Speaker 1: We will not get food, we are not having any transport.
Speaker 1: It's really hard to see somebody die without medicine. So
Speaker 1: this is our last fight. We are putting on our
Speaker 1: last fight. Hello and welcome to Stephanomics, the podcast that
Speaker 1: brings the global economy to you. And what you heard
Speaker 1: there was desperation on the streets of Sri Lanka, a
Speaker 1: country now so broke it's shut down at schools for
Speaker 1: two weeks on Monday, along with a significant chunk of
Speaker 1: the government in a last ditch effort to save fuel.
Speaker 1: The International Monetary Fund team arrived that same day to
Speaker 1: begin negotiations over a possible bailout, but a rescue looks
Speaker 1: quite far off because the IMF economists still struggling to
Speaker 1: see how the country could ever get on top of
Speaker 1: its debts. And if Sri Lanka is at one end
Speaker 1: of the global economic spectrum, today is definitely the other.
Speaker 1: I've been in Doha for the Kutar Economic Forum, and
Speaker 1: you'd have to say the war in Ukraine had treated
Speaker 1: them very well. With Europe now scrambling to source gas
Speaker 1: from Cathar, not President putin the world even seems to
Speaker 1: be coming around the idea of the Gulf state hosting
Speaker 1: this year's World Cup. Bloomberg Simone Foxman has a report
Speaker 1: in a few minutes on the many billions the Qataris
Speaker 1: have spent making this tournament a success. She also asked
Speaker 1: whether it's remotely plausible to expect a lasting legacy in
Speaker 1: the form of stronger work of rights. First, here is
Speaker 1: our South Asia government reporter Sudi Ranjan Sin in Colombo.
Speaker 1: The streets of Colombo, the capital of Sri Lanka, are
Speaker 1: ringing with protests. For months of foreign currency crisis has
Speaker 1: devastated this island nation. Fuel is hard to come by.
Speaker 1: It could take days in a line to get fuel
Speaker 1: or cooking gas. Food prices have skyrocketed. The price of
Speaker 1: bread has traveled in the last few months. Cooking gas
Speaker 1: is scarce and many are back to using firewood. Now
Speaker 1: people want answers how did Sri Lanka unload style for
Speaker 1: economic development in Asia fall? So far? I am on
Speaker 1: the streets at golf acecreen, the iconic street meandering past
Speaker 1: the sea. Thousands of people have gathered and many more
Speaker 1: are marching in. The Crowds are shouting in unision around me,
Speaker 1: calling their leader as thieves and puppets. First, give me
Speaker 1: your name and what do you do. You're an engine? Yeah,
Speaker 1: and I met Naomi Going, a young software engineer at
Speaker 1: the demonstration. Both her parents are sick and she's struggling
Speaker 1: to get old of medicine they need. We the citizens,
Speaker 1: have come to a position that we rather die or
Speaker 1: put up a fight because we will not get food.
Speaker 1: We are not having any transport, we will not get
Speaker 1: any internet. Mostly we don't have medicine. It's really hard
Speaker 1: to see somebody die without medicine. Because you you have
Speaker 1: the money, you don't have a place to buy the medicine.
Speaker 1: So this is our last fight. We are putting up
Speaker 1: our last fight. Like many others, Naomi dialects anger at
Speaker 1: the Raja packs of family and blames in the country's
Speaker 1: worst economic meltdown in decades. So you may know, but
Speaker 1: I will repeat it. Our president, our Prime Minister, and
Speaker 1: most of our MP's belongs to the same family family.
Speaker 1: We are under a corrupted regime. The Raja Paksas have
Speaker 1: been at the helm of fri Lanka for over two
Speaker 1: decades until recently, as many as six Raja Paksas held
Speaker 1: top government positions overseas se of the national budget that
Speaker 1: includes President Gotabaya Raja Pucks. So if the corrupted regime
Speaker 1: is still in power, we will be not having any hope.
Speaker 1: Onns will also be mis managed, so we can't see
Speaker 1: that there may but removing the president won't save every problem.
