Sri Lanka is far away, it’s not an especially large country, but current events there may have lessons for us here at home.
Over the weekend, Sri Lanka’s president, Gotabaya Rajapaksa, agreed to remove his brother, Mahinda, as Prime Minister. The Rajapaksa brothers have been at the top of Sri Lanka’s government for nearly twenty years, but this move is the fallout of a serious economic crisis in Sri Lanka that is getting worse.
Sri Lanka’s 26-year struggle against the Tamil Tigers ended in 2009. (At the time, Mahinda was President and Gotabaya was Defense Minister.) That civil war was extremely costly, and the roots of the current crisis go back to the struggle to recover from the civil war. Sri Lanka borrowed what for it was a great deal of foreign money. Today, debt has reached well over 100% of GDP. Combined with a series of tax cuts under President Gotabaya a few years ago, Sri Lanka’s ability to pay back its debt became increasingly difficult.
Beginning in 2019, two shocks served to push Sri Lanka closer to the edge. The Easter bombings in April 2019 targeted several churches and hotels and killed 265 people. The Islamic State claimed responsibility for the suicide bombings. In the aftermath tourism, which is an important industry in Sri Lanka and and brings in a significant amount of foreign dollars which is needed to pay back the foreign debt, declined sharply, putting even more pressure on Sri Lanka’s distressed economy.
Then, COVID hit in 2020 which hurt tourism even more. By February of this year, inflation was running over 17%. There are shortages of fuel and electricity. Predictably, widespread protests broke out in March. On March 31 a large group of protestors tried to get to President Gotabaya’s home. A state of emergency was declared the next day.
Events have snowballed from there. Cabinet members began to resign as the Rajapaksa brothers were unable to hold a unity government together. The value of the Sri Lankan rupee dived, and interest rates have soared.
In mid-April, Sri Lanka said it would default on its foreign debt. Sri Lanka does not have the foreign cash reserves to make the payments due this year. What money Sri Lanka does have is needed for necessities.
Sri Lanka is seeking help from the IMF, and indeed from anyone who is willing. Sri Lanka has talked to India and China about loans as well as fuel shipments. Even medical supplies are starting to experience shortages. The social unrest is not going away any time soon.
Inflation, high debt, rising interest rates, shortages, social unrest. Are we looking into a crystal ball?
22 thoughts on “As goes Sri Lanka?”
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I don’t understand the problem. As Candidate Biden pointed out, Milton Friedman is no longer in charge. Money need not be tied to revenues or assets or ability to pay. Modern Monetary Theory proves that money can be issued in ever-increasing amounts at will, with no adverse consequences at all.
Solving the problem is simple: the total Sri Lanken debt is 15 trillion rupees so the government declares a National Emergency, then creates 15 trillion rupees by making electronic deposits in its accounts. Pay the foreign creditors with the new rupees, problem solved. That’s how we’re doing it in America. Why aren’t the Sri Lankens doing it?
I’m so glad I live in clean, modern, elightened, wealthy and prosperous America instead of some filthy, ignorant, debt-ridden, Third World shithole. We have our problems so well licked that we have time and money to take on everybody else’s problems.
All the countries currently in trouble — Sri Lanka, Pakistan, Egypt…. are takers of huge Chinese loans as part of the BRI…..the West does not need to spend tax payer resources on these basket cases.
Sri Lankans to start learning mandarin soon, no?
I’d like to supplement the information in this post with this, In Sri Lanka, Organic Farming Went Catastrophically Wrong. This came in amongst a collection of links at Instapundit (Ctrl-f “sri lanka”) in response to another elitist a55hole from the Biden administration announcing that the lack of fertilizer is actually an opportunity to grow our crops in pig sh1t.
Don’t know if your Foreign Policy subscription is up to date.
jdm, just remember, greatest Diplomat™ is in charge of the adults in the white house™. But no more mean twits!
Wrong Lede for this article:
Should have read “One family’s greed and corruption, brings a nation to it’s knees”.
The Rajapaksa’s are some of the most corrupt people on their side of the world and have embezzled billions of national funds into private accounts in Dubai and Switzerland. The family as a whole puts a lot of stock in their astrologer, who has — in a Rasputin-like manner —convinced them they are the divine rulers of Sri Lanka. There really is not much hope for the country while any of their clan are embedded in the power structures. Good luck to all Sri Lankans brave enough to protest as the military stands firm. It should be noted, as friends in the country have told me, that food imports are being controlled and distributed to the families of the soldiers to keep them loyal. How long that loyalty can bought, we can only wait and see.
