class--traders, middle-men and persons employed in non- productive and often informal sector-type services--has more than doubled, from 7 percent in 1950 to 16.4 percent of total employment in 1971. 22. There are a few principal reasons for the deterioration of Haitian agriculture and for the related backward position of the peasantry. Among these are, in the first place, the fragmentation of land. The original land distribution took place with independence when plantations were given or sold in small plots of land to former slaves and soldiers. The continued fractioning of land was influenced by inheritance laws based on the Napoleonic Code, and by laws passed by successive presidents of Haiti. President Louis- Felicite Salomon (1879-88) decreed that squatters could receive title to the land if they cultivated certain crops, and President Stenio Vincent (1930-41) decreed the rural family welfare law which provided for government grants of state lands not exceeding 4.9 hectares to farmers who worked the land effec- tively for at least five years. These developments led to a situation where 95 percent of the agricultural area is now in holdings below 13 hectares, and one-third of it is in holdings below 1.3 hectares each. In these conditions, irrigation and water management are unwieldly. Illiteracy is predominant and agricultural extension services are woefully inadequate, with one extension worker servicinr 8,000 farmers, as compared to about 150 farmers, which is considered effective. It is thus almost inevitable that farm management and technology are both antiquated and that the resulting productivity, depending on the crop, could be doubled and often tripled if more progressive methods of cultivation were spread and adopted. Social Trends 23. An equally important root of deficient economic progress resides in the cleavage between the cities and the rural areas, which goes far back in Haitian history. While Haiti was the first Latin American country to gain independence and the first state in the world to be established by a revolt of slaves, it has also been, for over the century and a half following the 1804 revolution, a country with a rather rigid social structure. Approximately 10 percent of its population were a French speaking, literate elite. The other 90 percent were the illiterate, Creole-speaking masses. The former live in cities, the latter predominantly in rural areas. The education curriculum was, and still is, geared to the needs and preferences of the former. The cleavage between the cities and the rural areas in Haiti has, therefore, not only an economic but also, perhaps above all, a social significance. It is, moreover, aggravated by the physical situation whereby most of the infrastructure of the city-village integrated type (communication, electrical - 8 - energy or other) has hardly branched outside Port-au-Prince. The road network, usually the principal part of such an integrating infrastructure, slipped into a state of disrepair. 24. The differences between the urban and rural areas can be assessed best by analyzing the 1970 income distribution pattern (See Table 1.4). Those who were earning less than US$240 per annum (US$120 per gainfully em- ployed person on the average) represented 87 percent of the total labor force of the country. They represented, however, as much as 92 percent of the professionally active population in rural areas and 54 percent of that of Port-au-Prince. Their incomes accounted for as much as 72 percent of total income of rural areas, but in Port-au-Prince incomes of those earning less than US$240 annually represented only 15 percent of total incomes. The average (for all classes of income) annual income per person employed was equivalent to US$153 in rural areas compared to US$437 in Port-au-Price. This difference is somewhat attenuated by the fact that one out of three persons in rural areas has some sort of income, compared with the much lower ratio of one employed in a family of five in Port-au-Prince. In the final account, there- fore, the average labor income per head of population, including those who were not employed, was US$55 in rural areas compared with US$118 in Port-au-Prince. These incomes exclude income from profit on capital or on intermediation, but include incomes from professional services or the like. 25. The dire inadequacy of these incomes becomes obvious when compared with consumption expenditures in the same year (see Table 1.5). The average annual per capita expenditure on food amounted to Us$43 in rural areas and to US$48 in Port-au-Prince in 1970. While in Port-au-Prince this still leaves a substantial margin for expenditures other than food, in rural areas such a margin was negligible--US$12 per annum, of which US$9 was absorbed by rent and fuel. The situation was worse for those income groups in rural areas where the employed family member was earning, on the average, US$120, which yields only US$40 per person, below the average comsumption level for food alone. When it is recalled that the average expenditure on food allows for a purchase of only 1,700 daily calories, which is equal to 77 percent of normal require- ments in this part of the world, it becomes obvious that 87 percent of the total population--those where one family member out of three earned, on the average, US$120 per annum--were at, or below the absolute poverty level in 1970. 26. While the extent of poverty in Haiti is overwhelming, much more so than in any other country of the Western Hemisphere, inequality in the distribution of incomes, while it exists, is much less glaring than in most countries. Thus, the population in the higher incomes brackets (1970) while in a clearly better position than the group analyzed above, was not numerous. The medium-income class, where income per family member attained US$200 annually, represented only 13 percent of total population and received 39 percent of total income in the country. However, this income class repre- sented only 8 percent and 27 percent, respectively, of total population and income in rural areas. The number of those in higher income groups, whose family members benefitted from annual incomes of US$1,200 per capita, included in 1970 only 4,000 persons in the entire country--or 13,000 persons if their families are included. Two-thirds of this group reside in Port-au-Prince. While their income per family member does not appear exorbitant, it is 28 times higher than such income earned by the lowest paid and major part of the population. Incomes of the highest paid population strata represent barely five percent of total labor income. 1/ 27. The above shows that, because of the small number of relatively well to do people and the comparatively low share of total income held by them, the impact of redistribution of income through income taxation is likely to remain limited and an increase of agricultural production may be the only avenue open for the improvement of the lot of the poor. This, in turn, could only be achieved if a larger part of public revenues is channelled into agricultural investment and agricultural credit. These additional revenues could be obtained through increased taxation of luxury consumption and, therefore, should turn the tide of the deteriorating income pattern. 28. Some possibility exists for setting up domestic production of a few basic consumer goods, provided that the technology involved is of a simple, largely labor intensive type for such items as clothing, soap and detergents that are largely consumed in rural areas. Thus, out of US$30 million worth of clothing, toiletries and cleaners purchased by the Haitian population in 1970, US$19 million was purchased in rural areas. This implies again that the only way toward expansion of industrial production supplying the domestic market is through the increase of agricultural production and the resulting expansion of the rural market for these industrial goods. Other possibilities of import substitution are, at present rather scant. 29. The urgency of finding solutions to rural poverty does not imply that the problem of urban poverty could be neglected. This latter exists and in a very acute form. It reflects itself largely in the inadequacy of food, although of a somewhat lesser acuteness than the one observed in rural regions. If the level of absolute poverty in urban regions is set at US$45 per person per year (at 1970 incomes and prices), at least 58 percent of in- habitants of urban areas are below that level, compared to 72 percent in rural 1/ To this should be added income from capital, although it was insignifi- cant in Haiti. Suffice it to say, that income derived from labor when aggregated, accounts for some 70 percent of the GNP. Capital deprecia- tion accounts for about two-thirds of the remaining 30 percent of the GNP, leaving 10 percent of the GNP for profit. Only a part of these profits, namely, those earned by owners of private enterprises, could be added to incomes in the highest group, who, therefore, even if profits are added, receive a less important part of total income than in most other countries. - 10 - areas.l/ Furthermore, as much as 60 percent of the population of Port-au-Prince has to confront overcrowding. This population lives in quarters where it s calculated that the available living space per person amounts to about 8 m 1/ It was not possible here to adjust these comparisons by relative price levels in urban and rural areas. While it is known that price differen- tials are considerable among the regions, there is no price index avail- able which could be applied to such comparisons. - 11 - CHAPTER III RECENT DEVELOPMENTS 30. Since the present Government took power in April 1971, political violence has slowly ceased to be an issue and a climate of confidence has been largely established. The Government has put a stop to a policy of distrust for foreign technical and economic assistance. Foreign experts started arriving in the country in increasing numbers and by 1976 there were 75 United Nations-related experts in the country. This is a high figure when compared to the overall number of upper echelon Haitian civil servants which does not exceed 200. The inflow of foreign private investment increased from an average of US$2 million annually in the 60's to about US$5.5 million annually in the 70's. Some Haitians returned from abroad and repatriation of savings was estimated at some US$22 million in 1975. Bilateral agencies stepped up their grants to Haiti, which are estimated to have reached US$20 million in 1975. Lending by multinational and bilateral aid agencies in- creased steeply and in terms of net disbursements reached a record figure of US$20 million in 1975, compared to largely negative flows frdm these agencies in the 60's. These figures, while they appear insignificant, become important when set against the backdrop of Haitian development. For instance, public investment in Haiti amounted to only US$9 million annually during 1965-70 and to US$22 million annually from 1971 to 1975. A climate was created which should ultimately--if not immediately--favor economic growth and social development. 31. In the shorter run, economic growth during the 1971-75 period represented already some improvement over the past. It amounted to an annual rate of only 2.5 percent or 0.8 percent per capita per annum. This rather unimpressive rate was mainly the result of a still inadequate performance of agricultural production, though during 1971-75 it grew at 1.2 percent per annum 1/ compared with only 0.8 percent per annum in the immediately preceding past. While still contributing 49 percent of GDP in 1971, this sector was responsible for only 23 percent of the increment to GDP during the last four years. Smaller sectors, such as manufacturing and construction, contributed each almost as much to the growth of the domestic product as agriculture. 32. The rapid development of manufacturing and construction was related to the newly acquired stability and openness of the country. Thus, most of the newly produced manufacturing goods are assembled from imported inputs at some 150 small plants, set up with participation of private foreign investors and reexported abroad. Construction activity, which was growing at about 18 percent per annum, had three main sources. It consisted firstly of construc- tion related to international assistance, largely directed to rehabilitation of the road network, which by 1975 was responsible for 47 percent of total public investment. It consisted, next, of erecting buildings which were to 1/ Mission's estimate. Haitian statistics estimate this growth to have been fractionally higher, revolving around 1.4 percent p.a. - 12 - house fixed capital brought in by small foreign investors. Such construction had been mainly financed by Haitian nationals and leased to these investors reluctant to tie up their capital in real estate even though only small amounts of money were involved. Thirdly, a substantial part of construction activity went into building of private homes for Haitians, especially for those who returned to the country with some capital. 