“It’s tragic:” Lebanon’s crisis worsens

“It’s tragic:” Lebanon’s crisis worsens
Children play outisde a UNICEF tent put in place to provide psychosocial support to people affected by a massive explosion in Beirut’s port area, Lebanon August 20, 2020. REUTERS/Mohamed Azakir
Last week, The American University of Beirut Medical Center explained that because of the fuel shortages, it faced a forced shutdown. “This means that ventilators and other lifesaving medical devices will cease to operate. Forty adult patients and 15 children living on respirators will die immediately."

What happened?

  • Earlier this month, August 4, to be exact, marked the anniversary of the Port of Beirut 2020 explosion.
  • The explosion killed more than 200 people and damaged tens of thousands of homes nearby, destroying the artistic center of Beirut.
  • It also destroyed the country’s largest port, making the cost of shipping go up for the country as a whole.
  • To make matters worse, right after the explosion happened, the president and the Cabinet of Lebanon resigned, leaving very little in the way of federal executive leadership.
  • But the explosion only exacerbated a much bigger problem in Lebanon, which has been dealing with one of the world’s worst financial collapses since the mid-1800s.

Where did the economic crisis stem from?

  • It all really starts in 1990, when Lebanon ended a 15-year civil war. The economy rebounded nicely, and the country quickly became what some even called the “party capital of the Middle East.”
  • Around this time, a man called Riad Salameh also took over over the country’s central bank, which is similar to the Federal Reserve in the United States. When Salameh got in, he introduced a currency peg.
  • A currency peg basically means that, instead of the value of the currency being dependent on the supply and demand of that currency (which is called floating currency), the currency is instead tied to the value of a different currency, the US dollar.
  • This is great for things like international trade, where people buy and sell things in the US dollar anyway, but it meant that the Lebanese central bank needed to always have a constant supply of US dollars.
  • But a few years ago, Lebanon ran into some problems.
  • It found itself with strained relationships in the Persian Gulf who weren’t as willing to keep funneling US dollars into the country, and a war next door in Syria, which made it harder to import and export goods.

How did these problems escalate?

  • With fewer dollars flowing into Lebanon, the government needed to turn to more creative options. What the government resorted to doing was turning to the citizens of Lebanese and asking them to essentially loan money to the Lebanese government in exchange for a high return rate.
  • The problem is though, eventually, the government would have to pay those loans back with interest in US dollars to the general public, but the Lebanese government really didn’t have a plan to make up the difference.
  • It turned out that the central bank had been paying back these loans with money from new investors. In other words, it was a Ponzi scheme.
  • Afterward, the government announced it would be imposing a tax on WhatsApp calls, which was the last straw. People protested nationwide, not just about the tax, but because of the entire mismanagement.
  • The peg began to breakdown. People realized that their bills were no longer being tied to the US dollar at the same rate and were being forced to pay more, prompting people to rush to the banks to withdraw as much money as they could, which was, of course, limited.
  • The real-world value of the Lira shot down, and the demand for the US dollar skyrocketed, putting the country into a mass financial crisis.

What other factors led to the current crisis?

  • The port explosion was one incident that made things worse during the economic down spiral, increasing the on costs of things and making it even harder to bring US dollars into the country via exports.
  • Another factor that made things worse was the COVID-19 pandemic, which not only hurt the economy, but also put a strain on health systems that are now becoming increasingly understaffed.
  • Prices for things that are controlled by the government, such as fuel, are also rising massively to combat high demand and low supply.
  • But according to Mounir Kiwan, a Lebanese-Australian with family in Lebanon, even these are really just symptoms of the government mismanagement and institutionalized corruption at play.
  • Speaking to TMS, he explained that when it came to the explosion last year, “the port authority itself was being governed by a temporary committee that was set up in the midst of the Civil War in 1974, and never went back to some sort of formal governance process.”
  • He went on to say that many other problems stem from the fact that governments tend to be very temporary in Lebanon, to begin with. “Everything in Lebanon is temporary, and the people are kind of used to it.”

How did this impact the Lebanese people?

  • In under two years, the Lebanese currency has lost more than 90% of its value. Now, more than half of the population is in poverty.
  • “Now you’re getting to the point where people are saying we can’t put food on the table,” said Kiwan. “The Lebanese Lira is so devalued that a 50 cent loaf of bread is now worth five dollars in Lebanese Lira context, that is really sort of the end of the line.”
  • “It’s tragic in every sense of the word,” he said, explaining that the number of cases where people don’t have enough money to put food on the table has gone up in recent years.
  • But according to Kiwan, the scariest part isn’t the overinflated price of basic goods, but rather the fact that there doesn’t seem to be any end in sight.
  • “I think the unfortunate reality is that there doesn’t seem to be a circuit breaker happening at the moment in order to reverse the trend.”

How do things look right now?

  • Not good. The fuel shortages have led to widespread blackouts, forcing businesses, schools and hospitals to scale back operations or shut down completely.
  • Last week, The American University of Beirut Medical Center explained that because of the fuel shortages, it faced a forced shutdown. “This means that ventilators and other lifesaving medical devices will cease to operate. Forty adult patients and 15 children living on respirators will die immediately."
  • “During the civil war, even with how horrible it was, there weren’t any power cuts," said Hassan Khalife, who runs a barbecue joint in Beirut. “The state, which is supposed to take care of its people, is doing the opposite, it’s trying to humiliate us as much as it can."
  • And, since the port explosion over a year ago and after the Lebanese government resigned, Lebanon has been struggling to put together a new government.
  • “So far you have nobody running the country," said Central Bank Minister Salameh, in an interview with Radio Free Lebanon.

What’s next?

  • “Everywhere you look, reform is required,” said Kiwan, “whether that’s the sectarian system of governance, whether that’s the central bank refusing to have a forensic audit put upon them, whether that’s the brain drain.”
  • What’s needed in Lebanon, according to him, is someone to “break the circuit breaker,” to change the systems fundamentally so they work for the people of Lebanon.
  • But it isn’t clear that anyone is stepping up to do that, meaning that such recovery, at the moment at least, might just be a dream.
  • “Who’s going to lead the way? Who are the revolutionaries? I can’t point to any at the moment.”

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