One might be forgiven for thinking the IMF was an organisation of profiteering capitalists.

They seem to behave like payday loan companies, preying on the desperate poor like financial leeches.
Hear them crowing about the creation of the Russian oligarchs: - https://www.imf.org/en/News/Articles/2015/09/28/04/53/sp040198
That worked!

That's gold.

We really shouldn't be surprised that the people who run money run it on behalf of people who have money, not on behalf of those who do not.

Sri Lanka, being a Buddhist nation, should have zero or negligibly small karmic debts and, at the end of the day, that's what counts, oui?

:grin:

as with Greece — Banno

As with Spain too. It has been a tough decade for us to stay in frozen public salaries, bad quality jobs, and sacrifice a whole generation which lost the hope of the future. The fact that tears me off is when, back in the day, Germany and Austria said that "Mediterranean countries spent a lot according to their circumstances" or we waste our money in "wine and women" etc...
Nearly 15 years later I want to ask them back if the north is living upon their circumstances buying a lot of Russian gas and oil.

Anyway, good luck to Sri Lanka and wish them the best in such difficult situation.

I wonder how long before it's Hungary's turn to declare bankruptcy.

And how long before Canada's and The United States of America's.

Because I somehow can't escape the feeling that the credit floating around the world is larger than the debit. In other words, there is more outstanding debt than equity that had loaned the debt.

Of course I can't prove this, but this is my gut feeling.

Maybe it's China, where the equity is located? Certainly not in the USA??? I don't know. Who here on this forum knows that reliably? All I hear every year is that the deficit is growing, "BUT ONLY FOR THE TIME BEING, BEFORE IN 5 YEARS WE'LL HAVE BALANCED THE BUDGET AND AFTER THAT WE'LL REDUCE THE DEBT" is what all governments are saying, now, tomorrow, and five years ago, too.

the people who run money run it on behalf of people who have money, not on behalf of those who do not. — unenlightened

Well said.

Sri Lanka, being a Buddhist nation, should have zero or negligibly small karmic debts and, at the end of the day, that's what counts, oui? — Agent Smith

Not really... if it's only the thought that counts, for instance, there should be very many more good looking women pregnant than there are actually. It's not always what counts that counts.

Not really... if it's only the thought that counts, for instance, there should be very many more good looking women pregnant than there are actually. It's not always what counts that counts — god must be atheist

You're correct!

Maybe it's China, — god must be atheist

That would be my guess; they've been supplying the world with lovely cheap stuff for a generation, and I suspect as a country goes bankrupt, they will be bidding in the sell off.

We really shouldn't be surprised that the people who run money run it on behalf of people who have money, not on behalf of those who do not. — unenlightened

Even your friendly small-town banker depends on the community's indebtedness to them. A prime source of problems down on the farm has been banks encouraging farmers to expand operations, through bank loans, of course. All's well and good as long as the market for parsnips or parsley--whatever they are growing--keeps expanding too.

It doesn't. The market for corn, soy, wheat, meat, milk, parsnips, and parsley expands and contracts; prices rise and fall. Payments on the banker's generous loan become difficult to make when the prices fall, and default becomes likely. More loans the next year may bail the farmer out, or nail his coffin shut.

Small countries are like small farmers. Unless they are lucky, the costs of debt and default are high and the risks are every present.

Where have I heard that before? Oh yes:-

I thought that crop insurance would have taken the teeth of risk out of the agriculture industry.

Two things must be true:
1. The agriculture industry is a positive-gain industry. That means, if one area is hit with drought or any sort of unpleasant thing that makes the product unprofitable, then there will be years, randomly occurring, that make up for the loss; and that if in one part of the country this happens, then a larger area than the "hit" area in other parts of the country will be still profitable.
2. The profit margin that is the difference between the losses and the gains, is large enough to sustain an insurance industry that can sustain all the settlements or benefits to insured farms.

If these two things are true, then the old, proverbial threat of bankers and lawyers taking over the old family farm with the apple orchard and the big oak tree where the green green grass of home grows with Mary running along, disappears.

True, IF there was a crop failure (hail, grasshoppers, drought, flood, etc.) insurance would help a great deal. But prices will normally fall if farmers have great harvests. Supply and demand. True, good years and bad years balance out, IF one isn't downed by debt.

I was just drawing an analogy to how smaller economies (Greece, Sri Lanka, Argentina etc.) can end up being at the mercy of the IMF, World Bank, and international capital in general.

Development, which always seems like a good thing, can result in bankruptcy. So can reckless spending, diverting money from productive public projects into unproductive private pockets, and bad bets on the future.

The Great Depression era lyric I was thinking of...

