Mercy Global Concern - 2005

Mercy Global Concern: Briefing Paper Number 1, January 2005

Tsunami: Debt and Disaster

Indonesia calls for Debt Relief after Tsunami Devastation

Action Alert!

NGOs across the globe have expressed their solidarity with the peoples of Sri Lanka, India, Indonesia, Thailand, Malaysia and other countries affected by the devastating tsunami of 26 December. The number of victims who have died as a result of the earthquake and subsequent flooding has now reached 155,000. This number is still rising, with tens of thousands still unaccounted for and up to five million without the basics for survival.

Affected country governments cannot continue to make their scheduled debt repayments as well as provide the necessary relief and rehabilitation to their citizens. Indonesia alone has a public external debt of over $80 billion and last year spent one quarter of the government's domestic revenue on debt service payments. Preliminary estimates for the reconstruction of basic infrastructure in Aceh and North Sumatra are Rp.10 trillion (US$ 1 billion). However, this figure is probably a gross under-estimate because it does not include longer-term costs such as social reconstruction and the reconstruction of essential public
facilities.

Prioritising debt service payments in circumstances of overwhelming human need is clearly intolerable. Binny Buchori, Director of The International NGO Forum on Indonesian Development (INFID) based in
Jakarta said today: "Every delay in deciding on Indonesia's debt means more lives lost in Aceh and North Sumatra. The international community must tackle the issue this week".

Most of these countries could not afford to pay their debts even before the horrifying disaster. In a 2002 report, Eurodad calculated that the Indonesian Government could "only afford to pay less than half of its
current debt service if it were to continue to devote sufficient resources to poverty reduction and social development". The rest should be cancelled. See: http://www.eurodad.org/articles/default.aspx?id=221

Jubilee Debt Campaign points out that "other countries affected by the tsunami - Somalia, Tanzania, Kenya, Bangladesh and Burma (Myanmar) - are among the poorest in the world 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 the crushing poverty which has been forced on them." Somalia and Kenya owe almost $8 billion to some of the world's richest countries and the international financial institutions. NGOs are quick to stress however that this assistance should be additional to the substantial levels of emergency aid needed to enable countries to deal with the impact of this disaster and prevent it claiming more lives. It should also not detract from aid to other desperately needy parts of the world.

A number of governments (Germany, UK, France, Canada) are reportedly backing proposals for a moratorium on debt service payments for the affected nations. In the wake of the devastation caused by Hurricane Mitch in 1998, Honduras received significant debt relief including a Paris Club moratorium on bilateral debt service payments between November 1998 and December 2001. Various proposals for a temporary halt on debt repayments from the region affected by the tsunami will be discussed at the 'Tsunami Summit' to be held in Indonesia tomorrow and at the next meeting of the Paris Club in France on 12 January.

INFID has stressed however that while it welcomes the indication from some of Indonesia's principal creditor countries that they support proposals for a debt payment moratorium that these initiatives are insufficient. Indonesia's external debt burden will remain a serious drain on government resources this year and for many years to come. According to the Indonesian Central Bank, this year and every year until 2009, $ 7 billion will be dedicated to the servicing of external debt. The breathing space created by a debt moratorium should be used to convene an international debt conference sponsored by the United Nations. The conference should discuss all the debts Indonesia currently owes to its various creditors and should be guided by principle of assisting Indonesia to meet the Millennium Development Goals (MDGs). The calculations of Indonesia's financial needs to achieve the MDGs after the tsunami-disaster should also be provided by an independent institution such as the United Nations Development Programme (UNDP).

Eurodad has also collated a range a range of press and civil society commentary in English, French and Spanish with links to the full documents. This can be accessed on our website. Go to: www.eurodad.org

Action Alert!

Please take action and circulate widely TODAY

Summary:
Following the earthquake and tsunami in Aceh, North Sumatra and Nias, INFID calls on the international community to mobilise global solidarity and pressure rich countries to grant debt relief to the countries destroyed by the catastrophe as a form of global solidarity for poverty eradication. There are already positive indications that some countries are considering such measures, but further backing and official confirmations of the details of the proposals are needed.

Supporters of this appeal should contact decision-makers in their countries by Thursday 6th January (the day of a donor conference on Indonesian reconstruction) demanding:

(1) - A moratorium on Indonesia's debt repayments for the next 15 months

(2) - An international conference to deal comprehensively with Indonesia's
debt problems

Specimen letter text appears below.

