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World: A 'Silent Censure' For India?

Washington, 15 May 1998 (RFE/RL) -- India's nuclear tests have brought harsh global criticism, economic sanctions from the U.S., a cut-off of loans from Japan, and a diplomatic slap from Great Britain.

But the most serious response may come in an undeclared form -- a de facto suspension of new loans from the World Bank.

India is the bank's single largest borrower, having taken cumulative credits of more than $50 billion since it was a founding member in 1944.

Currently, it has received approval for $14.5 billion dollars in loans to finance 84 projects, but has drawn less than half the money so far for projects, ranging from constructing roads and dams to building electric generating systems and reforming farms.

Credits from the bank and it's International Development Association (IDA) account for more than a third of the external finance India needs each year.

There are about $3, billion in new World Bank and IDA loan projects in the pipeline at the bank which have not yet been approved.

The bank, by charter, cannot take political positions and in fact its board is forbidden by the Articles of Agreement from using political arguments or positions in deciding whether to approve loans for eligible member countries.

However, if enough member nations are opposed to lending to a country for awhile, new loan proposals are simply held in abeyance until the climate changes.

The bank's 24-member board of executive directors must approve all loans by a simple majority, so there is no single country -- including the United States -- which can by itself veto any loan.

The U.S. voting power is 16.67 percent of the total, so even if the American executive director voted no, it could not stop a loan.

However, if a number of countries quietly agree to "punish" a member nation for a political act, they can make sure no action is taken.

By long practice, loan proposals are only sent to the board for decision if there is advance agreement on approval. Executive Directors let it be known they have doubts or questions in advance and everything must be ironed out before formal action is taken.

If enough directors indicate they will vote no on a loan, it is quietly held back from any formal vote.

The last time this kind of "silent censure" was imposed was following the killing of over 500 pro-democracy demonstrators in Beijing's Tiananmen Square.

For 18 months following that June, 1989 massacre, no loans for China went to the board for action. As one bank official recalls: "China's loan proposals went someplace in outer space or into another dimension where no one knew what was happening."

Since the bank is officially non-political, it cannot impose political sanctions no matter the seriousness of the incident involved. But since the executive directors are either appointed by major governments or elected by constituencies of smaller member countries, the bank itself cannot dictate their vote.

A deputy to a major nation's executive director, who requested anonymity, told our economics correspondent in Washington that the first set of tests conducted by India would have received little more than the expected near universal public condemnation. But the second set of tests was seen as a deliberate "slap in the face" to the international community, demanding a more significant response.

Many countries prefer using the "silent censure" of the World Bank in some cases because there is no public condemnation and no public vote. New money simply stops flowing and the target nation very quickly realizes the seriousness of the international reaction. In this setting, countries which feel a political need to mute their criticism in the public forum, can quietly impose a more serious penalty.

World Bank officials decline to discuss the whole issue, but do acknowledge that while the charter requires that only economic and financial matters be considered, there is no way to dictate the votes of sovereign member nations.

They do quietly caution, however, that bank and IDA loans often are designed to help alleviate poverty and promote rural development and that holding up those credits hurts the most vulnerable people, not government leaders.