A sudden and spectacular appreciation in Haiti’s national currency, the gourde, is creating havoc across the country as economists try to figure out what’s fueling it and skeptical Haitian consumers wonder how long it will last.
Over the past four weeks, the gourde has risen in value from 118 gourdes to the U.S. dollar at the end of August to 65 gourdes for every greenback on Wednesday, an appreciation of 81.5 percent.
The gourde’s rise is a windfall for importers, big dollar-denominated borrowers and those doing business or getting paid in gourdes, who have seen their earnings plummet due to the plunging value of the gourde over the past 10 years.
But it is bad news for just about everybody else.
Because Haiti is a dollarized economy with more than 60% of bank deposits kept in U.S. dollars, according to the latest data from the country’s central bank, many Haitians are seeing their buying power cut in half because prices overall have so far not changed very much.
Among the losers: the assembly sector, government coffers, local producers already struggling to compete against imports from the U.S. and the Dominican Republic, and the millions of poor Haitians who were the recipients of more than $3.3 billion in remittances last year from friends and relatives abroad.
Politically, increasing the country’s purchasing power is good for the government, which has struggled to attract foreign investments, create jobs and provide political stability amid violent anti-government protests. Economically, however, it’s problematic, with at least one economist describing it as dangerous.
“It’s like the pendulum has swung from one side to the other side and the economy now is suffering,” said Kesner Pharel, an economist and head of the Port-au-Prince consulting firm Group Croissance.. “It’s not only with trade but it’s very difficult now for the government to make the budget.”
On Wednesday, government ministers adopted the new 2020-21 budget ahead of the new fiscal year, which begins Thursday.
The new budget, at 254.7 billion gourdes, or $3.9 billion, is almost double the amount of past Haiti budgets. It is the first time that Haiti, which is governing without a functional Parliament, has approved a budget of more than 200 billion gourdes. The government says its anticipated domestic revenue is 132.6 billion gourdes, or $2 billion. That’s roughly the entire amount of past budgets, and represents a 60% increase over the previous year.
In other words, say several former ministers who have served in past governments, it’s unrealistic.
Since last year, tax collection agencies have struggled to bring in more revenue due to Haiti’s economic stagnation, resulting in fiscal deficits unseen in the country in recent history. And with a $4 billion trade deficit because the country imports more than it produces, Haiti is now faced with losing more of its competitiveness as factories threaten to leave due to what has become a severely overvalued currency.
‘This can’t last.’
Economists and finance experts in Haiti have various theories on what’s led to the gourde’s strength. There are also some unknowns, such as how the the country’s large informal market, volatile politics and uncertainty will ultimately impact the bottom line.
In a note to its foreign diplomats about the strengthened gourde against a weaker dollar, the government credited several decisions.
Among them: the Bank of the Republic of Haiti’s ongoing attempt to control what it has called the speculation in the currency exchange market; its decision to inject $150 million into the economy between Aug. 10 and Sept. 30 to buy back gourdes, and the public announcement by the bank’s governor, without specifying the reasons, that millions of dollars of penalties had been imposed against two commercial banks.
Several political interventions on the side of both the government and opposition are also being cited as possible contributing factors to the rising currency.
In the case of the opposition, one of its leaders, Jean-Charles Moïse, rattled commercial bankers when he told Haitians they should go to the banks to demand their money.
Then there is President Jovenel Moïse. He and members of his government have repeatedly blamed Haiti’s private sectors, including commercial banks, for the poverty-stricken country’s woes.
During a televised meeting in September, Moïse accused unknown individuals of trying to use the dollar exchange market “to overthrow the government,” and warned that “if you’re trying to overthrow us, we will overthrow you.”
And then there is the overall uncertainty over the rise of the gourde. What’s happening. How long will it last? How bad will it be be when the currency ricochets back down in value, as has been the case in other countries?
“I have no problem putting real money on saying, 100 gourdes to the dollar by Christmas,” said Wayne Camard, the former resident representative for the International Monetary Fund in Haiti. “This can’t last. The fundamentals won’t support it. There is something very specific riding a gourde shortage.”
