Sri Lanka: Musk Won't Buy, Won't Sell Tea
While the leaders of the richest countries of the "golden billion" cynically repeated the problems of exporting Ukrainian grain and predicted outbreaks of hunger, not the alleged, but the real hungry and gasoline riot flared up in the former British colony. Now this former colony is the parliamentary-presidential Democratic Socialist Republic of Sri Lanka.
"Sri Lanka" means "blessed, holy land" in Sanskrit. For two years now, this warm and washy-on-all-sides Indian Ocean "land of sun and sand" has been suffocating with a lack of money, fuel and food. Sri Lanka is experiencing the deepest socio-economic crisis, which in particular led to the resignation of its president, Gotabai Rajapaksa. He relinquished his post amid protests and clashes that killed people and imposed a state of emergency, a correspondent for The Moscow Post reported.
What is not an object for the support and manifestation of humanism from both London and the leaders of the G7 countries? Moreover, the ancient "blessed land" was on the paths of the European colonialists. First the Portuguese, then the Dutch. This year marks 220 years since the island passed from the Netherlands to the UK, which held its arms until 1948, when it was granted Dominion of Ceylon status. It was not until the early 70s that the remnants of British tea plantations passed to the state.
To Russia, for help
Sri Lanka's parliament is due to choose a new president on July 20. Candidates for the post of head of state should be presented on Tuesday July 19. Sri Lanka's Freedom Party, one of the two largest forces in the ruling coalition, refused to vote and nominate its candidate in the election.
The president elected by parliament will work until the end of the term of office of the president who left office, that is, until November 2024. He and the interim government, for the full renewal of which the protesters insist, will have the task of leading the country out of an economic crisis that it has not yet known in its history.
According to Bloomberg, in June, prices for consumer goods increased by 54.6% compared to last year, prices for transport services - by 128%, for food - by 80%, inflation in terms of the year exceeded 50%. The Department of Energy introduced a national fuel pass on Saturday with a guaranteed quota to buy fuel for personal transport.
Before his resignation, President Gotabaya Rajapaksa asked Russia for credit support for importing fuel, offered to resume Aeroflot flights. He announced on Twitter about a "very productive" video conference with Vladimir Putin, which took place on July 6. For negotiations on economic assistance, a visit was planned by the special representative of the President of Sri Lanka, Minister of Education of the country Susil Premajayant. The trip was postponed, the Russian Foreign Ministry said.
Sri Lankan Prime Minister Ranil Wickramasinghe in an interview with TASS on July 4 told how the government, having reduced some and abolished other taxes, lost about $40 billion in budget revenues. In November 2019, the authorities reduced VAT from 15% to 8%. According to the Ministry of Finance, the number of taxpayers decreased from 1.5 million at the beginning of 2020 to 1 million by the end of the year, and in 2021 amounted to only 412 thousand.
From tourism to default
In 1980, Sri Lanka was the official tea supplier for the XXII Summer Olympics in Moscow. Russia continues to take the place of the leading importer of this valuable product. Before the pandemic, Sri Lanka received up to 90 thousand Russian tourists annually. In 2021, about 50 thousand people visited it, this year less than 1 thousand people.
The entire flow of tourists to Sri Lanka decreased by 70%, and revenues from the tourism industry fell from $5.6 billion in 2018 to $3.6 billion in 2019 and to about $680 million in 2020. Foreign debt rose from 85% of GDP in 2019 to 104% in 2021. Foreign exchange reserves shrank from $8.8 billion in June 2019 to $2.3 billion in January 2022.
As a result, in April 2022, the authorities announced the suspension of payments for external obligations, recognizing this as "the last way to prevent further deterioration of the financial situation in the country." The total debt reached $51 billion by then. Sri Lanka defaulted in May, following the inconclusive expiration of a 30-day grace period for paying interest on two sovereign bonds.
In mid-June, Prime Minister Ranil Wickramasinghe said in parliament that the government needed $5bn to "stabilise lives" and about $1bn more to strengthen the rupee. The International Monetary Fund, which the country's authorities expected to help, interrupted negotiations at the end of June.
The history of the ruling Rajapaksa clan dates back to colonial times. The former president's family has long owned rice fields and coconut palm plantations in Hambantota County in the southeast of the island. The founder of the Don clan, David Rajapaksa, served as the local headman in the colonial administration of Ceylon.
Protesters are embarrassed by the de facto rise to power of Prime Minister Ranil Vekramasinghe, a longtime associate of the former president. In the opposition environment, fears are ripening that he is no better than his predecessor. According to The Indian Express, Gotabaya Rajapaksa appointed dozens of his near and far relatives to various government positions.
The crisis brought to despair
"The current crisis is driving families to total despair," Christian Skoog, UNICEF's Sri Lanka representative, said in a statement Friday. According to opinion polls, every tenth family has no sources of income. The cost of food on average increased by almost 60%, there was a shortage of essential goods, including fuel for cooking. Back in March, the government had to announce daily blackouts.
