Haiti, debt and IFIs

- By Nancy Dubosse -

This week the scarlet letter is worn by the international financial institutions (IFIs).

Two weeks ago, the IMF scored some kudos in the realm of public opinion, even among staunch IMF critics, for rescinding an emergency loan of $100 million to Haiti and re-offering it as a grant.  But how did Haiti get to the point where taking on another loan could actually put lives in danger?

Haiti’s debt is often in the news, but not enough attention is paid to its debt service.  Given fixed resources, servicing a public debt implies fewer resources for social services and development programmes.  According to Paul Farmer, in Haiti’s case, by the end of the 19^th century, 80% of the national revenue was earmarked to repay debt.  The Haitian Platform Lobbying for Alternative Development has also written extensively on the tension between debt service and human rights.  It estimates that by 1999, the country was paying $38 million in debt service; while the health budget the same year was $26 million.  Between 1995 and 1996 in particular, Haiti paid 900 million gourdes in debt service.  During the same period, only 120 million was invested in agriculture.  Please note that half the population lives in rural areas.  According to the Haitian Central Bank, in 2006 alone, total debt service paid was $57 million, with 47% going to IADB, 30% to the World Bank, and 10% to the IMF.  Voila!

Internationally, the ineffectiveness of development assistance became the subject of international discussions in Paris in 2005.  The outcomes of this meeting was a document outlining the way in which aid should be delivered, coordinated, managed and monitored.

The baseline for engagement of international financial institutions (IFIs) with developing countries has been laid by the Paris Declaration for Aid Effectiveness (2005).  All the major IFIs and most developing countries are signatories to the Paris Declaration.  It sets the criteria for ensuring both the effectiveness and efficiency of development under five governing principles:

1. The principle of ownership dictates that development programmes should be the result of a consultative process within country.
2. The principle of alignment dictates that donors should direct their assistance to the identified priorities of recipient countries, using the latters’ public financial management systems.
3. The principle of harmonization dictates that donors must coordinate their assistance so as to minimize transaction costs and duplication of administrative functions for developing countries.
4. The principle of managing for results dictates that development programmes should be monitored and evaluated according to mutually agreed targets.
5. The principle of mutual accountability dictates that donors should report to both their peers and their own constituencies regarding the nature, scope and destination of development assistance.

A historical analysis of World Bank development assistance in Haiti cited the use of aid towards the privatization of infrastructure and the delivery essential social services (e.g. education and health) by NGOs, instead of government. Obviously, this practice undermined the capacity of the central government to provide these services and improve its management capabilities.

Marc Bazin, former Minister for Planning and External Cooperation, in a response to the World Bank Country Assistance Evaluation of Haiti (2002), argued for a development assistance programme in two parts. The first would be directed towards immediate relief, as hunger, malnutrition, HIV/AIDs, et al, were endemic and life threatening.  The second would be a programme with the long-term goal of sustainability and good governance, as well as enhancing economic livelihoods.

Even as Bazin’s response to the WB was pre-Paris Declaration, he also spoke directly to the use of conditionalities that have traditionally accompanied development assistance, expressing the view that aid to the first, given its urgency, should be “ad hoc in nature and would be judged mainly on their ability to contribute directly to the success of poverty alleviation efforts instead of needlessly obstructing them”.  Among the suggested conditions that Bazin proposed were close links between external financing and broad participation and integration of the poor, the promotion of decentralized implementation structures, an increase in the contribution of the State to education, health and nutrition, and convening national dialogues on poverty reduction. Wow!

The Inter-American Development Bank (IADB) is the single most important creditor of Haiti. The Bank holds 40% of Haiti’s external debt (US$550 million out of US$1.3 billion), which represents 13% of the country’s GDP.  Presciently, the recommendations in the IADB’s Country Performance Assessment: Haiti (1990-2000) reflected the main grievances of the high-level meeting in Paris.

On general ineffectiveness:

“The Bank did not follow through and did not generate a relevant body of knowledge on the development challenges that Haiti faces. …. when the presence and engagement of the IDB should have been capitalized in terms of generating a solid body of knowledge on the Haitian challenges… Key studies are missing, for example regarding the investment gap needed to attain desirable levels of infrastructure and services in key areas such as health, education and transportation that could inform policy making, or the long terms prospects of a sustainable fiscal system in Haiti.”

