What’s the real story behind the failed bid to secure a US$1 billion loan from the International Monetary Fund (IMF)? The Central Bank (CB) on Wednesday announced that Sri Lanka was not pursuing the loan request. It said “the IMF has indicated that the Fund may not be in a position to consider any [...]

The Sundaytimes Sri Lanka

What’s the real story over failed loan bid?

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What’s the real story behind the failed bid to secure a US$1 billion loan from the International Monetary Fund (IMF)?

The Central Bank (CB) on Wednesday announced that Sri Lanka was not pursuing the loan request. It said “the IMF has indicated that the Fund may not be in a position to consider any direct or indirect budget support to Sri Lanka, since the current improved status of Sri Lanka does not warrant unconventional and exceptional financial support to the Government of Sri Lanka from the IMF. In view of these circumstances, Sri Lankan authorities have decided not to pursue a new programme with the IMF.”

Our story on Page 1 speaks of inconclusive negotiations between a visiting IMF team and Treasury officials over a time-line for reforms particularly at the Ceylon Electricity Board (CEB) and the Ceylon Petroleum Corporation (CPC).

But is this the only reason coming in the backdrop of the ensuing battle Sri Lanka would face in governance and accountability issues (human rights, impeachment of the Chief Justice Shirani Bandaranaike) at the UN Human Rights sessions in Geneva next month?
The Treasury reversal vis--vis the loan request is a rather unusual experience for a personality like Dr Jayasundera. Easily the most powerful individual in Sri Lanka, second only to the President and other influential ministers, PB (as he is better known as) has had a roller coaster ride since the days when Chandrika Kumaratunga was in power. PB has riled many ministers but continued to be wooed by ruling party politicians. Even a scathing Supreme Court verdict ordering that he step down from office over his involvement in the Lanka Marine Services privatization, didn’t keep the man down for too long. Soon after Chief Justice Sarath Silva retired, PB was reinstated on approval by Silva’s successor.

PB, at various times, has had rocky relationships with heads of multilateral agencies like the World Bank, ADB or IMF. He could be blunt and tell donors ‘to fly a kite’ and take their funding elsewhere if conditions were imposed on lending, or he could be extremely nice.

In this context, what is intriguing is how such a knowledgeable official aware that the IMF would pull the plug over the request based on the need to cut losses at the two main power agencies, went ahead with a request?

Or did he wrongly read the signals? The IMF has been very flexible in its disbursement of the $2.6 billion loan to the CB and despite set targets for CEB and CPC reforms not being met by the CB, the full loan was disbursed.

Thus did PB believe the Government could somehow push through the negotiations just like the CB was able to? The IMF has been clear that the sticking points in favourably considering the request were the two inefficient state power agencies.
Jayasundera has never failed (or rarely failed) at his job. So what went wrong?

It was in a bad week for PB with Wimal Weerawansa’s, one of the most boisterous ministers in the cabinet, firing missiles at the official. The verbal barrage by Weerawansa calling PB an economic ‘terrorist’ and wishing that he was just like and as efficient as Defence Secretary Gotabhaya Rajapaksa, has puzzled many people. The real reason though is that the Treasury Secretary, unpopular with many ministers because of huge spending cuts, has sharply reduced the allocation for Weerawansa’s ministry, triggering a furious response. However many are questioning whether Weerawansa’s attacks on the powerful official is with the blessings of the President, given PB’s power over many ministers, or is Weerawansa acting on his own?

Plans for the IMF loan for the Treasury were exclusively revealed by the Business Times in an October 7, 2012 published story. Last month, on January 6, Jayasundera confirmed to reporters that the Treasury was seeking an Extended Fund Facility or Budget Support Facility from the IMF.

In the meantime, could the Geneva western lobby have put pressure on the fund to refuse the request? Only time will tell.
When CB sought a facility from the IMF in early 2009, it took many months for the fund to finally agree amidst concerns raised by western nations over human rights issues.

At that time, the word on the street was that India came to Sri Lanka’s rescue and persuaded the US to ‘go easy’ on its opposition to that request.

While there is a school of thought that political issues don’t come into IMF decision-making, there is also a belief that the human rights issue may have figured in the current case.

Clearly, Government coffers are empty and there is a sense of desperation. That’s why the Treasury is looking at raising the $1 billion (about Rs 113 billion) through other sources as reported on Page 1. Prepare also for more tax hikes as the Government looks at easier avenues of raising cash.




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