VZCZCXRO7264
PP RUEHQU
DE RUEHPU #1483/01 2221907
ZNY CCCCC ZZH
P 101907Z AUG 06
FM AMEMBASSY PORT AU PRINCE
TO RUEHC/SECSTATE WASHDC PRIORITY 3778
INFO RUEHZH/HAITI COLLECTIVE PRIORITY
RUEHBR/AMEMBASSY BRASILIA PRIORITY 1177
RUEHSA/AMEMBASSY PRETORIA PRIORITY 1019
RUEHQU/AMCONSUL QUEBEC PRIORITY 0549
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 03 PORT AU PRINCE 001483 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR WHA/CAR 
EB/IFD 
S/CRS 
SOUTHCOM ALSO FOR POLAD 
STATE PASS TO USAID FOR LAC/CAR 
INR/IAA (BEN-YEHUDA) 
COMMERCE FOR SCOTT SMITH 
TREASURY FOR JEFFERY LEVINE 
WHA/EX PLEASE PASS USOAS 
 
E.O. 12958: DECL: 08/08/2016 
TAGS: ECON EAID ENRG PGOV PINS HA
SUBJECT: GOH BUDGET UPDATE: MOVING FORWARD WITH 
PETROCARIBE, REVENUES HIGHER THAN EXPECTED 
 
REF: A. PAP 856 
     ¶B. PAP 1417 
 
PORT AU PR 00001483  001.2 OF 003 
 
 
Classified By: Ambassador Janet A. Sanderson for reasons 1.4 (b) and (d 
). 
 
¶1.  (C) Summary: President Rene Preval's economic advisor 
Gabriel Verret told econoff August 8 that the new budget is 
almost complete and will move forward to parliament, maybe by 
tomorrow (August 11).  Concerning the financing gap for FY06 
(USD 18.5 million) and FY07 (USD 15 - 25 million), government 
revenues are stronger than expected, which will help reduce 
the gaps somewhat.  The GOH also plans to cut expenditures, 
Verret explained.  For this fiscal year, some elements of the 
Social Appeasement Program (French acronym: PAS) and an 
"illegal" supplemental monthly salary offered to workers at 
the start of the academic year may be partially cut.  To 
close the financing gap for FY07, the GOH will cut back on 
investments for which there is not sufficient donor funding. 
Meanwhile, the GOH is seeking parliament's approval for 
eventual ratification of the PetroCaribe agreement, which 
Venezuela and Haiti have yet to formally sign.  The GOH 
continues to perceive the terms of the loan to be favorable 
to Haiti and sees the loan itself as a source of additional 
financing.  Apparently, the first shipment of petroleum was a 
grant and not part of the regular loan agreement.  Verret 
also said that Preval plans to replace ineffectual 
bureaucrats with those committed to raising government 
revenues.  End summary. 
 
PetroCaribe: A Source of Additional Financing? 
- - - - - - - - - - 
 
¶2.  (U) Economic advisor Gabriel Verret, previously skeptical 
of the PetroCaribe initiative, told econoff that the GOH sent 
a letter to parliament August 3 outlining the PetroCaribe 
program to facilitate eventual ratification.  He confirmed 
that the first shipment, which arrived in Port-au-Prince on 
the day of Preval's inauguration, was a grant and that the 
agreement has not yet been formally signed by the Haitian and 
Venezuelan governments.  (Note: Apparently, the signing 
between the Vice-President of Venezuela and President Rene 
Preval at the inauguration on May 14 was ceremonial (ref A) 
and the first shipment was a grant, not a part of the loan 
agreement.  End note.)  Verret said PetroCaribe could offer a 
loan of anywhere up to USD 100 million, based on the 
following calculation: the GOH purchases USD 250 million in 
Venezuelan petroleum products each year; 60 percent of this 
must be paid after a 90 day grace period and 40 percent of it 
is payable over a period of 25 years, at a one to two percent 
interest rate.  In order to ensure the money will be there 
for repayment in 25 years, the GOH would have to put about 
USD 60 million into a trust fund, leaving USD 40 million for 
investment projects.  Verret said it is more likely that the 
government would set aside around USD 12 million for 
repayment for the first five years of the agreement, leaving 
USD 88 million for immediate investment. 
 
¶3.  (SBU) Note: The GOH continues to misconstrue the actual 
benefits of the PetroCaribe deal.  Ambassador has personally 
addressed the issue of PetroCaribe with GOH officials at the 
highest level explaining the pitfalls of the agreement.  The 
GOH agrees that Haiti is not well-positioned to accept 
PetroCaribe petroleum: they do not have a state-owned oil 
company; they lack adequate port and storage facilities, 
necessitating use of private storage; and poorly-maintained 
roads and theft make transportation from the port to the 
final destination point difficult.  Post has also reminded 
GOH officials that the transportation of PetroCaribe 
petroleum is not insured by Venezuela, and is often 
transported in ships which do not meet international 
standards.  Finally, the GOH has stated that the 
international oil companies operating in Haiti are vital to 
the economy and does not want to risk pushing them out of the 
local market.  End note. 
 
