Sri Lanka Update 14 July, 2022

In the space of one week Sri Lanka has turned into a real-life reality TV show. If the situation weren’t so dire for Sri Lankans, I’d dare label the situation there as quality entertainment. Unfortunately, living conditions on the island continue to deteriorate as the political situation grows increasingly muddled. Even more alarming is the frail state of Sri Lankan society. Make no mistake about it, the island nation is on the verge of a complete collapse.

Sri Lankan President Gotabaya Rajapaksa’s aircraft has landed in Singapore. After departing Colombo, Rajapaksa flew to the Maldives before winging his way east. There are reports surfacing that Jeddah will be his next destination. The purpose behind his tour could be to garner international support for an effort to remain in power. The president has not submitted a letter of resignation as promised, meaning he is still the rightful leader of Sri Lanka. Parliament is moving to strip him of his presidential powers though. The appointment of Prime Minister Ranil Wickremesinghe as acting president only made the situation worse and incensed protesters. His office was taken over by protesters, leading to a number of clashes between security forces and civilians. A state of emergency was declared, as well as a curfew. Right now, Colombo has settled into an uneasy calm. Protesters have withdrawn from the presidential residence and Wickremesinghe’s office but remain in the president’s office.

Until the political situation stabilizes, negotiations between the government and the IMF are on hold. An agreement with the IMF is essential to lay the groundwork for an economic recovery. However, as it stands right now, there will be no progress made on this front until the vacant presidency seat is filled and calm returns to Sri Lanka. It could be a long time until that happens as the island nation remains in turmoil without an end in sight.

Sri Lanka In Crisis

Public anger and frustration is threatening to boil over in Sri Lanka amid a growing economic crisis that has greatly diminished the standard of living and now threatens to unseat the current government. Sri Lankans are defying the present state of emergency which bans public gathering and protests. Sri Lankan President Gotabaya Rajapaksa declared the emergency on Saturday, hoping to prevent the large-scale demonstrations that were scheduled for today (Sunday, 3 April, 2022). Along with restricting public movement and imposing a curfew, internet access was also severely limited, a move that has caused dissent within the Sri Lankan government.

The government’s heavy-handed moves come in response to a demonstration involving thousands of people outside Gotabaya Rajapaksa’s home in Colombo. The protest began peacefully but turned violent when security forces used tear gas and water cannons on the crowd. Demonstrators responded by throwing rocks and setting fire to vehicles used by the security forces. Over fifty demonstrators were arrested, and two dozen security officers suffered injuries.

The root cause of the present situation is the government’s handling of the worst economic crisis to hit the island nation in decades. Conditions have been going downhill for some time owing to a combination of events and circumstances that started with the Easter Sunday bombings of 2019. Those attacks, which killed over 250 people, hit Sri Lanka’s tourism-reliant economy very hard. Next came the COVID-19 pandemic which placed heavy pressure on the currency. Along with a host of other factors, these landmark events have combined to produce a situation where Sir Lankans find it increasingly difficult to purchase fuel, medicine and other essential goods.

All eyes are now on Gotabaya Rajapaksa and the government. How the nation’s leaders react to public defiance of the curfew and state of emergency will determine what the next phase of the crisis will bring. Already, many politicians from parties in Gotabaya Rajapaksa’s governing coalition are starting to grow antsy. Calls that he appoint a caretaker government that represents all eleven parties represented in parliament are growing louder. The Sri Lanka Freedom Party, a coalition member, announced on Friday that it will leave the coalition unless Rajapaksa takes measures to “alleviate the economic crisis, after which an election must be called for.”

Post-Explosion Worries Grow For Lebanon

It has been around thirty hours since the ammonium nitrate explosion in Beirut devastated parts of the city. The initial of the investigation now underway strongly suggests that the explosion was the result of negligence, and a number of variables coming together at the most inopportune time. The investigation is nowhere near complete yet though and this should be kept in mind. A final verdict will not be rendered for some time. It is worth noting, however, that as Lebanese officials and authorities continue their investigation, at the same time the intelligence services of many Middle Eastern, and Western nation-states are conducting their own investigations of the incident.

