Wave-ravaged countries win debt payment relief

The world's leading industrial nations last night agreed to suspend debt payments from countries in south-east Asia affected by the tsunami disaster.

Responding to the damage caused by the wave, the G7 nations announced an immediate debt moratorium and promised further assistance when they meet in London next month.

The deal agreed by the United States, Britain, Germany, Japan, France, Italy and Canada will be rubber-stamped by the Paris club of creditors when it meets next Wednesday. Most debts are owed to the G7 countries, making Paris club approval a formality.

Negotiations have been taking place between G7 capitals all week, and last night Gordon Brown, the current chairman of the group, said debt relief would form merely the first stage of help for countries in the region.

The World Bank and the International Monetary Fund have been told to complete a needs assessment in time for a meeting of G7 finance ministers due to take place in London early next month.

The Washington-based institutions are likely to conclude that billions of pounds will be needed to finance the reconstruction of coastal regions, posing acute short-term financial problems for the countries affected.

The chancellor said last night: "In the wake of this tragedy, the true test of the international community will be how we can fund and assist both the immediate day-to-day emergency services needs but also the long-term reconstruction of the countries affected by the tsunami.

"We must ensure that those countries are not prevented from paying for essential reconstruction because they are having to fund the servicing of their debts. So, for afflicted countries that request it, the G7 is proposing an immediate suspension of debt repayments.

"And depending on the conclusions of the needs assessments, I believe that the G7 and Paris Club must also stand ready to consider all options for further assistance. I will be discussing this with my G7 colleagues at our next meeting on February 4-5."

The G7 also called on the IMF, World Bank, Asian Development Bank and other multilateral institutions to make the strongest possible efforts to provide financial assistance to the tsunami-affected countries, including providing emergency post-disaster facilities.

The G7 also supported urgent consideration of an early warning system for tsunamis in the Indian Ocean, and for the infrastructure needed to make it effective.

Of those countries affected by the tsunami, Sri Lanka faces the most pressing financial difficulties. It is running a budget deficit close to 10% of GDP, is heavily reliant on tourism and faces the prospect of its textile sector being undercut by Chinese competition following the scrapping on January 1 of the international agreement which gave it preferential access to western markets.

Britain is calling for Sri Lanka to be added to the list of heavily indebted poor countries (HIPCs), most of which are in sub-Saharan Africa.