The rapid decline of the value of the lira violated the ceiling of logic in Lebanon, and while most analyzes suggest that the worst is yet to come, the Lebanese are concerned about the succession of the national currency losing its value against the dollar, which has doubled its trades against the pound to about 10 times in less than two years.
After decades of promoting the pillars of the political and monetary authorities to ensure the stability and stability of the Syrian Pound officially at 1507 Lira, the dollar exchange rate on the parallel market approached 15 thousand pounds;
This caused the currency to lose about 90% of its value, after only a few days ago, it broke the barrier of 10,000 pounds, as a precedent in the country's history.
Observers believe that all the causes of the popular protests have become legitimate, but Lebanon has not prepared for the scenes of the October 17, 2019 movement, to limit the pace to mobile movements and roadblocks by hundreds of protesters.
But the storm of the collapse turned the diaries of the Lebanese upside down, as they were suffering heavy losses in the value of their savings and salaries, after the minimum wage became (650,000 pounds), equivalent to about $ 45 (before the crisis it was equivalent to 450 dollars).
Thus, the prices of basic materials skyrocket, in light of great chaos in pricing between one store and another, as some impose harsh regulations on the reception times for citizens, while others resort to blocking the available quantities of subsidized goods from the shelves that have become almost empty of goods.
What doubled the fears - finally - was the announcement by the Minister of Finance in the caretaker government, Ghazi Wazni, that Lebanon was intending to reduce food subsidies, and that fuel prices would gradually increase, in an attempt not to compromise the foreign reserves at the Banque du Liban, of which 16 billion dollars remained.
On the other hand, political forces are still battling accusations, so that the path of forming the government remains stuck in internal disputes with regional extensions - according to the opinion of many - despite their importance as a preliminary step to control the wheel of collapse.
In the face of the Lebanese’s inability to give an accurate description of their dark reality, Al Jazeera Net asked five questions to economists, bankers, development and public policy experts, at a time when many problems revolve around the nature of the collapse, its backgrounds and consequences, and about the possibility of providing solutions at a stage that constitutes a historic turning point for Lebanon.
Prices of basic materials go up in light of the great chaos of pricing between one store and another (Al Jazeera)
What are the reasons that led to the deterioration of the lira at this record time against the dollar?
Alia Mubayed, Senior Economist for the Middle East at Jefferies International, attributes the collapse of the pound to three reasons:
First - a structure related to the weakening of the economy with a contraction in growth of more than 25% in 2020, the cessation of financial flows from abroad, and the negative foreign exchange position of the Banque du Liban, which makes the Central Bank unable to intervene in the currency market or to support banks;
She pointed out that the need for foreign currency to finance imports exceeds the existing ones, "if we take into account that some of this demand is to finance part of the needs of the Syrian economy as well."
Second - Do not separate the bleach of the collapse of the lira from the absence of a comprehensive program for financial reform and restructuring of debt and banks, especially that printing currency is the main source of financing the needs of the public sector, in light of the deterioration of public revenues in terms of fees and taxes, which increases the monetary mass in the lira, and leads to an increase in demand for The dollar and accelerates the deterioration of the exchange rate of the lira.
Third - The failure of the current political management of the crisis caused the collapse of the crisis, and it carried losses to the citizens, which strengthened customers' expectations that the next would be worse, and thus increased the demand for the dollar.
But Ziad al-Sayegh, a public policy expert, links the collapse of the lira and the state’s disintegration of its judicial and administrative paths, and adds to them other reasons, such as the disintegration of the ability to manage monetary and financial policy, the expansion of unorganized parallel financial markets, rampant corruption, and the lack of smuggling through illegal crossings
All of these factors, according to his opinion, led to a record deterioration in the value of the pound against the dollar, in light of the economic imbalance, while the Lebanese are living - according to him - "a crisis of confidence based on immoral options in destroying the country at all levels."
One of the structural causes of the collapse - according to the jeweler - is that the financial mass was protecting the economy, and the scientific equation that must be established is that the economy is the basis of financial stability.
For his part, Adeeb Nehme, a former advisor to the United Nations Economic and Social Commission for Western Asia (ESCWA) and a sustainable development expert, considers that the level of the collapse of the pound is not subject to any economic logic despite speculation and the scarcity of the dollar in the markets, but it resulted from the accumulation of years of continuous deficit in the balance of payments and the lack of Adequate remittances to cover imports from abroad.
On another level, a banking and economic expert (who refuses to be named) links the collapse with the Central Bank of Lebanon's measures, noting that before the October 2019 movement, foreign currency reserves reached about $ 31 billion, then fell within months to $ 16 billion, and this decline According to the expert, the Central Bank does not finance import support expenditures, but rather because of a huge money smuggling operation that took place during that period.
What led to the stability of the lira’s collapse in the summer of 2020, at rates ranging between 8 and 9 thousand pounds, at that time - according to the expert - to the Central Bank’s injection of large amounts of dollars into the markets, close to about 5 billion.
Since December 2020, the Banque du Liban has started talking about depleting its reserves, and the expert does not separate the collapse of the Lebanese pound from the crisis of Lebanese banks, which have about $ 80 billion at the Central Bank, and he also links it to the end of the deadline for Circular 154 at the end of February 2021 - in which he requests The central bank should increase its capital by 20% and create liquidity by 3% at correspondent banks abroad - as part of a plan to restructure the banking sector.
