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May 27, 1998


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WB loan of $ 865 mn to India delayed

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A World Bank loan of US $ 865 million to India was delayed when the meeting to discuss the loan was postponed indefinitely. However, this averted the projected showdown between the United States and India on the grant of three World Bank and one International Finance Corporation loans to New Delhi.

According to official sources, the office of India's executive director in the Bank, Surendra Singh, was informed about the meeting's postponement before it commenced. The World Bank's 22-member executive was scheduled to meet today to discuss the loans.

Of the four loans that were deferred, three were from the World Bank and one from its private sector affiliate, the International Finance Corporation which lends to the private sector.

Four projects were due to go to the Bank's board this week. These were:
* $ 130 million package to support India's renewable energy programme;
* $ 450 million loan to develop India's power grid into a national grid operation and transmission service company;
* $ 275 million loan to improve the highway network in Haryana; and,
* $ 10 million loan by the International Finance Corporation to Carrao India Ltd.

According to the New York Times, the United States was not alone in acting to force the World Bank to delay the loan. Japan, the second largest contributor to the Bank, also sought a delay.

But the daily quoted Bank "officials" saying that "there is a widening gap between Washington and several of its allies over using World Bank loans and other international assistance to punish New Delhi."

Most European nations, including Britain, view economic sanctions as unwise and unlikely to deter India from turning its nuclear capability into weapons.

It says the United States and Japan have the power to delay India's loans at the World Bank for months. But officials familiar with the institution's inner working say that Washington would find itself on shaky ground if the subject ever came to a formal vote.

The politics of the World Bank are less than clear. The United States and Japan can prevent the issue of money for India from coming to a vote for some time because the bank generally operates by consensus rather than by formal vote. No one foresees a vote for at least several months, perhaps even longer.

However, eventually, if the matter did come to a vote, a majority of board members would most likely vote for the loans, the NY Times quotes US and other officials as having said.

When asked about the World Bank's action in blocking the loans, US State Department spokesman James Rubin said, "Obviously, we intend to implement in full the correct interpretation and implementation of the US sanctions under the Glenn Amendment.

"We have already begun to take action in some areas, such as suspending international military education and training and stopping issuance of munitions licenses. The Overseas Private Investment Corporation and Exim Bank have suspended new commitments," he added.

Rubin said US was working with its international partners to suspend new lending to India through international financial institutions. "In that regard, we are happy to see that the Europe Union foreign ministers have indicated they would work for a delay in consideration of loans to India if New Delhi does not accede to relevant international non-proliferation agreements," he added.

However, media reports in Washington suggest that the European nations, including Britain, do not support the US line to punish New Delhi.

Rubin, however, said some of the Glenn Amendment sanctions were "so novel and unprecedented that we want to study them very carefully and make sure we clarify a lot of the details before we impose them and create a precedent in this area."

He denied the general impression being given out that the United States was the only country in the world doing something about the Indian nuclear tests. "I have indicated very strongly that though there are a series of countries, including Japan, Germany and others, who were taking very stiff action. Unfortunately, despite my best efforts, it's still remembered as an issue where only the United States is doing something," he said.

He then added, " I am pointing out to you the fact that the European Union has indicated that they will work to delay the considerations of loans to India if New Delhi does not accede to the relevant non-proliferation agreements -- in particular, the CTBT (Comprehensive Test Ban Treaty)."

Asked whether the Europeans would vote with Washington in the World Bank, Rubin was guarded. "I didn't say that. We do not speculate as to how other countries vote. I am just trying to give you a general sense of what our position is. I can be very specific: we are going to work to suspend new lending to India," he stated.

"Generally, the Europeans -- again, contrary to the impression one gets from international media accounts -- are moving towards imposing what is effectively a sanction. That is a negative effect for India if it doesn't join the CTBT as a result of the test," Rubin declared, adding, "With respect to how EU countries would vote in the World Bank, you'd have to ask them."

White House spokesman Mike McCurry echoed Rubin. "If there were some delays today in multilateral lending to India because of concern about the recent nuclear test by the Government of India, I think that would be an expression of the would community's dissatisfaction with current events," he said.

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