In the news, recently, was the IMF’s decision to forgive its portion of Haiti’s debt  – a substantial $268 million (BBC, CNN)  However, it should be noted that this is hardly complete debt relief.  According to the World Bank, Haiti owed $1,935,265,000 in 2008.  So this relief really just lowers the debt from $1.9 billion to $1.67 billion – not a particularly huge thing, in the grand scheme of things.  This outstanding chart from the World Bank shows who holds Haiti’s debt, and makes clear what a tiny sliver the IMF held (see the bottom of page 2).  Certainly, the IMF was right to do this – but it won’t matter all that much to Haiti.

There are some who would argue that debt relief raises the specter of “moral hazard”, that much-discussed issue in the wake of the financial bailout in late 2008.  However, applying this argument to debt relief in general is a terrible mistake resting on a faulty understanding of the sources of debt.  On Wall Street, the bailout raised the issue of moral hazard because the money went to the very people who made the bad investments and created the problematic investment vehicles – in short, encouraging these people to take risks in the future, knowing that if they failed again the government would step in, rather than letting the economy tank completely (For an outstanding take on this, see Simon Johnston and James Kwak’s 13 Bankers – link below).  This, I think, does raise a significant issue about who has to absorb risk when people take big chances with their (and other people’s) money – the bailouts we have seen, under both Republican and Democratic leadership, risk has been outsourced to taxpayers, many of whom did not benefit from (hell, they suffered greatly from) the very investments that they are now being asked to bail out.

Debt relief, by and large, is something entirely different – there are a lot of reasons why we should drop the debts of countries in the developing world, not least of which being that these debts are anchors that will never allow these economies to rise on the global economic tide.  For example, in the late 1990s, Ghana was sending roughly half of its annual revenues overseas to service its totally unsustainable debt.  In simple terms, this meant that every year, $500 million worth of schools, hospitals, roads and electrical grid could not be constructed because that money was being hovered out of the country to pay for a debt incurred before much of the population had ever been born.

This, to me, is why we need to drop many countries’ debts – including that of Haiti.  These debts were not accrued in the name of the people of these countries, but in the name of particular leaders who often misused the funds.  If you need an example, Google Mobutu Sese Seko in Zaire (today the Democratic Republic of Congo) – the United States (and the international community, at the behest of the US) dumped money into Mobutu’s hands in the form of development loans, knowing he was both stealing this money and killing a tremendous proportion of his own population, because we did not want him turning to the Soviets.  So it takes a lot of gall to demand that the current population of the DRC pay back the debts incurred by Mobutu (who managed to die of cancer in 1997 before he could answer for any of this).  There is no moral hazard in offering debt relief here – the current population of the DRC had little or nothing to do with accruing this debt, and the lenders always knew the loans were really bribes.  Haiti is really not all that different from the DRC – Haiti too has a history of problematic leaders propped up by “loans” from the developed world.  However, here there is a wider guilt, as a good portion of why the country is so poor is because the US has forced its economy to open to global markets where small Haitian farmers cannot compete with the economies of scale of large, multinational agribusinesses.

It shouldn’t have taken an earthquake to put debt relief on the table for Haiti.  There are many other countries, equally deserving of relief, who wait.  It shouldn’t take an equivalent disaster for them to make it happen.