Beirut: Over recent weeks, ATMs in Lebanon have been spitting back bank cards, refusing to provide dollars to those who ask for them, though people here have long used the American currency alongside the Lebanese pound. Dollars have virtually disappeared.
Panicked tenants have begun asking to pay their rent in pounds, but landlords are refusing to accept them as the local currency haemorrhages value. Some restaurants and bars have stopped taking credit cards, instead requiring cash to pay vendors. Other eateries have limited their menus, unable to pay for imported goods in dollars.
Lebanon is facing not just political turmoil, with daily protests across the country, but a financial emergency as well.
Even as demonstrators rail against the political elites they blame for the economic troubles, this deeply indebted country is facing an escalating liquidity crisis. The black market exchange rate has now soared to 1,900 pounds to the dollar, 26 per cent higher than the official rate.
The dollar shortage is reverberating across the economy, suppressing consumer demand and driving up costs for Lebanon’s all-important service sector, which must pay vendors in dollars. Service industry employees are being laid off or given only 50 per cent of their wages.
Banks had been closed altogether during a week-long strike called by the union representing banks staff over security concerns for employees. Many banks reopened Tuesday but have little to offer the public. A week ago, the Association of Banks in Lebanon set a $1,000 ceiling for withdrawals from US dollar bank accounts and limited transfers abroad – which had been previously been halted altogether – to allow only for “urgent personal expenses.”
Some banks are even refusing to give customers the $1,000 they are legally allowed to withdraw. At least one bank refused to give dollars to customers who had opened accounts in other branches.
In downtown Beirut, spider web cracks have spread across the glass storefront of the Blom Bank, its walls and windows splashed with colourful graffiti echoing the chants of the protesters who have crowded into Lebanon’s streets: “Down with capitalism” and “We are not afraid.”
Security forces began standing guard out front this week, as they’ve done outside many other banks across the country.
One man stood in line to withdraw the remaining $300. He said he had taken his allotted $1,000 from another bank and was leaving for Canada to join his wife. “There is no future here,” he said, declining to give his name before shuffling off.
Over the past month, about $3.8 billion has been withdrawn from Lebanon’s banks, according to Jad Chaaban, an economics professor at the American University of Beirut.
These sizable withdrawals reflect a lack of confidence in the banking system and the wider economy, which is being undermined by a similar lack of trust in the political system. Prime Minister Saad Hariri resigned Oct. 29 from his position after two weeks of nonstop protests against the political elite, and a new government has yet to be formed.
To sustain the fixed dollar-to-pound rate, Lebanon’s central bank must maintain foreign currency reserves. The Central Bank governor, Riad Salameh, has repeated recently that there are sufficient reserves and no liquidity issue, but people do not trust the central bank, Chaaban said. He said Lebanon needs an independent authority to carry out an audit and restore confidence in the banks.
Lebanon is one of the most indebted countries in the world, as measured by a debt-to-GDP ratio projected at 155 per cent. After a 15-year civil war ended in 1990, the country’s rulers lowered corporate and income taxes and borrowed internationally to help resurrect the war-ravaged country. Lebanon later attracted foreign currency deposits by offering high-interest rates to maintain its stock of dollars.
These practices, however, widened the gap between the rich and the poor and fuelled a yawning government budget deficit.
Lebanon’s economy and financial system have long been heavily dependent on remittances from the Lebanese diaspora abroad, which is larger than Lebanon’s resident population. In recent years, the flow of money into Lebanon has tapered off partly because of regional instability, according to Sami Nader, the director of Levant Institute for Strategic Affairs. More dollars have been flowing out of the country than into it, leaving Lebanon without enough dollars to cover its import bill and service its debt.
Lebanon’s economy has suffered in part from the spillover from the civil war in neighboring Syria. The tiny Mediterranean country has struggled to deal with an inflow of hundreds of thousands of refugees, clashes near and across the border and a shutdown of vital trade routes.
The role of the Iran-backed militia, Hezbollah, which has a significant presence in the Lebanese parliament, is also a complicating factor for the economy. Because Hezbollah supports Al Houthi rebels in Yemen, who are engaged in a war with a Saudi-led military coalition, the “margin of tolerance” towards Lebanon among Saudi Arabia and other Gulf countries has diminished, Nader said.
“Gulf countries constitute our strategic economic depth,” he said. “Not because we love them, but because 55 per cent of remittances, which are the linchpin of our economy, come from the diaspora who live there.
“The international community has no reason to inject cash in the Lebanese market as long as Hezbollah is conducting Lebanon’s policies,” Nader said. “Why would Saudi Arabia step in to rescue a Hezbollah-dominated Lebanon that supports insurgents in the region who target Saudi with missiles?”
The protests, which erupted in mid-October, have targeted public corruption, and the anger has been exacerbated by rumours that some influential, well-connected people have been able to withdraw more than the maximum $1,000 a week.
“Banks are the lungs of the society. They are not just a company that is supposed to make money, but have a certain responsibility towards society,” said a real estate developer, whose name is being withheld because he fears reprisals. His company, which employed around 220 workers in 2017, now has only 15.
“Banks have proven they are not worthy enough to be in such a position. They have ruined people’s lives,” he said.
On the day the banks finally reopened earlier this week, employees watched the protests from behind the large glass facade of a bank headquarters, staring down at the hundreds of demonstrators banging pots and pans, chanting, “This country is for the workers; down with the capital’s authority.”
Clad in expensive suits and shiny shoes, some bankers and other bank employees stood in front of the building, watching or taking pictures. One employee changed into casual clothes and joined the protesters.
“We, bank employees, are not all enemies of the revolution,” the bank employee said on the condition of anonymity in order not jeopardize his job. “I changed into these clothes because the suit that I have to wear for work does not represent me or the class that I belong to.”