 We are going to talk about Sri Lanka. So I don't know if you guys are following the news and watching the news, but this is, I think, making headlines everywhere, at least those news outlets that cover world affairs. Sri Lanka is basically in a state of collapse. Yesterday, on Saturday, the presidential palace and the office and home of the prime minister, all occupied by protestors. I think the home of the prime minister was set on fire. This is after months and months of demonstrations. This is after people all over. OKON discount expires tomorrow, Shahzabat says. So sign up today. Is there a link where people can sign up to do that? But yes, OKON discount expires tomorrow. Shahzabat was at OKON. He was at, I think, both of my shows from OKON, or just one of them I can't remember, but that was great. So anyway, Sri Lanka falling apart, as I said, demonstrations since March, food prices going up through the roof, not just inflation at above 30%, but inflation of food dramatically higher than 30%, and we'll get to why. But it's not just prices going up, massive shortages of food staples like rice. So we're like a huge rice producer, and there are shortages of rice. As I said, we will get to why that is in a few minutes. You've got fuel, people lining up, long lines for months now to get gasoline to be able to drive. The country in June last month defaulted on foreign debt. It says like $50 billion of foreign debt. About 15% of that is to China, but the rest is to Japan and a lot of private investors, a lot of private bondholders. The country is decimated. It's worse than I think the Greek crisis was in 2011, not in the sense of its maybe global implications. Greece is at the heart of Europe, and part of the European Union had implications for all of Europe, particularly for Germany. And on the upside for Greece, there was an obvious partner for bailout, which was Germany and the rest of Europe here. Who's going to bail these guys out? And it's much worse. There's literally starvation. I think I read somewhere 80% and 90% of Saudi lancas are skipping a meal, which I guess these days is considered healthy, skipping breakfast in particular. And Sausage Lanka is in free fall. The economy is in free fall. The president and the prime minister, given that their residencies are being occupied, have resigned. And so they're going to form some kind of unity government. That unity government is going to try to negotiate with the IMF to try to get a deal for bailout. But such a bailout will require massive changes and a dramatic reduction in the standard of living quality of life, I think for a long time, in Saudi Lanka, as it pays off its debts and restructures its economy. So what happened? Just a few years ago, in 2018-19, Saudi Lanka was considered one of the strongest economies in the world. I'd say pre-19, so maybe 16, 17, 18, it had grown, was growing at very high rates of growth. It was considered a middle to high-income country. It had a GDP per capita, I think that's double, at least double that of India. It was an economy on the rise. It was being praised for its success. And we'll talk about why it had done so well, what had led to that. But today, three years later, it is basically a disaster, starvation and complete political collapse. What happened? So to understand kind of what's happened, I want to go back, give you a little bit of history. I know some of you, at least, like the history stuff. A little bit of history. It's modern history, so it's not, I don't know. Sri Lankan history, so I only know kind of its modern history. But we have to go back to the late 1970s, early 1980s. And the launch of a terrorist campaign, a civil war, you could call it, within Sri Lanka that started. There are basically two main ethnic groups in Sri Lanka, the majority and then the Tamils. Both are variations, I think, of Buddhism. But the Tamils were a minority and felt like, and I assume this is true, that they were discriminated against and did not have opportunities and did not have any political say. And as a consequence, they launched, in a sense, a civil war and a terrorist campaign, maybe to try to establish independence, or at least to try to establish some say in the politics and the economic life of Sri Lanka. And I don't know why I'm saying Sri Lanka. It's really Sri Lanka, S-R-I, Sri Lanka. This war, which was quite devastating, and I've seen estimates in the tens of thousands of deaths as a consequence of this war, it lasted 30 years until 2009. In 2009, two brothers, the president at the time, his name was Mahinda Raja Paksa. And I apologize if I am slaughtering the name Raja Paksa. Of course, Sri Lanka was a British colony by the name of Ceylon C-E-Y-L-O-N. And it changed his name when it gained its independence. Anyway, the president was Mahinda Raja Paksa. And his brother, Gautabaya Raja Paksa, was the defense secretary. They basically launched a brutal, unyielding campaign against the Tamils. They did what you need to do in order to destroy an insurgency. They did what you need to do in order to destroy terrorist activity. They were brutal, but they were incredibly efficient. And they basically brought the Tamils to their heels. In 2009, the Tamila Tigers basically were destroyed, capitulated, and the civil war was over. Both brothers became obviously heroes after stopping this 30-year war. I don't know if you know this, but I think it's the Tamila Tigers who really made, I don't know if they invented it in modern terms, but they certainly made popular in the modern world the idea of suicide bombers. So the Tamils were the first, I think, based on my readings, the first suicide bombers in modern annals of terrorism. The Muslims learned it from them. So 2009, Mahindra was president. His brother