Debt Forgiveness for Haiti

Haiti hasn’t had full economic independence since the birth of the nation. The debt is a primary barrier to the country’s development.

  • Over 21 years after its Independence (April 17 1825), a royal decree offered France’s recognition but the newly independent country had to pay 150 million francs (equivalent, with interest, to $21 billion today). Bankrupted after the revolutionary and civil war, the Haitian government to make the first installment took a loan of 30 million francs from France. By the time of the US occupation, the total foreign debt amounted to almost 121 million francs. As late as 1915, 51% of revenues of coffee went to service the exterior debt, 47% went to pay the internal debt, with only 2% available for all other expenses.
  • Earlier in 1814, Alexandre Petion offered an indemnity to compensate French planters for their losses.
  • During the occupation of Haiti, the US added new debt and made Haiti paying off their debt by 1922. Repayment of the external debt was given absolute priority over all other expenditures during the occupation. The United States government continued to exercise financial control over Haiti even after the withdrawal of the occupation forces in 1934 up to 1947.

 

Why debt forgiveness for Haiti?

Much of Haiti’s current debt occurs during the Duvalier dictatorships. The Duvalier family took $900 million in multinational and bilateral for their own individual purposes.


In 2006, Haiti owed a total of $1.3 billion to external creditors; $1 billion of this is owed to the World Bank and Inter-American Development Bank. The country paid that year $56 million in debt payment while 80% of the population lived on less than $2 a day. In addition, Haiti owed Italy $70 million; France $65million; the US $15 million; and Canada $2.6 million. Next year Haiti is projected to pay $59.6 million in debt service.


We owe enormous debt with the loans failing to benefit the Haitian people and Haiti’s ability to have its own economic path is undermined by the economic policies mandated by the IMF and the World Bank.

 

Understanding Debt Forgiveness

Many heavily indebted poor countries accumulated large debts from floating-interest-rate loans their governments took out in the 1960s and 1970s. Considerable and unexpected spikes in oil prices and interest rates in the 1970s and 1980s, coupled with a sharp decline in commodity prices, devastated the fragile economies of many developing countries, making repayment of foreign debt extremely burdensome, if not impossible. This forced many poor nations to assume new debt to pay off existing debt. As these countries became more dependent on loans to survive these external circumstances, domestic crises, such as civil wars and natural disasters, also added to the debt growth. To make matters worse, poor management of the loan funds often led to investment in unsuccessful public projects that generated little or no long-term social or economic benefit. As a result of these events, debtor countries have been unable to pay off their debts, which have grown to unmanageable sizes. Many of these countries struggle to repay debts that are larger today than the amount originally borrowed as unpaid interest payments continue to accrue.

 

I). Distinctions between bilateral and multilateral sources of debt

The debt of poor countries seeking debt relief can be subdivided into "internal" and "external" debt. Internal debt is money that a country's government owes to creditors who are also citizens of the country. External debt comes from two main sources. The first source is "bilateral debt," which is money owed by one government to another. The other source of external debt is "multilateral debt," which is money owed to international financial institutions, such as the IMF and World Bank. Sovereign debt can also be categorized as either "legitimate" or "illegitimate." Illegitimate debt is defined as money borrowed, typically by corrupt governments, under oppressive terms or for nefarious or ill-advised purposes that do not benefit the people. This includes debts incurred by dictators to benefit the ruling class. It also includes debts arising from failed or never-completed projects or any other applications that would not benefit the people of the developing nation.


Many poor nations labor under extraordinary debt burdens. To repay their debts, these developing nations channel money away from projects aimed at reducing poverty and improving healthcare, education, life expectancy, and other social conditions; this inevitably contributes to and perpetuates the impoverished conditions under which these nations suffer.

