Friday, January 14
Will debt relief work ?
While donations pour in from governments and individuals in the wake of the Asian tsunami disaster, greater financial relief might come in form of a freeze offered by the Paris Club of nineteen creditor nations, on interest payments and debts owed to them by the tsunami-affected nations.
Even then, Indonesia, Sri Lanka and the Seychelles are the only three of the countries affected who have taken up the offer. Thailand turned it down, not wanting to affect its credit ratings. India, too, has said it will rely on its own resources rather than international aid.
The Indonesian central bank has previously accepted a possible condition of debt relief that the money should be spent on reconstruction in Aceh, prior to the current no-conditions-attached debt moratorium.
The fact that the central government has been fighting separatist rebels in Aceh for several years could cast doubt on the sincerity of their intention to spend the money there.
How to ensure that the debt payments would be directed specifically to Aceh and not be diverted by corrupt officials ?
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Total external debt
Source: World Bank
Resources: BCC NEWS | Business
While donations pour in from governments and individuals in the wake of the Asian tsunami disaster, greater financial relief might come in form of a freeze offered by the Paris Club of nineteen creditor nations, on interest payments and debts owed to them by the tsunami-affected nations.
Even then, Indonesia, Sri Lanka and the Seychelles are the only three of the countries affected who have taken up the offer. Thailand turned it down, not wanting to affect its credit ratings. India, too, has said it will rely on its own resources rather than international aid.
The Indonesian central bank has previously accepted a possible condition of debt relief that the money should be spent on reconstruction in Aceh, prior to the current no-conditions-attached debt moratorium.
The fact that the central government has been fighting separatist rebels in Aceh for several years could cast doubt on the sincerity of their intention to spend the money there.
How to ensure that the debt payments would be directed specifically to Aceh and not be diverted by corrupt officials ?
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Debt relief might bring in the cash in the short term but can make it more difficult for countries to borrow money in the longer term.
The tsunami debt relief is expected to be confined to official government debt, a move which should protect Indonesia from the possibility of a credit rating downgrade, ratings agency Standard & Poor's said.
Forcing a restructuring of private debt would be well intentioned but ill conceived, it said - "inducing a default by Indonesia may well be a serious impediment to future private investment and lending to Indonesia."
Concerns about corruption, questionable political intent, economic sovereignty and the dangers of encouraging reckless spending surround the debate on debt relief.
Even with the best of intentions, it can be difficult to absorb the cash and turn it into real improvements on the ground.
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Total external debt
- Indonesia $132.2bn
- India $104.4bn
- Thailand $59.2bn
- Malaysia $48.6bn
- Sri Lanka $9.6bn
- Somalia $2.7bn
- Seychelles $560m
- Maldives $270m
Source: World Bank
Resources: BCC NEWS | Business
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