Dropping Haiti’s debt = sending old shoes

The following post is by David Roodman, a research fellow at the Center for Global Development (CGD) in Washington, DC. Last week my colleague Michael Clemens blogged in this space about the “The best way nobody’s talking about to help Haitians.” So as a complement, here’s what I think is the worst way that everybody’s talking about to help Haitians: cancelling Haiti’s debt.

I am not suggesting that Haiti’s foreign creditors should stick to their guns in order to teach the country a lesson about the sanctity of international debt contracts. Canceling or reimbursing Haiti’s debt payments over the next, say, five years, just as was done after the Asian tsunami, would make eminent sense. That would constitute debt relief but would not require debt cancellation.

Why not just cancel the debt outright, as the One Campaign, the Jubilee Debt Campaign, and Oxfam have demanded?

  • The benefit would be low. Most outstanding loans to Haiti are repayable over 25–40 years and charge 2%/year or less in interest. So while the face value of Haiti’s debt is impressive—some $1.25 billion, not counting the $114 million in new IMF credits—the debt service over the next few years will be tiny. The IMF projects (table 7) the cost at $18 million for fiscal year 2009/10, rising to $34 million in 2011/12. Even those figures are high since the U.S. government is paying the $9 million/year interest on Haiti’s loans from the Inter-American Development Bank. Perhaps half the rest is owed to Taiwan and Venezuela, whose susceptibility to press releases from western NGOs is uncertain. So as little as $25 million in debt service may be in play over the next 3 years.
  • Lobbying for debt cancellation crowds out other more important issues. Activist groups and politicians have limited time, staff, and political capital. Instead of fixating on dropping the debt, why don’t activists and politicians campaign to hold public and private donors accountable for avoiding the mistakes of past disaster relief efforts? Why don’t they take on textile interests in order to open our borders to “Made in Haiti”? Why not, as Michael argued, push for a Golden Door visa that would allow at least a few tens of thousands more Haitians into rich countries to work?

Reforming trade and migration policies, even getting donors to respond more effectively to disasters, requires confronting entrenched interests. But activists are at their best when they take on the tough fights. We owe it to Haitians to strive for what is best for them, not easiest for us.

A couple of weeks ago here on Aid Watch, Alanna Shaikh blogged under the title, Nobody wants your old shoes: How not to help in Haiti. Beyond the specific advice, she was voicing a big idea close to Aid Watch’s heart: so many aid efforts go awry because the giver decides what the receiver needs.

I fear that calls to cancel Haiti’s debt are the old shoes of political activism. Debt relief will hardly help Haiti recover from the quake. And in a crisis, if you’re not helping, you’re in the way. Let us do the equivalent in the policy realm of sending cash, by advocating reforms that will do far more to alleviate the suffering.