Saturday, August 22, 2009

International Development Association

The establishment of the International Development Association (I.D.A) was another step in the direction of increasing international liquidity in the World. The I.D.A was setup in September 1960, as a subsidiary of the World Bank to provide “soft loans” to the member countries. In other words the object of the I.D.A was to provide loans to the member countries on liberal terms with regard to the rate of interest and the period of repayment. The interest charged on the I.D.A loans was lower than that of the World Bank. Jurther the borrowing countries were allowed longer periods, say 50 years or so, for repayment of loans. Besides the loans taken by the member countries could be repaid in their own national currencies. They were under no obligation to repay the loans in hard currencies as was the case with the World Bank. It is on this ground that the I.D.A is often referred to as the “Soft Loans Window” of the World Bank.
The I.D.A has its own criterion for investment in developing countries. The project to be selected for financial aid should be of a high development priority. The project should be such as to help the country in saving its foreign exchange resources during the course of its fulfilment. The I.D.A gives loans to private industrial undertakings without any guarantee from the government of that country.
The membership of the I.D.A is open to all those countries which are members of the World Bank. The I.D.A was started with an initial capital of 1,000 million dollars collected from member countries. The capital resources of the I.D.A have been increased from time to time to meet the increasing requirements of the member countries. The subscriptions from the member countries are payable to the I.D.A in five annual instalments. The I.D.A has divided its member countries into two parts. Part I comprises 21 countries and Part II includes 99 countries. The countries included in Part I happen to be rich and affluent with higher income per capita.
I.D.A provides ‘soft loans’ to the member countries which are generally interest free. But there is a nominal service charge of 3/4 percent on the amount of outstanding loans. This charge is intended to cover the administrative expenses of the I.D.A. The I.D.A provides long term loans repayable over a period of 50 years with an initial grace period of 10 years. No repayment is to be made during the initial period of 10 years. Afterwards 1 percent of the principal amount of the loan is repayable annually for a period of 10 years and during the next 30 years the balance of the outstanding loan is to be amortized at an average rate of 3 percent per annum. The I.D.A provides loans for such projects as water supply, sanitation, health, education urban development etc, which do not make immediate contribution to the economic development of the country.


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