IMF approves $2.6bn loan for Sri Lanka

WASHINGTON, July 24- The International Monetary Fund’s board on Friday approved a $2.6bn loan deal to help Sri Lanka cope with the global financial crisis and pay for reconstruction after a 25 year war.

But both Britain and the United States abstained from the board discussion in a move reflecting concerns about the Sri Lankan government’s human rights record.

Months after the end of the civil war with the Liberation Tigers of Tamil Eelam (LTTE), the Sri Lankan government continues to hold thousands of Tamils displaced by the fighting in detention camps, according to Human Rights Watch.

”To approve a loan, especially $600m more than the government asked for, while they have hundreds of people penned up in camps is a reward for bad behaviour, not an incentive to improve,” said Brad Adams, Human Rights Watch director for Asia, in a statement.

Approval of the loan lets Sri Lanka immediately tap the first disbursement of $322m under the 20-month program.

The rest will be phased in, subject to quarterly reviews on how human rights have improved as a result of the loan, an Obama administration official said.

Anura Priyadarshana Yapa, Sri Lanka’s minister of enterprise development and investment promotion, told Reuters earlier on Friday he expected the loan to be approved.

Sri Lanka is ”embarking upon a very rapid development program for the north and east,” previously controlled by separatist rebels the government defeated in May, Mr Yapa said.

”We have completely destroyed one of the worst terrorist outfits in the world and it is time to start the reconciling and healing process in our country,” Mr Yapa said.

Many people are still in camps because the areas where they lived were mined by the rebels and have to be made safe before they can return, he said.

”We have not done any human rights violations. The world should also know the violations done by the LTTE was unnoticed,” Mr Yapa said, adding Sri Lanka welcomed journalists and foreign officials to view conditions for themselves.

Sri Lanka requested an IMF loan in March after reserves fell 50 per cent in the last four months of 2008.

An agreement was delayed by opposition from the United States after the government refused to back off its final offensive against the rebel forces.

Mr Yapa said Sri Lanka was eager for US investment to help rebuild war-torn regions. The country is also ready to offer tax holidays of three to 15 years in a broad range of sectors such as information technology, health care, tourism, manufacturing, and business process outsourcing, he added.

Jaliya C Wickramasuriya, Sri Lanka’s ambassador to the United States, said, ”Compared with the last 30 years, we have the most stability right now. The president is the most popular leader of the last 30 years, so this the time for anyone to come in.”

There are 76 US companies already operating in Sri Lanka, with a combined investment of some $200m.

About 25 per cent of Sri Lanka’s exports go to the United States. A big share of that is apparel, including high-value garments made for retailers such as Victoria’s Secret, which is owned by Limited Brands.

Sri Lanka hopes to attract $1bn in new foreign investment this year, after reaching about $888m in 2008, Mr Yapa said.

He was in Washington for meetings with US trade officials and a leading US business group after a stop in Los Angeles.

Economic growth in Sri Lanka’s western province already is higher than that in India and China, and the government is eager to bring growth in northern and eastern areas up to the same level, Sri Lankan officials said.

The government is looking for a foreign investor to help restore a cement factory closed by the war and to take advantage of the country’s substantial limestone deposits.

”Also, the entire coastal line is full of fish for offshore fishing and tourism-related industries also can be discussed,” Mr Yapa said. ”One particular beach, Arugum Bay, is one of the best eight for surfing in the world.”

About two-thirds of the coastal area was controlled by the rebels, so development there has lagged behind, he said.

Sri Lanka also has begun steps to develop oil and natural gas fields in its northwestern coast.

The government has already auctioned one of three blocks for exploration, and is considering auctioning the other two.

It will have a better sense of how much oil and natural gas is there once further surveys are done, Mr Yapa said.