Foreign Aid

Haiti heads for debt crisis as emergency loans pile up earthquake

Heather Stewart
The Guardian
January 31, 2010

Anti-poverty campaigners warn emergency funds loaned to Haiti, at the height of crisis, will become a heavy debt burden for the quake devastated country. Already caught in a cycle of repayment for loans racked up by dictators from the western governments that kept the country’s looters in power, Haiti can’t afford its future in the present form of help.

A boy tries to carry rice and beans after receiving food at a distribution point in Port-au-rince. Photograph: CARLOS BARRIA/REUTERS

Haiti is sleepwalking towards a debt crisis because international help for the earthquake-hit country is being given in the form of new loans, anti-poverty campaigners are warning.

Unctad, the United Nations’ trade and development body, which is leading international calls for the island state’s debts to be forgiven, said this weekend: “Considering the large direct costs of the earthquake, in the absence of further international action a new debt crisis is all but assured.”

Donors are agreed that the immediate priority is to get aid to Haiti’s stricken capital of Port-au-Prince, where relief co-ordinators warned this weekend that supplies of food are still woefully short, and where the threat of violence and disease is increasing by the day.

But in a new study, Unctad urged the international community not to forget that emergency funds lent to poor states at the height of a crisis can become a heavy burden for years afterwards.

Unctad’s researchers analysed the impact of 21 natural disasters – between 1980 and 2008 – on poor countries that were heavily in debt. They found that meeting the costs of rebuilding leaves long-term financial scars: on average, a natural disaster leads to a 24 percentage-point increase in a country’s debt-to-GDP ratio, a widely-used measure of indebtedness.

“Shocks on such a scale can lead to a vicious cycle of economic distress, more external borrowing, burdensome debt servicing, and insufficient investment to mitigate future shocks,” it said.

With pressing humanitarian needs on the ground, the International Monetary Fund last week agreed $102m (£62.9m) in new lending to help provide emergency assistance and rebuild Haiti’s shattered infrastructure.

Charities point out that this will bring Haiti’s total debts close to the unmanageable $1.3bn level hit in 2005, when it qualified for debt relief from the international community as a “heavily-indebted poor country”.

“Much of this money was lent at a time when Haiti had massive, odious debts,” said Nick Dearden, director of Jubilee Debt Campaign.

Local left-wing campaign group, Plateforme Haïtienne de Plaidoyer pour un Développement (Papda), released a statement condemning the IMF’s ­decision to extend new lending, saying: “We think that it’s really a scandalous situation which we can’t accept. The IMF is acting without taking any account of the dramatic situation in our country.”

Dominique Strauss-Kahn, the IMF’s managing director, has made clear that in future he would like to see all the Fund’s lending to Haiti cancelled.

“Looking beyond the emergency phase, and as part of an international plan to rebuild the country, there will be a need to reassess Haiti’s debt situation in light of the catastrophic damage to its economy.” he said last week. “At that stage, the international community needs to be ready to provide comprehensive debt relief.”

However, there has so far been no agreement among member states. Haiti is not due to make any repayments to the IMF for two years, and there are fears that political momentum for debt forgiveness will have drained away by then.

“What we’re worried about is that once the spotlight is off, it will be forgotten,” said Dearden. Before it was granted debt relief, Haiti was spending about $50m on repaying its creditors, with much of the debt having been contracted years ago.

With much of the machinery of the Haitian state destroyed by the earthquake, just putting a functioning government back together is likely to be a ­formidable challenge, let alone raising the taxes to meet future debt repayments. Edmond Mulet, the acting head of the UN’s mission in Haiti, said last week that the reconstruction effort was likely to take many years. “I think this is going to take many more decades than only 10 years and this is an enormous backwards step in Haiti’s development,” he said. “We will not have to start from zero but from below zero.”

The UN is assessing the scale of Haiti’s financial needs in advance of a major donor conference to be held in New York in March — potentially a forum for debt relief plans to be formally discussed.

Britain backs the IMF’s view that the priority is to get cash to survivors, shelving the question of debt relief for later.

Last week, Venezuela’s president Hugo Chavez announced he would write off Haiti’s $295m debts with his country, ratcheting up the pressure on rich western creditors to follow suit. Citing Haiti’s support for Venezuela’s 19th-century independence movement, Chavez said: “Haiti has no debt with Venezuela – on the contrary, it is Venezuela that has a historic debt with Haiti.”

Haiti’s largest creditor is the Inter-American Development Bank, which said it would like to see a new debt relief programme, but, like the IMF, has so far made no concrete proposals.

Charities are also concerned about the growing role of the IMF in the world’s poorest countries, because its assistance tends to be in the form of concessional loans, rather than grants, and often comes with conditions attached.

“We are concerned that the conditions of Haiti’s current IMF debts continue to apply,” said Nick Dearden of Jubilee. “These conditions undemocratically force Haiti, amongst other things, to raise electricity tariffs and freeze public-sector pay.”

The original story is published here. [PDFver here]

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