was Defense Secretary. And they became heroes. And indeed, from that point on, the Raja Paksa family came to dominate Sri Lanka politics. Mahindra served two terms as president after he left the presidency. His brother, Gotabaya, became president. And indeed, Gotabaya was president until yesterday when he resigned. In the meantime, Mahindra went from being president to being prime minister. So they controlled both of the key positions in the Sri Lanka government. And they controlled many of the other departments. They had two other brothers who were ministers in the government. One of them has a son who is another minister in the government. Basically, these guys controlled the entire political structure in Sri Lanka. And it's quite evident that they participated in and were part of an incredibly corrupt regime where they got incredibly rich at the expense of the Sri Lankan people. They were treated as heroes because of the victory over the Tamils, and therefore were granted, I think, a wide berth in which they practiced their corruption. They also had wide control economically and so on. Anyway, from 2009 until really 2020, although the economy got into some trouble in 2019, but until 2020, the economy grew at significant rates, getting up to 6%, 7%. Growth, it was one of the fastest growing economies in the world. Generally income rose, standard living rose, quality of life rose across the entire country to the benefit of its citizens. Now, two sources for this economic growth. One, peace. Peace is an important component of economic growth. Peace allows one to invest. It eliminates uncertainty. It provides for some, if not a lot, a foreign investment. So that was one. Second was a dramatic increase in commodity prices, commodities that are really agricultural products that the Sri Lanka was very good at producing and exporting. So we saw prices go up of rubber. If you remember, well, I don't know if you remember, maybe you know this, Ceylon, rubber was discovered in Brazil in the Amazon. And during the 19th century, a lot of people, particularly German immigrants to Brazil, became very, very wealthy off of their rubber plantations in the Amazon. Indeed, Manaus, the city in the middle of the Amazon, was one of the richest cities in the world. It was one of the first cities in the world to electrify, provide electricity. It built a magnificent upper house, which still stands a beautiful, magnificent European-style upper house that would invite upper companies into the heart of the Amazon to perform there. It was one of the richest places in the world because of the immense rubber plantations. During, I think it was World War II, maybe before, but certainly during World War II, the British sent a spy to Brazil. And basically, they stole. I mean, I guess you could call it stealing. Basically, the Brazilians protected the rubber plant from they didn't want to export the plant because they wanted to maintain a monopoly over it. So the British stole the rubber plant and took it to the Far East, where it was planted in places like Malaysia, I think Indonesia, and Ceylon, which, the advantage of Ceylon, is I think it was never occupied by the Japanese, and the British could continue to produce rubber in Ceylon. Of course, rubber required for jeeps, for cars, for basically for military equipment, for military, for running the war. So Ceylon became an important hub of rubber production in the world and has exported a lot of rubber. But also, the other thing that Ceylon, if you've traveled the world, you know that Ceylon T is incredibly valuable. T, and we'll get back to T later because T plays an important role in this economic collapse. T is, Ceylon T is what got it all over the world. And that was another major, major export from Ceylon, so T and rubber were two, and those prices were going up during the early 20 teens, and as a consequence, the Ceylon economy did well. In addition to that, there was some liberalization of the economy, and farming was particularly productive, and the economy was doing well. The Sri Lankans are generally well-educated. They have supposedly a fairly good health system. Life expectancy is longer than it is, for example, in India. Again, wealth is dramatically higher. So all of that was true, but then add to that a massive binge of debt. So the Sri Lankans borrowed money like crazy. They borrowed it from anybody who would give it to them and they borrowed it and invested dramatically in infrastructure, roads, bridges, airports, and ports. One of the reasons Sri Lanka is important and maybe is making the news more than you'd expect is, you know, FIT says socialized health care and education, yes, but some socialized health care systems are better, some are worse. Supposedly there's etymology and better in the same education system. Maybe as an inheritance for the British, particularly the educational system, probably as an inheritance from the British is a well-functioning educational system. Again, health care and education, not as good as it would be in a private market, but relative to other socialized countries, supposedly pretty good. Relative to other Asian countries, supposedly pretty good. So they went on a borrowing binge, lots of money. Lots of money paying for lots of government employees, paying for lots of subsidies to their favorite industries, their famous farmers. Lots of money flowing in. I mean, one of the beauties of infrastructure projects, construction projects, is their wife for corruption. These are the kind of projects where politicians get suitcases full of cash to put on the side by different contractors who are bidding for projects. The multiple ways in which you can benefit from these projects, and Sri Lanka was building all over the place. And I was