The International Monetary Fund defended a $2.6 billion loan to Sri Lanka on Monday, saying it is aware of human rights concerns by Western donors but the funding is needed to prevent a devastating balance of payments crisis that would affect the poor.
The loan was approved by the IMF board on Friday with opposition from several countries, including the United States, Britain, Germany, France and Argentina, which expressed concerns over reports of human rights abuses despite the end of the 25-year civil war.
"In Sri Lanka’s case they have been hit by the global crisis and the IMF’s mandate is to address and ward off balance of payments crises," IMF mission chief to Sri Lanka, Brian Aitken, told reporters on a conference call.
"The balance of payments crisis sounds rather dry, but it really would have a devastating impact on the economy and on the people, particularly the most vulnerable," he added.
Aitken said the IMF was in regular contact with humanitarian groups and diplomats over human rights worries.
Months after the end of the civil war with the Liberation Tigers of Tamil Eelam, the Sri Lankan government continues to hold thousands of Tamils displaced by the fighting in detention camps, according to Human Rights Watch.
A government representative said the authorities were looking into complaints of human rights abuses but didn’t want to be told by outsiders how.
"We always from our ministry kept on saying we need to address those human rights issues. What we object to is, it is not people who should tell us to meet those issues," said Rajiva Wijesinghe of the ministry of human rights and disaster management.
Aitken said none of the IMF funding would go toward supporting the government budget. Instead, the entire loan would help shore up the central bank’s currency reserves, which have been drained by the collapse in global trade that has affected the country’s mainstay garment industry.
"The hope is that the loan provides a framework in which multilateral and bilateral donors can support the reconstruction effort directly," he added.
He also said it was important that Sri Lanka’s foreign exchange policy remained flexible to meet targets for rebuilding international reserves to at least 3 1/2 months of imports by the end of the 20-month program.
"The program is targeted to increase reserves and the exchange rate under those circumstances needs to be flexible to respond to changes in foreign exchange flowing into the country," Aitken said.
Nandalal Weerasinghe, chief economist at the central bank, said exchange rate flexibility would cause the currency to appreciate and needed to be managed.
"We are maintaining certain fixed rate in order to prevent further appreciation of the currency," Weerasinghe told reporters in Colombo.
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