ECONOMYNEXT- Japan will assist Sri Lanka along with other development partners as they work out an agreement with the International Monetary Fund, the country’s embassy in Colombo said while providing humanitarian assistance to the following the collapse of a flexible ankle.
Inflation in Sri Lanka increased by 12.8% in the month of June 2022, bringing annual inflation to 54.6% in a collapse of the soft-peg (flexible exchange rate) after two years of money printing and a float broken by a redemption rule.
With rising food prices, the poor in particular have been hit hard by loose anchorage, low-income groups unable to afford food and malnourished children.
Flexible exchange rate regimes, which are neither floating nor credible and have inherent peg conflicts, are among the most dangerous monetary regimes ever invented and are being peddled by mostly American scholars to the Third World.
Japan is donating US$3 million through the United Nations Children’s Fund and the World Food Program “to provide medicine and food in a way that would directly benefit the people of Sri Lanka.”
“Japan sincerely hopes that this assistance will help overcome the difficulties faced by the people of Sri Lanka, a long-time friend of Japan,” the Japanese Embassy said.
“The Government of Japan would like to consider its new contribution to Sri Lanka in consultation with the Government of Sri Lanka and other development partners, while paying attention to the situation in Sri Lanka and the progress of negotiations between Sri Lanka and the IMF.”
Japanese Ambassador to Sri Lanka Mizukoshi Hideaki, who met with President Gotabaya Rajapaksa, had promised support and economic cooperation, the president’s media office said in a statement.
Japan, the World Bank and the Asian Development Bank (in which Japan has influence) have helped Sri Lanka in the past, including with direct budget support during past IMF bailouts, when currency crises erupted in the central bank.
Agencies like the World Bank are not allowed to give budget support at the moment because the country’s debt is deemed unsustainable. India has, however, provided indirect budget support through lines of credit.
Sri Lanka, IMF make ‘significant progress’ towards staff agreement
Sri Lanka has made significant progress in reaching a staff-level agreement with the IMF, the agency said after a mission came to Colombo and concluded a series of talks with the Ministry of Finance and the Central Bank.
The staff level agreement can be used in a debt negotiation with bondholders and other creditors with the help of legal and financial advisers that Sri Lanka has appointed.
The IMF wants progress on loan restructuring to make the debt “sustainable” before reaching a formal deal with board approval. (Colombo/02/07/2022)