Additional financial assistance is expected to come to Sri Lanka from the World Bank and the Asian Development Bank soon after the IMF deal is reached, said Steve Hanke who was the former economic advisor to former U.S. President Ronald Reagan.
Hanke, who is now professor of applied economics at Johns Hopkins University, told CNBC’s “Squawk Box Asia” that Sri Lanka needs institutional reforms in order to achieve long-term debt sustainability. Hanke, who played a key role in establishing new currency regimes in emerging markets like Argentina and Montenegro pointed out that the country has gone to the fund several times for relief.
“You have to remember that we have a country that since 1965 has had 16 IMF programs and they’ve all failed,” he said. “You get temporary relief in anticipation of a bailout. But in the long run none of these IMF programs work. If this is not being repeated again the IMF bailouts will help Sri Lanka’s crisis-stricken economy in the long term. In fact, most of the personalities involved in Sri Lanka at the high level are exactly the same as they’ve been for years. So nothing has changed. Unless you change the institutions and the rules of the game governing these countries, they’re always going to remain in the same situation that they’ve been in for a long time,”
The South Asian country is grappling with the need to unlock a $2.9 billion IMF loan that was agreed to in September, to get its public finances in order.
“You get the IMF in there trying to manage something,” said Hanke. “The IMF may tend to be very unpopular because they’re going to try to introduce and ram through these old institutions that they have in Sri Lanka all kinds of things that the Sri Lankans won’t like.”