What the World Bank and IDB Owe
Haiti
Global Policy Forum
by Dan Beeton
www.zmag.org/, August 2, 2006
For several years Haiti, the poorest country
in the Western Hemisphere, has been left out of the World Bank's
"Heavily Indebted Poor Country" (HIPC) debt relief initiative.
At last, Haiti may soon see some of its IMF and World Bank debt
cancelled. [1] (Haiti also has $550 million in Inter-American
Development Bank (IDB) debt - 13% of its GDP - and this too is
expected to be cancelled).
U.S. Representative Maxine Waters hopes
to fast track Haiti's debt relief process with legislation she
recently introduced that would instruct the U.S. Treasury to push
for full cancellation of Haiti's debt without conditions at the
Multilateral Development Banks. The Bush Administration and some
Latin American countries (including Chile as well as debtors like
Bolivia) have encouraged the IDB to be part of debt relief efforts
and IDB members have formed an ad-hoc committee to negotiate the
terms of canceling debt for HIPC countries. [2] Cancellation of
the IDB debt is crucial to freeing up much-needed funds for health
needs and basic social services, and the IDB debt represents 41.2
per cent of Haiti's total external public debt. [3]
Following President Rene Preval's May
14 inauguration, the World Bank and the IDB are preparing to quickly
reengage with Haiti. There is no doubt that Haiti desperately
needs an influx of capital - with some 65% of the population below
the poverty line, infant mortality rates at 7.4%, and public health
crises raging. [4] Funds from the multilateral development banks
could serve a crucial need. But who will guarantee that new loans
from the banks will actually serve Haiti's poor without perpetuating
its debt crisis? Can Haiti receive debt relief without having
to undertake new policy conditions that would hinder its economic
recovery? An examination of these Multilateral Development Banks'
relationship with Haiti over the past several years shows why
the IDB and World Bank's activities in Haiti will require considerable
scrutiny and ongoing pressure to ensure that the needs of the
Haitian people come first, and that economic growth and development
are top priorities. [5]
Haiti is one of four countries that may
qualify as HIPC's by the end of 2006 "under the HIPC 'sunset
clause'," and which could also qualify for debt cancellation
when it reaches its HIPC completion point in the future. [6] Despite
its dire poverty, its grave HIV/AIDS epidemic (5% of the population),
and attendant problems, Haiti was excluded from HIPC for years
under the Lavalas party-led governments of Aristide and Rene Preval
based on the argument that the country would be able to bring
its debt down to a "sustainable level" through "other
sources of debt relief." [7] (The World Bank also cited Haiti's
need to "show a commitment to reducing poverty" as another
reason). Bank officials now hope that Haiti will complete a Poverty
Reduction Strategy Paper (PRSP)[8] that could require the country
to undergo more painful economic conditions. As part of the process,
some World Bank board members want to open the participatory process
to "a wide range of civil society groups and political actors,
especially those with ties to the military and the rural population."[9]
[emphasis added]
Preval's predecessor, democratically elected
Jean-Bertrand Aristide, was overthrown in a violent military coup
in February 2004 in which the U.S. military physically flew him
out of Haiti. Both the 2004 coup and the International Financial
Institutions' (IFI's) new plans for Haiti are the culmination
of several years of severe economic pressure from Washington.
While Aristide was in exile after being
overthrown for the first time in a 1991 coup, the U.S. exerted
strong pressure on him to implement a structural adjustment plan
prior to returning him to power in 1994. Yet the World Bank notes
that from 1994-1997 it continued to butt heads with both the Aristide
and the subsequent Preval Administrations, who found that some
of the Bank's projects were "never accepted by the governmentseen
as too hasty a push for structural adjustment and privatization."
[10] Among other components of its plan for Haiti, the Bank "recommended
privatizing key infrastructure and entrusting the delivery of
education, health, family planning, and water supply and sanitation
to NGOs." [11] Yet the Bank noted "privatization had
already proved to be contentious in Haiti. Clashes over [privatization
and downsizing] were very visible." [12]
After failing to get their way, the International
Financial Institutions began to disengage from Haiti beginning
in 1997. This disengagement then became an outright development
assistance embargo imposed on the Haitian government after Aristide
returned to the presidency in 2001.[13]
Embargo_The IDB had approved loans between
1996 and 1998 for critical social needs: health, education, potable
water, and education, including a loan for "Reorganization
of the National Health System."[14] But approval of the loans
depended on the outcome of new elections and subsequent parliamentary
approval, and the government had trouble organizing new legislative
elections until May 21, 2000, when Aristide's Fanmi Lavalas swept
to victory. [15]
The U.S. and the IFI's used these elections
as a justification for blocking disbursement of any new aid money.
