The IMF, Still Evil.

Following Haiti's massive earthquake earlier this month the International Monetary Fund (IMF) offered the country a USD 100million loan. The IMF claimed that this money had to be given as a loan because they had no mechanism to make a grant of that size that quickly and promised to review the arrangement at a meeting of their directors held yesterday (28/01). Despite the meeting being proceeded by IMF officials making all the right noises about some or all of this new loan being turned into a grant the IMF instead decided to screw Haiti over. They did this by increasing the loan to USD 114million and turning it into an Extended Credit Facility (ECF) loan which obligates Haiti to repay the entire loan plus interest and submit to IMF "policy support" and "structural benchmarking."

ECF loans are brand new, only coming into existence three weeks ago, but put simply they are rather like the overdraft facility you would get from a high street bank. If a country has an unexpected cash flow problem caused by say debtors failing to settle their accounts, economic production falling below predicted targets or, in Haiti's case an impossible to predict natural disaster flattening the country the ECF loan allows them to meet day to day expenses like paying staff or keeping essential services running. Also like an overdraft countries using ECF loans are charged a fee for doing so and are charged interest on till they repay the full amount. Unlike an overdraft though countries using ECF's have to give the IMF a say in how that money is spent and what changes the country should make to their economy in order to make sure that it can meet its interest payments.

Although only economically rather then legally binding and presented in more PR conscious language these policy support and structural benchmarking measures are an awful lot like the Economic Structural Adjustment Plans (ESAP) that the IMF inflicted on the developing world in the 1970's, 80's and 90's. These hit Haiti particularly hard when, in order to meet the interest payments on crippling debts run up by the Duvalier's, the IMF forced Haiti to turn over much of its farmland to grow crops like coffee, sugar and tobacco rather then food. This practice, known as cash-cropping, is done because crops like coffee and sugar can be sold at a high price to developed countries quickly bringing in enough cash to meet the interest payments on loan. The practice is near suicidal for the country doing it though because it causes a collapse of the farming industry creating food shortages, soil erosion and deforestation. In Haiti the consequences of these problems came to the fore spectacularly in 2008 when first food shortages led to seven days of rioting that left over 100,000 people dead and then four hurricanes combined with the environmental damage to cause flooding and landslides that killed another 4000 people. Even in this years earthquake you could see the IMF's hand amongst the dead with the thousands of people killed in the slums and shanty towns around the capital that had been built by ex-farmers who had moved to Port-au-Prince in the hope of escaping the collapsing farming industry.

In response to the events of 2008 both the UN's ad-hoc advisory group and Haiti's own government drew up reconstruction plans. While both of these plans highlighted the need for Haiti's internal private sector to take the lead in reconstruction efforts and, perhaps under pressure, the role of multi-national corporations the key need they unidentified was to re-build Haiti's farming industry. Done properly this would not only give Haiti some much needed food security it would also ease the countries security situation by getting people to move out of the shanty towns and back into more stable rural communities. Most importantly though, in a country prone to hurricanes, a return to small and medium scale farming would reverse the environmental damage done to the countryside by reintroducing the sort of husbandry that keeps rivers dredged and hedgerows maintained reducing the hazards of flooding and landslides. Prior to the earthquake, under the presidency of Rene Preval himself a specialist in agricultural economics, Haiti with the help of the UN has made great strides to achieving these objectives. They were helped immensely by the fact that events of 2008 were so horrific that they shamed the IMF and others into dropping the debts that Haiti owed them and withdrawing much of the economic development "assistance" they were providing.

It is a real shame then that the IMF seem to have exploited the recent earthquake as a way to buy themselves back into Haiti's economy in the hope of turning the entire country into one giant, unstable textile factory with dirt poor workers and even poorer working conditions. To put into perspective just how bad an idea this is the ECF is interest free until 2012 from which time it will be subject to a variable interest rate. However the first repayment is not scheduled until 2015. This enables the IMF to convince everyone that it is providing an interest free loan but still guarantee a minimum of three years of interest payments. It is this sort of irresponsible sales tactic that caused the sub-prime mortgage crisis that triggered the worldwide economic meltdown.

Instead of going down this unsustainable route it would be better for Haiti if the UN's ad-hoc working group was strengthened to include senior members of the Haitian government, possibly even the president under a UN special envoy like Bill Clinton or a statesman of a similar calibre. This group could then act as a sort of alternative government solely handling reconstruction and achieving the objectives laid out in its report E/2009/105. This would leave the actual Haitian government to concentrate on the day to day running of the country. That way the Haitian government could strengthen itself by preforming the normal tasks of government while the extraordinary tasks of reconstruction and national rehabilitation are done by a dedicated team of international specialists. If the IMF cannot find away to cancel some or all of the ECF or cannot find a way to make it the sole liability of the UN group then it would probably be better if they did nothing at all. This is because with the IMF out of the picture it will be easier to convince Venezuela to drop the debts it is owed by Haiti. This can only be a good thing because I for one cannot be bothered to raise money for a new disaster in Haiti every two years.

The only consolation out of the situation is that the Americans seem to be less happy about the IMF's decision then I am. This is because they no more want Haiti to be taken over by regimented Chinese garment factories then they want a failed state 600 miles off their coast.