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Paris Club Freezes South Asian Debt

DW staff / AFP (win)
January 12, 2005

The Paris Club of creditor nations announced Wednesday an immediate, unconditional debt repayment freeze for Indonesia, The Seychelles and Sri Lanka, which were hit by last month's catastrophic tidal wave.

The freeze is meant to help countries rebuild devastated regionsImage: AP

"It is an offer by the Paris Club that has not yet been formally accepted by the countries concerned: Sri Lanka, Indonesia, and The Seychelles," club president Jean-Pierre Joyuet (photo) told a press conference in Paris.

Pariser Club Jean Pierre Jouyet
Paris Club chairman Jean Pierre Jouyet on WednesdayImage: AP

"This offer is not tied to any conditions, neither an accord with the IMF (International Monetary Fund), nor to comparable treatment by private creditors as the Paris Club usually does," he added.

The principle of a debt repayment freeze had been agreed upon last week by the Group of Seven industrialized nations and several of the 19-member Paris Club.

Herve Gaymard Finanzminister Frankreich
French Finance Minister Herve GaymardImage: AP

Earlier in the day, French Finance Minister Herve Gaymard had said that other countries in southeast Asia and east Africa that suffered from the Dec. 26 Indian Ocean tidal wave have "a lower level of indebtedness than the others and do not want their credit rating to be downgraded on international financial markets."

Gaymard (photo) cited Malaysia and Thailand as examples.

India, Thailand don't seek freeze

India and Thailand have indicated they would not seek repayment suspensions since accompanying conditions could make it harder or more expensive in the future to obtain credit on international financial markets.

That has already happened in the past for Indonesia, and two major credit rating agencies have warned Jakarta that its sovereign rating could be affected if an evenutual debt restructuring were extended to private creditors such as banks. But analysts say such a development is unlikely.

Indonesia nonetheless has a lot riding on obtaining debt relief. Its foreign debt comes to around $132 billion (€100.7 billion), and the country is looking at $3 billion in payments this year to service the obligation.

Satellitenfoto von Banda Aceh Seebeben Kombo
These satellite images show an overview of southern Banda Aceh before and after the Indian Ocean tsunamis.Image: DigitalGlobe

Only $70 billion of the total figure is owed to public creditors or has been guaranteed by public bodies and therefore is eligible for the kind of debt relief that is being discussed.

"Operating space"

Foreign Minister Hasan Wirayuda, in Paris for the meeting, earlier told a joint news conference in London that Indonesia sought "any schemes that would allow us operating space."

Sri Lanka's foreign debt is roughly $7.7 billion.

Jean-Francois Cope, France's budget minister, has described the actions taken by the Paris Club as a first step, which after a needs assessment by international financial bodies could lead to "complementary measures."

Germany supports further relief

Germany and several other rich countries have already voiced support for deeper debt relief for countries devastated by the tidal wave, which killed at least 157,000 people.

But Gaymard has argued against lumping together discussions on easing all forms of debt. For non-governmental organizations, re-scheduling and suspensions are far from sufficient, however.

A rally was scheduled Wednesday outside the French finance ministry, where the Paris Club is meeting, to demand that the debt of tsunami-hit countries be cancelled and that the United Nations convene an international conference on the question.

G-8 for international tax

Beyond the disaster in southeast Asia, France -- in upcoming meetings with its leading industrialized partners in the Group of Eight -- wants to revive a proposal for an international tax to finance development aid, Gaymard said.

Britain, current head of the Group of Eight, has recently called for a "new Marshall Plan" for the developing world in order to cancel an estimated $80 billion in debt owed by poor countries.

The Group of Eight comprises Britain, Canada, France, Germany, Italy, Japan, Russia and the United States.