Eps. 2: “Land of pain”: Lebanon's Economy on the Brink of Disaster

 

Headlines

- The secrets of the diesel mafia and the smuggling of fuel and weapons through illegal crossings .. Electricity companies' suspicious deals and the dollar black market

 

- The collapse of the Lebanese currency and the infrastructure.. The specter of canceling subsidies looms over the scene

 

- United Nations official: “More than 70 ,000 people have lost their sources of livelihood”.. Elder Melham: The economy is dead, the shelves are empty, and I cannot restock the goods .. another citizen complain: I can’t afford buying milk for my son

 

-Resources: unemployment is approaching 65%..A fund  proposal  of 40 billion  dollars to solve  the debt crisis

- Governor  of Banque  du Liban: The reserve  is sufficient  for two  or 3 months only. .Bank Association: Banks  are not withholding  deposits, and we are living  in an  unprecedented  crisis , and the Diab  government has drawn  up a  bankruptcy plan

 

- The Minister of Economy in the caretaker government reveals details of the economic situation and the future of subsidies in an interview  with”Egypt today”:

Hassan Diab's government has resigned because the House of Representatives is "fighting us"

- Raoul Nehme: any reforms we are proposing will meet with resistance from the political class .. And any government will have difficulty succeeding if the political system as a whole does not change

 

- Minister of Economy in the caretaker government: The failure of governments led to an economic setback and led Lebanon to become a failed state..What Lebanon is experiencing today is the result of 30 years of economic, financial and political mistakes .

 

- Fouad Siniora: Political corruption and Lebanon’s deteriorating relationship with its Arab environment has negatively affected the economic and financial conditions in Lebanon

 

- Fouad Siniora: Electricity crisis is responsible for 60% of the Lebanese public debt

 

- Lebanese economic analysts: The government’s adoption of a policy of attracting deposits from abroad and financing the exchange rate of the lira from depositors’ money are the reasons behind the collapse of the economy.. The political class, in collusion with the Central Bank, achieved interests at the expense of the Lebanese People

 

- The head of the Banks Association denies that the banking sector to launder the funds of some parties, such as Hezbollah, as is rumored

 

Raoul Nehme: Failure to lift banking secrecy from politicians opens the door wide to corruption .. The law was recently approved by Parliament, but it is incomplete

- A representative of “the Forces” Party: Smuggling to and from Syria continues under the protection of Hezbollah and the absence of official security services.. The daily proceeds of smuggled gasoline is $ 500,000

 

- An Independent Deputy: The electricity crisis is generating profit for politicians by importing fuel and concluding deals with the generator mafia... And an official in the Free Patriotic Movement: Political forces obstructed energy projects in favor of diesel merchants

 

- On Lebanese official announces to “Egypt today”: The Lebanese state is studying the elimination of subsidies on basic commodities.. Economists confirm: The decision threatens Lebanon with a social explosion.. The Minister of Economy confirms: There is no cancellation of the subsidy

 

The economic situation in Lebanon in numbers:

 

A million people are on the verge of hunger by the end of 2020, in light of the severe crisis in Lebanon, (according to World Food Program estimates)

 

US$ 3 billion is the value of the deficit in the trade balance during the first half of 2020, according to recent statistics issued by the Supreme Council of Customs, a decrease of 58.8% compared to the same period last year due to a decline in imports

 

15,000 commercial establishments in the wholesale and retail sector concerned with hospitality, which equates to 50% of Beirut establishments (according to the United Nations)

 

55%  the poverty rate by the end of 2020, of whom 22% are below the extreme poverty line, with unofficial expectations of an increase of 80% in 2021.

 

$ 147 billion is the value of bank deposits until the end of July 2020, down 15.4% within 10 months, according to BDL data.

US$ 94 billion is the size of public debt (according to the statistics of the Ministry of Finance and the Association of Banks), of which 33 billion are in foreign currencies, at a rate exceeding 150% of the gross domestic product.

US$ 19.5 billion is the volume of foreign exchange reserves at the Central Bank in Lebanon, with expectations that they will soon run out ... of which 17.5 billion are mandatory reserves for commercial banks at the bank

US$ 20 billion in annual imports and 15% unemployment, and the economy shrinks by 6.7%, with an expected fall to 24%.

US$ 8- 10 billion in losses to the Lebanese economy due to the port explosion (according to the World Bank and the Lebanese Ministry of Economy)

 

 

Beirut , Saida, and Mount Lebanon- 31 Aug 2020: In a voice filled with anger mixed with sadness and brokenness, Mohamed Ibrahim, a father of two children, told us, “I was an employee in a hotel, and with the deterioration of economy, they downsized my payment (my salary) and then they let me go. My son is two years old, and  for a whole week, I cannot buy him milk. These our simplest requests, the least we want is to feed dour children! We are in an extremely dire situation, prices have increased by 500%, we pay two electricity bills and three water bills ..who can accept that?!"

Mohamed summarized the suffering of thousands of Lebanese who are now living between the bitterness of rising prices, the collapse of the Lebanese currency, the crisis of electricity, and fears of canceling subsidies, until the citizen’s thought turned into something like a “calculator” that works around the clock, and hunger now ravages the bodies of a large sector of the Lebanese, while their money remains confined to banks .

