IDB Debt Cancellation for Haiti

Source: Foreign Policy in Focus

Members of the international community got a tongue lashing at a recent donors conference on Haiti, attended by more than 90 delegations of countries and international organizations.

After numerous press announcements and pledges of assistance, totaling nearly $1.8 billion over the past two years, promises "have not been kept," according to Dominican Republic foreign minister Carlos Morales Troncoso. Morales further criticized participants from the U.S. and other rich country governments for blaming Haiti for this failure, rather than their own practices.

The Inter-American Development Bank (IDB), with a newly announced, but ill-defined plan to cancel Haiti’s debt may well become one of those donors who fail to deliver.

IDB President Luis Alberto Moreno trumpeted the new debt initiative, which also includes Honduras, Nicaragua, Bolivia, and Guyana, saying: "This is great news for the more than 30 million people in these five countries." Yet, since the November 17 announcement, campaigners have been scrambling to determine just what this "news" will mean for impoverished peoples in the five countries.

The IDB "Plan"

The IDB announced that its Board of Governors had agreed to a "framework for debt relief," and that the Governors will meet again in January to hammer out details in Amsterdam, hopefully announcing a final decision at the IDB’s March annual meeting in Guatemala. The IDB hasn’t yet disclosed details of the framework under consideration.

However, several news reports circulating the next day indicated a more substantial decision. Apparently quoting from a draft agreement, Heartbeat News from Jamaica reported "The principles of the framework stipulate that 100 percent debt relief be granted, with effect from January 1, 2007, to the five countries, which will continue to have access to concessional loans and technical cooperation grants from the IDB."

The persistence of poverty in Latin America and the Caribbean has been an important campaign issue in numerous presidential elections this year, especially in Haiti and Nicaragua. The debt burdens in these five eligible countries combined with harmful economic policies imposed on them through loan and debt relief programs by rich country creditors, severely limit resources available to governments to invest in basic services such as health care and education.

Thus the IDB announcement was welcome news. In Haiti, impoverished people cannot afford to continue to service this debt burden. In 2005, the Haitian government spent more than $70 million on debt payments, a significant portion of its budget. Yet less than half of the population has access to basic rights such as healthcare, education, and potable water. The World Bank estimates that three-quarters of Haiti’s 8 million people live in poverty; half the population lives on less than $1 per day.

Officials close to the debt negotiations have not confirmed the January implementation date, and this will be under discussion in Amsterdam. The stipulation of 100% debt cancellation is technically accurate, but highly misleading.

What will be cancelled is 100% of debts accrued prior to a yet to be established date, possibly debts accrued before the end of 2004. For months, IDB board members and officials have discussed this "cut-off date" with an eye towards canceling a total of $3.5 billion in debt for all five eligible countries. However, a leaked November IDB staff paper suggested reducing the proposed amount of debt cancellation by almost $2 billion from $3.5 billion to $1.6. Such a steep reduction in the benefits from this debt deal to these impoverished countries is unacceptable.

Odious Debt

Many of these IDB debts were initially contracted during the 1960s and 1970s. The high interest rates that prevailed in the 1980s resulted in ever-increasing debts. Much of this debt is also "odious" under international legal precedent, meaning creditors knowingly lent to undemocratic or illegitimate regimes, and the funds did not benefit the population in these impoverished countries. This provides a compelling argument for immediate and broad cancellation.

In Haiti, more than half the country’s debt was contracted by the Duvalier family dictatorship (1957-1986). Harvard economist Michael Kremer reports that Jean-Claude Duvalier stole $900 million from the Haitian people. According to a 2006 UN sponsored census, half of Haiti’s population was born after the Duvalier era and forced to carry this debt burden from birth. The Haitian people were not consulted about these loans, and received little benefit from them. But now they are forced to repay them. It is unjust that Haiti is being asked to comply with economic policies such as privatization of basic services or increased trade liberalization before obtaining full debt cancellation.

Guyana, Honduras, Bolivia, and Nicaragua each have a history of odious and illegitimate debt as well. Though specifics vary, the general pattern of international financial institutions, including the IDB, issuing loans to dictatorial regimes holds true. In Nicaragua under Somoza, loans were readily given including a last minute loan from the International Monetary Fund for $65 million nine weeks before the collapse of the regime in 1979. Somoza left an international debt of $1.6 billion-the highest ratio of debt to GDP in Latin America at the time. In Bolivia support for military governments during the period 1965-1978 was constant, including General Hugo Banzer (1971-1978) who waged a campaign of murder against priests of liberation theology. By the end of that period Bolivia’s international debt was $3 billion. Guyana under Forbes Burnham’s government (1964-1985) was increasingly the site of numerous human rights violations, including the assassinations of scholar and political leader Walter Rodney in 1980 and the Jesuit Priest Bernard Drake in 1979. Yet the country was still able to receive loans for most of this period.

Haiti’s Special Case

Because ultimately it is the people, not the government, that pays these debt burdens, justice requires immediate cancellation for all of these countries. However, in Haiti’s case, justice will likely be delayed even further. Indeed, whatever is ultimately decided on both the date of implementation and the "cut-off", Haiti will face a delay of at least two years before obtaining 100% cancellation. Unlike the other four countries in the IDB plan, Haiti has yet to complete the International Monetary Fund (IMF) and World Bank’s debt relief program, which is required for Haiti to see its debt cancelled to any international financial institution including the IDB.

The IMF and World Bank’s debt relief program requires countries to first implement a series of harmful economic reforms such as privatization of basic services before obtaining debt cancellation. Haiti was admitted into the IMF and World Bank’s program (or HIPC, Heavily Indebted Poor Countries, Initiative) in April. The government is now committed to undergo a minimum of two years of structural reform before reaching "completion point" in the program and being granted debt relief.

Providing for immediate debt cancellation, without forcing Haiti to go through the IMF and World Bank’s HIPC program, is quite manageable. The government has already submitted an interim poverty reduction strategy that could easily be extended, and thus provide the basis for accountability into the future. Haiti is facing an institutional crisis more extreme than any other country in the region.

Haiti has one of the lowest public employment rates in the world; the impact of this is seen in the lack of public schools and public health services. Savings from debt cancellation would have an immediate impact on the capacity of the state to enhance desperately needed services. It would also save lives.

On December 5 Jubilee South called for an International Day of Solidarity with Haiti, with the principle demand being immediate cancellation of debts. We would encourage the IDB to listen. A debt relief program that extends into two or three years risks missing an opportunity to have an impact on the current crisis. Indeed, delays coupled with intrusive policy conditions could make things worse.

The international community has made many promises to Haiti over the last two years and has mostly failed to deliver. We hope the IDB chooses a different road.

Debayani Kar is Communications and Advocacy Coordinator at Jubilee USA Network and Tom Ricker is Co-Director of Haiti Reborn/Quixote Center. They are contributors to Foreign Policy In Focus.