Aurelia Butler

Rickshaw taxi operator Samantha Ajith was fuming as he waited in a 2km queue for petrol in Colombo — now a common sight in Sri Lanka’s biggest city, with motorists waiting for hours or even days. “The incompetence of the government has caused big problems for us . . . They must leave and let someone else take over,” Ajith said. “They do not know how to manage the economy.” Policy missteps by President Gotabaya Rajapaksa’s government, compounded by shocks caused by Covid-19 and the Ukraine war, have sparked the country’s worst economic crisis in decades and added to concerns about impending emerging market collapses. “This has been a train wreck in slow motion,” said one investor who holds Sri Lankan debt.Mounting public anger at worsening shortages of food, fuel and other essentials this week tipped into popular revolt. Tens of thousands of protesters converged on Colombo on Saturday and crowds poured into the president’s official residence. Rajapaksa has not been seen in public since, and Sri Lanka’s parliamentary speaker Mahinda Yapa Abeywardena said the president had pledged to resign on Wednesday.Crowds were still streaming in and out of the palace on Tuesday and local reports, citing unnamed government sources, said that Rajapaksa had been stopped by immigration staff at Colombo’s airport on Monday evening while trying to flee to Dubai. His brother Basil, a former finance minister, was prevented from flying out of the country on Tuesday.Sri Lankans say the emergency has unfolded in plain sight and attribute it to poor choices by their leaders as well as bad luck. After Rajapaksa won the 2019 election, he enacted sweeping tax cuts that cost the state about SLRs800bn ($2.2bn) in revenues. The measure has since been rolled back. In 2021 the government banned chemical fertiliser imports in an attempt to boost organic farming — another move later rescinded after a sharp drop in crop yields and disruption to food supplies. The government also kept the tourism-reliant country closed until late last year under a “zero Covid” policy, even as other countries in the region, such as the Maldives, were reopening.

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Meanwhile, the shock to world food markets from the Ukraine war pushed up the price of staples such as wheat flour and lentils in Sri Lanka, which relies heavily on imports. But even as rating agencies were downgrading Sri Lanka, the government continued to tap capital markets, piling up new debt as its cash reserves were running out. In May Sri Lanka defaulted on its foreign debt. As of the end of June foreign reserves stood at $1.8bn, leaving the state with stark choices about importing food, fuel and other essentials. With dollars running out, the central bank has been printing money to cover the costs and inflation is running at about 50 per cent. Foreign governments and bondholders who own Sri Lanka’s $51bn debt are taking stock of what some analysts believe will be the first of a series of emerging market collapses this year, caused by surging energy and food prices and the global tightening of credit that followed Russia’s invasion of Ukraine. “The government doesn’t have enough money to meet expenditure, and doesn’t have the dollar reserves to fund imports,” said Nishan de Mel, executive director of Verité Research, a Colombo-based think-tank.Before Saturday’s unrest, the IMF was in the advanced stages of negotiating an Extended Fund Facility arrangement for Sri Lanka. This would unlock new loans, allowing the country to import supplies and give it credibility in talks with creditors on restructuring the debt.

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The IMF declined to comment, referring to its statement on Sunday in which it said it was “deeply concerned about the impact of the ongoing economic crisis on the people” and that it was continuing technical discussions with the finance ministry and central bank. The shortages in the country now encompass everything from jet fuel to cooking gas and pharmaceuticals. As the crisis escalates, an international rescue plan has become both more urgent and potentially more elusive, analysts say. Any agreement with the IMF must be approved by the fund’s board and a Sri Lankan government willing to undertake reforms. The country’s political parties have started talks to form a new administration.Private bondholders, who hold slightly less than half the country’s debt, have formed a creditors’ committee led by Rothschild and White & Case, which has led negotiations with the government and the IMF. Sri Lanka is being represented in talks with creditors by Lazard and Clifford Chance, both of which declined to comment. Sri Lanka’s largest bilateral creditor is China, from which it borrowed heavily to fund projects including a seaport and airport. Beijing is taking a tough stance in debt negotiations with Zambia, which some analysts believe could raise the bar for any restructuring for Sri Lanka. “What complicates this is how China behaves,” said Anush Wijesinha, an economist and co-founder of the Centre for a Smart Future think-tank in Colombo. “Will they freely and willingly join group discussions? Will they hold out? Will they want more preferable conditions?”

