"The bilateral donors are looking more at the politics while multilateral lending institutions are keen on the reforms," said a Western diplomat here to attend the meeting of more than 100 donors and lenders.
"There is no progress on both fronts.
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The Marxist-backed government of President Chandrika Kumaratunga is deeply divided on the issue of aid to rebuild areas damaged by the December 26 tsunami that killed nearly 31,000 people and left a million homeless.
The government promised international lenders last month it would enter into an agreement with the rebels on how to get aid to Tiger-held parts of the island.
But a stalled peace process has seen most of that aid left undelivered.
Delegates maintain that they are not imposing any conditions on the government to rush into an aid deal with the rebel Liberation Tigers of Tamil Eelam (LTTE).
But Japan's special peace envoy Yasushi Akashi said Saturday the lack of a deal was a "major blow" and warned that the co