{"id":92377,"date":"2022-05-23T11:41:33","date_gmt":"2022-05-23T11:41:33","guid":{"rendered":"https:\/\/websitedesigns.com.au\/elankanew\/?p=92377"},"modified":"2022-05-23T11:41:33","modified_gmt":"2022-05-23T11:41:33","slug":"sri-lanka-is-a-small-preview-of-a-global-default-crisis-by-ruth-pollard-2","status":"publish","type":"post","link":"https:\/\/websitedesigns.com.au\/elankanew\/sri-lanka-is-a-small-preview-of-a-global-default-crisis-by-ruth-pollard-2\/","title":{"rendered":"Sri Lanka Is a Small Preview of a Global Default Crisis – By Ruth Pollard"},"content":{"rendered":"

Sri Lanka Is a Small Preview of a Global Default Crisis – By Ruth Pollard<\/strong><\/span><\/h1>\n

The country is already wracked with shortages. The social order may shatter if the economy isn\u2019t infused with cash soon.<\/strong><\/span><\/p>\n

\"Sri
No end in sight for fuel shortages.Photographer: Ishara S. Kodikara\/AFP\/Getty Images <\/span><\/figcaption><\/figure>\n

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Source:<\/strong>bloomberg.com<\/a><\/span><\/span><\/p>\n

High school teacher S. Jeeva has spent two days in the baking sun lining up for cooking gas in the north of Sri Lanka\u2019s capital. He\u2019s been standing with thousands of others waiting for a delivery that, so far, hasn\u2019t come. Meanwhile, many of his students, who will sit for important national exams Monday, have joined protests against the government at\u00a0the waterfront\u00a0along Colombo\u2019s iconic Galle Face Green.<\/span><\/p>\n

Both are symbols of the economic and political crisis gripping the nation \u2014 the result of decades of corruption and\u00a0financial mismanagement<\/a>\u00a0that pushed the country\u00a0to default<\/a>\u00a0on May 19.<\/span><\/p>\n

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It is, Jeeva says, his students\u2019 democratic right to protest and demand a better government. Daily life has become such a struggle that it is impossible for them to study. \u201cHow can they memorize their material if they have no lights, no power, no fuel to get to school,\u201d the 32-year-old language teacher told me. An endless row of empty blue LPG gas cylinders lines\u00a0the street next to him. These teenagers should be thinking about their future and preparing for university \u2014\u00a0instead they are worrying about how the island nation will ever emerge from under its pile of debt.<\/span><\/p>\n

What happens in Sri Lanka matters way beyond its borders. Global markets see it as a bellwether for a raft of potential defaults across the developing world as countries face a growing, post-pandemic debt burden.<\/span><\/p>\n

So what does a country in default look like in 2022?<\/span><\/p>\n

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Armed soldiers are on the streets and there\u2019s days-long queues for gasoline and cooking gas. Harvests are down by 50% because farmers either cannot afford to cultivate crops, or they\u2019re only growing enough for themselves because there\u2019s no fuel to transport what they\u2019ve produced.<\/span><\/p>\n

Pharmacies are running out of medicine; and hospitals are\u00a0dangerously short<\/a>\u00a0of lifesaving drugs and devices. Incomes are shrinking and inflation is accelerating above 30%. Parents are eating just one meal a day so their children can have three, while doctors report that patients are rationing essential medicines for serious conditions like heart disease and diabetes.<\/span><\/p>\n

There\u2019s also growing unrest \u2014\u00a0protesters may not be\u00a0burning down<\/a>\u00a0the family homes of the ruling Rajapaksa clan as they did on May 9 \u2014\u00a0but there are\u00a0daily demonstrations throughout the country calling for the resignation of President Gotabaya Rajapaksa (his brother Mahinda\u00a0stepped down as prime minister on May 10 after that deadly violence.) Police and security forces are pushing back with water cannons and tear gas. It\u2019s\u00a0a tactic that risks tipping the country further toward a broader rebellion.<\/span><\/p>\n

How did Sri Lanka go from being named by Lonely Planet the\u00a0world\u2019s best<\/a>\u00a0travel destination for 2019 to nearly running out of foreign reserves and defaulting on its debts? The warning signs were there from the moment the powerful Rajapaksa clan retook control of the country following a\u00a0sweeping election victory<\/a>\u00a0in November 2019. Their divisive dynastic politics, combined with questionable financial decisions \u2014\u00a0including heavy capital-market borrowing that now accounts for some 38% of the debt \u2014\u00a0go a long way to explaining its path to ruin.<\/span><\/p>\n

Yes, the pandemic was a disaster for the tourism-reliant economy, and so too were the deadly\u00a0Easter Sunday bombings<\/a>\u00a0in 2019 that ushered in a return of the Rajapaksa dynasty, but the rot had set in well before that. Sri Lanka\u2019s interest payments on decades of borrowing are now almost equal to the principal, as political economist and senior lecturer at the University of Jaffna, Ahilan Kadirgamar, noted.<\/span><\/p>\n

Importantly, Sri Lanka has lost its agency \u2014\u00a0with the International Monetary Fund, the World Bank and its bilateral lenders, China, India and Japan \u2014\u00a0if it ever had any to begin with. Kadirgamar says\u00a0the country has never set its own terms for its development: It has always been at the mercy of external powers. There have been\u00a016 IMF agreements since 1965. \u201cThis time it is much more desperate,\u201d he told me. \u201cWe cannot even pay for the\u00a0next shipment<\/a>\u00a0of fuel even though the ship is sitting outside our port.\u201d\u00a0<\/span><\/p>\n

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There are many other emerging-market economies with similarly\u00a0unsustainable debt<\/a>\u00a0that are facing the possibility of default, says Kadirgamar.\u00a0\u201cThings are unraveling across the globe, with the disruptions from Ukraine and Russia on a scale we have not seen in recent history.\u201d The international community is watching the situation and wondering: Can Sri Lanka\u2019s crisis be solved via a framework applicable\u00a0to other countries? \u00a0<\/span><\/p>\n

In South Asia, Pakistan is\u00a0teetering on the edge<\/a>\u00a0economic peril. If the government doesn\u2019t increase fuel prices, it is in danger of defaulting in just three months. It needs\u00a0an IMF program to avoid this eventuality. The\u00a0World Bank<\/a>\u00a0noted in March as many as a dozen developing economies may be unable to service their debt in the next year. The biggest challenge for these nations, it says, is sovereign debt restructuring, just like Sri Lanka.<\/span><\/p>\n

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The Group of Seven economic powers announced their support for\u00a0debt relief efforts<\/a>\u00a0for Sri Lanka on May 19. Assistance may also come up at the Quad meeting in Tokyo on Tuesday, where the leaders of the US, Japan, India and Australia will hold talks on issues of regional concern. In the meantime, Sri Lanka is negotiating with the IMF for a bailout that will help it negotiate debt restructuring with its creditors. The country has previously said it needs between\u00a0$3 billion and $4 billion<\/a>\u00a0this year to pull itself out of crisis, but the true extent of its debt has yet to be exposed.<\/span><\/p>\n

Only last week, new Prime Minister Ranil Wickremesinghe (in his sixth time serving in this role) revealed a previously undisclosed debt of\u00a0$105 million to a Chinese bank<\/a>\u00a0that had also fallen due. That means, as Lakshini Fernando, the senior vice president and economist of Asia Securities, told me, Sri Lanka actually defaulted on $183 million, not $78 million as previously thought.\u00a0<\/span><\/p>\n