What the World Bank and IDB Owe Haiti

By Dan Beeton*

Global Policy Forum
*Opinion Forum
July 24, 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 government…seen 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


Endnotes
1. Other countries in the Americas, including Bolivia, Guyana, Honduras and Nicaragua, are also HIPC-eligible.

2. See for example, “A Prosperous Third Border,” speech given by the Assistant Secretary for Economic and Business Affairs, E. Anthony Wayne, to the Caribbean Central American Action's 29th Annual Miami Conference, December 7, 2005. Available via the Internet:  http://www.state.gov/e/eb/rls/rm/2005/57923.htm; The White House, “Joint Statement Between the United States of America and the Republic of Chile.” June 8, 2006. Available at  http://www.whitehouse.gov/news/releases/2006/06/20060609-6.html

3. Data from Inter-American Development Bank, World Economic Outlook, and Haitian Central Bank. Author’s calculations.

4. World Bank data.

5. For another overview of Haiti’s overall debt situation, including the odious nature of debt accumulated by the Duvalier dictatorships, see Mark Schuller, “Break the Chains of Haiti’s Debt.” Jubilee USA Network, May 20, 2006. Found at  http://www.jubileeusa.org/resources/haitireport06.pdf

6. International Development Association, “The Multilateral Debt Relief Initiative: Implementation Modalities for IDA.” November 18, 2005

7. World Bank, “Haiti and the Heavily Indebted Poor Countries Debt Relief Initiative,” World Bank website, posted November 2000,  http://lnweb18.worldbank.org/External/lac/lac.nsf/Countries/Haiti/4939BA8C8760F114852569960056D487

8. The PRSP is required for a loan from the IMF/WB’s “Poverty Reduction and Growth Facility,” which replaced the IMF’s Enhanced Structural Adjustment Facility as the long-term lending program for poor countries under the HIPC initiative.

9. World Bank and International Development Association, “Summary of Discussion at the Meeting of the Executive Directors of the Bank and IDA, January 6, 2005,” February 3, 2005

10. World Bank, Operations Evaluation Department, “Haiti Country Assistance Evaluation,” (World Bank, OED, 1998) February 12, 2002, Report No. 23637

11. Ibid.

12. Ibid.

13. Paul Farmer also describes the history of the embargo in detail in Pathologies of Power: Health, Human Rights, and the New War on the Poor. Berkeley: University of California Press. 2003. pp. 85-90.

14. Inter-American Development Bank, “Approved Projects – Haiti,” IDB website,  http://www.iadb.org/exr/doc98/apr/lchait.htm

15. Paul Farmer, “Haiti: Short and Bitter Lives,” Le Monde diplomatique, July 2003,  http://mondediplo.com/2003/07/11farmer

16. Miles, Melinda, “Elections and 2004,” Haiti Reborn website, August 2003  http://www.quixote.org/hr/campaigns/lhl/elections-and-2004.php. See also Tracy Kidder , “The trials of Haiti: why has the US government abandoned a country it once sought to liberate?,” The Nation, No. 13, Vol. 277; Pg. 26, October 27, 2003

17. Faul, Michelle, “OAS Approves Haiti Crisis Proposal,” Associated Press, June 6 2001

18. Letter found at:  http://www.cooperativeresearch.org/archive/2001/USdoc040601.pdf

19. Tracy Kidder , “The trials of Haiti: why has the US government abandoned a country it once sought to liberate?”

20. Found at  http://www.iadb.org/leg/Documents/Pdf/Convenio-Eng.Pdf. Additionally, Article VIII; Section 5(f) states: “The Bank, its officers and employees shall not interfere in the political affairs of any member, nor shall they be influenced in their decisions by the political character of the member or members concerned. Only economic considerations shall be relevant to their decisions, and these considerations shall be weighed impartially in order to achieve the purpose and functions stated in Article I.”

21. Taken from Haiti Reborn Website,  http://www.quixote.org/hr/campaigns/hsw-2003/campaign-iadb.php

22. Roberto Machado and D Robert, “Haiti: situation économique et perspectives”, Inter-American Development Bank, economic evaluation of the country, 2001. Cited by Paul Farmer in “Haiti: Short and Bitter Lives,” Published by Le Monde diplomatique in July 2003.

23. Found at  http://www.iadb.org/exr/doc98/apr/ha1009e.pdf

24. Paul Farmer, “Haiti: Short and Bitter Lives.”

25. Michelle Faul, “OAS Approves Haiti Crisis Proposal,” Associated Press, June 6 2001

26. Christopher Marquis , “Citing Strife, U.S. Delays Two Loans To Haitians,” New York Times, February 8, 2002

27. World Bank, "Haiti: Country Assistance Evaluation," February 12, 2002

28. Christopher Marquis, “Citing Strife, U.S. Delays Two Loans To Haitians,”

29. Daniel Erickson, “Haiti: Challenges in Development Assistance,” InterAmerican Dialogue, October 2002,  http://www.iadialog.org/publications/country_studies/Haiti_erikson.pdf

30. U.S. State Department, “Haiti and the International Financial Institutions” Press Release. December 29, 2003

31. Michael Norton, “Haitian Parliament ratifies Inter-American Development Bank loans.” Associated Press, December 4, 2003

32. Jeffrey Sachs , “From His First Day in Office, Bush Was Ousting Aristide,” Los Angeles Times, March 4, 2004

33. Scott Wilson, “Armed Attacks Increase Pressure on Haitian Leader; Groups Extend Reach Into Provincial Areas,” Washington Post, November 18, 2003

34. Democracy Now, “President Aristide Says 'I Was Kidnapped' - 'Tell The World It Is A Coup'", March 1, 2004,  http://www.democracynow.org/article.pl?sid=04/03/01/1521216

35. NBC Nightly News, “Haitian rebels celebrate departure of President Jean-Bertrand Aristide who claims he was forced out by US,” March 1, 2004.

36. International Development Association, “Haiti Briefing Note,” July 2, 2004

37. World Bank, “Haiti and the World Bank: Key Figures,” World Bank website,  http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/LACEXT/HAITIEXTN/0,,contentMDK:20227293~pagePK:141137~piPK:141127~theSitePK:338165,00.html

38. Jeffrey Sachs, “The Fire This Time in Haiti was US-Fueled” in Taipei Times, March 1, 2004

39. Walt Bogdanich and Jenny Nordberg, “Mixed U.S. Signals Helped Tilt Haiti Toward Chaos.” The New York Times. January 29, 2006

40. Ibid

41. International Development Association, “Haiti Briefing Note,” July 2, 2004

42. World Bank and International Development Association, “Summary of Discussion at the Meeting of the Executive Directors of the Bank and IDA, January 6, 2005,” February 3, 2005

43. World Bank, “Interview with Caroline Anstey, World Bank Country Director for the Caribbean.” July 16, 2004. Found at  http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:20226183~menuPK:34457~pagePK:64003015~piPK:64003012~theSitePK:4607,00.html

44. International Development Association, “Haiti Briefing Note,” July 2, 2004

45. World Bank and International Development Association, “Summary of Discussion at the Meeting of the Executive Directors of the Bank and IDA, January 6, 2005,” February 3, 2005

46. Mike Dolan. “Bolivia seen likely to end IMF financing ties.” Reuters, March 07, 2006

47. See Mark Weisbrot, Dean Baker, and David Rosnick, “The Scorecard on Development: 25 Years of Diminished Progress” Center for Economic and Policy Research, September 2005

48. Angus Maddison and World Economic Outlook 4/06

49. Ibid