No, really, cancel Haiti’s debt

Over at the Center for Global Development’s blog, David Roodman argues that calls to cancel Haiti’s debt (currently around $1.25 billion) are misguided.

The question is whether to go further than debt service suspension, to drop Haiti’s debt outright, as non-governmental organizations, members of Congress, and others have demanded. Actually, the practical question for citizens, officials, politicians, campaigners, and other players is whether to push for that. On a few days’ reflection, I say no. I would go so far as to describe such pressure as harmful.

Why? For starters, the benefits of debt relief over the next few years, however done, will be tiny…. IDB debt is already costing Haiti nothing. Roughly half the remaining debt service is payable to Taiwan and Venezuela, which may be less susceptible to campaigning from western officials and non-governmental organizations (NGOs). In play then, is perhaps as little as $25 million over the next three years.

He includes this image to illustrate the point:

Roodman ultimately argues not that it wouldn’t be a good thing to cancel Haiti’s debt, but that it is unwise to advocate for it: The world should focus on grant-making on a massive scale, rather than debt forgiveness on a rather small one. He writes:

I fear that calls to cancel Haiti’s debt are the old shoes of political activism. They make superficial sense. They feel good. But they will hardly help Haiti recover from the quake. And in a crisis, if you’re not helping, you’re in the way. I hope that the politicians and activists responding with vigor and sincerity to this crisis will act also with the gravity it demands.

To a certain extent, I agree with him. I can’t imagine anyone expecting Haiti’s government to repay any time soon, nor will it be able to do so. Massive donations will benefit Haiti much more than small-scale debt forgiveness. Still, I think debt forgiveness is a worthy goal.

For one, Roodman’s fear that international governments and institutions might neglect aid for debt relief seems misplaced. For instance, Christine Lagarde, finance minister of France, arranged not just for the Paris Club to rush its debt-forgiveness program, but also for France to up its donation to the country. Institutions and governments are likeliest to take dramatic measures to help Haiti now, rather than three years from now, when the country will still be in a horrible spot but international interest will have waned. The opportunity in this crisis exists now.

This is precisely the point the New York Times‘ editorial made today: “Three weeks after Haiti’s earthquake, the search for survivors has been called off, the TV crews are trickling home, and the celebrity telethon is over — usual signs that the floodwaters of compassion will be ebbing soon.”

Furthermore, I think Roodman underplays the impact of debt payments on Haitian government spending. Sure, aid and remittances will dwarf debt payments next year. But why should the country have to worry about them at all — ever, even 10 years from now, when Haiti will likely be stable and poor?

I made another chart from data from Haiti’s budget. (The Port-au-Prince government, it turns out, posts its budget documents online.) Last year, it shows, Haiti spent around $37 million servicing its debt. (I looked up the numbers in Haitian Gourdes, and performed a current-day currency conversion — note that the currency has cratered recently.) That’s more than the government spent, say, on agriculture — despite the fact that a massive proportion of Haitians are subsistence farmers. It’s more than it spent on its ministry of tourism, despite the fact that tourists once posed the best way for Haiti to bolster its economy in the short term. Had Haiti not had to repay external debt, it could have boosted its education budget by nearly a third.

Haiti’s debts remain significant. Moreover, it has garnered new ones, including a $100 million emergency loan from the IMF — which comes with strings attached, including, for instance, a requirement to freeze government-employee pay. The country’s debt has been a millstone around its neck for too long. It has a horrible history of economically encumbering the country. Why, with the outpouring still ongoing, though not for long, let that legacy remain?