getting to why it's strategically important. One of the main strategic, or not one of the, the main reason Sri Lanka is strategically important is that it sits a little south of India, southeast of India. And in that sense, it sits on the main shipping channel from Europe, Africa, to East Asia. Any ship leaving China or Japan or any of the Eastern Asian countries, Taiwan, South Korea, heading towards Europe, heading towards the Suez Canal and into Europe has to pass by the waters or just off the coast of Sri Lanka. Not Sri Lanka, Sri Lanka. And of course, any ship traveling to Africa, though trade with Africa is not that great, has to pass through those waters. So this is a key strategic location, key strategic ports. And one reason why Sri Lanka became a part of the One Road Chinese Initiative and the Chinese lent quite a bit of money to the Sri Lankans. It's only about 15% of total debt, but quite a bit of money. And as part of that, China owns a massive port in Sri Lanka, which is part of this back and forth of, which is part of this One Road Silk Road, if you will, the Silk Road, the renewed Silk Road effort by the Chinese. So Sri Lanka is strategic, it's important and invested hugely in infrastructure. And for a while, you know, that was fine, but then, but then, basically, I don't know, one, two, three things happened that started to alter the framework or alter the projection for Sri Lanka. First, well, before I say that, let me just say one more thing important. One of the major sources of foreign exchange for Sri Lanka, one of the major sources of revenue, one of the major sources of employment in Sri Lanka is tourism. Tourism is a major source of revenue in Sri Lanka. It's got beautiful beaches, amazing hotels. By the way, two of the largest, two of the largest sources of tourism for Sri Lanka, just this side, we'll get to this in a minute, are Ukraine and Russia, particularly Russia. So Russia is used to love to go to Sri Lanka for vacation. It is, of course, warm, it's tropical, it's a beautiful place. And if you have a little bit of money, it is a great place to vacation and probably not as expensive as many other places around the world. So tourism, a major factor in the Sri Lankan economy, and then two things happened that destroyed the tourist industry for Sri Lanka. One, in 2019, I don't know if you guys remember this, but there was a massive terrorist attack in Sri Lanka, 230 something people were killed, were murdered, by Islamists, suicide bombers. There was a small group of Islamists, of Muslims living in Sri Lanka, relatively small, it's called the Easter attack, relatively small group, but had been radicalized quite a bit with Saudi money, like everybody is radicalized, right? And some of those radical Islamists, I can't hear how many suicide bombers, but they went in and they targeted the tourist industries, they targeted hotels. So as a consequence of the terrorist bombing, tourism plummeted in 2019. It was starting to recover towards the end of the year and into 2020 when COVID happened. And of course COVID basically drove tourism to zero, or close to zero in Sri Lanka, which devastated the Sri Lankan economy. So you have a major source of revenue, a major source of foreign exchange, a major source of livelihood for Sri Lanka, it's devastated by the coronavirus, by COVID, and by the restrictions on travel, by the restrictions on travel. And as a consequence, and as a consequence, Sri Lanka was starting to get into trouble in terms of, could it pay its debt? There was some talk about maybe Sri Lanka should default, but if Sri Lanka's decided they would not, and they started prioritizing debt payments on their massive, I think $50 billion of debt, over imports and over the things they needed, this of course created a massive decline in standard living and quality of life and problems in the Sri Lankan economy, just accumulated and built and God was. You could argue that, it has been argued of course that then with Russia invasion of Ukraine, gas prices going through the roof, food prices, particularly things like wheat going through the roof, that that was kind of the tipping point, that tipped it, Sri Lanka could not afford to import the gasoline, it imports all its gas, it imports a lot of food, things like wheat, it has a robust agriculture, but it's not the kind of country that produces wheat, it primarily produces rice and vegetables and as I said, tea and rubber. So you suddenly got a spike in prices and all its foreign reserves will be spent on buying produce, buying gasoline, but mostly paying off its debt, paying interest on its debt, not even paying off its debt, paying interest on its debt. So all of this is happening, which is pretty devastating and pretty horrific to the economy and declining quality of life, declining standard of living. Applejack, thank you, really appreciate it. And then last year, in April last year, they kind of topped us off with one of the dumbest policy decisions in history, just unbelievable, right? So this is what they do. Now, it depends on your interpretation, right? It depends on your interpretation, why they did it, two possible reasons I'll get to. But basically in April last year, the president announced that they were banning the importation of chemical fertilizer into Sri Lanka. They were banning all chemical fertilizer. Now just to be clear, two-thirds or more than two-thirds of the island's farmers, I think it was, sorry, 80% of the island's farmers were using chemical fertilizers. 