33. This structure of growth was unavoidably related more to external flows than to basic domestic financing and production. For this reason it also affected a far smaller fraction of the population than agricultural growth would have. The cleavage between these two trends should be related to the widening of the resource gap between 1971 and 1975, with exports-- largely agriculture based--declining in real terms in 1975 by 9 percent com- pared with 1971 and with imports--largely urban consumption and investment oriented--having grown by as much as 42 percent in real terms. The resource gap has widened considerably during this period from 0.9 percent to 4.1 percent of current GDP and the country's resource availability grew by one- third quicker than the country's GDP (Text Table 1). 34. The emergence of a wide resource gap was accompanied by a number of parallel and related economic phenomena. Thus, while the resource gap in- creased by 3.2 percentage points of GDP, about two-thirds of it (2.1 percent- age points) is attributable to the relative decline in exports. The relative increase in imports, by 1.1 percentage points of GDP, accounted for only one- third of the increase in the resource gap during this period. 35. This picture reflects only the current price calculation because the GDP implicit deflator and the prices of imports and exports were greatly divergent, with the GDP deflator growing by 4.2 percent p.a. and import prices growing by 2.1 percent during 1955-75. The divergence of these trends has become particularly strong since 1972. From that year until 1975, annual growth of GDP, import and export prices was 20.2 percent, 11.9 percent and 22.8 percent, respectively. Therefore, when calculated in constant 1955 prices, dependence on foreign resources appears more acute. The share of imports in GDP grew from 23.8 percent in 1971 to 30.6 percent in 1975, while the share of exports declined from 24.5 percent to 20.3 percent of GDP. During the same period, the improvement of the terms-of-trade is estimated at 5.1 percent of GDP, and the foreign resource gap is shown to have grown by 5.8 percentage points of GDP. As a result of these changes, resource availability expanded at 5.2 percent per annum, twice the rate of GDP growth and Gross Domestic Income grew at 3.8 percent per annum during 1971-75. 36. Both consumption and investment benefitted from the increase in resource availability but to a different extent. Thus, consumption has increased by 4.1 percent per annum during 1971-75 compared with the 13.8 percent growth of investment. However, it is only when these large aggregates are broken down into components that a serious imbalance in the use of resources becomes apparent. Thus, private consumption grew during 1971-75 at over 5 percent per annum, while public consumption declined in the same period, by 6 percent annually, both in real terms. The trends - 13 - were also largely divergent for investment components, with private invest- ment growing by only 3 percent per annum, while public investment was growing by as much as 32 percent per annum. Table 1: BASIC AGGREGATES OF HAITIAN DEVELOPMENT Relative Shares (in percent of GDP) Growth Constant prices (in percent per annum, Current Prices of 1955 constant 1955 prices) 1965 1971 1975 1965 1971 1975 1965-1970 1971-1975 GDP 100.0 100.0 100.0 100.0 100.0 100.0 1.0 2.5 (Agricultural Unavailable in sector) current prices (49.3) (47.7) (45.4) (0.8) (1.2) Consumption 98.0 92.0 92.9 97.3 89.2 94.9 (0.3) 4.1 Private (89.0) (81.8) (86.1) (88.5) (79.3) (87.9) (0.1) (5.1) Public (9.0) (10.2) (6.8) (8.8) (9.9) (7.0) (1.9) (-6.0) Investment 6.9 8.9 11.2 6.4 10.1 15.4 11.7 13.8 Private (3.9) (6.4) (5.5) (2.8) (7.3) (7.6) (26.6) (3.3) Public (3.0) (2.5) (5.7) (3.6) (2.8) (7.8) (-9.5) (32.5) Resource availability 104.9 100.9 104.1 103.7 99.4 110.3 1.2 5.2 Resource gap 4.9 0.9 4.1 3.6 1.3 7.1 6.2 57.5 Gains from terms of trade does not apply 0.1 -1.9 3.2 decr. incr. Gross Dom. Income it" 100.1 98.1 103.2 1.3 3.8 Trade Imports of goods and NFS 17.6 16.5 17.6 21.6 23.8 30.6 3.9 9.1 (Exports of goods and NFS) (12.7) (15.6) (13.5) (18.0) (24.5) (20.3 (3.4) (-2.3) Import capacity does not apply 18.1 22.5 23.5 5.0 3.5 37. Private urban consumption, mainly concentrated in Port-au-Prince, has been increasing much more rapidly than rural consumption. Using a reasonable hypothesis that the consumption of the rural population depends narrowly on the growth of agricultural production, one can estimate that the former was growing at 1.2 percent per annum during the past four years. Therefore, even though the population growth in rural areas was much slower than that in Port-au-Prince (1.1 percent per annum compared to 5.8 percent per annum), it appears that the annual rates of per capita growth of consumption during 1971- 75 were 0.1 percent per annum for the rural areas and 6.1 percent per annum in the urban areas (see Table 1.5). Furthermore, on the equally plausible hypo- thesis that private urban consumption growth benefitted exclusively - 14 - Port-au-Prince and that the population of other urban centers was growing at a rate only slightly higher than that of the rural population, the implicit per capita annual rate of growth of private consumption in Port-au-Prince becomes as high as 10 percent per annum. 38. This analysis of recent trends leads to a number of tentative conclusions. They relate, firstly, to the unbalanced structure of the growth process, secondly, to the unusual convergence of favorable events making the balance of payments situation temporarily tenable and, thirdly, to the increased polarization of the social situation. 39. Growth. The structure of growth has changed, responding to demand which was mainly financed through injections of foreign exchange. Such was undoubtedly the case of that part of the demand for construction financed by the Haitians who repatriated their savings from abroad. Such might also have been the case of the industrial production fuelled by the demand for products where Haiti already had attained world export records (e.g., for baseball balls, of which Haiti became a leading exporter) and where foreign demand might be soon exhausted. As many of the sources of recent growth may not increase in the future this suggests that the agricultural sector should be considered as a permanent motor of economic growth. If Haiti-is to achieve a 3.5-4.0 percent rate of growth, agricultural growth has to be targeted at, at least, 3 percent per annum. Quickening of the pace of agricultural growth should also help to utilize ongoing investment more fully: for instance, the quasi-totality of the present investment in transport and in education is geared to agriculture. 40. A relation between the relative rates of growth of the private and public investment needs to be considered. The past four years were a period when not only the security of private citizens was reestablished, but also when Haitians with their own capital returned from abroad and new branches of foreig.n private banks were established. Nevertheless, private investment efforts have been weaker in 1975 than in the past few years. This may re- flect not so much the lack of confidence of private investors in the economic future of the country as their indecisiveness in the face of soaring domestic prices with imported goods becoming increasingly competitive and their appre- hensIon at the absence of clearly defined economic policies--or the means for their execution--relating, inter alia, to the screenings and approvals of private investment. 41. The fact that public investment more than compensated for the dis- appointingly slow growth of the private sector investment reflects the presence of relatively lumpy investments recently financed by international lending agencies. 42. Foreign Trade. Haiti's resource gap together with the recent favorable evolution of the terms-of-trade made it possible for the country s resource availability to grow at a rate twice that of GDP (5.2 percent per annurn for the former, compared with 2.5 percent per annum for the latter). This situation does not appear to be based on any permanent element. The resource gap was largely closed thanks to positive net financial transfers - 15 - which might fluctuate considerably in the future such as the repatriation of savings by Haitians and grants from private organizations. The terms-of-trade were improved, in particular, by the influence of the Brazilian frost on coffee prices. Moreover, oil imports declined temporarily when electric energy started being generated by the new hydroelectric plant. 43. The transitory nature of these elements is brought into sharper focus when revised against the background of a decline in the real volume of exports (by 2.3 percent per annum) and a rapid increase in imports (by 9.1 percent per annum) during 1971-75. The elasticity of imports to GDP, in excess of 3.6, remained as high as in the preceding period. This high elasticity is only in part related to the increase in the investment rate (from 6.4 in 1965 to 10.1 in 1971 to 15.4 of the 1975 GDP) and to imports of components destined for reexport and is therefore somewhat preoccupying. The share of capital goods and industrial inputs destined for reexport grew from 24 percent of total imports in 1971 to 28 percent in 1975, and, even when these items are excluded, the import elasticity for the remaining, mainly consumer goods still remains at a level of 3.0. The ratio of imports to GDP (1955 prices) stands now at 31 percent or 18 percent in current prices and high elasticity of imports, especially for consumer goods, could be sustain- able for only a brief period of time. If continued, it would become a strong constraint on future GDP growth. 44. Private consumption and its social and economic implications. The social equity in Haiti has not improved in the last four years, whether it is assessed in terms of differences between the urban and rural standards of living or in terms of the internal income distribution within each of these groups. Thus, if the average per capita consumption in rural areas was US$80 in 1970, it seems to have increased by less than 504 per capita by 1975. At the same time, the estimated per capita consumption in Port-au-Prince, which was equal to US$162 in 1970, grew to US$261 per capita by 1975 (all in 1970 prices). The ratio of per capita consumption between the rural areas and Port- au-Prince changed therefore from 1:2 in 1970 to 1:3.2 in 1975. 45. A further increase of discrepancies between Port-au-Prince and rural areas is hardly tenable. The annual growth in overall private consumption was 5.1 percent per annum during 1971-75. This growth was distributed among rural areas, where annual increases of consumption were circumscribed by 1.2 percent per annum increases in agricultural production, and Port-au-Prince, where overall annual increases in private consumption were of the order of 16 percent per annum--all in real terms. The annual growth of Gross Domestic Income was only 3.8 percent per annum--and one third of this rate was due to a favorable turnaround in the terms-of-trade. While the growth of private consumption in Port-au-Price was, to some extent, financed thanks to new incomes, contributed by quickly developing manufacturing and construction industries, it was also, and to an even larger extent, financed from the foreign resource gap. - 16 - 46. In absolute figures, this situation appears even more striking. Thus, during 1971-75 the overall GDP growth amounted to US$82 million, and the overall resource availability to US$111 million, all in 1975 prices. During the same period of time, private consumption grew by US$104 million of which 84 percent (or US$87 million) went into consumption increases in Port-au-Prince. This was partly financed by the decline of public consumption (by US$20 million) which brought down the increase in overall consumption to US$84 million, and partly financed from the resource gap. Table 2: FINANCING OF PRIVATE CONSUMPTION (in 1975 prices) 1971 1975 Increase 1971-75 Million US$ Million US$ Million US$ Gourdes Million Gourdes Million Gourdes Million Consumption 3,659 732 4,077 815 418 84 Public 406 81 300 60 -106 -20 Private 3,253 651 3,777 755 524 104 (Port-au-Prince) (727) (145) (4,217) (232) (440) (87) Investment 355 71 490 98 135 27 GDP 3,978 796 4,386 877 408 82 Resource Availability 4,014 803 4,567 913 553 111 (Resource Gap) (36) (7) (181) (36) (145) (29) 47. Continuation of this trend, which shows that the overall increase in national production is smaller than the increase in consumption in Port-au- Prince is neither desirable nor possible. This situation might have been prevented in the past. The increase of private urban consumption was not taxed enough. Thus import duties and excise taxes, which constitute the main taxes on consumption were declining by 0.3 percent per annum during 1971-75 in real terms at the same time when imports of consumer goods and food products-- only part of it essential--were rapidly increasing to reach the figure of US$69 million in 1975. Of this a substantial portion was channelled into Port-au-Prince consumption. International Comparisons 48. As noted above, Haitian economic statistics are inadequate and conclusions based on them cannot be other than highly tentative. Never- theless, comparison between Haiti and other small--and poor--countries points to the same salient features of Haitian development, which were singled out as standing in the way of economic and social development of the country and as being untenable in the longer run. Thus, Haiti's private consumption - 17 - is about 11 percentage points above and exports are about 7 percentage points below those of a "standard" country. 