Tsunami Reconstruction Assistance

Tsunami damage, as estimated on the basis of replacement costs of the physical assets and infrastructure and foregone income flows, was largest in Indonesia (4.4% of gross domestic product [GDP]) followed by Thailand (2.2% of GDP) and Sri Lanka (1.5% of GDP). Indonesia had the highest number of deaths (167,000), followed by Sri Lanka (almost 36,000 deaths). As a region, however, Aceh in Indonesia suffered the most destruction (97% of local GDP and 4% of population). Nias, a neighboring island, was also damaged by an earthquake in March 2005, though on a smaller scale. Despite the huge scale of the tragedy, the damage to physical assets as a percentage of the national capital stock in each country was relatively small. The overall impact on national GDP of the most-affected countries was also quite small. The regional impact, of course, was much larger.⁷

Much of the attention, particularly in the international media and in reports of major donor agencies, was focused on the international assistance effort. This was widely described as the "largest ever" international assistance effort in response to a natural disaster. But it should be noted that national governments and communities in the tsunami-affected countries also provided very considerable resources towards the relief effort. The value of these local activities is probably well above the US$3.6 billion minimum estimated in the TEC study (Telford, Cosgrave, and Houghton 2006) (Table 2 [ PDF 12.8KB | 1 page ]). Indeed, national governments and residents later had to carry much of the burden of meeting funding gaps caused by both cost increases and unmet pledges. Anecdotal evidence suggests that (unrecorded) local self-help assistance provided by local communities and private remittances by nationals were not only sizeable but also timely and effective. If the individuals and community groups involved in these efforts had a stronger voice in the national and international media, their efforts would probably be more widely recognized.

Reports in the international media tended to suggest that the international community was prepared to bear most of the cost of post-tsunami reconstruction. Unfortunately, there is no reliable source of data which records the amount of aid provided by international donors. Different sources provide different estimates. It is not easy to reconcile the various estimates. According to perhaps the most reliable source, the TEC study, a total of around $14 billion was initially promised by international donors and a minimum of another $3.5 billion of financial support was likely to be forthcoming from domestic sources in the affected countries (Table 2). The figure of $14 billion became the headline figure most frequently mentioned in the year or so following the disaster. This level of assistance was unprecedented: “this was the most rapidly and generously funded disaster response in history” (Telford, Cosgrove, and Houghton 2006: 20). Amartya Sen (2005: 7) has spoken of the "celebration of the outburst of human sympathy" in the aftermath of the tsunami. However, as the authors of the TEC report noted, these figures are no more than broad estimates; they need to be adjusted in various ways to estimate the true level of international assistance.⁸ The extent to which the outburst of global sympathy was reflected in the provision of reliable funding by international governments and institutions may have been exaggerated. However, whatever the rhetoric, international aid is rarely motivated by humanitarian ideals alone. As can be seen by even a cursory scanning of statements on the various websites of the major donor agencies, there were multiple objectives in the case of tsunami assistance.⁹

Information on aid flows shows that numerous countries provided assistance. Almost half of the total amount of aid was provided directly to Indonesia (Table 3 [ PDF 12KB | 1 page ]). There was notable support from some Asia and Pacific regional donor countries supplemented by flows from European Union (EU) institutions, United States (US), European, and other nations as well as the major multilateral developments banks (e.g., World Bank and Asian Development Bank) and the Islamic Development Bank.

A. Terms, Composition, and “Additionality” of Aid

Some part of the total funding was provided immediately in the form of grants with few strings attached; a larger amount appears to have been offered with various conditions attached, in a mixture of grant and loan terms over varying time periods.¹⁰ In some cases donors appear to have been prepared—if possible and consistent with the conditions that were attached to the provision of aid—to disperse funds quickly. But in other cases, the bulk of funding was evidently intended to be spent over longer periods. The immediate aid provided was therefore somewhat limited. Obviously the immediate provision of money is, in financial terms, more valuable than the promise of the provision of support at some uncertain time in the future.

