Sri Lanka unsure of need for IMF loan

EVEN as Sri Lanka's central bank chief announced that the country was in a ‘comfortable position right now’ and can go on without a major IMF bailout, the country’s trade minister toured Western states pleading for financial assistance to take care of the Tamils.  

Sri Lanka in March sought a $1.9 billion International Monetary Fund (IMF) loan to avert a balance of payments crisis, after spending half its reserves defending the rupee and paying foreign investors who sold off treasury securities after the global downturn.

However, Sri Lanka's request for IMF financing was delayed after the United States and other Western states became hesitant to support it after the Sri Lankan state’s conduct over the final phase of the war against the Tamils.

Observers say Sri Lanka not doing enough to avoid civilian casualties in the last few months of the war and not allowing aid agencies access to the 300,000 Tamil civilians held in internment camps has raised concerns amongst Western states.

Realising that the IMF loan is not going to be made available any time soon, Sri Lanka has changed tactics and is now asking for financial assistance to support the war ravaged Tamil population, the Observers added.

Speaking to media, Central Bank of Sri Lanka Governor Nivard Cabraal said the final defeat of the Tamil Tigers had helped alleviate the island's balance of payments concerns.

"The reserves are now at over $1.6 billion as of today and it is enough to finance more than two months of imports," Cabraal said.

"We have over 1.6 billion dollars in reserves, enough to pay for over two months of imports. And the figures are steadily climbing," Cabraal said.

Foreign reserves, which fell by more than two thirds when the central bank sold dollars to defend the local rupee last year, had climbed to 1.3 billion dollars by the end of April, according to central bank figures.

Cabraal said inflows had come from higher remittances, donor funds and foreign investors buying rupee-denominated treasury bills and bonds. The bank has also raised cash by selling dollar debt.

But he said some investors would still be more comfortable with an IMF loan.

"If the IMF funds come, it will give us a comfortable buffer stock. I hope we get it. But we are otherwise in a comfortable position right now," he said.

Meanwhile, G.L. Peiris, Sri Lanka's minister of export development and international trade who is in Washington for meetings with the IMF, World Bank and the U.S. government said post-war reconciliation process needs international financial support, urged swift assistance.

"If the developed countries are going to cut off resources at this time, that is ironical, because now is a time to infuse greater resources," Pieris said.

Sri Lanka's government needs to resettle war refugees, create jobs in depressed areas formerly run by the Tamil Tigers, and get the economy growing again amid a world recession that has hurt textile and tea exports, he said.

Peiris said he delivered a similar message in London and other European capitals, where some governments angry at Colombo's war conduct have threatened to suspend the "GSP plus" scheme that allows duty free exports from Sri Lanka.

The textile industry, which tallied exports of $3.2 billion in 2008, is largely based in rural and underdeveloped areas, he said.

"If GSP plus were to be withdrawn, the hit would be taken not by the government of Sri Lanka, but by the most vulnerable sections of the community," said the minister.