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Sinha to meet IMF, WB officials

India's declining economic growth rate and uncertainty about the Vajpayee government's attitude to the country's ongoing reform process are likely to figure in the bilateral discussions that Finance Minister Yashwant Sinha will have during the three-day annual spring meetings of the World Bank and the International Monetary Fund, which begins in Washington tomorrow.

The IMF has already voiced concern on these issues in its 'Global Economic Outlook,' indicating that the growth-sapping trend which set in last year would persist, India's growth rate, which touched a high mark of 7.5 percent in 1996 came down to 5.6 percent last year. The IMF's projection for 1998 is only 5.2 percent.

One of the reasons held out for this state of affairs is "political uncertainties," an obvious reference to the instability injected into the body politic by the fall in quick succession of Deve Gowda and Gujral ministries which frittered away the growth momentum attained between 1994 and 1997, averaging about 7 per cent, raising hopes that India will join the ranks of Asia's tigers.

In the IMF's view, the recent slowing of growth, while "partly" attributable to cyclical factors, suggests that the boost given by the reforms, initiated in 1991 under the stewardship of the then prime minister P V Narasimha Rao has been wearing off.

According to official sources, the new government has made certain policy pronouncements, reaffirming its resolve to go ahead with the reform process and finance minister will make use of the opportunity to bring home these facts to the policy-makers and investors here.

He will also apprise them of the steps that the BJP-led ministry had taken within the short-span to set the economic house in order, announcing far-reaching reforms in the import-export regime.

IMF chief economist Michael, addressing a press conference yesterday, also said that structural reforms that proceeded rapidly in early years of the decade had slowed down. Substantial concern was not the central government's deficit but the overall situation, he added.

To put India back on a "sustainably" faster growth path, the IMF recommends stronger efforts to reduce the large fiscal deficit, liberalisation of foreign trade and investment, removal of infrastructure bottlenecks, deregulation of domestic product markets, and reforming the financial and enterprise sectors.

In case of neighbouring Pakistan, it says the external position remains fragile, and strong adjustments efforts are needed to reinforce the benefits of the structural reforms being undertaken.

In Pakistan, the government adopted a comprehensive programme to strengthen macroeconomic policies and implement structural reforms following the widening of macroeconomic imbalances and the threat of a foreign exchange crisis in late 1996 and early 1997.

Its output growth is projected to rise to 5.5 per cent and inflation to fall in 1998, assuming that adjustment and reform polices are implemented as planned but the balance of payments remains fragile, the IMF says.

The Fund-Bank meeting will devote a bulk of its timing in discussing the East Asian crisis which has the potential to slow down world economic growth more than previously expected. One of the major uncertain factor is Japan, which is finding it difficult to deal with its economic problems.

The IMF forecast that the world's output of goods and services will rise by just 3.1 percent this year the slowest pace in five years, after growth of 4.1 per cent in both 1997 and 1996. Last December, the IMF had predicted growth of 3.5 per cent for 1998.

According to economic outlook, Japan, the world's second largest economy, will see no growth at all this year, and the three countries at the epicentre of the economic crisis -- South Korea, Thailand, and Indonesia -- will suffer outright recessions, forcing them to seek multibillion dollar IMF bailouts.

Based on that, the IMF predicted global growth would improve to 3.7 per cent in 1999. It forecast that 1997's Asian crisis while severe for that region, would not prove as detrimental to overall growth as the oil price shocks of the 1970s and 1980s or even the last period of extended weakness in 1990-91, when the United States economy went into recession.

UNI