Haiti heads down debt black hole

Haiti Progres, This Week in Haiti, Vol.21 no.14, 18—24 June 2003

Last month, the Haitian government agreed to undertake strict austerity measures proposed by the International Monetary Fund (IMF) in the hopes of unblocking millions of dollars in frozen international aid and loans.

Under the terms of the agreement, called a Staff Monitored Program, Haiti must scrupulously follow IMF directives to cut deficit spending, privatize state industries, downsize government agencies, and lower tariffs over a 12 month period. If it fails to do so, as it has twice in the past five years, it will not receive the IMF’s seal of approval and loans.

It is a gamble. And now the Haitian government is leveraging that bet with two more gambles.

The Haitian government wants to free up some $146 million in approved loans from the Inter-American Development Bank (IDB). After reneging on releasing the loans in 2001 under pressure from Washington, IDB officials said that they would disburse the funds if Haiti cut a deal with the IMF and also paid its IDB debt arrears of some $30 million (see Haoti Progrhs, Vol. 21, No. 6, 4/23/2003).

But where to find the $30 million? Haiti’s foreign reserves are already precariously low, lurking in recent months at about $50 million.

On Jun. 10, Finance Minister Gustave Faubert announced that the government would seek to borrow the money from Haiti’s private banks, which would charge commercial interest rates of about 9%, and also get a 2% fee of some $600,000.

So the government is gambling that, if it pays its IDB arrears: 1) the IDB will not renege again; 2) that it will be able to pay back the private banks and 3) that IMF monitors will give them a passing grade.

But already complications loom. On Jun. 12, the Professional Association of Banks (APB) issued a press release confirming that the government had asked for a short-term loan in May to pay its IDB arrears. Following this request, several commercial banks have shown interest in providing this financing, given certain conditions and guarantees, the release said. One of the conditions is the definite and irrevocable authorization of the Haitian government to the IDB to reimburse directly to the commercial banks the sum of the loan from the first disbursement of the sector investment loan.

This puts the government in a jam. The IDB loans for roads, education, potable water and sanitation, and health are not released in a lump sum but small installments, which will not at first even cover the total loan of $30 million. Furthermore, the IDB loans would then be going to pay off the banks, not carry out the projects for which they were intended.

Even long-time Washington ally Marc Bazin, a former World Bank economist, outlined the risks he saw in the situation on Radio Mitropole on Jun. 12. First, why would the public treasury borrow money at commercial interest rates while the interest rates on the arrears are only 1% for ten years and of 2% for forty years? he asked. Secondly, the $30 million [that the banks will lend to the government] are payable in one payment while the IDB carries out its disbursements in installments. Thirdly, certain IDB operations, pending reimbursements from Haoti, are subject to previous technical obligations. The sector investment loan has about ten conditions. What will happen if, as usual, we drag our feet? Does one really believe that the IDB will pay out if obligations are not fulfilled? The fourth risk is the biggest one. That we will get into debt at commercial rates to pay the arrears without ever being able to satisfy the [IDB], i.e. get release of the IDB loans.

In short, the Haitian government is making a $30 million crapshoot with a Washington-controlled bank which has already double-crossed it.

Meanwhile, leaders of the Washington-supported Democratic Convergence opposition front, like Girard Pierre-Charles, have sought to kindle panic among depositors of the commercial banks by suggesting that the government will not pay back the loan. Late last year, a panic briefly threatened Haiti ’s banking system when opposition-fanned rumors circulated that the government was planning to convert all dollar accounts into gourdes. Depositors transferred millions of dollars out of the country.

Why are Haitian government officials now naively accepting the premise that $500 million in international aid and loans is embargoed for technical reasons, not political ones? After bitterly denouncing them in recent months, the Haitian government now seems blind to the strings with which Washington controls the IDB and other international lending institutions.

The International Monetary Fund and the World Bank are dominated by the United States, and the dominant stakeholders in those institutions are American finance capitalists, wrote analyst Stan Goff (see Haoti Progrhs, Vol. 18, No. 7, 5/3/2000). In simple terms, the IMF and the World Bank have much in common with loan sharks. They do not come to countries’ rescue. They hold out loans to desperate countries to restructure their debts, and take on more debt—which they can ill afford—in exchange for acceptance of draconian adjustments to economic structures that are beneficial only to a small local elite who are working with transnational corporations (TNCs). These are called structural adjustment programs (SAPs). Their purpose is to pry developing economies open for domination by the TNCs and international speculators.

Groups like the National Popular Party (PPN) and the Platform for an Alternative Development (PAPDA) have called on the Haitian government to declare a moratorium on paying off its debt to break the infernal cycle into which Haiti is increasingly locked. They propose investing the money that would go to pay interest into autonomously-designed projects to improve the lives of the Haitian people. The PPN has also called for building closer ties and cooperation with countries not subservient to Washington, like Cuba, China, and Venezuela.

Haiti has a total foreign debt of only $1.248 billion, still modest in comparison to other Latin American nations which plunged headlong into Washington-encouraged borrowing over the past two decades and are now saddled with giant debts which they can never hope to pay.