Can an Irresponsible Government Be a Punishment for a Nation?

Yes indeed.

One of the strongest and most profound realities about the history of Haiti has been and will always be in the hand of its people. Yet, most Haitians cannot and/or continue to deny the fact that the real punishment for becoming a slave-free country in the early 1800 was to witness their newly born country being taken over by a succession of irresponsible individuals, dictators, and populist governments.

Fact – On Friday, July 6th, 2018, while the majority of the population were watching the World Cup quarter-final between Brazil and Belgium, the irresponsible Haitian government announced that fuel prices would be rising as of midnight. The Minister of Commerce and Industry, Pierre Mary Du Meny, had communicated the new prices that would be applied from midnight. A gallon of gasoline being sold at 224 would rise to 309 gourdes, an increase of 38%, diesel fuel from 179 to 264 gourdes, an increase of 47% and kerosene from 173 to 262 gourdes, an increase of 51%.

According to the Minister of Finance, Jude Alix Patrick Solomon, the Haitian government has entered into an agreement with the International Monetary Fund (IMF) that requires fiscal discipline in the spending habits of the Haitian government in order to receive some level of financial assistance from the institution. During a press conference, Haitian Finance Minister Solomon said the following: “It’s difficult for you to be asking your international partners to give you budgetary assistance or support and at the same time you have revenue that you are not capturing.”

The IMF had informed the Haitian government that it was necessary to increase the price of fuel and institute policy-making decisions and reforms, including budget cuts to streamline government spending. This was stated during a meeting that took place last February, 2018. Once those reforms are implemented, the International institution has promised to give the country access to $96 million ($36 million from the European Union, $20 million from the World Bank and $40 million from the Inter-American Development Bank) in sorely needed donor support.

It is essential to examine the factors that have contributed to the events that took place in Haiti last week, which we’ll call the “Haiti Black Friday Riot.” Whatever it may be, these triggered the deadly protests and riots by the people that forced Haiti’s government to halt plans to raise fuel prices. The problem is twofold. It’s the result of a dual decision between an out of touch International institution called IMF and an incompetent Haitian government.

International Monetary Fund

The IMF was created during the Bretton Woods Conference in New Hampshire in 1944. Back then, the U.S. and U.K. along with other countries decided to form both IMF and the World Bank. That being said, the Fund was created by and for industrial nations; therefore, economic development was not a prime consideration in the design of the Fund.

Today, with the backing of Western nations, the IMF is the single most powerful non-state institution in the world. Since its creation, developing countries like Haiti and African nations are marginally represented in the IMF at the administrative level. Little opportunity is given to developing countries to express their concerns during IFM meetings. In other words, what is a priority for that institution does not often reflect the view of poorer nations.

IMF’s Philosophy and Approach

The Fund applies a market-driven, pro-free enterprise, pro-capitalist, anti-socialist philosophical approach to provide both financial and humanitarian help to less developed and developing countries (LDCs), which always translates to sharp reductions of social programs that are financed by public funds, with a pronounced bias in favor of free trade. This is the type of reflection of the vision of the world as perceived and imposed by industrial countries, in particular, the United States. Moreover, nearly all the IMF white color bureaucrats/technocrats are Western-trained individuals responsible for recommending a one-size-fits-all policy.

The problem with that policy or approach is that it is standard – it applies to all countries in all circumstances – and not tailored to the country’s individual needs. The Fund was also criticized for requiring quick results. Therefore, it is not very concerned with long-term economic development. Not taking into consideration political conditions and social objectives of a country when formulating economic policies and programs is likely a recipe for disaster.

The idea that the IFM programs are based on one standard package applied to all countries in all circumstances and identical policies and prescriptions to impose to the needed countries like Haiti is counter-beneficial and constitutes a flagrant interference to the country’s sovereignty.

Broadly speaking, the LDCs have leveled a lot of criticism at the IMF, which can be outlined in four points:

1.    IMF programs are inappropriate because its approach to policy is much too preoccupied with the control of imposing significant costs on borrowing countries which destabilize the production system.
2.    IMF modes of operation and inflexibility in negotiations infringe on the sovereignty of states and alienate governments from the people they are elected to serve.
3.    IMF credits and programs are too small, expensive and short-term.
4.    IMF administration is dominated by a few major industrial countries that pay little attention to LDC’s views. Industrial nations know how to use the Fund to promote their own interest.

Lately, IMF has been widely criticized by most reputable economists for using the supply side economic measurements more to address economic crises in the LDCs.  By definition, supply side requests a reduction of price distortions caused by subsidized governmental programs, promoting privatization, and a sharp reduction in public section investment.  In other words, supply side economics is a liberal-inspired supply policy that establishes a set of measures favoring lowering corporate taxes to increase production while reducing public funding to social services. This is precisely what the Trump administration has been doing when cutting the business corporate tax rate to 20% and attempting to repeal the Affordable Care Act, signed under Obama, thus proposing deep funding reductions on social programs.

On the other side, the demand side economy is all about increasing demand in the consumer and is associated with the British economist John Maynard Keynes’ economic theoretical approach. According to this approach, the government should be deeply involved in the economy by helping increase the spending power of the average person (in the case of Haiti, subsidizing the fuel gas will increase the population’s purchasing power). It also requires that the government engage in public works and increase all forms of entitlements.

Overall the IMF for the past three decades has concealed its real intent to LDCs like Haiti by offering cheap loans and quick fixed programs with no strings attached, but the reality is quietly stunning considering the case of Haiti where IMF dictated the irresponsible and incompetent Haitian government how to run its macroeconomic policy to stimulate the economy.

Now, with a better understanding of all said and already known of the IMF’s lack of touch of LDCs with the type economy like Haiti’s, it becomes clear why the IMF attached those ‘strings’ for granting a loan to the country and it is flawed and represents nothing more than the purely liberal supply side industrial economic policy.

In retrospect, based on what everyone knows of the current Haitian government, it’s not surprising that the interest of President Jovenel and its team came above those of the country. It is much more comfortable for the Haitian government to impoverish those who it represents than to go after those who steal the public treasury. For instance, a special Haitian Senate commission accused former Haitian government leaders of embezzling more than $2 billion in Venezuelan oil loans called “PetroCaribe.”

As a matter of fact, the Senate investigation report concluded that criminal charges should be filed against two former prime ministers, several ex-ministers, and owners of private firms on grounds they misappropriated and embezzled money from the Haitian government.

Both former Prime Ministers Bellerive and Lamothe are among those named in the report, along with former Finance and Commerce Minister Wilson Laleau, who now serves as President Jovenel Moise’s Chief of Staff.

Moreover, the government under Moise has never provided an account of the flow of money coming out of phone calls or wire transfers imposed by former President Michel Martelly over two years ago.  Back then, at a press conference, Mr. Martelly said that it’s projected the fees on those services would generate around $144 million over the next five years to pay for schools. Needless to say, those funds have never been appropriated in an approved budget by the Haitian legislative bodies.

After all, the Haitian government has decided to turn its back on the PetroCaribe findings. It also failed to ask the parliament to take measures to ensure that the funds raised from the phone calls and wire transfers are to be used according to strictly established policies and procedures and chose instead to create a “Black Friday Riot” to stain the painful and sad story of a poor country named Haiti.

Wesley Laurent, MBA, CPA