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29636: Sprague (Analysis) IDB Debt Cancellation for Haiti (fwd)

From: J.Sprague

FPIF Commentary
IDB Debt Cancellation for Haiti
Debayani Kar and Tom Ricker | December 7, 2006

Editor: Emily Schwartz Greco, IPS

Foreign Policy In Focus www.fpif.org

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

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

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

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

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

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

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.