Even before the existence of the International Monetary Fund, when states became bankrupt, they were not left to their own devices even if they wished they were. States in bankruptcy or on the verge of it attracted the attention of others, good or bad. In the late 19th century, both Greece and the Ottoman Empire had the equivalent of IMF ‘conditionality’ imposed on them by international creditors. In the early 20th century, Haiti was in far worse shape than either of these other countries and came under a form of financial control that included an American military occupation. Haiti’s fiscal health may have improved tremendously in this period, but it did not solve the problems, economic or otherwise, that have since kept the country poor.

Debts

            Central to the American occupation of Haiti was the latter’s foreign debts. The country had, in 1915, foreign debts of about $31.7 million. These were mostly loans raised in France and denominated in francs. Haiti was not a creditworthy country; defaults occurred regularly and the government was even delinquent on salaries. In years of depressed revenues, some 80% of Haiti’s budget went to debt service.

           This Caribbean country, where changes in government were often bloody affairs, was unstable both politically and economically. In this weak and chaotic condition, Americans feared foreign influence in Haiti could threaten unimpeded American access to the Panama Canal. The United States had also been wary of foreign influence in the Caribbean even before the canal raised the stakes. On the eve of the American occupation, France and Germany, then at war with each other, were judged the likeliest to interfere in Haiti.

Occupation

            Internal political violence in Haiti rose in the summer of 1915 and this effectively led to the collapse of the government. Then U.S. President, Woodrow Wilson, ordered an invasion that began with a landing at the capital, Port au Prince, to protect foreigners and property. This began with a force of just 330 sailors and marines. The American forces in Haiti increased with the extension of the occupation to other coastal towns and escalating violence from 1918 to 1920. After conditions stabilized, for most of the occupation thereafter, just 1,200 to 1,400 marines constituted the foreign military presence in the country. This came at a period that also saw similar American occupations of the Dominican Republic and Nicaragua.

            With American encouragement, Philippe Sudre Dartiguenave was named President of Haiti by the country’s National Assembly. Then, under a November 1915 treaty, the United States obtained control of much of the public finances of Haiti. It also authorized the occupation of the country until 1936. The American President had a right conferred by the treaty to appoint both a general receiver of customs duties and a financial advisor to Haiti, generally offices that would be held by the same person. In addition, a new police force was established, initially led by Americans, especially prior to 1929. After this treaty was enacted, a new constitution led to the dissolution of the National Assembly.

U.S. Marines of the 1st Regiment in Port-au-Prince, Haiti, 1915

Financial Controls

            Haiti’s public finances had been battered by years of depressed tax revenues and a relatively primitive tax system. Under the 1915 treaty, the country was effectively put into receivership. This was not a circumstance unique to Haiti; other countries, including the neighboring Dominican Republic, were under some form of this arrangement.

            Despite being installed by the United States, President Dartiguenave did not have the best relations with the Americans. In 1922, with a new Haitian president in office, Louis Born, investor confidence was elevated and the relationship with the United States improved. This unlocked a $16 million loan for the country which was raised from New York’s National City Bank to consolidate much of Haiti’s debts. Some other old debts remained so that the total public debt of Haiti still stood at $22 million in 1923. National City Bank had won a competitive auction by offering to pay 92.137% of face value for the issue, which it resold to the public at 96.50% of face value. This was not a bad reception for a previously discredited borrower.

            Terms of the loan called for the continued management of Haiti’s customs duties by American receivers. This would continue even if the loans were not repaid before the withdrawal of American troops in 1936, as stipulated under the treaty. The installed ‘Financial Adviser-General Receiver’ would ensure repayment of the loan. Under its provisions, in any year in which the government revenues exceeded $7 million, a portion of the excess was earmarked for amortization or repurchase of the bonds.

            During the rest of the occupation, American officials oversaw the collection of taxes and payment of debts. Some other expenses were also managed by the Americans so that about 60% of the budget was expended under their supervision. The largest individual component of this fraction went to servicing debts though. The revenues managed by the Americans were largely customs duties. Indeed, 90% of Haiti’s revenues were comprised of tariffs on trade, the largest share known of any country in the world at the time and a sign of a primitive tax system. No other country came close to Haiti in this regard though this fraction tended to be higher than the international average in other Caribbean countries. By contrast, relying on internal revenues rather than customs duties was increasingly the way sophisticated states raised money.

            The method of imposing duties was simplified in 1926. During the period of American administration, 5% of these duties went towards the expenses of the Financial Adviser-General Receiver in running the system. This covered salaries and miscellaneous expenses as well as improvements at ports ranging from the construction of sea-walls and wharfs to warehouses and scales. For managing inland revenues, a new ‘Internal Revenue Service’ was created in 1924. This institution collected various taxes, the most lucrative of which in 1925-26 were levies placed on emigration, telegraph and telephone services, incomes, and documentary stamps in that order.

Results

            There is much to be said of the shortfalls but the financial results of this era were largely good; effective collection of customs duties and prompt payments of debts characterized the period. Still, Haitian trade could be volatile. Exports were largely driven by the volume and prices of coffee primarily sold in the United States and France. Taxes were imposed on these exports as well as imports. Of course, imports had to be paid for by the earnings of exports which were volatile introducing a general volatility to overall trade. Imports in the mid-1920s were comprised mostly of foodstuffs and textiles, largely from the United States.

