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Rebuilding
of Quake-Hit
Haiti
To Cost $14bn
New IDB study raises estimates to
between $8 billion and $14 billion,
making the January 12 earthquake
proportionately the most destructive
natural disaster of modern times.
The cost of rebuilding Haiti's homes,
schools, roads and other infrastructure
could soar to nearly $14 billion,
according to a new study by economists
at the Inter-American Development
Bank (IDB).
The study offers a preliminary estimate
of the potential damages resulting
from the January 12 earthquake,
using simple regression techniques
employing data from past natural
disasters and their damage estimates.
It takes into account several variables
including the magnitude of the disaster,
the number of fatalities, and the
affected country's population and
per capita GDP.
A detailed accounting of the cost
of reconstruction will emerge in
coming months as a full Post Disaster
Needs Assessment is completed. But
the new IDB Study indicates the
cost is likely to be larger than
anticipated. The study calculates
damages assuming either 200,000
or 250,000 people dead or missing
(as of February 11, the Haitian
government had reported 230,000
dead).
IDB economists Andrew Powell, Eduardo
Cavallo and Oscar Becerra calculated
a base estimate of $8.1 billion
for a 250,000 dead-or-missing toll,
but they estimate this figure is
likely to be at the low-end and
conclude that an estimate of US$13.9bn
is within the statistical margin
of error.
While the results are subject to
many caveats, the study confirms
that the Haitian earthquake is likely
to be the most destructive natural
disaster in modern times, when viewed
in relation to the size of the Haiti's
population and its economy. Indeed,
in this respect the Haiti earthquake
was vastly more destructive than
the Indonesian Tsunami of 2004 and
the cyclone that hit Myanmar in
2008. It caused five times more
deaths per million inhabitants than
the second-ranking natural killer,
the 1972 earthquake in Nicaragua
(see table).
Powell, Cavallo and Becerra conclude
that the scale of the damages in
Haiti will require unprecedented
coordination among the multiple
bilateral, multilateral and private
donors. To ensure the efficient
use of billions of dollars in reconstruction
funds, for example, individual donors
may need to surrender the kind of
control and conditionality they
typically demand of projects they
finance. This will in turn require
extraordinary mechanisms to ensure
transparency and accountability.
Moreover, a separate forthcoming
study by Cavallo and others indicates
that countries hit by disasters
on this scale suffer an economic
setback that can take decades to
reverse. In several such countries,
investigators found that even with
big inflows of outside aid, GDP
per capita was up to 30 percent
lower 10 years after the disaster
than it would have been if the country
had been spared.
“Of course this does not necessarily
mean that aid does not work, perhaps
the negative growth effect would
have been even worse if aid had
not increased,” the study
notes. “However, this does
underline the challenge ahead for
Haiti and for the international
community attempting to support
the country.”
Reconstructing Haiti: Social Services
Kei Kawabata, manager of the Social
Sector at the IDB, recently returned
from a four-day fact-finding trip
to Port-au-Prince. He says, “A
big part of what we discussed with
the government is what to do about
the estimated 500,000 people who
have left Port-au-Prince and moved
back to the towns or villages where
they came from. The government feels
that this is an opportunity to address
the overcrowding that has afflicted
the capital city, which has grown
in an uncontrolled and unsustainable
way. The challenge is to ensure
that these secondary cities where
people are now congregating can
offer sufficient economic opportunities
and social infrastructure. Because
if we don't, people may start returning
to Port-au-Prince once the reconstruction
gets going.
The good news is that the Bank has
a number of projects that are already
focused on these secondary cities,
and we are working with the government
to make sure that the relevant components
of these projects to continue. So
we want to help Haiti rebuild in
a way that balances the needs of
Port-au-Prince with the new expanded
population in the rest of the country.”
Reconstructing Haiti: Water
The request seemed simple enough:
find several tons of granulated
chlorine and ship it to Port-au-Prince,
where it was urgently needed to
disinfect drinking water for survivors
of the January 12 earthquake.
