Sri Lanka’s Collapse Points to Global Gloom

JIM GERAGHTY

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On the menu today: You probably saw that footage of seemingly unending throngs of people swarming and overtaking the president’s residence and prime minister’s house in Sri Lanka. Our Dominic Pino has been keeping an eye on that troubled island nation for a while, and he lays out the sadly predictable path to chaos: a dumb ban on chemical fertilizers, corruption and mismanagement, the interruption of the usual trade routes and tourism, and a devastating wave of runaway inflation. Meanwhile, down in Georgia, there’s good reason to doubt that Quinnipiac survey showing Herschel Walker trailing Senator Rafael Warnock by ten points.

Why Sri Lanka Suddenly Matters

Back in March, as the world was still watching the Russian invasion of Ukraine, Reuters filed an ominous dispatch from Sri Lanka about the consequences of its government’s attempt to ban the use of artificial fertilizers:

“I cannot recall any time in the past when we had to struggle so much to get a decent harvest,” said [W. M.] Seneviratne, a lean 65-year-old with a shock of silver hair, who has been farming since he was a child.

“Last year, we got 60 bags from these two acres. But this time it was just 10,” he added.

The dramatic fall in yields follows a decision last April by President Gotabaya Rajapaksa to ban all chemical fertilizers in Sri Lanka – a move that risks undermining support among rural voters who are key to his family’s grip on Sri Lankan politics.

Although the ban was rolled back after widespread protests, only a trickle of chemical fertilizers made it to farms, which will likely lead to an annual drop of at least 30% in paddy yields nationwide, according to agricultural experts.

“We are a tropical country full of rice paddies and banana plantations, but because of this stupid fertilizer ban, now we don’t even have enough food to feed ourselves,” said Rajith Keerthi Tennakoon, 52, former governor of the southern province. “We have had past economic crises, security crises, but never in Sri Lanka’s history have we had a food crisis.”

But the Guardian being the Guardian, it had to add a paragraph insisting that a ban on artificial fertilizers was good in theory:

On the face of it, a push to organic farming would be seen as laudable, given concerns over the use of chemical fertilizers. Yet it was the sudden and obtuse manner in which the ban was introduced — imposed virtually overnight and with no prior warning or training – and the questionable motives behind it, that have left even organic farming advocates furious.

Sri Lanka is a small island nation off the coast of India. When Hollywood needs a jungle, it films there. The Bridge on the River Kwai, Indiana Jones and the Temple of Doom, and one of the Jungle Book movies all included scenes shot on the island. It is about as far as a country can get from the United States, and when news about the country has reached Americans, it was usually bad news — such as the government’s long battle against the Tamil Tigers terrorist group, or the devastating 2004 tsunami.

By 2019 it had been elevated from a lower-middle-income country to an upper-middle-income country by World Bank classifications. Its GDP per capita, adjusted for purchasing power, is about double that of India, about the same as the poorer countries of Eastern Europe such as Ukraine and Moldova, and only slightly behind Brazil. Its largest city of Colombo had become a tourist destination. It’s not a wealthy country by any stretch of the imagination, but it was doing well for its neighborhood, and its 22 million inhabitants saw a dramatic improvement in their quality of life in the past decade.

But everything fell apart fast: Inflation is raging out of control, the government defaulted on its debts, an energy crisis led to rolling blackouts, and the food shortages spurred massive crowds of people to storm into the houses of the country’s wealthy rulers and effectively topple the government. Inflation in Sri Lanka has reached jaw-dropping levels: “Consumer prices rose 54.6 percent in June from a year earlier, with transport surging 128 percent from the previous month and food 80 percent.”

The global fertilizer shortage is likely to reduce crop yields in a lot of places, which means we may be dealing with a worse problem in the coming months and years. Using less fertilizer usually translates into fewer crops. . . . Hungry people do things that well-fed people do not. They protest and they riot. Hungry people move across borders as refugees. They are more easily recruited into terrorist or extremist groups. . . . Hungry populaces are more likely to turn to demagogues promising an easy solution. Where there is hunger, there is conflict.

