Sri Lanka is one of the countries hit heavily by the Asian tsunami last December. There, reconstruction of the houses and livelihoods destroyed is beginning – slowly. The country has to cope with over half a million displaced victims, living in camps and facing uncertain prospects for return. Officials are developing resettlement schemes, but implementing them takes time, often because of legal and regulatory tangles.
Sri Lanka's case is not unique: the vast majority of the displaced across the tsunami-afflicted countries come from very poor communities, who did not own land in the first place. In many cases they are now waiting to see what the government and NGOs will provide. "I don't accept resettlement. I want to stay in my former house. Our fishing business is dependent on us being close to the sea," says a displaced Sri Lankan fisherman, quoted in a recent Unicef report.
Steady growth
Despite the enormous human cost of the disaster, analysts are increasingly in agreement that the overall macroeconomic effect will be negligible, for individual countries and for the region as a whole. According to the IMF's World Economic Outlook published last month, "Growth in the most severely hit countries is likely to meet, or even exceed, pre-disaster projections."
Robust growth rates are partly due to generous international aid, as well as, in some cases, debt forgiveness. But the other reason is that the sectors affected were not always most crucial to GDP growth. "The victims were largely subsistence farmers, and the hardest hit areas were underdeveloped war-zones," explains Marios Maratheftis, foreign exchange strategist at Standard Chartered. "Sumatra, which was badly affected, is not a major tourist area."
Domestic markets have also been boosted by the fact that most of the relief supplies are locally purchased.
"Going forward, we're very positive on Asia," says Maratheftis. Overall growth prediction for emerging Asia in 2005 is 7%, compared to TKTKTK last year.
Covering the costs
The total cost of reconstructing areas devastated by the Asian tsunami stands at roughly $12.5 billion, according to a UN estimate. Financial assistance from the donor community is expected to cover the majority of the bill.
In January, donors pledged nearly $4 billion to Indonesia alone, to be disbursed over the next five years (roughly the amount needed to rebuild roads, power plants, houses, office buildings, farm land and other facilities destroyed). Soon after, charities around the world began to close their appeals because many believed enough money had been raised.
Ironically, it is now spending the money that is proving problematic, though for largely logistical reasons. "The Red Cross [in Sri Lanka] has $400 million, earmarked to be spent quickly," says Izard Marcal, spokesperson for ICRC in Colombo. "But now we have to explain to our donors that some of it might only be spent in five years."
Land plots have to be allocated, land ownership and possible recompensation payments have to be clarified before the building of new houses can begin. "The government does not want to reconstruct on the same sites," says Marcal. "There is a buffer zone of 200 metres along the coast, and inland it's getting really crowded."
Refusing relief
In another sign of goodwill, the Paris Club of creditor nations in March finalized its offer to freeze debt repayments from tsunami-affected countries for 2005. The deferred payments, which total around $5 billion, and the accrued interest, can be repaid over five years.
Yet few of the afflicted countries have opted for debt relief. Only Sri Lanka and the Seychelles have taken up the offer.
Indonesia, which suffered by far the greatest losses in human and financial terms, is still considering the offer. The reason for the hesitation, however, is straightforward: it is also one of the world's most highly indebted countries, with an external debt of $132.2 billion. Putting off payments could lower its credit rating, which might make it more expensive and difficult to borrow additional money in the future.
"I think we are going to look at [the issue of debt relief] again," a senior official in Indonesia's finance ministry said in reaction to the Paris Club's announcement. "But from a cash flow point of view it would be very hard on us and only increase our burden." The country's reconstruction bill is roughly $5 billion.
Thailand and India, two other countries affected by the disaster, have both said that their economies can cope with the tsunami-related costs without debt rescheduling. Thailand also refused offers of bilateral and international aid.
It could take India up to eight years to rebuild hospitals, power stations and resorts, says the government. Nevertheless, growth predictions for both countries in 2005 are 5.6% (Thailand) and 6.8% (India).
Sri Lanka, however, which does not raise money on the international capital markets, is seeking an extension of the moratorium. "We would like to lobby the G8 to extend this [the debt freeze] to 2006 and 2007," Sri Lanka's finance minister Sarath Amunugama said in March. The country will need around $1.5 billion to rebuild.
The Maldives is the only country where the destruction will cost more than 0.7% GDP growth. Although few people died on the Maldive islands, the entire population was affected and much of the tourism infrastructure – its principal foreign currency earner – destroyed. The country will be struggling to rebuild its economy for years.
Responding to the disaster, the ADB has also opted to disburse grants, not loans, for the first time ever, based on needs assessments in various sectors. "On a macroeconomic level, yes [the effect is not very high], but this is certainly not the case at the level where the tsunami struck," points out Robert Dobias, head of the ADB's NGO centre. "The tsunami may in fact push two million people back under the poverty line."
"But we also have the opportunity to improve the situation to what it was before," he continues, "especially in terms of building standards."
Tracking aid
However, the massive sums involved in reconstruction and the complexity of the operations have also raised fears that money could be siphoned off by corruption. To combat this, the ADB together with Unicef, is developing a tracking matrix for all financial assistance, to see where money is coming from and how it is spent.
Corruption was a big concern amongst donors from the start of the aid effort, although agencies have yet to pinpoint any concrete cases. "There haven't been any confirmed cases of corruption," says Aled Williams, research officer at Transparency International, which monitors global corruption.
Nevertheless, he says "You have so many organizations out there, and there is the real danger of bad use of funds and the duplication of projects."
In early April, a conference in Jakarta raised the problem of accountability and developed guidelines to improve the situation.
The good economic growth prospects for the tsunami-hit countries are a positive background for the reconstruction efforts. But for the people on the ground, the good news is not going to make an immediate difference. "The rainy season has just begun," says Marcal, " and it's a bit of an emergency."