Growing frustration over inflation, shortages and long power outages brought demonstrations to Sri Lanka’s capital, Colombo, on Monday. Indignant protesters called for the resignation of President Gotabaya Rajapaksa and his brother Prime Minister Mahinda Rajapaksa.
Buddhika Weerasinghe | Bloomberg | Getty Images
Sri Lanka needs institutional reforms to realize long-term debt sustainability, said Steve Hanke, who was instrumental in establishing latest currency regimes in emerging markets reminiscent of Argentina and Montenegro.
The South Asian country is facing its worst financial crisis in many years must unlock a $2.9 billion IMF loan agreed in September to place public funds so as.
“When you don’t change the institutions and rules of the sport that govern these countries, they are going to all the time stay in the identical … economy at Johns Hopkins University,” Squawk Box Asia told CNBC on Thursday.
“Actually, a lot of the high-level personalities involved in Sri Lanka are the exact same as they’ve been for years. So nothing has modified.”
Sri Lanka has been facing severe shortages of food, medicine, fuel and electricity since last yr. This led to offended protests that forced then-president Gotabaya Rajapaksa to flee the country and resign. National lawmakers elected six-time prime minister Ranil Wickremesinghe as president last July as his successor.
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Hanke, who was previously an economic adviser to former US President Ronald Reagan, was also skeptical that the IMF’s help would help Sri Lanka’s crisis-hit economy in the long run. He identified that the country went to the fund several times cap in hand for relief.
“You might have to do not forget that we have now a rustic that has had 16 IMF programs since 1965 they usually all failed,” he said. “You are feeling temporary relief as you wait for rescue. But in the long term… none of those IMF programs work.”
In September, the IMF outlined a series of steps the Sri Lankan government was to implement before approving the loan, which included major tax reforms.
“Sri Lanka’s creditor debt relief and extra funding from multilateral partners shall be required to make sure debt sustainability and shut funding gaps,” the fund said on the time.
The IMF declined to comment to CNBC.
China support
On Tuesday, Wickremesinghe said China had given key debt restructuring guarantees that might pave the best way for final approval of the IMF’s four-year, $2.9 billion bailout program.
“Last night we received a letter of assurance from Exim Bank of China. Due to this fact, on the identical night, the Governor of the Central Bank and I signed a letter of intent and sent it to the IMF. Now our duties are done” he told parliamentas reported in local media.
“I hope that by the top of this month, by the fourth week, the IMF may have done its duty.”
In a follow-up tweet, the president said he had spoken with IMF Managing Director Kristalina Georgieva and US Treasury Secretary Janet Yellen in regards to the matter.
He also mentioned that he expects financial assistance from the World Bank and the Asian Development Bank soon after the conclusion of the take care of the IMF.
In his reading, reported the U.S. Treasury Department“During their meeting, Secretary Yellen expressed support for Sri Lanka’s steps towards an IMF-backed program to speed up economic reform and achieve a powerful and sustainable economic recovery.”
“The secretary welcomed Sri Lanka’s commitments to transparency and comparable treatment of all bilateral official and personal creditors.”
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Georgieva of the IMF also praised Sri Lanka for making progress in resolving its financial situation.
“I welcome the progress made by the Sri Lankan authorities in taking strong political motion and obtaining financial guarantees from all their major creditors, including China, India and the Paris Club,” she wrote in a tweet.
“We stay up for presenting the IMF-backed program to our Executive Council on March 20.”
Still, JHU’s Hanke said the IMF’s programs aren’t well received by the Sri Lankan people.
“You might have the IMF there trying to administer something,” Hanke said. “The IMF appears to be … very unpopular because they’ll usher in and break through these old institutions they’ve in Sri Lanka, all kinds of things that Sri Lankans is not going to like.”
During Tuesday’s speech, Sri Lanka’s president stressed that “there isn’t a room for failure to finish every task agreed with the IMF, unlike the previous 16 cases.”
“The agreement with the IMF is of particular importance for the recovery of our economy and there isn’t a other way in sight for the time being,” Wickremesinghe said.