NEW DELHI: The Indian government will seek a $2.7 billion loan from the Extended Fund Facility (EFF) of the International Monetary Fund (IMF). According to sources in the Finance Ministry, negotiations for this will begin by September.

Of this $1.6 billion is the standby arrangement already agreed to by the Fund, The government is seeking to convert this amount into the EFF. There will be an additional loan of $1.1 billion,

The government announced its plan to seek conversion of the stand-by arrangement into EFF when the IMF executive director, Michel Carndessus, visited New Delhi last year. He had agreed to consider the government’s request favorably.

Official circles, however, are not confident that the negotiations will be smooth as the Fund is expected to put tougher conditionalities. The government could not honor all the commitments made by the Finance Minister, Dr. Manmohan Singh, in his letter to the IMF managing director sent in August last year. For instance, he had committed that the government would come out with an exit policy before December last. The subsidy issue is still eluding a solution, and the government has failed to contain inflation, which was far above the level prescribed by the IMF last year and continues to be so this year.

However, a major hurdle in the path of negotiations for the EFF loan was removed recently when the Executive Board of the IMF approved the review of the program of 1991-92 and the proposed program for 1992-93. According to the Finance Ministry, this signified that government’s program of macro-economic stabilization was basically on track. This facilitated the release of $647 million.

The government may not get the entire $2.7 billion loan this year even though its balance of payment position is slated to worsen in coming months with imports going up and exports failing to catch up with them. The finance minister had been maintaining that the exceptional financing requirement for the current year will be about $3 billion, On present indications, the requirement of exceptional financing will be much more if imports maintain the current tempo.

India’s repayment burden of $3.5 billion per annum coupled with the estimated trade gap of $6 billion in 1992-93 can aggravate the foreign exchange crisis. The present comfortable position in foreign exchange which was achieved mainly by drastic import compression cannot be sustained without risking growth in the economy. It is unlikely that the entire $3.4 billion quick

Disbursing aid pledged at the Aid India Consortium would be available this year. It is against this dismal balance of payments scenario that the Government is going to negotiate $2,7 billion from the EFF.

The EFF is relatively better than other facilities of the Fund as it has a longer repayment period. It was established in 1974 exclusively for developing countries to help them in correcting structural imbalances. Under this facility a member country can take loans up to 140% of its quota. India’s quota is about SDR 2.2 billion. EFF loan has a repayment period of 10 years as against five to seven year for other loans

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