COLOMBO // The International Monetary Fund delivered late on Monday what Sri Lanka has for nearly five months been patiently waiting for: an agreement on a bailout package worth US$2.5 billion (Dh9bn) to boost the country's depleted foreign exchange reserves. The IMF managing director, Dominique Strauss-Kahn, said a staff mission reached an agreement with the Sri Lankan authorities on an economic programme backed by a credit line to overcome short-term difficulties, known as a stand-by arrangement, of $2.5bn, the biggest ever received by Sri Lanka. Mr Strauss-Kahn said the programme goes before the IMF's executive board on Friday for approval. However, the Sri Lanka Central Bank's governor, Ajith Nivard Cabraal, said the board meeting is just a formality. "It has been approved ? we have reached agreement. We will get the first installment of $313million on Friday itself. This is a good confidence boost for foreign investment." Further installments will be disbursed over a period of 20 months at varying amounts. While most IMF stand-by credit loans are approved quickly, as they are meant for a specific and urgent purpose, like boosting foreign reserves, the Sri Lankan application came in February as the war against the Tamil Tigers was winding down and the international community was raising serious concerns about civilian deaths and other human rights allegations. Influential western powers put pressure on the IMF to delay the loan as punishment for the government's failure to act against abuses in its final push against the Liberation Tigers of Tamil Eelam (LTTE). President Mahinda Rajapaksa turned down many requests from western European leaders to stop the fighting on their insistence that civilians were being harmed. At least dozens of trapped civilians were killed in the last stages of the battle between government troops and Tamil rebel forces in the north. Sri Lankans, from all sides of the political fence were for once united and critical of the international community for bringing politics into the issue and using it as a bargaining tool to pressure the government on human rights issues. The country's economists joined Mr Cabraal in saying that the IMF has never brought politics into its loan programme until now. "If you use politics instead of economics as the guide to approving loans, the entire IMF charter will have to be changed," said a retired deputy governor of the Central Bank, who declined to be named, in an interview with The National. The US secretary of state, Hillary Clinton, told reporters last month that it "is not an appropriate time" to consider the IMF credit line. "We have raised questions about the IMF loan at this time. We think that it is not an appropriate time to consider that [loan] until there is a resolution of the conflict." Mrs Clinton's comments drew a strong response from Sri Lanka, with the deputy finance minister, Sarath Amunugama, on June 24 saying that US interference in Sri Lanka's efforts to obtain an IMF loan were "deplorable". Speaking at a Colombo seminar, Mr Amunugama said: "The US has no business obstructing a project that is technically sound, on the basis of its misinformation. This is an unacceptable case of the bullies trying to run the World Bank and the IMF". On May 5, the media advocacy group Reporters Without Borders, in a letter to the IMF, urged the fund to demand specific agreements from the government to respect press freedom and the rule of law in return for granting a loan. The group said the Sri Lankan government's crushing victory over the LTTE at a cost of thousands of civilian casualties had been accompanied by a ruthless campaign against the press and critical voices. An economist, who declined to be named but is close to the hierarchy at the Central Bank, also said there has been tremendous political pressure on the IMF. "There was a lot of pressure from western powers to delay the loan until Colombo gets its act together on the political and human rights stage," he said. Others analysts, however, disagree with this assessment. Muttukrishna Sarvananthan, another Sri Lankan economist, said he believes the issue had nothing to do with politics, but with economics and meeting fiscal targets. "My understanding of the real bottleneck is that the Central Bank hadn't put forward a convincing fiscal, monetary and balance-of-payments stability package to the IMF taking into account the latest post-war economic imperatives," he said. So what made western powers finally back off? "India," noted a foreign diplomat . "India, I believe used its influence and acted on Sri Lanka's behalf to convince the West to withdraw their objections," said the diplomat, who declined to be named as he was not authorised to speak to the media. Analysts believe that India has successfully pushed Sri Lanka to pursue a political solution with its Tamil minority, and in return advocated for the IMF loan. fsamath@thenational.ae