With the aggravated economic crisis, the ballooning size of the public debt to $94 billion, according to the statistics from the Ministry of Finance, and Lebanon's inability to pay its debts, whether sovereign or non-sovereign, external or internal, it is expected that hunger levels will reach one million people in Lebanon by the end of 2020, according to World Food Program estimates.

The "bitter" reality that the Lebanese people lived for more than 30 days in different governorates paints a bleak picture for the future of the Lebanese economy, which increases its darkness and evaporates the hopes on the horizon of the prospective political stability to put the country on the path of economic reform.

Before this complicated scene, Lebanon is trying to find a way out through some international initiatives, although they depend on taking some serious steps for political and economic reform. France, for example, has announced the postponement of the conference to support Lebanon, explaining in the words of its foreign minister that there is no assistance to Lebanon as long as there is no full-fledged, functional government that handles its affairs, and negotiations with the IMF have been frozen for the same reason, in addition to the state’s inability to fulfill the minimum requirements for taking such loans.

In this investigative report, we are trying to convey the suffering of the Lebanese street and refute aspects of the economic crisis which worsened after the Beirut port explosion, in addition to meeting with the parties concerned to uncover more details of the current situation and future expectations.

The Lebanese street is in pain

A report issued recently by the International Labor Organization pointed to expectations that the unemployment rate would rise to 65%, so that Lebanon could deservedly claim the title of "the country of a million unemployed."

 

 Jan Shamiya, one of hundreds of youths who lost their jobs as he worked as a sales representative in a computer company, lives in Marmakhael area. He was injured in the Beirut explosion and is still receiving treatment, described his living conditions, saying: “Basically we were suffering an economic crisis before the explosion and our income barely covered our needs. The essential life requirements and things even worsened after Covid-19 pandemic. Thus, we began to work half-day, after which I was released with a number of my colleagues”.

Sam Bashara, who works as electrical appliances repairman, added: "There is no future for our children. My son has been graduated for a year. There is no job opportunity. He worked for a while in a clothing store and was closed for two months because of the scarcity of money," Sam continued, saying: "Even drugs are not available, and if they are available, their prices are extremely high, and thefts have increased ... People do not have any money left."

 “We can no longer buy the basic needs for our families...Tomatoes cost 3 thousand Liras, my son’s sharpener for school costs 12 K liras, how can I send him to school? I stopped sending him!” that’s how Sharple Nabil described his situation after he lost his job 3 months earlier. He was employed in real estate company.

Camellia Joseph adds to the description of the tragic reality. A 38-year-old resident of the upscale Achrafieh area, she says, “I am an architect and I have been out of work for 3 years now. We live in a house without windows despite the freezing winter since the explosion [occurred in August.] We cannot afford fixing it and banks won’t give us our money [because of imposed capital controls]. We are living a real tragedy and many of my colleagues have been laid off. "

Camellia's father, a tailor, has also been without work since the Covid-19 pandemic started. She confirmed that her brother is the only provider for her family.

Dealers and sellers, Everyone complains!

The poverty rate in Lebanon reached 55% by the end of 2020, of whom 22% are below the extreme poverty line, according to World Bank estimates. It is expected that the percentage will reach 80% in 2021 if the economic deterioration continues, according to unofficial estimates.

 

The economic crisis afflicted everyone in Lebanon, such as Ziad Qirdahi, who works among 15 fishermen in the port of Jebal and has 3 children. We found him sitting on the beach in Byblos area, getting his nets ready for fishing and next to him the remaining tools. His face is lined with the suffering of people working in his profession, and in very few words he said, “We are the poorest segment of society. We do not have social security or retirement pension. So, we bear the full cost of treatment. We continue day and night for the sake of sustenance. The currency is down to nothing and took us with it. With the rise in fish prices, the demand for its purchase has weakened. "

 Ziad continued his words, oozing with bitterness: "My boat was parked in water for 3 years because I need $1,000 for maintenance. My children are in school and I cannot meet their needs. We are in a great pain. The country needs to regard us a little."

Philip Samaha’s condition was not much different from his fellow Ziad, who is also a fisherman in Mount Lebanon. He confirmed that his conditions worsened due to Covid-19, the closure of restaurants, and the high prices of fishing equipment.

In southern city of Saida, the situation is more severe, as commercial activities are almost halted and many shops are closed. Mustafa Al-Ganzouri, the owner of a hookah shop in the old Sidon market, summarizes the situation to us, saying: “The area was famous for tourism, but now 40% of the shops are closed, and the rest is only open for 6 hours a day. We borrow money so that we can provide our daily sustenance is sufficient. "

Hajj Ahmad Mahmoud, a vegetable seller in Saida, spoke to us, saying: “The prices of vegetables and fruits increased our weakness, for example the option by 4 thousand and carrots by 2000. The trade movement has been severely reduced, and Covid-19 made matters worse for us. We suffer from the greed of major merchants and there is no control. The officials asked us a lot and they don’t hear us, finishing his statement by “Please fear God!”

Empty shelves!