Although the Orlando Sentinel reported that the Organization of
American States (OAS)-led observer mission gave an initial stamp
of approval to the elections, a challenge to the elections' credibility
soon emerged - from the "Democratic Convergence" - an
opposition group funded by the U.S. National Endowment for Democracy
(in turn funded by the US Congress) that would later support the
2004 coup. [16]
The challenge to the elections' legitimacy
then crept into the OAS' subsequent position. After initially
stating that voting irregularities were limited to technical errors
that had affected neither the vote tally nor the outcome, the
OAS subsequently changed its assessments. In the end, under pressure,
the OAS reversed course and contended that the election tally
had been manipulated--and that as a consequence at least seven
candidates from Aristide's Lavalas Family party were able to avoid
runoff elections. [17]
When Haiti's 47th legislature was sworn
in at the end of August 2000 and quickly thereafter voted to ratify
the four IDB loan agreements, the IDB did nothing to release the
funds. Between January and March 2001, the World Bank also "suspended"
most grants to Haiti and "all IDA [International Development
Association, an arm of the World Bank] disbursements."
In the case of the IDB, there is overwhelming
evidence of U.S. involvement. An April 6, 2001 letter from Lawrence
Harrington, the U.S. Representative to the IDB at the time, to
IDB President Iglesias, confirms this, referring to the approved
loans and stating, "we do not believe that these loans can
or should be treated in a routine manner and strongly urge you
to not authorize any disbursements at this time." [18] As
journalist Tracy Kidder noted in The Nation, "This was unusual.
No [IDB] member nation is supposed to be able to stop the disbursement
of loans that are already approved." [19] Indeed, it was
in direct violation of the IDB's charter. Article VIII, Section
5(d) states: "The President, officers, and staff owe their
duty entirely to the Bank and shall recognize no other authority.
Each member of the Bank shall respect the international character
of his duty." [20] Kidder notes, "The Haitian government
also lost access to loans it could have received from the IDB
over the next several years, worth another $ 470 million."
The Haitian Government then stopped making payments to the IDB
after April 2001 when the Bank did not release the funds. [21]
The IDB was acutely aware of the devastating
impact that the withholding of assistance was having on the country,
as it noted in a 2001 report: "the major factor behind economic
stagnation is the withholding of both foreign grants and loans,
associated with the international community's response to the
critical political impasse. These funds are estimated at over
$500m." [22] The IDB also underscored the danger to the projects
if their implementation was delayed: "long delays in project
start-up may have a negative impact." [23]
Nonetheless, the IDB continued to withhold
the funds, and, according to Paul Farmer, even began to demand
that Haiti begin making payments on the undisbursed loans, to
the tune of $5 million in arrears plus a 0.5% "credit commission"
on the entire balance of undisbursed funds, effective 12 months
after the date the loans were approved. [24] A spokesperson for
the IDB claimed, "We generally have waived those fees [for
countries borrowing on concessional terms]." But the spokesperson
also suggested it would not have been unusual, even under such
circumstances, for the IDB to charge Haiti the commitment fees.
No matter what steps Aristide took to
resolve the controversy, it was not good enough for Washington.
On June 2, 2001 the Associated Press reported, "Aristide
promised that the seven senators whose elections were disputed
by the OAS would resign and new elections would be held for those
seats before the end of the year. The senators resigned Monday.
