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For Haitians’ Sake, Drop the “Drop the Debt”
January 29, 2010
As I blogged Monday, the Haiti government owes the rest of the world about $1.25 billion. Seems like a lot of money. Inevitably, groups such as the One Campaign, Oxfam International, and the Jubilee Debt Campaign have seized the moment to call on Haiti’s creditors to cancel the debt. And they have a point: can you imagine a metaphorical debt collector from the IMF knocking on the door of the Haitian finance ministry (if it still has one) asking for a few million dollars please? That’s why I called debt relief, meaning at least a suspension of debt collection, a no-brainer.
The question is whether to go further than debt service suspension, to drop Haiti’s debt outright, as non-governmental organizations, members of Congress, and others have demanded. Actually, the practical question for citizens, officials, politicians, campaigners, and other players is whether to push for that. On a few days’ reflection, I say no. I would go so far as to describe such pressure as harmful.
Why? For starters, the benefits of debt relief over the next few years, however done, will be tiny. In my previous post, I wrote that Haiti’s debt service amounts to $18 million for the current (2009/10) fiscal year, rising to $34 million in 2011/12. I was wrong. Turns out that $9 million/year of that is debt service to the Inter-American Development Bank (IDB)—which the U.S. government has been paying on Haiti’s behalf since before the quake. So IDB debt is already costing Haiti nothing. Roughly half the remaining debt service is payable to Taiwan and Venezuela, which may be less susceptible to campaigning from western officials and non-governmental organizations (NGOs). In play then, is perhaps as little as $25 million over the next three years.
How to square this with the enormity of $1.25 billion? Most of Haiti’s debt is not due for a long time. So a typical dollar written off today might not help Haiti (by lowering debt service) for a decade. That’s why cancellation does little good in the short run. It is not a coherent response to crisis.
Meanwhile, there are other ways to help Haiti much more, in responding to the crisis and in rebuilding. Looking at the recent history of humanitarian aid, the people who compile the Humanitarian Response Index judge that many official donors could do a much better job. Isn’t this the time for activists to harvest the lessons of history and hold public and private aid agencies accountable? My colleague Michael Clemens has called for a “Golden Door visa” to let more Haitians come to the United States (or other rich countries) to work. Prying the door open a hair more would swamp the economic value of debt relief. Kim Elliott has emphasized reducing import barriers to Haiti-made goods. Why not extend the Africa Growth and Opportunity Act to Haiti so that shirts made in Haitian factories can enter the U.S. with the same ease as those from some African nations?
The excitement stirred up about dropping the debt consumes scarce resources: the time of government officials spent devising elaborate debt relief arrangements worth $9 million/year instead of international trust funds worth $900 million; the limited attention span of politicians and the public for development issues at this teachable moment; the staff time and political capital of NGOs who lobby legislatures for reform. More effort on dropping the debt means less effort on things that could make a bigger difference. Who, if not the NGOs, will lobby politicians to vote against the domestic textile industry and for “Made in Haiti”? (…more precisely in the U.S. case, to support and expand the trade provisions in the Dodd-Lugar bill?) Who will monitor how well aid agencies in Haiti delegate and coordinate to minimize waste? Who will name the grave injustice in forcibly transplanting a people from Africa to Haiti, forcibly extracting a century’s ransom in plantation labor, then confining them to a denuded semi-island whose capital has crumbled? Who will tell the public the truth about how little difference dropping the debt will make?
Taking on trade and immigration policy isn’t as easy as beating up on the World Bank and IMF, who have mastered the jujitsu art of absorbing the attacks of debt relief campaigns and turning them to publications relations advantage. While it would be foolish for NGOs take on impossible causes, it is fair to ask whether they are letting themselves off too easily by belaboring debt relief. After some 3 million people have lost their homes and perhaps their livelihoods, is the best we can do to tiptoe around the domestic textile industry?
These graphs capture the situation as I see it:
Sources: IMF, World Trade Organization, DAC Table 2a, and World Bank.