Last winter I read an essay by a Brit freelance writer who relocated to Sri Lanka when he discovered he could rent a room there at a luxury resort for less per month than he paid to sublet a flat in London.
So there are, you know, opportunities in every disaster.
… Sorry, I was unclear about why I added that link above. It is *not* a threadjack. It supplements the info in this post. As per this quote.
The result was brutal and swift. Against claims that organic methods can produce comparable yields to conventional farming, domestic rice production fell 20 percent in just the first six months. Sri Lanka, long self-sufficient in rice production, has been forced to import $450 million worth of rice even as domestic prices for this staple of the national diet surged by around 50 percent. The ban also devastated the nation’s tea crop, its primary export and source of foreign exchange.
MP:
On a similar note, a friend of mine relocated to Costa Rica after he retired, for a similar reason. His house, which is custom built and about 1500 square feet larger than his house in Illinois, but cost him the equivalent of $93k to build, they have a gardener and housekeeper, who they pay higher than prevailing wages and his monthly expenses are less than one quarter of his previous property.
BossHoss, I hear that Costa Rica has gotten more expensive lately.
Becoming an expat isn’t for everyone. If you have kids and grand kids, it’s a long, expensive, international flight to visit them or to have them visit you. As they get older most people need more and better health care, and that is often a problem in parts of the US as well as in poorer countries.
I have a brother who wants to retire to a pacific island nation (his wife is from there). When he was last there in early 2020, just before covid, both he and his wife came down with a nasty respiratory infection. They saw a visiting doctor at the village clinic (a Frenchman IIRC). He prescribed antibiotics, but it didn’t matter because the antibiotics weren’t available. Then brother and wife got pressed by the doctor into acting as translators at the clinic for the rest of the day.
Anyone who is considering retiring outside of the US should live in the new community for at least six months before making a commitment.
Re Costa Rica – several years ago we were encouraged to look into buying a farm there; really low land prices and overhead, beautiful country, good infrastructure, very “civilized”. Looking a little deeper, though, we found that squatters have a lot more rights than land owners, and all one has to do is move onto someone else’s land and put up a cardboard shack and it will be called an “improvement” and the squatter becomes part owner – all embraced by the government. We decided there are a lot more entertaining ways to throw money away.
MP:
Yea and he’s starting to realize that. His kids and grand kids are stateside. I know that his wife, who initially looked at moving there as an adventure, is now second guessing. I’m in a similar situation. Had I been single, I would have stayed in Texas and as Minnesota slides into the abyss of communism, I would move either back there or Florida. Of course, to do so, would involve a costly divorce.
When I lived in Hawaii I knew a lot of adventurous Americans (and adventurous foreigners as well). A lot of them had loved for a year or two in a different country, or just sailed around the Caribbean or the Pacific, before settling on the the Big Island. Without exception they believed that the US was a better country than the one they had lived in, mostly due to the quality of medical care and their legal rights. It didn’t matter if you were born in Hawaii of Oregon or Florida, it didn’t matter how you made your money, the government treated you all the same.
Of course this was a self-selected group.
Except for the British expats, They were fleeing the awful weather of Blighty. Apparently, even though the British Isles have a cold, damp climate, they don’t do a good job of heating their living spaces.
Japanese own 50% of Hawaii’s prime properties…the Chinese are closing in. Howlie’s are *out*.
*Except for the Parker Ranch, which is one of the largest privately owned ranches in the US. Unless Elon steps in, of course, lol
Or the Rockefellers…oops, too late.
the West does not need to spend tax payer resources on these basket cases.
And yet, here you are, sucking up subsidized electricity to post inane twaddle from your shack.
Not “Howlies,” Blade. “Haolies.” There are no w’s in Hawaiian.
Except for the W in “Hawaiian”! Lol, but it is “haole,” not howly.”
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Hey, MP: you’ve spent time in Hawaii. A friend asked me to help him write a book about King K and the two white men who helped him consolidate power – Metcalf and Davis.
Can you direct me to good source materials?
China could be putting the thumbscrews to….a nation that not too long ago stopped dealing with a nasty civil war. Might not be Beijing’s best move, unless they’ve been importing or reverse engineering Russia’s mobile crematoria.