“More than anything else,”
said Corinne Cathala, a water and
sanitation specialist at IDB headquarters
who is helping with the Haiti response,
“what the Haitian government
is asking from us is to help with
logistics, coordination and communications.”
Keeping Remittances Flowing
The earthquake forced banks to shut
their doors, but the money kept
coming, thanks to a major effort
involving the Inter-American Development
Bank's IDB's FOMIN, Fonkoze and
the U.S. Government.
For the Haitians who lost everything
after the January 12 earthquake,
they needed the basics; food, water
and shelter. But they also needed
money.
The story about getting remittances
that Haitians in the United States
were sending to their relatives
in Haiti includes a heroic feat
by Fonkoze - an alternative bank
for the poor that specializes in
micropayments - negotiations deep
into the night and cash drops by
U.S. Soldiers.
To guarantee the flow of funds,
Fonkoze relied on the logistical
and management support of the FOMIN
- the IDB Group's Multilateral Investment
Fundand the U.S. government, acting
through the State Department, the
Department of the Treasury and the
U.S. Armed Forces. The result was
the delivery of funds to 34 remote
villages in Haiti so that Fonkoze,
the country's third-largest remittance
operator, could make good on remittance
payments to the poor.
Remittances are central to life
in Haiti. The money that Haitians
abroad send to their families every
year is equivalent to 26 percent
of the country's GDP, or about $1.5
billion, according to FOMIN figures.
More than a third of the country's
adults receive regular remittance
payments, mostly from the US. This
money flows to more than a million
individuals with annual incomes
below $500.
The earthquake made these funds
even more critical. Fonkoze's participation
in delivering the remittances is
especially important because its
services reach rural areas.
“Haiti's microfinance industry
serves people with very low incomes,
and it is present in areas of the
country that traditional banking
doesn't reach,” says FOMIN
general manager Julie T. Katzman.
“With so many people going
to the provinces, Fonkozethe only
microfinance organization that pays
remittanceswill have a central role
in providing access to money for
numerous Haitian families, so that
they can pay for water, food and
shelter.”
Until January 11, Fonkoze was a
microfinance organization experiencing
healthy growth. It managed 200,000
savings accounts and made some 60,000
remittance payments a month. It
is the largest payment agent in
Haiti for the US company MoneyGram.
Fonkoze has been working with FOMIN
for several years to expand these
services. FOMIN gave Fonkoze grants
to create a very low-fee remittance
service ($6 per transaction for
any amount), open new branch offices
and implement technology to expedite
transactions. Prepaid debit cards,
also financed by FOMIN, helped create
strong ties with the US-based Haitian
diaspora.
“Many people who receive remittances
live outside the main cities of
Haiti, where the banks are, and
so it was always important for us
to support institutions such as
Fonkoze, which can provide low-cost
services in rural areas that are
not served by traditional, large-scale
operators,” says FOMIN remittance
specialist Gregory Watson. “If
you really want to deliver remittances
to most people, the rural networks
are incredibly important, because
you eliminate the opportunity cost
of a long trip to the city to pick
up the money.” But then came
January 12 and the world turned
bleak.
Fonkoze's headquarters in Port-au-Prince
was practically destroyed by the
earthquake. Three days later, 23
rural branches that had not been
damaged by the quake reopened to
provide some services. They had
little cash on hand because the
banks that provided Fonkoze with
funds on a daily basis were closed.
By the fourth day after the quake,
most of Fonkoze's branches had Internet
access and could pay the remittances
sent through MoneyGram, CAM and
other transfer companies. On the
sixth day, nearly 30 offices were
operating and Fonkoze had been informed
by the transfer companies that they
would cut all their fees to enable
Haitians abroad to send money more
easily.
