14803: Karshan: Feb. 7, 2003 Issue Papers: The Embargo on International Loans and Assistance (fwd)

[Bob Corbett <corbetre@webster.edu>]

From: MKarshan@aol.com

February 7, 2003 Issue Papers:  The Embargo on International Loans and
Assistance to Haiti

THE EMBARGO ON
INTERNATIONAL LOANS
AND ASSISTANCE TO HAITI

HISTORICAL CONTEXT

-   Haiti's chronic indebtedness to foreign banks began in 1825 when it was
forced to borrow 24 million francs from private French banks to pay a
crippling indemnity debt of 150 million francs to France.

-   The burdensome repayment schedules (Haiti maintained a remarkable record
of payment of its debt, never defaulting until after the American
intervention) denied Haiti the opportunity for any real economic development
in the early years of the Republic.  Haiti was set on a devastating course of
borrowing funds to re-pay an ever-growing debt.

-   Haiti became steadily poorer during the years 1957-1986 when the
Duvaliers were in power.  Federal Court decisions in the U.S. indicate that
Duvalier and his coterie sole in excess of half a billion dollars.    Yet,
Haiti was a major recipient of foreign aid throughout the Duvalier era --
with the US, Canada, West Germany and France prominent amongst the bilateral
donors and with the World Bank, IMF, FAO, WHO, the most notable of the
multilaterals.

-   In 1981, the IMF paid in $22 million to the Haitian treasury as part of a
standing credit; two days later a visiting team of fund experts discovered
that Duvalier had withdrawn $20 million of this money for personal use.  One
documented incident of theft spanning over 30 years.  Today the arrears that
Haiti is obligated to repay date back to these Duvalier era loans stolen from
the treasury.



BREAKDOWN OF MONEY WITHHELD BY
THE INTER-AMERICAN DEVELOPMENT BANK (IDB)

A.  Loans fully approved by the IDB, conditions met by the GOH, agreements
ratified by the Haitian Parliament

§   Rural road and rehabilitation program           $ 50 million
§   Reorganization of health sector             $ 22.5 million
§   Potable water and sanitation                $ 54 million
§   Basic education program                 $ 19.4 million

§   Sub-total   $145.9 million

B.  Investment sector loan (under discussion)

§   Budget support and partially to fund arrears            $50 million

C.  New money earmarked for Haiti for 2002-2004 that must be disbursed of
else will be lost.

§   Vocational training - education
§   Basic infrastructure - roads
§   Economic and Social Assistance Fund (FAES)
§   Health
§   Agriculture     $317 million

§   Total IDB   $512.9 million


THE EMBARGO ON LOANS

    In a letter dated June 4, 2001, to the Government of Haiti, the IDB
acknowledged that, "the position of certain members of the IDB Administrative
Council regarding the situation in Haiti is temporarily preventing the
institution from strictly conforming to the norms and procedures agreed to
with respect to the management of the project [with Haiti]."  And that in
this "unprecedented situation", it was awaiting the green light from either
the OAS or "major partners" of the IDB's Administrative Council, to go
forward with the loans.  In essence, despite Haiti having paid $5 million in
arrears then owed, the IDB refused to and continues to refuse to release the
loans until there is a resolution of the "political crisis", as subsequently
confirmed by letters from the U.S. representative to the bank and statements
by Secretary of State Colin Powell at a CARICOM meeting last February 2002.

In a recent briefing, the State Department recognized that because: "Haiti is
the hemisphere's poorest country, there is a continued need for assistance to
programs that increase access to education, combat environmental degradation,
fight the spread of HIV/AIDS, and foster the creation of legitimate business
and employment opportunities.  These programs can create an atmosphere
conducive to building democracy and reducing illegal migration.  They will
also address root causes of poverty and hopelessness in Haiti, contributing
factors behind Haitian involvement in the international drug trade."


OAS RESOLUTION 822 CALLS FOR THE NORMALIZATION OF HAITI'S RELATION WITH THE
INTERNATIONAL FINANCIAL INSTITUTIONS

-   On September 4, 2002 the OAS unanimously adopted Resolution 822, which
among other things, resolves to "support normalization of economic
cooperation between the Government of Haiti and the international financial
institutions and urge those parties to resolve technical and financial
obstacles that preclude such normalization."  In theory de-linking the loans
to the "political crisis."

-   Haiti's arrears, approximately $50 million to various financial
institutions, and approximately $20 million to the IDB, was posited as one of
the main obstacles to the release of the loans.

-   In addition to the payment of arrears, the Government of Haiti has been
asked to stop subsidizing the cost of gasoline as an immediate good-faith
sign of its willingness to curb the deficit.  Further macro-economic
governance measures asked of the government to slow inflation, decrease
deficit financing, and promote transparency, are being implemented.

-   At the end of December, the Government of Haiti withdrew its subsidy on
gasoline, sending the price at the pump up by nearly 80%.  Haiti's Minister
of Finance is working closely with the IDB to secure a necessary bridge loan
for the payment of arrears, but there has not yet been a release of the
pre-approved loans by the IDB.

-   At a recent OAS meeting, Guyana's Ambassador stated, Haiti owes money
because if has no money and Haiti is being asked to pay a debt with money it
doesn't have.  Haiti is a country where the debt should be eliminated.  And
conditions are ideal for such a decision.