Mon, Jan 10, 2005 page9

• Tsunami tragedy places debt relief on agenda of rich naitons

  The move by creditor countries to offer debt relief for tsunami-hit nations may spur demands for similar treatment for other poor, indebted countries

  • By Sabyasachi Mitra / REUTERS
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  The offer of debt relief by rich industrialized nations to tsunami-hit Asian countries provides a ray of hope to other poor debt-laden nations, mainly in Africa, which for years have cried out for similar help.

  Analysts said the concerted move by the creditor nations to help the devastated economies in south Asia could put debt relief or write-offs for these struggling nations center-stage on rich nations' agendas.

  "There is an effort being made to move the debt relief agenda forward. The tsunami itself is providing a context within which the debt relief agenda can sustain the move forward," said Edward Clay, senior research associate at Overseas Development Institute (ODI).

  Japan is the latest country to join the growing list of nations, including Britain, the US, Germany and France, calling for a freeze on debt repayments by tsunami-hit Asian nations.

  But some analysts said while the move to offer debt relief is a magnanimous gesture on part of rich nations, countries like India, Thailand or Indonesia are fiscally sound enough to pay off their foreign borrowings. The disaster is unlikely to make any significant dent in their economic growth projections.

  Sri Lanka and Maldives, heavily reliant on tourism and clothing exports, need more help than others as the damage suffered relative to the size of their respective economies has been substantial.

  "Indonesia needs assistance in kind like shipment of food, coordination rather than debt relief because the fiscal situation doesn't really warrant it," said Richard Segal, an analyst at emerging debt specialist Exotix.

  Resource-rich Indonesia's budget deficit is just 1.4 percent of its GDP, while India expects to hold its deficit at about 4.4 percent for the year to end-March.

  There are other mitigating factors. Asian economies are sitting on a pool of US$2.3 trillion of foreign currency reserves.

  India's foreign exchange reserves are estimated at US$131.02 billion, Thailand's at US$49.1 billion and Indonesia's at US$36.32.

  Rating agency Standard & Poor's said Indonesia had the resources to service its foreign borrowings.

  "At this stage, Indonesia has the capability to service its domestic and foreign debt. The devastation of outlying provinces by the Indian Ocean tsunami did little to detract its debt-servicing ability," S&P said.

  Australian Prime Minister John Howard said he was concerned that any move to forgive or freeze debt repayments would not help those most in need.

  The ODI's Clay said history showed most disaster hit countries used more of their own resources than foreign money to rebuild economies.

  "When you do look at disasters over a more extended period, typically the countries themselves pick up most of the costs," he said.

  But Clay did note that debt relief could help nations save money for necessary relief and reconstruction activities.

  Analysts said the proposed tsunami-related debt moratorium and the recent move by the Paris Club of sovereign creditors to cancel 80 percent of the debt Iraq owed to its members would spur demands for similar offers for other poor, indebted nations.

  "What about all the African countries which are far more deserving than say Iraq and Indonesia," Segal said.

  Oxfam said generous debt relief for the tsunami-hit countries should not come at the expense of the poorest countries that are expected to receive 100 percent debt relief later this year, nor should it be included as aid money.

  "The sums that rich countries invest in global poverty reduction are shamefully small. At an average of US$80 per person per year in rich countries, the sum is equivalent to the price of a weekly cup of coffee," Oxfam said in a recent report.

  The Sub-Saharan African nations, among the world's poorest, had a total external debt of about US$191.3 billion at the end of 2002, according to data from the Organization of Economic Cooperation and Development (OECD).

  Britain, which assumed the presidency of the Group of Eight rich nations (G8), has said it is eager to tackle Africa's economic woes and wants its allies within the G8 to agree to multilateral debt relief, set a timetable for raising development aid to 0.7 percent of national income and sign up to a scheme to double Third World aid.

  Barbara Stocking, director of Oxfam, said the crisis reinforces the need for the world to double aid spending, cut the debt of poorest nations and help them break out of poverty.

  "This meeting is an opportunity for the G8 countries to show they have the ambition and drive to make this happen," she said.
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