July 30, 2009 (LBO) – An International Monetary Fund publication, the IMF Survey has published an interview with Brian Aitken, who led mission to Sri Lanka that resulted in a 2.6 billion US dollar loan to the island. The full interview is reproduced below:
IMF Survey online: Why does Sri Lanka need an IMF-backed program? How did the country get into economic problems that required the IMF’s assistance?
Aitken: Sri Lanka had been running high budget deficits for several years and had borrowed to finance these deficits internationally on short terms. This left the country exposed to a sudden reversal of this borrowing. When the global financial crisis hit, there was a sudden stop in financing from international markets and the central bank intervened to prevent the exchange rate from depreciating. This, in turn, put pressure on Sri Lanka’s international currency reserves, which still remain at very low levels.
IMF Survey online: It took many months to reach an agreement on the loan. What was the sticking issue?
Aitken: As with other countries that seek financial assistance from the IMF, there is no one-size fits all approach. In negotiating the agreement