Accurate valuation of aid provided in kind is difficult. Sometimes the goods or services provided, especially support provided by military organizations, were very expensive to supply, even making allowance for the difficult logistics involved. In addition, the items provided were not necessarily those which recipient government or agencies would themselves have selected. For example, out of a total of a reported $908 million allocated by the US government to tsunami assistance, $327 million was spent on emergency relief. Part of this amount went to the US Department of Defense to cover some of the costs incurred in the provision of tsunami relief (USGAO 2007: 8). While it is not possible to assess whether similar services could have been provided by other suppliers and, if so, what the costs would have been, it needs to be borne in mind that the use of military suppliers for services of this kind is often very costly. The terms on which financial assistance was offered also varied quite widely. Some assistance—it is difficult to know exactly how much—was provided in grant form, some of which were in cash and some in kind. The rest was provided in loans of varying kinds, many as soft loans on below-market terms.¹¹

Similarly, conditionalities set down by donors appear to have varied widely. In some cases, stringent procurement conditions, which were often onerous because of the bureaucratic nature of the controls involved, were attached to the provision of aid. In other cases, the preferred reporting requirements set out by different donors were difficult for recipient agencies to meet. And in yet other cases, donors looked for partnership commitments from national institutions which, under the difficult conditions prevailing in the aftermath of the disaster, placed a heavy load on already-overburdened local administrative systems.

The overall effect of this kaleidoscope set of aid arrangements is that it is very difficult to assess the true value of the rather bewildering variety of apples and pears of different sizes which make up the estimated total of $14 billion of international aid flows. And to add to the complication, to arrive at some judgment about the total flow of tsunami assistance, it is important to assess to what extent the tsunami aid flows were really additional to the regular flows which donors would have normally provided to these countries? There is no easy answer to this question. It requires information about likely future assistance flows that would have occurred in the absence of the tsunami. But the question is an important one. It would appear that at least some of the tsunami aid reflected, in effect, a diversion of aid which would have been provided in any case to Indonesia, Sri Lanka, and other tsunami-affected countries.

Any effort to arrive at rough estimates of the level of "additionality" rests on assumptions about the level of aid that would have been provided normally to regional countries in the absence of the tsunami disaster. In order to calculate this, we tried to estimate the difference between, first, the likely amount of aid which might have been provided in the absence of the tsunami and, second, the likely flow of tsunami aid (Table 4 [ PDF 18KB | 1 page ]). Both estimates are highly speculative. Nevertheless, the exercise is instructive because of the light it throws on the impact of the tsunami on aid flows.

A rough estimate of the possible distribution of tsunami aid flows is shown in the top line of Table 4. It is assumed, for example, that 30% of the $14 billion was spent in 2005 and that another 20% was spent in 2006. The resulting total expenditure flow for the seven-year period (2005–2011) of $14 billion is shown in the second line. But against this flow (which is a mixture of loans and grants and is therefore not net official development assistance ODA), it needs to be remembered that, in the absence of the tsunami, the affected countries would have received flows of perhaps $1.5 billion in net ODA per year or around $10.5 billion over a seven year period (compared with $14 billion for the tsunami flows).

What do these rough estimates indicate about additionality? Perhaps the main utility of the data is that they indicate rough limits of minimum and maximum likely aid flows to the main tsunami-affected countries over the 2005–2011 period. Two scenarios are shown:

• a "full additionality" scenario
• "no additionality" scenario

Under the full-additionality scenario, total assistance might be expected to reach around $24.5 billion over the seven-year period. However, under a no-additionality scenario, assistance flows would only amount to around $14 billion. The latter scenario, in turn, would imply that what might be called the "true additionality" of tsunami aid was around $3.5 billion. Weighing all of the various considerations, it is very difficult to reach firm conclusions about the real value of the additional total aid flows provided in response to the tsunami disaster. But it is likely to be markedly lower than the much-publicized headline figure of $14 billion.

