No hope as Lebanon gazes into the economic abyss

As the Lebanese Army attempts to pack up roadblocks installed due to a 9-day-long series of protests in the capital and other major cities, the typically violent state-reaction has been relatively mute. Protestors have been taking to the streets, airing their frustration, setting tires alight, and closing off roads to the capital, Beirut. 

Though superficially, government forces appear to be neutral, last week, in Tripoli, protestors were arrested and later tried and sentenced for breaching national security (inciting instability). But the corrupted government actions could not be any less justified; the protests are prompted by a near two-year economic collapse of which, many experts, believe there is no returning from without a dramatic overhaul - with said overhaul nowhere in sight.

Citizens and residents alike are struggling to make ends meet due to a multitude of factors but the economic collapse has severely affected everyone in the country.

In 2019 the Lebanese lira began to fall dramatically against its previous fixed rate against the dollar ($1=1,500 L.L.). Further to this, the dollar deficit has caused banks to essentially freeze accounts only releasing a limited dollar amount in lira at less than half its previous value ($1=3,900 L.L.). 

The black market rate (which is said to be the most accurate valuation) of the dollar in Lebanon today is approximately 11,000 L.L. and it is critical to add that there are no dollars in circulation anymore (the use of lira and dollar were interchangeable until 2020). Today, purchases (unless hefty) are made solely in local currency. 

The local currency has lost over 85 percent of its value and hyperinflation means everything is now twice as expensive and, if you have funds and/or access to them, you have 15 percent of it left. 

It is quite difficult to put economic crises in human terms without first immediately observing what is happening to lower-income households but this crisis is so severe it is being felt at every strata of society. While those who do have funds are not able to access them and thus are limited through no fault of their own, those less fortunate are struggling to buy basic goods.

Inflated

Lebanon’s official inflation rate, as of December last year was at 145 percent, but one economist puts it today near a whopping 270 percent. The pandemic, in addition to the economic crisis (and little to no support of Lebanese businesses) has forced the closure of several businesses and in one year unemployment levels quadrupled to approximately 25 percent (some estimates say 40 percent) from 6 percent in 2019. 

Add to this that half the population has defaulted into poverty - the combination of the two economic factors leave few chances of escape from very bleak prospects.

The inflation is not restricted to goods, but the already failing electricity grid has been hardly functional and while most households will have a subscription to a back-up generator (already an unnecessary cost) prices have exploded. Due to the rising cost of fuel even insecure, glitchy, and costly electricity is now a luxury. The stimulus support package that has been in discussion for some time to relieve families of economic difficulties in relation to the pandemic is a paltry $40. 

Passing the buck

The Lebanese Central Bank does not have enough dollars (as it is reserved for imported goods until new capital is raised) to bail out the banks from the dollar deficit and have called on them to raise capital on their own. This can be done in several ways but not all banks have the capacity to do so. Some banks have been accused and have further accused the Central Bank as the conductor to this madness. 

In layman’s terms, and in perspective from the ground, these are some of the results and causes of the crises. Individuals are no longer able to access their dollar deposits, as mentioned, some will release the equivalent at a fixed rate on the local currency that implicates well-over a 50 percent loss in value. There is also a cap on the total withdrawal an individual can make in a month, which averages at around $1,000. This has affected students living abroad with their funds in Lebanon; tuition, rent, and basic living on savings or family support was suddenly not possible as banks stopped transferring outside the country. 

While circulars have insisted that banks must release funds to Lebanese students abroad, I can confirm this is not the case for a vast majority. If you choose to close the fund they will issue your money in a cashiers check, which they are unable to pay immediately, and the cycle continues.

Poverty 

A driving force of poverty is that Lebanon is a country highly reliant on imports, even perishable items. As such, a number of essential items are subsidised by the government. As the dollars in the Central Bank wear thin, these subsidies are decreasing, driving inflation up as well. 

In practical terms, only a few days ago at a Spinneys supermarket in the capital city, a big fight broke out, one of a number already reported, as an individual was seemingly mass-buying subsidised items (in this case powdered milk) leaving nothing for other customers. This deep fear, frustration, desperation, and rage, is spreading as fast as the currency falls. 

While the protests thus far have been largely attributed to certain political parties, it will come as no surprise when a non-partisan movement develops as a result of the bitter realities on the ground. 

Ultimately, none of this would have come to pass without the persistent corruption of the Lebanese government and at this point, two years on, after a devastating blast of 750 tonnes of ammonium nitrate at the Beirut port damaging and traumatising the entire nation, there is no segment of the government, no political party, that is beyond severe reprimand. 

Essentially, for any hope to blossom, the government must resign; I would go further and say the system must re-designed. Because of this deadlock, nations and international agencies are refusing to distribute aid packages and the IMF will not negotiate a debt-deal. We must look to agencies with direct lines to local agencies to lend our support to the Lebanese people throughout this difficult time, until they are able to be independent of this oppressive regime.