On the 17th of October, 2019, Lebanese citizens took to the streets to protest against the govenments failure to provide adequate solutions to an ever worsening economic crisis. As the world looks towards Lebanon, examining the current developing events, we decided to speak to the people who have a real understanding of the current situation. Today we’ll look into what has contributed to Lebanon’s current situation as told by one of its own.

The economic mess that Lebanon is currently in, is a result of years of corruption and a lack of planning.

Since the end of the Lebanese civil war, various parties have taken control over the Lebanese government with one common theme in place: Corruption.

In 1997 the Lebanese Lira (/pound) was pegged to the dollar (@1,500) and, although this gave the country a form of monetary stability, the peg was taken for granted and the expectancy that it would become a permanent feature of the Lebanese economy grew. Prior to the Civil war in Lebanon, 1 US Dollar was worth 3 Lebanese Liras. Thanks to the civil war however, the value of the Lira decreased dramatically until it was eventually pegged at 1,500, where it remains today.

Post war, the Lebanese economy never re-strengthened, with a large imbalance between imports & exports. As local production was never a priority (we’ll get to why this is important in a little bit), corruption played a large role in preventing the Lebanese economy from taking off. As one of the very few countries in the world that doesn’t have 24/7 electricity, we’ll use the explanation as to why, to highlight the corruption that has plagued a nation.

The parties in power throughout the years have found the Energy/Electricity sector to be a goldmine, generating the political party members billions of dollars. In a normal country that is emerging from a civil war, the government usually takes out loans to build its infrastructure. This infrastructure is needed to jump-start the economy which, in return, will allow the country to generate enough revenue in the long run to pay off the initial loan. In Lebanon however, political parties in power took those loans and, instead of building power generating factories, decided to invest this money in buying electricity from other countries. This short term fix in no way helps build a sustainable infrastructure… So, again we ask: ‘why did they do it?

The answer is simple:

The companies/countries they were buying the electricity from were paying pretty large incentives to do so!

However, the above was not enough for the party members in control of the country, leading them to find an additional way to monetize the situation… Each political/religious party supported a private group in its region/area that would provide electricity in parallel to the government supply, at an artificially high cost. This enabled people to have another electricity source when the state’s electricity supply is off. This is especially important as the government  fails to supply and maintain 24 hour coverage. So, as the people in power are able to generate more revenue from private generator owners, there’s an additional incentive for the government to cut electricity more frequently.

As one of so many examples, we can’t explore all of the similar corruption ‘deals’ that were reached in a variety of sectors across Lebanon!

This went on for years and has been going on until today, creating a large number of billionaires who gained their fortunes purely by being in power.

You’re probably asking how come this has been going on for 30 years without a revolution? Or, at least, why the hell are people still voting for the same parties over and over again? Well, the answer is simple:

  1. Lebanon is highly divided in terms of religion. Until today this has been as a tool to divide and control the population. No matter how corrupt a politician is, as long as he is representing his religion against another, people will continue to vote.
  2. Keep sections of the population under the poverty line, with restricted or no access to education – creating a vast number of people whos vote can be bought for as little as $100 on election day. Although this may not be one of the more broadly known conceptions of some of the Lebanese population, keep in mind that there are hundreds of thousands of Lebanese voters in the North & South of the country who easily outnumber the younger population with access to adequate education.

Although one could take the view that the general population has played a huge role in the impending economic disaster… Change is afoot.

Now, let’s fast forward to the last few years…

Despite the overall corruption and problems the country was facing both internally and externally (wars with Israel, clashes with ISIS etc) the country survived by taking more loans and ‘kicking the can further’.  The Lebanese Government’s debt increased from $12 billion in 1990 to almost $100 billion today. It’s also important to note that Lebanon currently has the largest government debt as a percentage of GDP, in the whole world. Explained simply, Lebanon had a credit card that it utilized recklessly and a big chunk of that credit was going illicitly into corrupt pockets… While in return, the Lebanese economy remains in its current, dire state.

