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Emerging Markets

HAITI: Out of the ruins

The world’s attention has been finally caught by Haiti's earthquake - and that could be to the nation’s advantage

It’s hard to find a silver lining in the earthquake that killed over 230,000 people in Haiti in January. But if there is one, it may be that it turned the world’s focus once again to the plight of a desperate country.

“This earthquake has raised the consciousness of the western hemisphere ... and this time there needs to be a willingness [by the international community and the government] to make a serious effort,” says Ciro de Falco, the former Inter-American Development Bank executive vice-president appointed to head a special task force in Haiti.

For this to bear fruit, all parties involved must cooperate fully in putting the country back together – in particular, by agreeing on objectives and how they will be achieved.

This kind of cooperation is relatively new, given the striking weakness of the state until very recently, according to Robert Maguire, a Haiti expert at the United States Institute of Peace. He says that over the past few years the country had shown significant improvements. The arrival of the René Préval administration in 2006 gave Haiti a new international legitimacy – reflected in initiatives by major development institutions to grant Haiti debt forgiveness.

Until this government was established, Maguire says, “donors tended to bypass supporting the state and chose to work principally with non-state actors, be they non-governmental, non-profit organizations or private sector. And this left the state extremely weak.”


After so many years and billions of dollars of foreign assistance, some thought Haiti should have been better prepared to handle such a disaster. As Johanna Mendelson of the Center for Strategic and International Studies notes, for all the money that has been pumped into the economy, “you don’t see anything for it.”

Francis Ghesquiere, the World Bank’s lead disaster risk management specialist, believes the investment was woefully inadequate to limit Haiti’s vulnerability. Using $5 billion as a ballpark figure for aid to the country in recent years, he notes pointedly: “What do you mean by a lot of money? $5 billion, for a country of 9 million people? $5 billion is the equivalent of the improvements at Washington Dulles airport over the last three years.”

Comparisons with Chile and its recent earthquake are inevitable. While Haiti’s earthquake killed over 200,000 and pushed the poorest country in the Americas back to square one, a similarly powerful quake a month later in Chile – one of the most developed Latin countries – caused fewer than 1,000 fatalities.

Haiti and Chile are, within the context of Latin America, economic and social mirror images. Ghesquiere points out that while poor countries suffer much higher fatalities, Chile, as a middle income country, is likely to suffer much more extensive economic damage.

The contrast in seismic construction standards is one example of Haiti’s underachievement. Mark Schneider, senior vice-president and special adviser on Latin America at the International Crisis Group, points out that Haiti “did not require the kind of modern construction standards that Chile had implemented. My recent trips to Haiti over the past two years have involved discussions more focused on hurricanes than earthquakes.”

Haiti was so desperately challenged, even before the earthquake, that it had to prioritize spending. The government can hardly be blamed for emphasizing hurricane prevention, a yearly affair, or the daily affair of hunger, over a 500-year event like this earthquake. “You can’t insist that someone who is making five dollars a day builds a shelter that is resistant to a level-seven earthquake,” says de Falco. “Even if the government had the laws in place, they didn’t have the money to enforce the laws.”

Still, some good could come out of this in terms of future infrastructure. De Falco hopes that one of the outcomes will be stricter building codes that “the government is going to have to implement”.


Underlying this predicament is extreme institutional weakness. “Pre-earthquake, you had a very thin layer of governmental leaders who were able to act in an effective and competent way,” says Schneider.

Haiti’s lack of institutional capacity has deep roots. “Over the past 50 years the capability of the Haitian state to play a positive role in the lives of its citizens has been eroded continually,” says Maguire. “The government of Haiti had little or no capacity to respond to a disaster of that magnitude,” he says, noting that in the past 30 years, Haitian authorities have depended almost completely on external intervention to help it in the wake of natural disaster.

He adds: “Haiti has suffered from its own bad governance and from the tendency of its leaders to be more involved in protecting their own interests – and advancing them – than in working towards the well-being of the state. But it is shared with international actors who have imposed upon Haiti development strategies that have not benefitted the people.”

Mendelson goes even further in a critique. International actors, she says, set up a system where “people made their living not from productive activities so much as from a cut of the foreign aid, a cut of the charitable donations, and that mentality never produced anything; it was not sustainable,” and contributed to Haiti’s tremendous corruption.

There is a chance to amend much of this, but it will not be easy. Ghesquiere puts it this way: “The challenge is not rebuilding the physical infrastructure; it’s helping the Haitians recreate the state.” For this to happen, “the state has to be at the core of the reconstruction programme,” especially in terms of involving the line ministries.

“You cannot do a reconstruction programme, and once it’s done just hand over the keys to the authorities and say, here’s the country, it’s rebuilt, now go and run it,” he says.

In practical terms, an initial challenge is how the government can organize itself to take full advantage of the money coming in. “We are trying to persuade them to look at the experience of other countries,” says de Falco, pointing to the Aceh tsunami recovery programme, generally reckoned as being successful.

In that model, the donors established a single agency to implement the recovery programme. But some see this super-agency as, in effect, setting up a parallel government. To avoid that, donors’ institutional initiatives must be matched by the efforts and attitudes on the part of the government. “If you are going to have success you have to have the two sides on the same page and wanting to cooperate,” says de Falco.

