Earthquakes, storms and colonial debt: The need for debt relief in Haiti

1 September by Tess Woolfenden


“Haiti Earthquake” by RIBI Image Library is licensed with CC BY 2.0. To view a copy of this license, visit https://creativecommons.org/licenses/by/2.0/

The Caribbean country of Haiti was hit by a devastating earthquake earlier this month, destroying tens of thousands of homes and taking the lives of nearly 2,000 people while a further 10,000 are missing or injured. It came only a few weeks after the assassination of the country’s President, Jovenel Moïse.

Haiti, one of the world’s poorest countries, is also vulnerable to the harsh realities of the climate crisis. Only a few days after the earthquake, the country experienced heavy rain as tropical Storm Grace approached, causing flooding and significant challenges for the humanitarian response.

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

Just like many other countries in the Caribbean and around the world, Haiti’s crushing debts are hampering its ability to respond to crises. The origins of Haiti’s build-up of unjust debt are linked to colonialism.

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

This rebellion that secured Haiti freedom from colonial rule started on 21st August 1791, almost exactly 230 years ago today.

Payment of this colonial debt to France was only possible by taking out loans from American, French and German banks at high interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

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

In the years after 1947, Haiti continued to receive loans from bilateral, multilateral and commercial creditors, continuing the unsustainable debt situation and undermining the country’s ability to fund healthcare, education and other vital public services. Many of these loans were taken out by oppressive and corrupt regimes such the Duvalier family (François “Papa Doc” and later his son Jean-Claude “Baby Doc”) who ruled Haiti for 22 years backed by the West because they were anti-communist and supported the US during the Cold War. Loans taken out by the Duvalier’s amounted to 45% of Haiti’s total debt in 2009.

After the Duvalier regime was overthrown in 1986, many Haitian civil society organisations emerged and began drawing attention to major issues facing the country, including unjust debt.

Following these efforts and the international support that followed, some of Haiti’s debt was cancelled. For example, in 2009, Haiti has $1.2 billion cancelled through the Heavily Indebted Poor Countries Heavily Indebted Poor Countries
HIPC
In 1996 the IMF and the World Bank launched an initiative aimed at reducing the debt burden for some 41 heavily indebted poor countries (HIPC), whose total debts amount to about 10% of the Third World Debt. The list includes 33 countries in Sub-Saharan Africa.

The idea at the back of the initiative is as follows: a country on the HIPC list can start an SAP programme of twice three years. At the end of the first stage (first three years) IMF experts assess the ’sustainability’ of the country’s debt (from medium term projections of the country’s balance of payments and of the net present value (NPV) of 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 it is given the financial means necessary to pay back the amounts due). Three years after the beginning of the initiative, only four countries had been deemed eligible for a very slight debt relief (Uganda, Bolivia, Burkina Faso, and Mozambique). Confronted with such poor results and with the Jubilee 2000 campaign (which brought in a petition with over 17 million signatures to the G7 meeting in Cologne in June 1999), the G7 (group of 7 most industrialised countries) and international financial institutions launched an enhanced initiative: “sustainability” criteria have been revised (for instance the value of the debt must only amount to 150% of export revenues instead of 200-250% as was the case before), the second stage in the reforms is not fixed any more: an assiduous pupil can anticipate and be granted debt relief earlier, and thirdly some interim relief can be granted after the first three years of reform.

Simultaneously the IMF and the World Bank change their vocabulary : their loans, which so far had been 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 Paper”. This paper is drafted by the country requesting assistance with the help of the IMF and the World Bank and the participation of representatives from the civil society.
This enhanced initiative has been largely publicised: the international media announced a 90%, even a 100% cancellation after the Euro-African summit in Cairo (April 2000). Yet on closer examination the HIPC initiative turns out to be yet another delusive manoeuvre which suggests but in no way implements a cancellation of the debt.

List of the 42 Heavily Indebted Poor Countries: Angola, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoro Islands, Congo, Ivory Coast, 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) scheme.

In order to complete the scheme Haiti had to implement harsh austerity measures imposed by the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on 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 UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
, and due to the limitations of the scheme, the country still had $900 million of debt by the time it had completed the HIPC process. Furthermore, after completing HIPC, lending to Haiti continued, leading to an unsustainable debt situation once again.

In 2019, the Haitian government were spending 54% of government revenue on paying its debt.

Haiti owes $2.2 billion to its creditors as of 2018, placing significant strain on the country’s ability to address the needs of the population, especially in the case of a devastating event like the earthquake that has just taken place.

A significant amount of this debt is owed to the government of Venezuela, but large sums are also due to be repaid to the IMF in coming years.

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

Large scale debt relief would be a quick and simple way to free up resources for Haiti to address the aftermath of the earthquake and tropical storm. It is also a vital part of creating fiscal space for the country to address the climate crisis, sustainable development and other national needs in the mid and long run.

And yet, there is no internationally agreed way to suspend and cancel debt for countries in the immediate aftermath of shocks like earthquakes or hurricanes, and other existing debt relief initiatives like the G20’s Common Framework are not strong or robust enough to secure the debt relief levels required.

Without such measures, countries like Haiti will be left with paying debt to creditors rather than securing the immediate safety of their citizens in the event of an earthquake, hurricane or global economic recession, let alone upholding human rights in the long run.

With the G20 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 in the 1990s. Its aim is to encourage international consultation on the principle of broadening dialogue in keeping with 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, USA, UK and the European Union (represented by the presidents of the Council and of the European Central Bank). and COP26 approaching, global South governments, civil society organisations and communities will be making strong demands on global leaders to do better on debt relief. It is time global leaders listened to these calls and worked in partnership with governments and people most affected by unjust debt to put in place tangible and appropriate solutions.




CADTM

COMMITTEE FOR THE ABOLITION OF ILLEGITIMATE DEBT

35 rue Fabry
4000 - Liège- Belgique

00324 226 62 85
info@cadtm.org

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