B. Delivery, Disbursement, and Spending

It is hard enough to obtain an accurate picture of the mobilization of funds for tsunami assistance. It is even harder to track data on spending. The TEC study reports on developments up to the end of September 2005. The TEC estimates suggest that disbursements of promised funds had reached slightly over 30% of pledges at that time. But this, at best, is only indicative of spending levels. The TEC report notes that "disbursement by a donor does not necessarily mean that the funds have been spent" (Flint and Goyder 2006: 17). Funds are generally recorded as "disbursed" when they are transferred into the bank account of an implementing agency. In fact, "there is little information on how much has actually been spent." (Flint and Goyder 2006: 17).

Recent audit reports from the US and Australia on the use of tsunami funds provide thoughtful summaries of the practical challenges of implementing spending programs following the disaster. In the case of the US, in May 2005 Congress appropriated $908 million for relief and reconstruction. Of this, $327 million (36%) was allocated to the Department of Defense and USAID for emergency relief activities that have largely been completed. The remaining $581 million (64%) was budgeted for reconstruction and other post-emergency activities. Of this amount, $482 million (about 83%) was allocated to USAID. A summary of progress to December 2006 from the USGAO concluded that only 20% of funds allocated to USAID for reconstruction activities in Indonesia and Sri Lanka had been spent by the end of 2006, two years after the disaster (USGAO 2007).

In the case of the Australian assistance program, responding quickly to the tsunami disaster in early January 2005, the Australian Government announced a large (approximately US$800 million) contribution to a newly formed Australia-Indonesia Partnership for Reconstruction and Development (AIPRD). A report from the Australian National Audit Office provided a preliminary assessment of the framework established to manage the AIPRD rather than of the management of the program itself (Australian National Audit Office 2006). Nevertheless, the report canvassed some of the major issues that were likely to emerge in spending significant amounts of money across Indonesia.

Taken together, these two audit reports, along with many other reports about progress in spending tsunami monies during the two years including up through the end of 2006, pointed to a range of well-known challenges. These included the following:

• The need for proper controls, including risk management controls, over contract and tendering arrangements for the procurement of goods and services;
• The additional pressures that tsunami-related programs placed on already overburdened Indonesian administrative systems;
• The high probability that final costs of construction programs would exceed initial estimates by considerable amounts because of the escalation of local construction costs;
• Working in regions with long-standing civil conflicts;
• Coordinating activities with host governments and with NGOs; and,
• Ensuring that the focus on tsunami-related programs did not hamper other, nontsunami development programs.

In addition to these challenges, there is the apparent reluctance, of a growing number public officials (a topic much-discussed in Indonesia recently) to approve expenditures whenever there are any doubts about the legality of doing so.¹²

Against this background, it is hardly surprising that total reported spending in the first nine months after the tsunami appears to have been only around 30% of total planned expenditures. At first glance, this figure might seem somewhat low. But, is it unreasonably low? Was there an expenditure problem? Did the expenditure systems perhaps fail to facilitate a timely flow of resources to tsunami-affected communities? What can be said about these issues?

On the one hand, measured against some of the expectations that the early publicity about large-scale assistance programs encouraged, the rate of spending was criticized as disappointing by some. Certainly there is evidence of dissatisfaction from some stakeholders. There were media reports of complaints from affected people and incidents of demonstrations. On the other hand, it is inevitable that longer term reconstruction programs, such as road-building, take time to implement.

To some extent, the need to give priority to immediate relief and humanitarian must be balanced against the priority given to longer term development programs. In terms of immediate needs, the initial evaluation reports point to important problems. But in terms of longer term programs, it may be perhaps too early even in late-2008 to make judgments other than to note that it would not be surprising if delays occurred for all the well-known sorts of factors (such as hold ups in project preparation, difficulties in acquiring land, and negotiations over funding details) that often cause delays in long-term development programs.

