FEATURE STORY

Haiti Remittances Key to Earthquake Recovery

May 17, 2010

STORY HIGHLIGHTS
  • Remittances expected to surge by 20% in 2010, yielding an extra $360 million.
  • Haitians with “temporary protective status” in the United States are a main source of support.
  • Diaspora bonds proposed to assist in Haiti’s long-term development.

May 17, 2010 –Yolene Henry lost three cousins in Haiti’s devastating earthquake. Her niece was pulled from the rubble and needed medical treatment. Her mother, brother and his family were sleeping outside their damaged home in tents.

Henry responded like many others in the 1 million-plus Haitian diaspora: She increased the amount of money she sent to her relatives in Haiti.

“Now I also support extended family members and acquaintances who lost their property,” says the Washington, D.C. area resident.

Remittances are expected to surge 20% in 2010 in a country where they normally make up more than a quarter—and maybe half—of the national income, says World Bank economist and remittances expert Dilip Ratha.

While a rise in remittances has occurred after other disasters, Haiti represents the first time the restoration of remittances services was seen as a critical part of disaster relief and response, says Ratha.

Now, Ratha and others in the international community wonder how big a role the large and relatively wealthy Haitian diaspora in the United States, Canada, France and other countries will continue to play in Haiti’s recovery.

$360 Million Increase Expected

The expected 20% bump in remittances in 2010 will amount to an extra $360 million above normal remittances levels, according to World Bank’s Outlook for Remittance Flows 2010-11. The diaspora officially sent $1.4 billion in remittances to Haiti in 2008, and unofficially may have sent as much as $2 billion.

Much of the increase this year will likely come from 200,000 undocumented workers granted “temporary protective status” to live and work legally in the United States for 18 months, says the report.

If the temporary protective status is extended another 18 months, additional flows to Haiti could exceed $1 billion over three years, the report adds.

“Financial help in the form of remittances from family members is always the first to arrive in times of distress,” says Ratha.

“When the systems and infrastructure are completely broken and institutions are not working because of the earthquake, at that time quick relief and relief that has impact has to be provided at an individual level, and remittances do that.”

‘People to People’ Assistance Helps Rebuild Lives

Such “people to people” assistance is increasingly recognized as an important factor in rebuilding lives and livelihoods after a disaster, partly because it is at the grassroots level, and it is given to individuals by people they know, says Saroj Kumar Jha, program manager of the Global Facility for Disaster Reduction and Recovery at the World Bank.

For instance, Dr. Magalie Emile, Chair of Board of Directors for the Association of Haitian Professionals in the United States, said she was inspired to help a small business owner while visiting relatives in Haiti in March.

“That’s just one option for the diaspora – to reach out to local merchants and local business owners and lend that support," she says. “It may be something as easy as buying a $200 computer to help someone sustain a business. But you’re not going to know this if you don’t travel home.”

Diaspora Bond Proposed

With an eye toward capturing that kind of support, Ratha, who works in the Bank's research group, has proposed Haiti issue reconstruction diaspora bonds to tap the wealth of the diaspora.

This group would likely be more willing than typical foreign investors to lend money to Haiti at a cheap rate, thereby making socially relevant projects that offer a lower rate of return more affordable, he says.

In the past diaspora bonds have been used by Israel and India to raise over $35 billion in development financing. Several countries—including Ethiopia, Nepal, the Philippines, Rwanda, and Sri Lanka—are considering (or have issued) diaspora bonds recently to bridge financing gaps.

“Not only Haitians abroad, but also foreign individuals interested in helping Haiti, even charitable institutions, are likely to be interested in these bonds,” says Ratha.

Offering a reasonable interest rate—a 5% tax-free dollar interest rate, for example—could attract a large number of Haitian investors who are getting close to zero interest rate on their deposits. The bonds should also be implemented by a credible organization overseen by international agencies or observers, he adds.

Ratha says a diaspora bond sale could raise $200 million if 200,000 Haitians in the United States, Canada and France were to invest $1,000 each, and much higher amounts could be raised if bonds were open to friends of Haiti and guaranteed by multilateral or bilateral donors.

The idea has sparked interest in the international community, though some of the initial enthusiasm for it subsided as nations stepped forward to pledge billions of dollars for the reconstruction of Haiti, Ratha says.

Fifty countries pledged $5.3 billion for Haiti in the next three years, and as much as $9 billion in the next decade. But the country will need more than that in the long term, and diaspora assistance brings other benefits, such as reconnecting family and friends from afar, says Jha.

“I think the fundamental point about remittances managed through a diaspora bond will essentially be the people-to-people connection. It’s not a donor-beneficiary connection here. It’s more a connection between two individuals, two families, two people who share common cultural backgrounds, a common way of life, and a common identity.”

“I think if we try this for Haiti and it works, one could really then make diaspora bonds integral to any reconstruction effort in future.”