Question

What happened on Lebanon economics? Read this Articals and share with us your opinion and solution.

A Lebanese anti-government protester holds a placard as she sits for a haircut in front of the central bank headquarters in Beirut to protest against the economic policies of the bank. (AFP)

A gathering of Lebanese anti-government protesters getting haircuts in front of the central bank building in Beirut last week attracted many jokes and much amusement. The protesters were expressing their rejection of a potential move by banks to take a proportion of their depositors’ money — known as a “haircut” — as a result of the country’s ongoing financial crisis.
The demonstrators were having fun and enjoying this original way of protesting despite their fears over the uncertainty of the outcome of their popular uprising against corruption and the failures of the political classes. Salim Sfeir, the head of the Association of Banks in Lebanon, said in an interview with Reuters that a haircut would not solve the problem and, on the contrary, would scare off customers. The Lebanese diaspora has plenty of money overseas and this money would never come back if there was a haircut, Sfeir said.
The Lebanese economy is experiencing its worst crisis since the civil war began in 1975. Government debt amounts to $88.4 billion — 150 percent of Lebanon’s gross domestic product. However, despite the liquidity crisis that is endangering the country, Lebanon last week settled a maturing $1.5 billion Eurobond, signaling to the market that, despite the political and economic crisis, it has not defaulted.
But the political stalemate — with the political class denying the people’s demands for a new government of honest, independent people — is aggravating the financial situation. The banks were shut at the beginning of the protest for two weeks. They reopened last week but limited weekly withdrawals to $1,000 and restricted transfers abroad. Added to that, depositors can only withdraw money in Lebanese pounds, which they can change for US dollars with an exchange agent. As a result of this unofficial market, the dollar rate reached as high as 2,000 Lebanese pounds, even though the currency is officially pegged to the dollar at 1,500.
These measures have created panic among the people. A growing fear surfaced about the possibility of banks failing to give money to their depositors. The confidence of nonresident depositors has been lost. Banks have been targeted by many protesters, some shouting at central bank governor Riad Salame to “give us back the stolen money.” Rumors have spread in the cities, with crowds rushing to the banks to withdraw money.
The central bank said last week that it was allowing banks to borrow dollars without limits at 20 percent interest to secure depositors’ needs, but stressed that the funds should not be sent abroad. The Institute of International Finance said that deposits had dropped by more than $10 billion dollars since the end of August. An important part of this money was sent abroad, while more than $4 billion of it is being kept in people’s homes.

One group of Lebanese economists proposed an emergency economic rescue plan, which recommended: The careful management of Lebanon’s rapidly dwindling foreign currency reserves; defending the value of the Lebanese pound, including tighter measures of capital control; a deep fiscal plan to fight corruption; new social policies to protect those most affected by the current crisis; a negotiated debt reduction plan with a fair sharing of the burden across society; and a monitoring mechanism that allows the people to put pressure on their leaders to implement these reforms while state oversight mechanisms are reinforced.
The country is on the brink of total economic collapse, with people getting poorer, more than 250 restaurants closing, many people unable to pay for imported goods because of the dollar restrictions, and hotels cutting salaries and laying off many workers. Unemployment is increasing rapidly.
The start of a solution to this catastrophic situation could come from international and regional support, but only if a credible government with honest, capable ministers who can inspire confidence is formed. But, since Prime Minister Saad Hariri’s resignation, President Michel Aoun, who is constitutionally required to start consultations with Parliament to nominate a replacement, has been delaying. The president and his foreign minister son-in-law Gebran Bassil, who are allies of Hezbollah, are in denial over the requests of the protesters on the street. They think the country can wait while they endlessly discuss with their ally Hezbollah its choice of government. Both seem to want a mix of political and technocratic ministers to come back with the same politicians who are hated on the street. The pro-Iran Hezbollah is insisting on having Hariri back on its own conditions, whereas Hariri insisted on a purely technocratic government, as demanded by the popular will.
Hezbollah has less to lose from the liquidity and economic crisis. Its money is in homes or in its caves and tunnels — it has no money in Lebanese banks because of American sanctions. Nevertheless, the group has a large number of government employees who need their end-of-month salaries. But this does not look to be a worry for Hezbollah.
The financial crisis is being driven by the rising burden of servicing and refinancing the public debt and the sharp fall of capital inflows. Meanwhile, Hezbollah and its allies are dragging their feet with no concern for the demands of the people. Some observers of Hezbollah’s relations with Iran think that, usually, Hassan Nasrallah has the leverage to act however he sees fit in Lebanon but, this time, in view of the violent outcomes of the popular uprisings in Iran and Iraq, Tehran is pressuring Hezbollah not to give in to the protesters’ demands.
The unstable political situation, the serious incapacity of a political class that is eager to keep its benefits, Hezbollah’s grip on its power to decide the kind of government it wants, and the corruption of many in government and within the administration all contribute to making the future of Lebanon very bleak unless something is quickly done to save it.

• Randa Takieddine is a Paris-based Lebanese journalist who headed Al-Hayat’s bureau in France for 30 years. She has covered France’s relations with the Middle East through the terms of four presidents.

Answer 1

The economy of Lebanon is classified as a developing, upper-middle income economy.Lebanon has a competitive and free market regime and a strong laissez-faire commercial tradition. The Lebanese economy is service-oriented and most of the people keep their money in the banks. now such instability would definitely shake their trust and believes from the bank and from the government. Its their hard earned money that could not taken by the government for granted.Meanwhile,the government behavior is not at all rational, thinking only about themselves will never help with the crises and would lead to removal of power as well. This could even lead to vandalism and all sorts of corruption (like increase in rape,robbery etc) in the economy.

If the currency remains to be weak,people would never want to deposit money and that crises will not only instablise their economy but all the nation world wide. The financial crisis is being driven by the rising burden of servicing and refinancing the public debt and the sharp fall of capital inflows. This is like vicious cycle and would drive the whole economy into a never ending debt.

Something needs to be done as soon as possible.The country cannot wait while they endlessly discuss with their ally Hezbollah its choice of government. Policy has to be made to ensure people trust on the government and on the banks as well. Unless they do not regain trust that their deposited money will be safe the economy will never come up from this recession phase . Also every nation has to help the lebanon economy so that they can come out of the mess.