Despite Cabraal’s ‘No’, Govt is inclined to seek IMF assistance; India also advises to go for that option
The Government has written to the International Monetary Fund (IMF) seeking technical assistance and for a delegation to visit Sri Lanka soon, Finance Minister Basil Rajapaksa told a news conference on Wednesday.
He declared: “IMF is a forbidden word. Officially we have not gone for discussions but we have written to them requesting their assistance and expert knowledge. IMF is the international organisation set up to advice countries such as us that are facing crisis.”
“I cannot alone decide on whether to act on their advice or not. We should first know, learn, and see what is happening. We will take their expert view. We have started the process.”
He declined comment on whether this was a prelude to a full IMF engagement to assist Sri Lanka in the deteriorating economic situation and debt repayments. The remarks came when he briefed the media on a 100,000 work programmes this year spelt out in his budget.
However, Finance Minister Rajapaksa’s comments fuelled speculation in financial and business circles that at long last the government was turning to the IMF for help. That, however, was short-lived. On Thursday, the IMF response to his appeal in the form of a letter from Vitor Gaspar, Director, Fiscal Affairs of the IMF circulated in different quarters. It confirmed that the IMF had “responded positively” to government’s request for a training and technical assistance mission on ‘macro fiscal capacity building for the newly established Macro-Fiscal Unit (MFU)” in the Finance Ministry. There was no other help sought or offered in respect of IMF support for debt servicing or related matters, the Sunday Times learnt.
Yet, AGENCE FRANCE PRESSE (AFP) news agency, in a Washington datelined report, quoted a signed statement from IMF Mission Chief Masahiro Nozaki saying, “The International Monetary Fund is ready to discuss ‘options’ with Sri Lanka if the government asks for financial support.” It added: “While the IMF has not received a request for financial support from Sri Lanka, the staff stands ready to discuss options if requested.”
Central Bank Governor Ajith Nivard Cabraal, who is staunchly opposed to any IMF help tweeted on Wednesday: Finance Minister's comment yesterday (2) re."#SriLanka informing @IMFNews to provide #expert advice on #economic situation" is about a routine Technical Assistance Program on MacroFiscal capacity building for MOF's new Macro-Fiscal Unit. Nothing else. The tweet also bore the following: @RealBRajapaksa@CBSL#lka.
During a private visit to the United States between December 15 (2021) and January 1 this year, the Finance Minister did engage senior IMF figures in Washington DC. It is only upon his return that he introduced a financial package which gave a Rs 5,000 raise to state sector officials. In fact, an IMF official team was in Sri Lanka from December 7 to 20 last year, for an annual economic assessment. This is in keeping with a provision (Article 4) which allows them to assess national economic and fiscal needs of a member country.
CB Governor Cabraal has been staunchly opposed to any role in Sri Lanka by the IMF over a financial bailout or debt restructure. His remarks, often countering international credit rating agencies, caused considerable confusion in world financial markets. “We don’t need relief if we have an alternative strategy,” he told CNBC’s “Squawk Box Asia” programme on January 24. The remarks appear to underscore the fact that there was no alternative strategy. In fact, countries like India and Bangladesh, which helped Sri Lanka, had staunchly recommended recourse to the IMF.
Finance Minister Rajapaksa’s declaration on Wednesday came barely hours after Sri Lanka and India signed a credit line. New Delhi is giving Sri Lanka a shortterm line of credit (STLOC) for US$ 500 million for fuel imports. A friend in need is a friend indeed, tweeted Indian High Commissioner Gopal Baglay when Treasury Secretary, S.R. Attygalle and India’s Exim Bank Chief General Manager Gaurav Bhandari signed the agreement. In fact, when Minister Rajapaksa was in New Delhi for talks on December 21 last year with his Indian counterpart, Nirmala Sitharaman, she advised Sri Lanka to seek recourse to the IMF.
When the MoU was then under consideration, efforts by the Sri Lanka High Commission in New Delhi and the Ministry of Foreign Affairs to arrange for a meeting between Indian Prime Minister Narendra Modi and Finance Minister Rajapaksa did not materialise. This is despite an announcement by Foreign Minister G.L. Peiris at a news conference at the SLPP headquarters on November 30 last year that Rajapaksa would meet Premier Modi. This visit, Peiris said, was not just to get loans. We are also focused on getting capital and foreign investments through other means – investments, business relationships and the development of the tourism sector, he declared.
However, according to Tamil National Alliance (TNA) sources, Premier Modi had invited their leader Rajavarothayam Sampanthan for a meeting on December 7 last year. A miscommunication, the source said, had put paid to this planned event which could have come as a snub to Finance Minister Rajapaksa. He has since been dealing with External Affairs Minister Subrahmanyam Jaishankar. The last occasion when a TNA delegation met with Premier Modi was in August 2014.
On January 2, President Gotabaya Rajapaksa, and his senior advisor Lalith Weeratunga had a lengthy informal meeting with Sri Lankan born Dr Shantha Devarajan, who spent 28 years at the World Bank including serving as Chief Economist of the South Asia Region. The son of B.R. Devarajan, a Director of Civil Aviation and Government Agent for Trincomalee, they migrated to the United States. His father C.N. Devarajan was Secretary to Sir Ponnampalam Arunachalam. The leading economist did not mince his words in highlighting the dangers of prolonging the need to turn to the IMF; the meeting was proof that President Rajapaksa was seeking different views despite the tough stance taken by Central Bank Governor Cabraal.
At the same news conference, Finance Minister Basil Rajapaksa also reportedly said that foreign exchange was procured by the government from the unofficial (black) market to pay for weapons purchases from North Korea. However, Rajapaksa later denied he made such remarks. These denials were repeated by Foreign Minister Peiris.
A section of the Foreign Ministry is worried that the reported remarks may trigger an inquiry by a United Nations Panel of Experts. This is to determine whether Sri Lanka broke sanctions imposed by the UN Security Council on North Korea.