This Article is From Oct 13, 2013

Countries avoid IMF unless they are desperate: Rajan

Countries avoid IMF unless they are desperate: Rajan

Days after saying that India will not seek funds from the International Monetary Fund in the next five years, RBI governor Raghuram Rajan has said that countries now only go to the IMF when they are desperate, which according to him is a dangerous situation.

"I have to say that there are a number of countries that would stay some distance from the IMF, because it would be politically very difficult for them to get anywhere very close unless they were desperate," Dr Rajan said at an Institute of International Finance event yesterday.

"I think waiting till you are desperate is too late. And so countries are therefore going to try and avoid being in that position and I think that is damaging for the global economy. We have to find a better solution," said Dr Rajan, who in his previous capacity was a top economic advisor to the IMF.

"The IMF is an incredible institution. I value that institution, having worked for it," he told the Washington audience.

Earlier this week, Dr Rajan had said that India would not be going to IMF for help in the next five years.

"There's no way we are close to being a country in financial or economic crisis... There's not a chance we will go to the IMF for money in the next five years," he said at a debate global economy on a private news channel.

Allaying fears of India not being able to meet its financial obligations, he said, "India's external debt to GDP is 22 per cent. 22 per cent of GDP is external debt and India's has reserve of $280 billion which is 15 per cent of GDP. In other words, the country can pay three-fourth of its debt from its forex reserves," he said.

"Out of total short-term external debt that we have to pay for is 10 per cent of GDP. So, we have enough reserve to take care of that," he said speaking on the sidelines of the IMF meeting in Washington.

"We bought over $60 billion dollar gold last year; $60 billion accounts for three-fourth of our current account deficit. If the push comes to shove, we can pay the world in gold." Dr Rajan added.

He said while India's economy has slowed, the country's forex reserves are large enough.