Mar 30, 2012 (LBO) – Sri Lanka is on track to resume a loan program with the International Monetary Fund next week, with preliminary data showing that action taken to break credit and domestic demand are showing results. The IMF held back the final two tranches of around 800 million dollars from its 2.5 billion dollar bailout facility given after a 2008/2009 balance of payments crisis shortly before Sri Lanka entered the current balance of payments crisis.
IMF’s resident representative Koshy Mathai confirmed that IMF’s board would meet on April 02 to consider a 7th review under the program.
The IMF did not complete the review in September effectively suspending is program asking the central bank not to defend a dollar peg at around 109 rupees. Sri Lanka either had to break the peg or raise interest rates to prevent a balance of payments crisis.
A central bank could defend a peg by unsterilized sales of dollars which triggers an automatic rise in interest rates and halt of runaway credit as currency board do.
But central banks usually engages in sterilized sales of dollars, which involves printing money in large volumes by buying up government Treasury bills to stop interest r