US to “carefully assess” Sri Lanka IMF loan: official

June 24, 2009 (LBO) – The United States is not blocking an International Monetary Fund (IMF) loan to Sri Lanka but the US Treasury and State Department “will carefully assess” the program, an official has said. “We are not threatening to block the loan and we will carefully assess any program in light of the conditions in Sri Lanka at the time,” Gregg Sullivan, state department director public diplomacy in South and Central Asia said in a live webchat Tuesday.

“The Department of Treasury is in the lead for the U.S. Government on IMF issues and we will coordinate closely with them as the Sri Lankan Government-IMF negotiations proceed.”

Sri Lankan authorities have insisted that negotiations with the IMF are complete and a staff-level deal has been reached for a ‘stand-by arrangement’ of at least 1.9 billion US dollars.

The latest US comments imply that negotiations are ongoing.

In late March Sri Lanka also floated the rupee, a prior action to break a peg with the US dollar to allow the island’s central bank to regain control of its monetary system and stop foreign reserve losses.

A float is usually a sign that an agreement has been reached.

IMF spokesperson Caroline Atkinson said on June 19 that “whenever there is final agreement, then a program would go to the Executive Board.” In May she said a deal would be presented to the IMF board “within weeks”.

The US Treasury’s international monetary affairs unit advises the US executive director to the IMF. The US has the largest vote share at the executive board level, though not a majority.

John Lipsky, IMF’s powerful first deputy managing director, is also from the US.

Sullivan said: “As we said in late May, we’re taking a fresh look at the Stand-by Arrangement, and believe the end of the conflict presents a new opportunity to seek reconciliation and build a tolerant and democratic Sri Lanka.”

The US has expressed concern at the treatment of civilians in the last stages of a war against Tamil Tigers.

Gregg said the US still considered Tamil Tigers a terrorist organization and did not recognize a government in exile proposed by separatist elements outside Sri Lanka.

Since the float of the Sri Lanka rupee, the urgency for the loan has passed and the Central Bank has been a net buyer in forex markets.

Sri Lanka has also repaid a 125 million US dollar commercial loan, and hedge funds have bought 190 million US dollars in rupee denominated securities, the Central Bank has said.

The rupee is now pegged at 114.95 and the central bank is selling down its stock of domestic assets (government debt securities) in a text book IMF-style program to slowly build up foreign reserves.

Update 3