India receives $4.5 bn from IMF`s SDR allocation

Last Updated: Monday, July 20, 2009 - 22:08

Washington: India would receive about USD
4.5 billion from the International Monetary Fund`s Special
Drawing Rights (SDR) to battle economic slowdown.

This is part of the about USD 250 billion allocation of
SDR by the IMF to provide liquidity to the global economic
system by supplementing IMF`s 186 member countries` foreign
exchange reserves.

The funds would be available at the end of August, IMF
officials said.

The equivalent of nearly USD 100 billion of the new
allocation will go to emerging markets and developing
countries, of which low-income countries will receive over USD
18 billion, IMF officials announced during a conference
call after a decision in this regard was taken by the IMF
Executive Board.

"The SDR allocation is a key part of the Fund`s response
to the global crisis, offering significant support to its
members in these difficult times," IMF Managing Director
Dominique Strauss-Kahn said.

The officials added that India`s allocation of about USD
4.5 billion is based on its IMF quota. The money could
immediately boost its foreign reserve. If India does not need
this money, it has the option to trade the money with other
countries, which are in need of international fund to boost
their economic condition.

The SDR allocation was requested as part of a trillion
dollar plan agreed at the G-20 summit in London in April and
endorsed by the International Monetary and Financial Committee
(IMFC) to tackle the global financial and economic crisis by
restoring credit, growth and jobs in the world economy.

If approved by the Board of Governors with an 85 percent
majority of the total voting power in a vote scheduled to
close on August 7, the SDR allocation will be in effect on
August 28.

"The allocation is a prime example of a cooperative
monetary response to the global financial crisis," the
Managing Director said.

The SDR allocations are being made to IMF members in
proportion to their existing quotas in the Fund, which are
based broadly on their relative size in the global economy.

The operation will increase each country’s allocation of
SDRs by approximately 74 percent of its quota, and Fund
members` total allocation to an amount equivalent to about
USD 283 billion, from about USD 33 billion (SDR 21.4 billion).

SDRs allocated to members will count toward their reserve
assets, acting as a low cost liquidity buffer for low-income
countries and emerging markets and reducing the need for
excessive self-insurance, the IMF said in a statement.

Some members may choose to sell part or all of their
allocation to other members in exchange for hard currency —
for example, to meet balance of payments needs — while other
members may choose to buy more SDRs as a means of reallocating
their reserves, the IMF said.

In supporting the allocation proposal, the Executive Board
stressed that it should not weaken the pursuit of prudent
macroeconomic policies, and should not substitute for a Fund-
supported program or postpone needed policy adjustments, it
said.

Bureau Report



First Published: Monday, July 20, 2009 - 22:08

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