We carry the good news in our front page today that the Executive Board of International Monetary Fund, at a meeting scheduled for this week, will consider Sri Lanka’s case for a facility of US dollars 2.5 billion to support the economy as the country strives to overcome the detritus, both human and economic, of nearly three decades of war. As we have reported, the letter of intent (LOI) of the measures the country will implement to qualify for this assistance has been finalized and will, no doubt, be released to the public no sooner the IMF directors take their decision. There is every reason to expect this decision to be favourable.
We do not need to labour the point that the IMF facility had been pending before the final stage of the war against terrorism had been reached. A US dollar 1.9 billion facility was very much in the offing from early this year and the Central Bank was optimistic that the first tranche would be disbursed by April. Sri Lanka, after all, had an exemplary track record of never defaulting on its debt and the technical discussions with IMF staff who were in Colombo had been completed. Then various issues, mostly focused on the plight of civilians in the Wanni the LTTE was using as a human shield, began to muddy the waters. Unfortunately some western powers saw the pending IMF credit as an effective lever to use to pressure the government to turn down the heat on the Tigers who were confined to a small sliver of territory in the Mullaitivu district. There was a concerted international effort by several European countries and the US to throw the LTTE a lifeline and withholding the IMF credit was part of that.
Thankfully Colombo did not cave in. There was no getting behind the fact of civilian suffering. A very large number of unfortunates were held prisoner by the Tigers for sacrifice as cannon fodder as the Sri Lanka military, with massive firepower and thousands of troops vastly outnumbering what was left of the LTTE, tightened the noose. The poignant images of those who broke free braving terrorist fire, many carrying babies and infants, clutching their pitiful belongings as they waded through a lagoon to freedom, tugged at the heartstrings of the world. No wonder then that the international pressure mounted as never before demanding a pause in the fighting. That, of course, would have ensured the survival of Prabhakaran and the LTTE hierarchy to fight another day. President Mahinda Rajapaksa, though acutely conscious of immense civilian suffering, did not flinch in the face of the external onslaught on a scale that no leader of this country had faced. India, to her eternal credit, did not join that power play and Sri Lanka had the good fortune of friends like China, Russia and Pakistan and many more.
It is worth remembering that as recently as May 14, Secretary Hillary Clinton told a news briefing at the State Department that the US, which ``had raised the question’’ of the IMF loan to Sri Lanka thought ``this was not an appropriate time to consider that until there is a resolution of the conflict.’’ It is well known that the US commands the most voting muscle at the IMF and has sufficient influence to place many hurdles in Sri Lanka’s way. Fortunately, as we reported last week, Washington appeared to be backing down from its previous hard line with the U.S. charge d’affaires here calling on Central Bank Governor Ajith Nivard Cabraal and Foreign Secretary Palitha Kohona to assure them that the US had on no occasion, either publicly or privately, threatened to block the IMF loan to Sri Lanka on political grounds. While Cabraal kept a stiff upper lip on that one, leaving it to the US to handle its own damage control, the foreign ministry put out a news release publicizing what the US diplomat had told Kohona. In the context of what Clinton had to say a few weeks previously, there was merit in making Washington’s change of stance known. The ground situation had of course changed with the defeat of the LTTE and even the ranks of Tuscany would admit that if Sri Lanka’s economy is assisted to grow stronger, the government’s ability to care for the internally displaced and rehabilitate the war-torn areas will be that much better.
The mere fact that the IMF facility will be hopefully approved later this week does not mean that we are getting a free lunch. The letter of intent (LOI) that must precede the credit has been finalized and there will be conditions that we must conform to in order to qualify for the funds. These LOI’s have in the past been often kept as dark secrets with opposition parties presenting them as surrender to the dictates of multilateral lenders. But these very parties in government concede much more! Given that the people of the country are entitled to know what their government has agreed to on their behalf, we do hope that the present administration will be transparent about the intentions expressed this time round. It may even be useful to publicize what previous LOIs conceded in the past. An agreement with an institution like the IMF in return for cheap credit including balance of payments support, can compel some fiscal discipline which has been woefully lacking in recent years. We have for too long been indulging in deficit budgeting and resorting to the printing press for government’s cash requirements, unleashing galloping inflation in the country and eroding the people’s savings.
Hopefully part of the price of the expected support will pull the rein on the all too evident financial profligacy that has for too long been this country’s lot. We must run a tighter ship, shedding the flab on our fiscal belly.