As countries ________ the damage caused by the earthquake and the tidal waves that followed, one ________ is developing across South East Asia - the economic damage caused by the catastrophe is nowhere close to the terrible human losses.

The clause - “the economic damage … human losses” - provides the clue for both the blanks. The catastrophe has badly affected the economy of South East Asia, in addition to the terrible human losses. Therefore, (for the first blank) while the countries are adding up the damage caused by tsunami, (second blank), one strain of the intense economic damage than that of human lives is developing in that region. Of all the options for first blank, (1), (2) and (3) seem to fit our prediction. “Refrain” (strain, theme) in (3) is the only option that fits our prediction for second blank. Hence, (3) is the answer.