Beside shelves covered with almost dust, almost bare of goods except for a few boxes of sauce, vinegar and oil bottles, torn biscuit boxes and a few vegetables, Elder Melham Ibrahim, 65, sits in a shop in the Karantina area, the signs of aging in his face recount chapters from the history of Lebanon, he told us: "I have lived through many wars, but the crisis that we are experiencing is much more difficult! .. My local area was burned down by the explosion and I cannot replace the goods. The economy is dead, the shelves are empty and I cannot fill it." “Same applies to many in Lebanon today ... as we have heard that the state will cancel the subsidies... we and our children will go hungry. May God have mercy on us."

Fears of canceling subsidies

"Lifting subsidies on basic commodities has become inevitable," says Dr. Sabine Oueiss, an economic colomonist for Al-Nahar newspaper. “The most important of these commodities are wheat, medicine, fuel, and a basket of 200 food commodities, including infant formula. Foreign reserves at the Banque du Liban are less than $19.5 billion, of which 17 billion are mandatory reserves for banks that cannot be disposed of, the remaining amount is barely enough to secure the goods for only two months.”

Oueiss warned that the support card option, which is being studied, will cause a social explosion, especially in light of the crisis caused by the outbreak of the Covid-19 epidemic and the explosion of the Beirut port, making the Lebanese people unable to secure their livelihoods, which drives them to emigrate. There are nearly 500,000 immigration applications up until now.

Oueiss expressed her fear of the possibility of removing subsidies by the end of 2020 without being matched by a practical mechanism to help those in poverty. Meanwhile, Nassib Ghobril believes that, in any case, the removal of subsidies will become mandatory in any agreement with the IMF.

 "The situation has become tragic for all the Lebanese, and many of them are suffering from mental illness even before the explosion, due to the high prices and unemployment." This is how one of the civil activists who requested that her name won’t be quoted described the situation of the Lebanese people, adding “People are talking to themselves, electricity is available for only two hours a day, if you want to light up for more hours, you have to pay additional subscriptions, and the port explosion was preceded by violent incidents, threats to burn banks and to seize deposits. We feel fear that we have not felt ever before; unfortunately, the economic situation will not change unless the political situation changes. "

Grave Mistakes

Nassib Ghobril, head of the economic research department at the Byblos Bank, confirms that the Corona pandemic and the Beirut explosion raised expectations of economic contraction during 2020 to between 22% and 24%, while its rate last year was 6.7% (according to the Central Administration of Statistics in Lebanon).

Ghobril states the causes of the economic crisis, saying that it is the result of the accumulation of mistakes by the governments, among them the expansion of the policy of random employment, during the period from 2014 to 2018, 31 thousand people were employed, and by the end of 2017 the government approved two incorrect decisions that undermined the confidence of citizens in the state, the first is to increase the salaries of public sector employees and retired people without distinguishing between the eligible and the unworthy, which led to the volume of public expenditures reaching two billion and 400 million dollars, and the second increased taxes randomly in light of the economic slowdown.

Ghobril added that confidence in the state has been shaken even more after its inability to implement the reforms recommended by the Cedar 2018 conference, as a requirement that Lebanon obtains US$ 11 billion in facilitated loans from the international community to rehabilitate the infrastructure, which led to the slowdown in capital flows to the country and even their exit, and then the multiplication of exchange rates.

Commercial Shops Complaints

We wandered on Hamra Street, one of the largest streets of the capital Beirut, which has become almost free of pedestrians. With these days you will be confused if you walked there these days. You feel that sadness resides in its corners, and you hardly find a smile free of anxiety among the few who wander the street or frequent cafes that have become almost empty and frustration is high on the faces of the youth working it.

 You can also find people sleeping on the sidewalks. Here is an old lady holding a bag of bread, and when I approached her she refused to speak and was satisfied with one sentence: “I hardly get this bag of bread. I am afraid that I will not find it in future.” Her eyes looked at the bread carrying many words.

In the Gemmayzeh area in Achrafieh, a central area of Beirut, we entered a store with clear traces of destruction, replacing the door with a wooden board, containing a few electrical goods. Ahmed Ibrahim, the owner of the shop, told us, “The explosion affected all the area's merchants, including those who lost their shop or those who had to close it after the cease of customers movement".

Ahmed went on to say, "The crisis started from the time of the revolution and the rise in dollar prices, so the purchase movement weakened, and our ability to import diminished. A refrigerator is now sold for 7.5 million liras instead of its previous price of 1.5 million. We go in huge sufferings paying with our live flesh to live and there is no one to help us. If the situation continues like this, we will shut down like the others". 

Monica John, a university student described the pains of Lebanese people saying: "It is no longer tolerable! ... We see family heads who commit suicide, and young people don’t have any hope but immigration. There are many goods in it that have become unavailable, and if we find them. Their prices have doubled several times. We need politicians whose concern is the citizen, although this change is a mere dream in light of the rules of the infamous political game.”

A teacher at a primary school in Saida added, "The currency crisis overshadowed the Covid-19 disaster. We think about our livelihood more. Black market traders sell dollars at unbelievable prices, banks monopolize it and the big names in the country are covering them."