The expert said, "This condition is very difficult, and it costs banks about $ 3.3 billion, which is likely to put pressure on the Lebanese pound, because the market for cashiers in Lebanon is small, and any additional demand for the dollar leads to an increase in its exchange rate."
Faced with the uncertain future of the Lebanese pound, are there any expectations for a further collapse?
Adeeb Nehme shares with Alia Mubayed's opinion that there is no ceiling for the deterioration of the Lebanese pound, in the absence of an effective implementation of a comprehensive economic and social rescue plan by a government that has the competence and the necessary experience in dealing with the demands of the Lebanese citizen and the international community equally, to restore confidence in the state and its institutions.
However, Ziad Al-Sayegh believes that any predicting the future of the lira is a scientific sin in the absence of indicators to measure the crisis, and calls for attention to the manipulators of the lira and the beneficiaries of its collapse, with an observatory that collects integrated data about the crisis situation and develops rescue approaches, and this is what the academic sector should initiate. By storming this crisis instead of watching it, and "public opinion supports it as a critical mass of change."
How does the collapse of the currency affect prices and the provision of goods and services to citizens?
Because Lebanon imports about 80% of what it consumes - according to Alia Moubayed - the continuous deterioration in the dollar’s exchange rate becomes one of the main reasons for the high prices of goods and services, which raised price inflation to levels exceeding 145%, raises poverty and destitution rates and strengthens security instability.
Parallel to the collapse of the currency, vital sectors of economic, social and academic collapse - according to Ziad Al-Sayegh - and this comprehensive collapse "adds to the state of inflation, the high rates of unemployment and immigration that empty the Lebanese society of its competencies.
As for the banking expert, he considers that the collapse of the currency reinforces the chaos that promotes smuggling operations and deprives the Lebanese of basic materials such as wheat and fuel, and loses their confidence in the pound, as the phenomenon of citizens seeking to buy dollars with their money - no matter how small - from the black market began to spread, in order to preserve its value. .
What are the possible solutions to overcome other collapses associated with the collapse of the lira?
Ziad Al-Sayegh believes that stopping the collapse begins with a constitutional approach, that is, the formation of a government of independent specialists, provided that it carries a reform program and launches its implementation paths in cooperation with the concerned international institutions, and that the restructuring of power through parliamentary elections on time (2022) will be an essential task to restore and liberate the state.
What Lebanon needs - in Adeeb Nehme’s opinion - is the formation of an independent government with legislative powers outside the existing system, leading a transitional phase in which an economic, financial, and social rescue plan is required, and any government formed by the current authority cannot be relied upon, because it is the root of the problem and cannot make a solution. Otherwise, Lebanon will be faced with two options: either pushing towards more chaos, or waiting for a regional and international event to impose a solution on it, or a combination of the two.
For her part, Alia Mubayed considers that after a year and a half of persistent collapse, disruption of solutions, and a loss of more than 10 billion dollars, in addition to heavy losses exceeding 80 billion, no solution can but be radical. She said, "We have to move away from the policy of healing the wounds that will keep us in mind." A vicious circle that threatens civil peace, and adopting a comprehensive approach to an economic, financial and social plan agreed upon by the components of society within the framework of a program with the International Monetary Fund.
As for the banking expert, he states that Lebanon has not reached the depth of the crisis, but is living its first signs, because the Central Bank of Lebanon is still supporting some commodities, and it is about to stop it.
Since the Central Bank has 16 billion dollars, the banking expert proposes to put an end to its use, and to resort to the Ministry of Finance to issue foreign currency bonds (Eurobonds) worth 1.5 billion dollars, for a period of 3 years, in which the Banque du Liban subscribes with a soft interest, in exchange for removing its hand from the support file. Import, to be undertaken by the state represented by the government, provided that it is restricted to subsidizing basic commodities only, such as wheat, fuel, and medicines for chronic diseases.
Within a period of 6 months, the expert proposes that the Ministry of Finance pay the authority to start negotiations with the International Monetary Fund, to determine the financial gap that the IMF will cover, in order to obtain urgent financing from it, then the billion and a half will be paid in 3 years, so that Lebanon qualifies to enter the financial markets. However, if the central reserve continues to be depleted, "we are going for a much greater disaster than the incident," the expert adds.
The trading of the dollar against the pound has doubled about 10 times in less than two years (French)
Who are the losers and winners in this collapse?
The losers inevitably are the citizens, according to Alia Mubayed, specifically the middle and limited income earners, and they make up most of the people, and this was evident in the poverty rates exceeding 50% for residents, and the loss of food and social security. As for the winners - according to Alia Mubayed - they are the ones who were able to transfer the largest amount of Their savings in dollars abroad, "but I do not consider it a profit as long as the institutions of the state and society collapse."
Adeeb Nehme confirms the loss of all the Lebanese, and the winners - according to him - are the 1% who own 50% of the deposits in banks, that is, the leaders of the successive authorities who personally benefit from the state’s disintegration after accumulating wealth.
Nehme points out that inflation wins other categories and loses, especially as those who have large amounts of money in dollars are taking advantage of the collapse of the lira to increase their purchasing power and push towards privatization by buying more land and real estate.
But the banking expert considers that the losers are also the depositors in banks, while the winners are some borrowers in lira, as they were able to repay loans by purchasing checks in dollars worth 30% of their value before the crisis.
Ziad Al-Sayegh appears more optimistic, as he considers that the losers are the shepherds of the old Lebanon that has ended, and the winners will be the builders of the new Lebanon, because the Lebanese people are living in foundational throes, and steadfastness is the basis.