IMF, IDB, World Bank Forgive $1.2 Billion of Haiti's Debt

  • Posted on: 30 June 2009
  • By: Bryan Schaaf
Blog Tags 2 Terms: 

Jonathan Katz reported that the World Bank, IMF, and IDB canceled $1.2 billion of Haiti's debt Tuesday, freeing up millions of dollars for much needed poverty reduction programs.  Needless to say, this is excellent news.  Given the scope of Haiti's needs, it never made sense its citizens should have to pay $1.6 million in debt per month, most of which was acquired under dictators that they never voted for.  This represents a measure of confidence in the Preval Administration, which now has a bit more economic flexibility than it had before.  More info below.   

 

The World Bank and the International Monetary Fund said their boards decided this week to forgive Haiti's obligations to the two organizations, a move that triggered previously announced debt relief from the Inter-American Development Bank.

 

The actions erased nearly two-thirds of Haiti's outstanding debt. As of April, Haiti owned more than $1.9 billion, according to the Washington-based Center for Economic and Policy Research.

 

"This is a pretty big victory, definitely. This is what we've been wanting," said Dan Beeton, an analyst with the center, said by phone from Washington. "It's a shame it had to take so long."

 

Until now, the desperately poor country, where more than 80 percent of its approximately 9 million people live on less than $2 a day, has been paying about $1.6 million each month to the World Bank, according to debt relief advocates at the Jubilee USA Network.

 

A significant portion of the debt forgiven Tuesday dates back to loans that lined the pockets of Haiti's dictators, especially Francois "Papa Doc" and Jean-Claude "Baby Doc" Duvalier, whose father-son dynasty ended in a 1986 popular rebellion.

 

Haiti was added to the World Bank and IMF's debt cancellation program for heavily indebted poor countries in 2006. The Inter-American Development Bank previously approved debt relief for Haiti, pending its completion of that program.

 

But it took several years for Haiti to implement reforms that included auditing government accounts, adopting a law on public procurement and strengthening tax and customs administration, as well as debt reporting. Other steps included approving an AIDS prevention and treatment plan, financing school tuition for children and improving immunization rates.

 

That was accomplished in spite of years of turmoil, including last year's food riots that toppled the prime minister and four tropical storms that killed some 800 people and caused more than $1 billion in damage.

 

Finance Minister Daniel Dorsainvil praised the announcement in a statement issued through the World Bank, saying the millions freed up from debt payments "will help us invest in growth and poverty reduction programs."

 

Others were skeptical about the benefits of the move. Haitian economist Kesner Pharel said debt forgiveness will make it far more difficult for Haiti to get new loans, impeding the government's ability to finance much-needed improvements in infrastructure and other areas.

 

"I don't see the government for the next five to 10 years having a lot of money. It's a bad idea. It's a cost, not a benefit," Pharel said.  Haiti is the 26th country to have its debt forgiven under the initiative, a list that includes Rwanda, Sierra Leone, Honduras and Bolivia.

 

Comments

Debt cancellation - only mixed feelings - Haiti Support Group press release - 2 July 2009

http://haitisupport.gn.apc.org/debt-cancellation.html

Like when a wrongly-convicted prisoner is released after years of incarceration, there can only be mixed feelings about yesterday's announcement of the cancellation of US$1.2 billion of Haiti's US$1.9 billion debt. Yes, it is good news that over 60% of Haiti's debt has been cancelled under the terms of the HIPC. But, on the other hand, it is a scandal that it took so long for the international finance institutions (IFIs) to take this step. Just think what could have been done with the money wasted on debt repayments over the last years... Part of the debt that has now been cancelled was composed of loans made to the Duvalier regimes in the 1960s, 70s and 80s. These loans were never used to develop the country and much of the amount was stolen by the Duvaliers and their clique. It remains an outrage that the Haitian people had to continue paying interest on these amounts until June 2009!

The HIPC debt cancellation announced by the IMF and World Bank is good news indeed, but what about those wasted years when the debt was being repaid and Haiti's economy went from bad to worse?

The debt cancellation means that the US$1m per week that the Haitian people have until now been paying to service the debt can instead be used for other purposes. The Haiti Support Group would hope that this would mean more state support for national production for national consumption. However all the indications are that - under heavy pressure from the IFIs - the Haitian government will instead pursue a development strategy based on the deeply-flawed garment assembly export sector. Without ever providing a convincing argument, the IFIs have been pushing for decades for this sector to be the motor of Haiti's economic development. Despite the fact that this sector exists in a virtual vacuum, with only minimal impact on the wider Haitian economy, only a few months ago UN secretary-general Ban Ki-moon and British economist Paul Collier made yet another proposal for international aid to fund garment assembly production in new Free Trade Zones.

Indeed, commenting on the debt cancellation, Corinne Delechat, IMF mission chief for Haiti, yesterday told Reuters that Haiti is a 'land of opportunity if you're an entrepreneur and an investor," adding, "It is a golden moment for Haiti to start investing in export capacity, particularly in textiles."

