The economic scene that Lebanon has deteriorated into cannot be described with any other phrase but this one: “the Great Destruction.” A brief field trip to some of the stores in the capital is enough to witness the phenomena related only to catastrophic cases: half of the shelves are empty, while the other half is filled with less-demanded goods. For example, on the ketchup shelf, you could find some of the remaining hot ketchup bottles, but none of the plain ketchup bottles that you want, and that are usually in demand by most customers. While on the mayonnaise shelf, you can only find a few “diet” mayonnaise bottles, as the salespeople tell you that plain mayonnaise has been “out of stock” for more than two days. The big stores in the capital put up signs to remind you that buying more than one piece of this item or that one is prohibited, a codification that instantly reminds you of the capital control imposed by banks at the very beginning of the crisis. Prices have doubled since last month. Some basic goods, like meat, for example, have become unaffordable for most households, which led some stores to stop displaying them in their refrigerators.
Financial Crunch and Political Bankruptcy
Lebanon has arrived to the middle of an economic catastrophe, then. In this respect, economists have some explanations: we need more than USD 600 million per month for imports, while the amount available is only USD 150 million, according to the figures stated by Samir Hammoud, the former head of the Banking Control Commission (BBCL). Hence, the dollar scarcity is pushing the exchange rate up, driving importers to ration imports, and forcing the whole society into a catastrophic and gloomy scene. In short, the problem has become even bigger than the financial sector’s bankruptcy and banks’ budget losses. It has even become bigger than the rights of bank depositors as the financial and economic crisis has turned into a social calamity that cannot be concealed.
In the eye of the storm, the government seems completely bankrupt, with its president complacently exchanging blame with the central bank governor, and continuing to raise the same question about the latter’s reluctance to inject dollars to control the exchange rate. Conversely, experts agree that this stage urgently requires rationing the usage of the dollar, instead of injecting it back in. Moreover, the cabinet is escalating the campaign to push the central bank to inject dollars through foreign exchange companies. The plan thus turned into ridiculous scenes of queues of citizens rushing to buy dollars at the subsidized price only to sell it later in the black market. The government becomes even more bankrupt, and its head adopts an even more acute tone talking about conspiracies, siege, coded messages, diplomatic interventions, and the well-known and exposed dollar game. Everything indicates that the government no longer has any reliable solutions to bet on, with its head complacent with propaganda shows, to feign efficiency and pretend that there is some plan, such as having a meeting with Chinese delegations to discuss unrealistic plans that don’t commensurate with the nature of the current financial collapse.
What happened wasn’t really a consequence of some conspiracy or a financial siege, as asserted those who are well-informed about developments of the Lebanese financial crisis, but rather a natural result of how the authorities are handling the crisis, and the choices they have taken since gaining parliamentary confidence, in addition to the apparent lack of competence in leading the country through this critical stage.
The Path of Failure
When the government first came to power, there were many choices it could have made to handle the current crisis. It also could have combined several courses to contain the crisis, so as not to confine itself to betting on a limited number of solutions. However, it was obvious that there was a group of consultants who rushed from the very beginning to bet on negotiating with the International Monetary Fund (IMF), and they went too far in restricting the government options to the introduction of a loan program with the IMF. Most likely, the bet on the IMF was based on two points: the Fund’s capability to impose the required economic reforms under the pressure of the financial crisis, and the ability to commit to a program with the Fund to provide credibility to the government efforts to gain the support of other international parties. It’s worth noting that many international parties, such as France and the European Union, have made initiating a program with the IMF a condition of providing loans and grants to Lebanon. In any case, it was clear that this group of consultants, by and large, ignored the influence of financial and political stakeholders in a government that was supposed to initiate negotiations with the IMF, which was evident in later stages.
Anyway, the bet on the IMF was specifically what led to choosing “Lazard” as a government adviser in order to lay out its much-coveted financial plan, which the government wanted to be a basis for its negotiations with the IMF. It is worth noting that the choice of “Lazard” was only due to its long expertise in handling this type of crisis and being proficient in using the Fund’s language and priorities.