1/ Employment in agriculture shows Haiti to be about 14 percentage points above the "standard" country, which, when compared to the relative contribution of primary outputs to GDP, shows that the productivity of Haiti's agriculture was about 10 percent below that of similar countries. Haiti's education expenditures are strikingly below that of a "standard" country--1.1 percent of GDP in the former compared with 3.2 percent of the latter. Finally, tax revenues in Haiti are below those in a "standard" country--12.6 percent of GDP in the former compared with 13.7 percent in the latter. 1/ 75 small countries were chosen for this analysis. Expected values of a "standard" country are those of a country with 5 million inhabitants and with a GNP per capita of US$100. For more details about the method applied see Hollis Chenery & Moises Syrquin "Patterns of Development," World Bank and Oxford University Press 1975. pp. 3-18. Table 3: HiATI- BASIC ECONOLrC INDTDOC.I.ZS C0CMP0lRED WITH' EXPECTED VALUES (all calculated in % in curr nt price) HAITI 2/ SIAN3DARD COUIITRY -/ (GNP/capita in 1964 prices - $94 (C-NP/capTitain l964 $ prices - $100 Population - 4.4 .million Popolation 5.0 million Resource gap - 4.l% of GDP) Resource Ia,&p - 5.C, of GDP) A. Structure of Production ?Pri,zaay Ouzput 1~45.4 42.3 Ir.dustrial Output 17.1 14.2 Uti-lities Cutput 6.4 6.4 Service Output 31.1 36.9 GNP 100.0 100.0 B. Structure of Eroenditures Private Consumption 86.1 75.1 Government Consumption 6.8 14.7 Gross Domestic Savings 7.0 7.2 Gross Domestic Investment 11.1 15.1 C. Public Finance General Government Revenues 12.6 Ž 15.8 Tax Revenues 10.8 13.7 H D. Foreign Trade ErpoPCrts 13.5 20.3 Primary Exports 4.1 14.9 IMar.ufactured Exports 5.6 I.6 Service Exports 3.8 3.3 Imports 17.6 25.5 E. Em,ployment Prinaay (agriculture & mining) 85.0 71.3 % employnent in total labor force Industrial (manufacture & const.) 7.1 9.4 % employment in total labor force Service % Employment in total labor force 7.9 19.4 F. Social Structure Education expenditure-current and capital (as % of GDP) 1.1 3.2 Urbanization ratio (urban/total population) 21.3 20.3 Birth rate 44.0 46.0 Death rate 16.3 18.5 School enrollrment rate (prilnary & secondary) 32.0 35.2 1' 197L-75. 2/ Derived from regression analysis of 75 smaill-size countries of below 15 million inhabitarts. 3/ Includes Regie du Tabac. - 19 - CHAPTER IV MANAGEMENT OF THE ECONOMY Institutions 49. To understand fully the role Haitian institutions play in managing the country's economy, three factors have to be reviewed. These are, firstly, the lack of permanence in the exercise of public functions, secondly, the inadequate salaries of public servants and, thirdly, the absence of a clear definition of the functions of the principal institutions. 50. There is no public service career in Haiti, because officials and employees are not promoted from within their respective institutions. It is therefore difficult to bring into existence an effectively functioning body of civil servants who would hold a tenure guaranteeing their employment rights and would rise through the ranks according to their merits. 1/ 51. Salaries of public servants are low. Thus out of 16,500 public employees in 1973, as many as 16,300 (or 99 percent) were receiving on the average, salaries of US$120 monthly. Only 200 civil servants, including Cabinet Officers, were receiving gross salaries in the range of US$400 to US$1,000 monthly. The preponderant majority (84 percent) of all civil servants were in the US$55 per month category, which, if calculated on per capita basis, including dependents, yields US$130 per capita in 1973, or close to the all- country average income per capita for that year (US$100), and considerably below the average per capita income--in current prices--in Port-au-Prince at I/ Some side effects of this situation have been pointed out for instance in "Haiti: Mission d'Assistance Technique integree," prepared by the Organization of American States (OAS), Washington, D.C., 1972. p. xi, "The general design of the government, on paper according to the laws, is adequate: however, there is an appreciable gap between this design and the existing operating structures of the government. These structural inadequacies are compounded by an excessive concentration of decision- making authority at the highest levels, and frustrating problems of coordination within the ministries due to the excessive proliferation of their dependencies. Further, the autonomous agencies are too autonomous where their functions are closely related to those of the central govern- ment. The public administration is hampered by scarcities of managerial and technical capability, and of operating facilities, on the one hand and a superfluousness of administrative personnel on the other." In 1974 the Government appointed an Administrative Commission in charge of regulating the status of public servants. As of April 1976 the Commis- sion had not yet made its recommendations on this subject. - 20 - that time (US$210). In this situation, the obvious solution for most civil servants was to search for additional sources of income and to invest less time in the exercise of their official duties. This inevitably affected the quality of work, especially at the lower echelons of staff, to an extent that there is often no executing personnel available to whom power--or specific tasks--could be delegated by senior staff. 52. The key institutions responsible for management of the Haitian economy will be discussed below. They were divided into those related to: (i) public finance; (ii) banking, (iii) planning, (iv) statistics, and (v) economic activity. Public Finance Institutions 53. The Ministry of Finance and Economic Affairs is at the core of the public finance management in Haiti. But, compared to other countries its role is limited. To mobilize resources, it relies on two principal public autonomous agencies; the Administration Generale des Contributions (AGC), and the Administration Generale des Douanes (AGD). Of the two other resource mobilization agencies, the Banque Nationale de la Republique de Haiti (BNRH) and the Regie du Tabac et des Allumettes (RTA), the former acts as a receiving agent of the AGC and AGD while the latter collects resources on its own. Both BNRH and RTA collect a substantial part of the revenue, which otherwise would have been directly collected by AGC and AGD. 54. The AGC is in charge of collecting internal taxes which are ear- marked for the current budget, for the development budget and for a number of extra-budgetary accounts. Its counterpart within the Finance Ministry is the Bureau of Public Revenues. This Bureau is required to prepare revenue esti- mates every year, to submit proposals for modification of existing taxes or for the implementation of new ones. It is, however, limited in its action because it depends on insufficient information received from AGC. The AGC records only the revenues allocated to the current and to the development budget, which, together, represent only a part of overall public revenues collected in Haiti. AGD is an autonomous public agency with responsibility for collecting custom duties. Similar to AGC, it does not record the total amount of taxes collected but only the amount which is earmarked for the budget. 55. Total revenues collected in Haiti by all tax collecting agencies were about 475 million gourdes (US$95 million) in 1975. Of these the part channelled through the Budget amounted to only 225 million gourdes (US$45 million) or 47 percent of total revenue collected. While a quasi-totality of the overall revenues has been collected--or at least invoiced for collection-- through the AGD and the AGC, available accounts of these two institutions show the collection of 247 million gourdes, the sum of budgetary contributions and resources spent on their own administration. Therefore, almost 50 percent of revenue collected by these institutions remains unreported. Unreported revenue is credited directly to 300 or so special accounts in the National Bank and used for a multitude of unspecified purposes. The Ministry of Finance has neither access to nor supervision over these accounts. - 21 - Table 4: PUBLIC REVENUE COLLECTION IN HAITI /a Tax Collection (1975 in million gourdes) For Extra- For the Budgetary Own Revenue Collecting Agencies Total Budget % Accounts % Expenses % Internal Revenue (Administration Generale des Contributions - AGC) 111.1 92.5 83 3.4 3 15.2 14 Customs (Administration Generale des Douanes AGC) 361.7 130.1 36 222.6 61 9.0 2 Total 472.8 222.6 47 226.0 48 24.2 5 /a This table is based on mission's inferences and deductions, because statistical information on extrabudgetary accounts is not available. 56. On the expenditure side the knowledge and influence of the Ministry of Finance are also insufficient. The budgetary expenditures consist mainly of wages and salaries specified in detail in each annual budget. These are practically the only fully budgeted items. The other current expenditures of the budget used for recurrent items could be considered as residuals left after salary expenditures. In turn the entire current expenditure of the budget is also a residual, which remains after total revenues collected are earmarked for extrabudgetary expenditures to be paid out of special accounts in the National Bank. This observation is derived from the fact that the share of extrabudgetary expenditures is increasing and therefore obviously enjoys priority claim on available revenue (See Table 5). Extrabudgetary expenditures represented 34 percent of current expenditures of the Government in 1971, and 55 percent in 1975, leaving respectively 66 percent and 45 percent for current budgetary expenditures. 1/ 57. La Regie du Tabac et des Allumettes (Tobacco and Matches Monopoly) has its own tax administration and collection system, and levies taxes called "commissions", on many locally produced and imported goods. Its revenues and expenditures are not made public and consequently can only be estimated (see Table 5). Operations of the Regie are not controlled by the Secretary of State for Finance, and therefore, cannot be included in the planned resource alloca- tion process, although its revenues represent 15 percent of total public revenues and, at least conceptually, should be considered as such. Taxes imposed by the Regie are set without consultation with the Mlinistry of Finance. The Government has recently created a Commission to audit the Regie and to recommend measures to allocate its revenues to the financing of public sector investment. 1/ Sum of items B i and B iii in Text Table 5. Total current expenditure excludes expenditures of the Regie which, when added, reduce the share of current budgeted expenditures even more, from 56 percent in 1971 to 38 percent in 1975. - 22 - Table 5: ROLE OF TUIE PUBLIC INSTITUTIONS IN THE COLLECTION AND EXPENDITURE OF PUBLIC FUNDS (in current prices - millions of gourdes) 1971 1973 1975 Growth Million Million Million 1971-75 Gourdes Gourdes Gourdes (ins) A. Sources Total General Govt. Revenue 305 100.0 356 100.0 555 100.0 16.1 i. Accounted for by Ministry of Finance, mainly for budgetary purposes (customs and Internal Revenue) 156 51.1 191 53.6 247 44. 9.6 ii. Unaccounted for and credited to accounts held by the Central Bank) 107 35.1 112 31.5 228 41.0 23.6 iii. Unaccounted for and credited to account of the RHgie du Tabac 42 13.8 53 14.9 80 14.5 17.5 B. Uses Total General Govt. Expenditure 353 100.0 373 100.0 7u6 100.0 20.t. Current Budget (current exp.) 152 43.1 172 46.1 204 27.3 7.6 Wages Wages & salaries 95 26.7 112 30.0 123 16.5 6.7 Materials etc. 28 7.9 28 7.5 41 5.5 10.0 Transfers etc. 29 8.2 32 8.6 40 5.6 8.4 ii. Development Budget (invest. exp.j) 81 22.9 98 26.3 214 28.7 27.5 (a) CONADEP 13 3.7 11 2.9 13 1.7 zero (b) Other Ministries & Agencies and the Central Bank 68 19.3 87 23.3 201 26.9 31.1 Iii. Unaccounted for current extra- budgetary expenditures (pay- ment from Central Bank accts.) 78 22.1 50 13.4 248 33.? 33.5 iv. Unaccounted for R6gie du Tabac 7T 11.9 ___ _1__.2 __ 10.7 17.5 C. Deficit 48 17 191 41.2 3. Menorandum items: GDP 2.226 2.844 4.386 18.5 Consumption price index 100.0 135169.7 T Investment price index 100.0 146.2 146.8 10.1 - 23 - National Bank 58. The National Bank's activity in Haiti is divided into two main parts: The first has to do with the central banking process proper which includes the functions of commercial banking; the second consists of management of the special accounts. It is this function which involves administering of some G 230 million (US$46 million) in extrabudgetary revenue or 6 percent of GDP which makes the National Bank an influential institution. Its Board of Administration is appointed by the President of the Republic. While the Secretary of State for Finance is the Honorary President of the Board, he has no vote. 59. The extrabudgetary revenue which the National Bank administers is spent without being subjected to any analytical accounting method. There is, therefore, hardly any knowledge as to the specific operational function of these public expenditures and the National Bank's role is limited to checking periodically whether the accounts were not overdrawn. Planning 60. The National Development and Planning Council (CONADEP) was created by Decree of January 17, 1963 with an aim to "formulate a general policy of economic and social development of the Nation as well as to present the principal planning options." Another law, that of May 15, 1973, imposed a collaboration between the Budget Office and CONADEP. At present, however, this collaboration has not yet fully materialized and in its absence invest- ment projects are not provided with sufficient funds for maintenance and other current expenditures. 