Chronicle of the Middle East and North Africa

No Action from Lebanese Government as Financial Collapse Looms

Lebanon currency crisis
Lebanese protesters clash with riot policemen as they try to break through security barriers in front of the cabinet office during a demonstration in central Beirut’s Martyr Square on September 29, 2019. Photo: ANWAR AMRO / AFP

Lebanon is facing a currency crisis in 2019 that is threatening to send the country, which is already on shaky economic ground, into complete bankruptcy. Protests have erupted, but the country’s leaders seem unwilling or unable to react.

Twice now, people have taken to the streets of Beirut, the second city Tripoli and Baalbek, demanding the government find a solution for the imminent financial crisis and growing levels of poverty.

During the first protest on 29 September, one protester in Beirut told Reuters news agency, “We went down to demand to live with dignity. We want to say to the MPs, the ministers and all the ruling class that if they don’t want to give back what they stole, they should at least stop stealing so the people can live.”

The protester was referring to the corruption attributed to the ruling class, with Lebanon ranking 143rd out of 180 countries on Transparency International’s Corruption Perceptions Index 2017. It also scores 28 out of 100 for the perceived level of sector corruption, 0 being very corrupt.

This reputation matters more and more to Lebanese citizens, many of whom are struggling to access their money. For over 20 years, the Lebanese lira has been pegged to the dollar to prevent hyperinflation and economic collapse following the end of the civil war in 1990, and $1 corresponded to a fixed rate of 1,500 lira.

In recent weeks, the lira peg has slipped and banks are trying to keep whatever supply of dollars they have, as Lebanese nationals and residents try to withdraw the currency from their bank accounts.

The currency collapse is being exacerbated by government austerity measures such as new taxes and higher health care costs, in addition to poor employment and economic growth opportunities.

“There is a recession caused by a rise in interest rates to attract US dollars into the economy, and this rise has slowed investments and growth, and also a drop in economic activity due to uncertainty and political infighting,” Jad Chaaban, an associate professor of economics at the American University of Beirut, told Fanack on 6 October.

“The economic recession has been accompanied with rising prices and inflation, which is a phenomenon called ‘stagflation’. If the authorities do not enact broad economic, fiscal and monetary reforms, the stagflation will last longer than expected and cause losses in jobs, incomes and a rise in poverty.”

In other words, an already struggling population is threatened by looming poverty as the leadership has not made the decisive and necessary moves to protect them economically. The recipes of the World Bank and International Monetary Fund and neoliberal economists are not the way to go, according to Chaaban.

“An austerity budget does not work in stagflation, since the private sector is not spending on investments and job creation – because loans are too high because interest rates are too high – so the government needs to step in and increase its spending on efficient and job-creating projects, through expansionary public policies and not wasteful and corrupt spending,” he said, adding, “The budget needed to finance the expansion in public spending would come from higher taxes on interest, real estate and other sources of annuitant income in the hands of a minority of extremely rich individuals.”

Yet the government does not seem to be doing anything to calm public panic, with people going so far as to hide billions of dollars in their homes. “The government is playing a wait-and-see game, postponing real solutions until a regional aid package is created – through Gulf countries – or until oil and gas drilling starts, although no money will be seen there for five-seven years,” Chaaban said.

A number of large sub-sea gas and oilfields have been discovered since 2009 in Cypriot, Israeli, Lebanese and Egyptian waters. In February 2018, Lebanon signed its first offshore oil and gas exploration and production agreements with the Total-Eni-Novatek consortium for offshore Blocks 4 and 9.

Part of Block 9 covers waters disputed with neighbouring Israel, which has been at war with Lebanon since 1948, but the consortium has said it has no plans to drill in the disputed area.

Although branded as the miracle solution for Lebanon’s economic recovery, any oil and gas discoveries are likely to have little effect in the next few years and, depending on how these resources are redistributed, maybe none on the actual population.

The sense of desperation turned to incredulity following the 30 September revelation by The New York Times that Prime Minister Saad Hariri gave more than $16 million to a South African bikini model, Candice van der Merwe, who said they had a romantic relationship after meeting at a luxury resort in the Seychelles, according to South African court documents obtained by the newspaper.

According to the article, ‘The prime minister, Saad Hariri, was not in office when he sent the money starting in 2013, and the transfer does not appear to have violated any Lebanese or South African laws. But the revelation in a South African court case this year of the extravagant gifts to a younger model comes during a difficult period for Mr. Hariri, the top Sunni Muslim politician in Lebanon and an American ally.’

Following the article’s publication, Hariri said in comments released by his office, ‘Whatever the campaigns they launch against me and whatever they say, write or do, I will continue to work. It is true that we are going through a difficult economic situation and therefore we have to take bold decisions. Every time we make an accomplishment, someone criticizes it.’

His comments reveal how far removed the ruling class is from the realities of those they are supposed to represent.

“Everyone’s frustrated, everyone’s anxious, especially given the economic situation,” a media worker at a Hariri-funded platform told the Middle East Eye news website. “[This is] on top of worrying about if or when we’re going to get paid. […] It’s nevertheless a bit of a slap in the face to see this news of spending $16 million on something very questionable at a time when people haven’t been getting their salaries for months.”

Despite the widespread frustration and concerns about the future, it is unlikely they will lead to an immediate change of direction by the government, or a change of regime due to a rebellion.

“The Lebanese people are too divided along sectarian lines, and also they are always kept dependent on the ruling class, which provides basic services as a lifeline,” Chaaban said.

It remains to be seen whether this lifeline will – or can – be maintained much longer.

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