The Hindu Business Line : The tsunami test — Are `reserves' really `resources'?

It is shocking that the survivors of the recent tsunami are forced to loot from one another in their struggle to survive. Cannot the vast foreign exchange reserves of the Indian Ocean rim countries be used to blunt the impact of the catastrophic tsunami? If so, these reserves should be put to use now to secure the lives of the dispossessed and the homeless, says G. Ramachandran.

"People are looting, but not because they are evil, but they are hungry."

— Irman Rachmat, an official of the Red Cross reporting from Banda Aceh in Indonesia.

IF THERE were a right time to test the assertion that a country's foreign exchange reserves are resources that could be used to fund investments in infrastructure, then the right time is upon us. Banda Aceh in the protruding north-western part of Sumatra bore the brunt of the tsunami that set off from the depths of the Indian Ocean last week.

The tsunami has killed thousands in Banda Aceh and left many more homeless. It is the plight of the survivors and the homeless that leads to the moral and economic question pertinent to the utility of foreign exchange reserves held by countries. If a country's foreign exchange reserves can be used expeditiously and with ease to provide humanitarian relief to those devastated by the tsunami, then reserves can plausibly be used to fund human development and investments in infrastructure over the long term.

If reserves cannot and will not be useful towards providing humanitarian relief in this hour of need, any assertion that a country's foreign exchange reserves are investable resources that could be used to fund development and infrastructure will hold no water. That is, the assertion that a country's foreign exchange reserves are investable resources should pass the tsunami test.

Boxed on Boxing Day

The struggle for survival of those that survived the rapidly moving tidal waves has been captured and presented by the media. It is heart-rending. They have been forced to loot from one another in their struggle to get hold of some food and drinking water, and fuel and medicine. It is a pity they have to loot.

What is poignant is that Indonesia's foreign exchange reserves — excluding gold — are worth nearly $40 billion. That is a lot of money: $40 billion can do a whole lot of good right away if reserves can indeed be put to use to provide humanitarian relief to the desperate citizens of a country that has been savagely boxed by the tsunami.

December 26 or the first weekday after Christmas is observed as `Boxing Day'. It is the day when gifts enclosed and wrapped in boxes are given to service workers such as postmen. But Boxing Day 2004 turned into a very different day where the `gifts' have been death, desperation, hunger, thirst and unwrapped grief.

Australia, Britain, Japan, Oxfam (an organisation but not a country) and the US have collectively pledged about $200 million. It will be put to use towards providing humanitarian relief to the survivors in more than ten Indian Ocean rim countries. The package is not for Indonesia alone, and is merely 0.5 per cent of Indonesia's reserves. What is more, food and medicine have just begun to reach Banda Aceh, four days after it was struck. They have been slow to reach the needy.

The assertion that Indonesia's foreign exchange reserves are resources that will be useful to its citizens does not seem to pass the tsunami test.

Saving the survivors

Indonesia, India and Sri Lanka are among the Indian Ocean rim countries that have been brutally battered. Andaman and Nicobar Islands and Tamil Nadu in India were among the first to report large-scale death and destruction.

The Andaman and Nicobar Islands are located close to the epicentre of the oceanic earthquake. Thousands more, perhaps 25,000, have been killed in Sri Lanka. Sri Lanka has declared a state of national emergency.

The latest reports claim that over 100,000 citizens of 12 countries have been left dead. The tsunami has left millions homeless in India, Indonesia, Malaysia, Maldives, Sri Lanka and Thailand. They have been shattered. Their access to drinking water, food, medicine, medical care, fuel, shelter and other utilities and necessities has been very severely impaired.

The impairment is a major threat to the lives of millions. The dead have been consigned to mass graves, and there can be no definitive body count.

But it would be harsh and inhuman to be tentative towards the millions of survivors faced with such a major threat. They should not be consigned to looting, hunger and disease, and death, as the result. Securing the lives of the millions of survivors is non-negotiable.

What is the vault for?

Can the vast foreign exchange reserves of the Indian Ocean rim countries be used to soften the blow of the tsunami and blunt the impact of the resulting impairment? If so, can these reserves be put to use now towards securing the lives of the dispossessed and the homeless?

The foreign exchange reserves of India (about $135 billion), Indonesia (about $40 billion), Malaysia (about $60 billion) and Thailand (about $45 billion) add up to over $280 billion. That is about 1,400 times the external funds pledged currently.

With so much of so-called internal foreign exchange reserves, it would be both logical and reasonable for many to believe that external aid and succour would not be necessary to put lives and livelihoods back on the rails. But the calls for international funds have been loud.

Moreover, efforts aimed at raising domestic funds to support the relief effort are gathering significant momentum. These efforts are estimated to yield about $300 million. That is, the immediate efforts aimed at providing humanitarian relief will merely get $500 million. Moreover, efforts aimed at rehabilitation and reconstruction will have to wait.

It is estimated that rehabilitation and reconstruction in the Andaman and Nicobar Islands will take at least 18 months. It may take 15 months for the Colombo-Galle link in Sri Lanka to become usable once more. In both cases, funding will be the principal constraint.

Four Indian Ocean rim countries have a vault with reserves worth about 560 times the external and domestic funds aimed at supporting relief to the stricken. But relief, rehabilitation and reconstruction will not get to use the vault's valuable contents.

What this means is that foreign exchange reserves may not really be resources. If they were, at least three countries — India, Indonesia and Thailand — would have unveiled plans to make use of their vast foreign exchange reserves to fund relief, rehabilitation and reconstruction.

(The author is a financial analyst. Feedback may be sent to indiagrow@yahoo.com)

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