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FOR A NATION that only little more than a decade ago had to suffer the ignominy of having to physically pledge its gold hoard to tide over balance of payments difficulties, India has come a long way with its newfound status as a financier of IMF's lending operations. No doubt, the amount made available to it, at SDR 205 million, is rather modest sum but is, nevertheless, significant. It is no exclusive club that India has joined. It is after all one of 40-odd countries that enjoy this privilege. Even in terms of the of quantum assistance committed, the country would rank way down the pecking order.

But the event nevertheless is not without its macro-economic significance. There is little doubt that India's external sector presents a considerable degree of stability and that its foreign exchange reserves are on a path of sustained growth. A combination of sound economic policies, deft management of the external sector and some generous inward remittances by non-resident Indians over the years has made this possible. As such, India is well positioned to lubricate the wheels of international trade. What has lent it an aura is the so few additions to the list of countries with the capacity to take on the burden of financing those with balance of payments difficulties. Even the traditional lenders have found their capacity somewhat weakened in recent times. This becomes clear from the fact that the number of countries with the requisite financial strength has gone up from 37 to 45 even as the quantum of available resources has shrunk by roughly SDR7 billion from around SDR108 to SDR101 billion in the last three years. India should, therefore, use its newfound status to push for reforms in the parameters of governance at the IMF. And the case for reforms has never been more pressing than now. A mere four countries (Argentina, Brazil, Turkey and Indonesia) absorb nearly three-fourths of the IMF's lending. In other words, the viability of the IMF as a lending institution is inextricably tied to the prospects of external-sector stability of these countries. It would require a phenomenal increase in global economic activity for these countries to turn things around. On recent evidence, the prospect of this happening must be viewed with some scepticism. A repeated dose of rescheduling of past loans to these countries, thus, becomes inevitable.

But that apart, there is some irony in the situation that the IMF currently finds itself in. The fact is the IMF itself is guilty of the folly of concentrated lending that it cautions member-countries against vis-à-vis their domestic financial institutions. That the countries in question are either key allies of the US or they happen to be in the latter's backyard is perhaps a testimony to the stranglehold Washington has on the Bretton Woods twins. Certainly, the financial returns from the latest investment is not something great with a return of around 1.5 per cent. The opportunity to alter the international financial architecture alone makes the exercise worthwhile.

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