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Yahoo! My Yahoo! Mail Yahoo! Search Search: Sign InNew User? Sign Up News Home - Help Navigation Primary Navigation Home Singapore Asia Pacific World Business Entertainment Sports Technology Top Stories Most Popular Secondary Navigation Singapore Asia Pacific World Search Search: Sri Lanka's battles force it to seek bailout AFP - 2 hours 43 minutes ago COLOMBO (AFP) - - Sri Lanka appears to be on the verge of crushing Tamil Tiger rebels after decades of fighting but its success has blown a hole in the nation's finances and forced it to seek an IMF bailout. ADVERTISEMENT Negotiations are underway with the International Monetary Fund for a 2.4 billion-dollar rescue package as the island's economy reels from the twin effects of unprecedented war spending and the global financial crisis. Sri Lanka has turned to the IMF after earmarking 1.6 billion dollars this year to financing the military drive against the Tiger rebels that the government says it is close to winning. This comes on top of three billion dollars spent in the previous two years. President Mahinda Rajapakse has vowed to get the IMF money on his terms and not "pawn or sell our motherland to obtain any monetary aid". But a source close to the negotiations said Sri Lanka would have to make "painful adjustments". "This means allowing the rupee to depreciate, cutting subsidies and a freeze on state sector jobs," the source said. Economists say the country may also be forced to raise interest rates after cutting them to spur a slowing economy. Economists say the money worries caused by the high defence spending have been compounded by the worldwide slump, a halt to privatisation of state enterprises and the central bank's battle to defend the rupee that has drained foreign exchange reserves. An IMF team left Sri Lanka last Tuesday after spending more than a week in the island to discuss terms of an aid package. The IMF "continues discussions with the authorities on the latest economic developments and the economic programme to be supported by the IMF to improve the country's balance of payment conditions," an IMF spokesman said. The financial body has made no comment on any conditions for bailout. But the source said: "The IMF mission wants to see progress before they can recommend to their board on April 25 that Sri Lanka is ready to receive this facility." A Western diplomat said there could be an initial drawdown of 480 million dollars from the IMF by the end of the month if negotiations go smoothly. He said the country "desperately needs the money" to make payments for imports and loans. Sri Lanka needs around 900 million dollars to repay loans in 2009, the central bank has said. Last year, the government made close to half a billion dollars in debt payments, said Colombo University economist Sirimal Abeyratne. "We're now in sort of a debt trap, borrowing to pay off what we borrowed earlier," Abeyratne said. Economists say the country lost much of its foreign exchange reserves defending its currency, paying for imports and servicing loans. Foreign currency reserves fell from 3.5 billion dollars last August to 1.7 billion dollars by December as the central bank sought to prop up the rupee, official figures show. Reserves have fallen further since then, analysts say, but no official figures are available. "Sri Lanka tried to hold the exchange rate without an institutional framework to support it and lost most of its reserves," said the "Fuss Budget" column on Lanka Business Online, Sri Lanka's main business website. The IMF talks come against a background of growth slowing to 6.0 percent in 2008 from 6.8 percent the previous year, hit by sliding exports of tea and clothing as Sri Lanka's main world markets went into recession. The central bank forecasts growth will slacken to 5.0 percent this year while the IMF expects it to fall to around two percent. Sri Lanka's defence spokesman Keheliya Rambukwella said the government believes defeat of the Tigers will prompt an economic revival. "It's better to finish off the war rather than drag it out," he said. The Tigers have been battling to create an independent state in the majority Sinhalese island for more than three decades in a conflict that has left tens of thousands dead. Email Story IM Story Printable View Blog This Recommend this article 0 users recommend Sign in to recommend this article » Most Recommended Stories » Related Articles: China's Economy ASEAN summit to discuss G20 plans: Thai PMAFP - 1 hour 56 minutes ago Sri Lanka's battles force it to seek bailoutAFP - 2 hours 47 minutes ago Q+A-How will rocket affect S.Korea markets, economy?Reuters - Sunday, April 5 China, Ecuador move toward energy dealAFP - Sunday, April 5 Related Articles: Business India Satyam may announce buyer on April 13 -paperReuters - 1 hour 44 minutes ago ASEAN summit to discuss G20 plans: Thai PMAFP - 1 hour 56 minutes ago Chateau Latour sells for US$62,000 in Hong KongAFP - 2 hours 2 minutes ago Taiwan slashs jobs for foreign workersAFP - 2 hours 14 minutes ago AT&T and union talks continue past deadlineAP - 2 hours 18 minutes ago Enlarge Photo Sri Lanka's battles force it to seek bailout Related Photos Slideshow Full Photo Coverage: Business & Economy Related Full Coverage China Economy china economy All Full Coverage Most Popular – Business Viewed Explosives chemical found in US baby formula Journalists get shock with 'sexy' White House call Global warming leaving its mark on polar bears Arctic may be ice-free in 30 years: study Guantanamo 'soooo beautiful!' 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