The need for debt relief in Haiti

Haiti, one of the poorest countries in the world, is also vulnerable to the harsh realities of the climate crisis. Just days after the earthquake, the country experienced heavy rains as Tropical Storm Grace approached, causing flooding and significant challenges for the humanitarian response.

Haiti is also recovering from an earthquake that struck in 2010 in which 250,000 lives were lost and 1.5 million people were displaced.

Like many other countries in the Caribbean and around the world, Haiti’s crushing debts hamper its ability to respond to crises. The origins of the accumulation of unjust debts in Haiti are linked to colonialism.

After the successful slave rebellion of 1804 which secured the country’s independence from French rule, the French demanded 90 million gold francs (about $ 17 billion in today’s terms) from Haiti in compensation for loss of income, property and slaves. It was 10 times the nation’s annual income at the time and was still paid until 1947.

This rebellion which ensured the liberation of Haiti from colonial domination began on the 21stst August 1791, almost exactly 230 years ago today.

The payment of this colonial debt to France was only possible by contracting loans from American, French and German banks at high rates. interest rate
Interest rate
When A lends money to B, B repays the sum lent by A (the capital) as well as an additional sum called interest, so that A has an interest in agreeing to this financial transaction. Interest is determined by the interest rate, which can be high or low. To take a very simple example: if A borrows $ 100 million over 10 years at a fixed interest rate of 5%, in the first year he will repay one-tenth of the capital initially borrowed ($ 10 million) plus 5% of the capital. owed, or $ 5 million, for a total of $ 15 million. In the second year, it will repay 10% of the borrowed capital again, but the 5% now only applies to the remaining $ 90 million still owed, or $ 4.5 million, for a total of $ 14.5 million. of dollars. And so on, until the tenth year he pays back the last 10 million dollars, plus 5% of the remaining 10 million dollars, or 0.5 million dollars, for a total of 10.5 million dollars. Over 10 years, the total amount repaid will be $ 127.5 million. The repayment of capital is generally not done in equal installments. In the early years, repayment is mostly interest, and the proportion of principal repaid increases over the years. In this case, if the repayments are stopped, the outstanding capital is higher …

The nominal interest rate is the rate at which the loan is taken out. The real interest rate is the nominal rate less the rate of inflation. , crippling the economy for decades and trapping Haiti in growing debt. In 2004, President Aristide demanded that Haiti receive reparations for the payments they made to France. Soon after, he was overthrown in a US-backed military coup.

In the years following 1947, Haiti continued to receive loans from bilateral, multilateral and commercial creditors, thus perpetuating the unsustainable debt situation and undermining the country’s ability to finance health care, education and other vital public services. Many of these loans were contracted by oppressive and corrupt regimes such as the Duvalier family (François “Papa Doc” and later his son Jean-Claude “Baby Doc”) who ruled Haiti for 22 years supported by the West because that they were anti-communists. and supported the United States during the Cold War. The loans contracted by the Duvaliers represented 45% of Haiti’s total debt in 2009.

After the overthrow of the Duvalier regime in 1986, many Haitian civil society organizations emerged and began to draw attention to the main issues facing the country, including unjust debt.

As a result of these efforts and the international support that followed, part of Haiti’s debt was canceled. For example, in 2009 Haiti canceled $ 1.2 billion Heavily indebted poor countries
Heavily indebted poor countries

In 1996, the IMF and the World Bank launched an initiative to reduce the debt burden of some 41 heavily indebted poor countries (HIPCs), whose total debt amounts to about 10% of third world debt. . The list includes 33 countries in sub-Saharan Africa.

The idea behind the initiative is as follows: a country on the HIPC list can start a twice three-year PAS program. At the end of the first stage (first three years), IMF experts assess the “sustainability” of the country’s debt (based on medium-term projections of the country’s balance of payments and net present value (NPV). ) the debt-to-exports ratio.
If the country’s debt is considered “unsustainable”, it is eligible for a second stage of reforms at the end of which its debt is made “sustainable” (that it is given the necessary financial means to repay the amounts owed). Three years after the initiative started, only four countries had been deemed eligible for very small debt relief (Uganda, Bolivia, Burkina Faso and Mozambique). Faced with such poor results and the Jubilee 2000 campaign (which brought a petition of over 17 million signatures to the G7 meeting in Cologne in June 1999), the G7 (group of the 7 most industrialized countries) and international financial institutions have launched an initiative: the criteria of “sustainability” have been revised (for example the value of the debt should only amount to 150% of export earnings instead of 200-250% as it is. was the case before), the second stage of reforms is no longer fixed: a diligent student can anticipate and benefit from debt relief sooner, and thirdly, interim relief can be granted after the first three years of reform.

