Commentary: The IMF misled Haiti and cost lives

The violent fuel-price protests of July 2018 in Haiti are a stark reminder of how desperate times make warriors out of the weakest of us. While President Jovenel Moïse’s government has made some important strides on the economic and political fronts, the recent set-back of this fuel-price catastrophe is a costly blow to folks looking forward to and for a better Haiti.

While we blame the Haitian government for not “listening to the people” and their request, which in hindsight sounds like a veiled threat, not to remove the fuel price subsidy and essentially raise the price of fuel across the board, the International Monetary Fund (IMF) is also at massive fault for the lives lost and property damage in Haiti as a result of this very tragic turn of events.

The first, alarming and comical thing about this fuel-price affair is that the Haitian government did not “raise” taxes or the price of fuel/gas, per se. What the Haitian government did, after advice, consultations and carrot-waving from the IMF, was it removed a fuel subsidy that was put in place as a temporary measure in 2010 to assist with the post-earthquake reconstruction.

The fuel-subsidy removal would have represented a dramatic increase of 38 percent on gas, 47 percent on diesel and 51 percent on kerosene. Shockingly unheard of price increases for a poor country.

The fuel-subsidy, now in its eighth year, costs the Haitian government more than what they spend on healthcare annually – some 2.5 percent of GDP compared to just less than 1 percent for healthcare, according to a 2014 World Bank report on its impact.

However, the proposed remedy – the removal of the fuel-subsidy altogether – encouraged by the IMF with the promise that the Haitian government would receive some US$96 million in “aid-money” if they did so, was foremost in the government’s mind in addition to its overall cost.

Essentially, the IMF prompted the government to make “shock adjustments” without understanding the political and social climate surrounding their advice, and the government of Haiti underestimating how seriously the citizens were adamantly opposed to it.

Of course, Haiti cannot continue with this fuel subsidy. Right now Haiti has the worst healthcare in the region, if not the world. Haitian women leave for any country simply to give birth. Haiti’s gross domestic product per capita is less than US$800 with a population of just over ten million people and the fuel-subsidy is hampering public investment in other areas like education, small business development and infrastructural development.

All of this did not matter to the proponents of the fuel-price increase, which in theory looked like the “right thing to do” and still is, to all intents and purposes.

Political Economy 101 teaches you two things, however: Be mindful of top-down economic and political reforms; and be careful with regard to economic shock-treatment.

The IMF, led by a French woman, Christine Lagarde, advised the Haitian government to raise the price of fuel in order to get that $96 million in “aid money”. However, the damage from the riots caused by the fuel hike may cost much more than that at the end of the day – in both the short term and with regard to the loss of long-term foreign and local investment.

Now the IMF is saying that they will accept a gradual increase of the fuel prices instead. The IMF knew all along that shock treatment is dangerous and dramatic swings in economic policy creates the effect we saw with the riots and resulting damage – at this level of the game, who doesn’t? There is too much information and caveats and failed examples of this all over the world.

This Haiti fuel-price tragedy could easily be added to the political-economy literature on shock treatment as a warning of how dangerous it can be.

The Haitian prime minister, Jack Guy Lafontant, a political novice, having held no public service office before being appointed prime minister in 2017 by President Moise, with Lafontant responsible for giving the order to raise the fuel prices while Moise was away at a CARICOM conference in Jamaica, before it was reversed after the massive riot, resigned before he could be removed by a vote of no-confidence by the Haitian Chamber of Deputies on Saturday.

So what we have now is that Haiti has no fuel subsidy removal; no cabinet level support or supporters for it in of kind, even if it is needed desperately or not; Haiti will not get that $96 million in aid money; and the damage from the riots brought on by the fuel price increases may cost triple the amount of the aid money promised by the IMF if they had kept the fuel price hike.

No wonder why the Haitian government is not interested in responding to French assistance to build a hospital for them at the Dominican Republic border area, as described by the French ambassador to the Dominican Republic, Jose Gomez, after the fuel riots subsided.

Haitian issues with the French, their former colonisers who they fought violently for independence from and had to pay billions of dollars in reparations to and with all of that history aside, sees this aid money from “Western” sources as problematic that comes with a heavy political cost when there are carrots waved and strings attached. This most likely is confirmed by the trust they put in IMF experts and specialists who wrongly advised them to go about removing the fuel subsidy.

The moral of this story is: Countries must use the IMF for information and consultations, never for assistance or for implementation recommendations. They are to be listened to, with advice duly noted, but not followed to the letter.

 

 

 

 

by Youri Aramin Kemp, Caribbean News Now(Bahamas)

July 15, 2018

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