Across the divide

04/04/2006 | Duncan Hooper

President-elect Rene Preval might be Haiti’s best hope for bridging the gap between the impoverished Caribbean island and its wealthy neighbour, the Dominican Republic

By Duncan Hooper

President-elect Rene Preval might be Haiti’s best hope for bridging the gap between the impoverished Caribbean island and its wealthy neighbour, the Dominican Republic 
Sharing the Caribbean island of Hispaniola, Haiti and the Dominican Republic couldn’t be more different: one is the poorest nation in the Americas, where UN soldiers struggle to keep order on the streets; the other is a paragon of economic progress, where American tourists relax in all-inclusive hotels, and farmers market high-value organic bananas to top-end retailers around the world.

The key challenge for incoming Haitian president Rene Preval is to narrow the chasm that divides the two neighbours.
“The Dominican Republic can be used as a showcase for a country that successfully implemented economic reform,” says Amelia Santos-Paulina, a former economist at the country’s central bank and now a researcher at the World Institute for Development Economics Research.

She traces the country’s success to trade reforms that cleared the way for imports of components for assembly and sale to the US, liberalization of exchange rates and modernization of the tax system.

The Dominican economy, four times the size of its Francophone neighbour, has flourished assembling textiles and consumer goods for sale into the US. The success of Leonel Fernandez’s government is illustrated by the speed and scale of a rebound from a banking crisis in 2003 that wiped out growth. 

Local threat

Aside from its over-reliance on the still-shaky banking system, the biggest near-term threat to the Dominican Republic may come from its neighbour. Haiti is dependent on small-scale agriculture, and many of its labourers seasonally travel across the border to collect meagre wages harvesting sugar cane or working in the construction industry. 

A flood of immigrants across an ill-policed border has put strain on the already stretched Dominican health and social security system, and flare-ups between locals and new arrivals have become increasingly common. Fernandez and Preval have everything to gain from working together. 

Haitians look to Preval to establish a new dawn for the country, which has witnessed five coups in the last 20 years. They cling onto his previous term in office, between 1996 and 2001, as a sign of hope. Preval remains the only leader in Haitian history to see through a full democratic term in office and hand over peacefully to his successor.

The president-elect has already overcome his first significant obstacle after his supporters took to the streets to complain about piles of blank ballot papers diluting his vote in the February election. Only a subsequent deal with the electoral authorities allowed the agronomist to claim the 50% support necessary to fill the void left by the 2004 ouster of ally Jean-Bertrand Aristide.

Taking back the streets

The immediate challenge now is to win back the streets from armed gangs to create an environment conducive to the return of investors and tourists. Preval is relying on Brazilian-led UN troops to do the job after noting that Haiti had no need of its own army. Creating jobs will be essential, perhaps through a programme of public works to improve infrastructure and replace the slums of Port-au-Prince with basic housing.

“We have to create the security conditions; we have to create the confidence,” says Jean-Claude Paulvin, president of the Haitian society of economists. He puts an “optimistic” estimate of the country’s unemployment at 60%, and says encouraging factories assembling products for export and increasing agricultural productivity are crucial.

Another looming threat is inflation, which has been kept down to a controllable 15% by the provisional government but has skyrocketed in the weeks since Preval’s election victory. Unless the government acts to stamp out price increases immediately, any other progress may be wasted, according to independent economic consultant Claude Beauboeuf.

“Things can get worse,” Beauboeuf notes resignedly.  He warns, “We could be returning to hyperinflation.”

Haiti must follow its neighbour’s example and develop a long-term plan for diversifying industries away from agriculture and revitalizing bankrupt energy and water companies, according to Beauboeuf. He estimates that 95% of the foreign aid poured into Haiti has been wasted because of an absence of strategic thinking.

In Preval’s favour the people of Haiti, both urban and rural, seem willing to back him. They’ve had enough of strife and poverty and will grant a window of opportunity that he must capitalize on to push though reforms.

Desperate

Businesses are desperate after three years without growth or investment. The hotels that remain open are often running at less than 15% capacity all year round. Some, like the Coconut Villa in Port-au-Prince, say they are running at a loss because constant blackouts mean they have to generate their own electricity for sometimes just one guest.

“We’re on a path to extinction,” says co-owner Wilhelm Berthold. “We’re so busy trying to plug the holes in the boat, we don’t have time to think about the future.”

In its desperate quest to survive, Haiti has been left behind by many other economies in the region. The last vestiges of its private industry are dying day by day, and if Preval doesn’t get his rescue act going quickly, he may find there’s nothing left to save.

Editor's Picks


In Focus

  1. BRAZIL: Rousseff running out of time to restore economic credibility

  2. FINANCING LATAM’S BANKS: Niche currencies lead the way for LatAm exposure

  3. US QE tapering a good sign but watch the short end…

  4. JIM O'NEILL: Latin America can learn from Mexico’s efforts

  5. LATIN AMERICA: Filling the infrastructure financing gap