Haiti’s recovery should start with debt cancellation

CRISIS-RIDDEN: Haitians crowd near approaching food relief trucks in Port-au-Prince on Thursday. Given the scale of the earthquake damage, social and economic recovery in Haiti will take time. Photo: AP

CRISIS-RIDDEN: Haitians crowd near approaching food relief trucks in Port-au-Prince on Thursday. Given the scale of the earthquake damage, social and economic recovery in Haiti will take time. Photo: AP  

The massive response of the international community to the devastating earthquake has been directed towards saving lives and providing immediate relief to the victims. This will continue for some time. However, even at this stage it is necessary to think about the measures required to rebuild the Haitian economy, put its people back to work and provide a more hopeful future.

Given the scale of the damage and disruption, social and economic recovery in Haiti will take time. The government must be given the policy space necessary to undertake the reforms and adjustments needed to bring back a semblance of normalcy and create a viable economy. It will also need massive investments, which will depend on multilateral funding along the lines of the Marshall Plan, as has recently been suggested by IMF head Dominique Strauss-Kahn.

The Marshall Plan is all too readily evoked in the wake of large-scale disasters. But the parallel is particularly apposite for Haiti, given the scale of the devastation, the potential for political instability if recovery fails to take hold, and the prolonged period of reconstruction that will inevitably engage the international community. Moreover, given that close international involvement prior to the earthquake had failed to establish a viable development path for one of the world’s poorest countries, talk of a new Marshall Plan raises the hope that this time around, the international community is serious about Haiti and its long-term needs.

Vicious cycle

A good starting point for the long-term objective is an immediate cancellation of Haiti’s $1 billion external debt, a crippling legacy of years of dictatorships and mismanagement, augmented in recent years by recurrent natural disasters. The United Nations Conference on Trade And Development (UNCTAD) has estimated that natural disasters add an average 24 percentage points to the debt-to-GDP ratio in the three years that follow such an event. Shocks on such a scale can lead to a vicious cycle of economic distress, external borrowing, burdensome debt servicing, and insufficient investment to mitigate future shocks. Marshall was concerned with just such a vicious cycle gripping post-war Europe. It has been a constraint on Haitian development for over two centuries.

Despite having benefited from debt relief in 2009, Haiti was still at high risk of debt distress prior to the earthquake, thanks in large part to the successive external shocks that hit the country over the past decade. Considering the large direct cost of the earthquake (conservative estimates put this at 15 per cent of GDP) and the lack of any meaningful national capacity to service its own debt, in the absence of radical action by the international community a new debt crisis is all but assured, along with any hope of sustainable recovery.

The way to proceed is to declare an immediate moratorium on debt servicing, followed by its cancellation as quickly as possible. Several countries that were hit by the tsunami of December 2004 benefited from a debt moratorium on bilateral Paris Club loans.

It was encouraging to see that soon after the earthquake, several of Haiti’s bilateral creditors announced a similar initiative. However, a significant part of Haiti’s outstanding debt is owed to multilateral creditors (primarily the Inter-American Development Bank). To the extent that these institutional lenders do not have the resources or mandate to fully and unilaterally cancel Haiti’s debt obligations, their membership will need to provide the requisite political and financial support.

It will be equally important, as assistance shifts from emergency aid to development financing, that continued multilateral support takes the form of grants and not loans, in order to avoid any future build-up of new debt as recovery gets under way.

Discussing the technicalities of long-term debt sustainability may seem premature in the face of the immediate human suffering. But cancelling the debt would serve not only to break with past development practice but also to signal the intention of the international community to stay engaged with Haiti over the longer haul. Indeed, if past experience with such disasters is any guide, the big challenge will be to connect relief and recovery efforts to the creation of an institutional framework capable of fashioning an inclusive national agenda that is not only broader and longer-term than in the past, but also able to repair trust in public institutions and authority.

A sustainable recovery will also depend on the revival and creation of state capacities to handle public finance, implement an emergency housing programme, create jobs and strengthen public security. The large financing gap — several billions of dollars annually for the foreseeable future — means that the involvement of the international community will be essential and unavoidable, but it is imperative that local capacities are mobilised as quickly as possible and that local ownership of the policy agenda is guaranteed from the outset. This last point was also a key feature of the Marshall Plan, but one that has tended to be overlooked in recent decades or obscured by the language of “absorptive capacity,” “good governance,” and so forth.

Marshall recognised that sensitivity to complex and cumulative economic and political forces was key to any long-term reconstruction effort when he called for a policy for Europe “directed against hunger, poverty, desperation and chaos” and aimed at “the revival of a working economy so as to permit the emergence and social conditions in which free institutions can exist”. Haiti needs its own George Marshall, and soon.

(Supachai Panitchpakdi is Secretary-General of UNCTAD.)

Related Topics
Recommended for you
This article is closed for comments.
Please Email the Editor

Printable version | Sep 19, 2020 2:42:21 AM |

Next Story