International development association, Microeconomics

International development association:

Part of the challenge entails reorienting surveillance, the process through which the BW institutions policy advice is delivered, to make it more effective. The surveillance features of today has a number of features that make it poorly suited to a small open emerging market economy that fragile credibility, a limited buffer against shocks, and considerable exposure to a rapidly changing economic and financial environment. 

IDA is an associate of IBRD. It was established in 1960 to provide ‘soft loans' to economically sound project which creates ‘social capital' such as the construction of roads and bridges, slum clearance and urban development. The projects taken by the IDA are such that fall under the category of high development priority due to their benefit to the development of the area concerned, but the returns from the projects are not sufficient to pay the high rates of interest on borrowings. The IDA provides loans for such projects interest-free and for longer periods. Therefore, IDA is often referred to as the ‘sot loan window' of the World Bank. 

The IDA extended assistance to high priority projects in the member-countries. The finance may we made available to the member-governments or to the private the enterprises. Lending to private enterprises may be made without government guarantees. It also cooperated with other international institutions and member- countries in providing financial and technical assistance to the less-developed countries.

The financial assistance of the IDA has some special features.

• The credit is interest-free. Only a small service charge of 0.75% per annum is payable on amount withdrawn and outstanding to cover administrative expenses.

• Repayment period is long-extending over 50 years. There is an initial moratorium for 10 years and the amount borrowed is repayable in the next 40 years.

• IDA finances not only the foreign exchange component but also a pat of the domestic cost.

• The credit can also be repaid in the local currencies of borrowing countries. Thus, the repayment of loan does not burden the balance of payments of the country.

• Only the poorest among the poor countries are eligible for assistance. 

All members of the IBRD are eligible to become members of the IDA. The members are grouped into two. Part I consists of industrially developed countries whose subscription can be freely used or exchange for other currencies by the IDA. Part II lists consists of other countries who are required to contribute 10% of their subscription in the forms of other currencies and the rest of their own currencies. 

Contributions in the form of national currencies by these countries are not to be used by the IDA for conversion to other currencies or for financing exports form these countries without the consent of the country concerned. 

IDA has been a blessing for the developing countries to whom the credit from the IDA has largely gone. The agency brings significant amounts of investment to the poorest countries on much easier terms than would otherwise be attainable. Importantly, it also serves to separate out the worst risk, protecting the World Bank's treasured A bond rating and thus allowing it to borrow in world credit market at the most favourable terms. In keeping with the objectives, most of the assistance has gone to high development priority projects which could not get finance from other sources.

Posted Date: 11/9/2012 6:38:12 AM | Location : United States

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