Structural reforms began in the late 1980s, initially under pressure from international financial institutions. An initial privatization program (1988-1993) and the development of an export processing zone (EPZ) regime in the early 1990s were key milestones in this effort. A period of significant stagnation from 1991-96 was followed by 5 years of solid economic growth and accelerating foreign investment, driven by a second wave of privatizations and EPZ development. Although structural reforms advanced, governance remained weak and perceived corruption in Madagascar was extremely high. During the period of solid growth from 1997 through 2001, poverty levels remained stubbornly high, especially in rural areas. A six-month political crisis triggered by a dispute over the outcome of the presidential elections held in December 2001 virtually halted economic activity in much of the country in the first half of 2002. Real GDP dropped 12.7% for the year 2002, inflows of foreign investment dropped sharply, and the crisis tarnished Madagascar's budding reputation as an African Growth and Opportunity Act (AGOA) standout and a promising place to invest. Following resolution of the crisis, the economy rebounded with GDP growth of over 9% in 2003. Currency depreciation and rising inflation hampered economic performance in 2004-2005; by 2006 inflation had abated somewhat (to 11%) but growth remained sluggish (4.7% est.)
Following the 2002 political crisis, the government attempted to set a new course and build confidence in coordination with international financial institutions and the donor community. Madagascar developed a recovery plan in collaboration with the private sector and donors and presented it at a "Friends of Madagascar" conference organized by the World Bank in Paris in July 2002. Donor countries demonstrated their confidence in the new government by pledging $1 billion in assistance over five years. The Malagasy Government identified road infrastructure as its principal priority and underlined its commitment to public-private partnership by establishing a joint public-private sector steering committee.
In 2000, Madagascar embarked on the preparation of a Poverty Reduction Strategy Paper (PRSP) under the Heavily Indebted Poor Countries (HIPC) Initiative. The boards of the International Monetary Fund (IMF) and World Bank agreed in December 2000 that the country had reached the decision point for debt relief under the HIPC Initiative and defined a set of conditions for Madagascar to reach the completion point. In October 2004, the boards of the IMF and the World Bank determined that Madagascar had reached the completion point under the enhanced HIPC Initiative.
The Madagascar-U.S. Business Council was formed in Madagascar in 2002. The U.S.-Madagascar Business Council was formed in the United States in May 2003, and the two organizations continue to explore ways to work for the benefit of both groups. An American Chamber of Commerce was launched at the end of 2008, with plans to begin activity in early 2009.
Madagascar’s ongoing political crisis continues to negatively impact key macroeconomic indicators and the business sector.
Information by U.S. Department of State