The explosion that hit Beirut last Tuesday was so powerful that it was heard on the island of Cyprus, which is more than two hundred kilometers away, and resulted in the death of at least 135 people and the fall of 5,000 wounded.
Dealing with the devastating effects of this explosion will be difficult at the best of times, so how does the situation become in the midst of a severe economic crisis exacerbated by the Covid-19 pandemic?
In a report published by the Australian website The Conversation, writer Hannes Boman said that the price of the Lebanese pound fell to record levels before the explosion, losing more than 80% of its value since October 2019.
Since 1997, the pound has been formally pegged to the US dollar at an exchange rate of 1,500 pounds to the dollar, with the two currencies being widely used interchangeably. But the exchange rate has long remained negative.
The deterioration of the local currency rate is attributed to the accumulation of government debts, which for years were considered among the highest levels of debt in the world, as well as the trade balance deficit, especially in a country that relies heavily on imports.
Usually, these crises cause the capital to leave, which makes the value of the currency depreciate, and the country for years avoided this fate as local banks welcomed government lending because they were getting very high interest rates, and Lebanon always received financial aid from friendly Gulf governments.
Worsening crisis
By 2016, remittances began to decline, relations with the Gulf soured, and the flow of capital to Lebanon slowed. In an effort to keep the money flowing, the central bank has engaged in complex borrowing arrangements with local banks in what it calls "financial engineering", but critics have described it as a fraudulent scheme.
In light of the inability to restore economic confidence, and by September 2019, the Central Bank could no longer stop the flow of money out of the country. With the flight of capital, banks began to legalize the size of dollars that citizens can withdraw from their accounts, and the possibility that the Lebanese could not access their savings in dollars or the pound lost its value contributed to the increase in panic.
To increase revenues, the government proposed new taxes on tobacco, gasoline and voice calls via messaging services such as WhatsApp, and this was the straw that broke the camel's back, so thousands took to the streets to protest the tax and denounce the corruption that plagues the state, forcing the government to resign. The currency's value has plummeted as the new government headed by Hassan Diab failed to develop a coherent strategy to address the country's problems.
The writer explained that the collapse of the lira means that imports have become very expensive, and the rate of inflation is rising dramatically, making families suffer from unprecedented economic difficulties. And World Bank estimates, before the emergence of the Corona virus and the recent tragedy, indicated that the poverty rate may increase and include 50% of the citizens, after it used to include only a third of the population.
Greater failure
The collapse of the financial system is one of the signs of widespread failure of management, which dates back to policies adopted after the end of the civil war in 1990, and the political class chose its members from a narrow group of families, many of which held power for decades.
The writer says that this political class claims that it represents many sects in Lebanon, and that government positions are shared according to a strict rule based on the country's religious sects.
In fact, this system enables politicians to divide the economic spoils and enrich themselves, just as they did with the profits of the banks in which they own stakes, and foreign powers from Iran and Saudi Arabia to the United States and France have always tolerated the leaders of Lebanon, as they hoped that the aid would gain them influence in this. The strategically important country.
And there are those who consider the port explosion as an example of failed rule in Lebanon, as initial reports indicate that port officials were aware of the dangers involved in storing ammonium nitrate in the port, and the negligence and incompetence of officials amid this disaster exemplifies the countless failures.
The day after the explosion, the streets of Beirut were filled with the sounds of clouds of rubble as thousands worked together without receiving much support from the official agencies available, but the extent of the devastation was widespread as housing was damaged within a six-mile radius, and initial estimates indicate that 300,000 people were left without Shelter.
On the other hand, hospitals, which were already struggling to deal with the first wave of Covid-19 cases, treated the number of patients that exceeded their capacity.
There are also concerns about food supplies as the national wheat silo and Beirut port are damaged, which will limit the government's ability to import food. The humanitarian crisis will also affect the country's estimated 1.5 million Syrians and 270,000 Palestinians.
Many European and Arab governments have rushed to provide emergency aid to Beirut in order to help it recover quickly, and the International Monetary Fund will provide a potential rescue package by providing much-needed funds, but will impose an austerity plan.
The immediate future for Lebanon appears bleak, and the country is likely to witness widespread immigration. The explosion eroded what remained of the confidence that citizens gave to the political class, and long-term solutions required nothing less than achieving fundamental political change.