The farmer is the man
Lives on credit 'till the fall
Then they take him by the hand
And they lead him from the land
And the [banker / middle man / lawyer] is the one that gets it all

Farmers, of course, don't always go broke. Farms have been the basic of a lot of capital accumulation by small entrepreneurs--at least in the past. And it isn't all indebtedness. Technological change led to agriculture that was more efficient and more profitable on a much larger scale. (More efficient and more profitable methods are wrecking the land and water resources, but that's for another thread.)

Does crop insurance not take "too good competition" into consideration?

That's A. B. is that not all overabundant crop goes to no income or too little income. There are ways to preserve food these days; much more robustly and easily and cheaply than in the past. I have not heard of farmers dumping their crop into the garbage or the seas. Much like in the movie industry there are no losers for money-making by even the worst made movies.

The articles are pretty accurate and fair. As a person living there until recently I had no idea Sri Lanka had taken 17 - seventeen - IMF loans, as citizens we must have been asleep. I think that successive governments were taking a risky gamble that the economy would continue to grow and did not expect the Covid-19 pandemic or the terrorist attacks or the war in Ukraine, as the article mentions two of these.
Tourism alone amounted to about 3 billion at its peak, in 2020 it was down in the millions.

This video, though old, is a good start to looking at the IMF critically.

https://www.youtube.com/watch?v=3hBYAcPPYQM

Farmers, of course, don't always go broke. Farms have been the basic of a lot of capital accumulation by small entrepreneurs--at least in the past. — Bitter Crank

There's an old saying; If you want to make a small fortune in farming, you need to start with a large one.

In the good ol' days, one made money, not directly from farming but from owning property. On the small scale it is called renting and leasing, and on the large scale it is called taxation. Either way, one charges the peasants for merely being alive on one's property. This is the crop that never fails. The more people are starving because their crops fail, the more desperate the next tenants become and the more valuable the tenancy.

Does crop insurance not take "too good competition" into consideration? — god must be atheist

My understanding of crop insurance is that it protects against the financial risk of natural disaster (flood, hai, drought, insects...). There are other devices to protect against over-production. An important one is the central government's purchase of surplus commodity crops (corn, cotton, rice...) and keeping them in storage until the demand and supply are favorable for sale. Another device is to pay farmers to leave land fallow. This can serve environmental purposes as well.

These price protection devices are especially helpful to protect small farms. At least in the US, there are not very many small farmers left.

Perhaps the biggest device to protect against over-production is the shift to corporate farming. Large corporations can diversify and vertically integrate their operations. Food processing is more profitable than food growing (in commodities especially). So, if you own 20,000 acres of land producing wheat and corn, you can still make money by turning the low-profit commodity into higher profit corn flakes, cake mixes, and so forth.

One might think that in a world of 8 billion people, there would not be such a thing as over-production of food, but from a financial POV, there is. Everybody from a Texas rice farm, a curry factory in India, to a street vender of rice balls in Sri Lanka wants to make a profit.

So the conclusion here is that the Sri Lankans should have taken out crop insurance?

Then I think you missed the point.

The point is: can a low income country transition to a middle income country or a high income country? There are many competitors on the level playing field. Maybe taking out few loans would have been better, but you know what they say: "We know what to do but we don't know how to get re-elected after we have done it"

Sri Lanka has been counted as lower-middle income. The country had experienced an annual GDP growth of 6.4 percent from 2003 to 2012. That's better than the USA.

So was it sustainable, and were the regional geopolitical undercurrents relevant here? Globalization? Malaysia, for example, was targeting NIC status by 2025 I don't know if they will make it.

In the 1970s and 1980s, examples of newly industrialized countries included Hong Kong, South Korea, Singapore, and Taiwan. Examples in the late 2000s included South Africa, Mexico, Brazil, China, India, Malaysia, the Philippines, Thailand, and Turkey. Economists and political scientists sometimes disagree over the classification of these countries.

https://www.investopedia.com/terms/n/newly-industrialized-country.asp

Sri Lanka moved to the upper-middle-income group in 2020. Sri Lanka had been a lower-middle-income group since 1999, while India has been a lower-middle-income country since 2009. — Investopedia

Didn't btw Sri Lanka already default in it's debt in a Chinese port venture? I remember that China took over the port (70% of the stock) and leased it for itself for 99 years, when Sri Lanka couldn't pay up.

So is this time China again the creditor.

So now we get the answer just how China will manage this and will it use the "debt trap".

I think that China has to be very careful here. If it turns to a bully, it might have a backlash. But I guess they are smart. Hopefully.

Well, see 4. Sri Lanka and the BRI.

