Global IssuesSRI LANKA: IMF’s 2.6-B Dollar Loan Deal in Peril if Opposition Wins
With parliamentary and presidential elections just a few months away, conditions set by the International Monetary Fund (IMF) in an ongoing 2.6-billion U.S. dollar loan facility could be swept aside if Sri Lanka’s opposition captured power.
'We will not allow the IMF to set conditions,' said Kabir Hashim, a former education minister and frontline Parliamentarian from the main opposition United National Party (UNP).
Elections are due before April 2010 and an announcement of the presidential poll, likely to be held in January, is expected to be announced by President Mahinda Rajapaksa next Sunday at the annual convention of his Sri Lanka Freedom Party.
Rajapaksa’s popularity has peaked during the past three years in which government troops launched a massive offensive against Tamil separatist rebels and finally crushed them in May.
However, since May, issues like the rising cost of living, corruption, streets protests by trade unions and unemployed graduates plus a popular army general seen as coming forward as an opposition candidate at the next presidential poll has forced the President, in power since November 2005, on the back foot and triggered growing worries about his future.
The opposition says it will re-negotiate the IMF Standby Arrangement (credit facility), which the Fund has been disbursing since July 2009, when the loan was approved. So far two disbursements of over 300 million U.S. dollars have been made, the latest of which was approved on Friday. The rest will be disbursed in six tranches subject to quarterly reviews of the country’s economic performance.
The Fund acknowledged that in the event of a new party winning the polls next year, it would have to discuss the loan with the new administration.
'If the situation changes, (with) a new party in power, new administration … then we will discuss their views on the economy with them,' said Dr Koshy Mathai, the IMF Resident Representative in Sri Lanka, during a press conference in this capital on Monday.
Responding to a question from IPS if the targets set in the IMF programme would be valid if a new government took over, Mathai said, 'The best we can do (now) is talk to the government that is currently in power. It has been a strong performance so far. Policy commitments with the current government are in line with what they earlier said.'
The loan facility has strict guidelines toward cutting spending and the country’s budget deficit to seven percent this year, six percent in 2010 and five percent in 2011, when the Funding programme is scheduled to end.
Sirimal Abeyratne, a senior economist at the University of Colombo, believes a new party in power—like it or not, he said—will have to respect the agreement, saying it is an agreement with a country and not an individual.
However, he believes the UNP has a far better record of fiscal discipline than the present government and that the country’s economy could do better in fiscal management.
'I think it will be extremely difficult to maintain a budget deficit target of seven percent this year when the first half of the year deficit was 11.5 percent,' he said, adding that the government’s posture of reducing expenditure in the short term will not work.
Already, the cracks are showing in the promise to cut spending in return for IMF assistance. On Monday, the government—in a move widely believed to woo support—reduced the prices of essential imported food commodities like ‘dhal’ (lentils found in Asia), onions, potatoes and milk food by cutting tax revenue from these imports, further widening the gap between state expenditure and revenue.
Last week as trade unions agitated over a wage hike, Rajapaksa promised to raise the salaries of public sector employees from January next year, a move that was dismissed by the opposition and trade unions as an election stunt.
The opposition says the government last week presented a vote-on-account (a temporary budget to cover spending for four months to April next year) in Parliament instead of a budget because of a planned huge election-related spending in the national budget for 2010, which would have effectively created havoc with spending targets set with the IMF.
UNP and opposition leader Ranil Wickremesinghe told reporters earlier this week that the temporary budget had no provision for a huge wage bill, as announced by the President.
On Monday, talks between the government and trade unions to prevent a three-day protest by workers in the petroleum, water and power sectors starting on Nov. 11 broke down over the wage hike issue. The government said it would pay the rise from January 2010 but unions are asking for arrears for the whole of 2009.
IMF’s Mathai also said the Fund had not been notified of any wage increase, which could affect the government-IMF targets.
'We have not been informed of any wage hike. An IMF Review Mission (due to arrive from Washington this week to discuss the third tranche under the programme) will look at these issues,' he said.
Sarath Fernando, a veteran campaigner for the rights of peasant farmers and agriculture workers, said IMF conditions are harsh irrespective of the government’s pledges that might have preceded them.
'The IMF wants government to reduce spending by raising taxes, privatising state-owned enterprises and cutting the welfare and social spending. And that is what the government has agreed to because it desperately needs the money,' said the campaigner before flying to Rome today to attend a World Food Summit.
The UNP’s Hashim said, rather than bowing to the dictates of the IMF, the party would, 'when we win elections next year, cut wastage and corruption, increase incomes and productivity.'
He said reducing wasteful spending alone can cut a huge slice of the government budget and reduce the gap between spending and revenue.
'The government has a huge cabinet of 108 ministers, which requires billions of rupees to maintain. All this will be done away with. We can turn the country around without having conditions forced on us,' he said, adding however that they would discuss changes in the fund programme when in power.
The UNP, the other party that has ruled Sri Lanka since the country gained independence as a Britain colony in 1948, has been rejuvenated in recent months by reports of General Sarath Fonseka, Chief of Defence Staff and former army commander—widely credited with leading the army to victory over the rebels in May—challenging Rajapaksa as a candidate at the next presidential poll.
Fonseka, who has fallen out with the President since the war ended, has not openly commented on going into politics but has hinted that he would ‘be prepared to leave his military uniform to save the country.'
Political analysts consider Fonseka a formidable opponent to Rajapaksa, being seen as equally popular as the latter for leading the decades-old war to victory.
© Inter Press Service (2009) — All Rights ReservedOriginal source: Inter Press Service