Now spend it sensibly

Jan 7th 2005
From The Economist Global Agenda

At an emergency summit in Jakarta, world leaders have offered billions of dollars in cash aid, soft loans and debt relief to countries hit by the Indian Ocean tsunami. Will they keep their promises? And have those who deliver aid learned from past mistakes?

“STINGY” it is not. On December 27th, the day after the Indian Ocean tsunami struck, Jan Egeland, the emergency relief co-ordinator for the United Nations (UN), denounced the meagre annual aid budgets of rich countries. He is now happy to call the world’s response to the Indian Ocean disaster “extraordinary”. The two statements are not contradictory. The share of their annual income that rich countries devote to aid—year-in, year-out support for the slow, painstaking business of development—has stagnated. But rich countries are mercifully quick to make grand gestures in the immediate aftermath of awful calamities.

The gestures are getting grander. On Friday January 7th, the day after representatives from 26 countries met at an emergency summit in the Indonesian capital of Jakarta, the total aid pledged by the world's governments reached $4.6 billion. Countries were outbidding each other in their generosity. Japan, which has pledged $500m, was leap-frogged on Wednesday by Germany, which raised its aid pledge from $27m to $680m. Australia has promised $385m in aid and a like amount in discounted loans. On Thursday, the European Commission added another $585m to its initial pledge of $30m and offered loans of $1.3 billion on easy terms.

Of course, all of this money is being pledged more quickly than it can be spent. Much of it is intended for longer-term reconstruction. Each dollar of aid provides a nominal claim on resources. But the resources that are needed in a disaster may not be immediately available off the shelf. Demand can outstrip supply; hard cash can run up against tight bottlenecks.

Nowhere is this more obvious than in Aceh, Indonesia, the hardest-hit province of the worst-hit country. Banda Aceh, the regional capital, has only one airstrip, and for the first days after the disaster, it had only one functioning forklift truck. However much food, medicine and potable water is bought, it can be delivered only as fast as planes can be landed and offloaded. It does not help that government forces and the area's separatist rebels are, it is reported, still engaged in sporadic clashes, despite hopes that they would lay down their weapons so aid agencies could distribute supplies uninitimidated.

“There are daunting logistical constraints,” admitted Kofi Annan, the UN secretary-general, at the summit, “but they are not insurmountable.” He wants to convert the big sums bandied around by governments into immediate commitments to concrete projects, most of them to be carried out by UN agencies and their partners. To meet the region's basic needs—such as shelter, food, sanitation, even mine-clearing—over the next six months will cost almost $1 billion, the UN says.

Once the raw displays of generosity are over, the question will quickly switch from “How much aid?” to “How well is it spent?” As the late Fred Cuny, a pioneer of disaster relief, warned: “For the survivors of a natural disaster, a second disaster may also be looming.” This looming calamity, he argued, can result from well-intentioned but ill-conceived aid. Relief camps, for example, are convenient for aid providers, but can be disastrous for the recipients, separating them from the communities that can best support them and exposing them to communicable diseases. Food aid, while essential in the short term, can put local farmers out of business if dumped on the market for too long.

In most disasters, the scarcest resources are co-ordination and information. Efforts are duplicated, agencies get in each other’s way. Mistaken fears, such as the myth that dead bodies are a major cause of disease, divert time and effort from urgent needs, such as digging latrines and restoring clinics.

Cuny wrote his warning over 20 years ago and the aid industry has since taken most of his lessons to heart. Drawing people into camps, however convenient logistically, is now seen as a last resort. When infrastructure is rebuilt, local hands are hired to do it. The temptation remains for aid organisations to compete to be the one most visibly meeting the most visible needs. But in this disaster some have already shown remarkable self-restraint. The medical charity Médecins Sans Frontières (Doctors Without Borders) has told donors that it has already received as much money as it can spend on the Indian Ocean disaster at this stage.

Following the Jakarta conference, attention has turned to a meeting on January 12th of the so-called Paris Club of 19 creditor nations. A number of these countries, including America, Germany, Canada, Britain, France Italy and Japan, have said they are willing to suspend debt-service payments from the countries affected by the disaster. Indonesia, for example, owes $47.8 billion to the Paris Club and is scheduled to pay $3.15 billion in principal and $1.36 billion in interest in 2005. Six of the countries most affected by the disaster—Indonesia, Thailand, Sri Lanka, the Maldives, India and Somalia—have combined foreign debts of about $270 billion. Of these, only Somalia is part of the longstanding debt-relief initiative for highly indebted poor countries.

In principle, there is little financial difference between offering aid and forgiving a debt or delaying payment of interest. Debt relief stops money flowing out of an indebted government’s budget. But an equivalent amount could just as easily flow into the government’s budget in the form of aid. Creditor nations can give with one hand, or stop taking with the other.

In practice, however, debt relief is a more formal commitment than an aid pledge. Donors sometimes renege on their promises, or dally in fulfilling them—Iran, for example, claims that it only received $17.5m of the $1.1 billion of relief it was promised after the Bam earthquake in 2003—whereas creditors cannot easily reassert claims they have surrendered.

The World Bank and IMF have said they support proposals to reschedule or forgive debt, but Australia, which is owed about $1.1 billion by Indonesia, has some reservations. As John Howard, Australia's prime minister, pointed out on Wednesday, the proceeds from debt relief accrue directly to the indebted government, which can spend them as it sees fit. Aid, on the other hand, is often earmarked by the donor government, which monitors the way it is spent.

The choice between aid and debt forgiveness thus comes down to a decision about who can be trusted to spend the money best. The government that has suffered the disaster, or the government responding to it. As with so much else in the world of disaster relief, methods count as much as magnitudes.

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