61. CONADEP's activity differs from that observed generally in central planning offices. Its sectoral analysis and the global economic framework used do not appear to be very closely related to the factual macro-economic framework of Haiti, partly for lack of an adequate statistical base. Nor does CONADEP's activity come close enough to deciding on sectoral projects, or on their priority to the economy, because these are usually independently ela- borated by interested ministries. Consequently, CONADEP's activity is neither able to offer remedies to the imbalances of the country's macro-economic structure, nor is it leaving an imprint on macro-priorities of public projects. 1/ In the latter it is also restricted by the astonishingly small 1/ "National planning and budgetary administration suffers from a lack of a plan containing well-defined objectives, strategies and specified means. CONADEP is caught between an unnecessarily diverse accumulation of functions and a lack of resources. The national statistical system needs improvement in terms of timeliness and accuracy in the production of economic and social data. The budget should be broadened to encompass and consolidate all public sector programs to enhance efficiency in the planning and utilization of internal and external financial resources. Similarly, the public accounting system needs modernization." (OAS Technical Assistance Report, op. cit.). - 24 - t-raction of public investment for which it is either directly responsible (G 13 million or 4.5 percent of public investment), or whose accounts it naintains (for another 9 percent of public investment). This leaves the remiaining 87 percent of public invYc-st'ent outside the direct influence of CONADEP. Table 6: EXECUTION OF INVESTMENT PLANS Total Investment Degree of Execution 1971-75 of Planned Investment Planned Actual Average (in million gourdes) of annual Sectors % _ Weighted Deviations /a Goods-producing Sectors 213.7 25.3 109.9 15.2 51.4 51.8 Agriculture 150.2 17.8 79.2 11.0 52.7 48.4 Industry 55.9 6.6 25.4 3.5 45.4 44.6 Tourism 7.6 0.9 5.3 0.7 69.7 67.2 Infrastructure 383.9 45.5 399.5 55.3 104.1 117.1 Power 75.0 8.9 97.1 13.4 129.5 134.1 Transport 200.6 23.8 209.2 29.0 104.3 98.4 Telecommunication 55.8 6.6 82.7 11.4 148.2 126.9 Water 52.5 6.2 10.5 1.4 20.2 22.8 Social Sectors 186.3 22.1 162.5 22.5 87.2 89.6 Education 30.8 3.6 41.8 5.8 135.7 111.1 Health 97.3 11.5 68.7 9.5 70.6 77.9 Community Development 54.3 6.4 49.9 5.9 91.9 84.6 Housing 3.9 0.4 2.1 0.3 53.8 98.6 Preinvestment Studies 59.6 7.1 49.9 5.9 83.7 55.3 Total investment 843.5 100.0 721.8 100.0 85.6 83.5 /a This method aims to eliminate the influence of inflation on results. Statistics 62. The Haitian Institute of Statistics is responsible for the entire statistical work of the Republic. It employs over 70 employees, of whom about 20 are senior staff. Although it is competently managed, it suffers from inadequate statistical inputs partly because of scarcity of funds (its total budgeted current expenditures, net of wages and salaries, amounted to only US$26,000 in 1975/76), partly because of the unwillingness or incapacity of - 25 - other institutions to provide them. 1/ Thus, the Institute's information on the public sector is incomplete. This lacuna is a source of many important statistical errors. For instance, the Institute calculated economic growth during 1971-75 to have been equal to 4.6 percent per annum in real terms. However, of some US$54 million of GDP increment during that period (1955 prices)--US$23 million--or almost one-half-was attributed to the real growth of the government sector. This was, in turn, explained by an increase of public expenditures which the Institute considered to be tantamount to the material contribution of the public sector to growth. The Mission could find no evidence that the increase in extra-budgetary current expenditures reflected increases in employment by the Government. Consequently, the mission decided to hold the contribution of the public administration to GDP at about the 1971 level. On this latter basis, GDP growth would be 2.5 percent p.a. 63. Similarly, statistical knowledge of the growth of the agricultural sector is scant. Calculations are based on the assumption that at least three-quarters of agricultural growth is geared to the maintenance of per capita consumption of food in rural areas, and, therefore, the growth of agricultural production is smoothed out in statistical series. The Mission used, instead, a representative set of agricultural products and found that agricultural growth has been subjected at times to violent fluctuations, an observation rooted in real life, because the natural disasters in 1973 and 1975, combined with breakdown of the irrigation network, depressed agricul- tural production. Economic Administration 64. The Ministry of Commerce and Industry is one of the most important of the economic ministries. This Ministry suffered most from losses of per- sonnel, probably because its highly qualified personnel might not have found it difficult to move into job openings in the quickly growing industrial and commercial sectors when the salaries paid by the administration proved inade- quate. Administration of industry is based on laws which the Ministry--because of its lack of personnel--may at times be unable to effectively apply, with an adverse effect on the soundness of new foreign investment. Applicants, domestic or foreign, for important tax incentives are hardly screened. A Foreign Investment Commission exists and convenes weekly, but it has little to base its decisions on, as there is no system of filing or of control. The Ministry is supposed to control imports, so as to induce national production of simple goods. This aim may prove to be outside its reach, partly because importers represent a powerful pressure group in Haiti, and partly because the Ministry does not have enough trained personnel to conduct analyses so as to set the appropriate level of import duties. Inactivity in these fields contrasts with a divergence between price trends, noticeable during the past five years and which particularly accelerated recently when domestic prices grew at 20.1 percent per annum during 1972-75, compared with 8.8 percent 1/ In spite of these constraints the Institute has been able to publish im- portant statistical documents in recent years such as the 1970 Socio- economic Survey, the 1971 Statistical Guide, the 1971 Census of Popula- tion, Housing and Agriculture, the 1971 and 1974 Demographic Surveys, the 1971 Industrial Survey and a major revision of National Accounts for the period 1955-75. - 26 - growth of import prices during the same period of time. Domestic inflation, low import tariffs and easily obtainable duty exemptions combined to make the importing activity an increasingly profitable business. 65. The Ministry of Agriculture has been somewhat revitalized recently, thanks to the creation of a Programming Unit at the DARNDR, 1/ with support from ACDI, FAO, IICA, and other agencies, the strengthening of the Bureau of Agricultural Credit (BCA) by USAID, and the proposed creation of a marketing institute at the DARNDR. However, much more is needed to improve the planning, executing and supporting capabilities of the agricultural agencies, parti- cularly in the fields of rural promotion and extension which are essential to any effort in agricultural development. 66. The proposed agricultural Five-Year Plan acknowledges this need to reinforce the public agricultural sector and attempts to attach some of the main obstacles to agricultural development through a series of programs geared to strengthen and improve agricultural services and rural infrastructure as well as sectoral planning, the introduction of a policy of regionalization and establishment of "development islands" throughout the country. These proposed measures are in direct continuation of previous efforts aiming to reduce some of the constraints in the agricultural sector, including the modification of taxes on exports of coffee and sugar, the elimination of market taxes for domestically traded staples; the passing of a law making cultivation of all arable lands compulsory, and the increase of sugarcane prices to producers. All these measures constitute a significant effort to improve the agricultural sector, and a proof of attention given in recent years to agricultural plan- ning. In view of the large demand of financial and human resources required to implement this ambitious plan, however, a careful determination of priori- ties among the various programs would facilitate its implementation within the framework of approved budgetary levels and absorptive capacity of the agricultural puiblic sector. Furthermore, the crucial need to reinforce the DARNDR and its related agencies, which is stressed throughout the Plan, is conditional on the development of agricultural education at both the higher and intermediate levels, as well as on the general policy pertaining to salary levels of public servants. 67. Until decisions are taken to carry out the extensive effort required to strengthen the public agricultural sector, the sector will continue to depend mainly on the relative success of on-going projects. The impact of these projects might become limited by the constraints, frankly recognized in the development plan. Money and Prices 68. Prices. Price inflation was relatively unknown in Haiti before 1972. During the 1967-72 period the GDP implicit deflator and the consump- tion price index 2/ marked an annual increase of only 1.6 and 2.4 percent 1/ Departement d'Agriculture, des Resources Naturelles et du J)eveloppement Rural. 2/ Calculated for Port-au-Prince only. - 27 - respectively. This period was succeeded by a sharp acceleration of inflation during 1972-75 when the GDP deflator and the consumption price index were increasing at 20.3 and 17.6 percent annually. Consumer price index increases averaged 17.6 percent during the same time and, when considered alongside private consumption increases in Port-au-Prince averaging about 16 percent annually in real terms, suggests the influence of a rapid increase of demand on consumer price inflation. 69. Consumer prices in Haiti reflect mainly price changes in food and clothing which constitute respectively 69 percent and 20 percent of the price index. The sharp acceleration of domestic food prices was due in part to the substantial increase of the prices of imported food, which averaged 35 percent annually during 1972-75. Additional pressure on food prices resulted from the sluggish domestic food supply, with the production of four main products (corn, millet, beans and bananas) declining or stagnating, and with imports having to supplement inadequate production of other products (milk, rice, dried fish, fat and oil). 70. Other domestic prices followed. After having remained unchanged for more than 10 years, minimum daily wage rates were increased by 30 percent, from US$1.0 to US$1.3 in January 1974 to compensate for the increased in food prices which took place during the preceding year. Price of construction was increasing by 16 percent annually, and that of clothing by 21 percent. Wahile the statistical evidence is weak, the sequence of events tends to suggest that the unrestricted and quickly growing private demand in Port-au- Prince exerted pressure on domestic food supply and spilled over into imports of food. As foreign market prices for the latter were rising steeply during the last three years, this apears to have been one of the major factors behind the steep increase in Haitian prices since 1973 (Text Table 7). 1/ 1/ A linear regression with Port-au-Prince's Consumer Price Index and the Index of International Inflation shows a high correlation: y = Consumer Price Index x = International Inflation Index y = 5.4 + 0.9 x R2 = 0.976; t = 19.2 Number of observations: 20 - 28 - Table 7: MONFY AND PRICE MOVEMENTS (Annual growth, in %) 1967-72 1972-75 GDP Nominal Growth 4.6 23.9 Implicit Deflator 1.6 20.3 Prices Consumption 2.4 17.6 Food 2.9 18.5 Clothing 5.3 21.0 Housing -1.5 11.6 Investment -3.5 15.9 Imported Equipment -5.7 12.3 Construction -0.7 16.1 Imported Food /a 6.2 35.2 International Price Index 5.0 16.9 Money and Credit Money and Quasi Money 18.7 22.9 Money 16.0 10.2 Quasi-money 25.3 43.8 Net Domestic Credit 8.0 44.0 Public Sector 6.0 24.5 Private Sector 10.4 70.0 /a Selected food imports constituting about 80 percent of food imports during 1975. 