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Last Updated: Thursday, 13 January, 2005, 02:27 GMT
Debt freeze for tsunami nations
Survivor of tsunami waits for her family in Banda Aceh, Indonesia
A debt freeze will help affected countries rebuild after the disaster
The Paris Club of rich creditor nations has offered to freeze debts owed to them by tsunami-hit countries.

The offer is immediate and without conditions. But so far only Indonesia, Sri Lanka and the Seychelles have signalled that they will take it up.

But other affected countries have indicated that they will not, to avoid being regarded as credit risks.

Wednesday's announcement by the Paris Club follows an initiative from the G-7 group of developed nations.

The move had been agreed "in order to allow these countries to dedicate all available resources to address humanitarian and reconstruction needs", the Paris Club said in a statement.

Member countries are owed about $5bn this year in debt repayments by nations affected by the Indian Ocean tsunami.

Hidden costs?

Some development lobby groups, including UK aid agencies Oxfam and Action Aid, had urged the Paris Club to write off the debt altogether and not just defer the payments.

Oxfam said the Paris Club had failed to "take the bold steps needed on debt".

Total external debt
People stand on wreckage of ship, destroyed by tsunami in Thailand
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

The Paris Club is made up of creditor nations including the UK, France, Germany, Japan, Russia and the US, and meets about 10 times a year to discuss debts owed to them.

Not every nation is willing to accept a suspension of repayments, however, either because their level of indebtedness is low or because they are concerned about the effect on their credit rating.

Putting off payments may lower a country's rating, making it more expensive and more difficult for them to borrow money in the future, analysts said.

Thailand is one of the countries that has indicated it prefers to keep up with its payments. India also has said it will rely on its own resources rather than international aid.

Meanwhile, Indonesia, one of the world's most indebted countries and the worst hit by the tsunami, has called for greater help.

Heavier burden

The Paris Club meeting came after Jan Egeland, the United Nations official co-ordinating tsunami aid, said donor countries had promised $717m over the next six months to help the survivors.

We're seeing humanity at its very best in the beginning of 2005
Jan Egeland
UN relief co-ordinator

The G7 leading industrialised nations, currently chaired by UK finance minister Gordon Brown, had already backed a freeze on repayments.

Economists have warned that any debt relief must be structured carefully to avoid creating a heavier burden in the long-term. Wednesday's deal falls a long way short of this, involving only a deferment.

A write-off was not thought to be under consideration even though the $5bn owing for 2005 would be, in purely financial terms, insignificant for the rich creditor nations.

Why rich coutries have agreed to freeze repayments

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