October 04, 2010

Article at Reuters

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Haiti looks to credit boost for post-quake rebound

PORT-AU-PRINCE (Reuters) - Haiti and its aid partners are working to get credit flowing back into the earthquake-shattered economy to stimulate businesses, jobs and house building and make possible a projected growth rebound of up to 10 percent next year, senior Haitian officials said.

Earthquake survivors rest in their self-constructed improvised tent in Port-au-Prince October 1, 2010. REUTERS/Eduardo Munoz

With the help of the World Bank, the Inter-American Development Bank and the U.S. Treasury, Haitian authorities are preparing a partial credit guarantee fund and leasing mechanisms to allow small entrepreneurs and businesses to get back on their feet after the devastating Jan. 12 quake.

Accompanied by measures to ease bank loan restructuring and boost financing for home construction, they hope this infusion of capital can help revert the estimated 7 percent contraction of the economy this year caused by the catastrophe.

“This is why we are working on all those measures to boost credit, we hope that next year we’re going to have 8-10 percent growth, hopefully,” said Charles Castel, governor of the country’s central bank, the Bank of the Republic of Haiti.

The quake, one of the most destructive natural disasters in recent history, killed up to 300,000 people and pole-axed what was already the poorest economy in the Western Hemisphere. Donors have pledged some $11 billion over the next decade to fund reconstruction of the crippled Caribbean state.

In interviews last week, Castel, Prime Minister Jean-Max Bellerive and Finance Minister Ronald Baudin said the credit boosting measures aimed to put back into business or productive jobs tens of thousands of middle-class citizens and small entrepreneurs, who lost not just homes but entire livelihoods.

“All we are doing, working with the banks, the insurance companies, trying to create more investment in Haiti, is trying to rebuild, support that middle class and to stop what’s left of the middle class from leaving Haiti,” said Bellerive.

Also underpinning growth hopes for next year was a major program of national infrastructure construction and development, which seeks to use both institutional aid and private investment to build roads, bridges, ports, airports and manufacturing parks to relaunch Haiti’s economy.

Baudin said that after next year’s projected economic bounce back, the country could achieve growth rates “not below 6 percent” for subsequent years.

Castel said he was talking with the Washington-based IADB about initiatives to finance micro-industries, such as the credit guarantee fund, leasing facilities and also professional schools. “People in welding, people in furniture-making, they deserve to be financed,” he said.

Such microfinancing had been obstructed in the past because of prohibitively high interest charged by banks. Hopes are that the partial credit guarantee fund, to be executed through Haiti’s state Industrial Development Fund, could initially guarantee $140 million in loans, and eventually more.

In addition, the central bank had eased loan provision requirements for banks to facilitate the restructuring of loans affected by the earthquake, and also relaxed mandatory reserve rules for loans for residential or commercial real estate.

To further boost financing for housing, the bank was also working on a plan to offer fixed-rate, long-term loans over 10-15 years for residential real estate -- the greatest need after the quake left 1.3 million homeless.

Debt forgiveness formed part of the huge international aid effort for Haiti following the quake and the officials estimated 90 percent of the nation’s debts had been canceled .

This included $268 million from the International Monetary Fund. Part of the funds made available from this would go toward reconstruction of institutions key to Haiti’s functioning that were destroyed or damaged -- the parliament, justice palace and administrative courts.

Officials note the bulk of Haiti’s debt -- about $1 billion -- had already been forgiven last year, before the quake, in recognition of government efforts to improve fiscal discipline and financial accountability and transparency.

Over four to five years of macroeconomic stability and uninterrupted growth, including 3 percent in 2009, Haiti’s foreign reserves had risen to more than $1 billion from just $17 million in April 2004, central bank officials said.

The ministers and United Nations officials hoped U.N.-backed presidential and legislative elections on Nov. 28, to choose a successor for President Rene Preval, could keep political peace in Haiti and support the reconstruction.

“With political stability, I believe it is reasonable to think we’re going to have high growth next year,” Castel said.

He and Bellerive stressed the urgent need for a massive influx of foreign investment to complement international aid, which alone could not mitigate the quake impact and put Haiti on a path of sustainable development.

But the challenges were huge, not least the need to improve and modernize judicial and administrative structures to ensure the rule of law and security in a society where these had long been largely absent. “If the society itself doesn’t work well, finance cannot work well,” Castel said.