ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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BALANCE OF PAYMENTS-Coming Home to Roost

BALANCE OF PAYMENTS Coming Home to Roost THE drawing of $ 74.4 million from the International Monetary Fund in the name of 'compensatory finance' is only the thin end of the wedge: India's external accounts are about to enter a period of acute turbulence. Recourse to this particular facility is by itself a matter of considerable significance. Compensatory financing was introduced in the Articles of Agreement of the Fund about a decade ago to offer supplementary accommodation to countries experiencing an unforeseen drop in their export earnings for reasons beyond their control. Going by official protestations, India's exports have risen by record proportions in the past two years. If, despite this, New Delhi has approached the Fund for drawal on Special Rights for compensatory financing, it can only mean one of two things ; either that, alter allowance is made for the depreciation of the rupee against the US dollar and other non-sterling currencies, the proclaimed buoyancy in exports is a sham; or that, at this stage, New Delhi is determined to prevent any nibbling of its regular credit tranches with the Fund which it hopes to make use of later in view of the impending storm. Compensatory financing, alter all. is to be had at only half-a-per cent rate of interest.

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