Source: Me. The sites of Oxfam International, the One Campaign, and other organizations with a history of activism are emphasizing fundraising for Haiti. As for activism, debt cancellation dominates. Oxfam America will soon co-host a panel discussion at the Newseum entitled, “In the Wake of Haiti, How Can We Improve Aid to Developing Countries?” The U.S. House of Representatives passed Congresswoman Barbara Lee’s non-binding resolution offering condolences, long-term , and debt relief. Senators Dodd and Lugar introduced a bill touching on aid, debt, and trade.
Four days after the temblor in Hispaniola, an experienced aid worker named Alanna Shaikh guest-blogged at Aid Watch under the title, “Nobody wants your old shoes: How not to help in Haiti”:
Donating stuff instead of money is a serious problem in emergency relief. Only the people on the ground know what’s actually necessary; those of us in the rest of the world can only guess. Some things, like summer clothes and expired medicines are going to be worthless in Haiti. Other stuff, like warm clothes and bottled water may be helpful to some people in some specific ways. Separating the useful from the useless takes manpower that can be doing more important work. It’s far better to give money so that organizations can buy the things they know they need.
The New York Times put her point this way: “Don’t send shoes, send money. Don’t send baby formula, send money. Don’t send old coats, send money.” Former President George W. Bush got the message too: “I know a lot of people want to send blankets or water. Just send your cash.”
I think that Shaikh, Saundra Schimmelpfennig, and other bloggers were saying something more profound than that cash is king. So many attempts to help go awry because the giver decides what the receiver needs. The giver’s sense of virtuosity quashes self-questioning, indeed, makes criticism seem churlish. Yet especially in emergencies, those who would aid have a moral obligation to ask two tough questions, in this order: 1) what do they need most? and 2) and what is the best role for me in getting it to them?
I fear that calls to cancel Haiti’s debt are the old shoes of political activism. They make superficial sense. They feel good. But they will hardly help Haiti recover from the quake. And in a crisis, if you’re not helping, you’re in the way. I hope that the politicians and activists responding with vigor and sincerity to this crisis will act also with the gravity it demands.
David Roodman usually blogs at his Open Book Microfinance Blog.
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10 Responses to “For Haitians’ Sake, Drop the “Drop the Debt””
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January 30th, 2010 at 1:49 am
“Only the people on the ground know what’s actually necessary; those of us in the rest of the world can only guess.” This is very, very true.
I do believe that you have a great point here that’s worth considering. I would like to agree that it would do more good if the “drop the debt” idea would be dropped, but I also wonder if these loans to poor countries were made interest-free.
January 30th, 2010 at 8:21 am
Melisa, the interest rates on the vast majority of Haiti’s debt are indeed in the 0–2% range. Venezuela usually charges 1%. The IDB appears to be charging 2% (just under $9 million a year on some $441 in loans, which the U.S. government is paying). The World Bank’s interest is 0.75%. The rate on the IMF’s outstanding pre-quake loans is 0.5% and that on the new loan is 0%. The biggest exception is the $90 million Taiwanese debt; it carries higher rates, exactly how high I do not know.
February 1st, 2010 at 12:43 pm
I think you need to address how BOP personnel in rural areas will get the supplies they need at a reasonable cost. In the areas that I work, micro-financing is available but low cost farming supplies are not. How will BOP personnel obtain micro-irrigation systems, fertilizer, pesticides, nursery stock, seeds, farm equipment, well drilling equipment, veterinary supplies, small animals suitable for backyard farming, poultry netting, etc at a reasonable cost? How do you propose that these supplies be made available so that they can be sold to BOP personnel in a manner that allows them to double their income within one year (so that they can pay back their loans)?
February 7th, 2010 at 9:01 am
Surely you’re positing a false dichotomy here? In what way will a mobilization against outstanding Haitian debt obligations reduce other relief efforts? With the highest number of NGOs per capita in the world on the ground, I do not see how international mobilization is some precious commodity that needs to be so prioritized that drop-the-debt efforts should be abandoned, in order to concentrate on other more immediately practical steps.
