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What happened to the Lebanese economy?

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A gas-free service station available. (Sabri Ben Achour)

Drive down any main road in Beirut these days, and you’re bound to come across a line of cars, barely moving, taking up an entire lane of traffic, winding a block or even a mile. These are gas pipes.

“I’ve been here since 6 a.m. to stand in line, now it’s 11 a.m.,” gray-haired, sweaty Salim Al Arab said from his station wagon with his windows down in the summer heat of Beirut. You don’t use air conditioning when gas is so hard to find.

Al Arab is leading a line that stretches as far as the eye can see. It includes bus drivers and electricians, taxi drivers and delivery people, all taking hours and hours out of their day to get the gas they need to live their lives.

Gas, of course, is not half of it. Inflation there reached nearly 160% in March.

“The prices are crazy,” Ahmad Zaki said from the side of the road next to another gas station. Zaki runs a mobile cafe on the back of his motorbike. “A kilo of coffee costs me what I earn in a day. I can barely make ends meet.

I asked a baker for kanafeh, a fried cheese dish glazed with syrup.

“We don’t do that anymore. The ingredients are too expensive, ”the baker told me.

Then there is the electricity. Those who depend on the electricity grid have about an hour or two a day.

Lebanon’s power grid has been notoriously dysfunctional for many years, unable to deliver electricity around the clock for decades, but it is at a new low. Those with money to spare have generators – generators that need fuel.

Vartan Chakrian runs a small boutique in Bourj Hammoud, the Armenian quarter of Beirut. He moves and speaks slowly, as if to save energy. A small parakeet keeps him company while behind him stands a 7 foot tall pile of Kleenex. Why so many Kleenex? He cut down on perishables because the electricity cuts or fry the refrigerator.

Business is not great. Kleenex is selling and not doing badly, he says.

Of course, this economic crisis is only the basis for all the other burdens the Lebanese are under – the pandemic is simmering in the background.

“I spent all my money on my brother last year,” Chakrian told me, his eyes suddenly glowing. “He had COVID. It was not enough. He is dead.”

The current crisis in Lebanon is perhaps one of the three worst crises the world has known in 150 years, according to the World Bank.

“Sudden stop” of capital flows

It’s both simple and anything but.

Simple in that it was triggered by a simple phenomenon in economics: a “sudden stop” of capital. The flow of foreign currency into the country – dollars, euros – slowed down and practically came to a halt in 2019 and 2020.

Without enough dollars to find Lebanese pounds, the market value of the currency plummeted. It has lost 90% of its value in two years. Everything that needed to be imported suddenly became expensive and hard to find.

In Lebanon, a small country with an undernourished manufacturing sector, a lot of things are imported: gas, medicines, food.

Cancer patients protested a few weeks ago that their drugs were not available or that their cost was astronomical. Jehan Saleh, from Michigan, is in Lebanon to visit his family. She walks through what was once a bustling shopping street in Beirut known to everyone as Hamra.

Half the stores are closed and you would never guess that it was once a crowded commercial thoroughfare. She arrived with a suitcase full of supplies.

A suitcase full of medicines

“Well, I brought some basic medicine that they can’t find here – over-the-counter pain relievers, ointments, allergy medicine, stomach medicine, things they can’t. not find here. And if they can find it, they can’t afford it, ”she said.

The government subsidized essentials like gas and drugs, but this led to the two being smuggled abroad, where they could be sold for a higher profit margin. When the government announced it would cut subsidies, cases of storage were reported as sellers wanted to wait until they could sell their goods later. Both phenomena exacerbated the shortages.

St. George’s Hospital sits near the port where a massive explosion on August 4, 2020 caused $ 15 billion in property damage and left 300,000 homeless. Its lobby has been recently renovated, but some windows are still broken.

Hospital loses nearly 100 nurses

“Before, we had the best salaries,” said Wafaa Maalouf, head of nursing. “Before, we were attracted to many nurses from different fields. Unfortunately, with the deterioration of the financial situation in Lebanon, we are losing a lot of nurses. ”

Transportation to the hospital has become expensive, rents have skyrocketed and the value of wages has fallen.

“So I have about 96 resignations,” she said. “My staff was around 600 people. We’re now about 500. ”Patients are discharged only to find they can’t get the follow-up medication they need. The morale of the remaining nurses is low.

The sudden freeze of foreign capital entering Lebanon and the collapse of its currency is the tip of the economic iceberg.