Therefore, the famous financial recovery plan drafted by the government was in line with this objective. However, its main flaw was disregarding the details of the required solutions to address key areas of malfunction in the Lebanese economy structure, which supports the notion that the government’s sole aim with this plan might have been to obtain the IMF’s loan in the first place. On the other hand, the plan managed to boldly and clearly identify the size of the accumulated losses in the financial sector, and has also set a range of solutions and options to contain these losses at a later stage. These were practically the outcomes of Lazard’s work, which was mainly based on the perception that the IMF would not approve any plan that does not include a clear identification of the size of accumulated losses in the budgets of Lebanon’s Central Bank and commercial banks. However, it is noteworthy that the plan has provoked the banks and the governor of the Central Bank in the beginning, due to its boldness in revealing the size of losses in banks budgets, and because they were against the plan’s approach to address the losses by slashing their capital.
In the eye of the storm, the government seems completely bankrupt
After the plan was published and the negotiations with the IMF started, stakeholders -bankers and politicians- realized that it’s necessary to protect their interests in the financial sector before this plan becomes a fait accompli. The Governor of the Central Bank of Lebanon (CBL) soon announced to the IMF delegation his disagreement with the government’s estimation of the size of the losses, which was followed by an independent investigation in the parliament through a fact-finding committee, denouncing the government’s figures and financial plan, and supporting most of the solutions suggested by the Association of Banks in Lebanon (ABL) and the Central Bank of Lebanon. The findings of this committee were supported by various parliamentary blocs in Lebanon, as well as the president, the prime minister, and speaker of the parliament… which meant that all the approaches adopted by the government, in support of the negotiations with the IMF, have become a thing of the past.
The Collapse of the Last Bet
Following these developments, it has become obvious to the IMF delegation that the key political forces in Lebanon are not prepared to get into any path that would expose the size of their losses and address them. It has also become obvious that the government’s plan is not supported by the parliament, which is the entity that has the power to approve the dozens of required laws for the implementation of the aforementioned plan. In short, the IMF delegation realized that the negotiations are but a waste of time, which was particularly highlighted by the head of the IMF delegation to the Lebanese delegation in their last meeting. Moreover, the IMF Managing Director has pointed out that there is no reason for optimism regarding the progress of negotiations between the IMF and Lebanon. Therefore, the negotiations with the IMF have hit the rocks, waiting for the government to reach an agreement with the parliament and the parliamentary blocs that supported the work of the fact-finding mission. Essentially, the failure of negotiations was not only due to the sabotaging of the government’s plan, but it was also a result of several signals showing a lack of seriousness in the implementation of any of the reforms suggested by the Lebanese delegation. Thus, sabotaging the government’s plan was the final straw.
The government has now become empty handed, and has no suggestions to offer in the face of the crisis. The resignations of a number of government officials, including the resignation of Alain Bifani, Director General of the Ministry of Finance; and Henri Chaoul, adviser to the Ministry of Finance and member of the negotiation team, indicate that, to the team that drafted the government’ plan, which represented the last resort in the negotiations with the IMF, there is a clear regression. Therefore, the overall picture seem to be very gloomy, as everyone is aware that the failure of the talks with the IMF means the failure of any effort to receive financial aid from international parties, especially since the international entities that have offered loans and grants during the Cedar conference are now willing to support the country on the condition of the success of the talks with the IMF delegation.
Typically, the IMF is a nightmare to the low-income people in the countries in which it intervenes, especially due to the type of conditions required by the fund, and the standby arrangements applied by IMF technocrats while handling a financial and monetary crises. However, in the Lebanese case, we are witnessing a surreal situation that has gradually materialized, as the failure of the negotiations with the IMF has become worrying news to the vast majority of the Lebanese population, given that the government is not working on any alternative options. Most surprisingly, the IMF’s vision, despite all its disadvantages, is more aligned with the interests and concerns of the Lebanese people than the proposed alternative from the parliamentary blocs.
It has become obvious to the IMF delegation that the key political forces in Lebanon are not prepared to get into any path that would expose the size of their losses and address them..
The alternative proposed by these parliamentary blocs, and followed by the government after the failure of its plan, is to maintain the status quo, ignoring the actual losses and addressing the matter according to the approach of the Central Bank of Lebanon, which means printing cash to pay the US dollar deposits in Lebanese liras, and printing cash to finance the Central Bank of Lebanon loans to the government. However, printing all this cash in Lebanese liras will only lead to further deterioration of the exchange rate, and further catastrophes as a result of the monetary crisis hitting the country. In all cases, the situation does not seem promising at all.