Sri Lanka, which used to be called the ‘Pearl of the Indian Ocean’, has been paralyzed in all economic activities since the declaration of national bankruptcy on the 19th of last month. Taxi drivers in Colombo, the largest city, have difficulty buying a bottle of gasoline even after standing in line for three days at a gas station, and low-income households are forced to divide one meal into two meals. Young people who can’t find a job are staying up all night in front of the immigration office to go abroad. The Sri Lankan government is trying to break through the difficulties with the oil quota system, but it has long since been invalidated.
In Sri Lanka, which the Dong-A Ilbo visited after a month of national bankruptcy, the entire country was in a panic as its foreign exchange reserves were bottoming out. The direct cause of the bankruptcy was the Russian invasion of Ukraine. As oil and food prices soared due to the war, the government, businesses and households were unable to survive. But before that, Sri Lanka’s national debt increased excessively due to populist policies, and tourism, the main industry, was hit by the spread of Corona 19. The government raised a white flag as a complex crisis of high inflation and low growth swept through the country in a state where the basic strength of the economy was collapsing.
The reason that Sri Lanka’s national default cannot be taken lightly is that emerging countries, including Korea, cannot be said to be completely free from a similar crisis. In a situation where national debt has snowballed due to excessive welfare policies, the failure to achieve structural improvement in line with the changing economic situation can be the trigger of the crisis.
Above all, financial crises are dangerous in that each country is spread rapidly depending on the movement of money, even if countries are geographically separated or there is no link between industries. The Asian financial crisis in 1997 was the starting point of the Mexican financial crisis caused by the steep US interest rate hike. Afterwards, Argentina, Thailand, the Philippines, and even Korea were caught in a vortex of crisis. A safety valve is needed to prevent the ‘contagion of the crisis’ that leads to a rise in US interest rates, a strong dollar, and capital outflows from emerging markets.
The Korean government claims that our economy is in good health, but the reality is not so rosy. In particular, as the national debt exceeds KRW 1,000 trillion and household debt exceeds the gross domestic product, it is highly likely that the number of vulnerable households unable to pay off their debts will increase when interest rates rise. If the US, which started raising interest rates, sucks money from the world rapidly, countries with weak fundamentals will be shocked one after another. For Korea, it is not the time to cross the river and raise concerns over the ‘domino bankruptcy from Sri Lanka’.
Dong-A Ilbo June 20th editorial summary
| Read the editorial and solve the following problems. |
| 1. Read the text above and choose the one that is not appropriate for your reaction.
① Sri Lanka’s economic crisis is only due to one cause: the ‘Russian-Ukraine War’. ② A financial crisis is dangerous because it can spread rapidly even without a link between industries. ③ Korea cannot take the crisis of Sri Lanka lightly either. 2. Choose an economic situation that matches the underlined proverb, ‘Hundreds of drugs are invalid.’ ① The price of oil has risen and the government has implemented various measures, but the price of oil continues to rise ② As international grain prices rose due to the Ukraine war, feed prices rose and the prices of livestock products also rose. |
By Kim Jae-seong, staff reporter for Dong-I Gedu, kimjs6@donga.com