At the same time, the IMF and the World Bank are changing their vocabulary: their loans, previously called “enhanced structural adjustment facilities” (ESAF), are now called “Growth and Poverty Reduction Facilities” (GPRF) while “Structural Adjustment Policies” are now called “Poverty Reduction Strategy Papers”. This document is drafted by the country requesting assistance with the assistance of the IMF and the World Bank and with the participation of representatives of civil society.
This reinforced initiative was widely publicized: the international media announced a 90% or even 100% cancellation after the Euro-African summit in Cairo (April 2000). However, on closer inspection, the HIPC initiative turns out to be yet another illusory maneuver that suggests but in no way implements debt cancellation.

List of 42 Heavily Indebted Poor Countries: Angola, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoros Islands, Congo, Côte d’Ivoire, Democratic Republic of Congo, Ethiopia, Gambia, Ghana, Guinea, Guinea -Bissau, Guyana, Honduras, Kenya, Laos, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nicaragua, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda , Vietnam, Zambia. (HIPC).

In order to complete the program, Haiti had to implement severe austerity measures imposed by the IMF
International Monetary Fund

With the World Bank, the IMF was founded on the day of the signing of the Bretton Woods agreements. Its first mission was to support the new standard exchange rate system.

When the Bretton Wood system of fixed rates ended in 1971, the main function of the IMF became that of being both the policeman and the firefighter of world capital: it acts as a policeman when it carries out its policies of structural adjustment and as a firefighter when intervening. to help governments with debt default.

As for the World Bank, a weighted voting system works: according to the amount paid as a contribution by each member state. 85% of the vote is needed to change the IMF charter (meaning the United States with 17.68% of the vote has a de facto veto right over any change).

The institution is dominated by five countries: the United States (16.74%), Japan (6.23%), Germany (5.81%), France (4.29%) and the Kingdom -United (4.29%).
The other 183 member countries are divided into country-led groups. The most important (6.57% of the votes) is led by Belgium. The smallest group of countries (1.55% of the vote) is led by Gabon and includes African countries., and due to program limitations, the country still had $ 900 million in debt by the time it completed the HIPC process. In addition, after the completion of the HIPC Initiative, lending to Haiti continued, again leading to an unsustainable debt situation.

In 2019, the Haitian government was spending 54% of government revenue to pay off its debt.

Haiti owes $ 2.2 billion to its creditors in 2018, which puts a strain on the country’s ability to meet the needs of the population, especially in the event of a devastating event like the earthquake that has just struck. happen.

A significant portion of this debt is owed to the government of Venezuela, but significant sums must also be repaid to the IMF in the years to come.

Since the start of the pandemic, the IMF has canceled $ 17 million in Haiti’s debt through the Catastrophe Containment and Relief Trust (CCRT). However, payments are expected to resume later this year.

Large-scale debt relief would be a quick and easy way to free up resources for Haiti to deal with the aftermath of the earthquake and tropical storm. It is also an essential element in creating fiscal space for the country to address the climate crisis, sustainable development and other national needs in the medium and long term.

And yet, there is no internationally agreed way to suspend and cancel countries’ debt immediately after shocks such as earthquakes or hurricanes, and other existing debt relief initiatives like the framework. Commonwealth of Nations are not strong or robust enough to guarantee levels of debt relief. obligatory.

Without such measures, countries like Haiti will have to pay debt to their creditors rather than ensuring the immediate safety of their citizens in the event of an earthquake, hurricane or global economic recession, let alone respect for human rights. long-term.

With the G20
The Group of Twenty (G20 or G-20) is a group made up of nineteen countries and the European Union whose ministers, central bank directors and heads of state meet regularly. It was created in 1999 after the series of financial crises of the 1990s. Its objective is to promote international consultation on the principle of broadening the dialogue according to the growing economic importance of a certain number of countries. Its members are Argentina, Australia, Brazil, Canada, China, France, Germany, Italy, India, Indonesia, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United States, the United Kingdom and the European Union (represented by the Presidents of the Council and of the European Central Bank).
and with COP26 approaching, southern governments, civil society organizations and communities will urge world leaders to do better on debt relief. It is time for world leaders to heed these calls and work in partnership with governments and those most affected by unjust debt to put in place tangible and appropriate solutions.

About Mallory Brown

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