This was good news, but it also
brought its own problems. “Everyone
wanted money, which meant that our
cash on hand was being depleted
more and more each day,” says
Fonkoze executive director Anne
Hastings, who had escaped unharmed
from the organization's headquarters,
along with the founder and its executives.
Fonkoze has had to squeeze its reserves
to the limit. On-time payments by
clients in rural areas not affected
by the earthquake helped preserve
the affiliate offices' liquidity.
However, payment of remittances
became more difficult with every
passing day, because the banks were
still closed 10 days after the earthquake.
Fonkoze took urgent measures. One
extraordinary decision was to open
new accounts in gourdes (Haiti's
currency) to pay part of the remittances.
Many of those who received remittances
in excess of $600 agreed to receive
a portion in cash and the rest as
a deposit into an account. Still,
at that point, the entire network
had no more than $40,000 in reserves
and cash. Fonkoze had to look for
money outside the country, and fast.
The rescue operation begins
On January 19, Hastings contacted
Watson to discuss Fonkoze's urgent
issues. Hastings and Watson discussed
two ideas: how to quickly transfer
$2 million of Fonkoze's own funds
in US banks to an associated bank
to be converted into cash, and then
how to get that money to Haiti.
Watson consulted with FOMIN general
manager Katzman, and in a 90-minute
late night telephone call, they
agreed on a plan with Hastings.
“Seeing the difficulties that
Fonkoze and the entire microfinance
sector were experiencing in terms
of availability of funds, we felt
the need to help come up with a
solution,” Katzman says.
Because the U.S. government is the
IDB's main source of funds, FOMIN
suggested convincing the Treasury
Department on the urgent need to
support a plan to transfer these
funds to Haiti.
The initial money would allow liquidity
to be maintained until the banks
reopened their doors in Haiti. Hastings,
Katzman and Watson also decided
that the money should be distributed
in 10 centers that, in turn, would
send the funds to the 34 rural offices
that Fonkoze had already succeeded
in making operational again.
At 4:52 p.m. on 22 January, less
than three days after the first
steps were taken, the logistical
operation to save the delivery of
remittances got its final vote of
support in a memo from the United
Nations to the U.S. Agency for International
Development (USAID), which gave
approval to the US Air Force to
transport the money to Haiti from
south Florida. “The military
personnel were incredible: efficient,
committed and, above all, polite,”
Hastings says.
On Saturday the 23rd, at 2 a.m.,
a C-17 landed at the Port-au-Prince
airport with the cargo: bags of
$1, $5 and $10 bills, all money
in low denominations, for immediate
use. Hastings had already coordinated
with the managers of Fonkoze's 10
distribution centers so that they
would be ready to distribute the
money as soon as possible. The executives
at the other branches were told
where they could pick up their funds.
At 6:30 am, 10 helicopters guarded
by Marines flew from the base at
Port-au-Prince to their destinations.
By noon, all of Fonkoze's distribution
centers had the money and were fully
operational.
After the earthquake, Fonkoze's
officials had estimated that the
bank's client base had expanded,
and that payment of remittances
would double quickly. For FOMIN's
Katzman, the achievement is still
greater. “This was a fantastic
example of what we can do when donors,
microfinance organizations, governments
and international institutions work
together,” she says. “We,
as FOMIN, are doubly proud, because
we have been involved in the process
since it started, contributing our
knowledge and resources, and approaching
the participants to execute the
plan.”
IDB in Haiti
• The IDB is Haiti's largest
multilateral donor, with a portfolio
of more than 25 programs for a total
of about $770 million as of the
end of last year.
• In 50 years of operations
the IDB has approved almost $1.5
billion in concessional loans, grants
and guarantees for Haiti.
• Since 2007, IDB financing
for Haiti has been exclusively in
the form of grants, totaling $222
million through the end of 2009.
Haiti is the only country that enjoys
grant-only status at the IDB.