In recent years Hezbollah has gained significant power (mainly military) and, as it’s popularity rose, the party gained a big chunk of the government. This turn of events then drew a wedge between Lebanon and the Western World, the Arab Gulf, Saudi Arabia, Bahrain and Qatar which used to bring in billions of dollars in the form of aid, tourism, and investments. However, once Hezbollah gained traction within the government, this inflow of funding stopped, with some countries banning their people from even visiting Lebanon.

At this point, Lebanese expats that used to work in these countries and send funds to their families back home, started loosing their jobs. Now, we should also mentioned that the estimated amount coming into the country from Lebanese expats/year is approximately $10 billion, roughly 25% of the size of the economy. To make matters worse, the big drop in oil prices crushed many jobs and in turn incomes, for the vast majority of Lebanese expats in the gulf and Africa. So, the money stopped coming into Lebanon. Combined with internal conflicts and the Syria/ISIS situation, tourism, which was a vital part of the already weak economy, took a huge hit.

However, in true Lebanese Spirit, it’s been an almost entirely peaceful revolution. Citizens have been partying in the streets while Lebanon is at a standstill!

Lebanon imports the vast majority of its goods.

In order to import, you need US Dollars or foreign currency to buy the goods from foreign countries. As no more dollars were coming into the country, Lebanon needed to start utilizing the USD reserves they already had. Month after month and year after year, these reserves shrank, reaching critically low levels. However, if you don’t have USD reserves, you can’t peg the Lira to the Dollar. Thus, if the peg is removed, a full economic collapse ensue, as the whole economic system is built on the Lira peg.

In light of impending doom, the central bank governor came up with an idea which he coined ‘financial engineering. In simple terms, he asked banks for USD, and whoever provided those dollars received ridiculously high returns. The banks did everything they could to source the USD reserves that he needed, and made a killing in the process.  The question that people failed to ask however, is ‘How are you able to give banks a 10% return on USD in Lebanon, when the interest rate on the USD in the USA is at 2%?’

Anyone with a glimmer of financial sense should have been aware that; the system is collapsing while the central bank concocts solutions that cost more money that they generates – to maintain a peg that will inevitably be removed. Rather than sounding the alarm however, the population continued this ‘financial engineering’ endeavour for another 2 years, with people getting up to 15% on their bank deposits.

The high interest gave the population huge incentives to put their money in the bank and do nothing, much to the economy’s further detriment… As the interest rates are currently so high, people weren’t able to take loans which in turn crashed the housing sector.

Despite all of this, the central bank still didn’t have enough dollars because Lebanon’s imports are way higher than its exports. Due to this, the USD deficit continues to increase. It was at this point that some of the population started to worry and went to the banks to exchange their Lebanese Lira to USD. Obviously this only exacerbated the problem to the point that banks ran out of USD. In theory, even if a Lebanese citizen had $100,000 in their bank account, they wouldn’t be able to withdraw it as there’s no USD in the bank.

What people don’t know is that banks had caps on USD withdrawals for months before it became common knowledge. Most bank owners and managers had already removed their own funds from their own banks and transferred them to Dubai or Switzerland! So, since banks were not giving out USD anymore, people had to go to exchange shops or to the black market where the the Lira exchange sky-rocketed up to 1,800 vs the official 1,500. Due to this, petrol stations, bakeries, pharmacies all had to close down or threaten to close down because they had to buy their petrol, wheat, medicine in USD at a hugely inflated exchange rate. At the same time, they had to sell their produce to their clients in LBP at the rate of 1,500, making no financial sense.

Let’s fast forward a few weeks.

The government met and implemented new taxes on the people to be able to generate revenue and show the international lenders that they are creating reforms in the hope that they can generate some additional promised loans, preventing the impending bankrupcy… And there was the straw that broke the camel’s back.

The entire country decided that enough is enough and they took to the streets, blocking roads and refusing to back down until the entire corrupt government resigns. Banks, roads, and other institutions are shut down while the government remains. However, after years and years of division, the entire country has united, even creating a line of Lebanese citizens holding hand in unity from one side of the country to the other…

As we’ve been speaking directly to those in Lebanon right now, we thought we’d bring you some original, and unseen photos that truly demonstrate what’s going on right now.

What people fail to see is that the future is very dark and at this stage, economic collapse seems inevitable is going to happen.

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Photo & Video Credits: Michele Tabet

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