Quake crushes Haiti’s economic revival

Image: Haitians work inside a clothes factory
Decades of political upheaval that thwarted economic development in Haiti began giving way last year to a semblance of stability. But a push to promote jobs in industries like garment manufacturing was dealt a serious blow by this week's devastating earthquake. EDUARDO MUNOZ / Reuters

This is an especially cruel moment for the people of Haiti.

After decades of political corruption, civil unrest and massive unemployment, the tiny, impoverished country was just recently enjoying a small measure of stability. A series of public and private initiatives had spurred hope that economic development might finally end the misery of millions of people living on less than two dollars a day.

But the massive earthquake that flattened Haiti’s capital, left millions homeless and killed an estimated 50,000 also crushed hopes that the Western hemisphere’s poorest nation was beginning to dig itself out of abject poverty.

"Since about 2004 there had been a determination by the United Nations and by the international community in general that they were going to make a sustained effort at trying to develop Haiti as a functioning state and as a functioning economy,” said Peter DeShazo, director of the Americas Program at the Center for Strategic and International Studies. “This, of course, sets back the entire Haitian economy."

It may be some time before the longer-term impact on Haiti’s efforts to bootstrap its economy can be known. Officials are still struggling to develop estimates of loss of life and infrastructure damage. In the short term, the local economy likely will see a boost from a flood of international aid, including humanitarian relief and infrastructure reconstruction. But it is not at all clear that those efforts will translate into a lasting foundation for a economic development.

"There is going to be abundant capital to grow,” said Rafael Amiel, managing director for Latin America and the Caribbean at IHS Global Insight, a research firm. “How they handle that is the key question. This can jump-start a very good thing, because there’s going to be money. But usually small economies are very bad at spending money."

The job of developing Haiti’s economy — less than half as big as Vermont's — is daunting. Two-thirds of its 9 million people are unemployed. Public education is not widely available. Infrastructure, health and social services are often worse than in sub-Saharan Africa, according to the World Bank. Severe deforestation has crippled the agricultural economy and left the country's residents vulnerable to hurricanes, floods and landslides.

As it has struggled to pull itself out of poverty, Haiti has sustained numerous blows in recent years. In May 2004, three days of heavy rains and floods killed more than 2,600. Later that year, Tropical Storm Jeanne brought floods and landslides killing 1,900 and leaving 200,000 homeless. In 2008, three hurricanes and a tropical storm killed some 800, devastated crops and caused $1 billion in damage.

That has created a kind of crisis response to economic recovery that has hindered a longer-term approach to Haiti’s development, according to Riordan Roette, a member of the Council on Foreign Relations who specializes in Latin America.

“Sure, you can put things back together again — build rickety houses, get water flowing again, fix the presidential palace, but that doesn’t do anything,” he said. “The underlying issues have got to be addressed.”

Even before the quake, Haiti faced major challenges in its bid to join other Caribbean success stories and build an economy that could lift its people out of poverty. The physical infrastructure was only the beginning. Much of the Haiti’s skilled labor force has left the country for better job opportunities in the U.S., Canada and neighboring Dominican Republic, sending money home to support family and friends. Remittances from abroad generate roughly 20 percent of Haiti’s GDP.

For decades, economic development has also been thwarted by widespread corruption and political infighting among a handful of the ruling elite. After decades of civil strife, the 2006 election of President Rene Preval had restored some measure of political stability.

But Haiti’s political infrastructure sustained heavy damage in the quake. The National Palace —Haiti’s White House — was destroyed, along with buildings housing the Parliament and other government offices such as the tax office. The chaos also exposes long-standing fault lines in Haiti’s fractious political and business leadership, according to Roette.

“It’s going to take political leadership, and Preval can’t do it himself,” he said. “A benign hand from outside — not just the United States — might be just be the way to neutralize that competitiveness in Haitian society and allow them to draw up a long-term plan.”

Over the past few years, a number of public and private initiatives have been launched as part of a long-term effort to build a Haitian economy. The Inter-American Development Bank assembled $700 million in grants and loans, much of which has been invested in building roads and expanding access to water — infrastructure that was heavily damaged by the quake. The IADB also granted Haiti more than half a billion dollars in debt relief, freeing up more government funding for anti-poverty programs.

Former President Bill Clinton, named last year as a special envoy to Haiti by the U.N., also has been tapping public and private sector investment. In October, more than 500 private delegates and 150 public officials met in Port-au-Prince to develop plans to create more jobs.

One of those efforts included a $2 million fund to boost textile manufacturing, which generates some $130 million in exports. Last year, Congress extended duty-free access to Haitian garment makers in hopes of creating tens of thousands of new jobs.

But those garment exports make up just a few percentage points of GDP. To create a sustainable path out of poverty, Haiti will need to attract the private capital that has fueled the development of emerging economies in the Americas.

“For any of these countries what you need is a proper regulatory framework and the rule of law that allows foreign investors to come in and feel secure investing their money,” said Rafael de la Fuente, chief Latin American economist at BNP Paribas.

Rebuilding Haiti’s economy also will depend heavily on maintaining a level of security that had been restored after years of high crime rates and street violence inflicted by armed gangs. Calm has been restored largely through the efforts of a U.N. peacekeeping mission set up after the 2004 ouster of President Jean-Bertrand Aristide.

The quake has thrown that mission into disarray. The head of the mission, Hédi Annabi, and his deputy are among the missing along with 140 other U.N. workers. The main prison in the capital collapsed, and there were reports that inmates had escaped. On Thursday, police and U.N. peacekeepers reported looters roaming downtown shops.

For now, the focus remains on the overwhelming humanitarian effort to provide food, shelter and medical care to the quake’s survivors. The long-term outlook for Haiti’s economy won’t be known until the crisis subsides.

But to be successful, the effort to build a sustainable economy will require a commitment of a decade or more, according to Roette.

"This is an extraordinary opportunity — which we probably are going to waste — to start over and recreate a state in Haiti,” he said.