On the absence of ownership:

“Based on the accumulated experience in Haiti over the last twenty years –that shows that donors do not know how to work to tackle the country’s development challenges in face of the implementation challenges— operations should be meticulously drafted with a demonstrative design in mind. However, the current portfolio was not designed with these considerations.”

On non-alignment:

“[The IADB] has continued to work through project executing units that are in part justified by the lack of confidence on the public management system, to which the reform efforts supported by the policy-based loans are directed. Besides this contradiction, the technical assistance and analytical work required to tackle the root causes of the problems faced in terms of public finance and fiscal management have not been sufficient.”

Back to the IMF.

In 1996, it launched the Highly Indebted Poor Countries Initiative, which was meant to alleviate the debt burden of poor countries provided they met certain criteria and fulfilled certain conditions. The lure of HIPC, after graduating, is that poor countries would have more fiscal space for development financing and a sustainable level of debt.

Haiti is also a good example of the arbitrariness of the IMF’s HIPC criteria.  Haiti could not qualify for HIPC until 2006, when its debt to exports ratio rose to 189%, though the IMF threshold is 150%.  Yet all along, the IADB, which held 40% of Haiti’s external debt stock, represented 13% of the country’s GDP.  The failure to evaluate a country’s potential to repay as an indicator is one of the main concerns with the IMF’s debt sustainability framework.  Until very recently, Haiti had been a haven for export processing activity, yet the government’s ability to raise revenue internally was impaired.  This was somehow not perceived as a source of potential instability.

An additional disparity is yet to be acknowledged.  The volume and value of total exports does not necessarily reflect the revenue from exports.  This is because Haiti, like other countries engaged in export processing and assembly activities, allows repatriation of profits. Further, income distribution effects are minimal, since the main lure of export processing is the lower-than- average labour costs.

Further, loans undertaken after 2006 have not been factored into the fiscal space assumed to be created by the debt relief. As of end 2006, outstanding external debt amounted to $1418.6 million.  In spite of the risks and the $32.4 million, as of 2006, that Haiti already owes the IMF, the former’s debt to the IMF is projected to rise to 4.2 billion gourdes by 2009, 86% of debt service in 2007, and 6% of net international reserves.

The IFIs cannot be absolved of the questionable lending practices to dictators and military juntas.  The World Bank has admitted as much in its evaluation of the historical performance of its development assistance.

“The efficacy of the Bank’s programme has been negligible and it efficiency, low…..lending has had little impact.  Based on both its impacts and the ratings of its individual components, the outcome of the assistance programme is rated unsatisfactory (if not highly so), the institutional development impact, negligible, and the sustainability of the few benefits that have accrued, unlikely.  The Bank and other donors erred by offering traditional assistance programmes without identifying the fundamental governance and political barriers to development.”

Ironically in 2002, the World Bank identified its own comparative advantage, among a field of crowded donors, as working with government and civil society to build institutional capacity and improved governance.

From an economic rights perspective, any fiscal space created by debt relief should be directed toward essential social services and decreasing the dependency on aid and not on new loans.  Further, the international financial community had 206 years (Haiti won its independence in 1804) to assist with strengthening the capacity of the State and didn’t do so.  Why do we need them now?

How did Haiti get here?

- By Nancy Dubosse -

I appreciate Pat Robertson’s historical analysis on the causes of the earthquake in Haiti.   By all accounts, the Haitian Revolution has everything a great story should have.  It starts off with the search for and struggle over gold, then sugar, then coffee.  There are fascinating military manoeuvres, which occurred in and around the country’s exceptionally mountainous terrain. It has more than enough drama (e.g. the rage demonstrated by Jean Jacques Dessalines, the Commander in Chief, when he ripped out the white part of the French flag to form the Haitian flag).  It has memorable speeches.  It has vodou ceremonies, sex, and yellow fever.  It has revenge, incidents of both black and white genocide; it even has some instances of mercy.

But that is the story up to 1804, and Robertson forgot to point out what has transpired in the country since then.  So, in order to remind everyone of what Haitians have experienced, I’ll be writing a series of blog entries on how Haiti arrived at this point (and it wasn’t because of a vodou ceremony).

