The Group of Seven (G-7) industrialized nations have agreed to an immediate moratorium on debt interest repayments by countries hit in the Boxing Day tsunami disaster.
The deal which will only freeze repayments rather than cancel the debt itself, was announced today by UK Chancellor Gordon Brown ahead of a meeting of the Paris Club of creditor countries on January 12. The Paris Club meets every month in Paris with debtor countries for talks on debt restructuring.
The G-7 also called on the International Monetary Fund (IMF) and the World Bank to assess the “reconstruction and financing requirements” of the affected countries. The G-7 said it would consider further assistance in light of the assessment when its finance ministers meet in London next month for their first regular meeting under Britain’s presidency.
“We would not expect debt payments from affected countries that request it until the World Bank and IMF have completed a full needs assessment of their reconstruction and financing requirements, recognising that some countries may be unable to make debt payments,” the G-7 said in a statement released today.
Prior to the international emergency relief summit in Jakarta yesterday, where G-7 nations debated the proposed moratorium, Chancellor Brown said there was little point in the west spending millions of dollars on aid while at the same time continuing to receive debt repayments.
The agreement by the G-7 group of wealthy nations is expected to halt an estimated $3 billion a year in debt repayments.
Much of the debt owed by tsunami-hit countries such as Thailand, India, Indonesia, the Maldives and Sri Lanka was accumulated decades ago through international financial institutions like the IMF and the World Bank, as well as from loans provided by individual nations, banks and corporations. However, it is now believed that some of those funds supposedly earmarked for finance development and infrastructure projects were often sidetracked by dictators and unelected governments.
For example, much of Indonesia’s debt, one of the hardest hit countries by the Indian Ocean tsunami, was racked up by the infamous Suharto regime, forced out by massive public protest in 1998 after 30 years of corrupt rule. At an estimated $132.2 billion, Indonesia’s external debt is the largest outstanding to creditor nations in the tsunami-ravaged region.
According to the World Development Movement (WDM), the annual repayment costs for the worst-hit countries are: Indonesia $13.7 billion, India $13 billion, Thailand $17.9 billion, Sri Lanka $653 million and the Maldives $20.8 million.
Based on those figures, the WDM calculates a $3 billion debt moratorium relief plan would only cover one-and-a-half months of debt repayments for these five countries.
Overall, total aid pledged for tsunami disaster relief is currently approaching $5 billion.
With its pledge this week of $765 million in aid, Australia is now reputedly the largest donor of disaster aid in history as well as the most hesitant of the wealthy industrial nations to suspend repayments outright.
Australian Prime Minister John Howard said there was no guarantee that what might be forgiven in debt would actually go toward aid.
Meanwhile, debt campaigners while welcoming the news of a proposed debt moratorium describe it as “inadequate.” The Jubilee Debt Campaign and the World Development Movement (WDM) have declared debt cancellation as “the most effective way to fund the long-term alleviation of poverty, not just as a response to a disaster.”
WDM director Mark Curtis said a debt freeze alone would not provide the security necessary to encourage investment in the reconstruction of affected economies because debt repayments could “restart at any time that rich countries chose.”
In late December, a petition launched by Jubilee South and its affiliates urged southern governments to forego paying “onerous and illegitimate debts” in favour of disaster relief and rehabilitation, basic social services, clean and safe water, and other human development programs.
“If there is any measure of sincerity in the outpouring of compassion from North governments for the peoples of the South, let this be through concrete action,” the petition declared, insisting on immediate and unconditional debt cancellation.
Aid watchdogs are questioning whether the current outpouring of tsunami-inspired generosity may deplete resources for other pressing needs in much poorer countries. The Washington Post reports the current amount committed for tsunami relief and reconstruction is about 4% to 5% of the $70 billion that was spent on all foreign aid last year by governments and multilateral agencies such as the World Bank.
“There’s this enormous tendency to focus on the specific crisis at hand,” said Jamie Drummond, executive director of DATA, a group founded by rock star Bono to mobilize help for impoverished African nations.
“There’s no moral difference between the extreme, day-in-day-out poverty in Africa and the situation in Asia. If we’re not careful, one will carry away from the other.”
Lisa Peryman, Odious Debts Online, January 7, 2005