            By contrast, internal tax revenues could be far more stable but these did not contribute so much money as duties to the government’s revenues. They also required somewhat higher administrative expenses as a portion of revenues to collect. Some internal taxes collected so little revenue they were not worth the expense in collecting.

            Still, overall government revenues of $8-10 million per year were significantly above the level from before the occupation. In the 1925-26 fiscal year for example, this consisted of approximately $8 million in customs duties and $830,000 of internal revenues. Together with miscellaneous other items, this amounted to about $9.1 million total. In comparison, government revenues were just $6.9 million in 1910-11, easily the best immediately pre-occupation year, or a more normal range of between $2 million and $5 million that prevailed for the vast majority of the period from the late 1890s to about 1920. Tariffs were periodically increased and internal revenues, while a smaller contributor, grew quickly.

            While a quarter or more of revenues went towards debt service, the budgets were balanced over sufficiently long periods of time, though the volatile nature of customs revenues meant the budget situation in any given year could range from large surpluses to large deficits. With this success, the public debt had fallen from $22 million in 1922 to $19.8 million in 1927. By this point, Haiti’s government bonds were trading at around par value, evidencing investor confidence. By 1931, debts had been reduced to $14.3 million and the government possessed $3.3 million in cash.

           The 1930s saw the end of the American occupation. In 1930, new elections returned a nationalist, anti-occupation majority in the National Assembly. The U.S. military withdrew in 1934. The occupation was increasingly disliked by successive administrations in the United States as well, in part because it damaged relations with other countries in the Americas.

           Nonetheless, American advisors continued to manage some fiscal functions until 1941 but these advisors were hampered by the more anti-American government which blocked appointments of new officials by the United States. The Great Depression also weakened trade and resulting customs duties. Further, the collection of some taxes was inhibited by the actions of Haitian courts and the unpopularity of direct taxes on the people. By the end of this period, while the fiscal health of the country was restored and maintained, the poor economy had not been radically transformed.

“Nevertheless, it is doubtful whether we have touched the consciences of the élite or strengthened any stabilizing element in the agricultural or mercantile class. We have not materially increased literacy or, what is more important, economic, social and political capacity. In spite of our sincerity there will be in 1936, unless something unforeseen happens, no ‘reasonable expectations of stability.’”

A.C. Millspaugh, Financial Adviser and General Receiver of Haiti, 1927-29

            As noted by A.C. Millspaugh, one of the Financial Adviser and General Receivers of Haiti, there was very little political development as well. Haiti held no national elections until those of 1930 and local election results could be overturned. The country also had press censorship which was strongest during the 1920s. Haiti also lacked an independent professional civil service based on merit. Though because tax revenues went towards debt repayment first, the Haitian President now had fewer jobs to dole out, putting some limit on the spoils system for a time. Further, while security improved, education was largely neglected.

            Making matters worse, while instances of brutality against civilians were few, and the country was quite stable after 1920, the administration was no doubt influenced by common racism. Considering further that much of Haiti’s elite lived off of government largesse, which was restricted by the fiscal controls, they generally did not support this government. Essentially, there was hardly any local support for the American occupation. A return to more extensive management of the state by Haitians was accelerated in the early-to-mid 1930s but what positives there were to the occupation were largely reversed shortly after the return to local rule. However, this did not prevent the government from refinancing the American bonds with a local loan raised in 1947.

Lesson

            The results of the period of American fiscal control were not altogether negative. The country’s debts were paid in a timely manner despite great challenges. However, the relative poverty of Haiti continued. While the management of government revenues may have improved, literacy, productivity, and good local governance were not. To be sure, American fiscal control did not extend to these other priorities of government and even more outside control would not have been the right answer, especially considering the United States itself lost interest in its Haiti project as the Great Depression arrived and the people of Haiti largely welcomed seeing the Americans leave. Local initiative was notably lacking.

More from the Tontine Coffee-House

           Read about the foreign financial controls imposed on Greece and the Ottoman Empire. Consider subscribing to this blog’s newsletter or checking out book recommendations, which include many of the sources often referenced in my posts. 

Further Reading

1.      Best, Richard A. “The U.S. Occupation of Haiti, 1915-1934.” Congressional Research Service Report for Congress, 26 May 1994.

2.      Cumberland, W. W., et al. “Haiti, Annual Report of the Financial Adviser-General Receiver for the Fiscal Year October, 1926-September, 1927.” Financial Adviser-General Receiver, Port-Au-Prince, Haiti.

3.      Hackett, Charles W. “American loans to Haiti.” Current History, vol. 36, no. 1, Apr. 1932, pp. 90–94.

4.      Millspaugh, A. C. “Haiti under American control.” Current History, vol. 31, no. 5, Feb. 1930, pp. 919–926.

5.      Munro, Dana G. “The American withdrawal from Haiti, 1929-1934.” Hispanic American Historical Review, vol. 49, no. 1, Feb. 1969, pp. 1–26.

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