FINANCE: World Bank Postpones India Loans

By IPS Correspondents Reprint | | Print |

WASHINGTON, May 26 1998 (IPS) - The World Bank postponed Tuesday consideration of 865 million dollars in new loans to India as part of a Washington-led protest against India’s recent nuclear tests.

Voting on the loans was put off until “a date to be determined” after several of the lending agency’s 24 executive directors had asked for the delay, the Bank said in a statement.

Bank officials declined to name the countries requesting the postponement. However, at the summit of the ‘Group of Eight’ leading powers in Birmingham, England earlier this month, the United States, Japan and Canada led the drive for international sanctions against India.

Washington invoked the 1994 Nuclear Proliferation Prevention Act and imposed sweeping sanctions against New Delhi May 13. That law requires U.S. executive directors at the World Bank, International Monetary Fund, and Asian Development Bank to oppose loans for India.

The World Bank had been expected to approve some two billion dollars in such loans before June 30, the end of its fiscal year. The four loans to have been decided this week included three from the Bank itself and one from the International Finance Corporation (IFC), its private-sector affiliate.

Now in limbo were 130 million dollars to support India’s renewable energy programme, 450 million dollars to develop the national electric power grid, 275 million dollars to improve the highway network in the state of Haryana, and a 10-million-dollar IFC loan for a tractor factory.

Other loans in the pipeline included two health projects and an ‘economic restructuring’ package for Andhra Pradesh state. It was not yet certain whether those loans also would be subject to delay, a Bank spokeswoman told IPS.

This week’s postponement effectively added to sanctions that could top 20 billion dollars in frozen lending, loan guarantees, and other economic aid from U.S. and international agencies, according to economists here.

Washington’s sanctions so far have cut off some 500 million dollars in export projects, pending but not approved by the U.S. Export-Import Bank (Ex-Im), as well as 3.5 billion dollars in projects still in their very first stage. Also halted was 10.2 billion dollars in insurance and financing by the U.S. government’s Overseas Private Investment Corporation.

U.S. companies have been among those to suffer. Seattle-based Boeing Co. had been counting on 200 million dollars in Ex-Im credits for the sale of 10 737 jets to the Indian private carrier Jet Airways – a deal worth about 500 million dollars. Boeing also was competing against Europe’s Airbus Industrie for billions of dollars in business from the national carrier, Air India.

Indian government officials played down the likely impact of sanctions and arguing that any withdrawal by the United States or Japan – which already had halted its bilateral aid programme – would serve only to heat up competition for lucrative Indian contracts in fields ranging from state development projects to private business deals.

U.S. officials moved Tuesday to counter the notion that Washington might be isolating itself from Western nations more intent on pursuing business opportunities in India. European foreign ministers had signaled their support of U.S. efforts to block loans to New Delhi and implement other measures intended to win Indian compliance with the 1996 Comprehensive Test Ban Treaty (CTBT), according to State Department spokesman James Rubin.

“The Europeans, contrary to the impression one gets from international media accounts, are moving toward imposing what is effectively a sanction for India if it doesn’t join the CTBT as a result of the test,” Rubin told reporters.

India is the World Bank’s biggest borrower. Last year, it received some 1.5 billion dollars in loans and credits from the Bank and its soft-loan window, the International Development Association. The Bank’s portfolio of active loans to India as of the end of June 1997 was 15.1 billion dollars.

The World Bank and other multilateral lenders account for some 70 percent of India’s borrowing from overseas and New Delhi has been especially dependent on these loans to finance power and transportation infrastructure – key to attracting foreign investment and enabling economic growth.

While that funding has been key to some of India’s most ambitious and crucial infrastructure projects, it also has been assailed for backing environmentally unsound projects that trampled on the rights of local communities. Notable examples include a 2,000-megawatt coal-fired power project at Singrauli, often referred to as India’s ‘power capital’. The Bank itself has admitted the effort, aimed at helping to end the desperately short supply of electricity to Indian industry and homes, has been an environmental, health, and economic disaster for peasant communities living in the area.