Haiti Debt Relief - what's really happening?

When Haiti first became independent from France in 1804, the islanders thought they were free but within twenty years, France had exacted massive compensation from them for the loss of a slave colony, equivalent nowadays to over $20 billion.

Haiti's economy is desperately poor.  More than two thirds of the country depend on agriculture but more than two thirds of the population don't have formal jobs.  The additional debt incurred by the dictatorial Duvalier family to finance their lavish lifestyle from the mid-sixties through to 1986 lead to debt dependency.  With a population of under four million, there are few resources for development, nor for servicing international loans.

The policies of globalisation promoted by the World Bank and the World Trade Organisation have not helped.  As with all globalisation programmes, the intention is to provide foreign investors with a free reign to take over the country's infrastructure, buying up state resources, the belief being that these companies would necessarily bring development and growth in their wake.  But capital is only attracted to profitable investment, not the kind of long-term steady growth of infrastructure that the population needs.  Social need never overrides the bottom line.

In 1991, there was a coup in Haiti to which the Americans responded with sanctions, allowing only humanitarian aid through.  Continued political instability, coupled with the collapse of industry, meant that despite some growth, the economy was fragile and debts were mounting.  By 2005, Haiti's external debts amounted to $1.3 billion which although tiny in comparison to the US debt, is crippling for such a tiny economy.

By July 2009, the debt was around $2.2 billion, and $1.2 billion was cancelled by the IMF and the World Bank.  There are now calls to cancel the remaining billion.  Although the service sector accounts for around half of the country's GDP, the political system is corrupt and unstable and a great deal of financial aid is filtered off by dishonest functionaries.  The opportunities for any growth at all are slim and the crippling costs of reconstruction will serve to increase debt still further.

Recently, the Paris Club, a group of major creditors including the US, Japan, Germany, France, Britain and Canada agreed to cancel $214 million of outstanding debt.  In addition, the IMF has said it will provide $100 million in aid, and the World Bank has set up a $100 million emergency package.   But these are not gifts, they are finance packages which will need to be repaid with interest.

So on the one hand, countries are talking about cancelling debt, but at the same time those very institutions that played a significant role in exacerbating previous debt problems, are creating the same situation anew.  The debt cancellations being talked about in the press only apply to debt accrued before 2006 and also includes an element for the interest they would have paid, had the debt not been cancelled.

The upshot is that the recent Paris Club debt reduction figure was stated as $214 million but adjusted to reflect the actual debt reduction in what is called the Net Present Value (a real world measure of real debt reduction), it is just $84.9 million.

As a result of the debt cancellation and disaster relief funding, Haiti will have an absolutely massive debt burden.  The European Network on Debt and Development estimate the following repayment burdens for Haiti.  For 2010, Haiti will pay $16.2m in debt servicing, in the four years to 2013 it will total $130.4 million, and for the coming 19 years it will total $661.5 million.  The IMF alone is expecting Haiti to pay $114.1 million between 2010 and 2018.

How will this servicing of debts be done?  Only by cutting the expenditure on services to the Haitian population.  It either reduces social spending, or gets further into debt.  The country is already trapped in debt deadlock.  It cannot grow because it has too few resources, it cannot service the external debts because its GDP is too low, it has already sold off its state infrastructure during the last wave of globalisation, and it is now crippled by a massive humanitarian disaster.

Haiti is given no choice but to accept debt dependency.  The international finance capital system has no solution for countries like Haiti, driven into poverty and crippled by debt.  So when the politicians all line up in front of the cameras and pat each other on the back for their generosity and magnanimity, we should remember who put Haiti into that parlous state in the first place, and question how those financial institutions can possibly think they have any justifiable claim to extracting even more profit from the stricken country.

Anyone with an ounce of moral sensibility would at the very least cancel any notion of debt servicing.  But that's not the way these financial institutions make their money.