Lebanese pound exchange rate

The reasons for the deterioration of the value of the Lebanese currency are explained to us by Dr. Sabine Owais, the economic analyst and head of the Association of Economists and Media People in Lebanon, saying: “With the emergence of the liquidity crisis in banks, confidence in the local currency decreased, especially since the central bank was no longer able to continue the policy of fixing the exchange rate and intervening in the market to protect the currency. Consequently, the value of the Lebanese Lira deteriorated. Made worse by the isolation of Lebanon and the declining volume of cash transfers from expatriates abroad and declining tourism revenues. The value of the trade balance deficit increased to US$ 15.5 billion in 2019, and the volume of imports reached US$ 19.2 billion, according to Lebanese customs statistics, but such deficit declined during the first half of 2020 to become only US$ 3 billion, according to recent statistics issued by the Supreme Council of Customs, down with 58.8% compared to the same period last year as a result of reduced imports and Lebanon's inability to transfer foreign currency abroad.

Regarding the future of Lira prices, Ouwais stressed that there is no horizon for an improvement in the exchange rate. Rather, indicators predict a further deterioration in the exchange rate, in light of expectations that the central bank's reserves will soon run out.

Corruption is a major factor in what Lebanon is experiencing today, as confirmed by economic research Elia Al-Yashuai, who explained that the actions of the Lebanese political class were in direct collusion with the Central Bank and the approval of the banks, leading to their benefit at the expense of the citizen. Corruption and quotas have destroyed the economy. In addition, transfers from abroad are linked to external political and economic factors, including the conflict between Iran and the GCC, which led to the halt of many GCC investments in Lebanon, which previously ranged between $4 and 5 billion dollars annually. He expected a further deterioration of the situation and a greater scarcity in the dollar during the upcoming period.

Banking Sector Crises

 “The banks have seized our money, and we are only allowed to withdraw 200,000 pounds per month. What shall I do?” Antoine Naguib gasped in despair. He has deposited his money in a bank, and since the outbreak of the crisis, he was unable to withdraw it. He concluded, "I and a number of bank clients organized more than one demonstration in front of the bank and no one paid any attention to us."

Salim Sfeir, head of the Lebanese Banks Association, explains, in statements to "Egypt today", “Banks do not hold deposits, but the crisis of confidence has created panic among depositors and an urge to withdraw and transfer funds.To take measures to confront the sharp drop in the volume of liquidity and to ensure that the withdrawal process is organized to protect the banking sector, which was supposed to be temporary, pending the approval of the Capital Controls law controlling cash withdrawals and cash transfers abroad, but the government has not approved it yet”.

“An important part of the dollar deposits is currently being withdrawn, amounting to US$ 5,000 per month at a price of 3,900 liras to the dollar, which helps families secure their needs in an acceptable manner, in addition to subsidizing basic materials at 1,500 liras and supporting an important consumer basket at 3,900 liras, but there are restrictions on transferring depositors’ money abroad. The funds deposited with the Central Bank could not be used, confirming that the Association of Banks opposed any prejudice to the depositors’ funds or deduction from what is called the ’Haircut’ to cover losses,” Sfeir added.

Sfeir pointed out that the depositors' full recovery of their money is linked to several factors, foremost of which is political stability, forming a government of competencies that will restore the confidence of citizens and the international community, opening the door for financing from the "CEDRE" conference, and reaching an agreement with the International Monetary Fund.

"There is no law requiring banks to spend deposits at a specific time or exchange them in dollars. Banks are free to exchange them by bank checks or through bank transfers or cashing them in the local currency, and all this is stipulated in the contract that the client signs with the bank," says Dr. Sabine Owais.

“the situation worsened with the evaporation of deposits and the scarcity of dollars in banks, and the dollar has now 3 exchange rates, one the official rate equivalent to 1515 Lebanese pounds, and a special price for import and remittances, which is 3900 Lebanese pounds, while its price on the black-market ranges from 7500 to 10,000 Lebanese pounds.” added Owais

 

Wissam Fattouh, Secretary-General of the Union of Arab Banks, confirms, in statements to "Egypt today", that the economic crisis accelerated since the October 2019 revolution. He pointed out that the "crisis of confidence" is the main problem that the banking sector is currently facing, and ia caused by the state's inability to pay its debts to the Central Bank, whose dues represent 43% of the volume of public debt. The lack of confidence has led to the interruption of financial flows from abroad, including the remittances of Lebanese expatriates, which amounted to US$ 7.4 billion in 2019 (according to BDL statistics), leading investors to flee.

Deterioration in the Volume of Deposits

From his part, Dr. Salim Sfeir said, in statements to Egypt today" : "The banking sector suffered great losses that we are still in the process of evaluating, especially with regard to the cost of restructuring public debt.” He also noted that the volume of bank deposite decreased to US$ 147 billion by the end of last July, as their size decreased. During the period from the end of September 2019 to July 2020, this decrease amounted to $ 27 billion, representing a 15.4% reduction.

