Finance

Functions of International Development Association – IDA

International development Association (IDA) is an affiliate of the IBRD. It was established in 1960 to provide ‘soft loans’ to economically sound projects which create ‘social capital’ such as the construction of roads and bridges, slum clearance and urban development.

The projects taken up by the IDA are such that fall under the category of ‘high development priority’ due to their benefit on 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 ‘soft loan window’ of the World Bank.

Functions of International Development Association

The IDA extends assistance to high priority projects in the member-countries. The finance may be made available to the member-governments or the private enterprises. Advances to private enterprises many be made without government guarantee. It also co-operates 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:

(a) The credit is interest free. Only a small service charge of 3/4% per annum, is payable on the amount withdrawn and outstanding to cover administration expenses.

(b) 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.

(c) IDA finances not only the foreign exchange component but also a part of the domestic cost.

(d) 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 oft he country.

Resources of International Development Association

All the members of the IBRD are eligible to become members of IDA. The members are grouped into two. Part 1 list consists of industrially developed countries whose subscriptions can be freely used or exchanged for other currencies by the IDA.

Part 2 list consists of other countries who are required to contribute 10% of their subscription in the form of other currencies and the rest in their own currencies. Contribution 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 from these countries without the consent of the country concerned.

Evaluation of of International Development Association

IDA has been a blessing for the developing countries to whom the credit from the IDA has largely gone. On keeping with the objectives, mo of the assistance has gone to high development priority projects which could not get finance from other sources. India has immensely benefited from the IDA; it has been receiving series of loans almost continuously.

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