History of Haiti’s debt relief

– By Nancy Dubosse –

A lot has been written about Haiti’s unserviceable debt, given its poverty.  I would like to turn the spotlight onto the reasons why debt relief has been given.

When the G7 announced that it would be cancelling outstanding bilateral debt and urging the international financial institutions to do the same, the reason given was pretty flimsy.  British Prime Minister Gordon Brown is quoted as saying: “It must be right that a nation buried in rubble must not also be buried in debt”.

It has been buried in endemic poverty, rife with violence and corruption for two centuries!  The earthquake wasn’t even the tipping point.

Haiti’s predicament has been replicated the world over: loans given to despots and dictators in exchange for developed countries’ exploitation of resources and/or manipulation of regional politics.

Haiti’s debt should be cancelled, not because it is too poor and to repay it, but because the debt is ILLEGITIMATE.

Haiti’s first “debt” was an indemnity imposed by France (in 1838) as compensation for loss of its most profitable colony and also in exchange for its recognition of Haiti as an independent country. The amount was originally for 150 million francs, which was reduced to 60 million, payable over 30 years in gold.  It was paid off.  Conservative estimates place it at a current value of Euro22 billion.  This debt is ILLEGITIMATE.

During the US occupation (1915-1929), Haiti was forced to take a loan of $40 million in 1922, supposedly to finance development efforts in the country.  There are a number of propositions as to why the United States invaded the sovereign country.  Two of the most plausible are that 1) the Panama Canal had just opened, the path to what is the Winward Passage, of where Haiti lies at the entry way; and 2) the First World War had been declared the year prior and an unstable country, situated so close to the US, was simply not an option; as the possibility was high that it would become a staging point for the Germans.  Whatever the reason, the debt is ILLEGITIMATE.

Everyone has heard mention of Papa Doc and Baby Doc.  The Duvalier father and son regime lasted 29 years.  Though the presidency of Francois (Papa Doc) Duvalier could have be argued as legitimate, in the sense that elections took place, the one of Jean-Claude (Baby Doc) was clearly dictatorial, with no elections having been held.    Of the loans made to Haiti, $238 million was loaned while Baby Doc was in power.  The ILLEGITIMACY of the debt is glaring, and responsible financial lending dictates that they should never have been approved.  According to Duhaime (2002), partly in recognition of this, in 1994, the bilateral creditors, who allowed these loans, annulled part of the debt totalling USD$156 million; specifically, $68 million by France, $84 million by the United States, and $2 million by Canada.

Between 1973 and 1980 (Baby Doc), Haiti’s external debt increased from $53 million to $366 million.  A portion of that was credited from the Inter-American Development Bank (IADB).  During its membership in the IADB, Haiti has been the recipient of 67 loans, amounting to $1.3 billion and 330 grants, totalling $92.7 million.  A significant portion of that was loaned during the Duvalier era (1957-1986), approximately $250 million.

The period after Baby Doc, 1986 and 1991 was one of political instability, as the country was mainly led by the military.  The Inter-American Bank also made several loans to the junta, totalling approximately $115 million.

In 2007, the IADB agreed to extend total debt relief to Haiti, dating from only 1997, provided it completes the HIPC programme.  What about the principal and debt service accruing from the ILLEGITIMATE loans?

Why was so much foreign money poured into the Duvalier dictatorship? Two plausible reasons account for this. The first reason was geopolitical. Haiti is just across the Windward Channel from Cuba. After the 1959 Revolution that brought Fidel Castro to power, it was feared that Haiti might be next.  When the US wanted to block Cuba’s entry into the Organization of American States in 1962, Haiti cast a decisive vote that President Kennedy needed in order to keep Cuba out, and Duvalier got more aid.

The other reason for the inflow of loans to Haiti was economic. During the 1970s, unstable oil prices caused a financial shock the world over. In addition, President Nixon removed the dollar from the gold standard, causing extreme fluctuations in its value and spurring intense buying and selling of currency itself. Wealthy investors desperately needed another place to spend their liquid assets, so they poured money into international financial institutions such as the World Bank.

Duhaime estimates that the Duvalier family took $900 million in multinational and bilateral loans for their personal uses. Note that the Duvalier regime ended on February 7, 1986. While in 1970, Haiti’s debt was $40 million, by 1987, the first full fiscal year after the Duvaliers left, it was $844 million, 60% of the amount owed in 2004. The debt service alone Haiti owed from 1987 to 2005 was $779.04 million (Schuller, 2006).  In 2004-05, debt service amounted to 22% of government expenditures, of which 40% to service loans made to the Duvalier regime (McGuigan, 2006).

The concept of illegitimate debt entails the following:
 The Versailles Treaty bans the transfer of the debt of colonies can not be transferred to newly independent countries.
 Leaders, who do not represent their populations through some sort of electoral mechanism, can not borrow on their behalf.
 Any loans taken out for war, torture, and crimes against humanity are illegitimate, as provided for by the Vienna Convention.
 Any loan given for policies that run contrary to the UN Charter of Economic Social and Cultural Rights is illegitimate.
 States have the obligation to fulfil human rights and any state using such resources to service debt is in violation of this.

Illegitimate debt is not a new concept nor is the campaign for international arbitration on the issue.  Three organisations working on this are The Committee for Annulation for Third World Debt (CADTM), the European Forum and Network for Debt and Development (EURODAD), and the African Forum and Network for Debt and Development (AFRODAD).  There are inherent power imbalances between creditor and debtor nations.  The establishment of a Fair and Transparent Arbitration (FTA) mechanism under the United Nations, would enable issues to be resolved in a way that preserves the integrity of countries and ensures creditors share the responsibility for the failure of their bad development policy advice and the rise of the debt crises.  EURODAD has done a lot of work on responsible lending.  The FTA mechanism would deal with cases of illegitimate debts individually as well as the repatriation of stolen wealth.

The fact that Haitian debt service payments and the debt stock itself has been cancelled by a number of parties does not remove the need to identify certain loans as illegitimate; if only to set the standard by which nations interact with each other financially and in keeping with human rights principles.

Here is a bit of irony.  In 2005, after Aristide’s resignation, the interim President, Alexandre Boniface, announced that Haiti would forgive France’s debt.

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