by Julio Godoy
(IPS) PARIS -- The richer nations have made much of the freeze they have offered on debt repayments from tsunami-hit countries, but many of the affected countries do not want this concession.
Only Indonesia, Sri Lanka and Seychelles have so far expressed some interest in the suspension of debt payments, Jean-Pierre Jouyet, chairman of the Paris Club said following a meeting of the 'club' last week. The Paris Club is a grouping of rich creditor nations that includes western European countries, the United States, Canada, Japan, Australia and Russia.
But Indonesia, Sri Lanka and Seychelles, Jouyet added, had only expressed interest. None has submitted a formal request.
The reluctance of countries such as India, Thailand and Malaysia to seek a freeze arises from negative consequences attached to such concessions, debt experts say. A debt moratorium normally leads to a lowering of the beneficiary country's financial reputation and international credit rating -- and to higher interest rates for fresh borrowing.
Some of the affected countries have low domestic savings rates, and they need access to foreign money markets to finance development programs and reconstruction.
A lowering of international credit rating also affects the private sector, says Brian Hammond, debt expert at the Paris-based Organization for Economic Cooperation and Development, a group of 30 industrialized nations. "That's why countries such as India, Thailand and Malaysia would not go anywhere near debt relief."
Countries that have relatively lower debt burdens have therefore always avoided negotiating debt relief programs with the Paris Club.
Some are considering this offer, however, because creditors are not offering heavy conditions to the offer.
Indonesia, where the tsunami killed more than 100,000 people and destroyed extensive infrastructure, owes about $50 billion to creditor nations from the Paris Club. The total Indonesian foreign debt, which includes what it owes multilateral agencies like the World Bank and the International Monetary Fund (IMF) amounts to $132 billion. That is about 80 percent of its gross national income (GNI). Sri Lanka owes Paris Club member states about $7.5 billion.
The debt relief proposal will be discussed at a meeting of finance ministers of the seven most industrialized countries (the G7 which is the United States, Canada, Britain, France, Germany, Italy and Japan) to be held in London Feb.4-5.
The meeting is expected to run into an extraordinary problem; at the moment creditors seem more convinced about freezing debt repayment than some of the countries that owe the money.
"It appears to members of the G7 that a moratorium is absolutely indispensable in order to allow the affected countries to overcome their immense difficulties," said French finance minister Herve Gaymard.
The moratorium, he said, could offer a "puff of oxygen" to governments of affected nations struggling to find money for relief and reconstruction. Jouyet said the debt relief program would help beneficiary countries "allocate financial resources directly to reconstruction programs."
Some experts say the proposed freeze is simply not good enough, and will not help in reconstruction.
Jean Merckaert, coordinator of the European network of non-governmental organizations campaigning for total cancellation of foreign debt for the affected countries told IPS that to be effective debt relief should "include all creditors, including private banks and multilateral creditors, and not just the official debt the developing countries contracted with the industrialized world."
The debt relief offered by the Paris Club "would only postpone the payment of an insupportable debt," he said.
Daniel Millet, a campaigner for cancellation of the developing countries' foreign debt said both the debt relief and the direct aid proposed are unsatisfactory.
"International aid promized by the industrialized countries to Indonesia, Sri Lanka, Thailand etc. amounts to some six billion dollars," he said. "The aid promized represents less than one-sixth of the sum those countries reimburse every year, which in 2004 amounted to 38 billion dollars to pay for the foreign debt."
Besides, he said, the 11 countries hit by the tsunami are economically heterogeneous. "Some of those countries are emerging economies, others are rather poor," he said. And while the foreign debt of Sri Lanka was essentially contracted with multilateral institutions such as the World Bank, in Thailand and India the borrowing was mostly from private creditors.
Only a downright cancellation of the total debt of these countries -- which amounts to $406 billion -- would help them, Millet said.
January 17, 2005 (http://www.albionmonitor.com) All Rights Reserved. Contact firstname.lastname@example.org for permission to use in any format.
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