India receives USD 4.5 billion from IMF's SDR allocation

India receives USD 4.5 billion from IMF's SDR allocation

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 per cent 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. 

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