Originally created 05/27/98

World Bank puts hold on loans to India



WASHINGTON -- In the first global test of U.S. sanctions against India, the World Bank postponed more than $800 million in loans Tuesday because the Indians conducted nuclear tests.

The Clinton administration, unable to muster consensus for an outright rejection, supported the postponement.

The bank's management removed the loans from consideration Tuesday to avoid a dispute that would have put nations sympathetic to India against the United States and some of the industrialized nations, one official involved said.

At their summit in Birmingham, England, two weeks ago, the Group of Eight industrialized nations failed to agree on joint sanctions against India with the United States, Canada and Japan in favor, and France, Germany, Britain, Italy and Russia opposed.

But 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," Mr. 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 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 previously has not 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.