Is it too late to save Lebanon?
Lebanon, once an emerging Middle Eastern market, struggles to recover after the fatal explosion in Beirut on August 4th. The event that quickly circulated on all of the social media is the last straw for Lebanon as its economic downfall started way sooner.
Dubai of the Middle East
I assume that you have come across the viral picture comparing Dubai now versus then. Beirut, the capital of Lebanon, was the Dubai of the Middle East even before. After the 1920s, France took over the administration of Lebanon, together with today’s Syria under the mandate of the League of Nations. Lebanon became independent 20 years later, but the epithet “the Paris of the Middle East” prevailed. After gaining independence, Lebanon was facing a major challenge: transforming into an independent democratic nation with major religious differences. In 1932, 49 per cent of the Lebanese population were Muslims, while 51 per cent were Lebanese Christians. Establishing a functioning government with such a diverse demographic appeared to be impossible, yet the system functioned. Confessional distribution in practice included the rule that the Lebanese parliament would reserve half of the seats for Christians and the second half for Muslims (Sunnis and Shia would split the seats available) This temporary solution worked “almost” flawlessly for nearly 70 years.
During these times, Lebanon, and Beirut especially, were prospering. Political stability, French influence, the development of a modern banking and service sector and the oil-boom contributed to Lebanon’s golden age. In the 1970’s Beirut became the place where businessmen, bankers, politicians, oil traders from Europe and the Middle East would meet.
Beginning of the Conflict
Israeli-Palestinian tensions undoubtedly influenced the prosperity of the region. As always, the good things never last forever and so didn’t the peace in Lebanon. In 1975 a Civil War began due to the religious reasons. Palestinian insurgency in South Lebanon, backed by the Soviet Union, was the driving force for the conflict. A year later, Lebanon president demanded help from the Syrian army in order to restore peace and support the oppressed Christians. The civil war lasted for 15 years and left 150 000 casualties together with a million displaced refugees, Lebanon in ruins and defected economy.
Good Old Days? Almost
After the devastating Civil War Lebanon managed to cope with the consequences. Lebanon’s government borrowed a lot of money in order to repair damaged infrastructure and modernize it. Due to the economic reforms in 2000–2002, Lebanon managed to keep low inflation while renewing strong trade positions with the EU and the US. French president, Jacques Chirac, promised an extensive financial help and many American-based companies, including tech giants like Microsoft or Cisco, opened their offices in Lebanon after the US government lifted passport restrictions. Lebanon’s growth climaxed in 2010 with 10.1 % GDP growth while inflation stayed low. People and foreign investors were optimistic. Soon after, however, Lebanon took a hard fall down to the bottom. Despite the country getting richer and going in the right direction, their debt was not about to plunge straight away. What went wrong? In simple terms: world economic crisis, 2011 Syrian civil war and controversial economic policies. The Lebanese sudden growth stopped, but the debt had to be paid… somehow. And here comes 2019
Crisis, Corruption and Coronavirus
In October 2019, Lebanon saw its first protest against the government. As mentioned before, Lebanon’s debt stayed where it was left and the time for repayments came. With almost non-existing financial reserves, Lebanon could not afford to repay the debt. In order to gather as much money as possible, the parliament went for the controversial decision to increase taxes on a popular mobile app WhatsApp. Lebanese government would charge $0.20 a day for any WhatsApp calls. By that time, the unemployment rate was remarkably high, with nearly every other Lebanese citizen being out of work. The government also failed to supply its citizens with basic needs such as water and electricity. This led to massive inflation (the currency was losing its value). Imagine that one day you buy a bread for 2 euros and in the following months, you start to pay 3 euros and then 4 euros while having the same salary.
The government initiated a more aggressive strategy, prompting banks to introduce limitation on withdrawal. Even if you had $1 000 000 on your bank account, you can only withdraw $200.
“We used to get $300 every week, then every two weeks, now it’s $200 every two weeks” — Wafaa Zu’hair for the Vice News report
Now, even though Lebanese have 120 billion dollars in banks, only 30 billion dollars is left in the central bank in Banque du Liban, said Joan Chaker to the Vice News in March 2020. Nowadays, it can be less.
The government allegedly borrowed money from the banks and took over the people’s money with extreme interest rates, sparking questions about massive corruption between government and banks officials.
In 2020, after the first coronavirus case in Lebanon, the country went into a strong lockdown to contain the virus. This has been an effective approach as the case count did not exceed 2000 before July. Economically, however, it only made the situation worse. People used to get a couple of hours of electricity a day. Prices of food skyrocketed and many people are barely making ends meet. The official prediction is that as much as 75% of people would be living under the poverty line by the end of the year.
Final Thoughts
Lebanon is in economic collapse. Recently, their credit ranking was downgraded and is now just one place higher than Venezuela’s. Then the massive explosion erupted in Beirut. Are we going to see the Venezuelan scenario? No one knows, but let’s hope for the best, for Lebanon and for Lebanon’s people.
