Japan Backs Brown Debt Plan

Japan today threw its weight behind Gordon Brown's plans to offer debt relief for countries hit by the Indian Ocean tsunami.

Japan's expression of support has given a big boost to the chancellor's efforts as Tokyo normally takes a conservative position on debt issues.

Mr Brown yesterday expressed confidence that Japan and the US would put a freeze on debt repayments that would save Indonesia and Sri Lanka, the countries worst affected by the tsunami, $6bn (?3.1bn) a year alone.

As president of the G8 industrial nations and the EU this year, the UK is seeking to push debt relief for poor countries in Africa. Mr Brown said there was no reason why generosity towards the tsunami victims should preclude debt relief for sub-Saharan Africa.

While backing UK calls for debt relief, the Japanese finance minister, Sadakazu Tanigaki, drew a distinction between debt reduction, which Tokyo does not favour, and a debt freeze or moratorium.

"Considering the fiscal situation of each country, naturally they may ask for a debt moratorium and I think we would like to grant it," Mr Machimura told a news conference. He added, however, that no requests for debt reduction had been made and Tokyo did not think such a step was appropriate.

Tokyo has already promised $500m, about a quarter of the total global aid pledges of $2.3bn for the tsunami victims in the biggest humanitarian relief effort since the second world war.

The possibility of an immediate freeze on debt payments was first suggested by the German chancellor, Gerhard Schröder, and Mr Brown is now running hard with the idea. Germany today increased its aid commitment to €500m (?352m) from €20m.

The idea of a debt moratorium is expected to figure prominently in discussions at an emergency aid summit in the Indonesian capital, Jakarta, tomorrow. The group of creditor nations known as the Paris Club also plans to discuss proposals for debt relief at a meeting next week.

The Indonesian president, Susilo Bambang Yudhoyono, welcomed the suggestion of debt relief and said any debt rescheduling would benefit his country's economy as it recovered from the disaster. He said he wasn't sure what form debt relief might take, "but even a rescheduling will still be a good opportunity", Mr Yudhoyono told reporters.

Not everyone is on board with the debt relief plan. The Australian prime minister, John Howard, said, while he would consider any debt proposal, he was concerned any move to forgive debt or freeze repayments would not help those most in need.

"There is no guarantee that if you do it, what is forgiven or what is the subject of a moratorium will end up going in aid," Mr Howard said in Canberra. "The debts are not normally owed by the people who need the assistance. It is usually owed by other organisations. And you have no guarantee that if you provide a debt moratorium, debt forgiveness, that that money ends up where it should."

Australia is one of 19 permanent members of the Paris Club, which reaches its decisions on debt relief by consensus. The Paris Club last November forgave 80% of Iraq's $39bn foreign debt and interest repayments. Mr Howard might well cite a report from the ratings agency, Standard & Poor's, to back up his point.

S&P said in a statement: "At this stage, Indonesia has the capability to service its domestic and foreign debt. The devastation of outlying provinces by the Indian Ocean tsunami did little to detract its debt-servicing ability."

Indonesia's overall Paris Club debts total $47.8bn and the country was due to pay $3.1bn in principal and $1.3bn billion in interest in 2005. Indonesia, Thailand, Sri Lanka, the Maldives, India and Somalia, all badly affected by the tsunami, have $272bn in combined external debt.

More than 145,000 people were killed across south Asia by the December 26 tsunami, triggered by a 9.0 magnitude earthquake off the Indonesian island of Sumatra. Indonesia suffered the most devastation, with more than 94,000 killed, most in the Aceh province of northern Sumatra, while more than 30,000 were killed in Sri Lanka.