 

II). the Debt Forgiveness Movement: Debt Relief as a Public Issue

Debt forgiveness, commonly referred to as "debt relief," is the act of excusing heavily indebted developing countries from all or part of their "unsustainable" debts. By the mid-1990s, proponents of debt relief were raising global awareness of the unsustainable debt problem. A wide coalition of development-focused non-governmental organizations (NGOs), Christian organizations, churches, and advocacy groups began a mass movement to pressure governments and institutions to solve the issue of debt in the Third World. One such movement, which began in Britain, solidified into an international-membership group called the "Jubilee 2000 Coalition." Jubilee 2000 was an international-coalition movement in over 40 countries, including the United States. The group called for the cancellation of all unsustainable Third World debt by the year 2000.


Structural Adjustments

To have a better understanding of the debt relief movement and the debt burden on Third World Countries we need to discuss the meaning of structural adjustment. Structural adjustment is the economic strategy being promoted not only in Haiti, but also in the majority of indebted nations in the South by the US government, the World Bank, and the IMF. The purpose is to improve the fiscal balance sheets of governments and stimulate the economy mainly by increasing exports. The problem is structural adjustment programs take away resources from the people of the poor countries toward debt payments to foreign lenders. They require the governments of the indebted countries to adopt policy changes to achieve the following:

  • Reduce local consumption by devaluating currency or removal of subsidies or price control. The result of these measures is the same: prices rise and most people can’t afford to buy as much.
  • Increase government revenue by collecting higher taxes from the poor and middle classes. The programs usually discourage taxation of businesses and high-income individuals.
  • Decrease public spending on services to local citizens including health, education, sanitation and housing.
  • Dismantle or sale of government-owned enterprises
  • Lower wages, especially for workers in export agriculture and manufacturing expecting to improve the business climate for foreign investors.
  • Open the domestic markets to foreign-based exporters of manufactured goods and food. With this measure according to the structural adjustments economists, Third World Countries will do best by producing bananas or baseballs for export, leaving the production of wheat rice etc… in the hands of the developed countries
  • Expand tourism


In 1996 when the World Bank and IMF responded to the growing pressure for debt forgiveness by launching a program called the Heavily Indebted Poor Countries initiative (HIPC). HIPC aimed to reduce the external debt of poor countries and help them to achieve debt sustainability. To receive debt relief under HIPC, a country must first meet HIPC's threshold requirements. At HIPC's inception in 1996, the primary threshold requirement was that the country's debt remains at unsustainable levels despite full application of traditional, bilateral debt relief. The World Bank and IMF conceived HIPC as a six-year program, split into two three-year phases, designed to generate a track record of good fiscal and economic performance. During Phase I, the country would work with the IMF to implement an enhanced structural adjustment facility (ESAF). The ESAF originally provided concessional loans to poor nations and required countries to comply with a broad range of detailed reforms and conditions, such as privatization of state industries or curtailment of domestic spending. The conclusion of Phase I was termed the "decision point;" it was then that the World Bank and IMF would review the nation's debt burdens and determine how much debt forgiveness they would provide to enable the nation to maintain sustainable debt levels in the future. Phase II required continued implementation of the ESAF and culminated in the "completion point," where creditors would forgive the country's debts in the amount they promised at the decision point.

 

Criticisms of the HIPC

  • Definition of debt sustainability was arbitrary and too restrictive.
  • The six-year program was too long and too inflexible to meet the individual needs of debtor nations.
  • The IMF and the World Bank did not cancel any debt until the completion point, leaving countries under the burden of their debt payments while they struggled to institute structural reforms.
  • The ESAF conditions often undermined poverty-reduction efforts. For example, privatization of utilities tended to raise the cost of services beyond the citizens' ability to pay.
  • HIPC, according to critics, is a program designed by creditors to protect creditor interests, leaving countries with unsustainable debt burdens even upon reaching the decision point.
  • The most alarming criticisms suggest that HIPC simply does not work.

