Events
Around July 10, 2022, Sri Lanka went completely bankrupt. In March, the country's financial system collapsed, people's livelihoods deteriorated in April-May, and by June, the government hit rock bottom.
The Sri Lankan Rupee faced a sharp decline in March 2022. From March 9th, the USD/Rupee rate went from 202 to 360 by May. This trend is comparable to Turkey's currency depreciation against the USD within a year, moving from 9 to 17.
Reflections
The Stages of National Bankruptcy
How a country goes bankrupt: Democratic systems often promise various welfare benefits to gain power. Poorer nations tend to elect leaders promising high welfare benefits. Accumulating debt without the capacity to repay can lead to a financial crisis.
The cultural attributes of Sri Lanka determine its political system, which in turn dictates its debt cycle and continual inefficiencies, setting the country on an inevitable path to financial collapse.
The steps:
- March: Energy crisis. Nationwide restrictions on coal, oil, and electricity. Energy is the lifeblood of industry. Once industry stalls, consumption halts. Sri Lankans generally don't have savings, they have a more westernized spending habit, which exacerbates the economic downturn.
- April: People started to starve, leading to protests and demonstrations. Result: Government under pressure. The government had limited options (due to lack of foreign exchange and inability to import essential goods and energy). The only solution was to limit the spread of information, implementing internet and offline curfews.
- May: Severe political crisis, societal structures began to crumble, leading to a collapse in political structures. Public trust in the government eroded, and the government lost its authority. With no unified voice, unity became impossible. Many fled the country, taking the remaining limited resources and foreign exchange, intensifying the loss of liquid assets.
- During the nation's collapse, Western capital began to enter for two reasons:
- Letting Sri Lankans pay debts is justified.
- In a state of anarchy, a natural trading structure emerged, allowing flexible business transaction rules (e.g., price negotiation, product selection, even trading drugs). Regardless of whom they trade with within the country, capitalists have pricing power. They can choose the local currency or USD for transactions; it's entirely up to them.
In summary, the stages are:
- Financial collapse
- Social collapse
- Political collapse
- Anarchy
- Free trade
- Harvesters enter the scene, acquiring assets at rock-bottom prices
Given this pattern, one can track the onset of national bankruptcy, which arises from structural flaws in the country's design. Comparatively, China has managed its stability better than 95% of countries, even if it sometimes comes at the expense of the majority's interest. With thousands of years of history, this ethnicity (not country) has managed to persist.
For countries like Sri Lanka, each bankruptcy cycle seems to set the stage for the next. Now, with capital flowing into Sri Lanka and high debts incurred, the nation's citizens will inevitably seek development, regardless of whether they establish their own government or receive external help. However, with the nation's assets already bottomed out, the government will have no choice but to negotiate with foreign investors, leading to further debt cycles and potential erosion of national sovereignty.
The structural framework designed by Western elites inherently disadvantages latecomers unless they find a new way to play the game. It's commendable that modern Chinese predecessors crafted a system under such constraints, creating four "red lines": cultural, economic, social, and political, ensuring China doesn't get ensnared too deeply in Western practices.
Two Significant Phenomena in Sri Lanka
- A nation reliant on tourism has been severely hit by COVID.
- A country with an agriculture foundation banning pesticides is absurd. But these are outcomes of its democratic system, which stems from its debt issues.
The Root of Sri Lanka's Debt
As mentioned earlier, Sri Lanka's inception was closely tied to debt, from various wars up to the 1980s, accumulating vast amounts.
Predictions
- Which major economies will collapse first? Countries like Sri Lanka, primarily based on tourism and agriculture and not using mainstream currencies like the USD or Euro (Central American countries), Jamaica, etc. (Salvador uses USD, countries like Guatemala and Honduras have their own currencies. Further research needed on their stability).
- Japan will probably collapse within two decades (debt), possibly prompting the most powerful nations to enter a financial division phase.
- The US's dominance is uncertain after a decade, but I think US will still be good.
- Europe, will decline in the next decade