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IMF Supports Samoa After Tsunami Devastates Nation

Rebuilding on Samoa’s southern coast after September 2009 tsunami that severely hit island nation’s tourism industry (photo: Torsten Blackwood/AFP)

HELP AFTER NATURAL DISASTERS

IMF Supports Samoa After Tsunami Devastates Nation

IMF Survey online

December 8, 2009

  • IMF lends $9.3 million to help economy, spark donor assistance
  • Disaster dims prospects for quick recovery from global financial crisis
  • Cost of rebuilding, maintaining social services could top 15 percent of GDP

The IMF has approved a $9.3 million loan to help spur recovery and reconstruction in Samoa following the September 2009 earthquake and tsunami, which severely damaged the island nation.

The loan—which comes from the rapid-access component of the IMF’s Exogenous Shocks Facility—will bolster Samoa’s external reserves, help cover expected shortfalls in export earnings, and open the way for assistance from other international and bilateral agencies.

“We express our deepest sympathy for the losses from what was the worst disaster to hit the country since it achieved independence in 1962,” said Olaf Unteroberdoerster, the IMF mission chief for Samoa. “The physical damage was enormous. Samoa needs international support to enable it to recover and meet the fiscal cost of rebuilding, repairing infrastructure, and investing in better protection from disasters in the future.”

According to official reports, the tsunami on September 29 claimed more than 140 lives and destroyed the homes of some 5,300 people—about 2.5 percent of the population. The disaster has also severely undercut the country’s prospects for a quick recovery from the global recession. The cost of rebuilding infrastructure and maintaining access to social services could exceed 15 percent of GDP during the next three to four years.

The impact on Samoa’s tourist industry—its main commercial source of foreign exchange—is likely to be particularly severe. As a result, real GDP is projected to contract in 2010 and the current account deficit is set to widen, with reconstruction-related imports rising sharply.

Since the disaster, the IMF has been working with its international partners to put together a package of external funding for a supplementary budget—which could bring the overall fiscal deficit to nearly 12 percent of GDP—to meet the anticipated recovery costs. To be fully funded by grants and concessional loans, the budget will focus on humanitarian relief and repairs to infrastructure, which are key to resuscitating growth.

Partner agencies

“In this disaster, our role is to help Samoa recover from the disaster as quickly as possible and work together with the international community on a coordinated aid package and policies that achieve this goal,” Unteroberdoerster said. “The Fund’s assistance is a signal to our multilateral and bilateral partners that a sound macroeconomic framework is in place and the debt outlook remains favorable.”

The government is committed to reducing the fiscal deficit to less than 3 percent of GDP over the medium term to stabilize public debt at prudent levels, he said.

Development partners—including the World Bank, Asian Development Bank, and European Union—joined the IMF team in technical and policy meetings with the government to plan the recovery strategy.

“We have had excellent collaboration with other institutions,” said IMF Senior Economist Patrizia Tumbarello. “Our role was not just to disburse this $9 million but to put together a framework that these other donors can use. They were looking for our economic assessment of the tsunami in terms of the fiscal management recovery costs and debt sustainability so they can embark on deciding on the parameters of their own assistance.”

Mobilizing finance

The Exogenous Shocks Facility is concessional financial assistance designed for countries like Samoa that are well run but need assistance because they are suffering an external shock, Unteroberdoerster said. “It’s a facility that allows a one-time quick disbursement to countries that basically have a good track record and reasonable policy credibility,” he added. “Samoa fits this requirement very well and that allowed us to respond very quickly and in a pragmatic way.”

In early November, Unteroberdoerster and colleague Runchana Pongsaparn viewed first hand the devastation, which affected particularly the tourist areas of the southeast. “Where the tsunami struck, there was nothing left—even the foundations of houses were washed away,” said Pongsaparn. “It really was complete destruction, with debris everywhere. It was very difficult for people to escape and survive because the affected area backs on to the hillside.”

Decisive national response

The team said national authorities responded decisively. They had an institutional framework in place to start coordinating humanitarian relief and immediately drafted plans for the recovery. We could see the start of the reconstruction process,” added Pongsaparn. “Rebuilding efforts were clearly well under way. The Samoans did not wait.”


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