Western Lenders Split Over Debt Relief for Tsunami-Hit Nations
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The U.S. and Europe are at odds over a U.K. proposal that the Paris Club of creditor nations reduce debts of countries hardest hit by the Dec. 26 tsunami. Britain, backed by France and Germany, is urging the 19 nations meeting in Paris today to cancel debt of as much as $10 billion owed by Sri Lanka and grant relief on Indonesia’s $47.8 billion obligation. The two countries were worst affected by the disaster. The U.S. is concerned the plan may damage credit ratings and funnel money to bureaucracies instead of victims. “The problem is control,” said Iris Manner, the spokeswoman for World Vision Deutschland e.v., a German charity that’s distributing part of its $66 million annual budget to tsunami nations. “Rich states should have very concrete plans in mind, such as rebuilding the fisheries industry in Sri Lanka. Debt relief cannot be a substitute for massive direct aid.” At least 167,000 people were killed in the waves, triggered by an earthquake, that struck Indonesia, Thailand, Sri Lanka, India, Somalia and islands across the region. About 5 million people need direct assistance. Sri Lanka’s fishing industry was almost destroyed, as were beach resorts in Phuket, Thailand. Finance ministers from the Group of Seven industrial nations said Jan. 7 they will delay collecting about $3 billion in interest in debt owed by nations including Indonesia, Sri Lanka and Thailand until next month, after the International Monetary Fund and World Bank publish a report on their needs. Brown’s Campaign U.K. Chancellor of the Exchequer Gordon Brown, whose nation hosts the G-7 meetings this year, is pushing the Paris Club to write off some debt from nations hit by the disaster. “We must ensure that the countries affected by the tsunami are not prevented from paying for essential reconstruction because they are having to fund the servicing of their debts,” Brown said in a speech in Edinburgh on Jan. 6. “The G-7 and Paris Club must stand ready to consider all options.” In the U.S., Treasury Secretary John Snow has refused to sign up to immediate debt relief. “We’re not ruling out an extension,” John Taylor, a U.S. Treasury undersecretary who is overseeing the issue, said in an interview on Jan. 10. “What we need to be concerned with is that the funds provided, whether they are through debt relief or grants or other forms of assistance, have explicit goals.” G-7 finance ministers will consider debt relief when they meet in London Feb. 4 and 5. The Paris Club meeting, starting at 10 a.m. today, may endorse last week’s decision to hold off on collecting debts until next month, without making any further commitment, French and U.S. government officials said. Case by Case “The answer to every problem is not debt relief,” said Ted Truman, former assistant secretary for international affairs at the U.S. Treasury who now works at the Institute for International Affairs in Washington. “A case-by-case approach would be better than broad relief.” Indonesia owed $47.8 billion in debt to the Paris Club in November, more than half its $78.5 billion total debt. It is scheduled to pay Paris Club members $4.7 billion in interest this year. Sri Lanka owes $10 billion in total, about half the size of its economy, mostly to the Paris Club. Indonesia’s Coordinating Minister for Economic Affairs, Aburizal Bakrie, asked for some debt payments to be delayed until 2007 to allow the nation to focus on helping families of the 113,000 people who died in the tsunami. “What is most important is whatever cash is available is channeled efficiently both for reconstruction and for infrastructure,” said Christopher Wong, a fund manager at Aberdeen Asset Management in Singapore, which oversees about $6.5 billion in Asian stocks including PT Indosat and PT Astra International of Indonesia. Not Enough Critics of debt relief, including Michael Spencer at Deutsche Bank AG in Hong Kong and German lawmaker Thilo Hoppe, say that relieving debts alone won’t help nations hit by the disaster. Such assistance may have a number of “unintended consequences,” Fitch Ratings Ltd., which evaluates credit, said on Jan. 10. Depending on how the debt is erased, it may harm confidence among investors in securities sold by national treasuries. In addition, cash freed up from debt payments may not be applied to projects where it is needed most. “It’s amazing how many fancy government buildings went up in a South American state when it got debt relief,” said Hoppe, a Green Party member of the German parliament’s humanitarian aid committee, in an interview in Berlin. “The G-7 should pledge direct aid.” Spencer, the chief economist for Deutsche Bank in Asia, said nations “need relief of the traditional kind” more than help with debt. “If it is packaged as debt relief, particularly if it is orchestrated through the IMF and the Paris club, it could damage private creditors’ perceptions of the risk they may face by continuing to lend,” he said. |