The situation in neighbouring Sri Lanka, which is reeling under the fire of skyrocketing inflation, food grains and milk, long queues at shops, looting of departmental stores, political battles and violence, anti-government demonstrations and city-to-city riots, have left people around the world in a state of panic. Caught in the trap of wrong economic decisions, cheap interest, free schemes and $50 billion of foreign debt, Sri Lanka is on the verge of bankruptcy. In this crisis situation, the hopes of the people are being dashed. People are on the streets against the government. The Prime Minister has resigned. The houses of MPs, ministers and mayors of cities are under constant attack. The army is firing at violent mobs from place to place. This is the first time such a crisis has come to the fore in front of Sri Lanka, which became independent in 1948.
How did Sri Lanka get into trouble?
Amid the ongoing corona crisis for the past two years, the ever-increasing foreign debt and the Rajapaksa government’s decision to reduce taxes to keep its election promise in 2019 pushed Sri Lanka towards this crisis. The prices of flour-milk-medicines have reached thousands and thousands. Despite such a price, when it became difficult to get the goods, people came down to violence. The looting of departmental stores, malls and shops began. The prices of essential commodities continued to rise, the debt also increased, and then Sri Lanka and the people there were caught in a situation where the prices of essential goods could not be met nor there was any way to stop the foreign debt from rising. There was a power cut for 12-12 hours. Inflation reached above 17 per cent. Foreign currency to import from outside ended and investors-tourists started moving away from the country.
The woman protesting against the economic crisis was attacked by government-backed people.
This crisis reminded people of the bankruptcies of Venezuela and Greece when the system of these countries suddenly failed and the people had to face a situation of chaos. The value of the currency became zero and the money kept in people’s houses became a pile of paper. For every kilo of food grains, people had to pay thousands and lakhs of rupees and people were completely devastated. If you look at history, there was a time when countries like the US-Russia also faced a bankruptcy situation in the past and people had to face crises overnight.
1. In Venezuela when the notes became junk!
Venezuela’s economic crisis, which began in 2017, has declared the country a dilly-dallying. Foreign debt and wrong economic policies made the currency so bad that the government had to print even a 10 lakh bolivar note. The value of the currency was so bad that for each cup of coffee, people had to pay a price of up to 25-25 lakh bolivars. The price of 500 grams of boneless chicken was $2.94, for 12 eggs people had to pay up to $2.93. If you compare with India, you have to spend $1.08 for 12 eggs. People had to pay up to $1.40 for a kilogram of tomato. People had to pay the notes for items like milk and flour stuffed in sacks.
2. Argentina when suddenly became poor
In July 2020, the South American country of Argentina suddenly reached the brink of misery. Foreign investors demanded a full refund of $1.3 billion of their invested bonds. Banks and financial institutions have raised their hands on repaying this loan. Argentina blamed the United States for this situation. It became difficult for people to face inflation. In 2001-02, Argentina also faced bankruptcy. As the situation of the economy had recovered, it became difficult for the general public to bear the inflation of everyday goods due to the worsening of the situation.
3. When the Greece crisis of 2012 brought people to the brink of starvation
In the last decade, this world has seen Greece go bankrupt overnight. Since the adoption of the euro instead of its currency in 2001, Greece’s economy has been in constant crisis. The rise in salaries of government employees and the ever-increasing government spending plunged the exchequer into huge debt by 2004. The 9 billion euros spent on organizing the 2004 Athens Olympics plunged the government into a major crisis.
After this, the economic recession in the world since 2008 has plunged Greece into a web of debt and inflation. People lost their jobs, stock markets crashed, tourist destinations began to close, both foreign tourists and investors turned away from the country. The government is left with no means to provide relief to the people, nor is there any way to get rid of the debt trap. It took many years for people on the verge of starvation to get out of that situation. It took several years for the situation in Greece to return to normal with a bailout package from the European Union.
4. When Iceland’s Banks Became Trouble for the Economy
In 2008, three banks in the Nordic country of Iceland defaulted on $85 billion in loans. The bankruptcy of banks shook the economy of the country. The situation of crisis for the currency arose. People started losing their jobs, people started failing to repay loans, the rising inflation in the market made people two-four from the recession. More than 50,000 people ended their savings, on the other hand, the crisis of employment separately arose.
The crisis started when private banks were given a number of exemptions under the liberalization decision. Private banks distributed a lot of loans to the people on low guarantees and easy terms, but as soon as the economic recession of 2008 started, when the crisis of employment arose, the repayment of loans from the people stopped. In such a situation, one by one the tax banks went bankrupt. But Iceland made a tough decision that brought things back to life after several years. Iceland’s government, instead of saving banks from sinking with the public’s tax money, left the banks themselves to deal with the situation. This did not put a new burden on the public and the situation seemed to be improving by the year 2013.
5. Even a country like Russia when it was on the verge of a misery
For many years after the dissolution of the Soviet Union in 1991, Russia’s debt burden continued to increase, and by 1998, the bankruptcy situation arose. The currency had to be devalued i.e. the price had to be reduced. As soon as the default situation came, the foreign exchange reserves suddenly suffered a loss of $5 billion, the shares collapsed and the stock market crashed, then it had to be closed to handle. It became difficult for the common people to handle the situation of employment-loans and the needy goods. Not only in Russia, it also affected the markets in Asia, the Us, Europe and the Baltic countries.
6. When the devaluation of the currency in Mexico spoiled the game
In 1994, Mexico’s government devalued its currency against the dollar by up to 15 percent. This suddenly worsened the situation. There was a stir among foreign investors, they started withdrawing their investment money from the Mexican market, selling shares. In this crisis, the GDP fell by up to 5 per cent. The country had to borrow up to $80 billion. The IMF, Canada, the Us and Latin American countries gave a bailout package to Mexico to bail it out of the crisis, then it helped Mexico and the surrounding countries to handle the situation of the economic crisis.
7. When 19 states in the US were on the verge of default
In the 1840s, major projects for the construction of canals began in the United States. For this, governments spent up to $80 million in debt. After this, the series of economic crisis that started was trapped in the debt trap of 19 states of America. States such as Illinois, Pennsylvania and Florida were in the debt trap. Apart from this, the use of government capital for setting up new banks was also adding to this crisis. The period of trade restrictions for recovery of debt began and it had a very bad effect on the people.