IMF displeasure threatens loans - paper

[TamilNet, Tuesday, 30 October 2001, 19:54 GMT]
Concern expressed by the International Monetary Fund over the 'election handouts' by the Sri Lankan government has resulted in $800 million of pledged loans being withheld, the Island newspaper said Tuesday, quoting IMF sources. As a result of the freezing of these foreign loans and the unlikelihood of the government being able to raise the full amount of the required money locally, a situation would result of rising interest rates and the printing of money, thereby fuelling inflation, the paper said.

An IMF team, which has been in Sri Lanka since Friday wanted to have a meeting with President Chandrika Bandaranaike Kumaratunga to discuss these issues, but was unable to do so because of her departure to the UK, the Island said.

The IMF sources said that as it would not be possible for whichever government that wins the December 5 elections to survive without obtaining foreign loans and in order to appease international donor agencies it would be compelled to raise taxes such as the GST so as to secure the release of the loans pledged.

"An IMF or a World Bank certificate in support of a government's fiscal and monetary policies, is considered as a certificate of recommendation to other donor agencies, both multilateral and bilateral," the paper quoted the IMF sources as saying.

Conversely, when IMF mission teams expresses their concern over the government's financial and monetary policies, it has a cascading effect not only in the freezing the release of IMF loans pledged to the country, but also the withholding of development loans pledged by other agencies such as the World Bank, the ADB, as well as by bilateral donors such as Japan, the IMF sources said.

The Island said handouts which range from salary hikes and increases in pension payments to lowering of the defence levy and the abolition of the diesel tax, are estimated to cost the government an additional Rs 11 billion this year and a further Rs 44 billion next year.

Meanwhile, the IMF, after releasing the initial tranche of US$ 131 million in a $ 253 million (SDR 200 million) structural loan in April, to assist the government to build up its foreign reserves, has withheld further payment, because of the government reneging on its memorandum of understanding with the Fund, one of which was freezing salary increases of public servants by a year.

 

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