12574: NYTimes.com Article: A Get-Rich Scheme Collapses, Leaving Haiti Even Poorer (fwd)

[Bob Corbett <corbetre@webster.edu>]

From: Dan Craig <dgcraig@att.net>

A Get-Rich Scheme Collapses, Leaving Haiti Even Poorer
July 26, 2002
By DAVID GONZALEZ

PORT-AU-PRINCE, Haiti, July 20 - Intoxicated by the promise of easy
money, thousands of Haitians here and abroad sold their cars, mortgaged
their homes and emptied their savings accounts in recent months to
invest in cooperatives that promised astonishing monthly returns of 10
percent.

Economists and bankers long warned government officials and the public
that the unregulated cooperatives were little more than a pyramid scheme
and possible money-laundering operation. But when President
Jean-Bertrand Aristide hailed cooperatives as "the people's capitalism"
that would drive economic development, many investors said their
skepticism vanished.

Soon, too, did their money.

More than $200 million has been lost in unsound or illegal cooperatives
that took their investors' money and bought luxurious properties, fleets
of buses or just spirited it abroad. Police officers have shown up in
riot gear at some cooperatives, holding managers at gunpoint until they
were repaid.

But with thousands of other people having lost their homes or savings
and unsure how they will pay their rent or send their children to school
in September, the collapse has presented Mr. Aristide with what could be
the most serious challenge to his already bumpy tenure.

"I sold my house because the president encouraged us to do so," said
Serge Décime, a bus driver from the southern coastal town of Jacmel who
said he had invested $6,500 in a cooperative that failed. "Now, we live,
but only a little bit. We cannot afford to live anymore."

Last Friday, the government promised a bailout, although no reputable
economist can see how Mr. Aristide can hope to do so without giving rise
to runaway inflation.

Apparently, the president hopes to avoid the kind of disorder that
engulfed Albania, Europe's poorest country,
after a similar, more costly pyramid scheme collapsed there in 1997. "He
says everybody will be repaid," said Jacques Durocher, the director of
Desjardins International Development, which advises legitimate
cooperatives.
"Everybody knows it is an old strategy to keep people quiet. Time will
do the job."

Diplomats are especially galled by the promised bailout, considering
that the government of the Western Hemisphere's poorest country has
blamed its social and economic deterioration on the international
community, which has frozen $500 million in aid until a political
impasse over the legislative elections of May 2000 is resolved.

"It is an absurdity," said one diplomat who has tracked the
cooperatives. "This is a government that doesn't have any money. That's
bad enough, but there are schools, hospitals and 20,000 other priorities
that would be more important than this from an economic and social
standpoint. You're already broke and going to get even broker."

In an interview, Mr. Aristide said he had told people to be careful
about investing, and that his government was placing all financial
cooperatives under supervision of the banking authorities. "If I went
too fast and too far, I would be creating and increasing the panic," he
said.

Traditional cooperatives have long existed in Haiti, allowing farmers or
small business owners who were unable
to borrow from banks to pool their savings into revolving loan accounts.
Savings accounts in the traditional
cooperatives offered at most a 4 percent annual interest rate, similar
to commercial banks.

The 10 percenters, as they are widely known, emerged about three years
ago, mushrooming in the last year to more than 250. They competed for
customers by offering cellphones and compact disk players to new
depositors and an up-front payout of three months interest. Rates shot
up to as high as 13 and 15 percent.

Guernélia Jeudi sold her home for $16,000 and invested it in a
cooperative offering 12 percent a month, hoping to pay off her debts and
build a nicer home for her and her five children. A few weeks ago, the
cooperative disappeared overnight. "Now I work with my hands, begging
for the charity of God," she said in the courtyard of a house she is
renting. "We will have to move in December when the rent is due again.
My son is sick with a cough, and I cannot even take him to the doctor. I
have no money for anything."

The managers of the 10 percenters were vague about how they were able to
offer such high rates. Many said the
government had allowed them to import rice, sugar and consumer goods
duty-free. Others also said they had
invested heavily in profitable bus fleets.

Reputable financial experts noted that the numbers did not add up, but
figured that the 10 percenters were pyramid schemes that would quickly
implode as the pool of new depositors shrank. "Mathematically, it should
have self-destructed earlier," one banker said. "Drug money definitely
allowed them to last much longer."

Such rumors swirl around Coeurs-Unis, a new 10 percenter said to have
close ties to Mr. Aristide's Lavalas Family political party. Coming from
seemingly nowhere, it opened up across the country with large bus fleets
before accepting a single deposit. The firm recently purchased a
near-vacant resort hotel in Jacmel for nearly $4 million, about four
times its actual value, bankers said.

Armed guards at Coeurs-Unis offices in Port-au-Prince rebuffed several
attempts to interview David Chery, its
head.

The crisis began in February when commercial banks feared they would be
cut off from their United States counterparts if they were found to have
accepted drug profits.

Sogebank, Haiti's largest locally owned bank, asked some 20 cooperatives
that had deposits to show their books. None complied, and the bank
returned $9 million.

There may be ripples through the legitimate cooperatives and commercial
banks. At least one major traditional
cooperative is believed to have invested its depositors' money in a 10
percenter. At some commercial banks, almost half of the employees took
out unsecured loans to invest in cooperatives.

Bankers said the government repeatedly ignored their warnings about
dangers to the financial system. Instead,
the government continued to praise the cooperative movement, making no
distinction between legitimate
traditional cooperatives and the 10 percenters, who had unleashed a
barrage of advertising.

Cooperative managers insist that the movement is still viable. Zachée
Michel, who leads an association of
cooperatives, said he had been negotiating with two financial firms in
the United States to see if their assets
can be purchased as part of a restructuring.

"We have consulted specialists from Wall Street, and what they offer by
looking back over the last five years is 75 to 80 percent a year
return," Mr. Michel said. "If they do that, we can safely offer 60
percent a year. The economy of Haiti is not good enough, but
internationally it is good enough by investing in the New York stock
market."

http://www.nytimes.com/2002/07/26/international/americas/26HAIT.html?ex=1028768793&ei=1&en=66e8a421ca2feba5
Copyright 2002 The New York Times Company