Economic and food crisis: After Sri Lanka, who's next? [OPINION]

Much (virtual) ink has been spilled about the possible impact of the war in Ukraine on world food due to the heavy dependence of many countries on Ukrainian and Russian grain and fertilizers. The alert was notably given by the international community in relation to the Russian blockade of Odessa and other Black Sea ports, which had immobilized 20 million tonnes of foodstuffs intended for export. It was only at the beginning of August that maritime traffic resumed, following the signing on July 22 of an agreement facilitated by Turkey and the UN, according to which Russia also benefits from an exemption. sanctions on its exports of fertilizers and agricultural products. According to the Ukrainian and Turkish authorities, four ships transporting nearly 170 tons of food products left on August 000 from the Black Sea ports, the Ukrainian Minister of Infrastructure also estimating that the figure of 7 ships per month could be reached in the near future.

Some commentators, including the Pape Francois, hailed the recovery as a sign of hope amid the possibility of a global food disaster, but others are more cautious (the 26 tonnes of maize from “Razoni”, the first ship to leave on August 1, were refused by their Lebanese consignee because of the 5-month delay and doubts about the quality of the product). An examination of the current food and economic crisis affecting many poor countries reveals that the war in Ukraine has only exacerbated already existing serious problems, in the face of which these countries now find themselves on the brink of the abyss. The issues vary according to local circumstances in each country but have some common elements, including the high vulnerability of supply chains, already weakened by the pandemic, dependence on commodities from outside, indebtedness and Corruption. Two countries will be used here to illustrate this sad picture: Sri Lanka, already bankrupt, and Argentina, which could soon become bankrupt.

If the US Secretary of State anthony blinken opined that the Ukrainian wheat blockade may have contributed to the economic collapse of Sri Lanka, where massive protests prompted the resignation and flight of President Rajapaksa, it is clear that the island's problems began long before the invasion of Ukraine. Like many island nations, this country of 22 million people is highly dependent on imports, and therefore on its foreign currency reserves. These have been impacted by the sharp drop in tourism, source of 5,6% of Sri Lankan GDP in 2018 but only 0,8% in 2020, affected first by jihadist attacks in 2019, then by the SARS-Cov2 pandemic. In April 2022, Sri Lanka defaulted on its external debt, accumulated largely through the misguided borrowings of the ruling Rajapaksa clan, notably Chinese banks, for unsuccessful infrastructure projects, falling in what English-language media call a dragon debt trap. We cite the transfer of control of the port of Hambantota to the Chinese for 99 years, Sri Lanka being unable to repay the money borrowed for its construction. The country is currently facing multiple shortages (food, medicine, fuel – rationed until the end of the year, etc.), and it is hard to see how the still theoretical prospect of a rescue over 4 years from the IMF could remedy the situation in the short term.

In Latin America, where violent protests have affected countries such as Panama (general strike), Peru and Ecuador, it is Argentina that crystallizes the fears of economists. Paradoxically, during the invasion of Ukraine (a war that Argentina did not condemn), the Argentine president Alberto Fernandez had estimated that his country, a major exporter of wheat and endowed with immense reserves of shale gas in the "Vaca Muerta" basin, could benefit from being a global "reservoir" of food and energy. However, wheat revenues were limited by the government's decision to curb and tax exports in order to stabilize the internal market and reduce the budget deficit: a drop in production is even expected (from 23 to 18,5 million tonnes), producer confidence being undermined by economic uncertainty and fuel shortages. Economy Minister Sergio Massa is the third to hold the post in a month: with a debt of 43 billion euros, the government is torn between the conditions imposed by the IMF (in particular the reduction of energy subsidies) and the popular demands which demand, among other things, a universal minimum income. With an inflation rate of 64% which could rise to 90% before January, Argentines have returned to barter as during the 2001 crisis, but we will see if this will be enough to avoid a social explosion in the months to come.

peter banister

source: Les Echos

This article is published from Selection of the day.