Speaker 1: Sri Lanka's crisis is years in the making. Problems traced
Speaker 1: to Raga Pukss first days in office. After his election
Speaker 1: in twenty nine, he slashed taxes to post local business,
Speaker 1: making good on a populist campaign promise a galloping Today
Speaker 1: people are crushed under the heavyweight of taxes. We hope
Speaker 1: to change the income tax law, which no longer suits
Speaker 1: the country, and reduce the tax burden for everyone. Instead
Speaker 1: of multiple taxes, we will introduce a single one. We
Speaker 1: will abolish the pay as you earn income tax on
Speaker 1: workers at the state and private sectors. But when the
Speaker 1: panemic hit, the economy took a tumble. Remittances and tourism
Speaker 1: dollars dried up, pinching off revenue and forcing the central
Speaker 1: government to print money. The government also decided to transition
Speaker 1: to organic farming at the worst time possible. A ban
Speaker 1: on import of chemical fertilizer pretty much finished Sri Lanka's
Speaker 1: agricultural sector in the background. Increased indebtedness to China for
Speaker 1: infrastructure projects has not helped. To top it off. The
Speaker 1: tax cut the Draga Pucks has posted two years ago
Speaker 1: totally backfired. The nation's foreign exchange reserves are depleted. Last month,
Speaker 1: the nation defaulted on payments for the first time since
Speaker 1: that was when it achieved independence from the British Empire.
Speaker 1: To stay flowed, economists estimates that Sri Lanka needs as
Speaker 1: much as six billion dollars this year from the International
Speaker 1: Monetary Fund and major creditors, including China, Japan, and India. Now,
Speaker 1: President Rather Pucks and as ministers are trying to secure
Speaker 1: a pailout from the i m F, but people don't
Speaker 1: feel confident about the future. Last month, inflation neared. Here
Speaker 1: is nami again. Yeah, this is my last fight. This
Speaker 1: country has never been defaulted, and now the country's default
Speaker 1: and we are going through tough time. The general public
Speaker 1: is going to tough time. My industry is fairing and
Speaker 1: we have problems of finding our normal day to day transport,
Speaker 1: food and medicine. So yeah, I might also migrate even
Speaker 1: though I'm here fighting. Okay, this is my last fight.
Speaker 1: I'm putting up my last fight for my life. Protesters
Speaker 1: are making waves now. The president is the only Rajapaksa
Speaker 1: left in office. His brother Mahinda, a strongman who served
Speaker 1: as Prime minister, resigned last month. Hours later violence would
Speaker 1: engulf the nation. Meanwhile, political opponents are also putting pressure
Speaker 1: on the Raja government. So you are the She's a
Speaker 1: bureau chief, I reported form Sagi. Prima Dasa is the
Speaker 1: leader of the largest opposition party. He said, even though
Speaker 1: Sri Lanka is technically a democracy, today's issues are part
Speaker 1: of a deeper rot when you look at the causes
Speaker 1: of the present economic devastation, one of which is power concentration,
Speaker 1: singular decision making. Power concentrated in the hands of the executive,
Speaker 1: his stutus, his cohorts and surrogates. You can't have this
Speaker 1: type of decision making being further perpetuated because it maybe
Speaker 1: the cause of many more crises. So what's the solution?
Speaker 1: And dostril Anka even have a road map. Sergeant tells
Speaker 1: me his party is ready to push for the president
Speaker 1: to step down and for a fresh mandate, but he's
Speaker 1: also worried about other important stuff. We only worried about
Speaker 1: the people suffering. Let's all, we don't go around brandishing
Speaker 1: the word elections, elections, elections. People don't want elections, they
Speaker 1: want solutions. But at the end of the day, to
Speaker 1: resolve this, uh well, if I may use an American
Speaker 1: political term, gridlock, I think a fresh man date is
Speaker 1: the only answer. But there again, we have to look
Speaker 1: at at least having some sort of basic communities for
Speaker 1: people to live. We have to ensure that human lives
Speaker 1: are preserved and that people are able to live. There
Speaker 1: should be livability. Now, Sri Lanka is struggling to keep
Speaker 1: its head above the water. On one hand, President Roger
Speaker 1: Paksa has made it clear he's not going anywhere before
Speaker 1: its term ends. On the other, the interim government has
Speaker 1: raised taxes again and it is pushing for a bailout
Speaker 1: from the I m F. To that end, the i
Speaker 1: m F has sent a team to Colombo this week
Speaker 1: to discuss any potential aid, but the fund is hesitant
Speaker 1: to lend money while the country's politics is still in
Speaker 1: a limbo. However, the dogs go, Sri Lanka is unlikely
Speaker 1: to sort out its problem anytime soon. By the day
Speaker 1: to day reality, so Sri Lanka's twenty two million people
Speaker 1: couldn't look any harsher. Authorities have worn of a severe
Speaker 1: for shortage by September, and officials are already stockpiling supplies.