In case you were wondering why a city with a capacity to accommodate only about 400,000 had a population of an estimated 4,000,000 people, a short story of the rice industry might help in understanding why there was a mass migration to the capital of Port-au-Prince.

Rice is the Haitian staple food.  Rice has been grown in Haiti for centuries, and until thirty years ago, Haitian farmers produced about 170,000 tonnes of rice a year, enough to cover 95% of domestic consumption. Rice farmers received no government subsidies, but, as in every other rice-producing country at the time, their local markets were protected by import tariffs.

The number of families engaged in rice production in the early 1990s was 93,000 (cultivation and processing).  Other groups included supplemental agricultural workers (22,000), local traders (8,000), and millers (400). But that all disappeared and two culprits are trade liberalization and bad governance.

Under pressure from donors, import tariffs were cut from 35% to 3%.  In comparison, the CARICOM, the Caribbean economic community, tariff is around 25%.  Haiti eventually became the fourth largest market for US rice in the world.  Rice imports increased by more than 150% between 1992 and 2003, with 95% of imports coming from the USA.  According to Oxfam, the price of rice in urban areas fell by 25%, which raised the perpetual conflict between urban and rural populations.  The lowering of tariffs made rice more affordable in urban areas and caused the decline of rural incomes, as rice farmers were now unable to compete.  This is one of the reasons that they migrated to the city.

In 2002, a scandal was unveiled concerning senators and deputies from Fanmi Lavalas, who imported 70,000 metric tons of rice, duty-free, under a cooperative arrangement associated with the Aristide Foundation for Democracy.  It has been estimated that the duty exemption translated into a 117 million gourdes loss ($4.68 million) for the Haitian treasury.

Here is where governance plays a key role in assuring the livelihoods of its citizens, ensuring compliance with customs laws, and stemming corruption.

Parliamentarians were each given a card by the Aristide Foundation to claim 400 sacks of rice to be distributed among their constituencies.  The rice, which normally sold for $32 per 110lb sack, was not freely distributed but sold by the parliamentarians for 250 gourdes ($10) a sack.

Aside from the scandalous arbitrage, there are systemic issues fueling the decline of the rice industry.  It has been reported that it was the de facto Prime Minister Marc Bazin, who granted the U.S.-based Rice Corporation the monopoly for importing rice, which continues to destroy national production. In short, Haiti was forced to abandon government protection of domestic agriculture – and the U.S. then used its government protection schemes to take over the market.

If you were thinking that the US is just a more efficient rice producer, you would be wrong.  The global rice regime notwithstanding, the dumping of rice by the US has been tolerated by Haitian authorities.  The marginal cost of producing one tonne of milled rice in the US was $415 between 2000-2003.  However, with government subsidies it was able to dump rice on international markets at $274 per tonne, a margin of 34%.  Now having put the Haitian rice industry out of business and that of other developing countries, global food price began to rise, with a bag of rice in Haiti going for $51 for 110lb bag just before the riots against food prices in April 2008.

Why hadn’t the Haitian government banned US rice imports?  Why hadn’t it filed a case at the WTO against the US for dumping?  Dumping is defined as a situation of international price discrimination, where the price of a product when sold in the importing country is less than the price of that product in the market of the exporting country.  Why hadn’t it created other opportunities in the countryside to sustain rural livelihoods?

Eskom – we need a public conversation

By Richard Calland and Gary Pienaar

Picking holes in the governance of electricity supply, and energy policy more generally, is like shooting fish in a barrel. Whether it is the development and sequencing of key policy documents, the absence of proper stakeholder consultation, leadership failure, or the lack of clarity about intragovernmental roles and responsibilities, there are more hooks on which to hang a public debate than in a cloakroom — as a new analysis of electricity governance reveals.

Putting aside for the moment the unseemly recent tussle over the leadership of the state-owned entity, Eskom, the immediate issue is pricing. The National Energy Regulator of SA (Nersa) could face a difficult choice in coming weeks — whether it should proceed with its scheduled consideration of Eskom’s second m ultiy ear p rice d etermination (MYPD2) tariff-increase application.

Eskom’s initial application asked for a 45% electricity price increase in each of the three years covered by the MYPD2. Subsequent pressure from all quarters led to Eskom announcing yesterday that it would submit a revised request for 35%.

After MYPD1 lapsed, and without an agreed funding model for Eskom, Nersa has, in the past few years, approved interim electricity tariff increases.