Accident or otherwise, the explosion has come at a very delicate time for Lebanon. First there is the COVID-19 pandemic. Infections are on the rise, and the nation’s healthcare system and hospitals are struggling to cope. Economic conditions are another factor. Lebanese are dealing with an economic crisis worse than any since the 1975-1990 civil war. Brownouts are a part of daily live, and clean drinking water is not readily available on a consistent basis.  Large scale street demonstrations against the government were a regular occurrence until the pandemic arrived, and the mood of many Lebanese has turned decidedly anti-government, and anti-Hezbollah.

The explosion occurred at Beirut’s port and caused an immense amount of damage. Significant quantities of stored grain have been destroyed, leading to worries about a possible food crisis in the near future. To exacerbate matters, the destruction caused to the port is leading to questions about its operational capacity. The Lebanese government is releasing 100 billion lira in emergency funds to help offset any economic consequences, but there is a growing consensus among economists, and geopolitical analysts that the impact of the blast on Lebanon’s economy will be long-lasting.

Lebanon: Protests Turn Violent, Economy Remains in Free Fall

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Over the past week protests in Lebanon have turned violent. Following months of relatively peaceful demonstrations across the small country anti-government protesters and security forces clashed in the streets of Beirut. The past weekend saw the most violence with over 100 citizens injured. Police and security forces made dozens of arrests, with most coming as protesters attempted to storm Lebanon’s Parliament building. The situation on the ground deteriorated to the point that the Lebanese government called in the military to bolster the ranks of police and security personnel.

Political corruption has been at the heart of the protests. Frustration with the ruling class had been rising for quite some time in Lebanon. As has been the case in other nations across the region, the people have taken to the streets to demand change. Lebanon is in the midst of a severe economic crisis, and the government appears unable or unwilling to address it properly. Inflation and unemployment continue to rise, the national currency’s value is diminishing, and Lebanon’s credit ranking is in the basement.

To make matters even worse, cash is running short in banks around the nation. Commercial banks have placed restrictions on withdrawing dollars, and blocked money transfers abroad. These moves have sparked a number of extreme incidents at banks ranging from scuffles between depositors and bank employees to depositors physically occupying branches.

Unfortunately, even if the government brings on early elections as the protesters have demanded, there’s no guarantee a new parliament and cabinet will be able to stave off the looming economic catastrophe.

The Argentine Headache

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Argentina is on the brink of a financial crisis once again. Current leader Mauricio Macri’s loss to  left-wing opponent Alberto Fernandez in the primary election has caused a swarm of financial repercussions. The S&P Merval, Argentina’s main stock market plunged 48% on Monday. It was then second largest drop of any major stock index since 1950. The Argentine peso dropped 15% versus the US dollar on Monday as well. These losses extended on Tuesday. The wide margin of Macri’s loss is what triggered the financial earthquake. Investors were expecting him to be defeated, yet not to the extent that he was.

Now the future appears uncertain. The looming probability of a sovereign default on the country’s IMF loans is sending investors scrambling for cover. The emerging political scenario is causing concern around South America and beyond. Should the Peronists return to power, Argentina will once again be ruled by a leftist government. Brazil’s right-wing President Jair Bolsonaro is publicly warning of a possible Argentine refugee crisis affecting his country in the future. Brazil is already contending with waves of Venezuelan immigrants streaming into the northern region of the country, fleeing the economic and political crises in their homeland. The possibility of a second refugee crisis at Brazil’s southern border is unpalatable to say the least.

After the downturn in global markets yesterday stemming from global recession fears, it would appear that the Argentine headache will add to the increasing concerns among investors about the health of the global economy, as well as the growing influence that the geopolitical climate has on markets and national economies this summer.