* Move designed to pressure Sri Lanka over civilians * Colombo says loan process proceeding, in final stage * Fighting continues as military squeezes rebels By Arshad Mohammed and Ranga Sirilal WASHINGTON/COLOMBO, April 30 (Reuters) - Washington wants an IMF loan to Sri Lanka delayed to pressure Colombo to do more to help civilians caught in a civil war, U.S. officials said, but Sri Lanka on Thursday played down the threat. Sri Lanka's central bank said its application for a $1.9 billion International Monetary Fund loan and negotiations were in the final stages and were not delayed. "This is completely wrong," K.D Ranasinghe, acting director at the central bank's economic research department, told Reuters. "There is no delay in the loan process. The negotiations have been finalised. The technical level evaluations are over." The U.S. officials, who spoke on condition they not be named, told Reuters in Washington the Obama administration conveyed its view last week to other members of the IMF board, which has yet to formally consider the loan. The officials say Sri Lanka has done too little to protect the civilians in the war zone or allow sufficient international aid workers to care for the near 200,000 who have already left. Sri Lanka has rejected such criticism and calls for a ceasefire. Colombo says it is taking care not to target the tens of thousands of civilians trapped in the last redoubt of the Liberation Tigers of Tamil Eelam (LTTE), who have been fighting a 25-year war for a separate ethnic Tamil homeland. The largely Hindu Tamils are a minority in Sri Lanka, outnumbered by mostly Buddhist Sinhalese. The government said this week it would not use heavy weapons against the Tigers, who the military says are down to just 2 square miles (5 square kilometres) of coastline in Sri Lanka's northeast, and would concentrate on trying to free civilians using small arms. Both sides have continued to report fighting and casualties, and Sri Lanka's Defence Secretary Gotabaya Rajapaksa was reported as saying on Wednesday the "war won't stop until (Tiger leader Vellupillai) Prabhakaran is taken, dead or alive". The Tigers for their part say the military keeps using heavy weapons and killing hundreds of civilians, charges the Sri Lankan government denies. The trapped civilians are estimated by the United Nations to number as many as 50,000. The government puts the figure lower. Those and other claims related to the battle zone are difficult to confirm given a lack of access for media and of independent observers on the ground. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - For a Q+A on the conflict click on [ID:nCOL443735] - - - - - - - - - - - - - - - - -- - - - - - - - - - - - UNDER PRESSURE Sri Lanka seeks the IMF loan to help weather the global financial crisis and pay for postwar reconstruction. Sri Lanka's $40 billion economy has been under pressure because of shrinking export earnings from tea and garments. Foreign currency reserves dropped by half in the last four months of 2008 as the central bank defended the rupee. News of the U.S. officials' comments to Reuters was a negative factor for both shares <.CSE> and the rupee currency <LKR=> in early trade on Thursday, dealers said, but they recovered after the central bank statements. Some analysts also said a delay in the loan, so long as it was not indefinite, was something Sri Lanka could live with. Chinthaka Ranasinghe, head of research at John Keells Stock Brokers in Colombo, said Sri Lanka's current account situation was healthy enough to give breathing space to defeat the rebels. "OK, you let the (rupee) lay off ... and protect your reserves a little while. You don't need two years to whack those fellows (the rebels)." Once that happened, he said "there's nothing else that anyone can talk about" and "enough aid will come through". The U.S. officials had said Washington could ultimately support the loan if Colombo addressed the humanitarian issues or if it concluded preventing the loan was counter-productive. "I don't think there is any stomach to punish them from here to eternity on this," said one official. The U.S. officials' comments came on the heels of a visit to Sri Lanka by the British and French foreign ministers, who urged the government to implement a humanitarian ceasefire to allow civilians to escape. They also urged the rebels to let the civilians leave. [[ID:nSP471810] Sri Lanka's ambassador to the United States, Jaliya Wickramasuriya, said the government has generally come to oppose ceasefires, arguing the rebels have used them in the past to "regroup, rearm, reposition". (Additional reporting by Lesley Wroughton and Shihar Aneez; Editing by Jerry Norton and Bill Tarrant)
Sri Lankan government soldiers sit atop sacks of food in a truck as they escort it to the Menikfam Vanni refugee camp from the town of Vavuniya in northern Sri Lanka ...