 

  1. Critics warn that successful completion of the HIPC program fails to reduce debt to sustainable levels, in part because HIPC premises the level of debt relief it will provide on unrealistically optimistic economic projections that ignore the historical, political, geographic, and economic realities in underdeveloped nations.
  2. Even if a country succeeds in reducing its debts to sustainable levels, there is no guarantee it will avoid accumulating debts at unsustainable levels in the future. If the underlying causes of unsustainable debt, such as corrupt governments, poor project selection, or usurious lending, remain unremedied, then the country's debt burden could easily return to unsustainable levels despite HIPC relief.
  3. Moreover, HIPC relief might create a "moral hazard" for debtor nations - an incentive for poor countries to borrow recklessly in the future with the expectation that, if their debts again reached unsustainable levels, creditors would forgive them. The debtor nation's problems are compounded when private investors decline to invest in countries that fail to achieve long-term debt sustainability or economic stability despite HIPC assistance.
  4. Finally, there is no evidence that HIPC's attempt to link debt forgiveness to poverty-reduction efforts has had any success. In fact, three studies in 2005 found that debt relief had no effect on the growth rates (economic growth presumably leads to a reduction of poverty) of HIPC countries.

HIPC addressed its shortcomings by expanding its definition of unsustainable debts, making greater relief available to more countries, and by making relief available sooner.

HIPC approved over $35 billion in debt forgiveness for thirty countries in its first decade.

 

What can we do?

As stated earlier, Haiti’s debt should be cancelled for many reasons:

  1. First, Haiti was paying for its Independence to France by 1922 and the US added new debt during the occupation of Haiti by taking out Haiti’s gold reserves.
  2. Much current debt went to feed the brutality of Duvalier dictatorships
  3. Rather than invest in education, the environment, the health care, Haiti’s people are forced to repay a debt they did not ask for or benefit from
  4. Debt undermines democracy and national sovereignty, forcing democratically elected leaders and citizen to follow debt repayment or specific economic policies imposed by the international organizations.

 

  1. We want the bilateral debts owed by Haiti to the United States by Haiti and other members of the Organization for Economic Cooperation and Development (OECD) to be forgiven.
  2. We want the IMF, the World Bank, or any other multilateral lending institution to cancel completely and immediately Haiti's debts to such institutions without preconditions on economic structural reforms.
  3. Work in coalition with the "Jubilee 2000 Coalition" made of non-governmental organizations (NGOs), Christian organizations, churches, and advocacy groups to solve the issue of debt in Haiti.
  4. Work US officials sponsoring debt forgiveness for Haiti in particular Congresswoman Maxine Waters, Congressman Luis Gutierrez etc…The House of Representatives debt cancellation resolution is H.Res 241.
  5. The Haitians living abroad will need to work with the democratically elected governments to redirect the money to improve health care, education, and other essential government services, invest in critical infrastructure. Also the elected Haitian governments will need to: a) increase food production, for local sale and consumption b) develop a new type of tourism c) reverse the brain drain d) develop alternative technologies in agriculture e) protect Haiti food markets and farming

 

 

 

 

 

 

 

    1. Critics warn that successful completion of the HIPC program fails to reduce debt to sustainable levels, in part because HIPC premises the level of debt relief it will provide on unrealistically optimistic economic projections that ignore the historical, political, geographic, and economic realities in underdeveloped nations.
    2. Even if a country succeeds in reducing its debts to sustainable levels, there is no guarantee it will avoid accumulating debts at unsustainable levels in the future. If the underlying causes of unsustainable debt, such as corrupt governments, poor project selection, or usurious lending, remain unremedied, then the country's debt burden could easily return to unsustainable levels despite HIPC relief.
    3. Moreover, HIPC relief might create a "moral hazard" for debtor nations - an incentive for poor countries to borrow recklessly in the future with the expectation that, if their debts again reached unsustainable levels, creditors would forgive them. The debtor nation's problems are compounded when private investors decline to invest in countries that fail to achieve long-term debt sustainability or economic stability despite HIPC assistance.
    4. Finally, there is no evidence that HIPC's attempt to link debt forgiveness to poverty-reduction efforts has had any success. In fact, three studies in 2005 found that debt relief had no effect on the growth rates (economic growth presumably leads to a reduction of poverty) of HIPC countries.
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