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World Bank Postpones Loans to India

May 26, 1998

WASHINGTON (AP) _ In the first global test of U.S. sanctions against India, the Clinton administration was unable to muster enough support for outright rejection of more than $800 million in World Bank loans to India. Instead, it agreed to postpone action on the aid request.

The bank’s management removed the loans from consideration Tuesday to avoid a dispute that would have pitted nations sympathetic to India against the United States and some other industrialized nations, according to a representative of a country involved in the decision.

Another foreign official said that after a couple of hours of informal talks among the bank’s 24 board members, it became clear ``no one wanted to spend all day discussing (the loans) because there wasn’t enough support″ for rejection. Both officials spoke on condition of anonymity.

White House spokesman Mike McCurry said delaying the loans represented ``an expression of the world community’s dissatisfaction with current events″ in India.

The United States has been pressing for strong action against India since it exploded five nuclear devices earlier this month. Japan and Canada support the U.S. position, but major European nations opposed U.S. efforts at their summit meeting in Britain two weeks ago.

State Department spokesman James P. Rubin said the European nations were coming around to the U.S. view on sanctions against India.

``We are happy to see that the EU foreign ministers have indicated they would work for a delay in consideration of the loans to India if India does not accede to relevant international nonproliferation agreements,″ Rubin said.

``The EU now as a group is signaling that India’s test has made it more difficult for it to receive international financial assistance.″

Many developing countries represented on the 24-member board of the 181-nation World Bank would have been expected to side with the Indians had the issue come to a vote. The bank formally requires a 50 percent vote to approve loans but rarely resorts to a ballot. Most decisions are by consensus, meaning there is no vote.

Had India not conducted the tests, approval would have been routine.

In a brief statement, the bank said that ``in response to requests from several executive directors, and in consultation with board members,″ the bank is postponing considering the loans ``for a date to be determined.″

India’s member on the bank board, Surendra Singh, said, ``A postponement was in everyone’s interest, even India’s, which would have preferred an approval. Our hope is that the delay will be as brief as possible.″

He said that had there been a formal discussion, some of the European nations would have voted in favor of the loans.

Four projects that were due to go to the board this week have been put on hold. They are a $130 million package for a renewable energy program, a $450 million loan to develop India’s national power grid, a $275 million loan for a highway project and a $10 million loan from the bank’s private sector financing arm, the International Finance Corp.

The loans are part of some $2 billion in lending that the World Bank had planned to approve for India before the June 30 end of the bank’s fiscal year. The bank’s statement did not mention loans scheduled beyond this week. India is the third-largest recipient of bank loans after China and Russia.

Under U.S. law, any country that conducts a nuclear test and has not previously declared a nuclear capability automatically faces sanctions. After India’s first three tests earlier this month, President Clinton imposed measures to end U.S aid and credit. India defiantly carried out two more explosions.

Billions more in development aid was jeopardized because the sanctions laws oblige the United States to oppose loans from international development banks where Washington has a major voice.

The U.S. Export-Import Bank announced it would stop issuing new approvals for financing U.S exports to India.

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