He added that the current crisis is unprecedented, and the Lebanese unanimously believe that the political class is the one that brought the country to the edge of collapse due to the accumulated waste and corruption for three decades. Further to the political instability in Lebanon and the region, and the mismanagement of public finances so that the economic plan drawn up by the resigned government was like a bankruptcy plan for banks and not reform as claimed. Not to mention Lebanon’s failure to pay its debts to “Eurobonds”, setting a dangerous precedent in the country's history and damaging its reputation, which negatively affected the the exchange rate of the lira, so the association thereby opposed the decision.

Public debt restructuring

The Association of Banks presented an alternative action plan for the resigned government which is a financial rescue plan, focusing on restoring confidence, according to Sfeir’s statements to "Egypt today", indicating that its most important items are not to fail to pay domestic bonds Internal Default, and negotiate the extension of "Eurobonds" in exchange for low interest to give the state an opportunity to repay, restructure public debt in a fair manner, and establish a sovereign fund for state institutions and property worth $ 40 billion, to be managed with transparency and whose proceeds contribute to the payment of state debts to the central bank, in addition to a plan to reach a productive economy. This plan was presented to the resigned government and we did not receive any response.

Hezbollah money laundering

Regarding the fact that the banking sector is being used as a channel to launder Hezbollah’s money, Sfeir asserted,in statements to "Egypt today", that what the media reported about foreign organizations with suspicious objectives is completely unfounded information. Lebanese banks adhere to the rules of transparency and combat money laundering, and are bound by international sanctions related to these illegal activities. Adding that the persistence of adopting such allegations that distort the reputation of the banking sector serves the interests of forces hostile to Lebanon, for well-known political goals in light of the struggle over wealth and influence.

The economic crisis and the Bank of Lebanon

The situation has become more difficult after the Alvarez and Marsal company’s withdrawal from the agreement signed with the Ministry of Finance for the criminal accounting audit, because the company did not obtain the information and documents required to carry out its mission, according to a statement released by the President’s office. This audit is a basic requirement to provide international support for Lebanon.

“If this situation continues, there will be no return to growth.” With these words, the Governor of the Banque du Liban, Riad Salameh, summarized the current situation, stressing that the bank would take all the procedures legally available to reactivate the sector’s contribution to financing the economy, indicating that ending the payment of Eurobonds benefits (Default) left a big shock to the economy and the financial sector, and it is not clear yet how the economy is to deal with the results of this are pending, particularly since negotiations with the IMF are pending. He also explained that the Banque du Liban is financing the treasury deficit at the request of the Ministry of Finance and based on Article 91 of the Law Cash and credit in pounds.

Salameh noted that he informed the government not to violate the mandatory reserves in foreign currencies, which would allow support for two or three months of basic materials, stressing that the "support cards" proposal would protect the purchasing power of the most vulnerable groups.

 

 French Reform plan

"Despite the obstacles that the French initiative faces, hopes are still hanging on it to save an economy that is on the brink of an abyss.” Tanal Sabah head of Banque Du Liban Swiss Bank, General Secretary of Lebanese Bank Association, noting that the gradual cancellation of subsidies is among the reforms of that initiative adding that expediting the resumption of the IMF negotiations, the application of the control card, the criminal audit of the accounts of the Banque du Liban, the appointment of officials in the regulatory body without modifications, the implementation of customs reforms, the stimulation of the partnership between the public and private sectors, and the preparation of a harmonized budget for the year 2021.

Wissam Fattouh, Secretary-General of the Union of Arab Banks, said in statements to"Egypt today" that Lebanon was hit by a financial “Corona virus", as the decision of Hassan Diab's government to stop paying Lebanon's foreign dues to Eurobonds was a sacrifice to the reputation and credibility of the Lebanese state, despite the fact that the entitlements were for long periods. It was valued at $ 31 billion, but with the declaration of default, all debts were payable immediately.

Is the banking sector is it an offender or victim?

Nassib Ghobril revealed that the Diab government has tried to burden the banking sector and citizens with the full cost of the crisis to avoid its responsibility. There has been a systematic campaign against the sector since the 2019 revolution to hold it responsible, and the parties maintain their grip on the public sector and continue to use it for political clientelism as a source of funding for these parties, despite the fact that the banking sector has endured for 25 years.Responsibility for monetary stability and bridging the fiscal deficit in light of the failure of governments and the executive authority to bear the responsibility for reducing the public budget deficit and improving the investment climate. Indeed, they have taken disastrous decisions on the economy.

 He continued, “Lebanon's economy is paying the price for negligence and mismanagement of public affairs. No economy can rely on fixing the exchange rate while public finances are deteriorating, so that the volume of public expenditures increased by 150% during the period from 2005 to 2019 without the approval of public budgets by parliament.”

For his part, Wissam Fattouh said that the policies of the Banque du Liban central governor were a reaction to the political performance, as he resorted to raising the interest rate on the dollar at lethal rates for the economy that reached 9% in the event of a government vacuum, for fear of money smuggling and in an attempt to preserve the lira’s price.

Bank restructuring

“The banks are not responsible for the depositors’ partial loss of the value of their deposits, ” confirmed Dr. Tanal Sabah, Chairman of the Board of Directors of the Lebanese Swiss Bank, General Secretary of the Association of Banks, in statements to Youm7, explaining that the banks placed their money at the Banque Du Liban, which lent part of it to the state while the other part was assigned to support the lira’s exchange rates, as financing the exchange rate of the lira was a political decision 10 years ago to maintain monetary stability and social security.

