NEW DELHI: India is seeking a loan of between $5 billion to $7 billion from the International Monctary Fund (IMF) under its extended financing facility (EFF) to avert any foreign exchange crisis during the next three years,
A decision to this effect was taken by the Prime Minister, Mr P.V.Narasimha Rao, when he had a two-hour meeting with the finance minister, Dr Manmohan Singh and top officials of the fihance ministry. The balance of payments situation was reviewed and it was felt that while a standby credit of about$2 billion would be needed to tide over the crisis during the current financial year, the problems would recur next year. A larger loan of which the stand-by credit will be a part, will therefore be the best solution.
LETTER TO IMF: Immediately after the meeting the finance minister wrote a letter to the IMF managing director, Mr Michael Camdessus, spelling out India’s requirements for funds. The letter reportedly has also assured the IMF that the new government is willing to undertake the necessary structural reforms consistent with “India’s social objective.”
While the negotiations for the bigger loan will take time anything between six to eight months efforts are on to get the stand-by credit, known as the “upper tranche”, as soon as possible, Indications are that the first installment of the stand-by credit may be made available within a month from the presentation of the budget.
CRISIS ACUTE: In the meanwhile, foreign banks, once they get a signal from the international financing agencies, are most likely to roll the short term loans. The present BOP crisis has become acute because of the refusal of foreign banks to roll the loans any further following the downgrading of India’s credit as a result of the political uncertainties.
The structural reforms which India will have to undertake will be in the areas of trade, investment, as also in fiscal and monetary fields. It also implies deregulation and debureaucratisation to give more freedom to the private section to separate,
The policy shift also clearly indicates that India has decided to give up its policy of isolation and opt for global integration in phases to become, as the finance minister told a news conference, “a dynamic and vibrant economy” after a period of about three years,
The Chandra Shekhar government was also in favor of a bigger IMF Joan, and the then finance minister, Mr Yashwant Sinha had said he was for it. But no decision could be taken on the proposal as it was a caretaker government.
Article extracted from this publication >> July 5, 1991
