Advocates Want to Cancel Haiti’s Loans

Posted March 5, 2010 at 5:40pm

Nonprofit groups are pleading with Members of Congress and the Obama administration to quickly forget about nearly $1 billion in debt owed by earthquake-ravaged Haiti.

The House Financial Services Subcommittee on International Monetary Policy and Trade on Thursday cleared a proposal formally asking the Treasury Department to flex its substantial weight with the International Monetary Fund and other lenders to cancel Haiti’s outstanding financial obligations and provide grants to help the poor island nation rebuild.

The legislation follows a commitment last month by Treasury Secretary Timothy Geithner that the United States will “work with its partners around the world to relieve all debts owed by Haiti” following the country’s Jan. 12 earthquake.

With the legislation now awaiting further House action, the ONE Campaign, a grass-roots lobbying and advocacy group started by U2 frontman Bono, is leading an informal coalition to put additional pressure on the Inter-American Development Bank and other lenders to throw out Haiti’s outstanding loans, which Treasury estimates at $828 million.

“At this point, it is very difficult to tell when Haiti would be able economically to repay these old loans. But I do not believe it is difficult to tell whether Haiti should pay them back,” said Thomas Hart, ONE senior director of government relations, at Thursday’s hearing. “Haiti plainly needs a fresh start, a chance to rebuild, and will need every dollar over many years to develop. Its current loans were made based on assumptions no longer relevant and intended for projects that are no longer viable.”

Hart and other relief experts are also encouraging the Inter-American Development Bank to formally take up Haitian debt relief when the Washington, D.C.-based organization meets for its annual meeting this month in Cancun, Mexico.

“The cancellation of Haitian debt would be part of their broader discussion on replenishing the Fund for Special Operations, the IDB’s soft loan window,” an IDB spokesman said in an e-mail statement. “At present, the stock of Haiti’s debt to the IDB is $447 million.”

Melinda St. Louis, deputy director of the international debt-relief group Jubilee USA Network, said the House bill marks the first time that the United States would formally throw out another country’s financial obligations. She also is encouraging Members and the White House to continue providing the country with direct financial assistance, saying that “debt relief doesn’t replace other donor assistance.”

“We consider this just one piece in helping Haiti,” St. Louis said. “We don’t want debt relief to come at the expense of other support for the country.”

On the Hill, Hart, St. Louis and other coalition members also are using the Haitian earthquake to underscore the difficulties Haiti and other debt-laden countries face when natural disasters and catastrophes strike. They argue that Haiti and other nations, particularly in Africa, have a history of repressive and corrupt regimes that have put their populations at risk by taking bad loans from international lenders.

“Haiti highlights some of the limitations of global international finance for impoverished countries,” St. Louis said. “A shock like this happens and there’s no mechanism other than ad hoc negotiations to reduce the debt burden on a voluntary basis.”

Loans taken by Haiti and other poor countries in the past, Hart said, also create a “vicious cycle” for their central banks, which frequently take out new loans to service already unaffordable interest payments.

“In the case of the poorest countries and in this case Haiti, it makes little sense,” Hart said. “Breaking the cycle of lending and forgiving, lending and forgiving, has been on the front burner in the last 10 years in these institutions, and we’re still not getting it.”

Instead of loans, Hart is lobbying Members to set aside federal cash for new grant programs that would pay for specific projects in poor countries.

Tim Adams, a top economic aide in the George W. Bush administration, agreed that the Haitian crisis highlights a systemic dysfunction in how wealthy countries address global poverty.

“If we don’t change the infrastructure, then we’ll go through this again,” said Adams, managing director at the Lindsey Group, a Fairfax, Va.-based consulting shop run by Bush economic adviser Lawrence Lindsey. In addition to humanitarian reasons, Adams also claims that Members pay a political price for the international lending arrangement.

“Lending to middle-income countries that have the capacity to repay is one thing, but lending to extremely poor countries that we know will never pay is really giving them a grant and calling them a loan,” he said. “It’s tough for Members of Congress to go back to their districts and face voters who say, ‘Why are you forgiving all of this debt?’ I’d like to help them avoid that in the future.”