SRI LANKA: INTERNATIONAL MONETARY FUND LOAN

C O N F I D E N T I A L COLOMBO 000488


E.O. 12958: DECL: 05/04/2019
TAGS: KDEM PREL EFIN ECON PHUM CE
SUBJECT: SRI LANKA: INTERNATIONAL MONETARY FUND LOAN

REF: A. SECSTATE 41959

B. MOORE-OWEN EMAILS 5/01/09

C. COLOMBO 449

D. COLOMBO 431

E. COLOMBO 385

F. COLOMBO 285

G. COLOMBO 244


Classified By: Charge d'Affaires James R Moore Reasons 1.4 (b)(d)


1. (C) Charge delivered ref a points to Senior Presidential
Advisor Basil Rajapaksa on April 29 when, in a discussion
initially concerning other issues, Rajapaksa said that the
U.S. is blocking Sri Lanka's IMF request. Charge and Econ
Chief underscored that the U.S. has not threatened publicly
or privately to block Sri Lanka's Stand-by Arrangement (SBA)
request, and that Ambassador Blake had confirmed the same to
Central Bank Governor Nivard Cabraal prior to Cabraal's
departure for Fund/Bank meetings in Washington.


2. (C) Charge went on to ask the status of the IMF loan, and
specifically if the government had submitted its letter of
intent (LOI) to the IMF. Rajapaksa at first reported that
the government had already done so. However, when questioned
what day the LOI was sent, he recanted, noting that he
thought it had been submitted. Still later when Econ Chief
inquired when the President (who also serves as the Finance
Minister) had signed the LOI, he confirmed that the LOI has
not yet been submitted.


3. (C) Charge again underscored that the U.S. believes the
IMF program should be delayed until we can have more
confidence that authorities are committed to following
through on key fiscal and exchange rate reforms, also noting
that we shared our concerns with key IMF members. Rajapaksa
said that the government has done all that the IMF has asked,
highlighting in particular the government's efforts to raise
additional revenue by raising the Nation Building Tax (NBL)
from 1 percent to 3 percent and its promise not to interfere
with the exchange rate. When asked by Charge about GSL
efforts to secure a USD 500 million loan from Libya,
Rajapaksa noted that discussions continue. (Note: It was
later confirmed that CB Governor Cabraal was en route to
Libya to finalize the deal. End note.) He also seemed not
to be concerned as to whether or not the GSL eventually
secures an IMF SBA, stating that since the government had
already taken action, such an SBA would no longer be
necessary.


4. (C) Charge also shared ref a points with Foreign Secretary
Palitha Kohona on April 30. Kohona did not provide any
substantive response to Charge.


5. (C) Comment: Rajapaksa's lack of information about the
status of the request could be attributed to his absence from
country; he had just returned from overseas earlier in the
day. His lack of understanding of the immediate need for IMF
assistance is in line with his limited grasp of
macroeconomics and the government's focus on the situation in
the north. However, Rajapaksa's inability to point to any
concrete expenditure reductions leaves post with concerns
that the government may not be ready and willing to move
forward with its request to IMF, despite assurances from the
Central Bank that the SBA request is on track. Post had
planned to reiterate points with Cabraal following his return
to country; however, we will now maintain silence until
further guidance on this issue, per ref b.


MOORE