NEW DELHI: India will have to sign a new letter of intent with far more harsh conditionalities if the International Monetary Fund (IMF) agrees to provide a term to an to the country under the Extended Fund Facility (EFF) schemes, if the Fund provides the loan, the implementation and monitoring of the on goings structural adjustment program will be far more stringent than what it has been in 1991-92.
This country is reportedly seeking $1.5 billion (Rs 4,500 acres) under EFFs lower interest rate and longer repayment period. India, on the other hand is now paying 9% interest on the $2.2 billion loan and has to repay in two-three years.
Senior Finance Ministry officials expect that the conditionalities of the new LOI will be quite different than what the Finance Minister, Manmohan Singh had agreed to in June,1991 when he had sought $2.2 billion as a stand by loan,
Reduction of the deficit to an even lower level of the around 3.5-4% of the gross domestic product (GDP) from 5%.
The level of broad money growth (M3) will also have to be controlled no less than even 10.5% a level that was recently imposed on the Finance ministry by the IMF officials.
The government will have to present the IMF bosses in Washington a detailed plan for the economy. It will contain specific details about the government’s reform plans on different sectors like agriculture, wade, securities and others. On the basis that the IMF will dictate its own changes and then fix a more rigid time frame.
The IMF will probably demand reduction of tariffs on imports to an ever lower level than 60%, which has been promised already,
The sources expect that the Fund will also insist on removal of a number of major non barriers that the country has i This will have to be done in keeping with the mood of e major trading powers, especially since they are also the major donors to the Fund kitty.
And if the IMF agrees to extend the loan to the country, it may prove to be more recalcitrant than it is now, if India fails to meet the conditionalities. For example the IMF took interview when a government failed to control money growth to 13% as promised, and instead it grew by six per cent more.
The Fund may also not continue to be so patient with the Indian government if it fails, curb fertilizer and other sub: dies. a senior official said.it will also push the government to hasten its efforts in shedding the unprofitable public sector.
Interestingly, the Indian government is also negotiating with the Fund for another loan of $1.5 billion under the Enhanced Structural Adjustment Facility (ESAF). The reason for seeking a loan under ESAF, preferred by the North Block, follows the line that it is also an with very low debt servicing ratio and long repayment periods. According to the article of association of the Fund, this is indeed considered a soft loan meant for developing countries. But going to past records, sources say, there are very few developing countries which actually use the facility.
The reason for that is again the stringent conditionalities. According to the eligibility statutes that have been laid down for the loan, the loan seeking country will have to follow a policy framework paper, like a Holy Book which will be jointly prepared by the IMF, the World Bank and the government of the country.
Article extracted from this publication >> Aug 14, 1992