Haiti’s panicked textile sector
Economist Eddy Labossière who heads the Association of Haitian Economists and supports the government’s measures, recently tweeted that given the speed at which the gourde is moving, “nothing seems to be able to stop the downward trend of the dollar on the foreign exchange market.” It is possible, he says, that the gourde will continue to rise and hit 25 to the dollar.
Haiti’s textile industry says that would be disastrous.
In a letter to Moïse, MAS Akansyel, a subsidiary of the largest apparel conglomerate in Sri Lanka, said “an appreciation of the local currency of close to 50% over a two-month period is unheard of” and the level of uncertainty accompanying it “makes it impossible for an export business to survive.”
Operating in Haiti for the past three years, the company provides 1,300 full-time jobs at its factory at the Caracol Industrial Park in northern Haiti. The company said it’s losing $100,000 a month.
“Today, the current level of the gourde does not allow the export sector to survive and may cause irreversible damages to the country’s competitiveness, if maintained much Ionger,” Giri Chandrasena, the company’s general manager, wrote. “We operate in Haiti under tremendous challenges and the monetary policies at present are not making our survival viable, in this post COVID environment.”
Citing the precipitous depreciation of the dollar, other textile exporters, including a Korean association representing 12 firms, and Fernando Capellan, owner of Grupo M, which runs the Codevi apparel industrial park in northern Haiti, have all made simlar arguments to Moise: The sector, which employs upwards of 50,000 workers, faces not just layoffs, but closures.
Last week, the U.S. House of Representatives extended duty-free trade preferences for Haiti under the Caribbean Basin Trade Partnership Act until 2030. Now others worry about the industry’s survival.
The American Apparel and Footwear Association, which also sent a letter, said the gourde’s appreciation is “artificial” and “non-market driven” and added it is “disturbed” by reports that the government plans to have the currency, which reached 123 gourdes per dollar earlier this year, stabilize at around 40 to 45 gourdes per dollar.
“Such economic shocks represent an intolerable situation — one that threatens to reverse years of economic progress. Artificial changes in exchange rates negatively impact investments and employment,” the Washington-based group wrote. “Given the fragility of the manufacturing and the challenges of COVID, this appears to be driving an exit strategy away from Haiti — an outcome that has deeply puzzled and disburbed our members.”
Pierre-Marie Boission, the founder and chairman of the Board of Directors of Société Générale de Solidarité, one of Haiti’s three largest microfinance companies, said the government’s decision was not well thought out.
“This is going to kill the economy, this is going to kill the whole export sector,” he said. “You have a situation where … those guys are selling in U.S. dollars but it is being converted in gourdes. At the same time, your sales are going down, but your costs are not going down at the same pace so you’re going to get killed; you’re going to be put out of business very soon.”
Critics of the sector note that when a weaker gourde was hurting workers — it was the equivalent of $4 a day, and now it’s $8 a day with the appreciation — but benefiting textile owners, the industry was silent. Still, the negative effects of the rising gourde on the apparel industry isn’t something that’s incurable, some argue. If the appreciation of the gourde is short-lived, the industry will survive, said at least one analyst. But if it stays at the current level for an extended period of time, the government will have to design relief packages, if it wants to support the textile export sector.
Wilhelm Lemke, the new head of the Association of Haitian Industries, said talks are ongoing with the government and panicked textile owners hope to meet with the president.
Haiti, he said, already lost several thousand factory jobs this year when the sector was temporarily forced to close over COVID-19. Now, he said, Haiti “is looking at all of them shutting down.”
And it’s just not the apparel industry that is suffering. With the gourde now almost on par with the Dominican peso, which stands at 58.5 pesos to the dollar, imported Dominican bananas, eggs and chicken will now come into Haiti way cheaper than what’s produced locally, bringing those already struggling industry to their knees.