80 to 90% of its tea farmers and rubber farmers were using chemical fertilizers. And suddenly overnight, it became illegal to use such fertilizers. Now, why? Well, you could argue there are two reasons. One, the public reason, the reason the president gave. And second, maybe a hidden reason. So the public reason was environment. Chemical fertilizers are bad for the environment. They pollute the rivers. And health chemical fertilizers make the food bad. This move was an attempt, according to the president, to convert Sri Lanka into the first country maybe in the world that is 100% organic. This was presented to the world, to Sri Lanka, as this massive attempt to meet Sri Lanka's healthier, cleaner. And of course, it also helps with climate change because fertilizer is based on a chemical process that produces CO2. So in this massive attempt, in one day, to convert the entire country to organic farming. In one day, now note that organic farming is hard, it's labor intensive, to actually do it at scale is super knowledge intensive. That knowledge did not exist among the farmers. Maybe some farmers, 10%, 20% of them. There was no organic fertilizer to replace the chemical fertilizer that the president could offer in its stead. And basically what happened is that the farming industry in Sri Lanka collapsed. A third of all agricultural land went unplanted in the summer of 2021. A third, crop yields from the areas that were planted dropped by 40%, 40% and then you get a food shortage and then you become dependent on Ukraine, on Russia, for grain. I mean, Sri Lanka should be an exporter food. It is an exporter food, it was exporting rice. Now it can't make enough rice for its own people. All in the name of organic farming. All in the name of environmentalism. And this was a big priority and a big pitch to the world. Sri Lanka presented itself as this virtuous country is what hailed by places like the World Economic Forum by Nobel Prize winner Joseph Stiglitz as this is amazing. This is terrific, this is what the whole world should be doing. I mean, this is as stupid as Germany going off of nuclear power and switching to wind and solar very, very fast. But in some sense, this was faster and dumber but all in the same, in the name of some kind of amazing virtue. They're gonna become the world standard. This is more of the environmentalists' destruction of human life, environmentalists' destruction, living standards of life because people don't have food. There's not enough food. All in the name of organic, go-ganic. Now organic, organic agriculture. And I'll get to the other reason why the Sri Lanka government probably did this. We'll get to that in a minute. At least they presented to the world as the reason for this was environmentalism, going green health, truly sad though. But it's interesting, right? That one thing we know is that organic farming produces dramatically lower yields as we saw in Sri Lanka, about 40% lower. Even when it's done well and in Sri Lanka it was probably done not as well as it could have been. So, what you need is in order to grow the same amount of food you have to go down a much faster area. So first, organic farming is lower yield. To grow the same amount of food you have to so-called, quote, destroy a whole section of the environment in order to plant more. Ultimately, it turns out that in terms of CO2, in terms of whatever you wanna call it in terms of the environmentalist stuff, organic farming is no more so-called clean than is chemical farming. Chemical farming is just unbelievably productive. It's much cheaper using chemical fertilizer, sorry. All right, another reason, another important reason where Sri Lanka switched to organic was that all of its chemical fertilizer were imported and it was running out of money to buy stuff. So, at least one reason and maybe ultimately the dominant reason why Sri Lanka dropped fertilizers was they couldn't afford to buy them anymore. And they couldn't afford to buy them anymore because they had bankrupted their own country. They had borrowed without thinking about tomorrow. They had built up a pyramid of debt layering on a top of layering it. They had created an economy that was built in corruption and on debt. Projects, infrastructure projects were built which had no ability to return, to provide a return on investment. Sri Lanka was already a failed state, but this idea of going organic was the thing that tipped it into starvation. They stopped producing food. Now think about it. The two, number one exports in Sri Lanka were tea and rubber. Exports in tea and rubber plummeted because they weren't producing enough. That made the foreign exchange problem worse because there was no income and now how are they gonna pay that debt? So, as I said in June, Sri Lanka defaulted on its first debt payment. It's gonna have to restructure its debt. The IMF is involved. They'll have to restructure the economy. Quality of life, standard of living is gonna drop precipitously. It's gonna go through a bunch of economic crises and political crisis. This is going to be ugly. And this is the consequence of a combination of irrational, environmentalist policy with irrational borrowing of money. See how one for a minute just expand beyond Sri Lanka? I mean, I don't know what's gonna happen Sri Lanka. It's a mess. It's a disaster. People are going to suffer. And I feel sorry for the people there. People are gonna try to leave. I think you can expect the migration out. The question is where do they go? Maybe it's a British colony. They'll try to go to the UK. There's a former British colony. They'll try to go to the UK. But you can expect a decade now of real problems in Sri Lanka and a horrific economy. Now, Sri Lanka has reversed the organic plan. They first eliminated the ban on importing chemical fertilizers for the tea and rubber industry. Then they did it across the entire spectrum for all of it. The problem, of course, is now they don't have the foreign currency to import the fertilizers. And now they're