Aristide also agreed to cut short the terms of all members of
the House of Assembly and of a third of the Senate, with elections
in November 2002. Another third of Senate seats would go up for
early election in November 2004." [25]
Yet in February 2002, then-Secretary of
State Colin Powell was quoted in The New York Times saying the
United States would continue to oppose loans from the IDB: "We
are terribly concerned about the political unrest that continues
to haunt Haiti. We are concerned about some of the actions of
the government, and we do not believe enough has been done yet
to move the political process forward. We believe we have to hold
President Aristide and the Haitian government to fairly high standards
of performance before we can simply allow funds to flow into the
country," he added. [26] Although the article went on to
note that, "Earlier this week, Mr. Aristide offered to hold
new elections in November for seven disputed Senate seats,"
the World Bank nonetheless echoed Powell's sentiments in a report
that same month, citing unmet "conditions" as a pretext
for the ongoing withholding of assistance. [27]
Despite the fact that seven of the disputed
Senators had already resigned, and despite Aristide's willingness
to hold new elections for the contested seats, the article notes
that not only the U.S. but also the E.U. would continue to cut
off aid promised to Haiti, the E.U. "offering $350 million
in aid over the next five years if the political situation is
resolved." [28] In October 2002, the IDB reiterated its demands
that Haiti must make payments on the loans that had yet to be
disbursed. [29]
The Aristide Administration took other
steps in attempts to see the aid money released. In 2003, the
government agreed to meet the IMF requirements for the Staff Monitored
Program - including, despite the devastating impact it would have
on the populace - lifting its petrol subsidy. Then, seeing that
no IDB funds would be forthcoming as long as the Bank demanded
the arrears payments, Aristide's government nearly emptied their
national reserves to pay $32 million in arrears in mid 2003. [30]
After these payments, the IDB finally relented, reactivating the
loans in July 2003 and releasing $35 million of an investment
sector loan (which left the Haitian government with a net gain
of only $3 million). The old social sector loans remained undisbursed,
however. [31] By then, time was quickly running out for the Aristide
government.
Coup d'etat_In December 2003, "civil
unrest" intensified, including raids across the Dominican
border by former Haitian army soldiers and former members of the
death squads that had terrorized Aristide supporters during the
dictatorship of the early '90s. Jeffrey Sachs, former advisor
to the International Monetary Fund (IMF) and World Bank, wrote,
"U.S. officials surely knew that the aid embargo would mean
a balance-of-payments crisis, a rise in inflation and a collapse
of living standards, all of which fed the rebellion." [32]
The Washington Post noted some of the motivating factors behind
the violent opposition: Aristide's "populist agenda of higher
minimum wages, school construction, literacy programs, higher
taxes on the rich and other policies that have angered an opposition
movement run largely by a mulatto elite that has traditionally
controlled Haiti's economy." [33]
On February 29, 2004, after months of
bloodshed, Aristide was flown out of the country in a U.S. plane
and taken to the Central African Republic - an event that he has
famously described as a "kidnapping" in the service
of a coup d'etat. [34] The next day Andrea Mitchell reported on
NBC Nightly News that, "With Aristide gone, Haiti can now
qualify for millions of dollars in aid, frozen since 1997 because
of Haiti's political chaos." [35]
Mitchell may have stated something bluntly
that U.S. Government, World Bank, and IDB officials preferred
to imply in more subtle terms: the problem always was Aristide
and Lavalas - their policies, and the lenders' refusal to work
with them anymore.
Meanwhile, the bloody rampage and coup
of early 2004 finished the job of destroying Haiti's economy that
the IFI's had begun, as the IDA described in July 2004. "While
many businesses have not yet restarted operations, it is becoming
clear that many others will not recover at all, resulting in the
loss of direct and indirect jobs. The government's financial position
further deteriorated as revenues declined substantially due to
the fall in economic activity, weakened administrative capacity
and security concerns." [36]
In March 2004 the coup was completed with
the installation of a "transitional government." The
World Bank wasted no time in chairing a donors meeting in Washington
where it was agreed, in consultation with the "Transitional
Government" to launch a joint government and donors' assessment
of what sort of assistance the new regime would need from the
IFI's. [37]
Even if the OAS's electoral fraud allegations
against Aristide had been true, as Jeffrey Sachs has said, "it
would be nothing different from what has occurred in dozens of
countries around the world receiving support from the IMF, World
Bank, and the U.S. itself. By any standard, Haiti's elections
had marked a step forward in democracy, compared to the decades
of military dictatorships that America had backed, not to mention
long periods of direct U.S. military occupation." [38]
The greater blow to Haitian democracy
came not from any election irregularities, but from Washington.
At the same time that the IFI's and Washington were telling the
Haitian government that no money would reach the government until
an agreement was reached with the Democratic Convergence, the
International Republican Institute -a Congressionally funded group
that acts as a foreign policy arm of the U.S. Republican party
and which spearheaded efforts to oust Aristide - was giving the
opposition a different message. According to former U.S. Ambassador
to Haiti Dean Curran and others, the IRI told the Democratic Convergence
that they did not need to negotiate with the government -- as
a way to undermine Aristide. [39] Since the Haitian government
could not survive without foreign aid, U.S. Government and IFI
policy assured the downfall of Haiti's democratically elected
government.