Back in early June, when very few Western minds were paying much attention to Sri Lanka, Dominic wrote an unnervingly prescient piece entitled, “Sri Lanka’s Collapse and the End of Globalization”:

Coming out of the pandemic, Sri Lanka was counting on the return of tourism, a vital industry to the island country with many beaches on the Indian Ocean. One problem: The first- and third-largest tourism markets for Sri Lanka were Russia and Ukraine. Russia is also a major buyer of Sri Lankan tea. The realities of the war and the sanctions on Russia have upended that plan. . . .

Protesters are in the streets, some of them setting politicians’ homes on fire, and police used tear gas to disperse them. Parkin writes that there are miles-long lines for gasoline, and some people are only eating one meal per day.

Sri Lanka’s default may just be the start of a wider financial crisis in the developing world as a result of worsening global economic conditions. The country had the disadvantage of exceptionally poor leadership and bad timing of the pandemic and the war in Ukraine. But poor leadership is common in the developing world, and less robust economies are especially susceptible to bad luck.

Countries are economically connected in strange ways. In many cases, those connections only become widely known in hindsight, after a crisis has made them obvious. It would be an overstatement to say that fewer Russians and Ukrainians going on vacation plunged Sri Lanka into crisis, but that seemingly innocuous fact was one of many contributing factors. Those in the prosperous West who are cheering for the end of globalization should be careful what they wish for.

Countries such as Zambia and Lebanon are already in the grip of crises and are seeking international help to provide loans or restructure their debts, while Pakistan’s new government, which came to power in April, says that it narrowly averted a debt default in recent weeks, driven by a soaring fuel-import bill. Foreign-exchange reserves held by the central bank dwindled to cover less than two months’ worth of exports, largely closing off Pakistan’s prospects of tapping international financial markets. China, a close ally, provided a $2.3 billion loan in June to shore up the foreign-currency reserves.

But Pakistan stands out, as that country has an estimated 165 nuclear weapons. One Indian business publication’s assessment of the Pakistani economy reads like a horror show, and it explicitly compares that country to Sri Lanka: runaway foreign debt; skyrocketing cost of foreign imports; a collapsing currency; falling exports; shortages of food, fuel, and medicines; hoping for rescue from the International Monetary Fund but having no negotiating leverage; and a recovery plan that relies on people drinking less tea and exporting donkeys to China.

You would like to think that a country with a large nuclear arsenal would also know how to manage its borrowing, pay its debts, and keep its economy running smoothly. Then again, there’s probably some Pakistani out there wondering how an American could have the nerve to make that criticism.

Meanwhile, Down in Georgia . . .

It is hard to shake the feeling that Herschel Walker is going to be a disappointing nominee for Republicans in the Georgia Senate race. No one expected that a former college- and pro-football superstar to be a policy wonk fluent in the details of every federal-government decision, but Walker’s answers to policy questions are generic at best, and there are ominous indications that even his own staff is exasperated with him.

The Data for Progress survey released last week that found Walker two points ahead of incumbent Democrat Raphael Warnock was the first poll to put Walker ahead since April.

But if you’re looking for a reason to dismiss or pooh-pooh the Quinnipiac poll from late June that had Warnock ahead by ten . . . look back at the 2020 Senate race in next-door South Carolina. Back then, both Georgia and South Carolina were heavily Republican southern states, but Democrats thought that they had a perfect challenger for long-time incumbent Lindsey Graham in former state-party chair Jamie Harrison. A bunch of polls gave Graham a modest lead of a few percentage points, but Quinnipiac showed a tie three times — in July, in early September, and in late September.

On Election Day 2020, Graham won by more than ten percentage points. Either Graham enjoyed a late surge, or Quinnipiac’s sense of the electorate was way off. (Quinnipiac’s last presidential-race poll had Trump leading in South Carolina by just a percentage point, 48 percent to 47 percent. On Election Day, Trump won, 55 percent to 43 percent.)

It’s not a perfect comparison — Warnock is an incumbent, Harrison was a challenger — but it does suggest that Quinnipiac consistently includes too many Democrats in their samples. The Georgia Senate race is not a slam-dunk for Republicans, but it isn’t likely that Walker is trailing by double digits.