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Sri Lanka is having a textbook currency crisis, triggered by policy mistakes

noahpinion.substack.com

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Re: Sri Lanka is having a textbook currency crisis, triggered by policy mistakes

#91

Post by afterburner »

xyzzy123 wrote: post #26
afterburner wrote: post #7

> But the most boneheaded, bizarre mistake that the Sri Lankan government made was a disastrous plan to shift the entire country to organic agriculture. In April of 2021 the government banned the import and use of pesticides and synthetic fertilizers. This devastated Sri Lankan agriculture, since, as it turns out, fertilizer is really really important. Production of tea — Sri Lanka’s main cash crop — fell by 18% in a…

> cutting supports like this will inevitably doom a sputtering economy, when the actual solution was almost certainly more government spending, not less. In the US that might be a sensible policy decision but SL can't do that . The concrete supports that are needed (fuel, fertilizer, food) are bought with dollars and yuan. The government ran out of those, because it was already spending unsustainably to prop up the e…

The government slashed taxes, right when the government needed the money. They were not making an honest effort to support the economy, they were setting up to loot it.

Re: Sri Lanka is having a textbook currency crisis, triggered by policy mistakes

#92

Post by 8note »

rlt wrote: post #55

Perhaps a dumb question: why does every little country need its own currency? Are they all just addicted to printing money? Ignoring the volatility and environmental concerns, why shouldn’t all these small to medium-sized countries standardize on a cryptocurrency?

Fiat lets your currency grow with your economy.

Lots of deflation or inflation has bad effects by influencing how people spend.

Re: Sri Lanka is having a textbook currency crisis, triggered by policy mistakes

#93

Post by HyperSane »

soldehierro wrote: post #22
kumarvvr wrote: post #15

The drastic move to organic farming is puzzling. Any level headed person , forget a politician , would want to experiment first, see the results, gauge and then expand selectively. That is common sense . I guess when you are a dictator ish government and you rule the country with an iron first, the institutions of the state stop being anything and simply become rubber stamps. This also underlines the importance of se…

Believe me, the organic transition had nothing to do with agricultural practices and all to do with economics, with the logic being that fertilizer was an expensive import, and by banning fertilizer they could hemorrhage foreign exchange reserves a little less. Of course, they also earned a lot less because the bone-headed transition lead to a marked reduction in yield, only worsening the forex problem the ban of agr…

A smarter person would have understood that there is a return on investment for fertilizer.

Re: Sri Lanka is having a textbook currency crisis, triggered by policy mistakes

#94

Post by pdevr »

Sri Lankan economy was, and still is, heavily dependent on thriving tourism [1](which accounts for 12% of the total GDP[2]). COVID-19 devastated the industry.

There are several other reasons, involving bad policies and bad rulers, but that was one of the main reasons for the sudden implosion.

[1] https://www.ft.lk/article/1778/Tourism-%E2%80%93-Engine-of-g...

[2] https://www.orfonline.org/expert-speak/how-tourism-in-sri-la...

Re: Sri Lanka is having a textbook currency crisis, triggered by policy mistakes

#95

Post by belltaco »

thematrixturtle wrote: post #64
walrus01 wrote: post #21

The first part of the article about how Sri Lanka would get foreign currency (swap, export or borrow) almost completely ignores the well documented devastation of the tourist industry, where people bring euros or dollars, due to covid19 and shutdowns of travel. Yes I suppose it falls into the category of swap, because people bring euros and exchange them for local currency to buy local goods and services. But it was…

It's mentioned later in the article, and while it's certainly a factor, there are a lot of other countries with an even larger dependence on tourism (Maldives, Fiji, Thailand, etc) that did not suffer a full blown economic crisis as a result.

The big reason why is this https://en.wikipedia.org/wiki/2019_Sri_Lanka_Easter_bombings

https://en.wikipedia.org/wiki/2019_Sri_Lanka_Easter_bombings...

