Debt Relief

Debt freeze may be possible for tsunami relief

The Paris Club, a 19-member private creditor that offers debt relief, have begun deliberating whether or not to offer a debt moratorium to the countries affected by the disaster.

Washington, DC: As victim tolls climbed to over 150,000 Wednesday, historic levels of financial and humanitarian aid has entered into the 11 countries devastated by the tsunami disaster.

On Wednesday, both Australia and Germany raised their level of aid to victims, increasing it to $765 million and $670 million respectively, making Australia the largest donor of disaster aid in history.

“The largest disaster in the recent history of mankind . . . medium- and long-term assistance must be assured,” said German Chancellor Gerhard Schroeder in Berlin after a session on Wednesday.

The aid, which will be available for the next three to five years, is directed to reconstruct schools, secure drinking water, health care, and provide for other needs in the affected areas.

But the German government has not been the only party in the country who has generously donated to the victims; citizens have privately donated up to $195 million (150 million euros) in relief efforts.

Australia’s Prime Minister John Howard, who was in Jakarta a day before the international emergency relief summit, announced a partnership between Indonesia and Australia, which will include an additional $765 million in aid to help with reconstruction and development costs over the next 5 years.

“No country has suffered more than Indonesia, the loss of life will probably never be accurately calculated,” said Howard on Wednesday as he announced Australia’s new aid package.

“It expresses through the Australian Government the desire and the will of the Australian people to maintain a close and cooperative partnership between Australia and Indonesia,” he added.

Australia and Germany have only been two of the top countries to offer financial assistance. Behind them are Japan who pledged $500 million, the United States $350 million, and Norway at $182 million.

Adding to the fact that over $3.5 billion have been donated to victims in South Asia, member countries of the Paris Club, a 19-member private creditor that offers debt relief, have begun deliberating whether or not to offer a debt moratorium to the countries affected by the disaster.

Only two of the countries, Indonesia and Somalia currently have agreements with the Paris Club. According to the Paris Club Web site, Indonesia currently owes $47.8 billion to the Paris Club. The country is expected to pay $3 billion in principle and $1.3 billion in interest in 2005.

It is expected that Indonesia, Thailand, Sri Lanka, the Maldives, India and Somalia will together have $272 billion in external debt. Should the Paris Club agree to freeze debt repayments for Indonesia and Sri Lanka they would save $6 billion a year.

Germany was the first among the Group of Eight industrialized nations to propose a debt moratorium for Indonesia and Somalia, requesting cooperation between the United Nations and other G-8 nations.

“I can’t speak about the long-term outlook, but everyone will understand the need to help these countries,” said Schroeder in Berlin on Dec. 29.

Since Germany’s announcement, the world’s richest nations have all come out in full support for the debt moratorium.

On Tuesday, Gordon Brown, Britain’s Chancellor of the Exchequer backed the German and French proposals to halt the $3 billion a year in debt repayments.

“What we need now is a moratorium on debt repayments from the affected countries,” said Brown. “Our proposal is that, with immediate effect, the Paris Club should expect no debt repayment from afflicted countries,” he said in a later statement.

Britain, which has already pledged $96 million, is expected to increase the amount of aid after the summit meeting on Thursday, according to Prime Minister Tony Blair.

“My estimate is that we will end up needing to put in from government probably several hundred million pounds, so we will far and away more than match the generosity of the British people, though that has been remarkable,” said Blair on Wednesday. British citizens have contributed $102 million.

France has been supportive of a debt moratorium, but cautioned that it was still premature start a discourse on an immediate moratorium or the possibility of absolving debt repayments from certain countries.

“The political willingness is in evidence for all the major creditor countries,” said spokesperson of the Foreign Ministry in France on Wednesday in Paris. “But we also need to see in practical terms what the debtor countries wish, what their needs are.”

Though many of the G-8 nations have publicly supported the proposal, Australian Prime Minister hesitated on the decision to freeze debt.

“There is no guarantee that if you do it, what is forgiven or what is the subject of a moratorium will end up going in aid,” John Howard, Australian Prime Minister told the Financial Times.

“The debts are not normally owed by the people who need the assistance. It is usually owed by other organizations. And you have no guarantee that if you provide a debt moratorium, debt forgiveness, that that money ends up where it should,” he added.

The issue of the debt moratorium will not be formally addressed in Thursday’s international emergency relief summit in Jakarta, according to Ibnu Hadi, economic consular to the Indonesian Embassy in Washington, D.C.

Hadi said that the Indonesian government would await the decision by the Paris Club next week, adding that the release of debt would be welcomed, but understood the intricacies of the decision.

Expected to attend the summit in Jakarta Thursday will be U.S. Secretary of State Colin Powell, Koffi Annan, U.N. Secretary-General of the United Nations and International Monetary Fund Managing Director Rodrigo de Rato, among other world leaders.

Donna Borak, United Press International, January 5, 2005

Categories: Debt Relief, Odious Debts

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