For pity's sake, don't cancel Haïti's debt!

In response to last month's earthquake, the G7 has agreed together to cancel Haïti's debt (link). Is this a sensible policy?

There are, of course, always questions about cancelling Third World debt, especially when the beneficiary is a country with an unstable history of coup, counter-coup and repressive governments. But let us leave aside the internal politics and ask simply, Could it in fact do any good?

To start, Tim Worstall tells us that since mid-2009, Haïti's largest creditor, the Inter-American Development Bank, has been receiving the interest payment on Haïtian debt from the US government (src). As the IDB says, 'Thus, Haiti’s debt to the IDB is not causing any outflow of funds from the country.' (src). The IDB accounts for about half of Haïti's outstanding debt, after a degree of debt relief was applied in September '09. So whatever Haïti's debt payments might be expected to look like, roughly half are already paid for by the US and cause no drain on the country's finances.

But the kicker comes via Alex Tabarrok at Marginal Revolution. At the beginning of the month, he re-published a chart from the Centre for Global Development blog (src, via) which demonstrates, rather conclusively, that Haïti's debt repayments are not the issue:

(David Roodman, CGDev)

Haïti's debt payments are two to three orders of magnitude lower than the three chief ways in which poor countries obtain hard currency: doing anything to make exports or immigration from Haïti easier would be of more help than cancelling their debt. Even throwing money at them, perhaps out of a helicopter, would be more use.

In sum, cancelling Haïti's debt is about the single most stupid thing you could think of to 'help'. It is not like we were lacking in options.

Apart from direct contributions from citizens, Western countries can do a number of things to help, as I said above: radically cut back trade restrictions on Haïti so that Haïtians can earn foreign currency from where they are; speedily set up a special immigration status for Haïtians (especially relevant for France and the US) so that they can work abroad, sending remittances home and thus funding the reconstruction that way; and lastly, through aid, whether by tax relief on donations, matched giving or direct grants. Direct funding is of course the most rapid, but trade and remittances would be more effective in directing aid where it is needed, as well as providing a more sustainable basis for Haïti's long-term development. Therefore, a sensible mix is necessary to achieve the best results.

Of course, cutting import restrictions would be politically tricky, and allowing increased immigration does not go down well with populists in any country; nevertheless, they really would help, and cancelling Haïti's debt really does not. I hope that our leaders were not deciding what to do on the basis of that electoral calculus rather than what would make a real difference to the people of Haïti. We always want our leaders to do what is right rather than what is popular, but at times like these, it matters a lot more than usual.