By Stefan J. Bos, Chief International Correspondent Worthy News
COLOMBO (Worthy News) – Sri Lanka has urged its citizens overseas to send home money after announcing a default on its $51 billion foreign debt amid anti-government protests.
The bankrupt island nation faces the worst economic crisis since independence in 1948. Its economic recovery from a deadly 26-year civil war has been hampered by the COVID-19 pandemic and the Russian invasion of Ukraine.
Initially, the COVID-19 pandemic hit as tourists who spent $5.6 billion in 2018 and played a significant role in balancing Sri Lanka’s $10 billion trade deficit disappeared virtually overnight.
By March 2022, there were also repercussions from the war in Ukraine, which drove up international prices of oil, wheat, and many other commodities.
“Beyond the effect on the cost of imported goods, the war also further threatens Sri Lanka’s tourism industry as flights to Moscow are now suspended,” noted Vidhura S Tennekoon, a former employee of the Central Bank of Sri Lanka.
Tennekoon, who is now Assistant Professor of Economics at the Indiana University-Purdue University Indianapolis, said, “Russians frequently made up the biggest share of Sri Lankan tourists, with Ukrainians not far behind.”
Amid the pandemic and war in Ukraine, Sri Lankan authorities had to depreciate the country’s currency rupee and sought International Monetary Fund assistance.
The troubles prompted Central bank governor Nandalal Weerasinghe to ask Sri Lankans abroad to “support the country at this crucial juncture by donating much-needed foreign exchange.”
His appeal came after the government announced it was suspending repayments on all external debt.
That will free up money to replenish scant petrol supplies, pharmaceuticals, and other necessities.
Weerasinghe said he had set up bank accounts for donations in the United States, Britain, and Germany and promised Sri Lankan expatriates the money would be spent where it was most needed.
The bank “assures that such foreign currency transfers will be utilized only to import essentials, including food, fuel, and medicines”, Weerasinghe said in a statement.
The default announcement will save Sri Lanka about $200 million in interest payments falling due on Monday, he said, adding that the money would be diverted to pay for essential imports.
SRI LANKAN DOUBTS
However, Sri Lankan expats polled by reporters expressed doubts saying previous tsunami donations ended up in the pockets of the prime minister and other leaders.
Sri Lanka will likely also have to restructure its hefty debt load – by asking foreign bondholders to accept less than 100 percent of the value of their investments, Tennekoon warned.
Besides Sri Lankans living abroad, demonstrators expressed their frustration on the streets of Colombo, the capital.
Sri Lankan Prime Minister Mahinda Rajapaksa rushed on Wednesday to meet with protesters occupying the entrance to the president’s office.
He said he would listen to their ideas for resolving the economic, social, and political crisis facing the country.
However, protesters camping out for the fifth day demanded the resignation of the prime minister’s brother, President Gotabaya Rajapaksa. They hold him responsible for the country’s worst economic situation in decades. They also demand that his powerful family leave power, accusing them of corruption and misrule.
TALKING TO DEMONSTRATORS
A statement from the prime minister’s office said he is “willing to talk to” representatives of the protesters outside the president’s office in Colombo.
That announcement did little to ease social tensions, with day-long lines forming across the island for petrol and kerosene, the latter used for cooking stoves in poorer households. At least eight people reportedly died while waiting in fuel queues since last month.
Economists say the crisis has been made worse by government mismanagement, years of accumulated borrowing, and ill-advised tax cuts.
Crowds have attempted to storm the homes of government leaders, and security forces dispersed protesters with tear gas and rubber, witnesses said. Sri Lanka’s difficulties are expected to spread to other nations as Ukraine’s war and earlier pandemic impact global food and energy supplies.
The social turmoil also added difficulties for the southeast Asian country’s Christian minority, who have faced persecution and deadly church bombings in recent years.
Sri Lanka has a constitution that gives Buddhism preferred status, and this Buddhist supremacy view is widely shared in the country, rights activists say.
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