SRI LANKA IMF ARRANGEMENT: RESERVATIONS BUT NO FINAL

C O N F I D E N T I A L PARIS 000623 SIPDIS E.O. 12958: DECL:03/06/19 TAGS: PREL EFIN ECON KDEM PHUM CE FR SUBJECT: SRI LANKA IMF ARRANGEMENT: RESERVATIONS BUT NO FINAL POSITION REF: A) STATE 041959 Classified by ECON Counselor Stuart Dwyer for reasons 1.4(b) and (d) ¶1. (C) In response to USG concerns regarding an IMF Stand-By Arrangement to stabilize the Sri Lankan economy (reftel),the French Economics Ministry and Ministry of Foreign Affairs told us on April 30 and May 5, respectively, that the GOF has not yet taken a final position. Economics Ministry Office Director for International Debt Issues, Claire Cheremetinski, said on April 30 that her ministry has technical reservations regarding the deal, not dissimilar to U.S. concerns. She noted, for instance, that the IMF negotiations have been accompanied by "fairly little" economic policy improvement by Sri Lanka. She said her office's assessment is that the Stand-By Arrangement will simply serve to cover needs until the conflict is over and donors come back in to help with reconstruction. As the GOF has not yet taken a decision on the SBA, it has not formally communicated these reservations to the IMF. She said she would inform us as the GOF position became clearer. ¶2. (C) Annie Evrard, MFA desk officer for Sri Lanka, reiterated these points on May 5, but cautioned that France was reflecting on its position, with special attention to how the Sri Lankan government responds to the humanitarian crisis in the northern part of the country, as well as to how it addresses longstanding human rights abuses. Evrard noted there would be a collective, EU-level decision on the issue, which could be made as early as this week after meetings in Brussels begin on May 6. ¶3. (SBU) Foreign Minister Bernard Kouchner has just returned Sri Lanka and has pledged more humanitarian assistance for the conflict zone, including a fully staffed field hospital and a 500,000 euro increase in French funds to UNHCR for Sri Lanka. We have informed the MFA desk and international economic affairs bureaus of U.S. concerns. PEKALA