For now, analysts said, rescue talks would wait for events on the ground. “Politics will trump economics for the coming week at least,” Wijesinha said. “Everything else will take a back seat until this is resolved.”Meanwhile, as political discussions continue, people are going hungry. The UN World Food Programme estimates that more than 6mn of Sri Lanka’s 22mn people do not have enough to eat. The cost of feed has forced many poultry farms to close, and fishing boats are staying in port because they lack fuel.“There is no deep-sea fishing as there is only a limited issue of diesel and kerosene,” said Nishantha Kumar, a Colombo fish vendor. “Fish retail prices have almost doubled.” Additional reporting by Nikou Asgari in London and Andy Lin in Hong Kong More

WILMINGTON, Del. (Reuters) – Twitter Inc (NYSE:TWTR) sued Elon Musk on Tuesday for violating his $44 billion deal to buy the social media platform and asked a Delaware court to order the world’s richest person to complete the merger at the agreed $54.20 per Twitter share.”Musk apparently believes that he – unlike every other party subject to Delaware contract law – is free to change his mind, trash the company, disrupt its operations, destroy stockholder value, and walk away,” said the complaint.The lawsuit sets in motion what promises to be one of the biggest legal showdowns in Wall Street history, involving one of the business world’s most colorful entrepreneurs in a case that will turn on staid contract language.On Friday, Musk said he was terminating the deal because Twitter violated the agreement by failing to respond to requests for information regarding fake or spam accounts on the platform, which is fundamental to its business performance.Musk, who is the chief executive officer of electric vehicle maker Tesla (NASDAQ:TSLA) Inc, did not immediately respond to a request for comment.The lawsuit accused Musk of “a long list” of violations of the merger agreement that “have cast a pall over Twitter and its business.” It said for the first time that employee attrition has been “on the upswing” since the deal was announced.Twitter also accused Musk of “secretly” accumulating shares in the company between January and March without properly disclosing his substantial purchases to regulators, and said he “instead kept amassing Twitter stock with the market none the wiser.” Shares of the social media platform closed at $34.06 on Tuesday, up 4.3%, but sharply below the levels above $50 where it traded when the deal was accepted by Twitter’s board in late April. The stock added another 1% after the bell. GRAPHIC: Elon Musk vs Twitter (https://fingfx.thomsonreuters.com/gfx/mkt/jnvwedynqvw/Pasted%20image%201657659742658.png) Musk said he was terminating the merger because of the lack of information about spam accounts and inaccurate representations that he said amounted to a “material adverse event.” He also said executive departures amounted to a failure to conduct business in the ordinary course – although Twitter said it removed that language from the merger contract during negotiations.Twitter also said it did not share more information with Musk regarding spam accounts because it feared he would build a competing platform after abandoning the acquisition.Twitter called the reasons cited by Musk a “pretext” that lacked merit and said his decision to walk away had more to do with a decline in the stock market, particularly for tech stocks. Tesla’s stock, the main source of Musk’s fortune, has lost around 30% of its value since the deal was announced and closed on Tuesday at $699.21. In a separate filing, Twitter asked the court to schedule a four-day trial in mid-September. Legal experts have said that from the information that is public Twitter would appear to have the upper hand.”In its complaint Twitter is taking a strong position that Musk had a case of buyer’s remorse – and that, and not bots, is the reason for his decision to walk away from the deal,” said Brian Quinn, a professor at Boston College Law School. “The facts Twitter presents here make an extremely strong argument in favor of Twitter getting this deal closed.”Musk is among Twitter’s most-followed accounts and the lawsuit included images of several of his tweets, including a poop emoji, that the company said violated the merger’s “non-disparagement” clause. Musk tweeted the emoji on May 16 in response to a pair of tweets by Parag Agrawal, Twitter’s chief executive officer, explaining the company’s efforts to fight spam accounts.It also included an image of a text message Musk sent Agrawal after Twitter sought on June 28 reassurances about Musk’s financing for the deal.”Your lawyers are using these conversations to cause trouble,” Musk texted to Agrawal. “That needs to stop.”Twitter noted that after Musk said he was terminating the deal, he sent tweets on Monday that Twitter said suggested his requests about spam were part of a plan to force spam data into the public sphere.”For Musk, it would seem, Twitter, the interests of its stockholders, the transaction Musk agreed to, and the court process to enforce it all constitute an elaborate joke,” the lawsuit said. More