While the gourde and the peso are almost at the same rate, there are stark differences between both countries’ economies: Inflation is significantly higher in Haiti, at 26%, compared to 3.1% in the Dominican Republic. And the Dominican Republic earns significantly more revenue from exports and tourism than Haiti, despite the COVID-19 outbreak.
“Another big loser is the government itself. The government’s main source of revenue is import duties and customs,” Lemke said. “If a shipment comes in at $1,000, when it was at 100 gourdes, they would be taxing 20 to 30% on 100,000 gourdes where as today, that same shipment is at 65,000 gourdes.”
And then there are those who rely on remittances.
Before this summer, Ricardeau Toussaint, a student, said he would receive his money transfers as they were sent — in U.S. dollars, minus the $1.50 tax the government takes under the guise of investments in education.
On Thursday, when Toussaint, 25, went to claim $85 from a Western Union sub-agent in Haiti’s Artibonite Valley, he got his cash in gourdes and instead of receiving it at the exchange rate of 65 or reference rate of 67, set by the central bank, he received it with an exchange rate of 62 gourdes per $1.
“There are some places that are giving it to you at 55 gourdes,” said Toussaint, who is no longer able to afford the things he could on the money he receives.
Even though the central bank delayed the implementation of the new requirement for money transfer houses to make payouts in gourdes and not dollars, Toussaint said many were already engaged in the practice and threatening to go on strike and close up shop to protest the central bank’s new measure.
Toussaint said he feels the negative effects of the central bank’s aggressive stance every time he receives a wire transfer and then has to do transactions in dollars. With agents banned from paying him in dollars, he has to go to a bank to convert the transfer back into dollars and ends up losing even more buying power because the rates don’t match.
“The government knows well what it’s doing because it’s not to the benefit of the Haitian population, really,” he said. “They’ve only removed 5% off the price of goods. There are some products whose prices have not gone down.”
To further illustrate his point, he mentioned paying rent. Toussaint said he was looking at paying $650 in rent, in 80,000 gourdes, to his landlord. Today, with the stronger gourde, he now has to find more dollars — $1,230 — to meet his rent because the landlord, like so many other merchants, “doesn’t want to drop the price.” .
The speculation on dollars
Over the years, dollars have become increasingly scarce in Haiti due to a lack of tourism, the departure of U.N. peacekeepers and foreign charities. At the same time, the growth in remittances, fueled by the record number of Haitians who fled after the 2010 earthquake for Chile, Brazil and elsewhere in Latin America, increased pressure for dollars, which money transfer houses and their sub-agents didn’t always have in cash.
As demand on remittances grew and dollars were in short supply, sub-agents paying out remittances for big transfer houses like Western Union, Moneygram and CAM Transfer began paying out remittances almost exclusively in gourdes while also setting their own exchange rates.
“They were capturing remittances in dollars, but paying in gourdes at a rate that was 4 or 5 gourdes below the central bank’s reference rate,” Boisson, the microfinance expert, said. “They were then reselling those dollars to banks, retail businesses, supermarkets at hugely different rates so they were making money and because they were making money, they were also trying to realize the best margins possible, keeping the dollars a few days before selling them.”
This pushed the market for dollars up and forced the gourde’s plunge. Enter Haiti’s central bank and its new directive that remittances must be paid out in gourdes.
After money transfer sub-agents threatened to shut down out of protest, Haiti’s central pushed the start day to Oct. 1.
While the sub-agents illegally control a large chunk of the money exchange market and share in the blame for the rapid depreciation of the gourde, they are not totally at fault.
Haiti’s deficit — which has averaged about $16.9 million monthly — double digit inflation, poor fiscal discipline and the printing of money have also contributed heavily to the economic crisis.
Camard, the former IMF economist, said while experts may be baffled trying to explain the gourde’s appreciation in just a short window, there is no mystery about to what Haiti should be doing to address its economic problems.
“The government IOU becomes the government IOU to be paid when the government has money, and you stop printing money,” Camard said. “The minute you cut off the supply, you get a response. But you’ve got to be able to not print money. “
©2020 Miami Herald