It looks like the IFIs' interventions will result in the HIPC debt cancellation being a matter of Haiti taking one step forward, while their focus on garment assembly for export will take the country two steps back.

WASHINGTON - United States Ambassador Kenneth H. Merten and Haitian Minister of the Economy and Finance Daniel Dorsainvil today signed a bilateral debt relief agreement under the enhanced Heavily-Indebted Poor Countries (HIPC) Initiative. Recognizing Haiti’s successful completion of the HIPC Initiative, approximately $12.6 million – 100% of Haiti’s debt to the United States Government – will be forgiven under the terms of this agreement.
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“I wish to congratulate Minister Dorsainvil and the entire Haitian government for their efforts in favor of fiscal responsibility,” said Ambassador Merten. “I am pleased to announce that we have now signed a bilateral Debt Reduction agreement with Haiti.
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Under this agreement, the United States will erase 12.6 million dollars of bilateral debt, eliminating 100 percent of the Haitian government’s outstanding debt to the United States. “
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Haiti's successful implementation of economic and financial reforms was a critically important factor leading to these international commitments to provide debt relief to Haiti. This summer, Haiti met the requirements to complete the Heavily Indebted Poor Countries (“HIPC”) initiative, qualifying Haiti for over 1.0 billion dollars of debt relief from multilateral and bilateral creditors.
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The agreement signed Friday, Sept. 18th implements the U.S. portion of a multilateral accord that the Paris Club group of official creditors negotiated with Haiti on July 8, 2009, to cancel approximately $62.7 million in official debt. Haiti’s Paris Club creditors, including Canada, France, Italy and the United States intend to provide $152 million in additional debt cancellation beyond the requirements of the HIPC Initiative. As a result, Haiti’s entire debt to Paris Club members – estimated at $214 million – will be fully cancelled.
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This debt forgiveness, combined with other multilateral debt forgiveness measures, will help Haiti bring its external public debt down and invest more in the social needs of the country.

This certainly is good news now that there has been this terrible tragedy there from the earthquake. Hopefully they can use some of that money that was to go to their debt in rebuilding their capital city where it is desperately needed.

CNN
7/21/2010
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The executive board of the International Monetary Fund approved Wednesday the cancellation of Haiti's $268 million debt to the fund. The board also approved a three-year request by authorities to support Haiti's reconstruction and growth program.
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The decisions are part of an effort to support Haiti's longer-term reconstruction plans after the January 12 earthquake, which killed more than 220,000 people, destroyed 60 percent of government infrastructure and left more than 180,000 homes uninhabitable. Six months later, more than 1.5 million remain in overcrowded displacement camps.
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"The new program provides a strong and forward-looking framework to support economic stability and reconstruction in the country, and will also help catalyze donors' contributions," the IMF said in a posting on its website. The debt relief is expected to help Haiti meet balance-of-payments needs worsened by the earthquake. "Improving the business environment and fostering private credit and investment will be essential to support growth," said Charles Castel, governor of the Bank of the Republic of Haiti. "The fund's technical assistance will help rebuild economic institutions and build capacity."
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The earthquake resulted in losses estimated at 120 percent of 2009 GDP, the posting said. It struck at a time when the impoverished country's outlook was improving. Last year, Haiti's growth reached almost 3 percent, the second-fastest rate in the Western Hemisphere. Since the quake, a fragile recovery has been taking place. Agricultural production, construction and textile manufacturing are supporting economic activity, the posting said.
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And remittances, which grew by 12 percent between January and May of 2010 over the previous year, are supporting consumption and imports. Though the trade deficit is widening, exports are recovering, it said. GDP is projected to expand by 9 percent in fiscal year 2011-12, due mostly to reconstruction activity, and by 6 percent by 2015. Inflation is expected to reach 8.5 percent during the current fiscal year and to drop to 7 percent by 2013. In March, the international community pledged $9.9 billion to Haiti's reconstruction, of which $5.3 billion is to be disbursed over the coming 18 months.
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But last week, a CNN investigation found that most governments that had promised money to the special fund had not delivered the cash. Less than 2 percent of the $5.3 billion promised had been handed over to the Interim Haiti Recovery Commission. Only four countries had paid anything at all to the commission: Brazil, Norway, Estonia and Australia. The United States has pledged $1.15 billion but had paid nothing, with the money tied up in the congressional appropriations process. Venezuela has promised even more -- $1.32 billion. It too had paid nothing, though it had written off some of Haiti's debt.
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Still, many governments and aid agencies have given money to Haiti through means other than the Interim Haiti Recovery Commission. For example, the U.S. State Department said it has given about $675 million through the U.S. Agency for International Development. Altogether, about $506 million had been disbursed to Haiti since the donors' conference in March, said Jehane Sedky of the U.N. Development Program.
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CNN compiled the information by reviewing commission figures and surveying the donors that had made pledges. No countries told CNN they do not plan to deliver the money eventually. The pledges are for fiscal year 2010-2011, so the donors have until the middle of next year to get the funds to the Haiti recovery commission, Sedky said.

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