Eskom’s current application accepts that a funding model for the electricity utility is a fundamental prerequisite to its ability to plan efficiently to undertake infrastructure maintenance, build new generation capacity, develop clean energy supplies, or purchase imported electricity or from independent power producers. It remains unclear, however, whether this process has been concluded and, if so, what it looks like.

Equally fundamental, and required by the Energy Act of 2008, is a clear and comprehensive national integrated resource plan (IRP) that sets out a 20-year plan for the country’s energy future. This plan is intended to determine Eskom’s priorities and choices, including the selection of the appropriate technologies to meet energy demand.

Though some in the government see the IRP more as a vision-like document — offering thoughts on the general energy mix that would be desirable, for example — than a precise roadmap, it is in the nature of such a longer-term plan that it will entail immediate choices with long-term consequences.

Yet it is precisely such a choice that Eskom’s MYPD2 application asks us to make now — without this plan. Crucially, before finalising the plan, the act requires the energy minister to engage in a public consultation process. So far, she has not done so. On the contrary, a draft plan reportedly prepared by Eskom and submitted to the government last month, remains a secret.

Eskom’s application recognises three important things about the reasonableness or otherwise of its tariff increase request. First, is the existence and adequacy of the funding model. Second, what it terms a “country debate and country choices” on SA’s future energy security.

But, third, the main driver of its desired price increase is its plan to build primarily coal-fired power stations. However, the costs of this coal-driven “new build” plan are premised on a pre-emption of the broad, open “country debate” that the application accepts is necessary. The product of that debate, a legitimate and lawful IRP, does not exist.

To the extent that any decision by Nersa on the MYPD2 fails to allow this debate to take place, it may be open to a legal challenge as not following a lawful process intended to give life to the constitutional right to just and reasonable administrative action contained in section 33 of the Bill of Rights.

Additionally, the piecemeal nature of the information placed by Eskom in the public domain could render meaningless the right to informed public consultation.

Analysts are saying Eskom’s application is also premised on assumptions of questionable accuracy and plausibility, backed by little explanation, which is raising concerns in the Treasury. For example, recovering the costs of proposed new infrastructure is contingent on Eskom’s projected increasing levels of electricity sales at these new high prices.

Nersa’s “Issues Paper” inviting public comment questions whether Eskom’s plan reflects an appropriate use of resources raised through the tariff increase.

Thus, Eskom’s demand projections apparently fail to take adequate account of the cheapest and quickest way to ensure SA has adequate electricity to avoid rolling blackouts, and to allow economic growth and advance equitable access: incentives for existing consumers to improve energy efficiency and to reduce their demand for grid electricity.

One way to reduce electricity use, and create jobs, is to implement the government’s stated plan to install a million solar water heaters. This option seems not to be given much consideration in Eskom’s application.

Moreover, while Eskom’s application proposes increasing the f ree b asic e lectricity allowance to 70KwH/m, it fails to come to grips with how to ensure that those that have the least resources but the greatest needs can afford electricity, while those who use the most and profit the most, pay the most.

The implications are that South Africans are being asked to approve a plan that requires very significant price increases, but which is not based on a comprehensive and cohesive set of least-cost or environmentally responsible choices, and with no proper consideration of price-differentials.

Eskom declines to disclose significant portions of its reasoning on the questionable basis that it is “commercially” confidential. But clear authority exists requiring public disclosure of substantial summaries that protect legitimate confidentiality, while making public participation and comment a meaningful — and legally compliant — exercise.

So, for example, we don’t know what Eskom has agreed to pay companies that supply coal to its power stations. The contracts are secret. How, then should one assess whether Eskom’s requested tariff increase is based a fair price paid to its suppliers and a fair price to be paid by electricity users?

With so many gaps in the information publicly available, meaningful public participation in Nersa’s consideration of Eskom’s application is almost impossible, so that the process may be of questionable legality.

If the contents of Eskom’s MYPD2 application are anything to go by, the IRP has the potential to predetermine our future in significant ways. These two documents/processes signal important decisions that will have long-term consequences.

Much like the arms deal, but significantly more expensive, they have the potential to lock South Africans into paying dearly for Eskom’s apparently oversimplified plan that seems inadequate to meet the country’s energy needs, and its national and global environmental responsibilities. Unless we get the governance right — and quickly — we will all be paying for hasty, poorly constructed decisions for decades to come.

