In the tsunami's wake.

• Author: Bardalai, Anjalika

IT WOULD have been reasonable, upon hearing the news of the earthquake-induced tsunami that devastated South and Southeast Asia on December 26, to wonder at the unfairness of disasters so often striking those countries that are least equipped to deal with them. Bangladesh and China are flood prone; severe earthquakes have recently struck Central America, Turkey, India, Algeria, Afghanistan and Iran. Although Southeast Asia has been spared dramatic floods, cyclones or earthquakes in the past several years, the region suffered prior to the tsunami from multiple occurrences of avian flu, outbreaks of Severe Acute Respiratory Syndrome (SARS) and devastating terrorist attacks.

The strongest immediate impact of the tsunami will of course be felt in the staggering numbers of people lost: at least 160,000 in Indonesia, 31,000 in Sri Lanka, 10,000 in India and 5,000 in Thailand, according to the government figures available in mid-January. One could easily imagine that the indescribable human tragedy would be compounded by an economic one: A country like Indonesia that has slowly struggled to rebuild its economy after the regional financial crisis of 1997-98 suddenly sees years of effort undone in the space of a single day. Natural disasters are profoundly humbling in their ability to take lives and leave survivors utterly impotent--but their effect on economics is far more restricted. Good governance, planning and intervention can ensure that survivors do not suffer economically as well as emotionally. In this case, it is largely the generosity of rich countries that will ensure that, however the humanitarian crisis plays out, the economic damage from this disaster will be relatively short lived. To be effective, foreign assistance will have to be nuanced. Rich countries' offers of loans, grants and debt suspensions will vary by country, since the nations affected by the tsunami have vastly different economies.

For Sri Lanka, whose economy (much smaller than that of Indonesia, Thailand or India) would have had an extremely difficult time absorbing the impact of the disaster, direct aid is critical. Its government was already running a budget deficit of more than 8 percent of GDP before the tsunami. Were the financial responsibility for reconstruction to rest with it, the country would almost certainly face a prolonged fiscal crisis. In addition to a loan program for 2005-06 offered by the Asian Development Bank in November 2004, Sri Lanka has accepted tens of millions of dollars in donations and loans. Most of that country's estimated $1.5 billion reconstruction cost will come from this external aid.

In addition to direct aid, the provision of debt suspension will also limit the timeframe for economic disruption. The Paris Club of creditor nations offered countries affected by the tsunami a three-month moratorium on debt payments. This may be extended to one year, based on further assessments of the damage. As both Sri Lanka and Indonesia were facing large debt-service obligations in 2005, the move had the potential to save their governments hundreds of millions of dollars this year.

The main danger, as with the extension of loans, is that countries benefiting now from the suspension of debt will face larger payments in the future. Indonesia's government, in an unusual display of prudence, made it clear that it was mindful that the rest of the world would form opinions of the country's standing and stability--and thus its...