Haiti

Letter of Intent, November 19, 1998

On the structural front, progress was made in some areas in the context of existing legislation. The civil service downsizing (CSD) law was published in the official gazette in mid-May 1998, and under the program, targets were established for the departure and retraining of at least 5,000 civil servants (about 10 percent of government employment) by end-September 1998. In the event, as of end-October 1998, some 5,200 employees had been separated and indications are that about 200 more employees will be leaving the civil service by mid-December 1998. Also, in conjunction with the implementation of the CSD law, physical verification procedures for wage payments were implemented in May-June 1998, resulting in the elimination of fraudulent wage payments related to some 2,900 employees from the government payroll. Budgetary savings from these actions are estimated at about ½ percent of GDP on an annual basis.

During FY 1997/98, progress also was made toward the modernization of public enterprises. The flour mill was divested and procedures for the capitalization of the cement company were finalized (the transaction awaits the signature of the prime minister). Also, with assistance from the World Bank, the IDB, and U.S. AID, technical work continued in the preparation of the main public enterprises (the airport and the seaport, as well as the electricity and telephone companies) for their modernization.

Technical work toward the modernization of the main public enterprises (airport, port, and the electricity and telephone companies) will continue. With assistance from the World Bank, the IDB, and U.S. AID, specific actions will be taken including the design of plans for the downsizing of employment, the transfer of certain enterprise liabilities to the government, putting in place regulatory frameworks, the start of bidding processes for the divestment of the enterprises under various modalities, and the selection of winning bidders.

As regards financial sector reforms, the strengthening of banking supervision and prudential regulations will continue with technical assistance from the IDB and the IMF and, as part of this process, regulations on banks' capital adequacy requirements will be issued by end-December 1998. Steps have been taken to bolster the financial health of private commercial banks. Also, an action plan for the restructuring of the BNC will be drawn up by end-February 1999 with technical assistance from the IMF and the IDB. The plan will include, inter alia, proposals for an orderly downsizing of employment and the number of branches, strengthening the managerial and operating controls of the bank, and improving lending operations and loan recovery. A decision on the modality and the level of recapitalization of the bank will be taken by end-April 1999 with a view to its eventual divestment.

Haiti: Structural Benchmarks, October 1998-September 1999
Civil service reform and sectoral policies: Completion of the civil service downsizing (mid-Dec. 1998).
Public enterprises reform: Start the implementation of the plan for reducing the number of employees of the port authority (Sep. 1999). Start the implementation of the plan for reducing the number of employees of the electricity company (Sep. 1999).

Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding, November 7, 2000

Progress was made in the restructuring of the troubled state-owned bank, Banque Nationale de Credit (BNC). Downsizing of the bank's employment by about half (224 employees) was completed in June 2000, with associated severance benefits of about

The program envisages continued implementation of the cash management and monthly budget allocation system so as to limit monthly government outlays to monthly revenue collections, realized external financing, and programmed financing from the central bank. The program incorporates monthly interest payments of G 25 million by the government on its debt to the central bank. A protocol formalizing these arrangements for FY 2000/01 was signed by the Ministry of Economy and Finance and the Bank of the Republic of Haiti on September 20, 2000. The program incorporates hiring of 300 police officers and magistrates to improve security; there will be no other increase in the number of civil servants. The government will abstain from granting wage increases in FY 2000/01 in order to keep the wage bill under control. Steps will be taken to reduce the use of the ministerial discretionary accounts ("comptes courants"), including returning to the Treasury all unused non-project and inactive project current account balances by November 2000. For this purpose, the central bank and the ministry of finance will classify existing current accounts into categories to separate operational from inactive current accounts and project from ministerial or other current accounts.

The program envisages the further strengthening of the financial sector through: continued general inspection of banks on a rotating basis; the application of penalties for nonobservance of the new prudential regulations on loan concentration and on dollar-denominated loans to total liabilities; and improvements in offsite assessments of banks. The restructuring committee for BNC will complete the first stage of its work by December 2000 and the Commission for the Modernization of Public Enterprises (CMEP) will prepare a plan for its privatization by March 2001. Also, an action plan will be prepared to restructure the other government-owned commercial bank, BPH, and an actuarial audit of pension liabilities at the Central Bank, BNC, and BPH will be carried out by June 2001. Legislation to modernize the banking system and bring the system into conformity with international standards will be presented to parliament by March 2001. This will include a new banking law which will, inter alia, make other financial institutions such as credit unions and exchange bureaus subject to the prudential regulations applying to the commercial banks; and a new organic law of the central bank to give it independence in the conduct of monetary policy.

Virtually all of the technical work has been completed toward the modernization/privatization of the main public enterprises (the electricity, telephone, and water companies, port, and airport), with assistance from the World Bank, the Inter-American Development Bank, and USAID. However, carrying out the final steps toward privatization has been delayed, mainly because the government does not expect that privatization (either through management contract or sale of shares through capitalization) can be carried out successfully under present political circumstances. Progress is most advanced toward privatization of the port, where the administration of port facilities has been separated from the port authority, the latter being temporarily responsible for large excess employment. The government intends to issue an invitation to bid for management of the port by November 2000. Downsizing of redundant workers at the port authority will be completed by June 2001, with severance payments of about 0.1 percent of GDP, as provided in the fiscal program. The government will submit a draft regulatory framework for the telecommunications sector to parliament by November 2000.

Haiti: Structural Benchmarks, October 2000-September 2001
Complete the plan for privatization of the BNC. March 2001.
Complete a plan for privatization of BPH. March 2001.
Issue invitation to bid for a management contract for the port facility. November 2000
Start downsizing of employment at the port authority. January 2001
Complete downsizing of employment at the port authority by 1,000 persons. June 2001