Sunday, March 30, 2008

Picturesque Poverty and Monetary Policy in Haiti

For the picturesque poverty see the Tyler Cowen's post.

For the monetary policy see the Letter of Intent of Haitian government- they're promises the Haitian government has to keep in return for IMF's assistance;

The Government believes that the policies set forth in the attached Memorandum of Economic and Financial Policies (MEFP) are adequate to achieve the objectives of its program, but it will take any further measures that may become appropriate for this purpose. Haiti will consult with the IMF on the adoption of these measures, and in advance of any revision to the policies contained in the MEFP, in accordance with the fund’s policies on such consultation...

The program envisages attaining an inflation rate of 9.0 percent by end-September 2008. This rate slightly exceeds the FY2007 outcome, as a result of higher international prices for food and petrol. To ensure that these increases do not translate into broader inflationary pressures, base money growth will be kept slightly below that of nominal GDP, with an indicative target for the year of 9.6 percent. The bulk of monetary expansion will come from an increase in net international reserves, with a program floor of US$40 million. This will boost gross reserves coverage to 2.7 months’ worth of imports. Recognizing that appreciation of the real exchange rate is a reflection mainly of changing fundamentals, the BRH will maintain exchange rate flexibility, limiting interventions to purchases for the achievement of the program NIR target and temporary smoothing of excessive market volatility...

Building on the cessation of non-essential activities in the first program year, we will strengthen the institutional foundation for our monetary policy framework through further reinforcement of the independence of the BRH, including through strengthening its balance sheet. A strategy to divest the BRH’s interest in the state telephone company, Teleco, is currently being prepared (PC for end-March 2008), with support from the IFC. Taking into account the expected proceeds from that operation, the BRH will, together with the MEF, devise a plan for the recapitalization of the central bank (PC for end-March 2008). The plan will contain steps to revert the BRH’s quasi-fiscal losses, and put its balance sheet on a sound financial footing.

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