The IMF suspended lending to Kenya in late 2000 due to concerns over corruption under former ruler Daniel arap Moi.

Business figures welcomed the resumption of lending and termed it a vote of confidence for Kenya that would lure new foreign direct investment, but some analysts said the government would be hard pressed to meet painful conditions for the loan.

A presidential statement issued on Saturday said the government has put in place adequate measures to ensure proper use and management of donor funds. Kibaki is hoping donor funds could kick-start east Africa's ruined but most promising economy, which has grown at an average of below one percent for the past three years.

Corruption under Moi

That has been blamed mainly on corruption under Moi, who ended his 24-year rule in December.

Finance Minister David Mwiraria told a news conference that following the IMF decision: "I expect the Kenya shilling to fluctuate within a reasonable range."

Samuel Itam, the IMF senior resident representative said: "It has not been an easy road. We hope to see Kenya improve the welfare of its people and take the lead in the region."

Create confidence

"People will now take risks and invest because it means Kenya is now a safe investment destination"

Manga Mugwe
Chairman
Kenya Association of Manufacturers

The Washington-based INF has said Kenya could immediately draw $36.11 million of the loan issued under the IMF's Poverty Reduction and Growth Facility (PRGF) for low-income countries.

"This is great news, it will create confidence among investors. People will now take risks and invest because it means Kenya is now a safe investment destination," Manga Mugwe, chairman of the Kenya Association of Manufacturers, told Reuters.

Dennis Kabaara, the chief executive of the independent Institute of Economic Affairs think-tank, told Reuters he was sceptical that the new programme would last the three years.

"To get the loan, Kenya had to undertake not to increase civil service wages and to retrench about 45,000 civil servants over three years," Kabaara said, quoting private documents.