When considering the much-needed financial help that will go into Haiti’s rebuild, one question is, simply, where will the money come from? Obviously, support needs to be available in the immediate and needs to stay consistent in order to maintain what will be a long and expensive process. International assistance from governments, multilateral institutions and private foundations is essential but tapping the wealth and goodwill of the people of the nation living abroad can also be very effective. In the near-term, the Haitian diaspora might contribute to both humanitarian relief and development through increased remittances to families. In the medium-term, it might contribute to larger infrastructural and commercial projects through investment in reconstruction “diaspora” bonds.
According to official statistics about a million Haitians are living overseas, and about half of them are in the US. Newspapers often report that a million Haitians live in the neighboring Dominican Republic. Haiti receives between $1.5 and1.8 billion in remittances each year; some estimates are even larger – over a half of its national income.
In a laudable measure that will benefit Haitians more than any other aid and assistance, announced just three days after the devastating earthquake in Haiti, the United States granted temporary protected status (TPS) for 18 months to Haitians already in the US. The TPS allows over 200,000 Haitians currently residing in the US without proper documents to live and work in the US legally, without a fear of deportation. It also allows them to send money home quickly and efficiently through formal remittance channels.
If the TPS resulted in a 20 percent increase in the average remittance per migrant, we would expect an additional $360 million remittance flows to Haiti in 2010. What’s more, if the TPS were to be extended once beyond the currently stipulated 18 months (the extension is almost certain to happen, judging by the history of extensions of the TPS for immigrants from El Salvador, Honduras, Nicaragua, Somalia and Sudan) additional fund flows to Haiti would exceed a billion dollars over three years. That would be a billion dollars of financial help coupled with goodwill and advice, tailored to the needs of the recipient. Financial help in the form of remittances from family members abroad is always the first to arrive in times of distress. Remittances to Haiti this year will surge, as they have done whenever and wherever there has been a crisis or natural disaster.
In the immediate term, there is a need to ensure that remittance flows to Haiti are not disrupted. Access to cash is essential for accessing food and shelter and other basic services. Long lines seen in front of money transfer companies have now become shorter, but the challenge of accessing remittances from overseas, especially from migrant relatives who lack proper immigration papers, remains. Under normal circumstances, the fees for sending $200 to Haiti through money transfer companies averaged $14 in the US, and almost double, $25, in the Dominican Republic. The fees are certainly higher now. (Although some money transfer companies have graciously waived fees, obtaining local currency at the right exchange rate remains costly.) In the medium-term, there is a need to leverage remittance inflows for local and national development, without directly interfering with them. The challenge for the government and the donor community would be to tame a temptation to treat remittances as a substitute for aid or public spending on rebuilding efforts, especially in communities where migrants’ relatives reside.
As I mentioned earlier, diaspora bonds can be issued (in addition to the TPS and facilitation of remittances) when government offices and banks resume functioning. By “diaspora bond,” I mean not only bonding between the diaspora and the homeland, but more specifically a financial instrument for attracting investment from the diaspora.
In the past, diaspora bonds have been used by Israel and India to raise over $35 billion of development financing. Several countries – for example, Ethiopia, Nepal, the Philippines, Rwanda, and Sri Lanka – are considering (or have issued) diaspora bonds recently to bridge financing gaps. Besides patriotism, diaspora members are usually more interested than foreign investors in investing in the home country. Not only Haitians abroad, but also foreign individuals interested in helping Haiti, even charitable institutions, are likely to be interested in these bonds. 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.
If 200,000 Haitians in the US, Canada and France were to invest $1,000 each in diaspora bonds, it would add up to $200 million. If these bonds were opened to friends of Haiti, including private charitable organizations, much larger sums could be raised. If the bond rating were enhanced to investment grade rating via guarantees from the multilateral and bilateral donors, then such bonds would even attract institutional investors.
Regarding the question of whether Haitian immigrants are too poor to invest, consider this fact from the Current Population Survey of the US: nearly one-third of Haitian immigrants in the US belong to households that earned more than $60,000 in 2009. In comparison, less than 15% of the immigrants from Mexico, Dominican Republic and El Salvador in the US had that level of household income. A quarter of Haitian immigrants, especially women, are reportedly in the relatively higher paying health care and education sectors and only a small number of them are in the construction sector.
Given a high degree of political risk, credit enhancement from creditworthy donors would be necessary for Haitian diaspora bonds. My preliminary calculation suggests that a $100 million grant from official or private donors to guarantee such bonds (say, for 10 years, on an annual rolling basis) could actually generate $600 million of additional funding for Haiti. Such a guarantee structure could reduce interest rates on these bonds from over 15% to below 5% at the going rates. Also marketing diaspora bonds in the US would require a temporary exemption from SEC regulations. Perhaps a tough sell, but well worth it under these extraordinary circumstances.
There is now a fear of mass migration from Haiti to the US and to the Dominican Republic and both countries are now tightening borders to prevent an influx of Haitians. This is not surprising, but it is paradoxical (like the proverbial giving-with-one-hand-and-taking-it-away-with-the-other). I should think the short-term surge in migration would subside rather quickly when Haiti begins to recover and rebuild itself.
Haiti’s diaspora provides a significant resource that should absolutely be utilized right now. In addition to the extension of the TPS, facilitation of remittances and the issuing of diaspora bonds are added ways that they can get the support they need to assist them through this rebuilding.
