Lebanon’s troubled economy enters new year | Business and Economic Affairs

Beirut, Lebanon – For more than two years, Lebanese people who have a US dollar account in a local bank have been facing bankruptcy restrictions, as strong currencies have dried up and the value of the Lebanese pound has plummeted. As a result when the Lebanese central bank issued a directive last month doubling the exchange rate for the Lebanese pound on dollar deposits, a riot broke out.

At one bank, security forces struggled to close the entrance, while retired and unemployed soldiers stormed in to retrieve their savings. A soldier in civilian clothes crawled under his legs to get inside.

While measures such as the law could temporarily reduce the amount of money deposited in banks across the country, experts say they should increase inflation – which reaches 174 percent in October – even worse. That’s why the central bank – Banque du Liban – can print extra pounds to meet the required amount.

But with the elections due to be held in May, experts say such Band-Aid tactics should happen, as politicians want to appease angry voters as they seek to change the factors that could lead to growing economic and financial problems. for more than two years and only showing deep signs in 2022.

Ill for years

A central banking decree in December increased the exchange rate of Lebanese pounds from savings accounts from £ 3,900 to $ 1 to 8,000 pounds to $ 1. But in a sign of the Lebanese ‘desire to release what he has kept, the price is still a barber on a recent Lebanese currency.

Lebanon started the new year with a price tag of up to a minimum of $ 30,000 to $ 1 in the same market. One month earlier, it was selling for $ 23,000 to $ 1.

The recent decline brings the country’s minimum wage to $ 22.50. But experts say that these are the latest signs of chronic illness in economically developed lands that have been sick for decades.

“That’s the way the country has been going for more than a decade,” Mike Azar, chief financial adviser, told Al Jazeera. “Now we feel more pain than ever because we have less money to cover up the impact of this mismanagement.”

Back in 1997, the Lebanese pound was valued at about $ 1,500 to $ 1 to end the aftermath of a civil war and to maintain business confidence throughout the reconstruction of the country.

But the official nail remained in place as the pound fell in equity markets, losing more than 95 percent of its value since October 2019.

Lebanon’s dual currency system failed because the country has been plagued by economic instability and corruption, experts say. The economy began to rely heavily on tourism, banking, and foreign investment to earn money and bring in foreign exchange.

In August 2019, cash withdrawals were running out, banks began to break the withdrawal limits on dollar accounts, sparking fears among investors. By the end of October of that year, protests had spread throughout the country.

Things have only gotten worse since then. The COVID-19 epidemic has disrupted tourism. Then came the catastrophic explosion of Port Beirut Port in August 2020. All this time, Lebanese politics has been booming, with successive governments failing to provide the needed economic reforms necessary to unlock billions of dollars of much-needed financial assistance, including the International Organization for International Development. Monetary Fund (IMF) Fund.

Banks in this country are often bankrupt. The government estimates that losses in the financial sector since the financial crisis began to fall between $ 68bn and $ 69bn.

Jobs have been lost, thousands of businesses have failed, and savings have plummeted, along with the country’s middle class. It is estimated that about three quarters of the population now live in extreme poverty.

Businesses in Lebanon that have somehow managed to keep their doors open face the daily challenge of changing their prices into unlimited cash.

“It is very difficult for businesses to sell their goods and services in Lebanese pounds when exchange rates are volatile and unpredictable in the future,” Azar told Al Jazeera.

Without real change…

Since the financial crisis in 2019, Lebanon has undergone a number of legal and volatile changes, while fixed prices have become unprofitable. Even Banque du Liban Governor Riad Salameh thinks so.

Salameh was once declared a financial witch. At present, many criticize him for what he perceives to be a lack of trust in the financial institutions and financial institutions of the country.

The main bank house in Beirut, Lebanon [File: Mohamed Azakir/Reuters]

For his part, Salameh has defected to the government for failing to implement the economic restructuring plan.

Lebanon’s biggest interest rate is the equity market, which is growing with alliances based on current political and economic developments and openness. Officials are struggling to break into exchange offices at an unpredictable rate, and the central bank has struggled to convince them to adopt their own currency, called Sayrafa.

Despite the financial crisis, and lack of oversight, financial adviser Michel Kozah told Al Jazeera Lebanon that it was “in a bad mood”.

“The Sayrafa program is losing dollars – this is the savings of investors,” Kozah said. “And even banks have their prices based on this platform. It’s crazy.”

Without proper planning and remodeling, Lebanese officials rely heavily on tourists during the summer and winter to bring solid money to the country and Lebanese living abroad to send dollars to their families to help pay off debts.

Meanwhile, a economic crisis in ordinary Lebanon it only got worse when the government collapsed.

Since last summer, the central bank has steadily raised funds to support wheat, oil, oil and pharmaceuticals. Adding fuel tank now the equivalent of a minimum monthly salary.

“This is just slowing things down, and I think the rounds of the big bank should please the angry investors in front of them. [parliamentary] elections [in May], ”Said Koza. “But what you need is a complete change with the IMF system at the end of the day.”

Azar said the same, adding that strong public safety and job creation would have solved the problem of rising prices if the program had been implemented earlier. problems.

“Until any changes that are needed cause problems for other groups of people, such as increasing electricity prices or raising other subsidies, there will be social security and other services provided as part of the policy,” he said. “You can also have foreign economic support, economic growth, and jobs, which can increase purchasing power.”

The worst was not over

The IMF delegation will travel to Beirut within two weeks to resume negotiations, although the Lebanese government has struggled to implement any changes in its economic and financial management system, including legal review of the central bank, monetary policy, and the credit card acceptance program. reducing the effects of raising support.

And Kozah says Lebanon has never seen the worst rise. About half a million government workers and security agencies are still being paid at the exchange rate, and Lebanese officials want to continue raising aid bills while the central bank reserves are drying up.

“They have to change government spending. They will not be paid in dollars, but they will be paid at the rate they can afford,” Kozah said.

Azar also questions whether the fixed Lebanese pound currency is also working as a currency, as high-end retailers have begun to accept payments in US dollars.

“Even if we wake up tomorrow, and the government sets up a plan and fixes it correctly, is it reasonable to expect people to put their savings back in Lebanese banks?” he asked. “Meanwhile, after more than two years of delays in setting up a single restructuring and a complete collapse of the lira. [Lebanese pound], it is difficult to see the practical value of the trust of the lira, which is necessary to maintain its function as an investment. ”