Pubdate: Fri, 26 Jul 2002
Source: New York Times (NY)
Copyright: 2002 The New York Times Company
Contact:  http://www.nytimes.com/
Details: http://www.mapinc.org/media/298
Author: David Gonzalez

A GET-RICH SCHEME COLLAPSES, LEAVING HAITI EVEN POORER

PORT-AU-PRINCE, Haiti, July 20 - Intoxicated by the promise of easy money, 
thousands of Haitians here and abroad sold their cars, mortgaged their 
homes and emptied their savings accounts in recent months to invest in 
cooperatives that promised astonishing monthly returns of 10 percent.

Economists and bankers long warned government officials and the public that 
the unregulated cooperatives were little more than a pyramid scheme and 
possible money-laundering operation. But when President Jean-Bertrand 
Aristide hailed cooperatives as "the people's capitalism" that would drive 
economic development, many investors said their skepticism vanished.

Soon, too, did their money.

More than $200 million has been lost in unsound or illegal cooperatives 
that took their investors' money and bought luxurious properties, fleets of 
buses or just spirited it abroad. Police officers have shown up in riot 
gear at some cooperatives, holding managers at gunpoint until they were repaid.

But with thousands of other people having lost their homes or savings and 
unsure how they will pay their rent or send their children to school in 
September, the collapse has presented Mr. Aristide with what could be the 
most serious challenge to his already bumpy tenure.

"I sold my house because the president encouraged us to do so," said Serge 
Decime, a bus driver from the southern coastal town of Jacmel who said he 
had invested $6,500 in a cooperative that failed. "Now, we live, but only a 
little bit. We cannot afford to live anymore." Last Friday, the government 
promised a bailout, although no reputable economist can see how Mr. 
Aristide can hope to do so without giving rise to runaway inflation.

Apparently, the president hopes to avoid the kind of disorder that engulfed 
Albania, Europe's poorest country, after a similar, more costly pyramid 
scheme collapsed there in 1997. "He says everybody will be repaid," said 
Jacques Durocher, the director of Desjardins International Development, 
which advises legitimate cooperatives. "Everybody knows it is an old 
strategy to keep people quiet. Time will do the job."

Diplomats are especially galled by the promised bailout, considering that 
the government of the Western Hemisphere's poorest country has blamed its 
social and economic deterioration on the international community, which has 
frozen $500 million in aid until a political impasse over the legislative 
elections of May 2000 is resolved.

"It is an absurdity," said one diplomat who has tracked the cooperatives. 
"This is a government that doesn't have any money. That's bad enough, but 
there are schools, hospitals and 20,000 other priorities that would be more 
important than this from an economic and social standpoint. You're already 
broke and going to get even broker." In an interview, Mr. Aristide said he 
had told people to be careful about investing, and that his government was 
placing all financial cooperatives under supervision of the banking 
authorities. "If I went too fast and too far, I would be creating and 
increasing the panic," he said.

Traditional cooperatives have long existed in Haiti, allowing farmers or 
small business owners who were unable to borrow from banks to pool their 
savings into revolving loan accounts. Savings accounts in the traditional 
cooperatives offered at most a 4 percent annual interest rate, similar to 
commercial banks.

The 10 percenters, as they are widely known, emerged about three years ago, 
mushrooming in the last year to more than 250. They competed for customers 
by offering cellphones and compact disk players to new depositors and an 
up-front payout of three months interest. Rates shot up to as high as 13 
and 15 percent. Guernelia Jeudi sold her home for $16,000 and invested it 
in a cooperative offering 12 percent a month, hoping to pay off her debts 
and build a nicer home for her and her five children. A few weeks ago, the 
cooperative disappeared overnight. "Now I work with my hands, begging for 
the charity of God," she said in the courtyard of a house she is renting. 
"We will have to move in December when the rent is due again. My son is 
sick with a cough, and I cannot even take him to the doctor. I have no 
money for anything."

The managers of the 10 percenters were vague about how they were able to 
offer such high rates. Many said the government had allowed them to import 
rice, sugar and consumer goods duty-free. Others also said they had 
invested heavily in profitable bus fleets.

Reputable financial experts noted that the numbers did not add up, but 
figured that the 10 percenters were pyramid schemes that would quickly 
implode as the pool of new depositors shrank. "Mathematically, it should 
have self-destructed earlier," one banker said. "Drug money definitely 
allowed them to last much longer."

Such rumors swirl around Coeurs-Unis, a new 10 percenter said to have close 
ties to Mr. Aristide's Lavalas Family political party. Coming from 
seemingly nowhere, it opened up across the country with large bus fleets 
before accepting a single deposit. The firm recently purchased a 
near-vacant resort hotel in Jacmel for nearly $4 million, about four times 
its actual value, bankers said.

Armed guards at Coeurs-Unis offices in Port-au-Prince rebuffed several 
attempts to interview David Chery, its head.

The crisis began in February when commercial banks feared they would be cut 
off from their United States counterparts if they were found to have 
accepted drug profits. Sogebank, Haiti's largest locally owned bank, asked 
some 20 cooperatives that had deposits to show their books. None complied, 
and the bank returned $9 million.

There may be ripples through the legitimate cooperatives and commercial 
banks. At least one major traditional cooperative is believed to have 
invested its depositors' money in a 10 percenter. At some commercial banks, 
almost half of the employees took out unsecured loans to invest in 
cooperatives.

Bankers said the government repeatedly ignored their warnings about dangers 
to the financial system. Instead, the government continued to praise the 
cooperative movement, making no distinction between legitimate traditional 
cooperatives and the 10 percenters, who had unleashed a barrage of advertising.

Cooperative managers insist that the movement is still viable. Zachee 
Michel, who leads an association of cooperatives, said he had been 
negotiating with two financial firms in the United States to see if their 
assets can be purchased as part of a restructuring.

"We have consulted specialists from Wall Street, and what they offer by 
looking back over the last five years is 75 to 80 percent a year return," 
Mr. Michel said. "If they do that, we can safely offer 60 percent a year. 
The economy of Haiti is not good enough, but internationally it is good 
enough by investing in the New York stock market."
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MAP posted-by: Jo-D