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Lebanon’s Crisis Is Equally Financial As It Is Political – OpEd

To overcome the severe financial crisis, Lebanon needs some $20-$25 billion bailout package including from the International Monetary Fund, said former economy minister Nasser Saidi. 

The confidence in its banking system and a default could loom for one of the world’s most indebted countries, with a $1.2 billion Eurobond due in March 2020. Depositors and investors said that they were kept in the dark about the country’s dire financial situation.

There is a hard currency crunch that has prompted banks to restrict access to dollars and the Lebanese pound trades a third weaker on the parallel market. As a result, the prices have risen.

How did it all begin?

In October 2019,  Lebanon’s “October revolution” began with a handful of protesters gathered in Beirut’s Riad al-Solh Square.

The movement grew over the next few days, becoming the most comprehensive anti-government protests the country has seen at least since the civil war ended in 1990. The demonstrations brought hundreds of thousands of Lebanese to the streets, forcing Prime Minister Saad Hariri to resign.

The protests had begun against the government’s proposed decision to bring tax on internet-based calling services such as WhatsApp, which are widely used in Lebanon. The proposal came at a time of an impending currency crisis and when people were fed up with the political system as it was based on nepotism and sectarian identity that had failed to provide even the most basic of services. For instance, the country suffers from long-running shortages in government-provided electricity and water.

The people used the slogan, “all of them means all of them,”. This suggests that demonstrators blamed political leaders of parties from all sects. Lebanon’s current system is based on confessionalism. This implies that the president must be a Maronite Christian, the prime minister a Sunni Muslim, and the speaker of parliament a Shiite Muslim. Parliamentary seats are also included via a sect-based quota system.

Diving Deeper into Economic Issues

Lebanon PM Saad Hariri Blames Iran for Mayhem in Middle East

The country’s economy and financial system have long been heavily dependent on remittances from the Lebanese diaspora abroad, which is larger than Lebanon’s resident population.

In recent times, the flow of money into Lebanon has tapered-off partly because of regional instability, according to Sami Nader, the director of the Levant Institute for Strategic Affairs. In simple words, more dollars have been flowing out of the country than into it, leaving Lebanon without enough dollars to cover its import bill and service its debt. 

A scenario where Lebanon’s pound is put to an immediate end of the peg would lead to a disaster for many, with citizens already struggling to withdraw U.S. dollars and facing a rising black market exchange rate. Prior to the protests, the unofficial exchange rate on the street had crept up to around 1,650 pounds to the dollar.

With banks closed since the beginning of the uprising, the black market exchange rate rose to 1,800 pounds to the dollar or more. This puts the fate of the national currency in uncertainty. 

 

Lebanon PM Saad Hariri Blames Iran for Mayhem in Middle East