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May 16, 1998


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US multinationals will be hit by sanctions

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Vaishali Honawar in Washington DC

The loss to India of $ 20 billion in loan guarantees and other economic aid from the United States and international agencies will reverberate through multinationals with high stakes in India's growing economy, many of them in the United States.

The US-imposed sanctions prohibit credit, credit guarantees, or other financial assistance by US government agencies to India and loans by commercial banks to government entities in India.

This includes a cutoff of loans and guarantees for about $ 500 million worth of export projects pending but not approved by the US Exim Bank and another $ 3.5 billion projects at a preliminary stage of the process. Projects already approved by the Exim Bank will not be affected by the sanctions, according to a spokesman for the bank.

Among those that will be most affected is Boeing Co, which planned the sale of ten 737 jets to the private carrier Jet Airways with a $ 200 million Exim Bank credit. Now, following the sanctions, it stands to lose the $ 486 million deal. Boeing also risks losing a multibillion-dollar order from Air-India to its biggest rival, Airbus Industrie, the France-based European consortium. France, which also carried out nuclear tests in 1996 shortly before signing the Comprehensive Test Ban Treaty, has not joined the sanctions against India.

Enron Corporation, with the largest foreign investment in India worth $ 2.5 billion, may find itself in an expensive jam too. The first phase of its construction project in Dabhol, Maharashtra, is expected to be completed by the end of the year. Part of the project was financed with funds from the Overseas Private Investment Corp and the Exim Bank, which will now be cut off following the sanctions.

There were others who were optimistic about the period for which the sanctions would stay in effect. AES Corp of Arlington, Virginia, is developing a $ 800-million, 500-megawatt power plant in Orissa. The company's vice president, Kenneth Woodcock, said the best they can see right now is a delay

Others, caught unawares by the "sudden" developments over this week, are not so sure of what exactly is going on and what the long-term effects of the sanctions will be. A spokeswoman for Enron, Kelly Kimberley, said it was too early yet to assess the impact of the sanctions on the Enron project.

A spokesperson for Information Technology Association of America was, however, quick to assure that sales of information technology involved software sold commercially and would not come under the sanctions. Last year, the US exported $ 125.8 million worth of computer software to India.

The largest US exports to India were telecommunications equipment and services totaling $ 632 million, and aircraft and parts amounting to $ 620 million. Other large exports included electric power generation, computers and peripherals, plastic materials and resins, industrial chemicals, iron and steel plant equipment and services, mining and mineral processing equipment and oil and gas field equipment and supplies.

According to the US state department, US exports to India reached $ 7.7 billion in 1997, while direct US investment was over $ 7 billion a year. If the sanctions are here to stay, India will not be the only loser.


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