Due to rapidly deteriorating economic conditions, Lebanese depositors began vandalizing and burning banks in Beirut, preventing them from withdrawing their deposits.
Photo: REUTERS
In the 1960s, Lebanon was given the flattering title of “Switzerland of the Middle East” and for some time was even considered a more promising offshore than the Cayman Islands or Hong Kong. In the turbulent Arab world, Beirut was seen as a guarantor of stability and was famous for its well-developed entertainment industry, quality education, and reliable banking. After 60 years, the situation in the country has changed dramatically. This is a classic story of a wealthy society that is mired in corruption and has lost almost everything.
15 YEARS OF WAR
Until 1975, Beirut was not only an offshore zone that attracted funds from all the leading countries in the region, but also a place of entertainment where the cream of society came to relax and spend their money. The idyll ended in a civil war between Christians and Muslims that broke out in the country, plunging Lebanon into chaos until 1990.
Even as Beirut’s reputation as the “Switzerland of the Middle East” was destroyed, Lebanese Prime Minister (and part-time businessman and billionaire) Rafik Hariri reformed the country’s financial sector and tried to return it to its former state.
Billions of oil began to flow into the Persian Gulf, and it was the Beirut banks that managed most of this wealth. GDP growth reached 19% per year, but the side effect was Lebanon’s dependence on the US dollar, its huge foreign debt, and trade imbalance (imports exceeded exports by 4 times).
CORRUPTION AND BLACK CURRENCY MARKET
In addition to all the problems, Lebanon has embraced outright bribery at all levels, simultaneously blocking social elevators and creating a huge income gap for the population.
In February this year, Riad Salama, who headed the country’s central bank for almost 30 years, was charged with money laundering and illicit enrichment. He collected commissions on the sale of government securities to commercial banks. His assistant and his brother were also involved in a financial fraud involving document forgery. Nearly 120 million euros were frozen in Salameh’s accounts following an investigation by Swiss authorities into the case of currency transfers from Lebanon to European banks.
And the first serious signs of a deterioration in Lebanon’s economic situation appeared already in 2019. The rich invested in luxury real estate in the center of the capital, while sectors such as transport and energy continued to decline. At the same time, Lebanon was inundated with almost 1.5 million Syrian refugees fleeing the war in their country. As a result, Lebanon’s public debt reached $79 billion (almost 170% of GDP) and unemployment rose to 37%. The Central Bank could no longer cope with the support of the Lebanese pound, as a result of which a black market for foreign exchange arose in the country.
And the first serious signs of deterioration in the economic situation of Lebanon appeared already in 2019.
Photo: REUTERS
At the same time, in Lebanon problems began with the supply of water and electricity, which led to the smuggling of fuel and generators. Finally, in March 2020, the Lebanese government refused to meet its financial obligations to redeem the Eurobonds. Prime Minister Hassan Diab said the country’s foreign reserves had fallen to a critical level and corruption had “eaten” the country.
PANDEMIC AND PORT EXPLOSION
The coronavirus pandemic has finally wiped out the Lebanese tourism industry and caused significant damage to related sectors of the economy. By the end of 2020, it had halved to $33 billion and inflation in the country had reached 84%.
In August of the same year, 2,750 tons of ammonium nitrate were detonated in the port of the capital. The welding spark hit the explosives stored in the same hangar, after which the saltpeter itself detonated. The blast was so powerful that some 300,000 Beirutians were left homeless, more than 200 were killed and 7,000 people were injured. The large-scale destruction of the infrastructure and the residential sector, as well as the negligence of officials, seriously complicated the situation in the country.
The Lebanese faced continuous blackouts, kilometers of queues at gas stations, fuel shortages for generators and technical deterioration of the latter. The current situation has multiplied health risks and puts the country at risk of collapsing the water supply system. The coronavirus and disruptions in the supply of medicines have effectively destroyed the Lebanese healthcare system.
BURNING BAN AND PRESIDENTIAL ELECTIONS
According to the UN, today almost 80% of the Lebanese population lives in poverty. In March this year, the Lebanese pound’s exchange rate fell to an all-time high against the dollar, having lost more than 98% of its value in the past four years.
Due to rapidly deteriorating economic conditions, Lebanese depositors began vandalizing and burning banks in Beirut, preventing them from withdrawing their deposits. Commercial banks have blocked most Lebanese savings and are forcing them to seek access to their funds through lawsuits.
Lebanon itself now lives without a president, although Michel Aoun’s six-year term in power ended at the end of October last year. According to the country’s constitution, a candidate must receive at least two-thirds of the votes in parliament and, in case of advancing to the next round, must receive 50% plus one vote. In January this year, the Lebanese parliament for the 11th time failed to elect a president, as no candidate received the required number of votes, and two deputies locked themselves inside the building in protest.
The already deadlocked election is compounded by rising tensions between the Hezbollah political party and the Lebanese army, whose commander Joseph Aoun led the presidential candidate list. The fact is that under the “military assistance” program, the United States allocates hundreds of millions of dollars to support the Lebanese army, providing it with equipment and monetary allowances. For this reason, the representatives of Hezbollah perceive Aoun as a pro-American candidate, capable of endangering the current security balance in the region, and act with harsh criticism and threats against him.