Perhaps the main thing that can be said is that spending was not especially rapid. Some observers have argued that too many activities took too long to get underway. Others have suggested that ensuring high quality was more important than the quantity of projects that were funded. It is certainly true that the way in which money was spent, which often relied on cumbersome contract-based procurement arrangements, was not conducive to the speedy implementation of emergency assistance. If an important goal of disaster relief is to reach people quickly—and surely this is an important objective—a review of the way that aid monies are spent immediately following disasters seems appropriate.

C. Quality of Assistance

From the earliest stages of the relief effort, international donors indicated that the quality of aid delivery was a matter of major concern. There were several reasons for this. First, the quality of all aid programs has been a matter of much discussion in the international donor community in recent years. Misuse of aid through corruption, especially, is an issue which donors wish to guard against. Increasingly, checks and balances have been introduced into many international aid programs across the world. The provision of large programs of tsunami aid in Indonesia and elsewhere took place against this background of heightened international concern about quality issues. Second, following much international publicity from agencies such as Transparency International about corruption in Indonesia since the 1990s, Indonesia was widely regarded as a corruption-prone country. The topic of controls over tsunami expenditures in Indonesia thus assumed importance from a very early stage. Indonesian leaders themselves quickly acknowledged the importance of this issue. Amongst other measures, steps were taken to introduce improved auditing controls and establish the Badan Rehabilitasi dan Rekonstruksi (BRR).¹³ Similarly, in Sri Lanka the issue of proper controls over expenditures was seen as a priority. Significant lapses in the administration of funds were noted in an Auditor General's Department report from Sri Lanka in September 2005 (Government of Sri Lanka 2005).

Despite these and other efforts to improve controls, some international donors were sufficiently concerned about expenditure procedures as to be unwilling to share authority with national authorities over spending programs. This was partly a reflection of the regulatory controls (such as legal and auditing requirements) established for public expenditures, including expenditures by aid agencies, in donor countries. In some cases, it seems clear that this approach was also driven by the unstated but (politically) quite important objective of ensuring high visibility for the aid programs funded by the donor. Whatever the reason, the reluctance on the part of some donors to permit national governments to manage aid programs certainly exacerbated problems of aid coordination in the field. This approach certainly flew in the face of the international principles agreed to by all the Organisation for Economic Co-operation and Development (OECD) donors when they signed on to the much-publicized Paris Declaration, dealing with on aid effectiveness, in March 2005 (OECD 2005).¹⁴ It also often meant that the real cost of aid delivery was higher and that the real value of the total aid package was lower.

These events raise important questions about the delivery of emergency aid. The international aid industry is understandably concerned about the need to mobilize resources. Considerable effort goes into fundraising, including publicizing successes in aid programs. However, the international aid industry is sometimes less successful in the more mundane, though often very difficult, tasks of spending money in the field effectively in developing countries and keeping account of expenditures. In fact, many of the staff working for wellknown aid agencies are planners and administrators mainly involved in "upstream" or "wholesale" aspects of aid delivery. The nuts-and-bolts tasks of delivering aid in the field are often outsourced to service providers of various kinds—to contractors, consultants, NGOs, education and training, health providers, and so on. These arrangements, which relate to the structure of the global aid industry, prompt a number of questions: Are systems in place to direct the spending into the right areas? Do the delivery systems at the "retail" end of the aid industry operate effectively, especially in times of stress? Is there a "missing middle" in the international development debate about these issues of aid delivery (which sit somewhere between discussions about raising funds on the one hand and consideration of broad aid outcomes on the other)? Finally, should policymakers from countries that are concerned about issues of aid quality pay more attention to the practical problems of the way that aid is delivered in the field?