The difficulty lies in restructuring the government “at the same time that you are carrying out a national reconstruction effort”, says Schneider.

With ministries wiped out, records lost and officials dispersed, “there needs to be a rethinking of how to structure the Haitian government response; there needs to be a decision-making core that works with the international community,” he says.

The consensus is that the Haitian government will take the lead in rebuilding, partly out of necessity. “My experience shows that when you try to do things from the outside, from an IFI [international financial institution] or from a foreign government, you can only go so far,” says de Falco, who adds that early indications suggest adequate cooperation.

But Schneider believes the situation demands a more fundamental reorganization. “I’m urging we think beyond relief and the nature of reconstruction, and deal with underlying structural problems that made Haiti vulnerable.”

The disaster should be seen as an opportunity, among other things, “to decentralize access to services – of municipalities and departments” and to avoid a concentration of capacity in Port-au-Prince, he adds.

Decentralization is a novel yet major theme in the international community. Mendelson underscores its importance and points out that it would be a mistake to treat the Haitian government as a monolith. “A large part of any success will hinge on the ability to exploit the leadership base at the local, decentralized level. That is where the most can be done, as the contributions are tailor-made to the local needs.”


Financing reconstruction remains the biggest challenge; a country drowning in debt is in no position to rebuild itself.

Although a considerable portion of Haiti’s external debt was forgiven in 2009, $1.1 billion remained at the time of the earthquake. In the quake’s aftermath, multilateral lenders were quick to pass a new wave of debt forgiveness.

Though helpful, this is just a starting point, says Corinne Deléchat, Haiti mission chief in the IMF’s Western Hemisphere Dept. “Debt relief will be considered as one of the ways to deliver that assistance to Haiti, but clearly what debt relief can achieve is little in comparison to the needs,” she says.

Shortly after the earthquake, the World Bank approved $100 million in emergency grant funding to support post-earthquake recovery and reconstruction. The IMF similarly provided $114 million.

Funds from the IMF “will be mainly used to build foreign exchange reserves, finance critical imports for reconstruction and ensure there is enough cash in circulation in the economy”, says Deléchat.

The consensus view is that the cost of the damage exceeds the equivalent of one year of Haiti’s GDP. But it will take time to arrive at a true figure. An initial IDB econometric study extrapolated the monetary damage of the earthquake as between $8 billion and $14 billion.

“The real figures will come when the PDNA is ready,” says de Falco, referring to the Post Disaster Needs Assessment and Recovery Framework (PDNA/RF), a government-led report detailing the physical, human and economic impacts of a disaster and related early and long-term recovery needs and priorities. With that estimate available, the role of the international community will be better specified.

The World Bank says the financing mechanism will likely follow the model used after the Asian tsunami of 2004, with the establishment of a multi-donor trust fund (MDTF) as the pooling vehicle.

The MDTF could play a critical role in rebuilding as well as in filling balance-of-payments and fiscal gaps, according to Nancy Lee, deputy assistant secretary for the western hemisphere at the US Treasury. The IDB also endorses the idea of such a trust fund.

Haiti’s fiscal gap is likely to be significant. “The government could collect about half of its budgeted revenue in fiscal year 2010. Revenues based on direct taxes are likely to experience the largest shortfalls,” says Deléchat.

Whatever the final needs, the donors conference is unlikely to raise the funds immediately. “I am hoping that in the lead-up to that conference it will be made clear that the reconstruction of a new Haiti is not a one-year exercise, a single donor conference exercise, but a 10-year effort” says de Falco. “March 31 will probably be one of many efforts to try to get donors to help Haiti get back on its feet.”

Besides the donors’ efforts, there is widespread understanding that the private sector, both within Haiti and in terms of FDI (foreign direct investment), will have to play an important role.

Haiti, however, has not had historically high levels of FDI. This could change, given the concerted effort to bring in such flows. One hope is that Asian direct investors will use the free trade agreement that Haiti enjoys with the US, to gain access to the US under the agreement.

But even before the earthquake, poor infrastructure was a major impediment to foreign investment.

The IMF, among others, is looking at ways to “allow the private sector to fully play its role in rebuilding the economy and providing jobs, in the context of the broader reconstruction and economic recovery,” says a spokesperson for the fund. That is a tall order.


Besides raising the necessary funds, there are also challenges relating to donor coordination and cooperation. “The last thing that Haiti needs now is competition for headlines among donors,” says Maguire. Ghesquiere adds, “The principal donors perceive this as an opportunity to really give a new start to Haiti.”

A healthy interrelationship among the international players, says Maguire, will be helped by having the Haitians take the lead – particularly in identifying problems and priorities. The international community needs to respond and not to dictate, he adds.

This time around, there’s been no bickering yet. “While there will always be some tension among agencies, there is the willingness, at least at the highest levels, not to have that kind of conflict,” says de Falco. “There is enough to do in Haiti for everybody.”

One major concern, ahead of the donor conference on March 31, is how long lasting support will prove. Luis Alberto Moreno, president of the IDB, says: “I want to see that this outpouring of support doesn’t last until this news cycle is over, but we can have something sustainable for a larger period of time.”

De Falco thinks this time may be different. He says that an event so close to home has “shaken substantially the consciousness of the western hemisphere”. He adds: “Attention will not fade quickly.”

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