Haitian government’s misguided policy will make people even poorer | Opinion

Many Haitian families make great sacrifices to save the money to send a promising member of the family to America. They do so in the hope that the emigrant will do well and send money home. Many have done so, and these remittances now total $3 billion a year, with another $1 billion from Haitians in other parts of the world.

This money, more than 400,000 transfers a week, keeps the Haitian economy afloat and, in especially impoverished areas like Haiti’s Northwest, it is practically the only source of income.

Now the Haitian government wants part of that money. But instead of openly taxing these transfers, it is forcing the sale of 30 percent of all remittances at a highly unfavorable exchange rate.

First, the government drove up the value of the Haitiangourde in the exchange market, selling $150 million in a matter of days in August and September, with other Haitians then pushing the rate up further in pursuit of the suddenly-scarce gourde to nearly double its previous value.

Then, it implemented the 30 percent rule at a bank rate that many others with dollars to sell avoided, preferring the private market, where a dollar soon commanded as much as 20 percent more than the bank rate.

This was because, as soon as the gourde had finished its run-up, dollars began to be hard to come by at the banks (and still are). Individuals can now buy, perhaps, $50 at a teller window, while companies paying for imports or to service a debt have to wait, no matter the payment deadline they face. Fuel imports, a quarter of the total, might get priority, with food imports, another quarter, next in line. For others, not much hope, so urgent payments could only be made by buying dollars in the private market.

To make matters even worse, the Central Bank announced on Nov. 20 that it would be cracking down on the private market. Certain exporters were warned not to sell any dollars outside the banks. If effective, the government would then have complete control over who can buy how many dollars, and at what rate — the Venezuela model. That’s serious power, though a big “if.”

Even amid a profound political crisis, the currency issue is an urgent problem: A strong gourde will severely aggravate Haiti’s chronic poverty. The government says it favors a strong currency in order to bring down prices, particularly for imported goods. But this does not appear to be happening, while leaders know that even a low-wage factory job is the difference between whether a family will eat or now.

Exporters, who are desperately needed to generate more dollar inflows, are at risk of closing down. To avoid this, the government has agreed to pay a subsidy per worker to make up the difference for the 40,000 Haitians employed in the sector. Fine for them, perhaps, but producers for the domestic market are suddenly vulnerable to much cheaper imports and are at risk of going out of business as well.

Even farmers, who will need to compete with imported agricultural goods at much lower prices than previously, now see their livelihoods threatened.

A government serious about a strong currency would align its policies with that goal. Instead, it recently promulgated a fantastical budget, built on a 50 percent rise in tax revenue, but still with a deficit of around 8 percent of likely GDP — and almost half of that is to be paid for by printing money, undermining rather than supporting the currency, and sabotaging the possibility of support from the International Monetary fund or other outside financial source.

Not surprisingly, the exchange rate has started to weaken, even in the official market: The Central Bank has announced the sale of $49 million in the last month and may well have sold more to importers favored by the government. But the rate is still slipping, with the unit losing about 5 percent since late October. Maintaining the rate and the new exchange controls will require either a previously unseen level of coercion, or the commitment of the central bank’s remaining $600 million or so in foreign reserves.

A rear-guard action to maintain a strong currency risks an eventual complete collapse of the currency should the Central Bank exhaust those reserves.

Poorly managed, Hait’s currency could fall far below its previous levels, driving imported food prices sky-high. Already, the United Nations projects that, by spring 2021, almost half of all Haitians will be experiencing acute food insecurity.

Haiti deserves better than this ill-conceived and ultimately futile exchange-rate policy. Controls should be lifted as soon as possible, with very limited dollar sales to avoid market collapse on the way down, so that it still has reserves once it returns to a semblance of normalcy on the currency market.

Wayne Camard is a Santo Domingo-based economist. He previously represented the International Monetary Fund in Haiti.