Why the IMF Keeps Lending to Haiti -- Really

Over on Huffington Post, Daniel Altman has written a fascinating and, I think, pretty important post that helps get at a question that in all likelihood has been knocking around in plenty of people's heads of late. That is, leaving explanations of "excessive Scrooginess" aside, why would the IMF ever make a loan (and not a grant) to an impoverished country like Haiti, especially now?

Sure, the IMF gets a bad rap, and it's easy to paint the agency as a Western puppet armed with evil folios and grand aims to keep the developing world permanently in check. It's a pretty catchy narrative. It's also one that elides a lot of recent history.

Last year alone, global institutions -- including the IMF -- offered Haiti some $1.2 billion in debt relief. Over the past decade, the push for debt relief has garnered massive support, including that of the World Bank and IMF, which have joined others to reduce the burdens of heavily indebted countries. In just the past two weeks, the IMF has also come out emphatically in favor of debt relief for Haiti -- even as it's simultaneously proceeded to make the country a $100 million loan.

What's going on?

The IMF's managing director explains that the IMF simply lacked a speedy way to make a grant in the immediate aftermath of Haiti's quake. "The question was: were we going to do nothing -- or give a loan?" says Dominique Strauss-Kahn. "We decided to give a loan." Which the IMF is says it's now working to cancel.

The deeper question, though, remains: why lend at all? The answer, according to Altman, comes down to two things -- politics, and arithmetic. For donors, giving a loan -- even a low-interest one with a 50-year repayment period -- feels good, and doesn't the same clammy associations the word "handout" does. It also feeds the attractive notion that the country you're loaning to will succeed enough to repay you.

Why do poorer nations buy into the game? If you're facing a choice between a smaller donation or a larger loan, which would you choose? Well, if a country isn't the most politically or economically stable -- and presumably it isn't, because it's taking the loan -- the odds are probably low that 1). the same government will even be around when the creditors come calling and/or 2. that the government will be able to repay it at all. So why not take the loan? As Altman puts it, it's "[more money] to play with, with almost no strings attached."

I'm in the camp that debt relief is valuable -- enough so that you should definitely sign ONE's petition pressuring the US Treasury to help drop Haiti's debt. But as David Roodman argues elsewhere in a compelling case, it's hardly the most urgent priority that Haiti faces right now, so don't stop there. Currently, donations to Haiti have begun to trail, with contributions to the American Red Cross alone having dropped by 50%. Debt relief is important, but sustaining recovery efforts with continued donations may be the more pressing concern, especially as cameras in Haiti continue to leave.

Photo Credit: matthewbradley