What we need now, as a matter of urgency, is a multi-stakeholder process — as former Eskom chairman Bobby Godsell suggested recently — to enable us to have a “joined up” national conversation about energy policy and sustainable development.

- Calland is director of Idasa’s Economic Governance Programme, which convenes the multi-stakeholder Electricity Governance Initiative of SA (EGI-SA), and associate professor in public law at UCT. Pienaar is senior researcher: public ethics and governance. The EGI-SA’s report on electricity governance will be published in next month.

First published in Business Day

The winners eat and the losers don’t …

- By Stefan Gilbert -

About an hour after the plane was scheduled to depart, we were told that the flight to Sierra Leone would be delayed by six hours. This, I was told, would make for an interesting night. The trick with Sierra Leone is that you must cross the peninsula to get to the capital, Freetown. This must be done by boat, and a night crossing doesn’t rate highly on the “what you should do when you visit Sierra Leone” list. So, at about two o’clock in the morning, I found myself with 8 other travellers walking on a partly submerged pier to climb in to the waiting boat. But this was the easy part. Arriving at the airport in Sierra Leone one is met by a thronging hoard of people who want to help you in one way or another. Luckily, I had asked around prior to arrival and had learned that Pelican Water Taxis were the most reliable. Finding them, however, was like swimming in a mass of human bodies, all competing for space in pool of high humidity and 30 degree heat.

If I had to pick one word to describe travel in Africa it is “patience”. Never be in a rush; never be unfriendly; NEVER lose your cool; always be respectful and always have a smile and a joke at hand. In all cases, it is a sin to “expect” your plane to be on time or for your luggage to arrive with you. Thus “hope” is the most appropriate form of expectation, and “gratitude” is the most appropriate way of reacting if your suitcase does appear on the conveyer belt. When it does not, as has happened to me now twice on this journey of 9 weeks, more patience and perseverance are called for. Suggesting to anyone who will listen that you are not a tourist, and subtle hints that you have important documents in your luggage that may or may not be of interest to an MP or Minister, can’t hurt. It also seems to help if you make it abundantly clear that you will not stop harassing whoever is available to be harassed until the luggage finally does arrive.

Of course, some countries are better then others. Botswana, Namibia, Kenya, Rwanda, and South Africa of course, fare much better then countries like Nigeria, Senegal, the DRC, and Sierra Leone (which is the most chaotic I have yet to witness). I am not entirely sure if this has some more profound meaning, however. Politics is often a game of appearances, language, and symbols. A new and imposing Parliament building may have significant symbolic value, but the interior may be defined by elevators that don’t work and fire extinguishers that have instructions in Chinese. Similarly, the language of democracy and good intentions can often be heard from the mouths of Presidents and politicians. The saying that the road to hell is paved with good intentions, if hummed and put to music, could in some countries qualify as the national anthem. In short, intentions are not enough at this point, words are meaningless unless there is action, by which I don’t mean action next week or tomorrow; I mean today.

That the people I meet in Africa are often characterised by their generosity and hospitality is a testament to their humanity and enduring optimism. That said, cynicism in Africa is rife. Faith that governments will listen to and provide its people with what they need is low. Expectations are unmet and hopes are often compromised by inescapable realities. Food for my kids in exchange for a vote tomorrow, is a choice I have never and hope I never have to make. That poverty undermines the functioning of democracy is an understatement worthy of the Noble Prize for Understatements. But, the problems that undermine democracy in many of the countries I visit are not simple, they are not specific, they are not few: they are legion. There are so many factors that play into politics in Africa that it can make the head spin. In some countries, like the DRC, the most pertinent and disempowering questions is: “Where the hell do we begin?” There are no innocents in the political arena. There are no neutral parties. It is a contest for power, wealth, and influence with rules understood as describing and defining a zero-sum game. There are the winners, and there are the losers. The winners eat and the losers don’t.

