Sri Lankan President Rajapakse and Prime Minister Wickremesinghe were forced to flee today after enormous anti-government protests. Huge crowds stormed official government buildings and took over the President’s home. Videos showed protestors swimming in his pool.
The Prime Minister’s home was set on fire.
The speaker of the legislature is trying to pull together an all-party government to stabilize the situation. He said President Rajapakse will step down on July 13.
The officials were moved to safe locations in anticipation of today’s protests, which were a sharp escalation of recent demonstrations. The catalyst has been a fuel shortage in the country.
The heavily-indebted country of 22 million has more than $15 billion in dollar-denominated debt and $45 billion overall. It has failed to make payments for oil and gasoline deliveries and that caused severe rationing from the government.
High commodity prices, rising rates and the strong US dollar are a toxic mix for heavily-indebted countries, especially those with large current account deficits. Here’s a ranking of some of the most-vulnerable spots:
Aside from the potential turmoil in these countries, it’s an open question whether similar crisis’ trigger a broader global growth slowdown. The names at the top of this list are insignificant for global demand but as you go down the list, names like Pakistan, Egypt and Brazil stand out. The one I think that’s inevitably heading towards trouble is Turkey because of its chaotic monetary policy and large current account deficit. Time will tell.