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AFP: Sri Lanka set for bailout talks with IMF: official

[AFP, Wednesday, 18 March 2009 12:46 No Comment]

Sri Lanka is set to open talks with the IMF for a 1.9-billion-dollar bailout, officials said Wednesday, with the island’s economy hit by the cost of a military campaign to crush Tamil rebels and the global financial crisis.

 

"We will start talks with an IMF team next Monday to work out the modalities for a standby arrangement," Nandalal Weerasinghe, the Central Bank of Sri Lanka’s chief economist, told AFP.

 

The island turned to the International Monetary Fund after pouring an unprecedented 1.6 billion dollars into financing the military drive against Tamil Tiger rebels which the government says is close to victory.

 

Economists say the economic woes caused by the high defence spending have been compounded by the global meltdown and the government’s policy of halting privatisation of state-run enterprises.

 

The IMF has made no comment on the talks but economists expect the international lending body to insist on cuts in government spending, higher interest rates and a gradual depreciation of the local currency.

 

President Mahinda Rajapakse said he would get the IMF money on his terms and vowed to resist any conditions deemed unpalatable by his government.

 

"We will not pawn or sell our motherland to obtain any monetary aid," the state-run Daily News quoted Rajapakse as saying. "Neither will we bow to any conditions or transform our land to a colony."

 

Sri Lanka is going back to the IMF for a second time after a previous loan deal was aborted midway through 2004 when the government pulled out because it said the terms of the agreement were unacceptable.

 

"During our preliminary discussions, they (IMF) agreed not to insist on privatisation. But they will structure their facility to support the government’s medium-term economic agenda," the central bank’s Weerasinghe said.

 

He said the global economic slowdown had hit export earnings of Sri Lanka’s tea and garments, while the central bank had used up limited foreign currency reserves to prevent the rupee from losing value against the dollar.

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