Economies around the world were already on their last legs before the 2019 lockdowns and when you don't have reserve currency status you have to live within your means more so than in other countries.
As the country's tax bases eroded, income became impaired, industries shut down, and debt obligations didn't go anywhere it was bound that countries would eventually default on their debt payments.
A debt default doesn't happen overnight, it takes time to work through the system, but we've already had two in quick succession. Lebanon was the first to fall, victim.
Lebanese get pounded
On March 9th Lebanon did not repay a $1.2bn Eurobond, the first sovereign default in the country’s history.
Since the default the Lebanese pound has lost 90% of its value over the past two years, food prices have soared with a CPI of over 550%, and worsening shortages of basic goods including fuel and medication are making daily life a struggle.
Lebanon is also a net importer of many goods, especially food meaning the country and currency is in a doom loop.
If you'd like a good summary of why Lebanon has found itself in this precarious position, this is a great summary of the issue.
Talks of a debt restructuring are in advanced stages, as the country has little to no choice, but to force austerity measures on its people. Lebanon will take years to reduce these debt obligations and with interest payments increasing the overall amount it only adds to the growing debt.
So you as a Lebanese, who simply went about their lives, saving in your national currency are forced to pay for the mistakes of others, you are bailing them out and left with nothing.
If this is not an advertisement for money that cannot be debased and cannot be seized in mass, then I don't know what is, it's a scary reminder of how quickly things can unravel and why you need protection from your government's abuse of a national currency and reckless lending.
Sri Lanka in serious trouble
Since 2020, The pandemic also sent Belize, Zambia, and Suriname into default but it's been quiet on the default front and the world quickly moves on and forgets until the next one. Sri Lanka in 2022 became that reminder as they've defaulted on the $51 billion in debt their country currently owes bondholders.
Estimates of the current financial situation of Sri Lanka state that the country requires $7 billion to service its debt load this year 2022, but only has $1.9 billion in reserves at the end of March.
No amount of tax is going to make up the shortfall so they only have the option of a soft default through issuing more debt or restructuring the current debt if bondholders agree, which is unlikely.
Sri Lanka has looked for debt relief from India and China, with both countries looking to secure the debt against commodities in the country, in a "debt colonialist" agreement. If another country has the rights to your country's resources, you're a colony, my friend.
Read more at:
http://timesofindia.indiatimes.com/articleshow/90809489.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
If you'd like a better summary of what happened in Sri Lanka, regarding the way funds were allocated and the issues that bled down their foreign reserves I recommend checking out this video.
Counter-party risk showing its ugly face
In both countries, there is a serious uprising, the standard of living continues to drop and the local currencies are going to be the forcing function for error correction.
Citizens of these countries should be looking to bitcoin if they are to protect any value they have or future value, these countries are primed for strong bitcoin adoption, but it remains to be seen if grassroots movements will take hold because governments won't.
Sources:
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