The Caesar law

Hezbollah chief Hassan Nasrallah blamed the situation on what some here are calling a US-led siege. The US Caesar Syria Civilian Protection Act, threatening sanctions against those helping or working with the regime in Syria, has complicated the already difficult task of supplying Lebanon with fuel and electricity and has dissuaded some expatriates from sending electricity. money in Lebanon. But there are many other factors behind Lebanon’s economic collapse, and they date back decades.

“Fifteen years ago, we imported about $ 20 billion worth of goods a year.. We only exported around $ 3 billion, ”explains Kamal Hamdan, director general of the Beirut Consulting and Research Institute.

Foreign currency outflows were offset by tourists from the Gulf, Syria and Iran to spend. It was also balanced by international loans, international aid and remittances from millions of Lebanese living abroad, Hamdan explained from a dark, uncooled office as a generator for a nearby hotel purred behind – plan.

“The turning point was 2011,” Hamdan said. “The Arab Spring and the explosion of antagonism between Saudi Arabia and Iran have had repercussions on the political and economic relations between Lebanon and Saudi Arabia and consequently all the countries of the Gulf zone . Gulf aid was reduced to a trickle in 2016.

Domestic and foreign debt

During this time, the Lebanese government was accumulating debts, both internal and external. The debt-to-gross domestic product ratio, which fell until 2012, reversed and reached 150% in 2018.

Nassib Ghobril, chief economist of the Byblos Bank group, describes it as unprecedented.

” Public expenses [went] from $ 6.8 billion in 2005 to $ 18 billion in 2018. We have seen 31,000 people recruit for political reasons into the public sector, ”Ghobril said. “We have seen a decision to indiscriminately increase the wages and salaries of public sector workers and employees and retirees without taking into account this impact on public finances and on confidence.”

As foreign currencies entering the country stopped balancing outflows, Lebanon’s central bank began trying to attract foreign currencies into the country by raising interest rates more and more, reaching nearly 10 %.

He started borrowing from commercial banks, which borrowed from their own depositors and customers. It bought a few years, Hamdan said. But eventually the flows started to slow down again. With fewer dollars coming in, the central bank had less ammunition to peg the Lebanese pound to the dollar. Black market exchange rates emerged, revealing that the real value of the pound was falling.

The events of 2019 “created panic”

Then in 2019, a series of shocks brought down the house of cards. In the financial world, Fitch Ratings downgraded Lebanon’s debt in August, a small Lebanese bank was blacklisted by the US Treasury Department, and an Israeli drone strike in a southern Beirut suburb has collectively sounded alarm bells. to the ears of investors.

“These three events created panic and led to a turning point in the sudden halt in capital inflows,” Ghobril said.

In November 2019, Lebanese banks closed their doors amid nationwide protests calling for the resignation of the government, further eroding confidence in the banking system. Desperate Lebanese tried to buy goods or works of art during this period in an attempt to preserve their savings.

Finally, in March 2020, the government defaulted on its external debts.

“This has led to an almost complete halt to all inflows of capital into Lebanon,” Ghobril said.

Limited access to bank accounts

The consequences spilled over into the banking system, with banks limiting people’s access to their accounts and forcing the Lebanese to convert their accounts to US dollars at the old dollar rate. This actually meant that every depositor with dollars in Lebanon was actually losing 80% of the value of their accounts.

“They stole our money,” said Laila Said angrily. She lives in a suburb and made a rare trip downtown to shop. “How can you make money for years and years and have someone take your money now?” “

But Lebanon, like most places, is nothing if not a land of contradictions. There are segments of the economy that do better – wealthy and operating on the dollars brought in by tourists and expatriates.

In the mountains outside of Beirut, wedding music can still be heard across the valleys. In a restaurant by a waterfall in Lebanon’s Chouf region, a couple dine on a floating platform in a pool fed by a stream. Admission is $ 20.

The United States and France have offered hundreds of millions of dollars in humanitarian aid. But the recovery would require loans in the order of billions, according to economists.

The IMF offered such loans subject to reform, but the government was unwilling or unable to accept them. Until recently, Lebanon did not have a fully functioning executive branch – the latter resigned in August 2020 after the massive explosion in the port of Beirut but remained on an interim basis. A new government was announced earlier this month and promises to tackle the crisis.

For some, it is too little, too late.

Hisham Kekhia works for the family bottle manufacturing business. Last June, he fell ill.

“For three weeks, I couldn’t find the most basic drug,” he told me. “It was the last straw. It has become unlivable. So I’m going to go. He will go to Turkey, he thinks.

He will leave behind a country which, for many, becomes unrecognizable.

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