Veil of secrecy over IMF talks with Sri Lanka

Veil of secrecy over IMF talks with Sri Lanka

A veil of secrecy has been cast over 'serious' talks an IMF mission started this week with the Sri Lankan government on the latter's request for a standby facility of $1.9 billion, senior Central Bank (CB) officials said.

At the same time, the CB was preparing to meet with the Board of Investment (BOI), the Labour Ministry, the Finance Ministry and other connected institutions on Wednesday to discuss the situation facing small and medium enterprises (SME) industries arising out of the global financial crisis and local uncertainty.

The CB was tight-lipped about the discussions with the IMF. "We have agreed with the IMF not to make any statement (unless jointly agreed to)," CB Governor Ajith Nivard Cabraal said yesterday, when asked for details of what was happening.
CB Governor Ajith Nivard Cabraal

Mr. Cabraal returned to Colombo on Monday after talks in Washington with IMF officials on the standby facility. Senior Presidential Advisor Basil Rajapaksa was also 'informally' involved in some of the discussions, the sources said.

The six-member IMF team led by Kalpana Kochar, Deputy Director of the Asia Division, arrived last Sunday and began discussions on Monday with the CB and Finance Ministry officials. The visiting delegation is expected to be here next week too and will then report to the IMF board by around early April on the loan requirement.

The IMF is returning to the Sri Lankan stage after it closed its Colombo office in 2007. The government two weeks ago requested support from the IMF, saying it would come under a new window available for countries caught up in the global crisis – a facility which did not have too many harsh conditions as in the past.

The IMF, in a March 24 statement about revamping its lending procedures to help countries at risk, said a key element in the new reforms was in 'modernizing conditionality'.

It said the fund aimed to ensure that conditions linked to IMF loan disbursements were focused and adequately tailored to the varying strengths of members' policies and fundamentals (there have been criticisms in the past that some IMF loans had too many conditions that were insufficiently focused on core objectives).

"This modernization is to be achieved by relying more on pre-set qualification criteria (ex-ante conditionality) rather than on traditional (ex post) conditionality. In addition, structural reforms will from now on be monitored in the context of program reviews, rather than through the use of structural performance criteria, which will be discontinued in all Fund arrangements, including those with low-income countries," the statement said.

An economist, who declined to be named, said this provided a hint about what conditions would be seen in the loan to Sri Lanka.

Meanwhile, the President was not present or did not host a dinner meeting as reported in The Sunday Times on March 8 at which a group of business leaders briefed an earlier IMF team on the Sri Lankan situation. The meeting was held at the Cinnamon Grand Hotel.

Opposition politicians and some economists have said there will be the normal stiff IMF conditions with the facility that the government hopes to get. The government has disagreed with these views. Yesterday Mr Cabraal declined to comment on these issues.

However, discussing next week's meeting on the issues faced by SMEs, he said that there were various issues faced by small and medium industrialists. "They have a variety of problems and different issues -- some relating to the crisis and some not. Some say they have a problem; some don't. We want to first study the problems and issues and then consider what kind of support is needed," he added.

Small industry experts say some small business units have closed and staff laid off or in other cases, work reduced and wages cut or overtime suspended in view of rising costs and lower business connected in many ways to the global crisis.

The garment industry for example has sought a 5-day working week to reduce costs of working on a Saturday as export orders are drying up. In some cases, factories are planning to give an extended April holiday to staff.

Govt. seeks Rs. 150 b. for spending

A parliamentary request to increase the borrowings limit on Treasury Bills by an additional Rs 150 billion, from the current limit of Rs 600 billion, is essentially to fund rising government spending, economists said.

Listed as a motion in the Parliamentary order paper for April 7, the Prime Minister is seeking authorization to borrow an additional Rs 150 billion through the issue of Treasury Bills in addition to what has already been issued. Any increase in Treasury Bills limits must be approved by the legislature.
Economists said government spending was increasing on many fronts including the war -- not keeping pace with revenue returns.