Sri Lanka slammed the United States this week for obstructing a standby facility of US $ 1.9 billion (Rs. 200 billion) from the International Monetary Fund (IMF) calling it a “bully” as a spokesperson for the Fund confirmed that discussions with Sri Lankan authorities were “still ongoing”.
“As with any Fund-supported programme, finalisation of the programme will require the support of the Executive Board, reflecting the views of the Fund’s membership,” IMF spokesperson Suk-yee Daisy Wong told The Sunday Times, responding to questions sent by e-mail to the IMF headquarters in Washington DC.
She said, “We do not have any schedule of the Executive Board meeting at this moment.”
Significantly, the IMF spokesperson refers to the need for the IMF Executive Board to agree to the loan to Sri Lanka “reflecting the views of the Fund’s membership”.
This week, Deputy Finance Minister Sarath Amunugama named the United States and said its interference in Sri Lanka’s efforts to obtain an IMF loan was “deplorable”.
Speaking at a Colombo seminar organised by the Institute of Policy Studies and the World Bank on Wednesday, Dr. 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”.
Asked whether the Government of Sri Lanka has given a Letter of Intent (LoI) to the IMF, as is required by the procedures for a loan, the IMF spokesperson replied “no comment.”
Last week, the Sunday Times Political Editor referred to a reluctance on the part of the Sri Lankan government to issue an LoI if it felt the loan would not be “forthcoming”.
The LoI must usually be given by a country’s Finance Minister, in this case, President Mahinda Rajapaksa himself.
The LoI is treated as a mere formality after behind-the-scenes negotiations are concluded, but would include conditions to which the recipient government agrees, and could be made public.
The spokesperson also said “no comment” when asked about the present status of the negotiations and claims by Sri Lanka officials that the loan was now a certainty.
Last week, however, the Central Bank Governor Nivard Cabral went on record saying that the immediate need for the IMF loan had passed.
“There was a need some months ago, but now the dollars are flowing in from other sources, including migrant remittances”, he told The Sunday Times in a front page story that referred to US and other western countries applying political pressure on Sri Lankas loan application to the IMF.
However, a senior economist said that while foreign exchange inflows had increased, they were small amounts and had brought only temporary relief. Sri Lankas exports had gone down and trade deficits widened badly, he said.
LOI: What does it mean?
The Letter of Intent (LoI) is, in effect, the Agreement between the Fund and a recipient country. It is drafted during consultations between Fund officials and the requesting (would-be recipient) country.
Consultations begin after a loan request is made and cover a whole range of issues including reason for the request, justification, conditionalities, payment tranches, etc. When mutual agreement has been reached on all these issues, an LoI is signed by the requesting country's Finance Minister and Central Bank Governor or equivalent.
It is then submitted to the Fund's Managing Director who sends it to the Fund's Executive Board for (a) approval (b) rejection or (c) referral back to the requesting country for clarifications or modification. If the LoI is rejected by the Board, consultation can resume three months later, and could lead to a new set of conditionalities, requiring a new LoI.
If approved, the LoI becomes an Agreement between the requesting country and the Fund and the Fund will make the first tranche of payment to the recipient country on the date and in the amount stated in the Agreement. Subsequent tranches are released after periodic review by Fund staff as to whether the terms of the Agreement have been/are being met.