Nov 17, 2008 (LBO) – Sri Lanka should tap the International Monetary Fund for a stabilization package early as the country is heading for balance of payments trouble and unsustainable budget deficits, a top economist has said. IMF conditions bring fiscal prudence, and tight monetary policy, making it difficult for politicians to coddle loss making state enterprises and stuff the state sector with their supporters to buy votes.
Since 2004, belt tightening has been craftily imposed on every one other than the state sector through 20-percent-plus inflation and high interest rates, while the state sector got fat salary hikes, dirt cheap housing loans and tax free cars as well as subsidies to prop-up red bottom lines of state enterprises.
But now history is repeating itself. A severe balance of payments crisis is underway, the central bank is intervening and injecting liquidity in a self-destructing sterilized intervention cycle and the country is hemorrhaging reserves.
“At this stage I would say be proactive and take the necessary measures that we all know we don’t need anyone to be telling us what needs to be done,” says Ernesto May, a World Bank official.
“I think the policy mak