Sabah said, "Undoubtedly, the banks incurred great losses after the state was prevented from paying Eurobonds' dues, as they assumed US$ 11 billion of the value of these bonds and the equivalent of US$ 15 billion in treasury bonds in lira. There are expected losses for the sector upon rescheduling public debt. We came to hope that we will keep only half of our capital, which was US$ 22 billion dollars before the crisis, while stressing that depositors recover their deposits in "fresh cash" dollars, which may take 5 years. "

Regarding the bank restructuring plan, he said, the Banque du Liban has started the first stage of the plan by issuing Circular No. 154 calling on each bank to raise its capital by 20% until February 2021. To secure the equivalent of 3% of its total deposits in foreign currencies and to place these funds with correspondent banks abroad. In order to secure this percentage the bank requested politicians and bankers should return 30% of the money they have taken out of the country since July 2017, and that is also to respond to the campaigns accusing them of exploiting the money of the Lebanese and causing their suffering.

 The circular also stipulates that the solvency level should be 10%. As for the banks that will not abide by these procedures, the Supreme Banking Authority will decide their fate, explaining that this plan will lead to reducing the number of banks from 60 banks to about 45 banks.

 This step comes in the absence of any reform role for the authority and the government, while the previous government (the government of dark rooms) developed a failed rescue plan, entitled "Lebanon's banks are bankrupt," which, if applied, would have had catastrophic results because it makes banks alone accountable for the entire cost of the crisis,and thus makes the depositor bear losses through the so-called "hair cut", meaning the deduction of part of their deposits, and we expect the next government to distribute the losses equitably among the responsible authorities.

Wissam Fattouh believes that the banking sector needs nearly $20 billion to recover, while the Lebanese economy’s losses exceed $40 billion, and he proposes a rescue plan based on dividing the banks into three categories, the first of which includes 7 banks that still maintain the confidence of the international community and a large part of their money with correspondent banks, and this category can promote simple support through the Union of Banks. The second category includes 45 banks, and these must merge to create strong entities. As for the third group, it must be liquidated, provided that the depositor is protected, and there is the role of the central bank.

The IMF : A  gate out of the crisis?

Wissam Fattouh said that a joint initiative is currently being launched to support Lebanon in cooperation with the Arab League, and it is divided into two parts; the first is relief for Lebanon after the explosion through the opening of an Arab account, and the second is to support the Lebanese economy and owners of small and medium enterprises that have been affected by the economic crisis in general.

Fattouh explained that the key to Lebanon's exit from the bottleneck is to form a government of specialists to implement immediate reforms and try to reach an agreement with the International Monetary Fund, which represents a certificate of confidence in the economic reform project that encourages investors to re-inject their money into the market, noting that the negotiations that began last May to obtain a loan ranging from $10 to 15 billion within 5 years, which did not make any progress and faltered due to the divergent opinions of the delegation’s members. Fattouh warned of a humanitarian and social catastrophe facing Lebanon if it did not accelerate the start of reform.

The port explosion disaster and the economic crisis ... in numbers

The Beirut port explosion also had a catastrophic impact on the economic situation, as Beirut needs US 5 billion for reconstruction (according to government statistics), while Dr. Najat Rushdie, Deputy Special Coordinator and Humanitarian Coordinator for the United Nations in Lebanon, confirmed , in statments to "Egypt today", that it is estimated that more than 15,000 commercial establishments in the wholesale and retail sector, equivalent to 50% of Beirut's establishments, have led to more than 70,000 people losing their jobs and livelihoods, affecting more than 12,000 families.

Rushdie added that there are businessmen who have lost their shops and facilities in light of the inability to access their savings in the banks, so they are unable to start over, and the United Nations seeks to provide support for small enterprises, noting that refugees and migrant workers in the areas affected by the explosion are the most vulnerable to falling into the clutches of extreme poverty.

Wissam Fattouh agreed with her opinion, stressing that the explosion had a great impact on the Lebanese economy, in addition to the importance of the port as an important source of income, noting that it had been suffering from deep-rooted corruption for years, while Bassem Al-Qaisi, Director General of the Port Administration and Investment, explained that its income decreased due to several factors, including the political crisis. In 2018 the return was 398 billion liras and became 314 billion liras in 2019.

Electricity crisis and fuel smuggling!

Across Beirut, Saida, and the Beqaa, store windows are unlit and we found the darkness and citieselectricity cuts common among most of the cities that we wandered through. Here are the store windows for displaying clothes in stores without lighting, and while we were staring at one of the displays trying to see what is on offer, the shop owner went out to us reassuring and bearing hope that we should wait for a short while until the electric current comes ..We waited but it did not come!

 “The energy crisis is one of the chronic pains in Lebanon, and one of its main causes of is the monopoly of the public sector management, until it has become a burden on the economy and the citizen who pays two electricity bills,” said Nassib Ghobril, Head of Research and Analysis Department at Byblos Bank, adding: "Not only electricity, but there is a crisis in the telecommunications sector as well. Lebanon has the most expensive cellular communication tariff in Arab countries, relative to per capita income, and governments have not taken any reform measures. Rather, political parties have been placing their narrow interests above the interests of the economy and regular citizens."