71. Money. Contrary to other countries in the Western Hemisphere, monetary expansion appears to have had little influence on prices. The money supply increased during 1972-75 at 10.2 percent per annum, while prices rose at about twice that rate; during the preceding five-year period, when the money supply grew by 16 percent annually, prices were almost stable. Thus, prices were increasing at lower rates when monetary expansion was highest and vice versa. Monetary expansion was also much lower than the annual average increase in nominal GDP during 1972-75, while in the preceding five years - 29 - the reverse was true. From constituting 6.6 percent of GDP in 1967, the money supply reached a peak of 9.5 percent of GDP in 1972 and then progressively declined until it reached 6.7 percent of GDP in 1975 (Annex Table 6.4). 72. Sluggish monetary expansion during a period of sharply accelerated price increases was possible because of a gradual decline of transactions demand for cash balances, i.e., a fast increase of the velocity of money. Table 8: TRANSACTIONS DEMAND FOR MONEY 1972 1973 1974 1975 Transactions Demand 0.095 0.093 0.086 0.067 A principal reason for the decline in transactions demand was the attempt of depositors to protect the real value of financial assets from the effects of inflation through the shift of cash balances into interest-bearing deposits which were further stimulated by an increase in interest rates for time and savings deposits from 2-4 percent to 6-8 percent. 73. The private sector has been the main recipient of net domestic credit during 1973-75 and accounted for about 64 percent of the total credit increase. The demand for credit by the private sector accelerated during these years partly in response to the acceleration of price inflation. Table 9: SOURCES OF FINANCING OF THE NET DOMESTIC CREDIT OF THE BANKING SYSTEM (increases over the period in millions of gourdes) 1971-72 1973-75 Net Domestic Credit 53.1 562.0 Net Foreign Assets 69.8 - Total 102.9 562.0 Financing: 102.9 562.0 Money 76.9 74.5 Quasi-money 46.0 199.9 Net Foreign Liability - 287.6 If the substitution of cash balances for interest bearing deposits had been the only reason for the decline in the transactions demand for money, an - 30 - additional G 288 million would have materialized as an increase of the money supply and not as an increase in foreign liabilities. Recipients of credit were thus using part of the funds obtained from the banking system to finance operations abroad and, in order to adjust to thiis leakage, had to increase the turnover of their cash balances. 74. The use of this credit was at least threefold. Firstly, it was used as normal short-term credit for internal commercial operations. Secondly, it was related to a very steep increase in imports and, in parti- cular, in import prices. Imports of goods and non-factor services were increasing during the last three years at 24 percent per annum in current prices, with the increase of import prices growing from 1.8 percent annually during 1967-72 to 11.8 percent during 1972-75. The banking system had there- fore to increase credit for import financing and a much larger share of the increase in net domestic credit was used to finance imports. Thirdly, a part of this credit might have spilled into unrecorded private capital out- flows and imports which amounted to some US$82 million during 1973-75. Public Finance 75. The influence exerted by central public institutions in the mobiliza- tion and use of funds in Haiti is limited. This, in turn, circumscribes too narrowly the role of the operational budget in allocating resources to current expenditures and in enhancing the efficiency of the public sector. Current expenditures of the Budget have declined in real terms by 5.7 percent per annum during the last four years. Public revenues increased considerably slower than expenditures and the Central Government deficit more than doubled in real terms reaching 4.3 percent of the GDP in 1975. 76. Central Government revenue increased by 15.9 percent per annum during the period 1971-75, a lower rate than that of the nominal GDP. As a result, the Revenue/GDP ratio declined from 11.8 in 1971 to 10.8 in 1975 (Text Table 13). During the same period, growth of expenditures constantly out- stripped the growth of revenues and annual deficits increased from G 47.2 million in 1971, to G 191.1 million in 1975. All three components of total expenditure, namely budgetary, extrabudgetary and development expenditures followed widely different patterns during the period. There has been a steep increase in development expenditures, which accounted for almost one-half (45 percent) of the increase in total expenditure. Of the remaining 55 percent of the increase, the overwhelming share (40 percentage points) is attributable to the increase in extrabudgetary current expenditures, and only a small fraction (15 percent of the total) is due to increases in budgetary current expenditures. - 31 - Table 10: CENTRAL GOVERNMENT: SOURCE OF EXPENDITURE GROWTH (in million of gourdes) Incre- Rate of ments growth 1971 1972 1973 1974 1975 1971-75 % p.a. Total expenditure 310.7 326.3 328.7 440.5 666.6 355.9 21.0 Current expenditures /1 256.8 264.2 263.6 328.6 452.6 195.8 15.2 Budgetary 152.3 159.9 171.8 176.8 204.3 52.0 7.6 Extrabudgetary 104.5 104.3 91.8 151.8 248.3 143.8 24.2 Development expenditures /2 53.9 62.1 65.1 111.9 213.9 160.0 41.1 /1 Total expenditure less development expenditure. /2 Figures based on data provided by CONADEP. For the years 1971, 1972 and 1973 it is assumed that the Central Government financed two-thirds of the public sector investment. For the years 1974 and 1975 available data was used. 77. Toward the second-half of the 1971-75 period annual increments in current expenditures became 1.6 - 3.6 times larger than increases in current revenues. The increase in the deficit during 1974 and 1975 was on the order of 166 million gourdes, almost equal to the increase in total revenues in the same period. To cover this deficit, Haiti was able to use grants donated by official external agencies and foreign private organizations. The importance of these grants was larger, until recently, than the importance of foreign borrowing. Table 11: CENTRAL GOVERNMFNT DEFICIP AND ITS FINANCING (in million Gourdcs) Annual Increments 1971 1972 1973 1974 1975 1972 1973 1974 1975 Total Revenue 263.5 278.8 303.4 334.7 475.4 15.3 24.6 31.3 140.7 Total Expenditure 310.7 326.3 328.7 440.5 666.5 15.6 2.4 111.8 226.0 Deficit -47.2 -47.5 -25.3 -105.8 -191.1 0.3 -22.2 80.5 85.3 Net External Borrowing -6.6 19.1 -15.1 -12.7 63.6 25.7 -34.1 2.4 76.3 Net Internal Boru;z;ing 24.3 5.7 9.3 61.4 8.1 -18.6 3.6 52.1 -53.3 Grants 29.5 22.7 31.1 57.1 119.4 - 6.8 8.4 26.0 62.3 Source: Mission's estimates based on BNRH statistics. - 32 - Table 12: C00,SOLIDA\TFD rWJBLIC SECTOR SAVINGS 1974,-1975 1/ (in Millions Q&L Courdes, Current prices) 14 _ 1975 Central P'IS i olidoted C&ntral Publi c Consolidated Govern. '1terpr. P'blic Sector '"JYt. _ Enterp;;r. Public Sector 1. Total Revorvie '34. 7 ]L.6 342°.3 475.14 14.0 489.4 i. i,%~r^t _ II-cps 328.6 0.5 3'9.1 ) 456, 3.^fT).,^llzer.ta 6. 2.29 m; nu1S -expenr,intures on t-chnica' issistance 36.6 --- 36.6 40.7 --- 4i. Peal ,aR 7 ,c (Deficit) -30.5 L.l -16.L i1t.9 10.2 -7.7 in~us-luas~ of the real valOie of current expenditures -34.9 -34 .9 -45. e -45.0 73yt tical .av ngs (57fi-clt)T- -65.4h 14.. -51.3 -62.9 10.2 -52.7 minus -9 annual 7- 5 --- Increa.ie iti real psblic axp^nditiirea 6. Ultra H'm -otic cal T'.7Thns -Deficit) -191.1 .l -86.0 -132.4 10.2 -122.2 7. Fixed Li estr,ent 2/ expenditlres 75.3 51.3 126.6 173.2 74.5 247.7 u. (Dvera.ll v - eficit , -rea]- ( --appaIrent ) -1 o5. 8 -37.2 -14s3.0 -l'9'.1 -64,'.3 -5 - ultra hypothetical -]7t -37.2 -212.6 -35.6.3 -b -9.9 9. GDP 3, 4,3 10. ODP/apparent savings(,O) 0.56 0.75 11. GOP/real d eficit () -0.L46 -0.02 i:. GUP/ultra hypothetical uieficit -2.4 -2.8 13. (GDP/overall real deficit (g) -11.0 -5.8 11. GTDP/overall ul tra-hy-pothe tical deficit (U) -5.9 -8.4 1/ Excludes the Regie du Tabac 2/ Excludes expenditures on technical assistance - 33 - 78. Savings of the public sector were low, hardly above 0.7 percent of GDP. Moreover, some expenditures, such as those on technical assistance, were considered as related to capital rather than to current expenditures, which also contributed to overstate the level of public savings. The ambiguity in the calculation of public savings is illustrated through introduction of their four different versions: (a) as they appear directly from available accounts; (b) as they would have really been, had expenditures on technical assistance been considered as current, rather than as capital expenditures; (c) as they might have hypothetically become had the real value of current budgetary expenditures been maintained at the 1971 level, instead of declining and (d) as they might have become, had the real value of current budgetary expendi- tures been growing at 5 percent per annum since 1971 (see Table 12). The level of public savings becomes negative as soon as the first of these ad- justments is made. Public Revenue 79. The level of taxation of Haiti, measured by the ratio Total Revenue/ GDP has declined from 11.8 percent in 1971 to 10.8 percent in 1975. 1/ Compared with roughly similar countries, Haiti's ratio is close to the level which might be considered as normal. A "standard" country with a GNP per capita and a size comparable to Haiti, shows a level of public revenues higher by one-fifth than that of Haiti (Text Table 3). Most Central American countries are even closer to Haiti's level. Table 13: REVENUES IN PERCENTAGES OF GDP 1971 1972 1973 1974 1975 GDP 100.0 100.0 100.0 100.0 100.0 Total Revenue /1 11.8 12.0 10.6 9.3 10.8 Budgetary Revenue /1 7.0 7.5 6.7 5.7 5.1 Extra-budgetary Revenue /1 4.9 4.6 4.0 3.6 5.7 Regie du Tabac-Revenue 1.9 2.0 1.9 1.8 1.8 Total Revenue including Regie 13.7 14.0 12.5 11.1 12.6 /1 Central Government. - 34 - 80. Total Revenue grew annually by 15.9 percent in nominal terms (Table 17). This average rate is somewhat misleading because it includes a 42 percent increase in 1975, due to a large delayed payment of taxes on bauxite. In real terms, the growth of public revenues would have been nega- tive if this extraordinary contribution were excluded. Table 14: GROWTH OF CENTRAL GOVERNMENT REVENUE, 1971-75 IN PERCENTAGES PER ANNUM In current terms In real terms 1971- 1974- 1971- 1971- 1974- 1971- 1974 1975 1975 1974 1975 1975 Total Revenue 8.3 42.0 15.9 -4.1 20.4 1.5 Budgetary Revenue 9.7 9.4 9.6 -2.8 -7.3 -4.0 Extra-budgetary Revenue 6.2 94.1 23.5 -5.9 64.6 8.2 81. The totality of public revenues is derived from taxes, in which customs revenue continues to play a dominant role. - 35 - Table 15: COMPOSITION OF TAX REVENUES (In Percentages) /1 1971 1972 1973 1974 1975 Tax Revenue 100.0 100.0 100.0 100.0 100.0 Customs Revenue 56 3 52.6 49.0 51.8 50.5 Import Duties 41.7 40.7 38.4 39.1 35.9 Coffee Export Taxes 12.3 10.1 8.7 10.2 9.7 Other Export Taxes 1.1 0.7 0.6 0.7 4.3 Other 1.2 1.2 1.4 1.9 0.6 Income Tax 10.7 12.0 15.1 16.9 20.1 Enterprises 8.5 9.8 12.7 13.9 16.6 Individuals 2.2 2.2 2.4 3.0 3.6 Excise Taxes 19.2 22.0 22.5 15.4 13.0 Flour 8.2 8.6 10.5 5.7 3.2 Sugar 4.8 5.3 4.6 2.9 3.2 Cigarettes, Oil and Other 6.3 8.3 7.5 6.9 6.7 Other Tax Revenues 14.0 13.6 13.6 16.0 16.6 Identity Cards 1.7 1.7 1.7 1.8 1.9 Mortgage Registry 1.2 1.5 1.8 2.1 2.3 Vehicles 1.5 1.5 1.7 1.8 1.7 Stamps 2.9 2.9 3.0 3.4 3.4 Other 6.9 6.2 5.5 7.1 7.4 /1 Central Government Budgetary Revenues Source: Ministry of Finance. 82. The evolution of import duty collections, when set alongside the rapid increase in imports shows that the ratio of import duties to imports has been consistently declining and that, therefore, import duties as a source of revenue is probably underutilized. A partial explanation is that this decline was largely due to the increase in duty-exempt imports during this period, whose share in total imports grew from 28 percent in 1971 to 40 percent in 1975. However, even after taking into consideration the effect of exemptions, there still remains an important--at least until 1974--and unexplained differ- ence between the growth rate of imports and of import duties. - 36 - Table 16: CUSTOMS DUTY COLLECTIONS (in millions of gourdes) 1971 1 1973 1974 1975 Import duties 114.2 117.6 127.5 148.7 212.8 Imports 296.2 329.2 383.3 556.6 680.8 Import duties/imports (x) 47.9 35.7 33.3 26.7 31.3 Duty-exempt imports 82.2 99.4 93.7 203.7 274.8 Taxable imports 214.0 229.8 289.6 352.9 406.0 Duty exempt imports/total imports {%) 28.0 30.0 24.0 36.0 40.0 Import duties/Taxable imports (%) 53.4 51.2 44.0 42.1 52.4 83. There exist at least three possibilities to use custom duties more efficiently. The first is a strict enforcement of ad valorem rates. Haitian authorities have estimated that had ad valorem rates been enforced more strictly revenue from import duties would have been 14 percent higher in 1975. No data is available for other years but it is not unreasonable to assume that this percentage is also valid over time. The second source could be sought in reduction of import duty exemptions which in 1975 affected 40 percent of imports, and this despite the fact that only 16 percent of imports were inputs destined for re-export. A third source of possible increase would be a selective increase of import duty rates which in many cases appear to be too low (see chapter on the Balance of Payments). The use of these three measures could have yielded a 36 percent increase in import duties in 1975 equal to 77 million gourdes. This would have added 16 percent to the total revenue collected in this year, and would have reduced the overall Central Government deficit by 41 percent in that year. Actual import duties in 1975 212.8 million Gourdes Strict application of ad valorem rates 29.8 " Selective increase of duty rates 42.6 " Elimination of some exemptions 4.3 " Total 289.5 " 84. Two other sources of customs revenue are export taxes, consisting mainly of coffee taxes and, recently, the tax on exported bauxite. The share of coffee export taxes in customs revenue decreased substantially from 21.4 percent in 1971 to 7.8 percent in 1975 mainly as the result of a 22 percent drop in the volume of coffee exports during that period and to large increases in the revenues collected from the export tax on bauxite. Since 1974 the - 37 - latter became an important source of customs revenue and largely compensated for the decline in coffee taxes. Dues for fiscal year 1973/74 amounted to G 35.8 millions but were paid only in 1975, together with G 24.7 millions paid out of 1975 dues. Thus, the 1975 revenue from taxes on bauxite was equal to 13 percent of total revenue collected. 