Conclusion
This chapter has disproven the debt-trap diplomacy claims surrounding Hambantota Port. China
did not propose the port; the project was overwhelmingly driven by Sri Lankan actors for their own domestic purposes, with some input from a Chinese SOE acting for commercial reasons. Sri Lanka’s debt trap was thus primarily created as a result of domestic policy decisions and was facilitated by Western lending and monetary policy, and not by the policies of the Chinese government. China’s aid to Sri Lanka involved facilitating investment, not a debt-for-asset swap. The story of Hambantota Port is, in reality, a narrative of political and economic incompetence, facilitated by lax governance and inadequate risk management on both sides.

Don't ascribe to conspiracy what can adequately be explained by incompetence.

More:



China's part is not great. The bulk is $US:


And this:

AK: My perspective all along is that international coverage has given too much importance to geopolitics with a focus on India and China, as opposed to the ground realities in Sri Lanka. It is shallow analysis on the part of the international press and think tanks, and even more so when Sri Lankan intellectuals reduce it to such a geopolitical framing. Some years ago, I highlighted that it was not so much the Chinese debt trap that we have to worry about but the sovereign debt owed to capital markets, as our external debt amounted to 10 percent and 40 percent of debt respectively to each of these sources. I argued that it was the neoliberalisation of Sri Lanka’s economy with greater integration with global finance capital that would push Sri Lanka into a deeper crisis. Few paid attention at that time, but now amidst this crisis, suddenly everyone is talking about sovereign bonds. — Ahilan Kadirgamar

Don't ascribe to conspiracy what can adequately be explained by incompetence. — Banno

I can ascribe to incompetence or that leaders have these utopian visions of grandeur that can sometimes backfire. Or simply failed regional policy of making malinvestments.

And I've been doubtful of the whole Chinese "debt trap" argument. You see, now in 2020's Third World countries ought to know the "debt trap" idea, so I agree with them that find it annoying that the US goes to talk about this issue.

I think the main issue for China is simply to search for new projects when the huge infrastructure projects in China are basically over: once you have built new cities for the countryside people, then that movement to the city finally stops some time.

The sad fact is that it might not only be Sri Lanka as these are really bad times for the global economy.

Possibly due to the political distance, the discussion here is very different from the discussion in Sri Lanka, which is heavily politicized.

This is much appreciated, however there are some some factual issues in the news reports that, innocuous as they may seem, need to be addressed.

Inflation is at an all-time high of 17.5%, with prices of food items such as a kilogram of rice soaring to 500 Sri Lankan rupees (A$2.10) when it would normally cost around 80 rupees (A$0.34). — The Conversation (Article quoted above)

The inflation rate chart is here: you can see for yourselves that it had reached 25% in 1980 and 22% in 2008.

https://www.macrotrends.net/countries/LKA/sri-lanka/inflation-rate-cpi

Rice is available at Rs 200 per kilo, I obtained this information yesterday from people who are living there and from a supermarket in Sri Lanka - Keells :

https://www.keellssuper.com/product?cat=4&s=~RICE

However, that article goes on to adress the China problem (China is a problem to the West, not Sri Lanka). This is lost on many Sri Lankans, especially those who enjoy news programming in the West.

Many believe Sri Lanka’s economic relations with China are a main driver behind the crisis. The United States has called this phenomenon “debt-trap diplomacy”.

The irony.

Defaults over China’s infrastructure-related loans to Sri Lanka, especially the financing of the Hambantota port, are being cited as factors contributing to the crisis.

But these facts don’t add up. The construction of the Hambantota port was financed by the Chinese Exim Bank. The port was running losses, so Sri Lanka leased out the port for 99 years to the Chinese Merchant’s Group, which paid Sri Lanka US$1.12 billion.

So the Hambantota port fiasco did not lead to a balance of payments crisis (where more money or exports are going out than coming in), it actually bolstered Sri Lanka’s foreign exchange reserves by US$1.12 billion.

There are other experts who have voiced the same opinion saying loans from China were not the problem, but this is item is being pushed, and it seems hopeless to resist.

If lies are dangerous, then we have continued trend of inaccurate or weaponized news channels once again, in the arena of Economics this time. Buyer beware.

It is a good time for everyone in Sri Lanka to think of where they want their country headed, but if they cannot agree on why we got here, what the situation is, at least there are fewer options left as to how we can get out of this economic crisis, and maybe simpler for all to comprehend.

In a Democracy, the drive for the opposition to seize power is also a factor, considering the favorable exchange rate.

Excellent input.

It seems we can reject the case for China being the source of the problems.

So I'll go to my original position, that it is incompetence combined with unhelpful demands from IMF and others.

Big bags of red basmati at Keells - not something we have access to down under.

So I'll go to my original position, that it is incompetence combined with unhelpful demands from IMF and others. — Banno

I think it is risk taking - but nevertheless, is the remedy then competence combined with helpful demands from the IMF? I am less sure of the latter.

Is it not true that finally the poorest section of the population will endure hardship as they did during the pandemic?