Destruction in Aceh, North Sumatra and Nias. The horrifying earthquake and tsunami have crushed major parts of Aceh, North Sumatra and Nias. The death toll of this catastrophe has reached 96,000 (including 270 students, 600 policemen, 1000 soldiers, 20,000 children) and thousands of others who were killed by the huge wave. Around 500,000 people were forced to leave their homes and villages because they have nothing left. Almost all public facilities are not functioning. Schools, hospitals, the electricity network, telecommunication facilities, roads, and government buildings cannot be used anymore. The huge wave has also ruined thousands of homes.

The reconstruction needs are enormous and pressing. Preliminary official estimates for the reconstruction of basic infrastructure in Aceh and North Sumatra are Rp. 10 trillion (US$ 1 billion), however this figure is undoubtedly too small because it considers only physical infrastructure not social reconstruction needs. The Government of Indonesia will not be able to self-finance this and is reliant on aid and debt relief from the
international community.

Indonesia has very tight budget and social spending is in any case too low owing to debt repayments even when there is no emergency. In 2004, the government agreed to make full payment of its principal and interest of Indonesia's external debt, amounting to Rp. 68.8 trillion (US$ 6.8 billion). For 2005, Indonesia has allocated Rp. 71.98 trillion (US$ 7.1 billion) to pay the principle and interest on external sovereign debt. This represents a quarter of Indonesia's domestic revenue. Indonesia will reimburse over US$ 7 billion every year from now until 2009, according to the Indonesian Central Bank.

Indonesia's debt payments for 2004 are 10 times more than spending on health and 32.7 times more than spending on housing.

PROPOSALS

In this context, Indonesia clearly needs significant debt reduction if it is to meet its constitutional obligations to meet the essential human needs of its peoples. Resources released through a debt write-down would help to kick-start the social and economic rehabilitation and reconstruction of the devastated regions. This translates into improved infrastructure, more employment opportunities and poverty reduction.

Governments of developed nations have a moral obligation to assist those whose lives have been turned upside down by this horrific disaster, and many governments have indeed pledged their help and support, which we warmly welcome. As well as new aid pledges several proposals have emerged from Germany, UK, Italy, France and Canada for a temporary halt to debt repayments by some of the countries devastated by the disaster, including Indonesia. These proposals will be discussed at the 'Tsunami Summit' to be held in Indonesia on 6 January and at the next meeting of the 'Paris Club' in France on 12 January.

There is a precedent for such actions by creditor nations. In the wake of the devastation caused by Hurricane Mitch in 1998, Honduras received significant debt relief including a Paris Club moratorium on bilateral debt service payments between November 1998 and December 2001.

INFID would like to stress however that while it welcomes the indication from some of Indonesia's principal creditor countries that they support proposals for a debt payment moratorium that these initiatives are insufficient. Indonesia's external debt burden will remain a serious drain on government resources this year and for many years to come.

INFID therefore proposes the following:

1. While we recognise that the Paris Club is deeply flawed, the overwhelming human need in Indonesia and other affected countries makes it an imperative for the club to grant an immediate and unconditional moratorium on the region's debt over the coming fifteen months;

2. That during this time, an international conference on Indonesia's debt
be convened with the objective of finding a lasting, just and
comprehensive solution to Indonesia's debt burden. The guiding principle
of this conference should be achievement of the Millennium Development
Goals (MDGs). Assessments of debt sustainability should include
calculations of Indonesia's financial needs to achieve the MDGs taking
into account the prevailing conditions after the tsunami disaster.

WHAT YOU CAN DO

Support INFID's proposals, by:

• Writing letters to the Head of States and the Ministers of Finance of
  rich countries, members of the Paris Club;
  
  
• Writing letters to the President of the World Bank, Managing Director of
  IMF, President of the Asian Development Bank and the General Secretary of
  Paris Club.
  
  Date….. 2005
  For the Attention of: Ivan Hadar, Executive Secretary
  
  Specimen letter text appears below. Please adapt, translate and send as
  soon as possible. Plus keep me informed of your actions and their outcome!
  
  
  Dear [insert name of decision-maker here],
  
  I am writing to urge you to take further action to support the hundreds of
  thousands of people affected in Indonesia and other countries by the
  devastating tsunami. I am concerned that the governments in the affected
  countries will not be able to take sufficient action to provide for the
  short-term welfare or long-term needs of affected people because of their
  budgetary situations. As well as new emergency aid I believe it is vital
  that a moratorium on debt repayments be instituted rapidly so that
  governments can spend money.
  
  Indonesia last year spent one quarter of the government's domestic revenue
  on debt payments. This is clearly intolerable, especially in such
  circumstances, and we urge you to support a 15 month moratorium on
  Indonesia's debts and the convening of an international conference during
  this time to find a comprehensive solution to the debt problems of this
  and other affected countries. I look forward to your response setting out
  your government's detailed position on this very important issue.
  
  Yours sincerely,
  
  [Insert your name and address]