Centre looks to contribute $4 b more to IMF’s NAB programme

The government���s contribution to IMF���s new arrangements to borrow (NAB) programme is likely to go up to $14 billion as compared to the initial estimate of $10 billion. The move is aimed at strengthening India���s role in IMF that has assumed a more active role after the global financial meltdown.

The additional contribution of $4 billion (Rs 20,000 crore) is under discussion now and will be finalised after getting approval from the Prime Minister. According to a senior official in the finance ministry, who wished to remain anonymous, India may buy IMF bonds worth $14 billion. The move is expected to strengthen the country���s claim for increasing its existing quota in the multilateral financial institution.

Earlier, Planning Commission deputy chairman Montek Singh Ahluwalia had indicated that India is ready to contribute $10 billion to the IMF���s NAB programme. Top finance ministry officials had also put the figure at $10 billion. ���We are currently examining the amount that we may allocate towards IMF bonds. Since the review of IMF quota is only scheduled for 2011, we may increase our support to IMF to present a strong case,��� he said.

It is expected that IMF may consider raising India���s quota to 2.4% before the official review in 2011. In 2006, IMF had increased the quota of four countries ��� China, South Korea, Turkey and Mexico ��� as part of its first phase of reforms.

India���s existing quota in IMF is around 2%. Quotas determine the maximum amount that each country can contribute to the IMF and their voting power in the financial institution.

The government is now working out the details with the Reserve Bank of India (RBI) on how it will allocate $14 billion. It is expected that RBI will redeploy its foreign exchange reserves for buying IMF bonds and it will pull out some money invested in US Treasury bonds. ���Some initial discussions have been held, but we���re still awaiting clarity from IMF on whether they���ll need the money in tranches or as and when required,��� the official said.

Currently, IMF has not indicated any timeline for issuance and maturity period of its bonds. The Indian government, however, has indicated its preference for buying IMF bonds. Since the IMF has already said that the bonds will pay interest similar to US treasuries, the $14 billion invested in IMF notes will be less exposed to any decline in the dollar (since the weight of dollar in special drawing rights (SDR) is 44%). SDRs, an international reserve asset and the fund���s internal unit of account, are disbursed in proportion to each member���s IMF quota.