85. The relative share of income taxes in budget revenue doubled within the past five years, increasing from 10.7 percent in 1971 to 20.1 percent in 1975. This increase is apparently the result of an important tax collection effort undertaken during the past few years. It is believed that 90 percent of all income taxes due are effectively collected. Authorities seem to con- tinue to concentrate their efforts on tax collection, although an effort to collect the remaining 10 percent may prove to be expensive. The decrease in excise taxes since 1973 is a result of detaxation measures applied to essen- tial goods in order to check the increase of domestic prices. The share of other tax revenues seems to fluctuate around an average of 15 percent (Text Table 15). 86. The weak revenue mobilization performance and the increasing overall (current and capital) expenditures resulted in a situation where the ratio of the overall deficit to total revenue has doubled within a relatively short time, from 18 percent in 1971 to 40 percent in 1975. Table 17: CENTRAL GOVERNMENT REVENUE AND DEFICIT (in millions of gourdes) Rate of 1971 1972 1973 1974 1975 Growth % p.a. Total Revenue 263.5 268.8 304.4 334.7 475.4 15.9 Overall Deficit 47.2 47.5 25.3 105.8 191.1 41.8 Overall Deficit/Total Revenue (%) 18 17 8 32 40 Current Expenditures 87. During the 1971-75 period total Central Government expenditures were increasing annually by 21 percent in current terms or by 6 percent in constant terms, with extrabudgetary expenditures increasing substantially quicker than this average, at the expense of budgetary expenditures. As a result, the share of budgetary expenditures fell from 49 percent in 1971 to 31 percent in 1975. Measured in constant prices, the yearly salary of a civil servant in 1975 was at three-fourths of its 1971 level, and there has been a continuous decrease in expenditures for all other purposes as well. - 38 - Table 18: CENTRAL GOVERNMENT BUDGETARY CURRENT EXPENDITURES BY FUNCTION 1971 1972 1973 1974 1975 Total 100.0 100.0 100.0 100.0 100.0 General Public Services 22.0 21.3 23.0 23.3 30.5 Defense 30.9 31.7 28.7 25.8 22.6 Education /1 12.9 12.6 14.1 14.2 12.3 Health 14.3 14.2 14.1 15.1 14.9 Community and Social Services 2.4 2.3 2.3 2.2 2.0 Economic Sectors (Agriculture, Public Works, Transport, Communication, Industry and Trade) 17.0 17.2 17.3 17.4 17.7 Supplementary Credits 0.5 0.6 0.6 2.0 - /1 Excludes expenditures channelled for that purpose by the Ministry of Agriculture. 88. Extrabudgetary expenditures are becoming an increasing part of total Central Government expenditures, with their share rising from 51 percent to 69 percent of the total. They are classified in the following categories: Non- fiscal accounts, Development budget, Other Special accounts, Special Sinking Funds and Other accounts. The designation of two of these accounts, Development Budget and Special Sinking Fund, gives a fair indication of their contents. Other Special Accounts, the more important of all accounts, include a great variety of accounts such as: Fonds d'Urgence, Fonds Special de Construction et Reparation des Routes, Compte Special Accord International sur le Cafe, Compte de Reserve et Autres Comptes du Gouvernement. In order to ascertain the proportion of extrabudgetary expenditures whose economic nature cannot be clearly identified, development expenditure calculated as a sum-total of sectoral capital investment and technical assistance carried out by the Central Government and special sinking funds are subtracted from the total. - 39 - Table 19: CENTRAL GOVERNMENT EXTRABUDGETARY EXPENDITURES - DEVELOPMENT AND CURRENT (in millions of gourdes) 1971 1972 1973 1974 1975 Extrabudgetary Expenditure 120.60 116.60 130.60 167.80 313.40 Nonfiscal accounts 3.00 1.90 4.40 5.10 2.90 Development budget 8.00 31.60 29.40 27.90 41.60 Other special accounts 85.40 62.50 77.30 90.80 192.60 Special sinking funds 14.80 10.90 11.50 11.40 10.60 Other accounts 9.40 9.70 14.00 32.60 65.70 plus: Other Extrabudgetary Expenditure 37.80 49.80 26.30 95.90 148.80 Total Extrabudgetary Expenditure 156.4 166.4 158.9 263.7 462.2 minus: Development expenditure /1 53.9 62.1 65.1 111.9 213.9 Special sinking fund 14.8 10.9 11.5 11.4 10.6 equal: Non-identifiable expenditure 87.7 93.4 82.3 140.4 237.7 /1 Only development expenditure of the Central Government. Investment expenditures made by public enterprises are excluded. 89. There is no information which would allow to ascertain the function or the economic nature of non-identifiable expenditures. The National Bank has only primary statistical information on the current daily operations made through these accounts but no attempt was made to consolidate or to regroup them into economic and functional categories. To indicate the importance of these non-identifiable expenditures, the wage and salaries' bill paid out from the Budget, amounted, for some 17,000 civil servants, to only 122 million gourdes in 1975, compared with 238 million gourdes of unidentified extrabudgetary expenditures. 90. Budget for Education. During the period 1971-75, the share of total expenditures allocated to the Ministry of Education increased somewhat from 6.1 percent in 1971 to 6.6 percent in 1975. - 40 - Table 20: EXPENDITURES ON EDUCATION /1 (in million gourdes) 1971 1972 1973 1974 1975 Total Expenditures of the Central Government 310.7 326.3 328.7 440.5 666.6 - Current 256.8 264.2 263.6 328.6 452.6 - Developmental 53.9 62.1 65.1 111.9 213.9 Total Expenditures of the Ministry of Education 19.0 19.6 29.0 28.3 44.1 - Current 16.8 17.3 19.8 21.4 22.9 - Developmental 2.2 2.3 9.2 6.9 21.2 Share of Education (%) - in total expenditures 6.1 6.0 8.8 6.4 6.6 - in current expenditures 6.5 6.5 7.5 6.5 5.1 - in development expenditures 4.1 3.7 14.1 6.2 9.9 /1 Excludes expenditures channelled through the Ministry of Agriculture. 91. Expressed in constant prices the current budget of the Ministry of Education was decreasing by 5.4 percent annually, during the period when total current expenditure (including extrabudgetary outlays) was increasing by 6 percent annually. Among functions entrusted to the Ministry, primary educa- tion is probably the most important one. 1/ During 1971-75 the budget for primary education increased from G 9.5 million in 1971 to G 13.1 million in 1975. Expressed in constant prices there has been a yearly decline of 3.2 percent. The structure of current expenditure shows that expenditure allocated for teaching and other materials was practically non-existent. 1/ The Ministry of Education is in charge of the schooling of urban children. Expenditure allocated for schooling of rural children is included in the budget of the Ministry of Agriculture. - 41 - Table 21: CURRENT EXPENDITURES ON PRIMARY EDUCATION (In thousand gourdes) 1971 1972 1973 1974 1975 Wages and Salaries 8,788 8,784 10,979 11,229 12,312 Materials 182 182 182 182 201 Other 562 570 570 570 582 92. Expenditures for materials amounted to 2 percent and operating expenditures (materials and other) to about 6 percent of current expenditures of the Ministry. Together, they added up to some US$157,000 in 1975 which is inadequate for schools to operate effectively. In 1973/74 there were 161,400 pupils enrolled in public and private urban schools. About 80 percent of these were enrolled in public schools which are under the Ministry of Educa- tion. Consequently, the expenditures on materials per pupil enrolled and per year were about G 1.4 or US$0.28. In the same year 3,624 persons were employed in primary education, with an average annual salary of G 3,098 or US$619.7. Public expenditure on education amounted in 1973/74 to only 0.9 percent of GDP. 1/ 93. Budget for Public Health. Expressed in real terms current budgetary expenditures of the Ministry of Health were decreasing annually by 4.3 percent during 1971-75. While the operating expenditures are apparently at an adequate level (22 percent of current expenditures) some indicators show that these expenditures are still far from being sufficient. Operating expenditure, which includes mostly medicines, medical supplies and food for hospitalized persons was, per person treated and/or hospitalized, extremely low, amounting, in 1974, to barely G 3.7 or US$0.74. 1/ According to Comparative Education Indicators no other country spends a lower percentage of its GDP on education (From "IBRD, Appraisal of a First Education Project - The Republic of Haiti, February 1976.") - 42 - Table 22: EXPENDITURES ON HEALTH (in millions of gourdes) 1971 1972 1973 1974 1975 Total Expenditures of the Ministry of Health 27.9 32.5 36.8 35.0 44.7 - Current 18.6 19.5 19.7 22.6 27.8 - Developmental 9.3 13.0 17.1 12.4 16.9 Share of Health (%) - in total Central Government expenditures 9.0 10.0 11.2 7.9 6.5 - in current public expenditures 7.2 7.4 7.5 6.9 5.9 - in developmental expenditures 17.2 20.9 26.3 11.1 7.9 Table 23: HEALTH EXPENDITURES (in gourde thousands) 1971 1972 1973 1974 1975 Operating Expenditures 4,009 4,022 4,193 3,804 5,747 Number of Persons Treated or/and Hospitalized ('000) 1,078 963 1,081 1,023 n.a. Operating Expenditure/ Person (in gourdes) 3.7 4.2 3.9 3.7 n.a. Development Expenditures 94. Public development expenditures have been rising very fast for the past two years. From averaging about US$18.0 million during the period 1970-71 to 1972-73 they increased to US$32.6 million the following year and reached US$57.5 million in 1974-75. The table which follows shows how these expenditures were financed during the 1974-75 period. - 43 - Table 24: FINANCING OF PUBLIC SECTOR DEVELOPMENT EXPENDITURES (in US$ million) Percentage Shares Annual Annual Average Average 1974 1975 1974-75 1974 1975 1974-75 Development Expenditures /1 32.6 57.5 45.2 100.0 100.0 100.0 Financing 32.6 57.5 45.2 100.0 100.0 100.0 Saving 4.0 6.6 5.3 12.4 11.4 11.7 Net internal borrowing /2 19.9 9.2 14.6 60.9 16.0 32.3 (Monetary authorities) (16.3) (8.8) (12.6) (50.0) (15.3) (27.9) (Private banks) (3.8) (-1.0) (1.4) (11.6) (-1.7) (3.1) (Private sector) (-0.2) (1.4) (0.6) (-0.7) (2.4) (1.3) Net foreign disbursements -2.7 17.6 7.5 -8.3 30.5 16.6 (Gross disbursements) (0.4) (21.0) (10.7) (1.2) (36.4) (23.7) (Amortization) (3.1) (3.4) (3.2) (9.5) (5.9) (7.1) Foreign Grants 11.4 23.7 17.5 35.0 41.1 38.7 Statistical discrepancy - 0.4 0.3 - 1.0 0.7 /1 Includes Technical Assistance. /2 Excludes IDB and IDA credits channelled through the BNRH to the public sector. Source: BNRH and consolidated public sector accounts (includes Central Government, CAMEP, TELECO, EDH, Administration Portuaire). 95. The most significant change in the structure of financing during 1975 was the sharp decline in borrowing from the Haitian banking system from 61.6 percent in 1974 to 31.0 percent in 1975 and the increase in net disburse- ment and grants from abroad. The increase in foreign grants compensated for the reduction of US$12.3 million in net credit from the banking system. The share of apparent public saving in financing development expenditures also declined, from 12.4 in 1974 to 11.4 percent in 1975, although their absolute volume increased from US$4.0 to US$6.6 million. 96. The increase in net foreign disbursements was mainly due to a signif- icant increase of gross disbursements from official sources which attained US$21.0 million in 1975 as compared to US$0.4 million the year before. About 58 percent of these disbursements were destined to finance construction of the - 44 - Northern and Southern Roads and 26 percent for the expansion and improvement of the water supply system and port installations in Port-au-Prince. These four projects accounted for 84 percent of total official gross disbursements, of whlich two-thirds came from IDB and the remaining one-third from IDA. Foreign resources including foreign grants financed 72 percent of total development expenditures in 1975, comq:ared with oily 27 percent in 1974. 