MUMBAI, December 27: A working group constituted by the RBI to look into the external debt management of the country has recommended formation of a special debt management unit for active management of foreign debt and establishment of appropriate benchmarks for currency and interest rate risk.The recommendations of the working group are now under consideration of the Government.It may be recalled that due to lack of efficient exchange rate risk management, India's total liability in lieu of external loans has been going up in rupee terms. In the last few months alone, the country's debt repayment obligation has gone up by a whopping Rs 38,500 crore due to 11 per cent depreciation in the value of Indian currency. The working group has also recommended a study of the risk management in other countries. It has suggested that public and private sector units with external commercial borrowings from the International Bank for Reconstruction and Development (IBRD) and other external agencies be encouraged to have independent capabilities for managing their risk exposures.A significant portion of the government's external debt is in the form of borrowings from the multilateral institutions and it has so far been managed in a passive fashion. The working group was formed to assist the steering committee constituted in March 1997 for making policy decisions on the external debt of the government. The currency choice offer made by the IBRD to its borrowers earlier this year, permitting conversion of currency pool borrowings into single currency exposure terms provided the immediate cause for such an initiative.This was disclosed by Y V Reddy, Deputy Governor of RBI, while speaking at a seminar on Public Debt: Current Issues'. He said that the steering committee constituted by the Government for taking necessary policy decisions on the issue of adopting a systematic and active approach towards management of the entire external debt of the government in general and borrowing from the IBRD was assisted by this working group.The deputy governor also disclosed that an informal working group to examine the possibility of a separate public debt management office of the union government has been set up. The report of the group is likely to be submitted next month.Separation of monetary and debt management of the government and setting up a separate office for public debt management was suggested by the Committee on Capital Account Convertibility (CAC), Reddy said.``The working group will go into aspects like objectives and rationale for separation of debt management from monetary management, identification of a suitable institutional framework for public debt management,'' he said.The group has already held discussions with officials of the central government and state governments. ``The RBI and the central government will take a view on the issue later'' he said.Reddy said SEBI has a role in regulating and controlling the activities of brokers/dealers as part of an investor protection. ``The issue regarding extension of its powers to cover government debt market in matters relating to trading, transfer and settlement procedures including functions of depositories would have to be examined in detail,'' Reddy said.
