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Oxfam: Earthquake Tsunami Emergency Appeal
Cancelling Debt
Responses to the debt crisis by creditors is crucial
Most countries hit by the disaster were already struggling to cope with large debt burdens particularly those countries hit by the Asian financial crisis of 1999. The countries worst affected by the Tsunami together owe over US$300 billion. Debt as a percentage of annual national income is 80% for Indonesia and 59% for Sri Lanka. According to the World Bank's latest figures, total external debt per country is: Indonesia US $132.2bn, Sri Lanka $9.6bn, India $104.4bn, Thailand $59.2bn, Malaysia $48.6bn, Somalia $2.7bn, Seychelles $560m, and the Maldives $270m.
Repayment figures vary, but estimated the annual repayment costs are: Indonesia US $13.7bn, India $13bn, Thailand $17.9bn, Sri Lanka $653m, Maldives $20.8m. Indonesia has a A$1.5 billion debt to the Australian Government.
Even before the tsunami debt burden made it impossible for affected countries to achieve the Millennium Development Goals.
Right after the Tsunami disaster, many leaders called for emergency action to lift the debt servicing constraints of the region. For example, France, Germany and Canada have already proposed a moratorium. The United States and Japan are the main creditors of the countries concerned and they may also support this proposal. An immediate moratorium is welcome as appropriate starting point; it should not be a substitute for a coordinated and far-sighted approach that is based on a realistic assessment of the debtor countries ability to pay.
First, although a moratorium does provide temporary relief to countries by suspending payments, this is not equivalent to cancellation or debt stock reduction. Given the massive needs, a moratorium is a grossly insufficient response for long-term reconstruction that may take over 5 years and demand huge monies. It is vitally important to consider cancelling debts owed by the hardest-hit countries. Second, unilateral action by some creditors has the effect of letting other creditors both bilateral and multilateral shirk their responsibility. What is needed is a coordinated approach that deals with all types of debt together and addresses the problem from the point of view of the ability of the debtor to pay rather than the willingness of each creditor to postpone or cancel payment.
It is important that the donors establish a task force comprising the representatives of major creditors including the IMF, Asian Development Bank and the World Bank to craft a solution that protects the governments of affected countries from choosing between serving the needs of their people or servicing their foreign debt. This task force should prepare a proposal for extraordinary meeting of the Paris Club that possibly convene in the month of January 2005. The proposal should not negatively affect the G7s achievements towards cancel 100% debt for HIPC, which will likely to be approved by the first quarter of this year.
Responses to the debt crisis by creditors is crucial
Most countries hit by the disaster were already struggling to cope with large debt burdens particularly those countries hit by the Asian financial crisis of 1999. The countries worst affected by the Tsunami together owe over US$300 billion. Debt as a percentage of annual national income is 80% for Indonesia and 59% for Sri Lanka. According to the World Bank's latest figures, total external debt per country is: Indonesia US $132.2bn, Sri Lanka $9.6bn, India $104.4bn, Thailand $59.2bn, Malaysia $48.6bn, Somalia $2.7bn, Seychelles $560m, and the Maldives $270m.
Repayment figures vary, but estimated the annual repayment costs are: Indonesia US $13.7bn, India $13bn, Thailand $17.9bn, Sri Lanka $653m, Maldives $20.8m. Indonesia has a A$1.5 billion debt to the Australian Government.
Even before the tsunami debt burden made it impossible for affected countries to achieve the Millennium Development Goals.
Right after the Tsunami disaster, many leaders called for emergency action to lift the debt servicing constraints of the region. For example, France, Germany and Canada have already proposed a moratorium. The United States and Japan are the main creditors of the countries concerned and they may also support this proposal. An immediate moratorium is welcome as appropriate starting point; it should not be a substitute for a coordinated and far-sighted approach that is based on a realistic assessment of the debtor countries ability to pay.
First, although a moratorium does provide temporary relief to countries by suspending payments, this is not equivalent to cancellation or debt stock reduction. Given the massive needs, a moratorium is a grossly insufficient response for long-term reconstruction that may take over 5 years and demand huge monies. It is vitally important to consider cancelling debts owed by the hardest-hit countries. Second, unilateral action by some creditors has the effect of letting other creditors both bilateral and multilateral shirk their responsibility. What is needed is a coordinated approach that deals with all types of debt together and addresses the problem from the point of view of the ability of the debtor to pay rather than the willingness of each creditor to postpone or cancel payment.
It is important that the donors establish a task force comprising the representatives of major creditors including the IMF, Asian Development Bank and the World Bank to craft a solution that protects the governments of affected countries from choosing between serving the needs of their people or servicing their foreign debt. This task force should prepare a proposal for extraordinary meeting of the Paris Club that possibly convene in the month of January 2005. The proposal should not negatively affect the G7s achievements towards cancel 100% debt for HIPC, which will likely to be approved by the first quarter of this year.
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