I understand that Venezuela has already canceled its debt, a matter of a few moments work on the part of Chavez administration. Presumably a concerted lobbying effort against the other lenders need not consume any greater part of the international assistance effort than is currently wiped out by ongoing debt service payments. At the end of which Haiti stands to be freed for the first time in its history from the parasitic embrace of international finance and those resources put to genuinely productive use. $9 million per annum is still a useful sum, after all. Particularly since a good part of the debt was incurred under the last Duvalier! I don’t see how holding the foreign lenders to a fairly modest ethical standard is going to hobble the vast relief effort underway, at all and the psychological impact alone seems worth it.
February 13th, 2010 at 2:07 am
Hi,
Canceling Haiti’s debt should be just the beginning.
They have to start with a new slate and be sincere about it.
Philip
February 20th, 2010 at 7:35 pm
I find it hard to square your message here with your other post on lending. If lending is not that helpful, why continue to carry a debt?
Regarding the advocacy groups: you seem to have an axe to grind here. There are many factors that go into how an agenda is set. In any case, as others note, the dichotomy you present seems very forced. And you estimates of how time is spent by activist groups seems … well, silly.
February 22nd, 2010 at 11:29 am
Doug, I have not asserted that the debt is good for Haiti, only that its cost to Haiti over the next few years is trifling. Meanwhile, NGOs such as Concern and ONE have, as far as I have seen, remained silent on policy changes that would help Haiti vastly more: giving Haitian manufacturers better access to rich country markets (trade reform) and giving Haitian workers better access to rich-country labor markets (migration reform). I see nothing forced or silly about this observation. Perhaps you can elaborate on the “many factors that go into how an agenda is set” that are causing NGOs and politicians to remain largely silent on things that would actually help Haiti a lot more while trumpeting their victory on debt cancellation.
February 22nd, 2010 at 11:56 am
Think of it this way: there certainly are many policy changes that are needed to help Haiti, and many countries, but that does not mean that the large advocacy groups (some of which are essentially complex coalitions of many actors) can work on all of them OR be certain they will win on them. The debt seemed like an easy no-brainer, so why not get it? Picking what you can win is a cold reality for advocacy.
I agree, however, that a victory on that topic can over-emphasize its importance to their supporters, but I do not hold out hope for explaining import policy to the general public (where as these debts seem to strike a chord, go figure). In other words, being public on this topic may allow them to build some power to work on other (more senstive) issues more quietly.
As to why these groups do not pick addtional issues that you may highlight as more important: first, I am not entirely sure that all of them do not (or you CERTAIN about this?) or they may more quietly; second, again, there is always a political calculation in lobbying about what you can win. Making these calculations (which one person once told me are like like playing chess blindfolded and underwater) is very difficult AND you may find that in fact some groups simply cannot work on some issues. That does not mean they shouldn’t work on what they can tackle. As one of my students once said “the world ain’t puppy dogs and rainbows.”
What was silly was your bar chart on how groups spend their time. Granted, maybe you meant it tongue-in-cheek, but that is a risky strategy for blogging (as I’ve learned over the years). Sorry if I offended.
-Doug
April 13th, 2010 at 7:31 am
How about some full disclosure? Isn’t it true that Nancy Birdsall is 1) the founding president of the Center for Global Development, for which this column is written, and also 2) former executive vice-president of the Inter-American Development Bank, which is owed money by Haiti? So: does Birdsall have influence, as well as a financial interest in supporting what you wrote here? And if Haiti’s IDB debt were forgiven, would IDF lose money? In short, are you shilling for IDB?
Now, about debt forgiveness. Debt is a reduction in independence. Should Haitians be told to trust the US, or any other nation, to continue to service their debt? What is the argument FOR continuing indebtedness of any kind? Limited resources of activists? “Teachable moments?” Pfui! Haiti’s problems aren’t going to be solved in a short time, so there will be (and has been) plenty of time for effort on all fronts (trade access, labor access and debt relief).
A positive outlook, one that believes in Haitian independence and ability, would advocate forgiving the debt. What’s positive about keeping Haitians dependent on handouts of debt servicing from richer nations?
April 13th, 2010 at 3:22 pm
The Inter-American Development Bank is a public institution. Its only shareholders are governments. Nancy Birdsall has no personal financial interest in the handling of Haiti’s debt.