Debt Relief

Sending aid where it’s most needed

While debt forgiveness has a place in international aid, such a very general measure is not the appropriate response to the very specific needs created by the Asian tsunami: comment.

In the outpouring of concern that follows a great catastrophe there is an understandable tendency for compassion to overwhelm more realistic considerations. This is evident in the inquiries from many well-meaning Australians about adopting the orphans left by the tsunami. The best future for most such children will be amid communities and cultures that are familiar. Further dislocation may simply compound their distress. The same good intentions are there in proposals to freeze, or even cancel, the foreign debt of the worst-hit countries. While debt forgiveness has a place in international aid, such a very general measure is not the appropriate response to the very specific needs created by the tsunami.

The idea that the world’s richest nations should forgive the debts of the poorest has gathered momentum in recent years, reflecting the advocacy of high-profile supporters such as the rock star Bono. They argue that poor nations no longer burdened by past borrowings will spend more on health, education, infrastructure and other worthwhile areas. Their particular targets are the world’s 30 poorest nations – mostly in Africa – which collectively owe some $US200 billion ($262 billion). Even the US, once a critic, has become a supporter since it began campaigning for the cancellation of Iraq’s $US120 billion in external debt. On the other hand, critics of debt forgiveness say it looks a lot like a blank cheque, and an invitation to further profligacy. Both sides of the debate do acknowledge, however, that debt forgiveness is often the only way ahead for very poor countries with a legacy of debt from past regimes, and little or no capacity to pay the interest, let alone repay the capital.

That does not, though, describe the countries worst hit by the tsunami, Indonesia and Sri Lanka. Neither is mendicant, though Indonesia does have a sizeable foreign debt of $US78 billion, and is urging some form of debt moratorium as part of the international aid package to be considered at today’s emergency summit in Jakarta. While there is, reportedly, support for this proposal from some wealthy countries, the Prime Minister, John Howard, is right to express reservations. “There’s no guarantee that . . . what is forgiven . . . will end up going in aid,” Mr Howard has said, adding: “My overwhelming preference is for Australian aid to be targeted and for Australia to have a clear role in where it goes and how it goes . . .”

What the tsunami victims need – and are entitled to expect – from the Jakarta conference is a long-term commitment to rebuilding after the present phase of emergency relief is well past. They will look to wealthy nations to fund homes and industries, as well as the infrastructure and services that support them, in a co-ordinated program that will be measured in years.

The conference needs to make sure that aid is precisely focused so that in Indonesia, and the other affected countries, the help goes where it is most needed.

Sydney Morning Herald Online, January 6, 2005

Categories: Debt Relief, Odious Debts

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