An Historical Look At Asian Natural Disasters
David Hale, The New York Times, 1/7/05
''Civilization exists by geologic consent, subject to change without notice,'' wrote the historian Will Durant. The tsunami that struck Asia last month, caused by an earthquake off the coast of Indonesia, is a reminder of the validity of Durant's thesis; so far it has left some 140,000 people dead.
Throughout human history, earthquakes have set in motion great economic changes and political revolutions. Last month's tsunami was devastating in its toll on human life, but its economic and political effects may be more modest.
The San Francisco earthquake in 1906 was an important catalyst for the financial shocks that led to the creation of the Federal Reserve in 1913. Because British insurance companies underwrote the majority of the city's insurance policies, millions of pounds of insurance claims were soon presented in London. The insurance claims generated a huge outflow of gold from London, which forced the Bank of England to nearly double British interest rates and to lobby British banks to stop buying American debt. Higher interest rates played a role in creating a financial panic in America, and Congress was so alarmed that it established a commission to investigate whether the government should play a greater role managing the money supply. The result of the commission's work was the creation of the Federal Reserve Bank.
Most of the businesses and people affected by last month's tsunami are relatively poor, and few had insurance. As a result, estimates of the insurance cost of the disaster are about $10 billion. The losses to the various national economies may also not exceed $10 billion.
Aceh, the Indonesian province where up to 100,000 people may have been killed, accounts for only about 2 percent of the country's gross domestic product. Thailand's southern provinces, which were overrun by the tsunami, contribute only about 2 percent of the country's G.D.P.
Sri Lanka, however, suffered extensive damage to its tourism, fishing and agricultural sectors. Tourism is a major industry there, directly or indirectly accounting for nearly 11 percent of gross domestic product, and the devastation in southern Sri Lanka could reduce G.D.P. by 2 percent to 3 percent this year. The regional impact will be modest, though, because Sri Lanka's economy is only about $74 billion compared with $478 billion for Thailand and $759 billion for Indonesia.
Thailand and Indonesia could suffer greater economic losses if their tourism industries decline; tourism is 12 percent of Thailand's economy and 10 percent of Indonesia's. But as the terrorist attack in Bali in 2002 and the SARS epidemic in 2003 demonstrated, shock events do not usually affect tourism for longer than a few months if people perceive that danger has passed. In fact, Thai hotel stocks declined on the day after the tsunami but have since recovered.
Earthquakes have also generated great political shocks. An earthquake in November 1755 destroyed Lisbon and killed at least 60,000 people. It also encouraged Portugal's foreign minister, Sebastiao de Carvalho, to usurp power from the king and launch a campaign against the Roman Catholic Church. Carvalho effectively reigned over Portugal until 1777.
In 1972, an earthquake in Nicaragua helped to nurture an incipient revolution against the ruling Somoza family. Outraged at the government's response to the catastrophe, many Nicaraguans in Managua turned to the Sandinistas, who ousted the Somozas in 1979.
Last month's earthquake could have important political implications because it struck regions in Indonesia and Sri Lanka that are home to domestic insurgent groups. Separatists in Aceh and Tamils in Sri Lanka have been challenging their governments for more than 20 years. The Indonesian government was initially slow to deploy aid, and many soldiers ran from the scene of the disaster, which could affect the standing of the new president, Susilo Bambang Yudhoyono, who had been promising to improve government efficiency. The Sri Lankan government, meanwhile, has allowed international aid agencies to coordinate relief with the Tamil separatists.
There is precedent for an earthquake encouraging political reconciliation. In 1999, earthquakes struck Turkey and Greece just a month apart and fostered cooperation between the two nations. The Turkish quake devastated an industrial city and killed more than 15,000 people; the Greeks sent relief and received positive news media coverage in Turkey. When a milder earthquake struck Greece a month later, Turkey reciprocated by sending aid.
