IMF eyes $2.5b for war-ravaged Sri Lanka.

Byline: AFP 

WASHINGTON: The International Monetary Fund on Monday announced a tentative agreement with Sri Lanka to provide a 2.5 billion dollar loan to help the war-battered country weather the global financial crisis.

IMF managing director Dominique Strauss-Kahn said that an IMF staff mission had reached an agreement with the Sri Lankan authorities on an economic program that "could be supported" by a 20-month stand-by credit.

The loan is worth 1.65 billion Special Drawing Rights (SDRs), an IMF asset that is based on a basket of currencies -- the dollar, yen, euro and pound -- and calculated daily.

The IMF executive board is expected to consider the program on Friday, the 186-nation Washington-based institution said.

If approved by the board, Sri Lanka would be eligible to draw about 313 million dollars immediately.

The Sri Lankan government had requested a 1.9 billion dollar loan in March to help stave off its first balance of payments deficit in four years after foreign currency reserves fell to around six weeks worth of imports.

The loan was delayed after the United States, Britain and other countries said the government was not doing enough to avoid civilian casualties as it closed in on the remnants of the once-powerful Tamil Tiger army.

Sri Lanka crushed the militant Tamil Tigers -- who had been fighting to carve out a separate state for minority Tamils since 1972 -- in mid-May by killing the leadership of the rebels. The civil war claimed between 80,000 and 100,000 lives.

Strauss-Kahn noted that the global financial crisis had applied a sharp brake to the short-term financing from international markets that the Sri Lankan government had relied on to deal with persistently high budget deficits.

"The global financial shock resulted in a sudden stop to this financing, capital outflows, and a significant loss of Sri Lanka s international reserves," he said.

Despite recent capital inflows, the tiny Asian country s international reserves "remain at low levels," he said. "The end of the conflict provides Sri Lanka with a unique opportunity to undertake economic reform and reconstruction, which would be key to laying the basis for higher economic growth in the years ahead," he said.

Muscat Press and Publishing House SAOC 2009

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