In the weeks following the devastation of the Indian Ocean tsunami, the World Bank and IMF have reiterated their commitment to “help as much as possible in the international assistance effort”. Representatives from both institutions have made visits to the region. However, questions have been raised regarding the actual generosity of the assistance pledged, and civil society groups have increased their calls for unconditional debt cancellation, both for the affected countries and more widely.
The World Bank has pledged US$250 million for initial emergency reconstruction over the next six months, which would allow it to identify further financing for longer-term reconstruction. The amount will be drawn from existing programs, and will include the provision of emergency credits and grants, which the Bank reports, Indonesia, the Maldives and Sri Lanka have already requested. The Bank has also highlighted its role in coordinating with the UN, affected countries, Asian Regional Banks, and other donors in order to carry out an assessment of the damage and prioritize reconstruction efforts.
However, concerns have been raised, as with previous emergencies that not all funding pledged by the Bretton Woods Institutions and other donors will reach its initial aims: Hurricane Mitch, which in 1998 swept through Honduras and Nicaragua, killing more than 9,000 people and making 3 million homeless. Governments pledged more than $3.5bn and the World Bank, the International Monetary Fund and the EU promised a further $5.2bn, but less than a third of the money was ever raised.
questions have been raised regarding the actual generosity of the assistance pledged
Calls for debt cancellation
Meanwhile non-governmental organisations across the globe have been calling for unconditional debt cancellation, both for those countries affected by the massive devastation and indebted countries more widely (see below).
Total external debts of countries hit by the tsunami:
Figures from World Bank, World Development Indicators
Indonesia is the most indebted of the affected countries, and also bore the major impact of the tsunami with an estimated 100,000 dead and thousands missing. A 2002 report by the European Network on Debt and Development (Eurodad) calculated that, taking into account essential spending on poverty and human development, the country could afford only half of its annual debt repayments (which totalled $37 billion), and that half should therefore be cancelled. Other countries affected by the tsunami – including Somalia, Tanzania, Kenya, Bangladesh and Burma (Myanmar) – are among the world’s poorest and most indebted, and need 100% cancellation of all their debts (via a process that ensures proceeds are used in a transparent and accountable manner) if they are to escape from the crushing poverty which has been forced on them.
At the one-day aid summit on 6 January, Bretton Woods Institutions reportedly came out in favour of a debt moratorium for the countries worst hit by the Indian Ocean tsunami. Bank president James Wolfensohn said debt write-offs for the tsunami hit states would be a better idea than just halting payments and called for the long term recovery of affected areas to be carried out in a way that will “break the cycle of poverty and restore hope to those affected for a better future”. However, he also said that it was up to creditor nations to decide on a course that best suited them.
IMF managing director Rodrigo de Rato, praised the “spirit of unity shown by the international community and the generosity of the response to this unprecedented disaster”. The IMF is still assessing the macroeconomic consequences and financing needs of the most affected countries in order to identify the most appropriate forms of assistance. It can provide up to US$1 billion in financial assistance for the most affected countries, through its Emergency Disaster Assistance facility, even in countries without an IMF program. The IMF is considering requests for repayment deferrals on existing loans from affected countries such as Sri Lanka and claims that “together, these two forms of assistance could provide a total of US$250 million”.
However, the specific conditions for such financing, in particular interest levels and terms of repayment remain unclear.