The great risk in Aceh today is mismanagement of the reconstruction process. The Indonesian military has ruled the province since the fall of President Suharto in 1998 and has excluded foreign journalists. Since the earthquake, however, the province has been overrun with the global press and inundated with international relief agencies. When more foreign aid arrives, the Indonesian military could try to steal it. The presence of the United Nations could also encourage the Aceh separatists to demand more democracy in the province and even a referendum on independence. It would be a shame if the tsunami destabilized the administration of President Yudhoyono only a few months after he assumed office as a result of the country's first democratic presidential election.
The American press has been full of stories about how American aid for the earthquake and tsunami victims could help to improve American relations with the region. Public and private donations to the region from the United States could exceed $600 million. There is little doubt that the United States is playing a leadership role along with Japan, which has pledged $500 million, and the European Union, which has pledged $580 million. The new rising power in the region, China, is offering only $63 million.
What is unclear is whether Asians will regard the American aid as a truly transforming event or as a temporary burst of generosity from an aggressive superpower. Much may depend upon the follow-through. There is talk in Washington of capitalizing on the disaster by intensifying efforts to obtain a free trade agreement with Thailand and revive moribund talks about such an agreement with Sri Lanka. These developments could have a more lasting impact than the aid itself.
IN the 19th century, Indonesia was the site of two great volcanic eruptions whose impact was felt worldwide. The eruption at Tambora in 1815 killed at least 50,000 and spewed so much ash into the atmosphere that it produced a global cooling that caused frosts in New England in the summer of 1816. The eruption at Krakatoa in 1883 wiped out more than 160 villages and killed at least 36,000 people. The explosion was so loud it was heard in Perth, Australia, thousands of miles away.
The most enduring legacy of last month's tsunami may be the role of technology in providing relief. Because of the Internet, thousands of people were able to wire money to charities and aid agencies immediately. Ten years ago, it would have taken several days or weeks for checks to come in the mail. The prompt response shows that globalization can be a force for good. The challenge will be to ensure that the world remains focused on the recovery after the tragedy fades from the headlines.
''Civilization exists by geologic consent, subject to change without notice,'' wrote the historian Will Durant. The tsunami that struck Asia last month, caused by an earthquake off the coast of Indonesia, is a reminder of the validity of Durant's thesis; so far it has left some 140,000 people dead.
Throughout human history, earthquakes have set in motion great economic changes and political revolutions. Last month's tsunami was devastating in its toll on human life, but its economic and political effects may be more modest.
The San Francisco earthquake in 1906 was an important catalyst for the financial shocks that led to the creation of the Federal Reserve in 1913. Because British insurance companies underwrote the majority of the city's insurance policies, millions of pounds of insurance claims were soon presented in London. The insurance claims generated a huge outflow of gold from London, which forced the Bank of England to nearly double British interest rates and to lobby British banks to stop buying American debt. Higher interest rates played a role in creating a financial panic in America, and Congress was so alarmed that it established a commission to investigate whether the government should play a greater role managing the money supply. The result of the commission's work was the creation of the Federal Reserve Bank.
Most of the businesses and people affected by last month's tsunami are relatively poor, and few had insurance. As a result, estimates of the insurance cost of the disaster are about $10 billion. The losses to the various national economies may also not exceed $10 billion.
Aceh, the Indonesian province where up to 100,000 people may have been killed, accounts for only about 2 percent of the country's gross domestic product. Thailand's southern provinces, which were overrun by the tsunami, contribute only about 2 percent of the country's G.D.P.
Sri Lanka, however, suffered extensive damage to its tourism, fishing and agricultural sectors. Tourism is a major industry there, directly or indirectly accounting for nearly 11 percent of gross domestic product, and the devastation in southern Sri Lanka could reduce G.D.P. by 2 percent to 3 percent this year. The regional impact will be modest, though, because Sri Lanka's economy is only about $74 billion compared with $478 billion for Thailand and $759 billion for Indonesia.
