ECONOMYNEXT – A delegation of top US Treasury and State Department is visiting Sri Lanka as the country reels from a collapse of a soft-peg (flexible exchange rate) backed by conflicting monetary policy.
Members of the delegation include Robert Kaproth, Deputy Assistant Secretary of Treasury for Asia, and Ambassador Kelly Keiderling, Deputy Assistant Secretary of State for South and Central Asia.
“The visitors will meet with a wide range of political representatives, economists, and international organizations,” the US embassy in Colombo said in a statement.
“In all their meetings, they will explore the most effective ways for the U.S. to support Sri Lankans in need, Sri Lankans working to resolve the current economic crisis, and Sri Lankans planning for a sustainable and inclusive economy for the future.”
Sri Lanka which has a Latin America style pegged central bank with extensive sterilization powers and open market operations, has entered its first default cycle in April 2022 and is casting about for foreign aid after the currency collapsed from 200 to 360 to the US dollar.
Sri Lanka which has a Latin America style pegged central bank with extensive sterilization powers and open market operations, has entered its first default cycle in April 2022 and is casting about for foreign aid after the currency collapsed from 200 to 360 to the US dollar.
“This visit underscores our ongoing commitment to the security and prosperity of the Sri Lankan people,””.S. Ambassador to Sri Lanka, Julie Chung said in a statement.
“As Sri Lankans endure some of the greatest economic challenges in their history, our efforts to support economic growth and strengthen democratic institutions have never been more critical.”
U.S. has announced120 million in new financing for Sri Lankan small and medium-sized businesses, a 27 million dollars contribution to Sri Lanka’s dairy industry and 5.75 million in humanitarian assistance to help those hit hardest by the flexible exchange rate.
The flexible exchange rate has pushed up food prices beyond the reach of the less affluent classes.
“In the coming months, the U.S. will continue to support Sri Lankans as they revive their economy, combat food insecurity, and promote public health and education,” the embassy said.
“The United States also strongly supports Sri Lanka’s decision to seek assistance from the International Monetary Fund, which can provide the most durable resolution to the present crisis.”
Sri Lanka has gone to the IMF 16 times but has not been able to end currency crises.
Related
How Sri Lanka, Latin America was busted by Fed money doctors creating strongmen, anti-Americanism
Though the IMF can help stabilize the exchange rate temporarily by smashing the domestic private sector the central bank is encouraged to return to aggressive liquidity injections (in as little as two years under flexible inflation targeting) and triggers another currency crisis.
The phenomenon is known among classical economists as recidivism.
Under an IMF program there is no hope for a single anchor money regime such as inflation targeting, due to the obligation to target the exchange rate, operate a reserve collecting peg to pay back the loan to the Fund. (Colombo/June24/2022)
