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Lugar Calls for Business Reform; Proposes Haitian-American Enterprise Fund

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On July 22, Senator Lugar released a report, authored by senior staff members, entitled, "Without Reform, No Return on Investment in Haiti." The report summarizes the limited impact of US and foreign investment in Haiti over the past two decades and the serious hurdles to setting up a business.

In order to jumpstart the private sector, Lugar has proposed the establishment of a Haitian American Enterprise Fund. The bill was introduced on April 14, and is pending review in the Committee on Foreign Affairs. The Fund would be modeled on the successful models of the enterprise funds created in the 1990s for Poland, Hungary, and other European countries after the fall of the Berlin Wall.

Analysis

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Lugar's team hit the nail on the head by pinpointing the reform of the business sector as the key to sustainable economic growth. In the immediate aftermath of the earthquake, former President Bush economist Glen Hubbard wrote a similar piece arguing that the success of the Marshall Plan in post-WWII Europe was based on the vibrant private sector, which was lacking in Haiti.

To be sure, Haiti needs reform, not only for business, but to formalize the private sector. The Haitian American Enterprise Fund is an interesting approach, but must be structured in a way that allows all Haitians access to the Fund. As the Fund is currently outlined, it will do nothing more than further strengthen Haiti's elite business cartel and the current discredited leadership.

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The report misses a critical element of why the business sector is in such disarray, and why there is almost no political will to make the necessary reforms. Haiti's economy is controlled by a business cartel known as the "Groupe de Bourdon," named after an affluent neighborhood. This cartel controls about 95% of the economy and contributes a mere 4% of the income taxes collected. In the private sector they control food importation, the agriculture sector, banks, transportation, etc.

The Groupe essentially monopolizes all sectors, including the informal sector. For example, many people in the informal sector will buy bags of rice or other consumer products and then sell these items in the market for a slight mark up. They buy these products from the Groupe at an extremely high interest rate. It is feudalism at its best.

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They do this with the support and participation of the Preval Administration. They financed Preval's campaign and, in return, they gained control of the public and private sector. In the public sector, they leveraged their access to the President; they put in place the ministers of finance, commerce, public works, the directors generals of the tax offices and office to acquire state lands, the port and customs, the governor of the central bank, and economic advisers to the president.

They also secured a monopoly of oil (via Petro Caraibe) and grains through PL480, a USAID program for Haiti. It is also the Groupe that is responsible for the incredible interest rates of 48-60% on small business loans and the limited access to credit. With this access they were able to acquire profitable state institutions for pennies on the dollar under the guise of privatization.

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Stanley Lucas is a specialist in political development projects. He has worked as a Senior Program Officer in Afghanistan and the Middle East, Africa and Latin America. Lucas is currently the Executive Director for for the Washington Democracy (more...)
 
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