July 17, 2009 (LBO) – A recent IMF mission to Sri Lanka had “good discussions” with the authorities, but the views of the international community on a loan would still be considered at an executive board meeting, an official said. A ‘staff level’ deal also had to be reached.
“Because the first thing that happens is a staff-level agreement, then an Executive Board meeting would be where all of the international community’s views would be considered,” IMF spokesperson Caroline Atkinson told reporters in Washington Thursday.
Once a staff level agreement has been reached Sri Lanka has to sign a letter of intent with an accompanying technical memorandum which deals with specifics that puts the breaks on money printing so that foreign reserves can be built up.
Sri Lanka is discussing a 1.9 billion standby loan with the IMF.
If fresh money is printed to bridge the budget deficit, the rupee has to depreciate further to reach reserve collection targets set out in the IMF plan.
Printing will also cause inflation to go higher than in the United States, whose dollar currency is used to anchor Sri Lanka’s inflation through a de facto peg.
Unless the rupee is appreciated, US price