The Hindu : Grants from Netherlands may be tied to ADB loan

Online edition of India's National Newspaper
Wednesday, Dec 18, 2002

Southern States

Southern States - Kerala

Grants from Netherlands may be tied to ADB loan

By Roy Mathew

THIRUVANANTHAPURAM DEC. 17. Kerala may lose assistance from the Netherlands Government in future unless it continues to avail loans from the Asian Development Bank (ADB).

This is the outcome of an understanding between the Netherlands Government and ADB for co-financing the Modernising Government and Fiscal Reforms Programme in Kerala. With this, availing of the loan from the ADB has become a pre-condition for getting grants from the Netherlands Government. This arrangement may continue in future.

The Dutch Government has been giving substantial assistance to Kerala for the past few decades as 100 per cent grants for water supply and other projects. Though the country was willing to provide more funds, diversion of funds and failure in completing the projects in time by Kerala invited criticism from the Netherlands Government.

To add to this, the Royal Netherlands Embassy found it difficult to monitor progress of the projects for want of staff. Hence, its decision to tie up with the ADB and entrust the administration of its grants to the ADB. For ADB, the arrangement serves to make its high cost loans attractive.

Last May, the ADB was considering a loan of Rs. 1,440 crores ($ 300 million) to Kerala as first tranche and this was confirmed by the ADB's country Director, Frank Polman, at a press conference here. The corresponding grants from Netherlands would have been Rs. 360 crores. However, the loan approved by the Director Board on Monday was only Rs. 960 crores.

As per the agreement signed on Monday in Manila, this would be clubbed with the grant of Rs. 240 crores from the Dutch Government. Kerala can demand that the Centre pass on this amount to it as pure grants as has been done in the case of grants from the Department for International Development of United Kingdom to Andhra Pradesh.

The foreign loans and grants to the State Government are transferred to the State as Additional Central Assistance in the ratio of 70 (loan) is to 30 (grants). If the Centre agrees to treat the grant from Netherlands as separate, the ratio would improve as 55 is to 45.

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Grants from Netherlands may be tied to ADB loan