Sri Lanka welcomes IMF bailout

Sri Lanka welcomed Tuesday a tentative agreement with the IMF for a 2.5-billion-dollar bailout as the country emerged from a near four-decade-long separatist war.

Sri Lanka’s Central Bank chief Nivard Cabraal said the International Monetary Fund’s announcement Monday of the preliminary agreement on the loan would send a much-needed positive signal to investors.

"For the government and private sector, the confidence-building is complete (with the IMF loan)," Cabraal said.

The IMF assistance comes after Sri Lanka crushed the Tamil Tiger rebels — who had been fighting since 1972 to carve out a separate state for minority Tamils — in May. The war had claimed up to 100,000 lives.

Sri Lankan stocks rose just under two percent Tuesday to close at 2,468.91. Brokers said they expected the market to remain bullish in the coming days on the back of the IMF step.

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

He said Sri Lanka’s government had developed an "ambitious program aimed at restoring fiscal and external viability and addressing the significant reconstruction needs of the conflict-affected areas".

The IMF executive board is expected to formally consider the program on Friday. If approved by the board, Sri Lanka would be eligible to draw about 313 million dollars immediately.

The IMF said the end of the conflict provides Sri Lanka with an opportunity to undertake economic reform and reconstruction that would be key to laying the basis for higher economic growth in the years ahead.

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.

Analysts say the end of the civil war has opened avenues for wider economic activity and will spur investment, especially into areas like infrastructure, to reap the post-war benefits.

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