WB scales down GDP growth

The recovery in 2000 was likely to be modest, but the real turnaround could be expected only in 2001 for the world economy when the situation would revert to the pre-1997 crisis price levels.

Giving a detailed analysis of the WB8217;s 8220;Global Development Finance, 19998221;, Modi said though current account deficit CAD in India was likely to widen marginally because of poor export performance nonetheless, 8220;it was not alarming.8221;

A significant aspect of a fall in global trade was that though the trade involume terms had increased by 4 per cent, in value terms during 1998, the growth had remained stagnant, implying there has been a 4 per cent fall in prices, particularly, commodities, hitting hard developing nations.

This fall in commodity prices in unit terms is expected to continue in 1999 as well, making global trade prospects during the year bleak, he said.

On the capital flows, Modi said India has not been able to attract significant flows in the wake of poor infrastructure unlike China which attracted sizeable investments despite the current situation. Just as in other emerging markets, India has experienced a sharp fall in portfolio investments loans, bonds and equities and a marginal fall in foreign direct investments.

Despite a decade of economic reform process in the country, India has not been able to attract large flow of foreign investments in China because of poor performance of infrastructure sectors, Modi said.

Citing an example, he said, China had added about 10 million phoneconnections every year during the last decade, as compared to India which has so far only 20 million connections.

The situation was similar in other sectors such as ports, roads and power, putting a major impediment for attracting large inflows of investment, Modi said.

Modi said Korea and Thailand have started recovering steadfastly from the East-Asian crisis and this could make the inflow of foreign capital into India that much difficult. He said the recovery of the East-Asian economies would make the manufacturing much cheaper, making their exports competitive.

Loans to countries with good norms

WASHINGTON: The World Bank is considering establishment of a new system of quot;precautionary creditquot; to countries having sound economic and social policies, The Wall Street Journal reports. The new facility would mirror the International Monetary Fund8217;s pre-approved credit lines set up by the Group of Seven industrial countries last October to stop investor panic from spreading to emerging marketnations with good economic management.

The measure would also try to check the quot;contagionquot; effect spreading from poorly performing economies to good ones. The proposed World Bank credit line, which could be drawn on in a financial crisis, would be contingent on regular structural policy reviews carried out by the Bank.A World Bank official, who wished to remain anonymous while discussions on the project are continuing, said: quot;this would mark a major change in the way the Bank operates.quot; He, however, stressed that the idea is still at a preliminary discussion stage inside the Bank, and is only one idea among several to help smooth the workings of the international financial markets.