IMF to fund post war development

Lalin FERNANDOPULLE

The dividends of an early end to the war and the IMF intervention to fund post war development are a silver lining for the country facing tough times of the shrinking global economy, said CEO, MTI Consulting, Hilmy Cader addressing an evening meeting on ‘Tough Times-Tough Strategies, Are you Ready for the up turn.

Cader said that while peace dividends will bring about immense economic benefits to the country uncertainty looms high on how investments could be attracted in a crashing world economy.

“The IMF intervention through a Standby Facility to support the country’s dwindling foreign reserves is welcoming but the implications of the assistance should be looked into”, he said. The government acknowledged the need to seek the intervention of the IMF through a loan of US$ 1.9 billion to aid the shrinking foreign exchange reserves which stand at Rs. 1.7 billion sufficient to service imports of 1.5 months.

The Central Bank which said there is no need to either devalue the Sri Lankan rupee or seek IMF intervention had to go back on its word and concede that assistance from the multinational donor was necessary to fund the post war development and sustain an adequate reserve base.

Economists and exporters called upon the government either to devalue the rupee or seek a rescue package from the IMF since foreign reserves had plunged to unprecedented levels.

Central Bank Governor in a recent statement said that there were no conditions attached in the IMF standby facility and that the IMF had fully endorsed the development policies of the government. Economists while welcoming the mediation of the IMF which should be marketed to gain full benefit expressed serious reservations that country would have to adhere to its conditions which would be detrimental to the economy. Executive Director of IPS, a think tank based in Colombo, Dr. Saman Kelegama said an agreement with the IMF for a country which has serious macro economic problems is good though it cannot agree with conditions. “An agreement with the IMF will give a positive signal to foreign investors as the macro economic management is under the supervision of the international funding institution,” Dr. Kelegama said.

“Interest rates with a foreign donor agency is much lower than commercial borrowing”. The negative implications is the conditionality which limits policy space but if the government could negotiate liberal conditionalities then it will be better for the country”, he said.