But while the politicians, banks, big businesses (many of which are now South African), donors and even civil society compete for space around the trough of wealth and power, the people remain the perennial losers. While the façade of governments have changed, and checklists can be completed, political will seems only to be seeking the entrenchment of the status quo. While some countries leave some room for hope, many offer only foreboding political vistas. Nevertheless, I am continually amazed by the dedication of our colleagues on the continent, who continue with their work in the face of staggering resistance. That the time for excuses and recriminations is over is a common theme with those I meet, and we must move beyond the rhetoric of finding someone to blame. They remind me of the idea that courage is not the absence of fear, it is being afraid and doing it anyway.

Hence, the work that we do at Idasa is important. I do not think we can overestimate how serious the problems are, or how desperately this continent needs our skills, dedication, and ideals. So, tomorrow it will be another meeting, another trip in another taxi in another endless traffic jam in torturous humidity and heat. And Friday it will be another boat ride, another plane, and another conveyor belt full of suitcases, with me waiting and hoping, wondering whether Santa has judged me naughty or nice.

Stefan works with Idasa’s Political Governance Programme.  He is currently visiting partners in support of the African Charter on Democracy – see more here.

Models of Hope in Ghana

The Community of Practice for African media practitioners working on HIV/AIDS was recently launched in Livingstone, Zambia by Idasa’s Governance and AIDS Programme.  Two of the participants speak in this video clip, about an initiative in Ghana called “Models of Hope” which provides positive role models for people living with HIV.  See more here.

Support Idasa through Chase Community Giving

Vote for Idasa on the Chase Community Giving – they are giving away money to causes that YOU think are worthwhile – see more details here.  Look for Friends of Idasa and vote for us on facebook now!

Media and HIV – getting together

It was hot, humid and sweaty and the airline had lost my luggage.  After filling out a few bureaucratic forms with a smiling Zambian face, I joined the bus of strangers – new recruits to Idasa’s Community of Practice for African communications practitioners who write about HIV/AIDS.  We were to spend two days together, at the start of a 4 year relationship.  The bus journey to the hotel was peppered with polite, get-to-know-you conversations…

Two days later, many hours of sharing stories and exploring how to build citizen action through media and communication work, we were no longer strangers.  The group sessions promoted discussion and deliberation about the role of citizens, and the role of journalists – and how these two overlapped for people in the room.  Questions shot around the room about how to wear two different hats, how to manage conflicts of interest, how to avoid being used for personal agendas, and make sure your journalistic skills are not exploited.

The discussions were thought provoking and relationships formed in a way that will encourage deeper engagement over the next four years.  The workshop included a session on how we should keep talking to each other, especially in between meetings, and for the duration of the 4 years.  Following their suggestions, a social networking hub was set up for participants to keep talking – and a googlemap was also used to plot participants work and partnerships across the continent.  See some of the interviews on video here.

 

- Samantha Fleming was an Idasa participant at the launch of Idasa’s Community of Practice -

Tuning in to citizen’s conversations about HIV/AIDS

More public and less experts: how do we re-connect the work of journalists with the work of citizens?

- by Marietjie Myburg -

For the last 10 years I have been working in the field of HIV and AIDS Communication. During this time, I have watched in frustration what should have been a conversation between citizens and people with power to change things (policy makers, planners), but was actually a conversation between the well-intentioned funders and (often opportunistic) politicians and bureaucrats.

I have watched how, instead of challenging the course of this conversation, journalists become the channels for UNAIDS, USAID and Bill and Melinda Gates to talk to and on behalf of citizens to Departments of Health and AIDS Councils and Presidents and celebrities with an attitude which Donaldo Macedo aptly describes in his foreword to Paulo Freire’s Pedagogy of Freedom: “There is no need to hear your voice when I can talk about you better than you can speak about yourself (Freire, 2001:xxvi)”.

Government Committed to Priorities – SA Budget

SA Finance Minister Pravin Gordhan delivered the South African medium term budget statement on 27th October. Government priorities remain social spending, infrastructural expansion and job creation. See Idasa’s comment in the video and statement below.

African Governance – Ibrahim Index

The Ibrahim Index of African Governance is a comprehensive ranking of sub-Saharan African nations according to governance quality. The criteria for assessment capture the quality of services provided to citizens by governments and focus on the results that the people of a country experience.

The criteria are divided into five over-arching categories which together make up the cornerstones of a government’s obligations to its citizens:

•Safety and Security
•Rule of Law, Transparency and Corruption
•Participation and Human Rights
•Sustainable Economic Opportunity
•Human Development

See more and downloadable country reports here.