Enlarge imageBy Paul Carrel
PARIS (Reuters) - The Paris Club of creditor nations has reached an agreement to freeze debt repayments of countries hit by the Asian tsunami to help them recover.
"The suspension takes effect immediately," Paris Club President Jean-Pierre Jouyet told a news conference after talks in Paris on Wednesday, adding that no conditions were attached and the group was waiting to hear which countries wanted to accept the offer.
Some countries hit by the tsunami have said they do not think a debt freeze is the best way to assist them, but French Finance Minister Herve Gaymard said he expected Indonesia, Sri Lanka and the Seychelles to take up the offer.
The 19 members of the Paris Club met in Paris to discuss the plight of Asian countries hit by the December 26 catastrophe. The external debts of the stricken nations total about $272 billion, with Indonesia alone owing the Club some $48 billion.
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Gaymard told the Paris Club, which takes its decisions by consensus, that the Group of Seven rich industrial nations believed a debt moratorium was vital.
"A moratorium is absolutely indispensable in order to allow the affected countries to overcome their immense difficulties," he said.
The Paris Club said it would not expect debt payments from the countries hit by the tsunami until the World Bank and the International Monetary Fund (IMF) have assessed their reconstruction and refinancing needs.
It is not clear when the assessment will be finished.
Jouyet also said the affected countries would not automatically have to start repaying their debts straight after the two financial institutions have issued their assessments.
G7 PRESSURE FOR DEAL
Indonesian Foreign Minister Hassan Wirajuda, whose country was the hardest hit by the tsunami, had welcomed the prospect of a debt freeze deal but said Jakarta also needed more donations to cope with the disaster.
Sri Lanka hoped to secure at least a two-year debt moratorium, an official of the country’s Finance Ministry said. It has multilateral and bilateral debts of $8.82 billion (4.7 billion pounds), and debt servicing is expected to cost about $476 million in 2005.
A Paris Club official said that this year, Indonesia would owe the Paris Club creditors $3 billion, while Sri Lanka would owe the group $320 million.
The G7 countries -- France, the United States, Japan, Germany, Britain, Italy and Canada -- are all in the Paris Club.
More than 150,000 people were killed by the huge waves that followed an earthquake off the Indonesian island of Sumatra. 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 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.
A debt repayments freeze could offer short-term gain but bring long-term pain as the cost of servicing debt could rise in the future.
"The Paris Club creditors don’t want this suspension of payments to be subject to any conditions -- neither an agreement with the International Monetary Fund nor any comparable treatment on the part of private creditors," Jouyet said.
Paris Club accords normally require such an IMF agreement and comparable treatment with private creditors, he added.
Under the normal Paris Club arrangements, losses would be shared with private creditors and could thus lead to a deterioration in the country’s credit standing, analysts said.
Indonesia wanted to ensure any Paris Club decision did 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.