WASHINGTON (Reuters) -The International Monetary Fund on Tuesday warned that avoiding recession in the United States will be “increasingly challenging” as it again cut its 2022 U.S. growth forecast to 2.3% from 2.9% in late June as recent data showed weakening consumer spending. The Fund also cut its 2023 real GDP growth forecast to 1.0% from 1.7% on June 24, when it met with U.S. officials for an annual assessment of U.S. economic policies.The final report released on Friday was revised to reflect downward revisions to U.S. first quarter GDP and weak consumer spending data in May.But it continued to highlight the challenges of high inflation and the steep Federal Reserve interest rate hikes needed to control prices.IMF executive directors said in a statement that a broad-based inflation surge was “posting systemic risks to both the United States and the global economy.””The policy priority must now be to expeditiously slow wage and price growth without precipitating a recession,” the IMF said in the Article IV staff report. “This will be a tricky task.”The Fund said Fed monetary policy tightening should help bring down inflation to 1.9% by the fourth quarter of 2023, compared with a forecast of 6.6% for the fourth quarter of 2022.This will further slow U.S. growth, but the IMF still predicted the United States will avoid recession.IMF Western Hemisphere Department economist Andrew Hodge said in a blog post that Fed rate hikes and less government spending will slow consumer spending growth “to around zero by early next year” easing supply strains.”Slowing demand will increase unemployment to around 5% by late 2023, which should decrease wages,” Hodge said.IMF executive directors in their policy prescriptions for the U.S. government called for passage of U.S. President Joe Biden’s stalled social and climate spending proposals, saying these would foster increased labor force participation, which would ease inflation, while helping to facilitate a transition to a low-carbon economy.”Directors also recommended rolling back the trade restrictions and tariff increases that were introduced over the past five years,” the report said – a reference to tariffs on Chinese goods, steel, aluminum and other products imposed by former president Donald Trump and retained by Biden. More

TOKYO (Reuters) – Confidence at Japanese manufacturers in July was subdued, a Reuters poll showed, reflecting pressure from a problematic chip shortage, China’s heavy pandemic response and a weak yen that is making imported materials increasingly expensive.The Reuters Tankan – which closely tracks the Bank of Japan’s quarterly tankan survey – showed both manufacturers’ and service-sector morale only improving modestly over the next three months.The subdued sentiment adds to a recent mixed batch of data that underlines the economy’s difficulty to stage a robust recovery, and shows that companies struggled to benefit from improving demand, particularly at home. The poll of 495 big and midsize firms between June 29 and July 8, of which 248 responded, showed business managers were worried about the fallout from China’s COVID-19 curbs and a persistent chips and parts shortage.”Our sales are declining due to the impact of China’s lockdowns and the semiconductor shortage,” said a manager at a transportation equipment producer.Japan’s factories cut output at the fastest rate in two years in May, largely due to adverse effects from China’s coronavirus restrictions, such as in Shanghai.Some analysts believe it may take time before Japanese manufacturing and especially the key car sector will benefit from a recovery of economic activity in Shanghai, as the risk of new COVID-19 curbs remains.The Reuters Tankan sentiment index for manufacturers held steady at 9 in July. The index is seen inching up to 13 in October, though that is likely largely to depend on whether conditions in the autos/transport equipment sub-sector will improve. Its sentiment remained deeply negative in July.The service-sector index inched up to 14 from 13 in June, driven by wholesalers and information/communications. It was expected to rise to 18 in October.Retailers’ mood remained flat, while that of real estate/construction was negative, weighing on overall service sector sentiment.The BOJ is scheduled to hold its next policy-setting meeting on July 20-21. The central bank’s own tankan survey showed this month that the mood among Japan’s big manufacturers’ soured for a second straight quarter in the three months to June, also in part due to the hit from rising input costs.Rising prices of energy and raw materials were frequently mentioned by business managers in the Reuters Tankan survey.”Our margins declined due to the cost of raw materials and the weak yen,” a manager at a steel maker wrote. More