stuck where they could import the fertilizer, but they can't. It's legal to import a fertilizer, but they don't have the money to do it. On top of that, the government now, because of the outcry from the farmers, has committed $200 million to pay the farmers for losses due to the organic collapse, plus another $201 million of subsidies, food subsidies, which alone puts Sri Lanka in more debt, which is only gonna make the collapse even more painful. I mean, there's just no way out of this. This is a disaster. It's a disaster caused by the political class in Sri Lanka. It's a disaster caused by people who borrowed money with no regard for tomorrow, no regard for their own people, people who got rich off of the backs of their old people through basically bribery, fraud, corruption. So I feel sorry for the Sri Lankans. Unfortunately, this is probably not gonna be the only country this is gonna happen to. While I think this organic stupidity, irrationality, evil, is unique with regards to Sri Lanka. I don't think other countries bought into this nonsense, but you're already seeing countries like Zambia. What was the other country? You know, other countries, I think in Africa, you'll see other countries like South Salvador in Central America, even though South Salvador is considered a libertarian because they went on Bitcoin, but South Salvador's in big trouble. And I don't think the Bitcoin collapse is helping them. And you'll see other Latin American countries, but certainly Zambia are in Zimbabwe, which has been in trouble for a long time, but these countries are in massive debt. There's no easy way for them to get out of the debt. They have not put together the policies that would get them out of debt in a healthy way. They are all in the verge of bankruptcy. Other countries could join that list, ultimately. Ultimately, Italy could be in trouble, Greece could be in trouble again, although Italy's probably in worse shape. A Turkey goes in and out of trouble. You know, other countries have masses, amounts of debt in Asia. Even China is not in good shape economically, particularly given the consequences of COVID. And of course, the United States is not in good shape. We have masses amounts of debt, high inflation, not as high as Sri Lanka were 30%, but high inflation and the world economy is in real trouble. This is what we're seeing right now. By the way, one of the things that Sri Lankan government did when it couldn't raise debt anymore, right? When the debt was so high, it started printing money. It started printing money like crazy, as governments like this do because they're desperate, they have to pay their bills locally. They can't get in front of exchange, but they can at least do it locally. And as a consequence of paying it, printing all their money, what happened? Well, inflation. So, global economy is in deep trouble. Developing countries are in deep trouble. Countries that relied on debt to finance themselves are in deep trouble partially because interest rates are so much higher. So the interest payments they're gonna have to make in the future are so much higher. And the only way they can fund, that they can pay the debt is by refinancing it, which raises the interest rate constantly in an inflationary environment. But also because given the bankruptcies, given the defaults of places like Sri Lanka, debt is gonna become more expensive, particularly in developing countries. It's gonna become more and more expensive. You're gonna see the global economy probably not shrink, but grow dramatically less than expected. And you will see significant consequences significant consequences around the world. These things always start in little countries in the middle of nowhere that nobody pays attention to and nobody seems to care about. And they tend to, those tend to be the canaries kind of in the coal mine. And then given the debt burden, by the way, one of the big countries that is on the brink of defaults, we'll see if they actually default or not default, is Pakistan. Pakistan is a massive country. It is a country with a huge population and it is a country that is economically, again on the verge of default together with all these other countries. So you'll see significant decline. And of course, think about what's happening in Ukraine. Think about the Russian economy. Think about the money that's gonna have to be spent to rebuild Ukraine and to ultimately to rebuild the Russian economy. Where is that money gonna come from? The world economy is heading towards a very, very difficult decade. A very, very difficult decade. Again, with inflation rising interest rates recession and defaults in the periphery. Remember that the people who lent money to these countries are people who live in relatively rich countries. This all hampers their wealth. It reduces the amount of wealth that they have. This is bad news across the board. All right, that's the spiel about Sri Lanka. I thought you'd be interested. It's going on right now. Thank you for listening or watching the Iran Book Show. If you'd like to support the show, we make it as easy as possible for you to trade with me. You get value from listening. You get value from watching. Show your appreciation. You can do that by going to iranbrookshow.com slash support by going to Patreon, subscribe star locals and just making a appropriate contribution on any one of those, any one of those channels. Also, if you'd like to see the Iran Book Show grow, please consider sharing our content and of course, subscribe. Press that little bell button right down there on YouTube so that you get an announcement when we go live. And for those of you who are already subscribers and those of you who are already supporters of the show, thank you. I very much appreciate it.