The deputy and honorary consul of France in Lebanon, Misbah Al-Ahdab, explained to "Egypt today" that the Paris 1, 2 and 3 conferences to support the infrastructure in Lebanon financed the electricity sector and it is not known where that money went! The crisis is through deals for importing fuel and suspicious deals with the generators’ mafia, some of whom are partners with those companies.

He went on to say: “Under the Caesar Act, smuggling operations increased because the ruling system itself was in control, starting from Tehran to Beirut. Hizballah’s dependence on Tehran and its financing from it was confirmed by Hassan Nasrallah repeatedly.

"The volume of waste in the electricity sector has reached 40 billion dollars over 10 years, noting that the total cost of electricity that Lebanon needs annually does not exceed 3 billion dollars, to pay for 4 thousand megawatts," said Wissam Fattouh, Secretary-General of the Union of Arab Banks, adding that Lebanon imports annually worth US$ 5 billion of gasoline and diesel to cover the need of 8 thousand private generators. It also relies on Turkish ships, in addition to diesel smuggling operations.

Fattouh noted that several factors threaten a further deterioration in the energy sector, including the decrease in foreign exchange reserves in the central bank entrusted with financing the import of “fuel”. The Algerian oil company "Sonatrach" refused to renew the contract with Lebanon, and it is difficult to provide an alternative company, and the concession over Zahleh region towards the end of 2020, and non-renewal will put it in the dilemma of rationing. As for the two Turkish ships that supply Lebanon with about 25% of energy, their existence is also threatened due to the state’s inability to pay US$150 million dues to the company, in addition to the US$ 142 million value of the annual contract.

He added that in order for the deals to continue, previous governments had rejected offers to solve the crisis and produce electricity at a low cost, such as the offer by Siemens.

The inflation of corruption in the electricity sector was also confirmed by Fouad Siniora, a former Prime Minister and Minister of Finance, indicating that the electricity crisis is responsible for 60% of the size of the public debt, blaming successive ministers on the energy portfolio for this disaster.

Siniora pointed out that political corruption and Lebanon's deteriorating relationship with its Arab neighbors had a negative impact on its economic conditions, as Lebanon is an arena for regional and international conflict. The crisis has deepened since 2011, so that the growth rate reached 1.5% instead of 9% during the years from 2007 to 2010 and began to decline, and the value of the public debt increased in an unprecedented way, reaching $94 billion until June 2020 (according to the Ministry of Finance), exceeding 150% of GDP, to become one of the highest debt rates in the world, all of which reflected the failure of state administration.

He continued: "Lebanon must reform its relations with the Arab region, as it is the true lung of the state, and its disruption will have a negative impact on the economy."

Energy Minister Raymond Ghajar confirmed that the recent aggravation of the electricity crisis, especially in areas such as Sour, was expected due to the fuel crisis, and said: "We have previously warned the Council of Ministers that the continuing fuel crisis will lead to malnutrition, and an increase in demand for private generators, which in turn cannot work continuously," stressing that the diesel is delivered to the facilities at the official price.

Ghajar indicated that the solution is "Electricity of Lebanon", and if fuel is available, it can pump currents well, while Economy Minister Raoul Nehme confirmed, in statments to "Egypt today", that a mechanism had been set up in cooperation with General Security to control diesel prices and limit manipulation.

Department of Energy remained for many years assigned to "the Free Patriotic Movement", so we interviewed one of its representatives, Mansour Fadel, Vice President of the Free Patriotic Movement, who attributed the causes of the unprecedented economic crisis to internal and external factors, denying the validity of the accusations directed against the movement and Gibran Basil (head of the movement) of causing a crisis Electricity, explaining that these accusations come within the framework of the political assassination attempts of the movement.

 Fadel pointed to the progress of the current with many projects to generate electricity 24/7, but these were obstructed by the political forces in the cabinet and parliament in favor of the (diesel mafia), and the conclusion of deals with major energy generating companies .

Smuggling Operations

"The electricity crisis and the diesel mafia re-highlight the issue of illegal crossings and smuggling across the Syrian border, one of the biggest crises in Lebanon," says MP Ziad Hawat, a member of the powerful Republican bloc belonging to the Lebanese Forces, who has submitted two communications to the Financial Prosecutor on "cross-border smuggling."

Hawat added in statments to" Egypt today"that “The smuggling of state-subsidized goods, including fuel, through illegal crossings into Syria continues by an organized mafia, whose members are from the political system and active parties at the borders, at the forefront of which is militia group Hezbollah, which provides cover for these operations in the absence of the role of the security services. He explained that smuggling is an old process in Lebanon, but it was limited to weapon sales for Hezbollah from Syria to Lebanon, which constitutes a drain on Central Bank reserves. For example, gasoline worth $500,000 is smuggled daily and this organized theft as a result of the failure of tsecurity services and the judiciary and the failure to take a political decision to close the crossings to smuggling operations.