These issues—of whether there are trade-offs between the quantity and quality of spending, and if so, what choices are appropriate—need consideration in discussions about the delivery of emergency aid. On the one hand, there have been numerous comments in the media and elsewhere about delays in post-tsunami assistance expenditures. In some cases, there have been demonstrations (such as in Banda Aceh on 21 September 2006 when a crowd of people protested outside government offices against delays in the provision of housing). It would seem, at least based on anecdotal evidence, that local communities in tsunami-affected areas were keen to see funds disbursed as quickly as possible.

The arguments in favor of the rapid provision of assistance are strong. When large-scale natural disasters strike thousands of poor people in poor countries, the impact on local communities affected by the disaster is often devastating. This was certainly the case following the Asian tsunami. A survey conducted by the Fritz Institute in October 2005, nine months after the tsunami, provided an unusual insight into what local communities in the tsunami-affected areas thought of the assistance that they had received (Fritz Institute 2005). Their views on the effectiveness of the support provided to them were quite mixed. In terms of the immediate response to the disaster, local communities generally reported that the fastest assistance was from local support groups (Table 5 [ PDF 12KB | 1 page ]). In the medium term, issues of shelter and severe loss of income were rated of high importance for survivors of the disaster (Box 1 [ PDF 13KB | 1 page ]).

On the other hand, as against these shorter term issues, some international observers have emphasized quality in responding to the impact of the tsunami. This approach is implicit in the "build back better" motto which attracted considerable support from international agencies in the tsunami assistance programs. Reflecting these views, Brusset et al (2006: ii) argued that:

Although the recovery period has taken time to move into high gear, there are many reasons for proceeding slowly, perhaps the most important being to get it right. The Government of Indonesia, leading the process, will ultimately be judged by its own people less for slowness and caution than on the quality and sustainability of final outcomes…

In a similar vein, Paul O'Callaghan (2006), Executive Director of the NGO group, Australian Council for International Development, said that:

It would be a mistake to rush projects and build shoddy structures simply to demonstrate rapid progress. We have aimed to 'build back better' through close consultation with local communities. The reconstruction of Darwin [in Australia] after Cyclone Tracy [in 1974] took over six years. For this more complex disaster, the process requires governments and international agencies to remain committed for a very long period in order to produce the necessary quality of results.

It would seem that there are significant differences of opinion about the priority that should be given to quantity versus quality. Local communities in the tsunami-affected areas (the consumers) have often said that they want aid to arrive quickly. But international providers of assistance (the suppliers) have emphasized that controls over quality are needed. In discussing these issues, some observers make comparisons with the way that resources are mobilized within rich nations when there are national disasters within western countries. But it is questionable whether comparisons between the delivery of disaster relief in rich countries and poor countries can be easily made. The numbers of people directly affected in affluent nations are usually relatively small and emergency agencies are generally relatively well-resourced; in contrast, in developing countries it is often the case that many thousands of people are affected and that relief systems are acutely under-resourced.

In any case, delays with reconstruction, shortfalls between initial pledges and actual delivery, and other issues of slow aid delivery are not new to the tsunami assistance effort.¹⁵ Arguably the degree to which commitments were met in the period following the tsunami may even be better than in many previous disaster episodes. But the post-tsunami experience certainly reinforces the need for national governments to be prepared for reconstruction funding shortfalls; the indications are that national governments must be ready to cover shortfalls that arise in meeting reconstruction costs if promised donor funding does not arrive.

Overall, the picture that emerges is that the post-tsunami aid program did provide a substantial additional flow of funds into the countries affected by the tsunami and, then, within those countries, into the specific, tsunami-affected regions. Even in the case of previously promised aid, in addition to the shift into tsunami reconstruction activities, there was probably some shift forward in the time profile, thus increasing total inflows in the aftermath of the disaster. The overall result was a significant surge of financial flows. These flows were concentrated both spatially and sectorally: spatially, into disaster affected locations and, sectorally, into the construction sector where the bulk of the replacement of physical assets and infrastructure occurred.

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