 
PORT AU PR 00001483  002.2 OF 003 
 
 
GOH Revenues on the Rise, Cuts Necessary Nonetheless 
- - - - - - - - - - 
 
¶4.  (U) Verret said that GOH revenue collection for both June 
and July surpassed expectations, and the GOH predicts the 
trend to continue.  For this reason, Verret estimated a 
reduction in the estimated USD 18.5 million financing gap for 
FY06, but did not say by how much.  In addition to revenue 
buoyancy, Verret expects cuts to the Social Appeasement 
Program (PAS), a three-tiered GOH proposal to create a more 
favorable environment for development.  This represents a 
change from the GOH position at the donors' conference. 
 
¶5.  (C) Verret also said that the "illegal" funding for 
"back-to-school" pay for public employees should be cut.  He 
said there is no legal basis for this expenditure and that 
the precedent, which was set by former President 
Jean-Bertrand Aristide, should be ignored.  The GOH 
originally budgeted to pay public employees a bonus of 70 
percent of their monthly salaries, regardless of how high the 
salary bracket and the number of children.  Preval is 
re-examining the proposal and may give one sum to all 
employees -- Verret gave 5000 Haitian gourdes (USD 129) as an 
example -- or offer the bonus only to those who make less 
than a minimum threshold. 
 
¶6.  (U) Next year's budget gap is predicted to be about USD 
15 to 25 million.  (Note: The International Monetary Fund 
(IMF) estimated the FY07 budget gap to be USD 111.5 million. 
At the July donors' conference, however, the international 
community made pledges which reduced the gap to USD 28 
million.  If HIPC debt relief of USD 14 million is approved, 
the IMF estimates the FY07 budget gap would be further 
reduced to USD 14 million.  Hence, the range of USD 15 to 25 
for the FY07 gap.  End note.)   Verret said the GOH is 
looking at certain investment cuts, while also seeking 
additional support from "non-traditional" sources such as 
Taiwan.  Separately, IMF resrep Ugo Fasano said Canada is 
another possible source of budget support although the 
funding would not be available in time for the Poverty 
Reduction and Growth Facility (PRGF) to move forward to the 
IMF Board in October. 
 
Shift in Finance Personnel 
- - - - - - - - - - 
 
¶7.  (C) Verret said Preval is intent on increasing government 
revenues and is discussing possible personnel changes to the 
GOH's finance bureaucracy.  Specifically, he reported that 
the President has targeted the Director General of Customs 
Edouard Vales Jean-Laurent and the entire board of the 
Central Bank for re-examination.  Concerning Laurent, Verret 
said that he is doing his job well, despite the transport 
workers, strike at the border (ref B); however, Verret 
agreed that the Central Bank board, including Governor 
Raymond Magloire, should be dismissed, with the exception of 
two valuable members, possibly before their tenure is up in 
March 2007.  Neither the GOH nor the IMF is satisfied with 
the work of the current Central Bank.  What little work they 
have done on monetary policy has been ineffectual and the 
inflation rate is still hovering around 13 percent, well 
above the IMF's target for a single digit inflation rate. 
Concerning commercial banking supervision, they have also 
done a lousy job, according to Verret.  He cited Socabank, 
which is facing serious liquidity difficulties, and said that 
the bank has given a large loan to at least one of the 
members of the Central Bank board. 
 
¶8.  (SBU) Comment: It is troubling to hear that Preval is 
thinking of letting his customs' director go, when Laurent 
has put himself on the line to collect revenues at the border 
and enforce the law.  Talk of replacing Laurent stems from 
Preval's desire to appease the transport works on the 
Haitian-DR border.  We know he is under pressure from some in 
the formal business community (those who pay taxes and would 
like to see others do the same) to retain Laurent.  Whether 
 
PORT AU PR 00001483  003.2 OF 003 
 
 
Preval decides to retain Laurent will be an indicator of his 
ability and willingness to stay the course on enforcing tax 
collection.  As for PetroCaribe, it is also clear that the 
GOH is not focused on the long-term implications of the 
PetroCaribe deal, but instead on immediate access to extra 
cash.  That said, overall, the GOH's desire to maintain 
fiscal discipline bodes well for continued macro-economic 
stability, at least over the short term. 
SANDERSON 

=======================CABLE ENDS============================