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Monday, January 10, 2005

Sri Lanka Must Control Aid Flow to Halt Currency Rise, IMF Says

Jan. 10 (Bloomberg) -- Sri Lanka must slow the flow of overseas aid into the country to prevent its currency from further rising against the dollar and the yen, said Raghuram Rajan, chief economist at the International Monetary Fund.

Sri Lanka's rupee was the world's best performing currency last week against the dollar and yen, as a freeze on overseas debt repayments by Japan and the U.K. after a Dec. 26 tsunami that killed more than 30,000 people on the island, meant the government won't have to buy foreign currencies.

Aid from the U.S., Japan, Germany as well as private donations from international humanitarian groups and businesses running into hundreds of millions of dollars may further increase demand for the Sri Lankan rupee, strengthening the currency and hurting exports that make up a third of the country's $18 billion economy. Sri Lanka needs about $1.5 billion for reconstruction, Foreign Minister Lakshman Kadirgamar said Jan. 6.

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