Tsunami Aid to Have Little Economic Impact

Official aid for last month's earthquake-tsunami disaster has been sizable. Germany on Wednesday increased its pledge to €500 million ($662 million) to become the world's largest donor.

But that amount was topped only hours later after Australia said it would donate €578 million to the catastrophe. Japan is the third largest donor with €378 million and the United States has pledged €265 million. Even tiny Norway will give €130 million.

The offers of aid have come despite the fact that most rich industrial nations are currently running budget deficits. For example, the United States will record a budget deficit of 4.5 percent in 2004. In Europe, France and Germany are both struggling to stick to the EU's stability pact, which underpins the economic foundations of the euro.

But experts aren't concerned that the commendable instinct to aid those suffering due to the tsunami could have a negative impact on the world's economy. "Budgets are strained all over -- except for perhaps in Sweden and Finland," said Ivo Bischoff, an economist at the University of Gießen. "But these are all things that will come down to decimal figures."

Klaus-Jürgen Gern from the Kiel Institute for World Economics agreed. He acknowledged Germany's pledge was large, however, "it will be paid out over at least three years," he also pointed out.

Money coming and going

Most donor nations are more concerned about how the money will be spent than where it will come from. Germany is no exception. "In principle, we ask aid organizations to name projects," a spokesman for the Foreign Ministry told DW-WORLD. "They can determine extremely quickly what is needed."

Most frequently, the funds for immediate aid go directly to local partner organizations or international aid outfits that can transport food, water and clothing on their own. The spokesman said there were two man criteria: food is bought in the affected regions to save transport costs and money is given only to groups with a clear system of distribution.

The aid given out for the tsunami damage could bring Germany closer to an important goal: According to a UN agreement, member states should aim to spend at least 0.7 percent of their GDP on development aid. Germany currently only spends 0.3 percent.

How much the aid for the tsunami will further such progress remains unclear, however.

"It will depend on where exactly the €500 million comes from," said a spokesman for the German Development Ministry. "At the moment it's impossible to say anything exact."