The Economic Times

Saturday, September 13, 2003

India lends $210m more to IMF for Brazil revamp

SHAJI VIKRAMAN

TIMES NEWS NETWORK

NEW DELHI: The government it appears has found an alternative in the
near-team to use part of the burgeoning foreign exchange reserves to more
profitable use.

Finance minister Jaswant Singh has cleared a proposal to lend 150m Special
Drawing Rights (close to $210m) to the International Monetary Fund which
will part fund the IMF's ongoing structural adjustment programme for Brazil.

The latest round of lending by India to the IMF follows an earlier round a
couple of months ago when the government provided $290m to the IMF which was
for funding the institution's structural adjustment loan to Brazil and $5m
to Burundi under another IMF-sponsored programme as part of the financial
transaction plan.

With the RBI and the government having to be content with fairly low returns
on the foreign exchange assets invested abroad in sovereign bonds, treasury
bills and also in top-rated banks and institutions, lending to the IMF will
help the government to earn a relatively better yield in the near-term. The
return on the funds lent to the IMF will earn the country close to 1.5% per
quarter.

This is relatively attractive considering the sub-Libor rates on sovereign
paper at the short-end.

The outflow of hard currency, although modest, will help the RBI which is
struggling to cope up with the growing capital inflows by resorting to
sterilisation. The RBI holds special securities which is part of India's
quota subscription in the role of a depository.

These securities are encashed with the government buying up foreign currency
for carrying out the transaction which is then transferred to the IMF's
reserve tranche position and then further transferred to the financial
transaction plan. One SDR is equivalent to $1.39 dollar. The present
decision may well be justified given the appreciation in the rupee.

The assistance this time is for the quarter starting from September to
November. India had committed to contribute earlier this year. In May this
year, India transferred SDR 5m to the IMF.

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