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."