Lebanon’s recovery from its financial and political meltdowns seems nearly impossible.
Last month, Lebanese President Michel Aoun left office, after his term expired, without a designated successor in place.
Power vacuums are not uncommon in Lebanon. Aoun’s own election in 2016 ended a 29-month vacancy in the presidency. Since gaining independence in 1943, Lebanon has had six periods in which the chronically divided parliament could not agree on a new president. The inability to select a leader results in a political impasse, with a caretaker government that can’t approve new legislation and a Cabinet whose mandate has expired.
Meanwhile, the country is facing its worst economic crisis ever, due largely to Lebanese politicians’ ineptitude and preoccupation with their own political status and wealth accumulation. Their selfishness has brought the country to the brink of collapse.
Ponzi Scheme
The government’s economic mismanagement has been long-standing. Rafik Hariri’s monopoly on economic decision-making when he was prime minister in 1992-98 led the annual deficit to skyrocket to about 50 percent. When he returned to office from 2000 to 2004 to lead a broad coalition government, the deficit fell to 32 percent, still a staggering figure. The government has also regularly issued treasury bonds since 1992 to finance the country’s reconstruction after its 15-year civil war.
The Lebanese banking sector has been running what some might call a Ponzi scheme. By law, all banks operating in Lebanon must keep most of their liquid assets with the central bank. However, the central bank mismanaged the country’s monetary policy and concealed data showing the extent of Lebanon’s impending financial collapse. Banks were thus able to attract new depositors by offering high interest rates – which reached 9 percent on dollar deposits – and deliberately misinforming people about the risks to their savings. The central bank issued local banks with large profits – which they transferred outside the country – squandering people’s savings by artificially pegging the lira to the dollar and filling the gap in the budget.
Deposits, mainly from individual depositors, in Lebanese banks reached $172 billion in 2014, equivalent to more than 370 percent of the country’s gross domestic product. In 2018, the central bank’s liquid assets dropped to $43 billion, and they plummeted to $20 billion in the first quarter of 2020. Its reserves fell from about $60 billion in 2005 to less than $10 billion this year. For the first time since independence, Lebanon defaulted on its foreign debt – a $1.2 billion Eurobond – a few months after the 2019 uprising over a 20-cent WhatsApp tax.
A few months ago, the deputy prime minister announced the country’s bankruptcy, indicating that the losses, believed to be more than $100 billion, would be shared by the central bank, the broader banking sector and depositors. He added that Lebanese officials hoped to reach an agreement with the International Monetary Fund, where negotiations focused on restructuring the banking sector, formulating a balanced fiscal policy, rebuilding the collapsed electricity network, reforming the bloated bureaucracy and tackling hyperinflation, which stood at 3,000 percent.
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FCDO - TA023 - Lebanon Travel Advice Ed1
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