The UK needs a coherent long-term economic strategy that underpins robust growth in national output, following years of inconsistency from ministers, according to three reports published on Wednesday.The Resolution Foundation, a think-tank, warned that the UK economy was slipping behind others because of a “toxic combination of low growth and high inequality”. Its report was echoed by the Conservative-dominated House of Commons Treasury committee, that accused ministers of a “lack of long-term thinking in economic strategy”. Meanwhile, the National Audit Office (NAO) concluded that the government’s skills strategy was inadequate to the needs of business. All three reports suggested that the economy would need more than a smattering of tax cuts to address the challenges of the 2020s. Tax cuts have so far dominated the thinking for economic reform among the candidates in the race to become the next Conservative party leader and prime minister. In its interim report of an inquiry into the kind of economy the UK needs by 2030, the Resolution Foundation, working in collaboration with the Centre for Economic Performance at the London School of Economics, highlighted the challenges facing the UK economy. It found that the UK, having almost caught up with the productivity levels of France and Germany in the mid-2000s, had slipped behind both under the Labour government’s management of the 2008-09 financial crisis and the Conservative-led recovery thereafter. With high levels of inequality, the report found that although the richest 10 per cent of UK households were better off than those in most European countries, middle-income households were £8,800 poorer than their counterparts in Australia, France, Germany and the Netherlands, with the gap growing. The exact gap is uncertain and depends on technical calculations of what money can buy in different countries, but according to Resolution Foundation director Torsten Bell, the trends since the mid-2000s were clear and painted economic management in a bad light. He accused ministers of being “not serious about the nature of our economy . . . not serious about firms investing . . . not serious about levelling up . . . not serious about fairness . . . [and] not serious about taxes”. Saying that these failures of government had led to a “stagnation nation”, the report called on politicians to recognise that the UK would never be a manufacturing powerhouse and that the future lay in its strengths of professional services, education and intellectual property. Rather than tax cuts, the future with an ageing population was likely to be higher taxes if public services were going to be adequately funded. Bell said: “We underestimate the scale of our relative decline and are far from serious about the nature of our economy or the scale of change required to make a difference. This has to change.”Many of the findings of the Resolution Foundation’s report were echoed by MPs on the powerful Treasury committee, which highlighted the fall in the workforce since the start of the pandemic and the persistent weakness of productivity growth. It called for additional resources to tackle long Covid to help get people back into the labour market and more help from the Treasury to offset the damage done by Brexit, alongside a greater effort to find opportunities from leaving the EU. Tory MP Mel Stride, who chairs the committee, said that while a focus on tax was a “good start” in improving productivity growth, “the evidence that we received suggests there needs to be greater stability and long-term certainty in government policymaking”.The third report from the independent National Audit Office, which examines government policies, raised questions over whether ministers had designed an adequate skills strategy to equip the UK’s workforce for the decades ahead. It noted that Brexit had reduced the supply of skilled workers from the EU and increased the need to train employees domestically. But corporate training budgets had declined 11 per cent between 2011 and 2019, and 39 per cent of employers had provided no training for their workforce in the previous 12 months. NAO boss Gareth Davies said it was “essential” that government and employers supported the acquisition of skills. “The government has taken sensible steps to address skills shortages in recent years, but the challenges it faces have increased. There is a risk that, despite government’s greater activity and good intent, its approach may be no more successful than previous attempts to provide the country with the skills it needs,” he added. The Treasury did not immediately respond to a request for comment. More