``In the interest of the local textile industry, the government took the decision to pay back their loans from treasury funds,'' minister for industrial development CV Gooneratne told Reuters by telephone.

The decision was taken to ease the financial difficulties faced by local textile manufacturers after textile imports were liberalised in an attempt to boost the garment industry, he said.

The move made imported textiles much cheaper than those produced locally.

``In the 1998 budget we had to remove the duty on import of textiles to make it possible for Sri Lankan garment manufacturers to compete internationally,'' he said.

``Later we realised that the local textile manufacturers were affected by this measure so we asked them to apply for financial assistance to pay off their debt,''Gooneratne said.

The government in its budget proposals for 1998 waived duty on imports of yarn, fabric and related immediate and capital goods aimed at benefiting the garment export industry.

The loans were raised by local textile firms mainly to buy new machinery, the minister said.

``Now these companies will be in a better liquidity position and will obviously do better,'' he said.

Gooneratne said 50 companies had applied to the government to service their debt.

The textile industry has a capital investment of 8.6 billion rupees of which over 6.5 billion rupees was invested for modernisation and expansion during the period from 1990 to 1996, industry officials said last year.

Garment exports are one of Sri Lanka's biggest foreign exchange earners. Textile and apparel exports in the first five months of this year rose 11.8 per cent to $928 million from $830 million in the same period last year.