Speaker 1: One thing is certain. Unless the shortage of basic goods ease,
Speaker 1: the protests across the island will only grow. Yeah from Colombo,
Speaker 1: sent for Bloomberg News. So I have our chief emerging
Speaker 1: market economist. Here's the add doubt to chapter. Some of
Speaker 1: the issues raised by the Sri Lanka crisis. I mean, yet,
Speaker 1: we had a very clear sense from that piece of
Speaker 1: the dire straits that a Lanka finds itself in and
Speaker 1: the im effort there as we speak and actually don't
Speaker 1: seem very close to a deal at all, because the
Speaker 1: numbers are so challenging for Sri Lanka. And you look
Speaker 1: across the universe of all emerging market economies, are we
Speaker 1: going to see a lot of similar crises? Who else
Speaker 1: is in the danger zone today? The environment for global
Speaker 1: debt for emerging markets is really not favorable. Stiff and Stephanie,
Speaker 1: we have a lot of emergent markets. Indeed, the rest
Speaker 1: of the world has accumulated large stock of debt since
Speaker 1: the pandemic. You have global interest race, arising local interest race,
Speaker 1: arising currencies in emerging markets are weakening and that's increasing
Speaker 1: the burden of servicing foreign debt. And we have the
Speaker 1: default and Sri Lanka potential default in Russia which could
Speaker 1: trigger contingent elsewhere. Silanka is already down. Who could be next?
Speaker 1: While we looked at the universe of emergent or frontier
Speaker 1: markets looking for countries that have high stock of debt
Speaker 1: as well as rising interest rates, and we identified five
Speaker 1: countries that could be at risk to These are Tunisia,
Speaker 1: Our Salvador, Ghana, Ethiopia, and Pakistan. Some of these countries
Speaker 1: are already struggling economically and have political instability um and
Speaker 1: others could be next the warriors. These countries are rather
Speaker 1: small for the global economy. The work the warriors is
Speaker 1: star small and it gets bigger and it moves to
Speaker 1: other and bigger countries. Well, I was going to ask
Speaker 1: you because obviously one of the questions is always, you know,
Speaker 1: do we have international resources to help these countries? And
Speaker 1: we went through COVID and there was a really a
Speaker 1: lack of global coordination around supporting developing countries around that.
Speaker 1: I mean, there's a exit there's an effort to get
Speaker 1: vaccines to developing countries, but its way behind target um.
Speaker 1: Do we have any chance of having enough money to
Speaker 1: support the kind of countries that they get the number
Speaker 1: of countries that they get to get into trouble? Well,
Speaker 1: I said, that's a big question, right, because the world
Speaker 1: is more fragmented today, the lenders are more fragmented. Some
Speaker 1: of them hold out to debt in the whole of
Speaker 1: recovering more of the debt um. So that's that's the
Speaker 1: big question. Whether we can have quick restructuring and quick
Speaker 1: uh you know, restructuring of debt. And let's take the
Speaker 1: case of Sri Lanka for example, our South Asia economists
Speaker 1: and Kusha klan Asha Gupta estimated that Sri Lanka needs
Speaker 1: to make is disustainable to prevent it from rising indefinitely.
Speaker 1: It needs a haircut of so everyone who had lent
Speaker 1: money to Sri Lanka loses half of their original investment exactly.
