PARIS, 13 January 2005 — The Paris Club of creditor nations reached an agreement yesterday to freeze debt repayments of countries hit by the Asian tsunami, the club’s president said.
“The suspension takes effect immediately,” Paris Club President Jean-Pierre Jouyet told a news conference after talks in Paris.
He said it would apply to those countries that wanted to accept it but did not immediately give any details.
French Finance Minister Herve Gaymard had earlier yesterday told the Paris Club the Group of Seven rich industrial nations believed a debt moratorium was vital, and he expected Indonesia, Sri Lanka and the Seychelles to accept the deal.
The 19 members of the Paris Club were meeting at the French Foreign Ministry to discuss the plight of Asian countries hit by the Dec. 26 catastrophe. Their external debts total about $272 billion, with Indonesia alone owing the club some $48 billion.
Indonesian Foreign Minister Hassan Wirajuda, whose country was the hardest hit by the tsunami, had welcomed the prospect of a debt freeze deal but also said Jakarta needed more donations to cope with the disaster. Sri Lanka hopes to secure at least a two-year moratorium on debt repayment, a senior official of the country’s Finance Ministry said. It has total multilateral and bilateral debts of $8.82 billion, and debt servicing is expected to cost about $476 million in 2005.
Some other countries, such as Thailand, have said they do not believe a debt moratorium is the best form of assistance.
Australian Prime Minister John Howard said last week he would consider any debt proposal but feared any move to forgive debt or freeze repayments would not help those most in need.
Australia is one of the Paris Club’s 19 permanent members, but the group’s decisions on debt relief are taken by consensus rather than unanimity. The G-7 countries — France, the United States, Japan, Germany, Britain, Italy and Canada — are all in the Paris Club.
“It appears to members of the G-7 ... that a moratorium is absolutely indispensable in order to allow the affected countries to overcome their immense difficulties,” Gaymard said. “That is the clear and simple message that I brought to the heads of the delegations meeting here.”
More than 150,000 people were killed by the huge waves that followed an earthquake off the Indonesian island of Sumatra on Dec. 26. Some 105,000 of the victims were in Indonesia. Indonesia said on Monday it expected Western creditors to allow it to freeze up to 30 trillion rupiah ($3.2 billion) in debt repayments through 2006 to deal with the disaster.
That would amount to about one-third of its $8.8 billion in scheduled repayments over the next two years to the group of sovereign creditors.
Wirajuda said earlier this week “many other schemes” could be considered in addition to a moratorium, but Indonesian Finance Minister Jusuf Anwar has denied his government is seeking a debt refinancing or restructuring.
A freeze in debt repayments could offer short-term gain but bring long-term pain as the cost of servicing debt may rise in the future.
Indonesia wants to ensure any Paris Club decision does not adversely affect its talks with the London Club of commercial creditors or affect its credit rating, which could raise the cost of future borrowings.
