12281: HAITI: CREDIT UNIONS TEETER ON BRINK OF COLLAPSE (fwd)

[Bob Corbett <corbetre@webster.edu>]

From: "[iso-8859-1] lody auguste" <auguste_lody@yahoo.com>

HAITI: CREDIT UNIONS TEETER ON BRINK OF COLLAPSE

By Ives Marie Chanel

PORT-AU-PRINCE, Jun. 5 (IPS) -- A banking scheme that
seemed too good to be true has turned out to be just
that for Haitians who deposited their savings into
credit unions promising triple-digit annual interest
returns. Three months ago, several of the institutions
stopped paying interest completely. That number has
now reached 20. While none have officially gone
bankrupt, depositors are worried that they may not get
all of their money back.
The credit unions had promised to return 10 to 12
percent interest monthly, which translates into an
annual dividend of 120 to 144 percent on fixed-term
deposits. Commercial banks pay only six to 12 percent
a year on the same types of accounts.
Middle-class families are said to have poured hundreds
of millions of dollars into the credit unions.
Many economists and bankers doubted the scheme from
the start, and in April lawmakers introduced a bill
into parliament to regulate the institutions.
"I wondered how they could possibly make so much money
during a crisis. I'd really like to see the formula
they used to generate this unbelievable interest
rate," said Kesner Pharel, a well-known radio
economist.
The cooperatives, with a boost from President
Jean-Bertrand Aristide, leveraged a high-profile
presence -- replacing the banks as sponsors of this
year's Carnival -- into large amounts of cash. At the
same time, most Haitian entrepreneurs and businesses
were struggling in an ever-worsening economic climate.
The "new banks of hope" have flourished ever since a
speech by Aristide at the end of 2001 proposed that
the government-run literacy program should be linked
with the credit unions' economic development programs.
This speech, which coined the phrases "alpha economy"
and "alpha credit union," boosted the prominence of
the credit unions, whose growth shot through the roof
in only a few months.
About 300 savings credit unions operate in the country
along with thousands of savings cooperatives. Last
December, officials began to examine the risk that
credit unions posed to the banking sector as a wave of
bank customers started withdrawing their cash to put
it in the credit unions. This flight of customers,
potential customers, and their cash meant an increased
risk of collapse for the banks.
The first warning bell rang when Sogebank, the
country's largest banking institution, refused to
accept credit union deposits. "I don't understand the
math which allows these credit unions to offer
interest rates of 10 to 12 percent a month on fixed
term deposits. Ever since I was a child, my mother
always told me not to do things I don't understand,"
said Pierre Marie Boisson, an economist who runs
Sogebank.
The banking industry began proclaiming that the credit
unions were unable to explain the source of all their
cash, implying that they might be laundering drug
money. Ever since, it has been open war between the
banks and the credit unions. The walls of the capital,
usually scrawled with political slogans, are now
covered with anti-bank graffiti. In mid-March, several
credit unions unilaterally decided to suspend monthly
interest payments to their members, claiming that they
were waiting for monetary officials who had frozen the
funds of an insolvent bank to return their money.
Others decided to reduce interest payments from 12 to
three percent a month.
Despite persistent rumors about the bankruptcy of
certain credit unions, they continued to conduct an
interest rate war via gigantic media publicity
campaigns. The Haitian news agency Alter Press
suggested that "the credit unions will be probably to
found out as money-laundering operations, cleaning up
their cash while the drug traffickers pay out their
dividends for them." At best, said the agency, "it
might just be a pyramid scheme where the interest is
paid for by the deposits of newcomers. Or else it's
just a case of institutional usury."
Economist Jean Claude Paulvain called for regulation
of the credit union industry in April, noting that
they were operating in a legal vacuum so that
victimized depositors would have no recourse to the
law in case of trouble. Then minister of cooperation,
Marc Louis Bazin, predicted the danger that the credit
unions represented and warned the government to
intervene before the International Monetary Fund (IMF)
became involved. Subsequently, the administration
initiated a review and created a commission to write
laws governing the operation of credit unions. A bill
to regulate the credit union industry was presented to
both houses of parliament in April. One of its key
features is an inspector general for credit unions
based at the Bank of the Republic of Haiti (BRH). As
of yet, there has still been no action on the bill.
For two weeks, depositors have asked President
Aristide to step in. They have now taken their case to
the streets. Yesterday, in front of the presidential
palace, one depositor reported that he had sold his
business in order to put all his money in the credit
unions. "It's Aristide who urged us to get involved in
the credit unions. He has to respond to us," said a
demonstrator. Two ruling party senators last week
threatened officials from a credit union where they
had deposited nearly $60,000. The press has reported
that members of an elite police unit took credit union
employees hostage, demanding that their money be
returned. "Some credit unions are in trouble just like
there are some banks in trouble," Aristide said on May
23. "We need to keep our cool and find an appropriate
solution to the problem," he added.
Border and airport personnel have been ordered to
block managers and directors of certain troubled
credit unions from leaving the country.



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