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SRI LANKA: Trade Partners Considering Economic Pressure

Nuwan Perera

COLOMBO, May 15 2009 (IPS) - The United States, joined by the UK, France and other EU states, are stepping up economic pressure on Sri Lanka to stop killing of civilians during ongoing battles with Tamil guerrillas in the North. The countries are planning on using a proposed IMF bailout package and trade concessions as bargaining tools.

“I think the international community is putting economic pressure on the government as nothing else has worked [in relation to international appeals to stop fighting and avoid civilian casualties],” said Jehan Perera, political commentator and executive director at the National Peace Council (NPC) here.

Earlier this week, British Foreign Secretary David Miliband and French Foreign Minister Bernard Kouchner told reporters at the UN that the IMF’s proposed 1.9 billion dollar bailout package to shore up Sri Lanka’s depleted foreign exchange reserves was under review. They also referred to the ‘GSP+’ tax concessions for export products into the EU that Colombo has reapplied for – these are also now under review.

On Wednesday, for the first time, U.S. President Barack Obama joined the war of words between Sri Lankan leaders and the world over the plight of thousands of minority Tamil civilians trapped in a ‘no-fire’ zone. Speaking to reporters at the White House, he urged the government and the separatist Liberation Tigers of Tamil Eelam (LTTE) to take steps to avert a humanitarian crisis.

“Without urgent action this humanitarian crisis could turn into a catastrophe,” Obama said. Miliband and Kouchner are among several leaders who have visited Colombo in recent weeks to persuade President Mahinda Rajapaksa to consider humanitarian issues. Colombo has rejected all calls.

On Thursday, U.S. Secretary of State Hillary Clinton told reporters in Washington that her government has “also raised questions about the IMF loan at this time. We think that it is not an appropriate time to consider that [loan] until there is a resolution of the conflict,” she was quoted as saying.


Government troops are close to ejecting Tamil rebels from a small stretch of land in northern Sri Lanka where they are holed up along with thousands of civilians.

World leaders, quoting reports from human rights groups like Human Rights Watch (HRW) and Amnesty International (AI), are urging both the government and the LTTE to stop using heavy weapons and shelling as thousands of people are dying in the combat zone.

Sri Lanka has repeatedly denied the use of heavy weapons, saying only small arms fire is being deployed, and has accused NGOs of relying on pro-LTTE website reports which provide a ‘distorted’ version of the war.

News agencies and human rights groups – themselves banned from the conflict zone – have been quoting doctors and injured civilians in the combat zone on the extent of the destruction to life and property.

Concern over the delay in approving the IMF standby facility, which is being provided to many countries affected by the global crisis, is topmost on the minds of Rajapaksa and Central Bank Governor Ajith Nivard Cabraal.

When Rajapaksa met local and foreign bankers at a noon meeting on Tuesday, he was reported to have said that even if the IMF loan doesn’t come through, there are other ways of tackling the foreign exchange crisis. Cabraal, who has been leading the negotiations on the Sri Lanka side, told a meeting later on the same day that Sri Lanka was working on a back-up plan to boost foreign reserves in addition to the IMF loan.

In the past, Cabraal has said that the IMF facility is the best way to tackle the foreign exchange crisis – reserves fell to just six weeks of imports last month against 12 weeks a year ago.

Efforts by the Central Bank to raise 500 million dollars from the Sri Lanka diaspora over the past year have not worked. Now the Central Bank is working on currency swap arrangements with other central banks in the region. Already a swap arrangement for 200 million dollars was agreed with Malaysia’s Central Bank.

Negotiations are also underway to secure a 500 million dollar loan from Libya. Rajapaksa recently visited Libya. He has been developing contacts with mostly non-western powers – asking countries like India, Iran, Jordan and Pakistan for financial support. He is currently in Jordan attending an economic summit.

At Tuesday’s meeting, Rajapaksa said the government was also able to secure a year’s postponement of an oil import bill. Last year Iran – a major supplier of oil to Sri Lanka – granted a 1 billion dollar loan to be set off against oil purchases.

Economists in Colombo however believe the IMF is unlikely to suspend the loan request. “From what I gathered from Washington, the loan will come through – maybe with some conditions,” a retired economist here who has worked with the international lending agency said.

A senior official at the Central Bank, who declined to be named, also agreed that the IMF is unlikely to be swayed by ‘political pressure.’

Perera believes that the government won’t change its strategy of defeating the LTTE at any cost. “However once the war ends, the government would be [more] receptive to economic and other issues raised by the international community,” he added. Most military analysts believe government troops will oust the LTTE from their remaining strongholds by next month.

 
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