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A reversal of fortune: India lends to IMF

With emerging economies showing growth during recession,the shift in economic power is becoming visible.

Written by Seema Chishti | New Delhi |
June 7, 2010 3:39:34 am

With the emerging economies showing significant growth during the global recession,the big shift in economic power is becoming visible. And two decades after liberalisation,one of the biggest (and relatively unsung) shifts has been that from a borrower,India has turned into a lender country to the IMF (International Monetary Fund).

In March 2010,India invested $10 billion from RBI’s reserves into buying IMF notes,a huge leap from years of indebtedness. Over the next few weeks,the Cabinet is set to clear another $4 billion towards the same.

Former finance secretary K P Geethakrishnan calls it a “very big psychological boost”. India’s representative at the IMF in the 1990s,he says: “A lot needs to change for a substantive shift,but we were on bended knees when we went to the IMF for a loan in 1989-90.”

The lending to the IMF is not expected impact the fiscal situation,with the money coming out of the ample foreign reserves India now has. “Under the accrual-based accounting which the central bank follows,it is merely swapping its rupee assets with dollar assets,” J P Morgan’s chief economist Jahangir Aziz says.

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Interestingly,even in the new Arrangements to Borrow (NAB),which refers to a newer fund to “forestall or cope with an impairment of the international monetary system”,the combined share of the four BRIC countries could rise to as much as 15%.

However,India is keen for an increase in the vote share it has outside the NAB as that is where the power is. Delhi had argued that the system was unfair because of greater weightage to “openness”,which left out countries like India that had large domestic markets and did not need to be “open” to have a large share in the world economy.

This argument,with India,Brazil,Argentine and Egypt seeking a change in the “formula”,was accepted and a two-year deadline was set to make the playing field more even.

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