In effect, the IFI's and the U.S. played
"good cop" to the rampaging militias' "bad cop"
during a period of negotiations between the Aristide government
and the political opposition when the militias stormed across
Northern Haiti en route to Port-au-Prince. According to Sachs,
"by saying that aid would be frozen until Aristide and the
political opposition reached an agreement, the Bush administration
provided Haiti's un-elected opposition with an open-ended veto."
[40] The opposition had no incentive to negotiate; they had all
the aces.
After the troublesome Aristide had been
forced out, the U.S. was more than willing to "simply allow
funds to flow into the country," as Colin Powell characterized
it, to the tune of $150 million from the World Bank over the next
two years. [41] With bureaucrat Gerard Latortue overseeing the
interim government in Port-au-Prince, the IFI's seemed confident
that their economic plan might at last be implemented in full;
the World Bank planning to support "economic governance reforms"
in coordination with the IMF and the IDB. [42] The World Bank's
Country Director for the Caribbean, Caroline Anstey, noted as
the first post-coup international donors' conference convened
that "the interim government is made up of technocrats who
have agreed not to run in the next presidential election. As a
result, they are much freer to embrace a reform agenda."
[43]
Noting that "reform" of "public
enterprise management" is another priority for the IFI's,
one is led to suspect that a renewed privatization plan may not
be far off - despite the World Bank's own recognition of the Haitian
people's resistance to it. [44] The Bank also notes the "increased
role of the private sector in social service delivery, particularly
in education." [45]
Meanwhile, the World Bank actively pushed
for Haiti to pay its arrears (some $52 million) to open the way
for its reengagement. This was something Latortue was all too
willing to do this, despite the many dire needs facing the poorest
country in the hemisphere.
Conclusion_Given this recent history,
international attention is needed to ensure that the IDB and World
Bank - and the U.S. Government, which has effective control over
these institutions - finally permit Haiti's economic development
on its own terms, respecting its national sovereignty as it formulates
plans for economic recovery. Cancellation of Haiti's debt to the
banks will be an important first step for freeing up desperately
needed funds that have been denied the Haitian people for far
too long. But such debt-cancellation should be unconditional,
free from any HIPC or other policy conditions.
Even since just a few years ago, when
Aristide fought to have the IDB loans disbursed, the globalization
playing field has changed dramatically. The IMF has largely lost
its influence after its policy prescriptions led Argentina to
economic collapse. When Argentina stood up to the IMF and actually
defaulted temporarily on its loans to the IMF itself, the confrontation
ended up severely eroding the Fund's power over middle-income
countries. Instead of suffering terribly at the hands of foreign
investors, as many outside observers warned would happen, the
Kirchner government led Argentina to a successful recovery that
has seen the economy grow at about over 9% annually for the last
three years. In March of this year, the newly elected government
of Evo Morales in Bolivia told the IMF it did not want a new IMF
program, after 20 years of operating under IMF agreements. [46]
The Fund's power diminished, Bolivia - the poorest country in
South America - was able to stand up to it with no repercussions.
Countries like Argentina and Bolivia-and
also heavyweights like Brazil and Indonesia--have turned away
from the IMF for good reason: its policies have largely failed
most places they have been implemented. [47] In Latin America,
this economic failure has been drastic. Compared to the twenty
years from 1960 to 1980 when Latin America's economies grew by
82% in per capita GDP, the region has grown by only 14% since
1980. [48] Haiti experienced the worst economic failure in the
region over this period. Whereas Haiti saw positive per capita
GDP growth of 24% from 1960 -1980, GDP per person actually shrank
48% from 1980 - 2005. [49] An economic disaster of this magnitude
is difficult to conceive of in most countries, and it underscores
the extent to which Haiti desperately needs to implement pro-growth
policies that will put people to work and allow them to provide
for their families. It also underscores why funds are urgently
needed to repair Haiti's crippled infrastructure, revive its health
care and education systems, and ensure its population access to
sanitary living conditions and potable water - in short, the needs
that the stalled IDB loans were intended to address prior to the
2004 coup.
The IMF visited Haiti in mid-June in a
delegation. Among its recommendations after meeting with President
Preval and other officials was for the government to spend more
on social programs. The international community should hold the
IMF to its words. Reducing poverty and addressing other urgent
social needs should be the Preval Administration's first priority
and no outside government or institution should be allowed to
impede its progress.
About the author: Dan Beeton is International
Policy Analyst for the Center for Economic and Policy Research,
www.cepr.net
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