97. Despite some increase in apparent public saving (see Table 12), the public sector deficit almost doubled, from US$28.6 million to US$51 million. The increase in apparent public saving was able to finance only 10.4 percent of increase in development expenditures, and the public sector deficit rose from 4 percent of GDP in 1974 to 5.8 percent in 1975. This change was mainly due to the increase of public development expenditures from 4.6 percent of 1974 GDP to 6.6 percent in 1975. Consequently, the public sector had to step up its net borrowing. Table 25: FINANCING OF THE PUBLIC SECTOR DEFICIT /1 Annual flows GDP share 1974 1975 1974 1975 (US$ million) (%) Development Expenditures 32.6 57.7 4.6 6.6 Public Savings /2 4.0 6.6 0.6 0.8 Public Sector Deficit 28.6 51.1 4.0 5.8 Internal Borrowing /3 19.9 9.2 2.8 1.0 External Sources 8.7 41.9 1.2 4.8 Deficit Financing (in %) Financing 100.0 100.0 Internal Credit 69.6 18.0 External Credits and Grants 30.4 82.0 /1 The "public sector" as treated throughout this report, is inclusive of public enterprises, while the "Central Government" accounts exclude these enterprises. Aggregated information on the "Public Sector" was calculated for only two years, 1974 and 1975. For other years accounts of public enterprises were not available. /2 Apparent. /3 Includes statistical discrepancy. Source: Table 24. - 45 - BALANCE OF PAYMENTS An Overview and Recent Trends 98. Over the course of the last decade the annual contribution of exports to GNP has been only ten to fifteen percent. On a per capita basis this contribution was never more than US$20, lower than any other country in the Western Hemisphere. 99. But Haiti depends even more than any other country in the Hemisphere on the growth of the external sector for the improvement of economic condi- tions. The smallness of the Haitian market, both because of the country's size and because of its low per capita income, rules out to a larger degree than in other developing countries, the possibility to set up reasonably efficient domestic production of most consumption and investment goods now imported by Haiti. Because of limited import substitution possibilities, unemployment remains acute. Yet, the very abundance of labor holds the promise of creating new outlets for productive employment in the external sector. If appropriate agricultural improvements are introduced, labor- intensive cultivations should develop and add to the volume of a few selected products with fairly favorable export prospects. Proximity to the U.S. and the availability of labor whose adaptability has been proven are two premises that should make possible an expansion of export of assembled goods from imported components, where labor-intensive methods of production are used. At a later stage feasibility of the manufacture of articles with a larger share of domestic value added than the present assembly industries and more con- ducive than the latter to the economic transformation of the country could, no doubt, also be established. Furthermore, given the proximity to the U.S., the availability of manpower employable in service industries, a favorable climate and a most interesting cultural background should, together, contribute to a considerable expansion of the tourism sector. Finally, copper mining as well as petroleum, where explorations are currently being carried out, might provide with time other exportable products. 100. Institutional obstacles explain the failure of Haiti to have taken advantage of this potential. If no appropriate action to expand exports is taken, foreign exchange receipts will not increase. Measures are also required to stem capital flight and a waste of foreign exchange on non-essential imports of luxury-type consumer goods. 101. During 1970-1974, the current value of exports grew rapidly, at 20.5 percent per annum, while imports of goods and net non-factor services grew only fractionally faster. As a result, until 1974 the unfavorable merchandise trade balance and the resource gap rose at a moderate rate. The situation changed drastically in 1974, with stagnation of exports and contin- ued rapid growth of imports. The resource gap reached about US$35 million in 1975, equal to approximately 4 percent of GDP, compared with 1 percent in 1971. However, an attenuating factor was that net transfers to Haiti also rose quickly, which helped keep the current account deficit at a moderate level. - 46 - TLble 26: FAITT: S%l.tAWY PALTOANE 6F ?PVat&hTS &tilior3 of' ,. % a Year 1960 1,970 1971 1972 1973 1974 1975 YThrchandise Eo. FOB 38.1 hLl.L 62.2 146.7 57.6 93.6 93.2 YorrhpnCi'ge rThlp. FOB 4 52.6 r o.7 66.!; 6',.7 97.1 115.7 trade Belance -5.3 - 0.1 +i.! -9. 7 -8.1 -3. 722. Balanne of Non-Factor erviceS -1. 5 - 7.9 57 -5.1 -9.6 -16.2 -13.6 p1anr'ne of 0,1069 and Non- Factor S:rvices -PRes ource Cap (-) Or surplus (+) -3.8 -8.0 -.4.2 -14.8 -27.7 -19.7 -36.7 Yet Factor Inco=se -4.1 -3.6 -3.7 -4.5 -h.I4 -5.9 -6.8 !let Transfers 9.2 21.9 18.4 34.1 19.1 26.9 40.1 Current 'ccount Biance +1.3 10.3 10,5 1.8 -3.0 +1.3 -2.8 Private Direct Invest- Mern, 0.1 2.8 3 4 4.0 7.0 7.9 2.6 Net -Aiu3L aiai Lcng, T'li1 BForr-e-r½g 1.3 -01 1.3 7.7 O.), 3-73 20.9 2/ ShOr t Ters: C.- ?; t-l Not -0.1 -9.1 -8.1 -17.8 -565 -32.h4 -W2 EDT' f1 (, , o 2.5 2.0 2.1 Gbanc- in Rt HeuerveS (-inc-rea-pS) -2.6 -6.!, -9.1 -10.8 1.1 19.9 23.5 2/ CKPita Mkct. Falance 413 -10-3 -10.5 -1)1.8 f3.0 -1.3 +2.8 ?/ This differs fron the amoi.rnt cel1c-u.aed by the BNN111. IL reflects a higher value of c.vtli and aarrrb1v 1 ine cvports (calculated by t.lc Mir.istry of Commerce aied Thdustv') -i,an that registered by tile Customs outhorities. ?/ Tncluties erro-:s and omissions. Source: Appendix Tables 3.1 and 3.2 Current Transfers 102. Net current transfers increased substantially from US$27 million in 1974 to US$40 million in 1975. They consisted, in practically equal shares, of private and Government transfers. The former are accounted as sales of foreign exchange to the banking system, declared as remittances by Haitians residing in foreign countries. They increased from US$25 million in 1974 to US$61 million in 1975, while foreign exchange purchased for reverse foreign transfers increased during the same period from US$11 to US$41 million. The sizable inflow of foreign - 47 - exchange in 1975 could represent savings brought back either by Haitians recently returned to the country or by those who expatriated their capital in the past. Government transfers from abroad, increased in 1975 to US$20 million, compared with US$14 million in 1974. A part of these were grants in technical assistance offered by official agencies. These rose from US$3.7 to US$9.3 million. The remainder consists of increased food relief donations in part from private organizations, responding to the effects of the 1975 drought. Exports 103. Exports of goods doubled from US$44.5 million in 1970 to US$93.2 million in 1975. However, more than one-fourth of this increase is attribut- able to an increasing share of imported and locally assembled and re-exported inputs. Table 27: GROSS AND NET EXPORTS 1970-75 ($ Millions - current prices) 1970 1971 1972 1973 1974 1975 Total Exports 44.4 52.2 46.7 57.6 93.6 93.2 Less Foreign Inputs into Assembly Exports 4.6 6.5 5.9 16.2 19.7 18.1 Net Exports 39.8 45.7 40.8 41.4 73.9 75.1 104. Most of the increase was due to world price movements. In real terms, traditional agricultural, forestry, and fishery exports as a group have declined since 1971. Mining showed a considerable decline as the rise in bauxite exports was not sufficient to make up for the loss of copper exports. On the other hand, small assembly industries, and other non-traditional activities show a strong increase and now account for roughly one-third of total exports. 105. Coffee: The value of coffee exports which traditionally has accounted for one-third of export earnings, declined by one-fourth (from US$24 to $18 million) between 1974 and 1975 alone. Over the course of the last decade the internal price and demand for domestically consumed crops have steadily increased. While world market coffee prices also have risen, the return to small Haitian coffee producers has not kept pace with returns on other crops. In part this could be attributed to the monopsonistic posi- tion of middlemen and exporters, in part to a heavy and progressive export tax which, up to 1973, applied to coffee but not to other crops, distorted the relative profitability of coffee cultivation. 106. A beginning has been made in an attempt to reverse the long-term decline in the profitability suffered by small producers. The Government of Haiti, with the assistance of AID financing and technical assistance, has embarked on a threefold program, intended: (a) to help small growers to - 48 - imraprove coffee cultivation and processing; (b) to establish a "parallel" market under the auspices of the Coffee Institute which should ensure fair prices to small producers; and (c) to extend credit to farmer cooperatives for purchasing fertilizer and improviing marketing procedures. Field agents and financial resources already have been mobilized in pilot project areas. Although this should make coffee pro-duction more profitable to small farmers and induce them to expand its cultivation, it will not be sufficient to guarantee success unless continued strong field support, expected to be given by 150 agents of the Haitian Coffee Institute, fully materializes. This, in turn, depends on further strengthening of Haiti's Ministry of Agriculture. 107. As much as 366,000 bags of coffee had been exported by April 15, 1976 and preliminary figures show that another 100,000 bags were exported since that date compared with no more than 330,000 bags for the entire pre- ceding year. This is considered at least in part as a proof of the initial success of the above program. If fully successful, the program should assist in increasing the volume of exports from the average annual level of about 330,000 bags in the last few years to 480,000 bags by 1980. Quality improve- ments should add further to Haitian coffee export earnings, so that coffee export receipts in real terms could double by 1980 compared with 1975, pro- vided the program is successfully implemented. 108. World market price prospects could additionally help in reversing the declining trend of coffee exports. Forecasts until 1980 are consistently for prices above the 1975 unit value of Haitian coffee exports in constant terms. The benefit of this improvement should be further enhanced by the fact that, thanks to the inherently superior quality of Haiti's coffee types and, through anticipated improved processing and marketing, the price fetched by the country's coffee could be made to rise even faster. Sugar 109. After a prolonged period of decline, sugar exports recovered in FY1975 when sugar prices attained a record level in the world market. 1/ How- ever, primitive production methods are still used by small farmers, who also incur high transportation costs. Seed selection and fertilization are rarely practised. Irrigation systems are in need of rehabilitation. Some mills are antiquated or inefficiently operated. 110. The domestic price signals are not appropriate. For instance, farmers are not given the incentive of premium prices for high sucrose content cane upon delivery. Though cane prices were considerably increased in 1974 they are significantly less than in other countries. 2/ The largest mill is under obligation to sell for local consumption all sugar for 150 per pound, a 1/ Record level was reached during the last calendar quarter of 1974. 2/ The price paid to Haitian farmers was raised from US$4.50 to US$9.00 per ton, compared with $12.00 per ton in the Dominican Republic. - 49 - price nearly 50 percent below that prevailing in the world market during most of the last two years. Wrong price signals are also reflected in improper production choices. Much of the land suitable for sugar also can be used for the production of foodstuffs. Given the present restraints on profitable cane and sugar production imposed by heavy excise duties, foodstuffs yield a better return to the farmer, especially since prices of domestically produced and consumed food crops have risen rapidly in recent years. 111. Haiti will have to introduce modern technology, generally used in other countries to: (a) increase yields; (b) lower production costs, and (c) improve transportation. Furthermore, it will be necessary to eliminate most flagrant distortions between prices of sugar or cane and that for alter- native products. Even partial progress toward these objectives would require changes which would break with tradition and which also may deprive the Regie du Tabac of some of its sources of revenue. The price of sugar to domestic consumers may also have to be increased. 112. Oils: Essential oils are the only traditional export for which foreign exchange receipts have consistently increased in recent years. This is largely the result of the near doubling of world market prices of vetivert and lime, Haiti's two foremost types of exports of essential oils. Domestic marketing problems and antiquated equipment in processing plants prevented the volume of exports from rising by more than one-third between 1971 and 1974. Because of the drought, this volume declined in 1975. 