IMF take charge in Sri Lanka, High prices and Tax hikes follow.

Sri Lanka’s citizens will feel pinch of IMF loan

“This is not a happy occasion as it increases our debt … the debt of the people,” an economist who spoke on condition of anonymity said. He added that the government had promised to make public details of the proposed agreement with the IMF before signing the pact, but that has not been done.

 Sri Lanka’s debt is rising sharply. According to Ravi Karunanayake, an opposition legislator from the UNP, the country’s debt through domestic and foreign borrowings as of early 2009 was 4,600 billion rupees (Dh147bn) – without the IMF loan – against 1,783bn rupees in 2005.

As IMF acting chairman Kato put it, the bank’s loan seeks to “address the significant reconstruction needs of the conflict-affected areas, thereby laying the basis for future higher economic growth.”

In other words, quite apart from the beginning economic reforms on which the IMF newly-extended support depends, Sri Lanka also has to end its internment of hundreds of thousands of Tamils in military-run, overcrowded and diseased camps.

To secure the loan Sri Lanka has had promise that its priority – once the ongoing foreign debt obligations are met – is to resettle 70-80 percent of the interned Tamils by the end of 2009.

Few observers, however, expect this to be honored. Indeed, with the ink not yet dry on the loan agreement, the government has already reduced resettlement to 60%.

In reality, 2009 will in all likelihood end with the majority of Tamils locked up in the squalid camps.

Moreover, Sri Lanka has sought to justify using future donor funds for its continued militarizing of the Northeast: as the letter of intent states, a “key element of the reconstruction plan include restoration of law and order…”

Few observers, however, expect this to be honored. Indeed, with the ink not yet dry on the loan agreement, the government has already reduced resettlement to 60%.

In reality, 2009 will in all likelihood end with the majority of Tamils locked up in the squalid camps.

Moreover, Sri Lanka has sought to justify using future donor funds for its continued militarizing of the Northeast: as the letter of intent states, a “key element of the reconstruction plan include restoration of law and order…”

The question, then, is how firm the IMF will be with the Rajapakse regime, especially on resettling the incarcerated Tamils as a condition for future disbursements.

As Human Rights Watch has protested, given Sri Lanka’s track record, the iMF loan is “a reward for bad behavior, not an incentive to improve.”

Defending its loan against criticism, the IMF said this week it was in regular contact with humanitarian groups and diplomats over human rights worries.

Certainly, the terms of the loan – with its quarterly reviews and continuous IMF oversight – provide for powerful international leverage on the now beholden Sri Lankan state.