WASHINGTON: The International Monetary Fund (IMP) is ready to play its part in helping India”, said the Managing director of the IMF, Mr Michel Camdessus, in an interview. Underlining the fund’s desire to help, he has recommended to the IMF executive board an immediate loan for 220 million for India to help tackle its balance of payments crisis.

 With support expected from the World Bank and from Japan soon after the IMF board passes Mr Camdessus recommendation for an immediate loan to India, the total amount of assistance in the short run that India can expect will amount to almost half-a-billion dollars, The World Bank is expected to give $150 million through a faster disbursement scheme, and Japan will co-finance $100 million. Both these aids are for Bombay high’s gas clearing project.

The IMF board is expected to pass the managing director’s recommendation of July 22, India will be able to draw the amount again under the fund’s Compensatory and Contingency Finance Facility (CCFF), which was recently used by India to tide over additional strains of its weak balance of payments position caused by a drop in remittances following the Gulf war.

STANDBY ARRANGEMENT: Mr Camdessus said that the fund was closely co-operating with the World Bank, the Asian Development Bank and with bilateral donors to support India’s attempt to tackle its immediate economic crisis and its effort to overhaul its economic structure and policies. After the finance minister presents his budget, discussions will begin on further fund assistance, most likely in the form of a standby arrangement for three years. The drawing under the standby arrangement in the upper credit ranches could amount to two billion Special Drawing Rights (SDRs), or about $2.5 billion, This Joan, and the terms and conditions attached to it, will be negotiated with the IMF by the government of India through its finance minisiry and its executive director on the board of the fund, Mr Gopi Arora.

If all goes well, the loan might be finalized in late September or early October, capping negotiations beginning next month. “Once the govt’s macroeconomic and structural policies have been formulated and presented to Parliament.” Camdessus, on further fund financial support, which may take the form of stand-by arrangement”.

BREATHING TIME: With the standby arrangement in place, and with the immediate support that the fund and the World Bank is ready to give, India will gain some breathing time in its struggle to resolve ils current balance of payments crisis. Once a green light from the IMF is received, India can hope for assistance, as well as investments, from other sources to gradually follow.

The Fund is prepared not only to help case the current crisis that Indie faces, but is also prepared to stand by India in its long-term plans to restructure its economy. “I am and indeed the whole world community is looking forward to hearing about the government’s plans for further economic reforms”, Mr Camdessus said, adding that the fund was ready to support “India’s efforts to strengthen its balance of payments and build the foundations for strong and sustained growth.

Although India would hardly be out of the woods, after it receives the Fund’s assistance, the managing director’s reassuring words, and even his readiness to speak at this juncture to an Indian newspaper to underscore the IMP’s support, should go a long way in rebuilding India’s damaged international economic standing.

 If India’s infrastructure can sustain the dramatic changes proposed by the new Prime Minister and his finance minister, the country’s medium and long-term economic prospects should be bright.

NEW DELHI ‘The government will increase the prices of kerosene and LPG or reduce heavily subsidies on these two items.

This is to mop up additional resources to pay for the enhanced value of oil imports expected to go up by R.s, 6000 to Rs.7, 000 crore, oil industry sources here said.

Government subsidizes kerosene and LPG (cooking gas) by nearly Rs.4, 000 crore and there is strong justification for reducing it drastically if not abolishing it altogether without any appreciable effect on the general price level, the sources said.

Article extracted from this publication >> July 26, 1991