SRI LANKA: MAXIMUM POSSIBLE IMF ASSISTANCE NEEDED

UNCLAS COLOMBO 000195 SIPDIS STATE FOR SA, EB, AND D STATE PASS USTR E.O. 12958: N/A TAGS: EFIN EAID PREL CE SUBJECT: SRI LANKA: MAXIMUM POSSIBLE IMF ASSISTANCE NEEDED TO SUPPORT PEACE ¶1. This is an action request, please see paragraphs 4 and 5. ¶2. The IMF is in the midst of finalizing a large-scale Poverty Reduction and Growth Facility (PRGF) for the government of Sri Lanka (GSL). Post understands the fund is proposing a SDR 372 million (USD $510 million) package, which equates to 90% of Sri Lanka's quota. The 90% of quota breaks down into 65% concessional PRGF funding and 25% on an Extended Financial Facility (EFF) basis. ¶3. Minster of Economic Reform Milinda Moragoda asked the Ambassador on February 2 for US assistance in expanding the size of the PRGF and raising the proportion of concessional funding. Specifically, GSL is looking for the PRGF to be 100% of its quota, which totals SDR 413 million (about USD $566 million). GSL would also like the proportion of concessional PRGF financing in the facility, currently only 65% of quota, to be as high as possible. Moragoda said GSL was approaching the Japanese with the same request for assistance on the PRGF. ¶4. Action Request: Post sees merit in the GSL request and asks the Department and concerned Washington agencies to conduct the earliest possible review of the US position on the proposed IMF package for Sri Lanka. The PRGF will be one of the main items of support offered at the June Tokyo donor conference on Sri Lanka, at which the Deputy Secretary has indicated he will be present. We need the maximum possible PRGF to support the economic growth that will be critical to forging a lasting peace in Sri Lanka. Post understands the 65% figure for the level of concessional funding is a "norm" that is exceeded in special cases. Sri Lanka's working toward peace after two decades of war ought to qualify as a special case. ¶5. Action Request, cont.: Post understands the IMF will be finalizing this week the terms of the PRGF that will be brought before the IMF board later in the month. An intervention this week, before February 7, will therefore be necessary if the US is to influence the size and shape of the facility. Wills