Economic pressure is mounting on Sri Lanka from the US, Britain and other European Union states linking an IMF standby facility and GSP+ trade concessions to the government’s refusal to accede to a halt in the fighting.
But the Central Bank yesterday said loan talks with the IMF were going ahead as scheduled.
“Our discussions are going on. On the other hand, we have also expressed our concerns over the statements (by world leaders) to the IMF, but we are certain any decision will be made on economic fundamentals (not political considerations),” CB Governor Ajith Nivard Cabraal said.
Asked what would happen if the $1.9 billion loan was delayed, he said: “Delay? It doesn’t matter. There is no imminent danger. We don’t need it in the next week or next Economic pressure
month. Even if it gets delayed by three months, it’s not a problem,” he told The Sunday Times, adding that “we need it as a buffer as balance of payments support.”
During the past few days, world leaders came out strongly pushing for suspension of the IMF facility with US Secretary of State Hillary Clinton saying it was ‘not an appropriate time’ to consider such a loan for Sri Lanka.
Other leaders also linked the GSP+ concessions, which Sri Lanka has re-applied for, to refusal by the government to halt the fighting and allow civilians to leave. The government says it’s the LTTE that’s preventing civilians leaving the combat zone.
Some corporate leaders, who declined to be named, however, expressed concern over global calls to suspend loan negotiations. “This is worrying, we need the money,” said a top Colombo exporter, adding, “the loan will help stimulate exports as the dollar will find its real level.”
Another major garment exporter said GSP + issue raised was ‘just posturing’ by these world leaders. “As far as the process is concerned, the investigation would be over only by October and by that time, things would have settled down here,” he said, however expressing concern over the IMF issue. ‘My gut feeling is that the loan will be given with conditions and it was wrong for the Central Bank (several months back) to say there won’t be conditions.”
However IMF Managing Director Dominique Strauss-Kahn on Friday came to Sri Lanka’s rescue saying negotiations were on and that the government needed the support of the Fund. Speaking at a Thursday news conference in Austria, on the sidelines of a bankers summit, Mr. Strauss-Kahn was quoted as saying that Sri Lanka "obviously needs the help of the IMF" and that the Fund was trying to find a solution to the problem in the next few weeks.
Responding to these comments, Mr Cabraal said the CB had been talking to the IMF through the Executive Director (handling Sri Lanka) in the past few days and “I believe the managing director’s positive comments were based on our discussions.” He said there was no political flavour in what the IMF did and its governance and decisions were based on economic fundamentals and were very transparent. “If the IMF goes by political issues, many countries will face problems and that goes against the grain of its transparency policy,” Mr Cabraal said.
“We have also been informed that the IMF won’t consider any extraneous factors (in our issue),” he noted.
Asked about other options to boost foreign exchange reserves, the Governor said that negotiations were at an advanced stage on the $500 million loan from Libya while discussions on currency swaps (getting dollars in exchange for rupees) were also progressing.
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