Debt Relief

Move to freeze debt for tsunami countries

The International Monetary Fund and World Bank on Thursday came out in favour of a debt moratorium for the countries worst hit by the Indian Ocean tsunami.

At a one-day donors’ meeting in Jakarta, total aid pledged for disaster relief doubled to nearly $5bn (€3.8bn), while rich countries and multilateral institutions offered debt relief and soft loans to the worst-hit countries, including Indonesia and Sri Lanka. But the scale of the response has left the United Nations and international donors with the prospect of more promised cash than they can use in the coming months. At the summit, world leaders gave guarded support to the idea of delaying debt payments. The UK, now chairing the G8 group of industrialised countries, and Germany have proposed the Paris Club of creditor nations suspend debt repayments by tsunami-hit countries. Canada has already announced a unilateral moratorium.

James Wolfensohn, president of the World Bank, said debt write-offs for the tsunami-hit states would be a “better idea” than just halting payments. But he said it was up to creditor nations to decide on a course that best suited them. Some critics of the moratorium, including John Howard, Australia’s prime minister, fear such a scheme would not necessarily help individual victims of the disaster and might be unfair to poorer countries elsewhere. Financial analysts say a moratorium could undermine a country’s creditworthiness and lead to an uncomfortable bunching of debt repayments when the suspension is lifted.

The US held back from backing a moratorium it will consult affected countries before deciding what action to take. A Treasury spokesman said the administration wanted to “talk to the countries, make assessments of their needs, have conversations with other donor governments and then determine what was needed and what was possible.”

The summit’s declaration said reconstruction of the region could take up to 10 years. It urged Kofi Annan, UN secretary general, to appoint a special representative to mobilise and co-ordinate the aid.

About 150,000 people were killed and 500,000 injured in the Indian Ocean tsunami. But one UN official said the final death toll might pass 200,000.

“What happened on December 26 was an unprecedented global catastrophe,” the largest natural disaster in the UN’s 60-year history, Mr Annan told the summit. “It requires an unprecedented global response.”

Mr Annan made a formal appeal for $977m to cover the next six months, but acknowledged that the international response to the tsunami had already generated “an incredible amount of resources”. Rich nations on Thursday continued to compete by pledging hundreds of millions more dollars to the relief effort.

José Manuel Barroso, president of the European Commission, said the European Union was offering €1.5bn ($2bn), including donations from member states and a proposed €450m through the Commission. He also suggested the European Investment Bank launch a €1bn “Indian Ocean Tsunami Facility” to make long-term loans on favourable terms.

Junichiro Koizumi, Japanese prime minister, on Thursday offered up to $500m in grants and said he would call on other countries to apply a joint moratorium on foreign public debt servicing by countries willing to accept the aid. Australia has offered Indonesia A$1bn (€577m) in interest-free loans over five years.

Victor Mallet, Financial Times, January 6, 2005

Categories: Debt Relief, Odious Debts

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