• In 2009, the IDB more than
doubled the allocation for grants
to Haiti to $122 million. For 2010
the allocation was increased further,
to $128 million. These increases
were approved prior to the earthquake
as part of an effort to help the
country recover from external shocks
such as spikes in food and fuel
prices and natural disasters, including
the four hurricanes of 2008.
• During the April 2009 Haiti
Donors Conference at the IDB, MDBs
and bilateral donors pledged more
than $350 million in new commitments.
The IDB has also worked closely
with UN Special Envoy for Haiti,
President Bill Clinton, to attract
foreign investment to key areas
like garments, biofuels and agribusiness.
An investor conference co-sponsored
by the IDB in Port-au-Prince last
year drew more than 600 participants.
IDB and Haiti after the earthquake
• After the earthquake, the
IDB offered the Haitian government
to redirect resources from existing
operations to emergency relief and
reconstruction efforts. Around $50
million could be reassigned to priority
reconstruction projects.
• Management expects to propose
to the Board of Executive Directors
and Board of Governors, where all
48 IDB member countries are represented,
additional resources for the grant
facility that finances operations
for Haiti.
• The IDB has remained operational
in Haiti even after its office in
Port-au-Prince was damaged. The
Bank kept staff on the ground and
is helping transfer emergency materials
through chartered flights.
• IDB staff on the ground
is coordinating closely with Haitian
authorities and other organizations
on a variety of relief and reconstruction
issues like housing, helping business
restore production and helping the
government regain its financial
and administrative capacity.
• IDB President Luis Alberto
Moreno appointed Ciro de Falco,
a former IDB Executive Vice President,
to head a Special Task Force to
coordinate with other bilateral
and multilateral agencies involved
in the reconstruction of Haiti.
De Falco will also prepare the Bank's
strategy and work program to provide
fast and efficient assistance for
the country.
Haiti's debt
• The IDB is considering a
mechanism for the further alleviation
of Haiti's $441 million debt to
the IDB, given the magnitude of
the destruction caused by the Jan.
12 earthquake. The IDB has been
Haiti's biggest multilateral source
of debt relief.
• In 2009, the IDB provided
$511 million in debt relief, clearing
the way for the Government to undertake
vital public investments. As approved
by the Bank's Governors, the cancelled
amount covered all debt outstanding
at the end of 2004.
• $181 million of the country's
outstanding US dollar debt with
the IDB consists of concessional
loans the country took in 2005 and
2006. These are 40-year loans with
10-year grace periods and interest
rates capped at 2 percent. The country
is not yet servicing this portion
of the debt because it is within
the grace period.
• The remainder comes from
loans that had been approved before
the end of 2004 but disbursed after
the cut-off date. These loans for
roads, electricity, schools, hospitals,
agriculture and other key development
sectors were not eligible for debt
cancellation.
• Haiti's debt service payments
to the IDB from mid-2009 through
2011 are covered by resources from
a US-supported trust fund. Thus,
Haiti's debt to the IDB is not causing
any outflow of funds from the country.
IDB's Strategy & Priorities
before the Earthquake
• About 60 percent of the
IDB´s portfolio of projects
aimed to strengthen foundations
for economic growth, particularly
in infrastructure and agriculture.
• Nearly 20 percent aimed
to improve access to and coverage
of basic services like water, sanitation,
education, and health.
• Another 20 percent was earmarked
to support economic governance and
building institutional capacity.
Private sector. The IDB Group supports
to the private sector in Haiti through
the Multilateral Investment Fund
(MIF) and the Inter-American Investment
Corporation (IIC). In 2009, MIF
approvals reached $4.9 million.
The IIC became an active player
in Haiti through the approval of
an $18 million loan to Distributeurs
Nationaux, S.A. (Dinasa), a Haitian-owned
company that is a leading marketer
and distributor of fuel, as well
as a $300,000 loan to Carifresh,
a major supplier of quality agricultural
products for export and domestic
markets.
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