July 22, 2010
Yesterday the International Monetary Fund announced they were cancelling Haiti’s outstanding debt of $268 million. Many countries have already cancelled bilateral debts, and other multilateral organizations such as the World Bank have also cancelled Haiti’s debt. Although interest rates on the outstanding loans were zero until 2012, the IMF projected that obligations would reach nearly 3 percent of government revenue by 2014. The debt relief includes the $112 million loan made in the aftermath of the earthquake.
At the same time, however, the IMF extended a loan of $60 milllion to Haiti. It is highly concessionary, with no interest until end 2011, and a five and half year grace period. However, while the World Bank and IDB have offered money to Haiti in the form of grants, the IMF continues to use business as usual. Jubilee USA, who have long advocated for debt relief, released a statement that reads:
“The IMF is taking two steps forward and one step back. This is a precedent-setting moment as the IMF has agreed to use internal resources to cancel the debt of a country facing extraordinary need. But, unfortunately, this good news is undermined by the IMF’s new loan. The role of the IMF in Haiti has been long criticized, and this new loan could set Haiti on the wrong path toward a new cycle of debt. The IMF must go further by using its new Post-Catastrophe Trust Fund to provide assistance on grant terms and ensure that this comes without harmful conditions,” says [Eric] LeCompte [Executive Director of Jubilee USA Network].
The IMF hopes that by committing Haiti to a solid macroeconomic path, donors will begin to distribute the billions in aid that had been pledged. This echos a report from the leading Republican on the Senate Foreign Relations Committee, Richard Lugar, who released a report “Without Reform, No Return on Investment in Haiti.” The Wall Street Journal reports:
The U.S. has promised to deliver more than $2.8 billion to Haiti, but in recent months concerns have grown among U.S. lawmakers that the money won’t spur needed changes like direct foreign investment.
A main concern, according to the report, has to do with the difficulty of reconstructing Haiti’s private sector.
…
The report suggests the establishment of a fund administered by Haitian and American bankers, underwritten with a U.S. government grant, to provide loans for private businesses.
Although the complete text of the IMF agreement is not yet available, the press release does note that the new program will include a partial credit guarantee fund, similar to the suggestion by the Senate report:
Furthermore, improvements in infrastructure and the business environment will be essential to raise medium-term growth, by attracting private investment and expanding the export base. The establishment of a partial credit guarantee fund [PCGF] will help restart private sector credit.
The PCGF is being developed by the IDB with the coordination of the “World Bank, the IFC [International Finance Corporation – an arm of the World Bank], the US Treasury and the IMF”. More can be read about that program here. It is important to note that past structural adjustment programs supported by the IMF and World Bank had a detrimental effect on the role of the state in Haiti, and that these institutions have in years past withheld funds from the Haitian government (encouraging aid to go to NGO’s instead) – even to the point of putting communities at risk of disease and undermining the Haitian state itself. As a percent of GDP, government revenue in Haiti (excluding grants) is lower than most African countries. In order to build a legitimate and functioning government, which is necessary for development, it is important that relief and reconstruction efforts are not seen solely as something being done by the international community, but by the Haitian government as well.