113. While no long range studies of market prospects of lime oil and vetivert are known, these might be expected to be favorable because world demand for soft drinks and toiletries which use these essential oils, should continue to grow. To expand such exports, modernization of processing plants is a foremost requirement. Sisal 114. Exports of sisal steadily declined over the last five years, for several reasons. Synthetics made rapid inroads into the sisal string market until 1973/74 when skyrocketing petroleum prices reversed this trend and boosted the demand for sisal. Most recently, the world recession offset much of this increase in demand. These adverse external effects have been com- pounded by the overcutting of leaves done by farmers in 1974 and by the com- petition for land use by food crops. 115. The prospects for expansion of exchange earnings from greater exports of sisal are not favorable. Demand for agricultural bailing materials, traditionally the main use of sisal, is expected to grow, but prices cannot rise rapidly since the cost of synthetic string acts as a ceiling. Haiti faces an additional problem, because it must compete with a number of large countries--Mexico and Brazil among others--which have support programs for farmers to produce sisal. The largest Haitian exporter is exploring the - 50 - possibility of using sisal in combination with synthetics to make attractive, new types of carpets, wall hangings, and other stylish products for which markets in foreign countries are likely to grow. 116. Cocoa: Cocoa exports were once of considerable importance for Haiti but they have largely declined in recent years. 1/ The reasons are partly the same as those for the fall of coffee exports. Small growers are preponderant in cocoa production. They use primitive production methods and are obliged to sell to a single exporter. Producers also have to cope with a rat infestation of trees which has greatly reduced yields. Given these difficulties the rise of the world market price for cocoa, observed in recent years, has not been sufficient to reverse the declining trend of production in Haiti. 117. In view of the fairly good outlook for cocoa prices in coming years, it might be possible to reverse the declining trend of cocoa exports by having recourse to a program similar to that initiated for coffee. However, no over- all program to expand cocoa production is under consideration. 118. Beef: Beef exports, which had risen rapidly earlier in the decade, declined strongly after 1972, in response to declining prices in the U.S. for Haitian utility type meats and as a result of the 1975 drought. 119. World beef prices over the course of the next decade are expected to rise in real terms by about 4 percent annually or by 50 percent above the 1975 level by 1985. More efficient practices of breeding, feeding and main- taining the health of animals can be introduced in Haiti to increase the quantity and quality of beef production without substantial investment. If exports do not increase, a beneficial effect on the balance of payments would still be felt through substitution for presently imported meat. 120. Bauxite: The volume of bauxite export showed little annual varia- tion between 1971 and 1974 but declined greatly in 1975, due to the world recession. However, the value rose strongly in 1975 as a result of higher prices. The only bauxite mining company operating in Haiti expects to export about 600,000 tons annually during the foreseeable future, or slightly below the last decade's average. Price trends should ensure higher earnings, both in current and in real terms than in the past. Traditional vs Non-traditional Exports 121. Favorable world market prospects for traditional Haitian exports combined with improved government policies should help improve the balance of payments situation, relieve underemployment, and increase income of farmers producing coffee, cocoa, essential oil and sugar. But increased 1/ According to Table 7.1 (Production of Selected Agricultural Commodities), cocoa production declined by 15 percent between 1970 and 1974 and remained at the 1974 level in 1975. - 5 1 - agricultural exports may not create many new jobs. Expanding mining exports-- copper and bauxite--also can offer very little additional employment. Only the expansion of non-traditional, labor-intensive exports is capable of reducing unemployment. Industrial Exports 122. Exports of small industry products have increased almost fourfold between 1970 and 1974. Even during the 1975 recession, they declined by 5 percent only. The term "small industries" covers traditional Haitian handi- crafts, small industries using predominantly Haitian materials, as well as all the export activities that consist of assembling or further processing of cer- tain imported components for re-export. 123. Assembly for export accounts for the largest share of exports growth. 1/ 1/ Analysis of small export industries is based on information provided by the Department of Commerce and Industry. According to this source, the value of these exports appears much larger than that from the customs statistics on which the balance of payments calculation of the National Bank is based. - 52 - Table 28: SMALL INDUSTRY EXPORTS, INCLUDING ASSEMBLED COMPONENTS (Thousands of Gourdes, Current Prices Unless Otherwise Specified) Annual Rates of Growth 1970 1971 1972 1973 1974 1975 1970-75 Gross Based on Local Raw Materials 16.774 12.120 13.976 32.540 39.169 32.062 13.8 Based on Mixed Raw Materials (Foreign and Domestic) 18.839 27.494 25.788 77.242 88.086 90.844 37.0 Based on Imported Raw Materials 19.105 27.090 23.827 62.501 78.832 67.672 28.8 Gross Total (Gourdes '000) 54.718 66.704 63.591 172.283 205.569 190.579 28.3 ($ '000) 10.944 13.340 12.718 34.456 41.114 38.115 28.3 Net Minus Re-exports Foreign Inputs used in: a. Exports made of mixed materials 7.535 10.988 10.315 30.896 35.227 36.338 37.0 b. Exports made of foreign materials 15.284 21.672 19.062 50.000 63.065 54.138 28.8 Net Total: (Gourdes '000) 31.899 34.034 34.214 90.387 107.277 100.103 25.7 ($ '000) 6.377 6.806 6.843 18.277 21.455 20.021 25.7 - 53 - 124. Exports by small industries in 1974 and in 1975 were approximately US$40 million in each year, or about 40 percent of total exports. They surpassed coffee as the primary export in 1973. Their net value could be evaluated at about US$20 million, about one-half subtracted from the above for import of re-exported components. Even this amount gives an exaggerated impression of the benefits because a part of the value added, namely the foreign entrepreneurs' profits, is likely to be transferred abroad. 125. Under the assumption that assembly industries will continue growing at annual rates of 10 to 15 percent by 1980, there would be: (a) additional employment for 15-20,000 persons; (b) almost doubling of the present wage bill to Haitians to US$4-US$7 million; and (c) a doubling of net exchange receipts (i.e., after subtraction of imported inputs) by US$20 million. From this amount, about one-half should be subtracted for repatriation of profits, leaving about US$10 million for the country's net additional resource avail- ability. These benefits are considerable although they also carry social costs and lead to increased concentration of economic activity in Port-au-Prince. 126. Investment in industries which use primarily Haitian inputs should contribute more to development. With the completion of the northern and southern routes and reconstruction of irrigation systems it should become possible to establish agro-industries to service export and domestic markets. A private industrial group envisages construction of a vegetable and fruit canning plant in the southwest of Haiti, to supply Port-au-Prince. It should also be possible to export canned fruits and vegetables to the U.S., and possibly to the Jamaican market. 127. There also appears to exist a growing foreign market for textiles. Haitian labor costs are the lowest in the Western Hemisphere and workers' ability to produce and embroider high quality denim clothing for the European and U.S. market is now proven. Denim work clothing perhaps could also be sold in the U.S. and neighboring Caribbean countries. But U.S. quotas limit the growth of sales to that country, on the average, to 7 percent a year. 1/ Market sizes limit export possibilities to other Caribbean countries. Also, Haitian sanforizing facilities would have to be expanded. Thus, a potential for exports seems to exist for just a few industries, mainly textiles and food products. 128. Haitian handicrafts, paintings, and sculpture presently sold to tourists find their way into neighboring countries where they often are sold as national handicrafts or exported. It is generally believed that because of their quality, special character, and price competitiveness, exports of such products, if properly organized, could find a much larger bona fide foreign market. 1/ Although the small quota placed by the U.S. on textiles imported from Haiti was not met in 1975, the ceiling was reached for some particularly sub-categories. - 54 - Exports of Services 129. Foreign exchange receipts are mostly from tourism. Over the course of the last three years tourist arrivals and receipts were estimated as follows: Table 29: TOURISM: SOME INDICATORS OF TRENDS, 1973-1975 Expenditures Expenditures Per Per Total Year Tourists Total Capita Excursionists Total Capita Expenditures ('000) ($'o00) ($) ('000) ($'000) ($) ($'000) 1973 43.7 13,962 319 143.1 2,805 20 16,767 1974 47.5 15,893 334 188.0 2,593 14 18,486 1975 47.5 17,492 368 188.0 4,352 23 21,844 (est.) Source: Haitian National Tourist Office. 130. Haitian authorities estimate that the import content of goods and services provided to tourists is low--about 15 percent. This may be an under- estimate. But even if that percentage should be twice as high, the annual balance of payments benefit during 1973-1975 was about US$13 million. The tourist industry is considerable. It employs about 6,000 persons 1/ and provides livelihood to some 30,000 inhabitants mainly in Port-au-Prince. This accounts for about 7 percent of total recorded employment in the capital city. 131. The number of tourists, the duration of their stay, and consequently, the economic benefit from tourism, is small compared with that of other Caribbean islands, even though the country's natural beauty and unique culture should make it at least as attractive. Among the reasons are that few if any Haitian hotels live up to first class standards, though charges are not much less than those in other Caribbean islands. Also, air fares from the U.S. are so high as to deter mass tourism. The mobility of tourists is limited by lack of adequate roads. Good beaches and other tourist attractions are not easily accessible at present. Consequently, the average tourist stay in Haiti is only of four to five days. Tourism grew more slowly than in neighboring countries and stagnated between 1974 and 1975 because of the worldwide reces- sion. Prospects for future earnings depend more on improving the attractive- ness of vacations in Haiti than on income trends in visitors' countries. 1/ The number of hotel beds is estimated to be about 2,500, and employment is calc.lated at a rate of about two to three jobs per hotel bed. - 55 - 132. To enhance Haiti s attractiveness, to induce tourists to stay longer and to convince a larger number of tourists to come to Haiti, strong efforts are required. An infrastructure that will permit easy travel to the attractive sites and beaches outside Port-au-Prince must be created. The quality and competitiveness of Haitian tourist facilities will also have to be enhanced. 133. The National Tourism Office (NTO) envisages a number of steps to expand tourism. 1/ But neither the financing nor availability of staff to implement these steps have ever been seriously considered by the Tourism Office. Imports of Goods 134. Merchandise imports grew at an increasingly rapid rate during the last five years, but particularly during 1973-1975, when they nearly doubled. The growth in real terms was uneven but still rapid. Table 30: MERCHANDISE IMPORTS /1 Rates of Growth 1970 1971 1972 1973 1974 1975 1970-75 (% p.a.) 1. Current Values (million $) 51.9 59.2 65.8 76.7 111.3 136.2 21.3 2. Current value Growth over Prior Year (%) 14.0 11.1 16.6 14.7 22.4 3. Constant Values (million $) 51.9 54.2 56.8 68.4 70.2 83.9 10.1 4. Constant Value Growth over the Preceding Year (%) 4.4 4.8 20.4 2.6 19.5 /L CIF. 135. To analyze the causes of import trends, data have been divided into development imports and consumer imports. 1/ The most important of these are: several road projects to complement the highways now under construction and giving access to facilities out- side Port-au-Prince; a number of marine and port projects near Port-au- Prince and Cap Haitien; the construction of supervised markets for art and handicrafts; and the rehabilitation of the old city of Cap Haitien. - 56 - Table 31: T5 f rrocl& tS 9370 1973 _ 19 _ Pattes of oJ iLon JLi _11ioon - Growth ____>X s. j '' .Jcour:ies _ _ (Golordes I W 17-75 G. Capr;_a1 Goods 1/79,3 :6.G 31 L17.0 23.4 30 243.l 48.h 36 25.0 Ex,ort. Trh--t 22. 9 BO. . 9 80.9 J6 21 90.5 18.1 13 31.6 L~rts(1'Q; 313.7 o lo.5 )t9 197, 9 3 . 51 333 6 '7 9 26.' !w. Food *',ro.>c0'cs 5Sh*.1 10.5 9'21 95.6 19.1 25 15XX4 33.9 2C 29.1 5-oco 103.06 20.6 ^,9 29. 18.0 24 1'2.8 30.6 23 3.2 TC,o ,OrtS (r; ) 11).-1 31Ul. 40 19 3.) 27.1 )9 .7.? 69.4 . l ' 17.2 7. Tot