India's $1 Billion loan stalled

[Nafi]

NOT AN AUSPICIOUS START

Shamsul Huq Zahid

The beginning of the controversial credit line of $ 1.0 billion, made available by India to Bangladesh to facilitate improved cross-border communications between the two neighbours, has not been auspicious.

Disputes over sourcing of almost 100 per cent goods and services from the lending country and appointment of consultants for the purpose of supervision of projects to be implemented with loan money have stalled the launching of the projects.

An agreement on the line of credit (LoC) was initialed in Dhaka on August 07, 2010 by the External Resources Division Secretary Mosharraf Hossain Bhuiyan and Chairman and Managing Director of the EXIM Bank TCA Ranganathan. Bangladesh Finance Minister AMA Muhith and Indian Finance Minister Pranab Mukherjee witnessed the signing of the deal which was the largest-ever EXIM Bank’s credit, supported by the Indian government, to any country.

The loan deal, under which Bangladesh will have to procure, at least, 85 per cent of goods and services from Indian sources and EXIM Bank will directly reimburse 100 per cent of the contract value to the Indian exporters, was made effective from February 01 last. The EXIM loan carries an interest rate of 1.75 per cent with a repayment period of 24 years and commitment fee of 0.5 per cent.

The government of Bangladesh, following the signing of the loan agreement in August last year, prepared, at least, 20 projects for upgrading its road, railway, river and port facilities.

But implementation of the projects is being delayed because of some complexities relating to the sourcing of goods and appointment of consultants. Some agencies responsible for implementing the said projects have raised objections to 100 per cent procurement of goods and services from India. They have argued that such sourcing would result in doubling of the cost of projects. The Indian government, reportedly, also wants to send its consultants for supervision of some of the projects to be implemented with the EXIM loan. Officials here have argued that there is no provision to allow foreign consultants in a number of projects that have been already approved by the Executive Committee of the National Economic Council (ECNEC).

The ERD, according to a report published in this daily Tuesday last, sent details of the projects to the Indian authorities concerned for clarification several weeks back. But no response from the Indian side has reached it as yet.

It is quite clear that the EXIM loan is soft in nature because of lower rate of interest and relatively longer period of repayment. But the loan is a tied one as far as the use of fund is concerned. In fact, India would not be disbursing any fund to Bangladesh. The EXIM would make all the payments directly to Indian exporters/contractors of goods and services, despite the fact the government agencies in Bangladesh would execute the projects.

It could be that India as the provider of funds wanted to ensure the quality of projects that would facilitate cross-border communications better.

Why should the implementing agencies grumble about procurement and appointment of consultants when the ERD had signed the contract with EXIM Bank?

Logic says that the ERD should have discussed with the implementing agencies concerned about the operational aspects of possible projects before inking the deal with India. Thus, the Bangladesh side could have taken up the relevant issues with India. After all, it is Bangladesh which would repay the loan along with interest. Besides, the commitment fee might turn out to be an added burden in the event of slow implementation of the projects.

Moreover, it does not look proper and dignified to send the projects, already approved by the ECNEC, to outside lender seeking its clarification.

It is also really difficult to understand the reason/s that prompted the government to rush into the deal. The problems that have surfaced now could have been avoided had the government taken some more time to examine the pros and cons of the conditions attached to the EXIM loan. Since the Indian authorities are now taking time longer than needed to examine the projects mentioned above and give its observations, one does have reasons to believe that India is not in a hurry as far as implementation of the projects is concerned.


http://www.thefinancialexpress-bd.co...ate=2011-05-18

[uss01]

Soft loan my a**. More like a scam so Indian companies can sell to Bangladesh.
But honestly I don't blame the Indians for this. I blame the Bangladeshi politicans for agreeing to it in a hurry. WTF, just because someone offers you a loan doesn't mean you have to accept it.

[Isnaad]

Originally Posted by uss01
Soft loan my a**. More like a scam so Indian companies can sell to Bangladesh.
But honestly I don't blame the Indians for this. I blame the Bangladeshi politicans for agreeing to it in a hurry. WTF, just because someone offers you a loan doesn't mean you have to accept it.

My opinion totally matches with your one.

[Banglaguy]

What is the interest rate on this loan?

[Nafi]

Originally Posted by Banglaguy
What is the interest rate on this loan?

A modest 1.75%, though there are many other terms to this, including a commitment fee of 0.5 per cent.

[Banglaguy]

Originally Posted by Nafi
A modest 1.75%, though there are many other terms to this, including a commitment fee of 0.5 per cent.

Although I find interest wrong, I think it will not be good for Bangladesh in the ling run, I have a feeling they will get behind the payments...

[HereWeGo]

Originally Posted by Banglaguy
Although I find interest wrong, I think it will not be good for Bangladesh in the ling run, I have a feeling they will get behind the payments...

24 year commitment...
There are not too many strings attached to the loan really except one really BIG one, which states that most of the contract and equipments must come from India. While initially i was not skeptical about it but if the price difference is staggering when compared between India and the rest of the world than I guess the money should be spent on a different project. Not sure if that can be done...

[Banglaguy]

Originally Posted by HereWeGo
24 year commitment...
There are not too many strings attached to the loan really except one really BIG one, which states that most of the contract and equipments must come from India. While initially i was not skeptical about it but if the price difference is staggering when compared between India and the rest of the world than I guess the money should be spent on a different project. Not sure if that can be done...

It's really India investing in themselves, and getting interest on it... What will the money be used for?

[AhmedN]

Now the cat is out of the pot.

do not blame our politicians because they are typical BD Politicians.