IMF Cancels $268 Million in Haiti’s Debt, Approves New Loan

Bloomberg / Business Week

The International Monetary Fund agreed to cancel Haiti’s $268 million outstanding debt to the institution and approved a loan to boost central bank reserves as the country rebuilds its economy after a January earthquake.

The decisions came four months after donors pledged $5.26 billion to Haiti’s reconstruction. The $60 million, three-year loan, which bears no interest until the end of 2011, will help the central bank manage potential currency volatility as donor funds flow in, the Washington-based IMF said in an e-mailed release.

“Donors must start delivering on their promises to Haiti quickly so reconstruction can be accelerated, living standards quickly improved, and social tensions soothed,” IMF Managing Director Dominique Strauss-Kahn said in the statement.

The IMF said it will also provide technical assistance to the poorest country in the Western Hemisphere to strengthen government institutions, including the tax system and the budget.

The authorities for instance agreed to give regular updates on the finance ministry’s website on what the aid money is used for under the IMF program, IMF mission chief Corinne Delechat said on a conference call today.

The interest rate on the loan will be zero through 2011 and as much as 0.5 percent after that, according to the IMF. Haiti’s economic growth will be 9 percent in fiscal 2011-2012, mostly due to the flow of international aid, the fund said.

The temblor killed about 300,000 people, according to a United Nations report this month.

The debt relief was financed by a trust fund established by the IMF last month to help very poor countries hit by catastrophic disasters.

“While it is welcome that the fund is providing Haiti with debt relief, it is deeply concerning that at the same time the fund is risking a build-up of Haiti’s future debt problems with a loan,” Oxfam International Policy Adviser Pamela Gomez said in a statement. “This assistance should be a grant, not another loan,” she said.

IMF: World Economic Recovery Off to Fast Start

The Wall Street Journal

Countries have emerged faster than expected from the global recession, but the International Monetary Fund warned Tuesday that managing post-crisis growth is becoming complicated by the divergence in advanced and developing economies.

The IMF presented a much brighter outlook for this year, with the world economy forecast to expand at a 3.9% pace instead of the 3.1% estimate given in October. Global growth is expected to continue to pick up in 2011, with the forecast edging up to 4.3% from 4.2%.

But the rebound will increasingly be driven by developing countries as public stimulus recedes, with the IMF trimming some advanced economy forecasts for next year given continued weak private demand and credit constraints.

"The global recovery is off to a stronger start than anticipated earlier but is proceeding at different speeds in the various regions," the IMF said in its update to the World Economic Outlook.

"Policies need to foster a rebalancing of global demand, remaining supportive where recoveries are not yet well sustained," it said.

Most advanced economies will remain "sluggish," the fund said, with the group expected to expand 2.1% this year and 2.4% in 2011. Meanwhile, internal demand in many emerging and developing markets will provide "relatively vigorous" growth, the IMF said, forecasting 6% growth in 2010 and 6.3% in 2011 for that group.

The divergence in growth paths raises significant policy challenges, as some developing countries are facing the risk that surging inflows will cause new asset bubbles at a time when many advanced economies continue to rely on extraordinary monetary, fiscal and financial support measures.

That unprecedented policy support has raised concerns about sovereign debt risk, the fund said, but it continued to warn that "a premature and incoherent exit from supportive policies may undermine global growth and its rebalancing."

The IMF acknowledges the difficult task of timing exit strategies. Once private demand becomes sustainable, countries should take into consideration concerns about debt levels, as well as asset price bubbles and currency appreciation, it said.

Emerging economies dealing with surging inflows face a complex task and the policy response should depend on circumstances, such as tightening fiscal policy or allowing currency appreciation, the fund said. But it also reiterated that some buildup of reserves or capital controls may be appropriate to address large and transitory movements.

Given growing concerns about public debt levels, the fund recommends that countries fully implement fiscal stimulus for this year, while devising credible fiscal sustainability plans. Medium-term fiscal consolidation should protect spending on the poor and forming aid while overhauling entitlement spending, it said.

Regarding monetary policy, the fund said many central banks can afford to keep rates low this year given expectations of low inflation. Countries recovering faster will have to tighten sooner, it added.

On the financial front, advanced countries and the hardest-hit emerging economies still have to deal with bank restructuring and removing toxic assets. Policy makers should remove financial support gradually, while moving ahead with reforms that will both reduce financial risk and make the banking sector more effective and resilient, it said.

Among advanced economy forecasts, growth in the U.S. is expected to reach 2.7% in 2010 and 2.4% next year. The fund said new U.S. policies to create jobs could boost growth there and globally.

The euro area is forecast to grow 1% this year and 1.6% in 2011, while the U.K. is seen expanding 1.3% this year and 2.7% next. Japan is projected to grow 1.7% and 2.2%, and Canada's economy is seen rising 2.6% and 3.6%.

Regionally, developing Asia is forecast to grow 8.4% in 2010 and 2011, with China expanding at a 10% clip this year and 9.7% next. Central and eastern Europe economies are expected to rise 2% in 2010 and 3.7% next year, while emerging economies in the Western Hemisphere are forecast to grow 3.7% and 3.8%. Africa is expected to grow 4.3% and 5.3% over the next two years.