Re: Sri Lanka is having a textbook currency crisis, triggered by policy mistakes

#96

Post by pfdietz »

soldehierro wrote: post #22
kumarvvr wrote: post #15

The drastic move to organic farming is puzzling. Any level headed person , forget a politician , would want to experiment first, see the results, gauge and then expand selectively. That is common sense . I guess when you are a dictator ish government and you rule the country with an iron first, the institutions of the state stop being anything and simply become rubber stamps. This also underlines the importance of se…

Believe me, the organic transition had nothing to do with agricultural practices and all to do with economics, with the logic being that fertilizer was an expensive import, and by banning fertilizer they could hemorrhage foreign exchange reserves a little less. Of course, they also earned a lot less because the bone-headed transition lead to a marked reduction in yield, only worsening the forex problem the ban of agr…

Organic fertilizer requires that the N, P, and K actually came from somewhere. Often, that's from something else that used non-organic fertilizer. So if a country goes all organic not only are yields down on the fields using organic fertilizer, the supply of organic fertilizer itself could dry up.

Re: Sri Lanka is having a textbook currency crisis, triggered by policy mistakes

#97

Post by pfdietz »

rmatt2000 wrote: post #69
epistasis wrote: post #61

Earlier quoted context omitted.

Well to be fair to Mao, sparrows are renowned for their bourgeois capitalists tendencies.

The sparrows in my yard have been exploiting and oppressing the wrens for years.

The wrens are stuck back in the middle ages. They keep having faires about it.

Re: Sri Lanka is having a textbook currency crisis, triggered by policy mistakes

#98

Post by panarky »

lanstin wrote: post #14
asciiresort wrote: post #8

> Without imports, many Sri Lankans will quickly find themselves hungry, stranded How did these island nations sustain themselves before ? In other words, what has changed that they can’t live off the land anymore? And by that, I mean the sea. Has Sri Lanka’s fish been pillaged? Is it being exported to wealthier nations that command higher prices, even as there is a domestic food crisis? How much of this is because o…

As the article notes the government forced the food production to go all organic in one year with no plan, yields crashed, and now they have to import even rice. It sustained itself thru tourism and local food production. They have sold tea overseas since being a British colony. Also, another factor is they have to import all their medicines and oil, which is also dependent on foreign reserves. So now not enough food…

Cancelled flights, fuel shortages and street violence aren't helping the tourism sector.

Re: Sri Lanka is having a textbook currency crisis, triggered by policy mistakes

#99

Post by redtriumph »

davmar wrote: post #4

Here's a Sri Lankan giving an in-depth analysis about this: https://www.youtube.com/watch?v=HpZ5oiUGqW4 . I like this guy, think he's got good opinions.

I decided to hear him out and I completed the entire video. In short, he blames current crisis to mix of corrupt politicians, mismgmt. of foreign loans and predatory lending by West. He proposes SL to become more industrialized and integrate itself in Asia's monetary system rather than West.

Re: Sri Lanka is having a textbook currency crisis, triggered by policy mistakes

#100

Post by bradleybuda »

ktaylora wrote: post #39
kumarvvr wrote: post #15

The drastic move to organic farming is puzzling. Any level headed person , forget a politician , would want to experiment first, see the results, gauge and then expand selectively. That is common sense . I guess when you are a dictator ish government and you rule the country with an iron first, the institutions of the state stop being anything and simply become rubber stamps. This also underlines the importance of se…

There's a premium that can be exacted from switching to organic agriculture that isn't be discussed in this article. Sri Lanka has a limited land mass available for food production and they mostly export commodities to other countries. We're talking ~25,000 sq-mi. For context, the US state of Kansas is ~82,000 sq-mi. If you cannot physically expand the footprint of agriculture in Sri Lanka to boost revenues, the thin…

That's the nice thing about free trade and free markets - everyone is running a decentralized version of that experiment and incrementally updating the data live. If you make both paths available (organic vs fertilizer) and let the farmers whose livelihoods are on the line choose, then they are very likely to make the best choice.
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