Wednesday, January 12, 2005

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The political economy of disaster aid and debt relief

The Economist has a good backgrounder on the delicate politics of proffering aid and debt moratoriums as a means of assisting countries experiencing natural disasters. It opens as follows:

Between them, the 19 member states of the Paris Club, an informal coterie of major lenders, pledged $3.64 billion in aid to the countries afflicted by the Indian Ocean tsunami. But these 19 countries, meeting in the French capital on Wednesday January 12th, had also been due to receive about $5 billion in debt repayments this year from these same disaster-hit nations. Indonesia, the country that suffered the most casualties in the disaster, also carries the bulk of the region’s debt. It was due to pay $3.15 billion in principal and $1.36 billion in interest in 2005. But at its meeting, the Paris Club decided to offer all tsunami-hit countries a freeze on debt repayments, starting immediately, until the World Bank and International Monetary Fund have completed an assessment of their needs. In the face of such suffering, the rich world has agreed to be generous, not usurious.

But not all of Indonesia’s fellow sufferers are crying out for their burden to be lifted. Thailand, for one, is cautious about creditors’ magnanimity. To delay its repayments may send the wrong signal to the capital markets, it fears, suggesting that Thailand is a mendicant country unable to carry its debts. This might deter new creditors and investors. Thailand therefore may thus decide to show that it can pay its debts in full and on time, even though it is not now obliged to do so.

Some of the lenders have also had reservations about offering debt relief, although it is impolitic to air them too loudly. Such relief frees up resources, which a government can then devote to aid and reconstruction—or divert to anything else. Heavily indebted governments tend to be bad governments, sceptics argue. If they cannot borrow money prudently, why should we trust them to spend it well?

Read the whole thing.

UPDATE: CNN provides another complication when disaster relief is deployed:

Concerns continue to grow over Indonesian efforts to exert more control over aid operations in Aceh province, which was devastated by the December 26 tsunamis.

Jakarta is telling aid workers and reporters to keep the military informed about their locations and travel plans in the region, especially if venturing outside Banda Aceh or Meulobah.

The government has warned of possible violence by separatist rebels in Aceh, although both the rebels and Jakarta declared a cease-fire after the tsunami.

Indonesian vice president Yusuf Kalla also suggested all foreign troops providing aid in Aceh should plan to be out of the area by March 31.

posted by Dan on 01.12.05 at 02:42 PM


Rather than continuing to send aid or providing debt relief, the U.S. should immediately offer a guest worker program to Indonesia and the other countries affected by the tsunami. This would prevent the EU or Arab countries from offering a similar program. It would also bring in billions for Indonesia and help the U.S. consumer. It would truly be a win-win. For more details on our proposal, see the Jobs for South Asia Coalition.

posted by: The Jobs for South Asia Coalition on 01.12.05 at 02:42 PM [permalink]

The internal politics of Indonesia make the issue of disaster and development assistance past the immediate aftermath of the tsunami almost unbelievably complicated. The March 31 deadline sounds like something this vice president floated on his own, but there are many things about Indonesia's history, organization and interest groups that will make reconstruction of the disaster area like putting together an intricate jigsaw puzzle many pieces of which are in motion.

The potential payoff -- a more stable Indonesia less alienated from the West -- is enormous, though.

posted by: Zathras on 01.12.05 at 02:42 PM [permalink]

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