Sri Lanka descends into chaos. Where could the commodity crisis hit next?
Sri Lankan President Rajapakse and Prime Minister Wickremesinghe were forced to flee today after huge anti-government protests. Huge crowds stormed official government buildings and invaded the president’s house. Videos showed protesters swimming in his pool.
The Prime Minister’s house was burned down.
The Speaker of the Legislature is trying to bring together a multi-party government to stabilize the situation. He said President Rajapakse would step down on July 13.
Officials have been moved to safe locations ahead of today’s protests, which were a sharp escalation from recent protests. The catalyst was a fuel shortage in the country.
The heavily indebted country of 22 million people has more than $15 billion in dollar-denominated debt and $45 billion in total. He failed to make payments for oil and gasoline deliveries, which caused severe rationing by the government.
High commodity prices, rising rates and a strong US dollar are a toxic mix for heavily indebted countries, especially those with large current account deficits. here is a ranking some of the most vulnerable places:
Aside from the potential unrest in these countries, the question remains whether a similar crisis will trigger a broader slowdown in global growth. The names at the top of this list are insignificant to global demand, but as you go down the list names like Pakistan, Egypt, and Brazil stand out. I think the one inevitably headed for trouble is Turkey due to its chaotic monetary policy and large current account deficit. Time will tell us.