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Sri Lanka eyes foreign funds to boost infrastructure

[Reuters, Wednesday, 10 February 2010 09:16 No Comment]

Sri Lanka is taking advantage of its key Indian Ocean location to boost infrastructure with foreign funds, but will not allow countries such as China to open naval bases, its central bank governor said on Tuesday.

Ajith Nivard Cabraal, in London on a tour to drum up capital following a three-decade civil war with Tamil Tiger rebels, said Sri Lanka was targeting both Western investors and bilateral loans from emerging powers such as China and India.

Cabraal said the expanded port facilities would offer a range of services including refuelling and repairs to shipping, as well as making it a regional hub equipped to benefit from increased traffic to and from Asia’s growing economies.

Airport, road and rail links will also be improved.

"The end of the conflict makes it easier for us to take advantage of our position," he said in an interview with Reuters. "It is something foreign investors and countries are very aware of."

China is funding and building a $3 billion port facility on Sri Lanka’s southern coast at Hambantota.

Some Western media have reported a naval base might be the cost of Chinese financial and diplomatic support in the final years of the war.

"We do not need to do that," said Cabraal, a key adviser to newly re-elected President Mahinda Rajapaksa. "It’s only for commercial purposes. I do not think even China would want that."

Analysts say world powers increasingly see the Indian Ocean as the most important strategic sea lane of the 21st century, with European Union, Russian, Indian, American and Chinese warships all mounting increasing patrols to tackle piracy.

In December, a Chinese rear admiral urged Beijing to set up naval supply bases overseas in an interview posted on the Ministry of Defence website.


Cabraal said the end of the conflict had also opened up more of the country for investment, as well as allowing exploration for oil off the until recently war-torn north coasts.

Exploratory drilling in the northwestern Mannar basin would begin first. Further exploration blocks might also be offered off the northern Jaffna peninsula.

Sri Lanka has already sold two $500 million Eurobonds in international markets since 2007, and Cabraal said it might look to launch another Eurobond later this year but would continue to negotiate bilateral loans with other countries.

Overall, he said most of Sri Lanka’s foreign direct investment continued to come from Western sources including a growing volume from members of the ethnic minority Tamil diasapora until recently more likely to support the rebels.

"The Chinese investment has taken the headlines but I think a larger amount of investment will still come from the West," he said, adding 70 percent of buyers of the Eurobonds were Western.

But he said Sri Lanka would continue to look for new bilateral loans for individual projects such as the $300 million loan from Russia announced this week to buy arms.

"We have had bilateral loans from Western countries at certain times but I think now they are more likely to come from other places," he said. "It all depends on who has the cash."

Western powers criticised Sri Lanka heavily for its conduct in the final months of the war with U.S. pressure seen behind a delay to a $2.6 billion International Monetary Fund (IMF) loan.

A report by the U.S. Senate’s powerful Foreign Relations Committee late last year urged the White House not to "lose" its Sri Lanka relationship to others by focusing too much on rights.

Cabraal said foreign investors should be reassured rather than unnerved by the arrest of former presidential candidate Sarath Fonseka on Monday for "military offences" including planning with opposition politicians while still army commander.

Fonseka lost to Rajapaksa last month before accusing the government of vote rigging, vowing to challenge the resulting court and stand for parliament.

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