Speaker 1: That sounds quite big, it sounds pretty bad. But if
Speaker 1: you look at the historical episodes of debt restructuring from ten,
Speaker 1: that's actually in the middle of the rage. But also
Speaker 1: so Sri Lanka is not an outlier in that sense.
Speaker 1: But also if you look at how long it took
Speaker 1: the duration of negotiations until they managed to settle debt,
Speaker 1: it took about two years. So it's still early days
Speaker 1: for Sri Lanka and figure others then will take us
Speaker 1: a while to get through this. Yeah, I mean you
Speaker 1: raised a good point that it's just got there was
Speaker 1: sort of the old day before our time. I think
Speaker 1: that you know, in this sort of eighties debt restructuring,
Speaker 1: you've sort of got the sense you could get a
Speaker 1: hand There were more or less a handful of big
Speaker 1: banks that had lent to these developing countries in the
Speaker 1: Latin American debt crisis, for example, and there were governments
Speaker 1: who later you might have to negotiate with. But now
Speaker 1: to have investors from all over the globe, and as
Speaker 1: you say, there's these kinds of so called vulture funds
Speaker 1: who actually make their money almost from from going in
Speaker 1: and buying up the debt that might get written down
Speaker 1: and then sort of holding out for the best deal possible.
Speaker 1: And I guess we should say there's an added wrinkle
Speaker 1: to this, which I think will probably try and focus
Speaker 1: on in a more detailed where in a future program.
Speaker 1: But China, as we know, has been lending to a
Speaker 1: lot of developing countries around the world. We haven't necessarily
Speaker 1: even got a good sense of how much they've lent
Speaker 1: or on what terms, and that question mark is raised
Speaker 1: when you're thinking about doing these kind of a negotia Asians.
Speaker 1: I think they even lent money to Sri Lanka, So
Speaker 1: that's another complication. Yeah, and it makes it more difficult
Speaker 1: to know exactly the size of haircut, what kind of
Speaker 1: interest rates are being paid, and especially if we look
Speaker 1: at the economies that are being vulnerable, these are the
Speaker 1: small sort of frontier economies were already there's a there's
Speaker 1: a lack of data transparency and added another layer of
Speaker 1: you know, on the lending side, you don't know who
Speaker 1: gave what on what terms. That makes it more difficult
Speaker 1: to actually assess the sustainability of debt in these countries,
Speaker 1: and it is I think it is going to be
Speaker 1: an issue if if if China, so far at least,
Speaker 1: they have not been willing to go in on these
Speaker 1: multilateral agreements to write down debt and they've wanted to
Speaker 1: do their own thing, and I know that's sort of
Speaker 1: raising eyebrows and the international monetary firm, because what if
Speaker 1: you end up with a situation where Sri Lanka is
Speaker 1: getting its debt that it owes to other countries and
Speaker 1: to the I m F written down but still paying
Speaker 1: its China debt. It's going to be interesting. I suspect
Speaker 1: we're going to come back to this. We're going to
Speaker 1: do of a handbrake turn because we're here in Katar
Speaker 1: speaking in person, which is and it makes a nice change.
Speaker 1: But I guess you'd have to say, if Sri Lanka
Speaker 1: has been one of the biggest losers outside of Europe
Speaker 1: from Russia's invasion of Ukraine, Cattar has been a big willow,
Speaker 1: which doesn't really seem fair given how rich it was
Speaker 1: to start with. What does this desperate need for Europe
Speaker 1: to find new sources for its fuel supply mean for
Speaker 1: Katar's economy. Um, it's another slice of luck for for cutters.
Speaker 1: So if you look at the development of the other economy,
Speaker 1: they developed their liquefied natural gas facilities and that drove
Speaker 1: growth up to two and tent They stopped expanding these
Speaker 1: facilities and then they won the World Cup, and the
Speaker 1: World Cup started a construction boom, and you can see
Speaker 1: it's still still here on the streets and everywhere around
Speaker 1: everywhere is just building sites exactly and that's gonna happen
Speaker 1: in November December. So there's allays A question the last
Speaker 1: few years is what is going to drive growth on
Speaker 1: other After the World Cup and they started expanding their
Speaker 1: energy facilities again like FID natural gas facilities. The question
Speaker 1: then in two thousands seventeen, who's going to buy this?
