* Debt cancellation key to reconstruction after quake
* Study shows effect of disaster on debt servicing ability
GENEVA, Jan 29 (Reuters) - The U.N.’s development agency added its voice on Friday to calls to write off Haiti’s $1 billion foreign debt in response to this month’s devastating earthquake.
The United Nations Conference on Trade and Development (UNCTAD) applauded calls by the International Monetary Fund for an international funding effort along the lines of the U.S. Marshall Plan that helped rebuild Europe after World War Two.
“UNCTAD believes this task should begin by immediate and total cancellation of Haiti’s existing debt obligations,” it said in a policy brief.
UNCTAD said a study of the effect of 21 natural disasters on low-income countries between 1980 and 2008 had shown they added 24 percentage points to a country’s ratio of debt to gross domestic product (GDP) in the three subsequent years.
“Shocks on such a scale can lead to a vicious cycle of economic distress, more external borrowing, burdensome debt servicing, and insufficient investment to mitigate future shocks,” it said.
Haiti lost 60 percent of its GDP in the disaster, Prime Minister Jean-Max Bellerive said on Monday, referring to the economy’s concentration in the capital Port-au-Prince close to the Jan. 12 earthquake’s epicentre. [ID:nN25129792]
UNCTAD quoted conservative estimates that the 7.0-magnitude earthquake had cost Haiti 15 percent of its GDP, but in any case the Caribbean state’s ability to service its foreign debt would be severely weakened.
UNCTAD said creditors should declare a moratorium on Haiti debt servicing, followed by cancellation as soon as possible.
Most of Haiti’s debt is owed to multilateral lenders, such as the Inter-American Development Bank, and UNCTAD called on the governments that run such institutions to provide political and financial support for an exit path.
Future development aid for Haiti should take the form of grants not loans, it added.
The World Bank said on Jan. 21 it would waive payments on the $38 million it has lent to Haiti for the next five years, and the IMF approved a $102 million loan for Haiti on Wednesday on which it will not pay interest until the end of 2011. [ID:nN21114702]
The IMF and the World Bank cancelled $1.2 billion of Haiti's debt last year, rewarding it for efforts to stabilise its fragile economy. (For full UNCTAD brief go to link.reuters.com/gab66h ) (Reporting by Jonathan Lynn; editing by Andrew Dobbie)