Should we cancel Haiti’s debts?

February 1, 2010
David Roodman has an interesting post saying that calls for debt relief in Haiti are misguided. He's put together this chart:

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David Roodman has an interesting post saying that calls for debt relief in Haiti are misguided. He’s put together this chart:

Haiti debt service, exports, aid, and remittances 2.png

Roodman’s point here is that we should concentrate political capital where it does the most good — by trying to reduce tariffs to increase Haiti’s exports, and by reducing barriers to immigration from Haiti, to boost remittances. Concentrating on debt relief is a distraction: Haiti had most of its debt wiped out in 2009, and most of the rest is being paid Haiti’s behalf for the US. What remains is mainly debt to Taiwan and Venezuela, the country which sent the first planes of humanitarian aid to arrive in Port-au-Prince, and which is unlikely to push for timely repayment for the foreseeable future.

Or, to put it another way, efforts to enable Haiti to pay its modest foreign debt are sure to be much more effective than efforts to simply eradicate it. The main task facing the developed world right now is to rebuild Haiti and its institutions; if it ever reaches the point where it’s capable of paying its debts, we will have succeeded.

But mightn’t wiping out debts help on other fronts too? Tim Harford wonders whether “one should seize on a simple focal issue and then once you have people‚Äôs attention, broaden the scope of political pressure”. My feeling is that in this case, that doesn’t work very well, since Haiti’s creditors are not the same institutions which can help on other fronts.

In general, debt relief is useful only insofar as it’s a solution to a serious problem — and since debt-service costs aren’t a problem at all in Haiti right now, debt relief isn’t much of a solution to anything. And it’s certain that the fiscal cost of wiping out Haiti’s debt — the write-off which Haiti’s creditors would have to incur if they did so — would be much better spent in other forms of aid.

Being debt-free isn’t some halcyon state to which any successful nation aspires: even net creditor countries tend to have significant amounts of debt. Asking for Haiti’s debt to be wiped out has undertones of paternalism and even imperialism, and while I wouldn’t say that it was harmful, I do agree with Roodman that there are much more important things to concentrate on.

Update: Annie Lowrey responds to Roodman.

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