He appealed to the state and the Lebanese army to move quickly to control the Lebanese-Syrian borders, as smuggling and waste in the electricity and telecommunications sectors have led Lebanon to economic collapse and its continuation will lead to a social disaster, calling on the judiciary to receive the file, as there are major powers working to cover the crime of smuggling.

 

"Lebanon cannot return to the golden age while the rules of the game are as they are! Corruption must be eliminated and confidence must be provided ... Lebanon has the ingredients for economic advancement, but politicians have stifled it, and the people can no longer bear it." With these words, French President Emmanuel Macron summarized the situation the economy of the Cedar Land.. Sadly, the economy is still bleeding .. Will the politicians be listening and rush to stop it?

 

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 The Minister of Economy reveals details of the economic situation and the future of subsidies in an interview for “Egypt today"

Undoubtedly, the mistakes of Hassan Diab's government pushed the last nail into the coffin of the Lebanese economy, pushing it towards the abyss. We interviewed Lebanon’s Minister of Economy in the caretaker government, Raoul Nehme. Below is the interview text.

Nehme stressed that the economic conditions Beirut is currently witnessing is the result of 30 years of economic, financial and political mistakes. The political class did not deal with the economy in the right way, under the Sectarian regime and political quotas, which proved its failure, in addition to the political instability at home and in the region, so the problems began to accumulate. Without radical solutions, the Corona pandemic and the Beirut explosion came to deepen Lebanon's crises, as the explosion cost the Lebanese economy about $10 billion, which is higher than the World Bank's estimates (US$ 8 billion dollars).

 Nehme added that the Lebanese economy needs 3 to 5 years to regain its ability to grow, and Lebanon's needs from the international community range from USD$20 to $30 billion.

"Relying on the rentier economy, attracting deposits and linking that policy to high interest rates on the dollar are among of the most prominent mistakes of successive governments. This type of economy ends with the end of confidence, and this is what happened in Lebanon. It did not encourage investors to invest in productive sectors such as industry and agriculture, and the mistakes were not corrected." In the political and economic approaches, depositors’ funds were used for importing, which made the balance of payments for goods negative, according to a speech by Nehme stressing how the failure of government led to an economic setback in Lebanon and led to a failed state, and now the transformation to a productive economy has become inevitable.

Regarding Hassan Diab's government, he said: "It failed to gain the confidence and support of the international community." It should have been firmer in its decisions, attributing its resignation to the resistance of the political class for reform plans suggested by the government. He said “The Parliament was fighting us” Nehme added “any government will find it difficult to succeed if the political system as a whole does not change.

He explained that the biggest problem that citizens currently suffer is weak purchasing power, so the government has worked since the end of last July to expand the basket of subsidized food commodities, albeit for a temporary period, in addition to the economic cost. This pattern also provides an opportunity for smuggling operations to Syria. So currently, the International Bank and Banque du Liban are mulling the ideal way to provide subsidies to citizens monetarily via “subsidies card” that includes a specified amount for each family. It will initially be available to everyone and then be restricted to the most vulnerable groups. As for medicines, I think it is necessary to continue supporting them directly.

Regarding how to start the economy’s recovery phase, Nehme said, "Lebanon won’t be able to rise without the international community’s interference, and this requires engaging in the required economic reforms. Therefore, the formation of the government must be quick, because every passing day inflicts heavy losses on the economy."

Regarding the latest findings of consultations with the International Monetary Fund, he said, "The consultations are currently frozen pending the formation of the government," noting that one of the most important conditions for signing the agreement is the approval of the Capital Control Law, guaranteeing procedures implemented by the government and the Central Bank to monitor and control capital in order to reduce the flow of funds to and from the local economy, in addition to amending the 2020 budget to include a medium-term plan to correct public finances, establish a mechanism to unify the dollar exchange rate, criminal scrutiny at the Electricity of Lebanon and the Central Bank, the independence of the judiciary and stopping corruption. This is directly related to the adoption of a meaningful law to lift banking secrecy from all Politicians, that secrecy that allows the practice of corruption, explaining: "This is what we proposed to the House of Representatives, but Parliament approved an incomplete and empty version of it of the most important provisions and has not been implemented yet. We hope the next government will demand that it be discussed again."

Nehme indicated that the proposal to lift banking secrecy does not include investors, but partial lifting concerns politicians and those close to them. He refused to comment on the US sanctions imposed on those close to Hezbollah.

On the grain stockpile in Lebanon, he said, when the port explosion occurred, we had enough stock for 3 months, but what we are suffering from at the moment in Beirut and Tripoli ports is the weakness of the logistics needed for the speed of unloading and shipping, and storage silos.

Regarding the silos of Beirut port, he said that rebuilding them takes 3 to 5 years at a cost of US$ 60 to 100 million, and says Lebanon seeks to implement a new plan that depends on the exploitation of the ports of Tripoli and Sida. Processing this requires approximately $35 million and we also used the port of Sida to receive the ships, but it does not contain storage silos, and there were studies to exploit it 10 years ago and it were not applied.

 

This article is part of a series of articles on Lebanon by Iman Hanna. Hanna has taken a 30-day trip to monitor the crises in Lebanon and the suffering of the people