Giant waves damage S Asia economy

Governments, aid agencies, insurers and travel firms are among those counting the cost of the massive earthquake and waves that hammered southern Asia.

The worst-hit areas are Sri Lanka, India, Indonesia and Thailand, with at least 23,000 people killed. Early estimates from the World Bank put the amount of aid needed at about $5bn (£2.6bn), similar to the cash offered Central America after Hurricane Mitch. Mitch killed about 10,000 people and caused damage of about $10bn in 1998. World Bank spokesman Damien Milverton told the Wall Street Journal that he expected an aid package of financing and debt relief.

Tourism is a vital part of the economies of the stricken countries, providing jobs for 19 million people in the south east Asian region, according to the World Travel and Tourism Council (WTTC). In the Maldives islands, in the Indian ocean, two-thirds of all jobs depend on tourism.

But the damage covers fishing, farming and businesses too, with hundreds of thousands of buildings and small boats destroyed by the waves. International agencies have pledged their support; most say it is impossible to gauge the extent of the damage yet. The International Monetary Fund (IMF) has promised rapid action to help the governments of the stricken countries cope.

"The IMF stands ready to do its part to assist these nations with appropriate support in their time of need," said managing director Rodrigo Rato. Only Sri Lanka and Bangladesh currently receive IMF support, while Indonesia, the quake's epicentre, has recently graduated from IMF assistance. It is up to governments to decide if they want IMF help. Other agencies, such as the Asian Development Bank, have said that it is too early to comment on the amount of aid needed. There is no underestimating the size of the problem, however. The United Nations' emergency relief coordinator, Jan Egeland, said that "this may be the worst national disaster in recent history because it is affecting so many heavily populated coastal areas... so many vulnerable communities. "Many people will have [had] their livelihoods, their whole future destroyed in a few seconds." He warned that "the longer term effects many be as devastating as the tidal wave or the tsunami itself" because of the risks of epidemics from polluted drinking water.

Insurers are also struggling to assess the cost of the damage, but several big players believe the final bill is likely to be less than the $27bn cost of the hurricanes that battered the US earlier this year.

"The region that's affected is very big so we have to check country-by-country what the situation is", said Serge Troeber, deputy head of the natural disasters department at Swiss Re, the world's second biggest reinsurance firm. "I should assume, however, that the overall dimension of insured damages is below the storm damages of the US," he said. Munich Re, the world's biggest reinsurer, said: "This is primarily a human tragedy. It is too early for us to state what our financial burden will be." Allianz has said it sees no significant impact on its profitability. However, a low insurance bill may simply reflect the general poverty of much of the region, rather than the level of economic devastation for those who live there.

The International Federation of the Red Cross and Red Crescent Societies told the Reuters news agency that it was seeking $6.5m for emergency aid.

"The biggest health challenges we face is the spread of waterborne diseases, particularly malaria and diarrhoea," the aid agency was quoted as saying. The European Union has said it will deliver 3m euros (£2.1m; $4.1m) of aid, according to the Wall Street Journal. The EU's Humanitarian Aid Commissioner, Louis Michel, was quoted as saying that it was key to bring aid "in those vital hours and days immediately after the disaster". Other countries also are reported to have pledged cash, while the US State Department said it was examining what aid was needed in the region. Getting companies and business up and running also may play a vital role in helping communities recover from the weekend's events.

Many of the worst-hit areas, such as Sri Lanka, Thailand's Phuket island and the Maldives, are popular tourist resorts that are key to local economies.

December and January are two of the busiest months for the travel in southern Asia and the damage will be even more keenly felt as the industry was only just beginning to emerge from a post 9/11 slump. Growth has been rapid in southeast Asia, with the World Tourism Organisation figures showing a 45% increase in tourist revenues in the region during the first 10 months of 2004. In southern Asia that expansion is 23%. "India continues to post excellent results thanks to increased promotion and product development, but also to the upsurge in business travel driven by the rapid economic development of the country," the WTO said. "Arrivals to other destinations such as... Maldives and Sri Lanka also thrived." In Thailand, tourism accounts for about 6% of the country's annual gross domestic product, or about $8bn. In Singapore the figure is close to 5%. Tourism also brings in much needed foreign currency. In the short-term, however, travel companies are cancelling flights and trips. That has hit shares across Asia and Europe, with investors saying that earnings and economic growth are likely to slow.