Today’s “Morning” newsletter from the New York Times talks about one of the greatest, least noticed disasters unfolding around us: the destruction of economy of Sri Lanka (Ceylon). Two weeks ago, on July 9th, mobs seized the offices of the country’s president and prime minister and burned down the prime minister’s home. Both men resigned their posts. The president fled into exile. The Times tells us this about “What led to the recent protests”:
Sri Lanka’s recent upheaval offers an extreme example of the world’s recent problems. Covid disrupted the country’s major industries, particularly tourism, and then leaders failed to adapt – setting off a chain of economic calamities, including food and fuel shortages. The crisis prompted protests, culminating in the president’s resignation and the installation of a new president on Wednesday.
So the “shortages” – “It’s not just that [fuel] was expensive; it was impossible to find” – were another Covid side effect, aggravated, we’re later informed, by the wishful thinking of a government controlled by a single family.
Until several months in, there was really no government recognition of the crisis. The dynast Gotabaya Rajapaksa was leading the administration at the time, and he had appointed his brothers and his nephew to his cabinet. He didn’t take a lot of counsel from outside his family.
There was a lot of denialism among them. They were told repeatedly that the economy was deteriorating. But they were certain tourism would continue to increase after Covid and that would be enough to shore up finances. But that didn’t happen; tourism was starting to come back, but it wasn’t enough.
But in the end, so the Times assures us, things aren’t so bad. “Gleefulness” was the hallmark of the protests (no mention of the accompanying arson). Admittedly, the erstwhile protesters “are not happy” that the deposed PM managed to get himself elected president. Still and all –
In the short term, we probably will see continued turmoil. But people are invested in ensuring Sri Lanka doesn’t fall again into this situation where it’s teetering on autocracy, where there’s little transparency and where the will of the people is ignored. So it’s mostly a positive story.
That “positive story” leaves out just a few bits of information.
The immediate cause of the country’s food shortage was the government’s enactment of a ban on chemical fertilizers. President Gotabaya Rajapaksa had become a convert to organic farming and a “Green Sri Lanka”.
Milton Friedman said that if you put the government in charge of the Sahara Desert, there would be a sand shortage. What the Sri Lankan government has done is almost as unbelievable. There are few better places in the world for agriculture. Sri Lanka is a warm, tropical island with plenty of annual rainfall, perfect for growing rice, tea, cocoa, and spices, and located along numerous ocean-trade routes for easy market access.
With the addition of modern fertilizers and farming techniques, the country went from subsistence farming to commercial farming. Sri Lanka had been self-sufficient in rice production since 2005. A 20-year-old Sri Lankan has seen the country’s GDP per capita roughly double over his lifetime. In 1990, Sri Lanka’s GDP per capita was about $2,000 greater than in nearby India. By 2020, it was more than $6,000 greater.
But after the fertilizer ban went into effect, rice production fell by 20 percent in only six months. The country had to import $450 million worth of rice to make up the difference, and rice prices still went up by 50 percent. Tea exports plummeted, costing the economy $425 million. The government reversed parts of the policy in November 2021, but the damage was already done.
The fertilizer ban was only the latest marcher in a parade of economic follies. Here is a summary written last April:
This slow-motion train wreck first began in November 2019 when Gotabaya Rajapaksa won a decisive victory in the country’s presidential elections. He immediately placed family members into key government positions and suspended Parliament. Then in August 2020, his Sri Lanka Podujana Peramuna party – the Sri Lanka People’s Front – posted a landslide victory. The win gave Rajapaksa the ability to amend the country’s constitution, which he quickly availed himself of. In total control, President Rajapaksa and his brother Mahinda, the prime minister [whom protests forced to resign in May], went on a spending spree that was financed in part by Sri Lanka’s central bank. The results have been economic devastation. The rupee has lost 44 percent of its value since President Rajapaksa took the reins, and inflation, according to my measure, is running at a stunning 74.5 percent per year. Last week, Sri Lanka announced that it was unilaterally suspending payments on its external debt. These economic developments have led to Sri Lankans protesting in the streets and a government in disarray.
The “spending spree” included “an international airport, a seaport, numerous unnecessary roads and bridges, and a cricket stadium”, in other words, “infrastructure”, in other other words, “jobs for the boys and shovel-ready graft”.
Covid certainly didn’t help Sri Lanka, but it’s doubtful that conditions there would be a lot better today even if Dr. Fauxi’s Chicom friends had maintained proper safety measures at their Wuhan biological laboratory. I wonder why the Times leaves out so much of the story.
No, actually I don’t wonder.
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