Haiti’s debt burden – the real story

Published by the European Network on Debt and Development, 4 February 2010

Despite much talk and announcements of debt relief for Haiti in the aftermath of the dramatic earthquake that hit the country last month, Eurodad’s new analysis, ‘’Haiti’s debt burden- the real story’’ by Murat Kotan, reveals that the country is still expected to pay back as much as $1.2 billion to the International Financial Institutions. Even before the earthquake, Haiti – with more than three quarters of its population living on less than 2$ a day – was expected to use almost one tenth of its revenue to pay back debts to the International Financial Institutions. With declining revenue and increasing debts, Haiti’s debt repayments will most likely swell well above one tenth of its revenues. If new debt relief is not delivered soon, prospects for recovery in Haiti will be dire.

After the earthquake hit Haiti on 12th January 2010, several creditors, including the IMF, rushed to put out press releases promising debt relief for Haiti. Some, like Venezuela, indeed cancelled all their outstanding debts with Haiti after the catastrophe: “Haiti has no debt with Venezuela -on the contrary, it is Venezuela that has a historic debt with Haiti” the Venezuelan President said.[1]Others like the IMF used language games to seemingly promise more than they were actually delivering. On 20th January, the IMF Managing Director, Dominique Strauss-Khan, said: “The most important thing is that the IMF is now working with all donors to try to delete all the Haitian debt, including our new loan. If we succeed—and I’m sure we will succeed—even this loan will turn out to be finally a grant, because all the debt will have been deleted. And that’s the very important thing for Haiti now.” However, success will be tougher than he may have expected as some shareholders seemed uneasy when the Managing Director announced the cancellation of a debt which was yet to be approved. Meanwhile, bilateral creditors have been claiming that after debt relief was granted in July 2009, Haiti no longer owes any debts to them.

However, new Eurodad analysis has found that Haiti still had to repay $1.2 billion to external creditors at the end of 2009. How does this translate into debt service? That is, how much and to whom has Haiti have to pay in the coming years? Assuming all committed debt relief is delivered and assuming no new debt accrues, the total amount of debt that Haiti has to service on its current outstanding debt is $34.4 million for 2009, $16.3 million for this year, $130.4 million in the coming 4 years until 2013, and $661.5 million in the coming 19 years.[2]

Before the catastrophe hit Haiti, the IMF Debt Sustainability Analysis[3] estimated that in 2010 almost one tenth of the country’s revenue would have to service foreign debt. According to a Policy Brief by UNCTAD, “Haiti’s recovery should start with cancelling its debt”, the earthquake could easily result in a GDP decline of at least 15%. The same Brief also points out that data on the evolution of debt after natural disasters shows that public and publicly guaranteed external debt increases on average to around 24% of the country’s GDP. In a nutshell, if the situation was already dramatic before the earthquake, UNCTAD’s evidence on likely GDP decline and increase of external debt should be taken as a serious warning of an impending new debt crisis in Haiti.

This is the reason why civil society in Haiti and campaigners around the world expressed today dismay at the IMF’s announcement of new loans to Haiti. UNCTAD has called for “a moratorium on debt servicing, followed quickly by its cancellation.”[4] Cancellation is warranted, not only on the grounds of need, but also because much of these debts were contracted “at a time when Haiti had massive, odious debts,” said Nick Dearden, director of Eurodad member Jubilee Debt Campaign. The UNCTAD briefing also called for “built-in insurance clauses for debt contracts that kick in automatically for countries hit by massive external shocks.” Such types of insurance and clauses should be discussed in the broader context of the necessary standards for responsible lending and borrowing, as spelled out in the Eurodad Responsible Financing Charter, and the broader discussion on the legitimacy of old debts.

But deleting all debts is only the start. Haitian activist Camille Chalmers from PAPDA said that “The extent of the disaster is certainly linked to the character of the colonial and neo-colonial State our country has inherited, and the imposition of neo-liberal policies over the last three decades.” Against this backdrop, Strauss-Khan called for a “Marshall Plan for shattered Haiti”. In 1947, the Marshall Plan provided financial assistance to shattered Europe but, most importantly, it also allowed Europe to undertake the necessary policies to reindustrialise and sew the seeds of prosperity. During three decades of neo-liberal policies this is precisely what Haiti has been denied. Partly because of the economic policies imposed by the IFIs, the country has increased its vulnerability on all fronts – from food dependence, which hit hard the country in 2008 during the food crisis, to privatisation of basic utilities and infrastructure, or overly stringent macroeconomic conditions (still present as conditions in recent IMF loans). As Chalmers said: “Massive humanitarian aid is indispensable today, given the scale of the disaster, but it should be deployed in terms of a different vision of the reconstruction process. It should connect with a break from the paradigms that dominate the traditional circuits of international aid.”

If the country is to have any chance of recovery, outstanding debts with the IFIs should be cancelled as a priority. Also, given the high risk of debt distress for Haiti, loading the country with new debts will amount to worsening the medium term prospects of recovery. More support in the short term is needed through non-debt creating mechanisms. Unfortunately, as pointed out in the new Eurodad analysis on Haiti Saddling Haiti with more debt is no solution for a country in risk of high debt distress. However, the alternative- receiving no money within the extreme short term, such as through IMF support- also spells suffering for Haiti. Within the current international context and financial/legal framework there is no clear solution to this problem, which is shared by many middle and low income countries.[i] Like them, Haiti faces a dead lock situation of debt dependency combined with debt intolerance, a problem to which the current international system has no solution. It is this international framework that needs to change if a solution to this deadlock is to be found.

Key links:

Latest news on Haiti debt from Eurodad member JDC: http://www.jubileedebtcampaign.org.uk/Haiti%20Debt%3A%20Latest%20News+5460.twl

Links to media:

The Guardian: http://www.guardian.co.uk/politics/2010/jan/31/haiti-debt-relief-imf-unctad

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[1] Focus News Agency. (2010, Jan 26.)

[2] More accurately the time periods are in fiscal years: FY2008/09, FY2009/2010 and FY2009/10 – FY2017/18.

[3] IMF Debt Sustainability Analysis, February 2009: http://www.imf.org/external/pubs/ft/dsa/pdf/dsacr0977.pdf

[4] UNCTAD Policy Brief: “Haiti’s recovery should start with cancelling its debt”, January 2010, http://www.unctad.org/en/docs/presspb20101_en.pdf

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