Economic crisis and street anger: will other countries follow Sri Lanka’s path?

Economic crisis and street anger will other countries follow Sri

It’s a dizzying number. According to the World Bank, a 1% rise in food prices creates 500,000 additional poor people in the world. So, in view of the current inflation figures in most emerging or low-income countries, the survival of millions of people is at stake. The example of Sri Lanka is the most striking, with inflation of foodstuffs by 80% in June, which led to the revolt of the population and the resignation of President Gotabaya Rajapaksa. Particularly publicized, the events in Sri Lanka – and in particular the occupation of the presidential palace by the demonstrators – are the showcase of a very worrying social situation on a world level.

In a note published in Julythe International Monetary Fund warned: “Inflation is felt by all the inhabitants, which can therefore translate into widespread social discontent.” The phenomenon affects all countries, and the populations of developed countries are not exempt from it. However, the situations are incomparable, because the political stability of these states is not threatened, unlike that of emerging countries, whose economies, already undermined by the Covid-19 crisis, must now suffer the consequences of the war in Ukraine.

“In the next 18 months, we will have, everywhere in the emerging world, extremely difficult situations”, estimates in Le Figaro Jean-Joseph Boillot, researcher at IRIS. In these countries, household expenditure is essentially concentrated on foodstuffs: 55% in India, for example, compared to 20% in the United States. However, the IMF observes that it is indeed the increase in the price of non-substitutable foodstuffs that creates the most anger. Then the inhabitants of Ghana, where inflation reaches 27%, of Uganda or Senegal in Africa, and of Ecuador or Argentina in South America, make their anger heard, putting the authorities under pressure.

Governments caught in the crossfire

The problem is that the room for maneuver of those in power remains very low, as explained by the newspaper The world Matt Sechovsky, an American political risk analyst. “The current inflation is particularly dangerous because it is largely fueled by supply problems,” he said. The supply is thus lower than the demand, and the governments, constrained by the economic situation – mainly by the blocking of cereals in the Ukrainian ports and the increase in the price of energy – cannot do anything about it.

To limit the effects of inflation, the central banks are therefore obliged to raise their key rates sharply, but, at the same time, the governments must themselves subsidize the prices of electricity and cereals. An insoluble equation that requires strong choices. For example, Egypt, the world’s largest importer of wheat, refuses to go back on the subsidies allocated to bread. It must therefore turn to third countries to obtain loans, which the Gulf countries have granted to it, up to 13 billion dollars.

Governments are not the only ones threatened by the social consequences of inflation. The insurer Allianz recalls that social unrest remains “a higher risk for companies than terrorism”, certainly thinking of groups in the energy sector, targeted by anger. This “mistrust of governments” and “the unifying effect of social networks” are inflaming the streets of many countries, such as in Peru, where the anger against the increase in gasoline prices is such that the president has had, in April, to set up a curfew for a few days to calm the demonstrators. Worse, in Ecuador, six people were killed at the end of June during clashes with the police. As in Sri Lanka, hundreds of citizens had tried to invade the parliament building.

In order to protect vulnerable populations, IMF encourages states to put in place “targeted budgetary support” but “without increasing public debt”, which is caused by the increase in interest rates. On Tuesday, the Bretton Woods agency indicated that global inflation should reach 8.3% this year and that the risk of a global recession was real. A big word that is already a sad reality for many populations, and that sums up the slogan written on the sign of an Ecuadorian demonstrator: “We are poor, we are hungry, we have nothing to lose”.


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