Ever since the Central Bank of Sri Lanka (CBSL) publicly acknowledged that it has sought a stand-by credit facility of $1.9 billion from the International Monetary Fund (IMF) on March 04, 2009 there have been anxiety and rumours abound among the general public (both within the country as well as in the diaspora), politicians (both local and foreign), policy makers, independent researchers, civil society organisations (especially human rights organisations), and the media (both local and international) about the quantum, conditions and the timeline of the proposed borrowing.
Four months have passed since the CBSL officially requested the credit facility from the IMF during the last week of February 2009, but there is no sign of when it would be approved and (first tranche) disbursed. In this background, I had the opportunity to meet senior officials of the Asia and Pacific Department and the Sri Lanka Country Desk at the IMF in Washington, D.C. on June 29, 2009. However, views expressed herein are solely of this author.
“The GOSL expects the negotiations to be finalized by end March 2009 and a significant portion of the proposed facility disbursed up-front, immediately after the Executive Board of the IMF approves the facility.” claimed an upbeat Central Bank in early March (Press Release by the Economic Research Department of the Central Bank of Sri Lanka dated March 04, 2009)
Caroline Atkinson, spokesperson for the IMF in Washington, D.C. at a press briefing on May 21, 2009 said, “…We are at an advanced stage in discussions with the authorities. We don’t have a definite Executive Board date scheduled, but we look forward to being able to bring a programme to the Board for its approval in the coming weeks.”
It appears that official proclamations such as the foregoing are the fundamental cause of much anxiety and rumors. Thus, public miscommunications of both the CBSL and IMF have contributed to raising expectations among the general public. It was pointed out that the ongoing negotiation with Turkey has taken longer than that with Sri Lanka. On the contrary, public pronouncements by the Secretary of State of the United States in Washington, D.C, and the British Foreign Secretary in New York few days before have dampened expectations.
“We think that it is not an appropriate time to consider that until there is a resolution,” claimed Hilary Clinton on the proposed IMF loan to Sri Lanka on May 14, 2009.
David Miliband said the Government of Sri Lanka should be “able to show that it will use any IMF money in a responsible and appropriate way”, and that he “does not think that’s yet the case”.
Public communications of the negotiating parties and political pronouncements by major powers have contributed to misunderstanding about the whole issue. The reality is somewhere in-between these two contrasting pronouncements.
The real position of the proposed credit facility appears to be bogged down in technical details. The technical discussions between the lender and the borrower are ongoing, which are about safeguards against misuse of funds, policies to fix the longstanding fiscal problem of Sri Lanka, prudent management of the balance-of-payments, and the ability to repay.
All the foregoing are economic issues and not political. Furthermore, Sri Lanka’s fiscal needs have increased substantially with the end of the civil war (in late-May), in comparison to the time at which the original request to the IMF was made (late-February). This new development has to be addressed by both negotiating parties, which has contributed to the delay in finalising the deal. Nonetheless, a third (and possibly final) round of talks is expected to take place shortly with an impending visit by a team of IMF officials to Sri Lanka.
Any lending programme that goes to the IMF Board of Directors for approval requires just a simple majority to be approved (i.e. 51%). However, usually there is consensus on their decisions on loans. The weight of voting right of individual member country depends on the size of its economy and value of subscription to the IMF. Accordingly, the United States, Japan, Germany and the United Kingdom being the largest economies of the world are the major subscribers to the IMF, and therefore have the highest share of votes.
The percentage of votes by country is as follows: US 16.77%, Japan 6.02%, Germany 5.88%, and UK 4.86%. Hence, it is highly unlikely that a lending programme that goes to the Board of Directors for approval could be voted down. It has never happened in IMF’s history.
However, if there is any doubt about approval, it will not go to the Board of Directors until the programme is strengthened, which is what appears to be happening in the case of Sri Lanka. Moreover, the IMF does not take political or human rights issues into consideration in its lending programmes. Its decisions are solely made on the strength of the lending programme based on fiscal, monetary, and external sector policy criteria. In spite of the noises made by certain political authorities and human rights organisations in western countries in recent times, there appears to be no political reason/s for holding back the proposed loan to Sri Lanka.
The IMF’s counterparts in the US and UK governments are the respective Treasury Secretaries, and there is no evidence of objection by these economic authorities on the matter of proposed loan to Sri Lanka.
My understanding of the real bottleneck is that, the CBSL (on behalf of the GoSL) is yet to put forward a convincing fiscal, monetary, and balance-of-payments stability package to the IMF taking into account the latest post-war economic imperatives.
Although Sri Lanka has an impeccable track record on repayment of bilateral and multilateral loans on time, it has an abysmal record of fulfilling IMF’s fiscal and monetary policy recommendations. Last time in 2001, the standby credit facility was discontinued after the disbursement of the first tranche primarily due to non-fulfillment of the agreed policy reforms and failure to attain the set targets. Therefore, to my understanding, the ball appears to be in CBSL’s court, so to speak.
It is high time the Central Bank stops issuing press releases countering pronouncements by political authorities in certain western countries and castigating negative sovereign ratings by international credit rating agencies, and get on with the work of fixing the balance-of-payments, monetary, and fiscal crises which are its own making.
(The writer is the Principal Researcher of the Point Pedro Institute of Development, Point Pedro, Northern Province, Sri Lanka and currently Fulbright Visiting Research Scholar at the Elliott School of International Affairs, George Washington University, 2008-2009). |
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