The UNICEF office said almost half of Sri Lanka's children needed humanitarian assistance, asked for $25.3 million. Representatives of the World Food Program (WFP) said they would support the resumption of the previously interrupted nutrition program for children and pregnant women and provide assistance to families included in the list of people in need of social protection.
The UN agency promised to continue supplying food under the school nutrition program, whose funding was cut due to financial difficulties. WFP and the Food and Agriculture Organization (FAO) are preparing a report on the food situation, which should help the country authorities take the necessary measures.
The leaders of the "Seven" sleep calmly, the care of untreated children, braying mothers, a critical lack of flour and other products is delegated to international bureaucrats. Rod Dreer, editor of The American Conservative, is confident that it was the advice of Western experts that led to the protests in Sri Lanka caused by the deterioration of basic living conditions. The country, in particular, followed the advice of the World Economic Forum (WEF) and switched to "organic farming."
In April 2021, the government imposed a ban on the import and use of mineral fertilizers and pesticides, switched to organic products, and the global "eco-elite," including large corporations such as Google, Disney and JPMorgan, supported "organic" programs. As a result, the yield of rice fields decreased by 40-50%. Later, after the disaster began, the WEF removed the article "We are going to make Sri Lanka rich" from its website.
The ban on the use of chemical fertilizers led to the fact that in 2021 a third of the country's sown land was not used, farms lost their crops. In November of that year, the ban on imports of fertilizers and pesticides was lifted. But farmers no longer had money, and fertilizer prices rose. Tea cultivation also suffered, production volumes fell by 17%.
The flow of tourists has also dropped sharply. In a pandemic, the tourism industry almost stopped by the beginning of 2022. Approximately half a million Sri Lankans work in this area, about two million more are indirectly associated with it. The number of officially employed people is about 8 million people and every third employee depends on the situation in the travel industry.
The first blow to the industry was the so-called "Easter attacks" of 2019, which were carried out in churches and hotels in Sri Lanka. Then 269 people died, including tourists from Australia, Bangladesh, Great Britain, Denmark, India, Spain, China, the Netherlands, Portugal, Turkey, Switzerland and Japan. Responsibility for the explosions was claimed by the Islamic State (a terrorist organization banned in Russia). The authorities accused the local group "National Society of Monotheism" of atrocities.
… brought to bankruptcy
The country's external debt today is estimated at $51 billion and has grown from 85% of GDP in 2019 to 104% in 2021. Formally, the island's main creditors are China, Japan and India, but in total these countries account for only 22% of Sri Lanka's external debt. The government made about half of all loans in international financial markets. The island's debts, which were held by westerners, were partially resold to "vulture funds."
The Group of Seven finance ministers have been urging China to help debtor developing countries. Beijing responded and in 2020 eased its debt burden by $2.1 billion. Recalling this at the G20 summit. The British office "Justice for debtors" found out that Western creditors take, in particular, twice as much interest compared to Chinese.
Until 2019, the World Bank ranked Sri Lanka as an above-average shower income country. Then the services sector accounted for 58.2% of GDP, industry - 27.4%, and agriculture - 7.4% of GDP. The agricultural sector produces mainly rice, coconut oil and grain, mainly for domestic consumption.
The number of emerging markets with troubled sovereign debt has more than doubled in the past six months. More than 900 million people live in these countries. The financial collapse of one government could cause a domino effect, with traders withdrawing money from countries with problems like Sri Lanka. Thus, accelerate the fall of their economies.
The current situation resembles the Latin American debt crash of the 1980s. Today, as then, the Fed is raising interest rates in an attempt to rein in inflation. This leads to an increase in the dollar and increases the cost of servicing external debts for developing countries. Sri Lanka's crisis is the first warning, other countries could be in line.
Local authorities tried to solve the problems by searching for sources of external support. India, China and Russia responded to the request for help. New Delhi transferred 44 thousand tons of fertilizers to Sri Lanka and approved another credit line. Beijing is considering large-scale humanitarian aid. Moscow is thinking about opening another credit line for Sri Lanka to import fuel and supply wheat.
Aeroflot flights stopped flying to Sri Lanka after the incident with the Russian Airbus A330-300 aircraft, which was detained at Colombo airport on June 2. The Colombo High Commercial Court later rejected the Irish company's lawsuit against Aeroflot and the liner was able to leave Sri Lanka. But after the incident, the Russian airline suspended flights to Colombo.
Oil supplies also stopped, and the country had a debt to the Russian Federation in the amount of $731 million. The island, at the same time, is ideal for creating a regional logistics center for oil and petroleum products there. Colombo and Hambantote Port Development Programs are linked to China's Belt and Road Initiative. In 2021, Chinese Foreign Minister Wang Yi called for turning them into development engines.
And Kunal Bahl, the head of India's big e-commerce company Snapdeal, offered Elon Musk to buy Sri Lanka's foreign debt instead of Twitter. Why not? Space is already available to private entrepreneurs, geopolitical transactions are next in line!