The Reagan administration rejected a plea yesterday from two Democrats in the House to actively oppose a recent $5.8 billion International Monetary Fund loan to India because that country reportedly plans to buy $3.3 billion worth of Mirage military aircraft from France.
The United States abstained Nov. 9 in an otherwise unanimous IMF vote of approval for the three-year loan--the largest in the agency's history--designed to help solve India's balance-of-payments problems. At that time, the IMF approved the first year's disbursement, a little more than $1 billion.
The United States had said that not only was the loan total probably too large, but that the IMF hadn't pressed India for enough details on how it intended to solve some of its economic problems. However, because of "positive features" in the loan arrangement, the United States abstained instead of voting against the loan, the U.S. executive director for the IMF, Richard D. Erb, said yesterday.
Coincidentally, Erb revealed that on Dec. 2 the United States also abstained on the second and third stages of an IMF loan to Pakistan that was initiated last year under the Carter administration. About $1 billion is involved in the second and third stages, while about $400 million was advanced in the first drawing last year.
Erb said that Pakistan had satisfied all of the conditions the IMF had set for macroeconomic performance, but that, as in the case of the loan for India, the United States now is not satisfied with the specifics Pakistan had outlined on "structural adjustments"--such as removal of government regulations and stimulants for imports and exports.
In his testimony yesterday before a House Banking subcommittee, Erb indicated that the United States still sees pluses and minuses in the IMF loan to India, and on balance had decided "that we have to give the India government the benefit of the doubt at this stage, and see how it progresses."
He said in response to questions that if the government of India implements the promised structural adjustments, "the program, when all is said and done, will be a very positive one, the economy will be much stronger, and much more open."
Pressed by subcommittee Chairman Stephen L. Neal (D-N.C.), Erb said that if these adjustments aren't made, "We would have to shift to opposition. In effect, our abstention gives India the benefit of the doubt." The United States will have another opportunity to vote on the India loan next spring, when the second-year disbursement of more than $2 billion comes up.
But Erb didn't agree with Neal that India's arms deal with France had introduced a negative element. Erb said he was aware of the deal, through press reports, before the IMF had considered the loan. He calculated that India's defense expenditures have remained at about 3 percent of the country's gross domestic product, and that the reported arms deal with France would not take place until "after the period covered by the IMF program."
But in any event, he told Neal and Rep. John J. LaFalce (D-N.Y.) that it was not appropriate for the IMF to judge the defense needs of its members.
"Decisions on defense expenditures in particular are at the core of national sovereignty," Erb said. "And I do not believe any IMF member country, including our own, would accept outside constraints on expenditures which it considered necessary for national security."
LaFalce said he was less concerned with the Mirages sale than the possibility that the IMF was setting a bad precedent in making the large loan to India.