Speaker 1: We have the war in Ukraine and there's so much
Speaker 1: demand for gas that they can't keep up with demand.
Speaker 1: So it's another slash of luck in the country that
Speaker 1: has one of the highest GDP per captain in the world,
Speaker 1: and that could drive growth for a few years down
Speaker 1: the down the line. But it's important to know which
Speaker 1: it's not just others benefiting from this. Is alsless neighbors
Speaker 1: around here, um, you know, with higher all prices, with
Speaker 1: the you know, places like Dubai, places like Saudi Arabia
Speaker 1: are experiencing a rebounding growth. Um. So this region is
Speaker 1: booming again on high all prices and of course as
Speaker 1: all the Russians pouring into Dubai, so that it's a
Speaker 1: win win for for everyone here. Well, thank you very much. Yeah,
Speaker 1: It's true that it wasn't long ago that planes to
Speaker 1: and from Katta were banned from even entering the airspace
Speaker 1: of its neighbors, and football fans and human rights activists
Speaker 1: were queuing up to complain about that decision to award
Speaker 1: cut World Cup. But now the World Cups almost upon us,
Speaker 1: and the mood music does feel rather different. Here's bloom Bags,
Speaker 1: Simon Foxman. If you fly into Doha from the north,
Speaker 1: you'll see the two reasons all eyes are on Cutter.
Speaker 1: Right now, on your right a brand new eighty thousand
Speaker 1: seat stadium rising from the desert that will host the
Speaker 1: final of the World Cup in December. To your left,
Speaker 1: if you're lucky, you can make out tankers lined up
Speaker 1: in the Persian Gulf to collect super chilled natural gas.
Speaker 1: Football and an increasingly indispensable fuel may have little in common,
Speaker 1: but between them they could mark a dramatic turnaround and
Speaker 1: Cutter's fortunes. The win to organize the two twenty two
Speaker 1: FIFA World Cup is nearly Since the moment the World
Speaker 1: Cup was awarded, Cutter has been beset by criticism, first
Speaker 1: over allegations of corruption and the bidding process, then over
Speaker 1: concerns about human rights violations and the decision to move
Speaker 1: the tournament from summer to winter for time. Some even
Speaker 1: speculated that the tournament would be taken away. Here's Lisa Cleavinis,
Speaker 1: the president of the Norwegian Football Federation, delivering a scathing
Speaker 1: speech in Noha in March of this year. There is
Speaker 1: no room for employers who do not secure the freedom
Speaker 1: and safety of World Cup workers. No room for leaders
Speaker 1: that cannot host the women's game. No room for hosts
Speaker 1: that cannot legally guarantee the safety and respect of lgbt
Speaker 1: Q plus people coming to this theater of dreams. Five
Speaker 1: months out, there's no longer doubt that FIFA World Cup
Speaker 1: will be held in Cutter as planned. Construction on the
Speaker 1: country's seven new stadiums has been completed and an eighth
Speaker 1: has been refurbished, but the country is still scrambling to
Speaker 1: wrap up road projects and make new apartment buildings ready
Speaker 1: for occupancy, ideally before the games begin. Cutter's government has
Speaker 1: spent a staggering amount of money on infrastructure ahead of
Speaker 1: the World Cup. There's the stadiums themselves, of course, but
Speaker 1: other projects a metro system and airport expansion, and the
Speaker 1: construction of a new planned megacity called lu Sale have
Speaker 1: each cost tens of billions of dollars. Uber Khan, a
Speaker 1: senior investment director at Al Ryan Investment who's based in Cutter,
Speaker 1: estimates the government spent over three hundred and fifty billion
Speaker 1: dollars ahead of the event. That money has been spent
Speaker 1: on essentially, in many cases building transport infrastructure that was
Speaker 1: very badly needed. Father had already in prior to two
Speaker 1: thousand and ten. The population had doubled over a relatively
Speaker 1: short period of time given the earlier expansion in gas
Speaker 1: llergy infrastructure and lergy production capacity. So the country hadn't
Speaker 1: kept up with that growth, and so there was very
Speaker 1: serious and significant infrastructure bottled. Some of that money is
Speaker 1: still at work here on the street in Dojan's West
Speaker 1: Bay district. It's not quite nine am, and work on
Speaker 1: road projects is already starting to slow down. An hour
Speaker 1: from now, the small army of laborers will have disappeared.
