Tsunami Areas May Not Need New World Bank, IMF Loans
Date: 29-Dec-04
Country: USA
Author: Lesley Wroughton
Sunday's tsunami, caused by a powerful 9.0 magnitude undersea earthquake, has devastated large areas in Indonesia, Sri Lanka, Thailand, India, Maldives, Malaysia, Myanmar and Bangladesh.
Sri Lanka and Bangladesh are already borrowers within the IMF's poverty-reduction and growth program.
Since the disaster, which has killed about 60,000 people, more than 20 countries have pledged emergency aid worth more than $60 million for immediate UN relief efforts.
The World Bank, which spends about $20 billion a year in development aid for the world's poor countries, said it was in talks with governments to redirect existing loans to reconstruction efforts.
It is likely that Sri Lanka, for example, will immediately convert a series of its World Bank loans for humanitarian assistance to buy drugs and finance water pumps and portable water for disaster-hit areas, a bank official said.
If new assistance is needed, it would likely go to Sri Lanka and Indonesia, the official said.
"These countries are still wrestling with the scope of the disaster so it will take a couple of days for the full extent of the disaster to be known and we will certainly look to redirect loans," said World Bank spokesman Damian Milverton.
IMF Managing Director Rodrigo Rato said in a statement over the weekend that the fund stood ready with support.
But Paul Freeman, author of an International Monetary Fund research paper on natural disaster risks, said it was too early to say whether countries would require balance of payments support from the IMF.
The IMF supports countries hit by natural disasters through an emergency lending facility. Some 24 countries have qualified for IMF emergency natural disasters aid, including Bangladesh, which received $138 million in 1998 after severe flooding.
"If in fact there is a fair amount of external assistance coming in and current account balances remain stabilized for those countries, there won't be a need for fund intervention," said Freeman, currently a senior visiting research scholar at the University of Denver.
"Even if there is, it ought to be a short-term measure," Freeman added.
In an October 2003 research paper for the IMF, Freeman estimated that natural diasters, will become more frequent, more intense and costlier, especially in Asia, amid climate change and as more people in overpopulated countries move to vulnerable areas.
He estimated that economic losses from natural disasters will average $40 billion a year, a more than sevenfold increase in losses since the 1960s.
Freeman said international financial institutions were increasingly including natural disaster risk in their lending strategies. "This tsunami will now be added to the equation," he added.
