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Dropping Haiti’s debt = sending old shoes

The following post is by David Roodman, a research fellow at the Center for Global Development (CGD) in Washington, DC.

Last week my colleague Michael Clemens blogged in this space about the “The best way nobody’s talking about to help Haitians.” So as a complement, here’s what I think is the worst way that everybody’s talking about to help Haitians: cancelling Haiti’s debt.

I am not suggesting that Haiti’s foreign creditors should stick to their guns in order to teach the country a lesson about the sanctity of international debt contracts. Canceling or reimbursing Haiti’s debt payments over the next, say, five years, just as was done after the Asian tsunami, would make eminent sense. That would constitute debt relief but would not require debt cancellation.

Why not just cancel the debt outright, as the One Campaign, the Jubilee Debt Campaign, and Oxfam have demanded?

  • The benefit would be low. Most outstanding loans to Haiti are repayable over 25–40 years and charge 2%/year or less in interest. So while the face value of Haiti’s debt is impressive—some $1.25 billion, not counting the $114 million in new IMF credits—the debt service over the next few years will be tiny. The IMF projects (table 7) the cost at $18 million for fiscal year 2009/10, rising to $34 million in 2011/12. Even those figures are high since the U.S. government is paying the $9 million/year interest on Haiti’s loans from the Inter-American Development Bank. Perhaps half the rest is owed to Taiwan and Venezuela, whose susceptibility to press releases from western NGOs is uncertain. So as little as $25 million in debt service may be in play over the next 3 years.
  • Lobbying for debt cancellation crowds out other more important issues. Activist groups and politicians have limited time, staff, and political capital. Instead of fixating on dropping the debt, why don’t activists and politicians campaign to hold public and private donors accountable for avoiding the mistakes of past disaster relief efforts? Why don’t they take on textile interests in order to open our borders to “Made in Haiti”? Why not, as Michael argued, push for a Golden Door visa that would allow at least a few tens of thousands more Haitians into rich countries to work?

Reforming trade and migration policies, even getting donors to respond more effectively to disasters, requires confronting entrenched interests. But activists are at their best when they take on the tough fights. We owe it to Haitians to strive for what is best for them, not easiest for us.

A couple of weeks ago here on Aid Watch, Alanna Shaikh blogged under the title, Nobody wants your old shoes: How not to help in Haiti. Beyond the specific advice, she was voicing a big idea close to Aid Watch’s heart: so many aid efforts go awry because the giver decides what the receiver needs.

I fear that calls to cancel Haiti’s debt are the old shoes of political activism. Debt relief will hardly help Haiti recover from the quake. And in a crisis, if you’re not helping, you’re in the way. Let us do the equivalent in the policy realm of sending cash, by advocating reforms that will do far more to alleviate the suffering.

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  1. Yes, and also, debt relief should be contingent on good governance. That was what made HIPC such a success in, say, Malawi: the Government’s attempts to attain HIPC Completion point forced it to manage the macroeconomy very well. The result: in addition to realising debt cancellation from external sources, Malawi’s domestic debt burden, hitherto a crippling strain on the economy and larger than it’s external debt burden, was reduced enormously and the Government found it suddenly had great room to set new policy.

    Posted February 1, 2010 at 12:26 am | Permalink
  2. Michael Clemens wrote:

    Thanks David, it is extremely useful to get the numbers out there. As I wrote once, a question at the heart of Bill Easterly’s work is, “Who will lose their jobs if these things do not work?” Whether an advocate is seen by the development community as having done his or her job has little to do with the magnitude of the effect of their intervention among beneficiaries, and everything to do with its symbolic power among donors.

    Equal worth is assigned to an advocate who sends lots of shoes, an advocate who champions debt relief with a one-off benefit of $25 million, and an advocate who champions doubling the tiny number of visas given to Haitians for a few years, which would generate long-term recurring flows of hundreds of millions of dollars in remittances every year that go directly into poor people’s pockets. Everybody’s happy to send old shoes, but no one wants to talk about letting even a few more Haitians have opportunity abroad, because these things are seen as interchangeably “helping”, and one is so much easier. Who cares what really works to change people’s lives?

    The absence of good numbers is one of several reasons why the development community is often pound-wise and penny-foolish, and you’re doing a tremendous service by getting good numbers out there.

    Posted February 1, 2010 at 9:48 am | Permalink
  3. Bastian wrote:

    Yes, Haiti’s debt service might be tiny, but Haiti’s GDP and therefore financial means for building infrastructure, health care and education is, too. Cancelling Haiti’s debt might not help recovering from this quake but I can’t see how it will do lot’s of harm. It won’t take much resources, neither human nor natural ones.

    However, I’m not sure how aid reforms can help Haiti to recover from the recent quake. Aid reforms are urgently needed, but in this case they would come too late.

    Posted February 1, 2010 at 10:31 am | Permalink
  4. Raphael wrote:

    Hmm … debt relief versus debt cancelation? I think we’re splitting hairs. Oxfam et al would probably be ok with your approach.

    Also, debt cancelation (unlike sending shoes) is a long term strategy. It is not a relief program but rather a development strategy that will likely aid in the VERY long term process of ‘building back better.’

    Not sure the opportunity cost of advocating for debt cancelation/relief is that high. Is there any evidence you can point to? Is it even possible to quantify this!?

    Posted February 1, 2010 at 1:18 pm | Permalink
  5. Chris K wrote:

    Taking on textile interests seems like a great thing to do in general. There seems to me a more politically savory opportunity at the moment. Drop all tariffs on ethanol produced in Haiti. This is just a matter of substitution. Less money to Venezuela, more to Haiti.

    Posted February 1, 2010 at 2:05 pm | Permalink
  6. I have to reiterate the point: why are we cancelling debt? because Haiti’s institutions and macro management have improved? or because we feel sorry for it having had an earthquake.

    Studies of countries post-debt cancellation suggested that initial trends were to slide back into debt *unless* the reforms of economic management were maintained.

    Further, all of these analyses basically rest on the assumption that a bit more free money will stimulate development. I don’t think it will; the structural problems are far deeper.

    Michael Clemen’s approach is like this too, it’s about poverty reduction, not national development (which is fine, as long as the former is your sole goal).

    Posted February 2, 2010 at 12:31 am | Permalink
  7. Sorry my third para above is unclear: the ‘analyses’ I refer to are the solutions we’re coming up with for Haiti’s long term development, which all amount to: get more money in.

    Posted February 2, 2010 at 12:33 am | Permalink
  8. Facebook wrote:

    Haiti to being really very sad. I hope to live there back those healthy days. must help all of us. Let’s be sensitive, please

    Posted February 7, 2010 at 9:19 am | Permalink

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