TSUNAMI IMPACT: Freeze Debts, No Strings Attached, Groups Urge

By Emad Mekay Reprint | | Print |

Emad Mekay

WASHINGTON, Jan 10 2005 (IPS) - Dozens of development groups and anti-debt campaigners called on the George W. Bush administration Monday to support a mounting push for a moratorium on debt repayments for all tsunami-affected countries.

The groups, who addressed their appeal to Bush in a letter, say that they want to see the United States, the largest economy in the world and a powerful player in the global financial institutions, support a "bold action to address the debt crisis in the region".

The letter was drafted by the American Jewish World Service and Jubilee USA Network, and argues that countries "simply cannot be required to pay debts while facing a humanitarian disaster of such a magnitude."

Giant sea waves hit the coastlines of several Asian and African nations on Dec. 26, triggered by a massive earthquake with its epicentre off the west coast of northern Sumatra in Indonesia.

Bangladesh, Burma, India, Indonesia, Malaysia, Maldives, Sri Lanka, Singapore, Thailand and Somalia have all been stricken, with about half of the deaths in Indonesia alone.

Many of the groups have long criticised the fact that that poor nations often spend more servicing their debts than they do on health and education. They called for the United States to press for a debt moratorium that includes both bilateral debts and multilateral debts owed to the International Monetary Fund (IMF), the World Bank, and the Asian Development Bank – which hold more than 70 billion in debt from tsunami-affected countries.

Indonesia, the country hardest hit by the disaster, is expected to pay nearly seven billion dollars in debt service payments to multilateral creditors this year, which will significantly limit its disaster relief capabilities.

The groups that signed the letter include the Advocacy Institute, Africa Action, Center of Concern, 50 Years Is Enough, Oxfam America and the Women’s International League for Peace and Freedom.

The groups also said that they want the United States and the Group of Seven most industrialised nations (G-7) to support 100 percent debt cancellation for Sri Lanka, the Maldives and Somalia, three of the poorest countries hit by the tsunami.

The G-7 countries are Britain, Canada, France, Germany, Italy, Japan and the United States.

The appeal by more than 40 development groups comes as the Paris Club of government creditors prepares to meet on Wednesday to discuss the debts of nations affected by the tsunami.

The countries that form the Paris Club are Russia, Germany France, Austria, Australia, Belgium, Britain, Canada, Denmark, Finland, Ireland, Italy, Japan, the Netherlands, Norway, Spain, Sweden, Switzerland and the United States.

"We feel strongly that, in addition to emergency relief and reconstruction aid, it is critical to address the external debt burden faced by these nations," said the letter, which was also addressed to U.S. Treasury Secretary John Snow.

There are additional concerns that any moratorium could be conditioned on countries’ implementation of an IMF programme forcing them to open their economies to companies and investors based in Western nations. The standard IMF conditions include privatising public assets, cutting budget deficits by slashing social spending, and improving tax collection.

"We urge that such debt cancellation be implemented without harmful economic conditions," the groups said in their letter.

Financial aid to stricken areas is far less effective when governments have to recycle grants and loans back to rich nations’ governments and others through debt service payments, they noted. Contrary to simple humanitarian aid, whose levels change annually, debt cancellation is also predictable and could directly support local budgets.

The idea of full debt cancellation has been a consistent demand of many of the independent and the grassroots groups that campaign for less intrusive policies by multilateral financial institutions such as the World Bank and the IMF.

The G-7 is already discussing a possible 100 percent debt cancellation to impoverished nations, with the U.S. government playing an active role, although progress has been slowed by differences among creditors about mechanisms to finance the debt cancellation. The G-7 finance ministers will meet Feb. 4-5 in London to consider the best measures for full multilateral debt cancellation.

The letter also highlights assertions from debt cancellation advocacy groups in the region that much of the debt is "odious" and illegitimate. In Indonesia, for instance, lending during the Cold War was often made without proper oversight and lost to massive corruption, and therefore was not used for the benefit of the Indonesian people.

Many groups have called for an inclusive international process to reevaluate the debt.

"We are at a crossroads on the critical issue of international debt," said Africa Action, a group that advocates African issues, in a separate petition on Monday. "The 300 billion dollars that African countries owe to foreign creditors represents a crippling load that undermines economic and social progress."

The last time the Paris Club authorised a debt cancellation was to Iraq, and the deal was tied to an IMF austerity programme.