Thailand and Indonesia could suffer greater economic losses if their tourism industries decline; tourism is 12 percent of Thailand's economy and 10 percent of Indonesia's. But as the terrorist attack in Bali in 2002 and the SARS epidemic in 2003 demonstrated, shock events do not usually affect tourism for longer than a few months if people perceive that danger has passed. In fact, Thai hotel stocks declined on the day after the tsunami but have since recovered.
Earthquakes have also generated great political shocks. An earthquake in November 1755 destroyed Lisbon and killed at least 60,000 people. It also encouraged Portugal's foreign minister, Sebastiao de Carvalho, to usurp power from the king and launch a campaign against the Roman Catholic Church. Carvalho effectively reigned over Portugal until 1777.
In 1972, an earthquake in Nicaragua helped to nurture an incipient revolution against the ruling Somoza family. Outraged at the government's response to the catastrophe, many Nicaraguans in Managua turned to the Sandinistas, who ousted the Somozas in 1979.
Last month's earthquake could have important political implications because it struck regions in Indonesia and Sri Lanka that are home to domestic insurgent groups. Separatists in Aceh and Tamils in Sri Lanka have been challenging their governments for more than 20 years. The Indonesian government was initially slow to deploy aid, and many soldiers ran from the scene of the disaster, which could affect the standing of the new president, Susilo Bambang Yudhoyono, who had been promising to improve government efficiency. The Sri Lankan government, meanwhile, has allowed international aid agencies to coordinate relief with the Tamil separatists.
There is precedent for an earthquake encouraging political reconciliation. In 1999, earthquakes struck Turkey and Greece just a month apart and fostered cooperation between the two nations. The Turkish quake devastated an industrial city and killed more than 15,000 people; the Greeks sent relief and received positive news media coverage in Turkey. When a milder earthquake struck Greece a month later, Turkey reciprocated by sending aid.
The great risk in Aceh today is mismanagement of the reconstruction process. The Indonesian military has ruled the province since the fall of President Suharto in 1998 and has excluded foreign journalists. Since the earthquake, however, the province has been overrun with the global press and inundated with international relief agencies. When more foreign aid arrives, the Indonesian military could try to steal it. The presence of the United Nations could also encourage the Aceh separatists to demand more democracy in the province and even a referendum on independence. It would be a shame if the tsunami destabilized the administration of President Yudhoyono only a few months after he assumed office as a result of the country's first democratic presidential election.
The American press has been full of stories about how American aid for the earthquake and tsunami victims could help to improve American relations with the region. Public and private donations to the region from the United States could exceed $600 million. There is little doubt that the United States is playing a leadership role along with Japan, which has pledged $500 million, and the European Union, which has pledged $580 million. The new rising power in the region, China, is offering only $63 million.
What is unclear is whether Asians will regard the American aid as a truly transforming event or as a temporary burst of generosity from an aggressive superpower. Much may depend upon the follow-through. There is talk in Washington of capitalizing on the disaster by intensifying efforts to obtain a free trade agreement with Thailand and revive moribund talks about such an agreement with Sri Lanka. These developments could have a more lasting impact than the aid itself.
IN the 19th century, Indonesia was the site of two great volcanic eruptions whose impact was felt worldwide. The eruption at Tambora in 1815 killed at least 50,000 and spewed so much ash into the atmosphere that it produced a global cooling that caused frosts in New England in the summer of 1816. The eruption at Krakatoa in 1883 wiped out more than 160 villages and killed at least 36,000 people. The explosion was so loud it was heard in Perth, Australia, thousands of miles away.
The most enduring legacy of last month's tsunami may be the role of technology in providing relief. Because of the Internet, thousands of people were able to wire money to charities and aid agencies immediately. Ten years ago, it would have taken several days or weeks for checks to come in the mail. The prompt response shows that globalization can be a force for good. The challenge will be to ensure that the world remains focused on the recovery after the tragedy fades from the headlines.
Note: David Hale, an economist and financial adviser, is chairman of China Online, a business news site.