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Economic Crisis Looms as Protests Rage in Lebanon

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Economic Crisis Looms as Protests Rage in Lebanon

BEIRUT, Lebanon – Banks in Lebanon have closed their doors this week to protect employees from angry customers who demand money. So this anger has been redirected to outside media agencies, which are also refusing to distribute dollars, regardless of how much customers have on their accounts.

"I want my dollars," said Sonia Badran, a mother of four, married to an elevator technician, after her third failed bank trip this week. Until the dollar crisis in the country is resolved, she said, protests against the government should continue.

"Let them stay on the streets," she said. "This is not acceptable."

After nearly a month of mass protests criticizing Lebanon's political elite for corruption and mismanagement, the country's long-term economic problems are increasingly colliding with the daily lives of its citizens.

US dollars – long used in conjunction with the Lebanese pound – became scarce because concerns about political turmoil caused more people to try to withdraw their money. Thus employers have struggled to pay salaries, renters to pay rent, and merchants to pay for goods and services from abroad.

Relief seems remote, analysts and economists say; The underlying problems have been developing for so long that they can only be corrected through long-term policies that are likely to cause pain. And implementing such initiatives would require a strong government, of which Lebanon does not have.

"The problem is that current policies are unsustainable," said Nasser Saidi, a former Lebanese economy minister. Getting the country on the right track would require addressing both a large budget deficit and reducing public debt – a mammoth task.

"You really don't have much choice," he said. "You're on the brink and looking down, so unless you do that, where will it end?"

The protests in Lebanon erupted on October 17 after the government suggested it could increase revenue by taxing calls made through internet services like WhatsApp. For many Lebanese, it was an insult that the country's leaders tried to use their appeals to subsidize the state after decades of mismanagement and looting.

The demonstrations have continued since then, in a movement that has remained virtually leaderless, with demands ranging from economic reforms to corrupt politician trials and the complete expulsion of the political elite.

Within a month, the protesters' main victory was the resignation of Prime Minister Saad Hariri on October 29. On Friday, there were rumors that the country's main political parties agreed to nominate former Finance Minister Mohammad Safadi as his successor.

Safadi may start trying to form a new government next week, Lebanon's Foreign Minister Gebran Bassil told a local television station. But these processes usually take months in Lebanon and it was not immediately clear how much support Safadi had.

Nor was it clear whether his appointment would soften the protests. In many ways, the 75-year-old rich, who has extensive business ties with Saudi Arabia, is from the same class of leaders that protesters took to the streets to get rid of.

Any new government without protesters will have difficulty implementing meaningful policies, said Michael Young, senior editor of the Carnegie Middle East Center in Beirut.

"Any government that does not meet the demands of the public will basically start in a hole," he said. "It will be a government that opposes the people and will have little legitimacy to impose reforms."

In addition to calming the country's immediate political crisis, any new government will have to deal with deep-seated economic problems that have been forming for years, ultimately leaving citizens unable to withdraw their own dollars from the bank.

For more than two decades, the Lebanese have used both US dollars and Lebanese pounds, an agreement made possible by a central bank policy that kept the exchange rate fixed at about 1,500 pounds per dollar.

Both coins were used so interchangeably in everyday life that it was common to pay for a meal or taxi in one currency and receive change in the other, or a combination of both.

But maintaining that rate required continually bringing new dollars into the country, often attracting wealthy investors to make large deposits with high interest rates, a strategy that some economists have compared with a Ponzi scheme.

"In a sense, this is the definition of a Ponzi scheme, beyond the fraudulent part," said Dan Azzi, a former Lebanese bank executive and senior member of leadership at Harvard.

The policy has worked for a long time, but has been stressed in recent years as the central bank had to honor the promised high interest rates, while regional turmoil scared many new investors away. Over time, the gap widened between what investors had gained on paper and real money at the central bank.

"It's almost surreal what's happening," Azzi said. "A virtual problem, a theoretical problem that has spread in the real world."

Now the growing demand for wealthy investors and middle-class bank customers for the limited number of dollars means there is not enough to circulate. This has already weakened the connection between the dollar and the Lebanese pound, whose value has fallen on the black market, and undermined confidence in banks.

Even before the protests began last month, about $ 3 billion was withdrawn from Lebanese banks, central bank governor Riad Salameh told reporters this week. Another $ 2 billion was withdrawn after the banks reopened after the first two weeks of protests.

Salameh insisted that deposits were safe and that no official limits had been placed on dollar withdrawals, but many banks imposed unofficial limits that change frequently and are not publicly announced.

Amid rising anger over the edge, bank officials began an open strike on Tuesday, saying they needed protection from angry customers. While the banks were closed, many stopped distributing A.T.M.s dollars and imposed new limits on debt and credit card transactions.

It is not clear whether these practices are legal as there is no law authorizing them, said Karim Nammour, a lawyer with the The Legal Agenda, a advocacy group.

"We are living completely in a situation with no legal basis," he said.

The inability to earn dollars has caused a number of headaches for people who pay bribes or rents in dollars and for companies that rely on dollars to pay for foreign goods or services.

Some foreign products have disappeared from supermarket shelves, and gas stations have recently run out of gas until the government intervenes to ensure traders can pay for imports.

Elie Abyad, owner of a six-person travel agency in Beirut, said she has been struggling to maintain her business, as all airline tickets and hotel reservations must be made in dollars, which her local bank has limited her ability to use. .

He had tried unsuccessfully to make money from bank and maneuvering agencies, and had paid his employees half of their salaries in pounds, since he could not get enough money. Their customers have also been undermined by new regulations, as they cannot withdraw dollars to pay for travel abroad.

Across the country, steady streams of citizens have been trying their luck at A.T.M.s to see if they can make any money – mostly in vain.

After repeatedly trying – and ultimately failing – to get $ 300 of his own money from an ATM, Raymond Haddad, a retired Lebanese national lottery official, said he couldn't pay the next installment on his son's computer. , because the dealer would do that. It only accepts dollars and your bank would give you only pounds.

"They need to form a new government to get us out of this hole," Haddad said. "But it needs to be a government that builds trust, not just any government."

Hwaida Saad contributed reporting from Beirut.


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