IMF team here today to hold talks on crucial loan

An IMF team is due in Colombo today to continue discussions and finalise the request by Sri Lanka for a $1.9 billion standby loan facility to prop up the country’s dwindling foreign exchange reserves, Central Bank (CB) officials said.

They said Governor Ajit Nivard Cabraal who went to Washington on Thursday for talks with the IMF in addition to other work, would be back tomorrow or on Tuesday. There were unconfirmed reports that Senior Presidential Advisor Basil Rajapaksa had also flown to Washington for talks with the IMF.

According to the latest data from the CB, private remittances in January this year fell – on an annual basis -- by 6.6% to $256 million while foreign exchange reserves (the bone of contention between the CB, economists and the opposition) in January were sufficient only to meet 1.3 months of imports.

A senior CB official, responding to the controversy over possible conditions attached to the loan, said there had so far been no talks on conditions. “These matters will be discussed next week with the IMF team,” he said adding that the circumstances for standby credit arrangements given to countries facing a crisis had changed now.

“It is different and the IMF wants to help. But the conditions normally attached to standby facilities in the past are unlikely to be enforced (because of the global crisis),” he said.

The IMF team would present a report on its review mission to the board of the Fund by the middle of next month and, once approved, the first tranche would be released on the same day, he said.

Economists and the private sector have welcomed the proposed facility but say some conditions may be attached. Meanwhile, David Hawley, the IMF’s Senior Advisor, External Relations Department, at a routine news conference in Washington on March 12 refused to be drawn into a response on whether the fund would ensure that the loan was not used indirectly for military purposes.

Responding to a question from a journalist on this issue, he said talks were still going on with the Sri Lankan authorities on a possible programme.

He said the discussions were based on achieving Sri Lanka's policy goals which included rebuilding reserves, reducing the budget deficit and bringing about balance-of-payment sustainability. The request from Sri Lanka for a standby facility came during the visit of an IMF mission two weeks ago.

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