13079: Karshan posts Where Did the Money Go? "AID" Received 94-95 in response to question (fwd)

[Bob Corbett <corbetre@webster.edu>]

From: MKarshan@aol.com

This piece was written by the Washington Office on Haiti.  I post it in response to recent remarks as to what the monies were used for.


Where Did the Money Go?

“AID” Received by Haiti: October 94 – October 1995

A record amount of money from foreign sources was both committed and disbursed to Haiti since the return of President Aristide in October 1994.  During the first year alone (October 1994-October 1995), $515.6 million of foreign aid poured into Haiti.

Many people wonder how such a large amount of money, equivalent to more than 30% of Haiti’s GDP, could have so little noticeable impact on people’s day-to-day lives and economic situation.

What follows is an attempt to answer this question by looking at international donors’ and lenders’ commitments, focusing on money actually disbursed over the first year of democratic rule.  However, it should be noted that the money disbursed over this period is only part of a much larger package totaling U.S. $2.1 billion.

Of this sum, $1.12 billion are loans, and the rest are in the form of grants.  The loans come primarily from three international financial institutions: Inter-American Development Bank (IDB), the IDA (a branch of the World Bank), and the International Monetary Fund.  Most of this money is conditional on reaching agreements on structural adjustment.

It should be kept in mind that much of the foreign “aid” that flows into Haiti goes right back out, without leaving much impact on production of goods and services within Haiti.  Most of it is used for imports – the trade deficit reached a record U.S. $176 million for the first six months of 1995 alone.  Some goes for consultancies to foreign nationals, foreign financial assets or accounts owned by wealthy Haitian nationals.  A U.S. AID official in Haiti recently told visitors that 79 cents of every U.S.AID dollar worldwide is actually spent in the U.S.

The major categories of “aid” to Haiti have been:

Balance of Payments Support

This is by far the biggest item, at $217.9 million or 42% of the disbursements so far.  $111.8 million of this went to arrears clearance, that is overdue payment on foreign debt service, so would have no noticeable impact.

The remaining $106.1 million comes from the IDA ($40 million Emergency Economic Recovery Credit), the IDB ($40.5 million), and IMF ($25.6 million standby credit).  These funds, which were loans, are not listed as targeted for specific uses.  Presumably, they were used to finance the Haitian government’s budget as well as the increase in international reserves held by the Central Bank.

This last figure is quite large and significant.  In the first three months of 1995 alone, the Central Bank’s net international reserves increased from $81 million to $121.1 million.  This $40.1 million increase in reserves is $20.1 million more than was required by the IMF.  This is particularly important since these funds cannot be used for anything while they are held in reserves, and the IMF minimum is already considered excessive by many.


Humanitarian Assistance: $88.2 million

The biggest portion of this is from the U.S. ($60.5 million) and is listed in the World Bank report simply as “Humanitarian Assistance.”  However, according to the U.S.AID official who supplied these numbers to the World Bank, this consists of food aid and medical projects – probably about $40 million in food aid, and the rest medical.  U.S.AID claims to have rehabilitated two maternity hospitals and five health centers and trained seven biomedical technicians.

There is an additional $9 million of food aid from Canada and Argentina.  Another $3.9 million from UNICEF went to health, children at risk, and water projects.

Governance: $68 million

The biggest portion is from the U.S. at $42.2 million.  Some of this money is used to fund legitimate functions of government, whereas other parts (e.g. the “Democracy Enhancement” allocation of $5.2 million) are not.  More than half of the U.S. funding ($23.4 million) is for police training.  The remaining categories are election support ($10.8 million); administration of justice ($7.5 million); and local governance ($8.37 million) – all of which contain some legitimate and some very illegitimate activities.  France also has a justice support grant of $10.3 million in this section.

Water and Urban Infrastructure

$22.2 million disbursed.  Most of this ($20.7 million) is from the IDA and is earmarked for a variety of mainly infrastructural projects the disbursed money has funded.  The U.S. has contributed nothing here.

Although these funds have the potential to help change people’s lives significantly in the vital area of water resources, not much has yet been accomplished because most of the funds are back loaded into future years.

For example, the IDA has committed a $21.7 million loan for the Port-au-Prince Water Supply, but only $100,000 of it was actually disbursed in 1994-95.  In the same vein, France has committed a loan of $14.8 million for the Port-au-Prince Water supply, with only $3 million for 1994-95, of which only $400,000 was actually disbursed.

Also, the amount allocated to Rural Potable Water for the whole three years is only $4.4 million, despite the fact that most of the population is rural and has no access to potable water.  It is not clear how much of this, if any, has been disbursed.

It is not clear why these funds – which have the potential to have such a profound and immediate impact on the quality of life for the majority of Haitians – are back loaded so far into the future.  The most likely explanation is that the international donors and lenders wanted to delay these improvements until the Haitian government agreed to their demands for privatization and other aspects of structural adjustment.

Transport

Most of this is for roads, and comes as a grant from the European Community ($24.1 million), with no funding from the U.S.

Health: $14.5 million disbursed

The biggest chunk comes from the U.S. ($8.7 million).  U.S. money is divided among such things as Volunteer Agencies for Child Survival, AIDS, family planning (the largest at about 40% of the $20.8 million granted).  It is not clear how these disbursements were divided.

It is worth noting that expenditures on health are just under 5% of donor commitments and only 2.8% of disbursement so far.

Agriculture, the Environment, and Education

These are the most underfunded priorities, given Haiti’s actual needs.  Agriculture has received only $5.6 million so far, or less than 1.1% of disbursements.  Weighing in at less than 1% of disbursements is education, with only $4.9 million – in a nation with the highest illiteracy rate in the Americas and very few of its children enrolled in public schools.  In spite of Haiti’s severe environmental crisis, the environment is at the bottom of the list with $1.4 million disbursed.

Other funds

Some of the other larger items already disbursed include some $24.2 million, and EC commitment of $216.4 million, whose destination is not yet clear from available sources; and $15.4 million from U.S. Title III aid, which is almost all donated food that is resold, and therefore ends up as budget support for the central government.

In conclusion

It is not difficult to see how the large infusion of foreign “aid” had relatively little impact on most people’s lives.  The economy did recover from the severe negative growth of the embargo years to a positive 4.5% real growth rate, but this is still quite slow a rebound from such a deep slump.  The influx of foreign exchange has helped to stabilize the currency and therefore inflation.  But there was very little in the way of investment in infrastructure, agriculture, soil conservation, education, credit to small farmers and employment creation – the most pressing needs that might improve the economic opportunities of the vast majority.  And this is primarily because the money has not been allocated for these purposes.