Speaker 1: That in itself something new. Public outcry over depths of
Speaker 1: low income construction workers has prompted reforms, including limiting the
Speaker 1: hours that laborers can spend working outside in the summer heat.
Speaker 1: It's already a hundred and two degrees fahrenheit in a
Speaker 1: few hours will be hundred and fourteen. Last year, Counter
Speaker 1: also introduced the first universal minimum wage in the Gulf
Speaker 1: No and that it's not based on nationality or gender.
Speaker 1: It's two hundred and seventy four dollars per month. Other
Speaker 1: rules of trying to impose workplace safety standards force companies
Speaker 1: to pay workers on time, stamp out predatory employee recruitment fees,
Speaker 1: and allow workers at all salary levels to change jobs
Speaker 1: without employers permission. They've had mixed success global attention focusing
Speaker 1: on the World Cup, the uproar likely hasn't ended. Amen
Speaker 1: Mossy chero Glu, an associate professor at American University and
Speaker 1: a macro economist at Atlantic Council, predicts that rising interest
Speaker 1: in corporate environmental, social and Government standards or e s
Speaker 1: G may translate into pressure on the ground from these companies.
Speaker 1: And I think that the governments in division government they
Speaker 1: will respond and pay attention to those requests coming from
Speaker 1: these company. Reforms to the labor market aren't just crucial
Speaker 1: for the low income workers. If the country wants to
Speaker 1: make use of all the new apartments and hotels it's built,
Speaker 1: it has to draw talent and tourists. We're talking about
Speaker 1: you know, you know, probably a million of workers are
Speaker 1: going to leave the country because there's no more walk
Speaker 1: opportunities for them in the country. So I think it's
Speaker 1: about that the small group of people who are going
Speaker 1: to stay, and they're going to be mainly in the
Speaker 1: service industry and a little in the infanc in construction
Speaker 1: and construction diversification the holy grail of economic stability in
Speaker 1: the Persian Gulf as leaders try to prepare their economies
Speaker 1: for a world that needs less oil and gas. It's
Speaker 1: also a goal that seems less relevant with oil and
Speaker 1: natural gas and short supply after Russia's invasion of Ukraine. Still,
Speaker 1: Clutter's finance Minister Aliyah Kuwari warns that the country can
Speaker 1: expect the influx of cash prompted by rising energy prices
Speaker 1: to continue indefinitely. We have a very discipline, you know,
Speaker 1: fiscal policy plan in a medium term plan for the
Speaker 1: country and this is based in a long term planning
Speaker 1: and spending and we are very disciplined about our spending
Speaker 1: and our fish country reforms. So we're not changing our
Speaker 1: plans as a result of this high oil prices. Cutter
Speaker 1: is still five months away from having this global spectacle
Speaker 1: on its own soil, but President Putin may have already
Speaker 1: helped to answer the question of what will support the
Speaker 1: economy when all the fans have gone home in Doha.
Speaker 1: Simone fox Men, Bloomberg News from to Sri Lanka. The
Speaker 1: best of times and the worst in today's global economy.
Speaker 1: That was this episode of Stephanomics. We'll be back next week.
Speaker 1: In the meantime, do please rate the show if you
Speaker 1: like it, and check out the Bloomberg terminal news website.
Speaker 1: It's Bloomberg UK now in the UK for more economic
Speaker 1: news and views on the global economy. You can also
Speaker 1: follow our economics on Twitter. This episode was produced by
Speaker 1: Mangus Hendrickson, Summer Sadi and Young Young. Special thanks to
Speaker 1: Simone Foxman, Cud Suddie Ran Jansen, Anusha Underci and Jeanette Rodriguez.
Speaker 1: Mike Sasso is executive producer of Stephanomics and the head
Speaker 1: of Bloomberg Podcast is Francesca leav Ve.