Swapping foreign debt for tsunami relief<\/p>\n
Romeo A. Reyes, Jakarta<\/p>\n
The magnitude of the natural disaster that the Indian Ocean
\nrim countries suffered from the catastrophic earthquake and
\ntsunami is said to be the worst in living memory. The Declaration
\nof the Special ASEAN Leaders Summit described the devastation as
\n\"unprecedented\". Over 150,000 are confirmed dead, a good number
\nof whom were from rich countries enjoying their holidays on Dec.
\n26, and still counting as dead bodies turn up from remote coastal
\nareas. Not surprisingly, the loss of lives, injury, and damage to
\nprivate property and public infrastructure are greatest in the
\nprovince of Aceh, where the epicenter of the earthquake was
\ntraced just off its coast.<\/p>\n
The outpouring of sympathy and support from the international
\ncommunity for the surviving victims is perhaps unprecedented as
\nwell. Many countries rushed to provide emergency relief.
\nGovernment and non-government organizations have been providing
\nfood, water, clothing, shelter, medicines and health equipment
\nand personnel, along with the necessary logistics to bring them
\nwhere they are needed at the soonest time possible, lest the
\nsurvivors eventually become a fatality.<\/p>\n
In addition to emergency relief already provided in kind,
\ngovernments and multilateral financial institutions through which
\ngovernments channel their assistance pledged to provide US$4
\nbillion to the affected countries for continuation of emergency
\nrelief and medium-term rehabilitation and reconstruction.<\/p>\n
In any emergency situation, timeliness is as crucial as the
\nmagnitude of aid. In this regard, it is not common knowledge that
\ntranslating pledges of aid into commitment and actual
\ndisbursement takes time. Unless the amount pledged is already
\nauthorized or appropriated by the donor country's
\nParliament\/Congress, a new appropriation law would likely be
\nnecessary to commit and to eventually disburse that amount.<\/p>\n
To commit the funds, paper work will be required to enable the
\ntwo parties to negotiate, agree, and sign the necessary
\nagreement. And to disburse the funds for procurement of necessary
\ngoods and services for relief, rehabilitation and reconstruction,
\ncertain conditions would need to be met to ensure that the funds
\nare used for their intended purpose and in a transparent and
\ncompetitive way.<\/p>\n
All these would take time as they have to go through the usual
\nbureaucracies. If recent history is to serve as basis, e.g. the
\n1990 earthquake in Iran, a good part of the amount pledged will
\nlikely be committed and disbursed late or not at all, unless the
\ndonors take extraordinary measures to expedite translation of aid
\npledges into disbursements. It is in this light that the offer
\nof debt relief by rich countries becomes more significant.<\/p>\n
Debt relief essentially takes two forms: Moratorium
\n(suspension) and forgiveness (cancellation). Debt relief is
\nhardly useful for emergency relief as it will be too late before
\nany debt relief arrangement could be successfully negotiated for
\nany emergency. But it can be a useful and appropriate source of
\nfunds for medium-term rehabilitation and reconstruction and
\nlonger-term development.<\/p>\n
At the recently concluded Special ASEAN Leaders Summit, the
\ninitiative of creditor countries to declare a moratorium on debt
\nrepayments as part of their assistance to the disaster-struck
\ncountries was warmly welcomed. The details of this initiative
\nwere to be sorted out at a meeting of the Paris Club of creditor
\ncountries on Wednesday.<\/p>\n
As the most heavily affected country, Indonesia should ask for
\ndebt cancellation so that the debt service burden now and in the
\nnear future will be permanently reduced, thereby liberating funds
\nthat could immediately be used for rehabilitation, reconstruction
\nand longer-term development of the affected communities. Rather
\nthan passively awaiting the results of the Paris Club meeting, it
\nshould proactively pursue a debt swap arrangement with its
\ncreditors whereby the amount of debt canceled would be matched by
\nan equivalent amount to be budgeted for rehabilitation and
\nreconstruction of damaged public infrastructure and other
\nfacilities critical for restoring the livelihood of the victims.<\/p>\n
It should offer assurance to its creditors that the amount of
\ndebt canceled would be in addition to the amount of domestic
\nresources that it would have budgeted otherwise for Aceh
\nrehabilitation, reconstruction and development. It could even go
\nas far as offering a transparent monitoring system to ensure that
\nadditional budgetary resources were indeed added rather than
\nsimply substituted and that they were expended for their intended
\npurpose.<\/p>\n
While a debt moratorium will postpone debt repayment into the
\nfuture and liberate funds that would otherwise be used for debt
\nservicing now, the amount liberated may only substitute rather
\nthan add to the amount that the debtor government would have
\nbudgeted from its own resources for reconstruction and
\nrehabilitation. Often, re-scheduling is confined to principal
\npayments while the interest is to be repaid as originally
\nscheduled. And to top it all, a moratorium on debt repayments
\nwill only postpone the inevitable into the future.<\/p>\n
Once the moratorium expires, the amount paid for debt
\nservicing will still reduce the amount that would otherwise be
\nused for medium-term rehabilitation and longer-term development
\nof the tsunami-affected communities.<\/p>\n
It would do well for the Paris Club of creditor countries to
\nconsider debt forgiveness or cancellation for countries that
\nsuffered heavily from the tsunami catastrophe, especially
\nIndonesia and Sri Lanka, considering their heavy official debt
\nservice burden and the huge amount needed for rehabilitation and
\nreconstruction of private property and public infrastructure.<\/p>\n
Even with the so-called non-discriminatory policy across
\ndebtor countries, debt forgiveness could be justified by the
\nmagnitude of the disaster that befell these two countries.<\/p>\n
Debt relief through debt forgiveness rather than mere
\nsuspension of debt repayment for rehabilitation, reconstruction,
\nand longer term recovery and development of the heavily affected
\ncommunities would certainly be a more meaningful gesture of
\nsympathy and support from rich creditor countries.<\/p>\n
In addition, it would be much more appreciated by the poor
\ndebtor countries devastated by this awful natural disaster as it
\neliminates rather than merely postpones the additional pain of
\ndebt servicing.<\/p>\n
The writer is Senior Adviser, ASEAN-UNDP Partnership Facility.
\nThe views expressed herein are personal and do not necessarily
\nreflect those of ASEAN, its Member Countries, or UNDP.<\/p>",
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