DISPATCHES FROM MOON OF ALABAMA, BY "B"
This article is part of an ongoing series of dispatches from Moon of Alabama
Lebanon is drifting towards hyperinflation and armed strife.
The main reason is the deflating of a Ponzi scheme with which the governor of the Central Bank enriched Lebanese business banks and politicians.
Since December 1997 the rate of the Lebanese pound has been fixed at 1507.5 pounds per U.S. dollar. The country needed dollars to import food, fuel for its electricity plants and pretty much everything else. As Lebanon exported little but some hashish and ran a large budget deficit it needed other ways to continuously acquire dollar. Tourism from the Gulf states brought some foreign currency and a large number of expatriates sent parts of their incomes home. But neither was enough to pay for everything Lebanon imported.
The Central Bank started to increase its interest rate for dollar holdings to attract more of them. The business banks set up dollar accounts for their customers and offered some of the highest rates around the globe. Money came in. The business banks lent those dollars to the Central Bank at ever higher interest rates.
Importing companies went to the Central Bank and exchanged their Lebanese pounds into dollars so they could pay for the goods from abroad. Whenever their were too few dollars in its vault the Central Bank increased its interest rates to attract more of them. It ended up offering above 20% for U.S. dollar accounts.
In the normal economy it is the Central Bank that is paid interest by the business banks. In Lebanon the scheme reversed and insanely enriched the owners of the banks. Meanwhile the local manufacturing and farming economy could not compete with the steady stream of cheap goods that came into the country. It remains underdeveloped.
The war on Syria and Saudi discontent with Hizbullah's role in Lebanon hit the tourism business. Some people started to ask questions about the high interest rates. In August 2019 the scheme broke down. A parallel market rate developed. Continuous financial pressures from unsustainable sovereign debt, a high trade deficit and deposit outflows had become too much.
Finally the truth came out. There were no more dollars in the Central Bank's vaults. The dollar loans from the business banks to the Central Bank can not be paid back - at least not in dollars. The dollar denominated saving accounts with the banks can only be paid out in Lebanese pounds. The banks simply deny people access to their dollar accounts. Their current worth is now some 15% of their original value.
In 2018 the much lauded Lebanese banks had nominal assets in excess of 360 percent of Lebanon’s GDP. Today hardly any are left.
The Lebanese pound has crashed to today's exchange rate of 1 dollar for 9.500 pounds. Hyperinflation has set in. Today a chicken cost double as much as 10 days ago. Many people are ruined. Their life savings are gone. Crime has already increased. There will soon be hunger.
But the Lebanese bankers and politicians are still in denial:
Lebanon has been in talks with the IMF for a $10 billion bailout to overhaul its economy after its local currency lost some 80% of its value on the black market. The government drafted what it called a rescue plan that estimated losses incurred by the central bank and local lenders at 241 trillion pounds ($69 billion), based on an exchange rate of 3,500 to the dollar, compared with the official peg of 1,507.50. But the currency reached 9,500 per greenback this week.
The central bank and the lenders, the government’s main creditors, countered with estimates of their own. Banks put forward a proposal for state asset sales valued at $40 billion so that the government could repay what it owes. The central bank, known as Banque Du Liban, argues that a different accounting approach shows a surplus rather than a loss.
Lawmakers then tried to consolidate the figures to a lesser number, also stalling talks with the IMF. The disarray was exacerbated when two key economy officials resigned in protest over how politicians were handling the crisis.
Central bank Governor Riad Salameh, Finance Minister Ghazi Wazni and the head of the banking association met Thursday and discussed ways to agree on figures, a sign that officials and the main stakeholders have finally decided to reach a middle ground.
Riad Salameh, who has led the Central Bank since 1993, needs to be fired. The bank owners must be expropriated. Together they ran a Ponzi scheme that has made millions dirt poor. Those in the know about it got out before anyone else. Their money is now safe in Switzerland or elsewhere.
Unfortunately the U.S. embassy is protecting the Central Bank governor. The government can not touch him. It is also unable to reform.
Meanwhile no imports are coming in. Electricity is available only 4 hours per day. People are staring to kill themselves:
Two suicides in Lebanon on Friday, apparently linked to the country's deepening economic downturn, have sparked a new wave of criticism over the government's mishandling of the crisis.
A 61-year-old man from the eastern region of Hermel shot himself on the sidewalk of a bustling Beirut shopping street in broad daylight, leaving a note and his clean criminal record at the scene.
The note referenced a popular revolutionary song that mentions hunger, suggesting his suicide was linked to the economic crisis that has been ravaging livelihoods across the country.
"He killed himself because of hunger," the man's cousin screamed as the security forces carried away the body.
The U.S., Israel, the Saudis and their Sunni allies in Lebanon are using the situation to press for a new Lebanese government. The Shia Hizbullah, which together with its allies has significant influence in the current one, is pressed to make room for Saudi and U.S. allies.
As many Syrians had money in Lebanese banks the crisis in Lebanon extends into Syria. The U.S. also increased its sanctions on Syria. The Syrian pound has fallen as much as the Lebanese one.
Iran has agreed with the government of Damascus to put at its disposal goods worth one billion dollars, as Iran supplies the basic needs of its Syrian ally for food and fuel.
In response to the Lebanese current crisis, Iran is prepared to open a line of credit to Lebanese companies similar to the one it provides Syria, worth one billion dollars.
Today Hezbollah has dozens of gasoline stations, under the name of al-Amana, and pharmacies, called al-Murtada, and other companies authorised and capable of receiving goods and shipments from Iran and sells them at much reduced price even to that part of the public that is not supportive of Hezbollah. If Israel and the US believe they can stop this process, Hezbollah will not hesitate to use military force, imposing a new Rule of Engagement. Bombing targets in Israel may be necessary to ensure the arrival in Lebanon of fuel, foods and medicine.
Hizbullah will use the support from Iran to gain further goodwill and influence in Lebanon. Unfortunately there are signs that the other side prepares for war:
Sam Heller @AbuJamajem - 15:07 UTC · Jul 2, 2020
.@AlakhbarNews: Syrian army interdicts truck of weapons at Homs border, while Lebanese military intel detains the Hermel-area arms dealer meant to deliver it to Tripoli. Separately, three men with military training arrested heading from Idlib to Tripoli.
Tripoli, in the north of Lebanon, is a stronghold of Sunni Jihadis. While these were previously under Saudi influence recent incidents have led some to believe that the Turkish secret service MIT is now involved with them.
Thirty years after their long civil war the various Lebanese clans and sects are still ruled by the same old structures and by the same delusional people who are unwilling to consider any real change.
The economic crisis will be hard on the Lebanese people. But the crisis is also a chance to for once eliminate the sectarian structures and to reform the now import dependent economy.
The current political system will either implode to be replaced with something sensible or it will explode into a new civil war. Outside force seem to prefer the latter option while the people of Lebanon would be better off with choosing the first.
Posted by b on July 3, 2020 at 17:03 UTC | Permalink
^5000The arch-hypocritical corporate media are our worst enemies.
They shamelessly block truth, peace, equality, and true democracy.
They are shills for those who murder the environment with impunity.
It's time you embrace YOUR media, the citizens' press.
Be sure to support the Greanville Post. If not you, who will?
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