Will India pledge gold to secure IMF loan?

India's forex reserves depleted to $1.2 billion in Jan 1991, and that too dried up by half by June of that year

Speculation on India pledging gold with the International Monetary Fund (IMF) to secure a loan to prop up the depreciating rupee have reached the headquarters of the multilateral institution in Washington.

At a press briefing on Friday, IMF Communications Department Director

Gerry Rice said there was a lot of speculation about India coming to the IMF, possibly to sell its gold reserves to boost its currency. The transcript of the press conference has been put up on the IMF website.

Rice said, “Well, I wouldn’t want to speculate on any support or programme needs.”

India had taken loans from the IMF thrice — on November 9 1981, January 18 1991 and October 13 1991 to the tune of $3.9-billion special drawing rights (SDRs), $551.93-million SDRs and $1,656-million SDRs, respectively.

In January 1991, India’s foreign exchange reserves had depleted to $1.2 billion. By June that year, these reserves, too, had dried up. These reserves could finance only three weeks of essential imports. India had to pledge 67 tonnes of gold reserves to secure the IMF loan.

Rice said India faced a number of weaknesses aggravated by the squeeze in global liquidity. However, the current situation presented both challenges and opportunities for India to continue its policy efforts on a variety of fronts. “Maybe just stepping back on the situation in India, the combination of large fiscal and current account deficits, high and persistent inflation, sizable unhedged corporate foreign borrowing and reliance on portfolio inflows are longstanding vulnerabilities that have now been elevated, as global liquidity conditions tighten, and this has clearly affected market confidence,” he said.