|
|
|
|
|
|
The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise has established a Lebanon Working Group to help the country overcome its current crisis. Some of the most renowned economists worldwide are on the team, including Professor Steve Hanke, founder and co-director of the Johns Hopkins University’s Institute for Applied Economics, Jacques de Larosière, former managing director of the IMF and former governor of the Banque de France, and Dr. John Greenwood, chief economist of Invesco and the Hong Kong currency board architect. The group published an article explaining how “Lebanon could use a currency board” as a way to overcome the monetary crisis, and to help the economy recover once the exchange rate is fixed. Furthermore, the team began communicating with international institutions and stakeholders to cooperate and offer the needed support to help Lebanon out of the monetary and economic crises. The creation of this working group caught a lot of attention in Lebanon.
|
|
|
|
Johns Hopkins Working Group Output:
- Lebanon Could Use A Currency Board, April 21, 2021: Wall Street Journal, Article EN
The creation of the group was also reported by
- Transparency News on April 29, 2021: Article AR
- Al Kalima Online on April 29, 2021: Article AR
- Rai Al Arabi on April 29, 2021: Article AR
- Lebanon 24 on April 29, 2021: Article AR
- Union of Arab Banks on April 29, 2021: Article AR
- Kl Youm on April 29, 2021: Article AR
- Economy Scopes on April 29, 2021: Article AR
- Al Bayan on April 29, 2021: Article AR
- Annahar on April 29, 2021: Article AR
- Al Joumhouria on April 30, 2021: Article AR
|
|
|
Subsidy Program Threatening Citizens’ Livelihood
|
|
|
|
|
Lebanese are struggling to make ends meet as prices skyrocket and purchasing power diminishes. In a bid to help citizens bide the crisis, the government created an extremely expensive central bank subsidy program (CBSP) in late 2019, costing $6 billion annually, which is three times the total government expected expenditure for 2021.
LIMS noted that this policy is financed by the remaining dollar deposits of financial institutions at the central bank. Those funds actually belong to depositors, who kept their money at the banks in US dollars, believing they would be protected against the devaluation of the Lebanese pound. The central bank is currently spending depositors’ dollars on the subsidy program and when those depositors try to withdraw their dollars, they instead receive freshly printed Lebanese pounds (LBP). The permanent increase of the LBP supply is the main reason behind the local currency devaluation and inflation. From this perspective, the CBSP is actually reducing people’s purchasing power by increasing the prices of non-subsidized goods.
|
|
|
|
As for the subsidized goods such as fuel, medication, wheat and other consumer items, they are in shortage in Lebanon and smuggled to neighboring countries. Therefore, LIMS argued that the CBSP must end immediately. A more comprehensive direct support via a cash transfer program would be a better alternative if external funding is mobilized, since the central bank reserves are down to the required reserves. Studied by the World Bank, this plan is estimated to cost about $1.2 billion—compared to $6 billion for subsidies—and would cover the basic needs of 75% of the Lebanese population.
However, LIMS also clarified that the primary problem to solve is the loss of purchasing power caused by the devaluating currency. Instead of addressing the consequences of the problem, a currency board should be established as a long-term solution that would actually put inflation under control and kick-start the Lebanese economy.
|
|
|
LIMS Media Interviews:
- How Are Lebanese Coping With Diminishing Purchasing Power, April 2, 2021: Legal Agenda, Article AR
- Hyperinflation And The Catastrophic Unemployment In Lebanon, April 5, 2021: Annahar, Article AR
- Lebanon… Food Security At Risk And Repercussions Are Worrying, April 9, 2021: Anadol Agency, Article AR
- The Economic Crisis Threatens Food Security In Lebanon, April 10, 2021: Al Arab, Article AR
- Lifting Subsidies Or Losing The Reserves?, April 29, 2021: Al Istiklal, Article AR
- Subsidies Must Be Better Directed, But Will Remain An Unsustainable Temporary Fix, April 27, 2021: Al Jadeed, TV Interview AR
|
|
|
Exchange Rate Remains Unstable Despite Central Bank’s E-Platform
|
|
|
|
|
After an unprecedented collapse of the Lebanese pound (LBP), to 15,000 LBP to the dollar, authorities accused black market participants of manipulating the exchange rate to serve a political agenda. Therefore, the presidential palace announced that the Central Bank of Lebanon will create an official money exchange platform that would reflect the true market price and end black market manipulations. Many politicians and pundits argued that this new platform will help the LBP recover some value.
LIMS explained that allowing banks and official exchangers to trade the LBP at the true (black) market rate is a step in the right direction. Such a move would finally acknowledge the currency devaluation and bring major players back to the market. By expanding the market size and increasing the number of participants, volatility should drop as no single player will be able to corner the market. Furthermore, banks would recover their activity that they had lost after the start of the crisis. However, LIMS insisted that the potential volatility reduction will not change the general depreciating trend of the LBP.
|
|
|
|
LIMS expressed skepticism about the platform’s capability to strengthen the LBP. On one hand, the central bank is down to the required reserves and is unable to pump dollars with this new platform or to continue funding the subsidy program. Therefore, the dollar supply is expected to decrease. On the other hand, the central bank keeps printing money to monetize sovereign debt, cover government expenditures, and allow depositors to withdraw their dollars from the banks in LBP.
With a diminishing trust in the national currency on top of an economic recession, LIMS reiterated the dire need to adopt a currency board in Lebanon. This action would halt the currency collapse and prohibit the spending of the remainder of foreign anchor reserves. Floating the exchange rate in a country with weak institutions like Lebanon, where the monetary policy is not beyond political interference, will lead to an ever-growing money supply and long lasting hyperinflation.
|
|
|
LIMS Media Interviews:
- How Can The Collapse Of The Currency Be Halted?, April 1, 2021: Safir Al Chamal, Article AR
- How Did The Black Market Dollar Fare Today, And What Do Experts Say On Stabilizing The Currency By Floating It?, April 4, 2021: CH23 News, Article AR
- Central Bank Platform Effective Starting Friday, Will It Be Able To Control The Exchange Rate?, April 14, 2021: Al Jadeed, TV Interview AR
- Dollar Price In Lebanon On The 26th Of April, Prices To Experience An 80% Increase, April 26, 2021: Cedar News, Article AR
|
|
|
What Should the Forensic Audit Include?
|
|
|
|
In late 2020, the Lebanese government signed a contract with Alvarez & Marsal (A&M) to perform a forensic audit on the central bank. The agreement had since fell through after the central bank refused to cooperate with the audit, because of banking secrecy laws. Then, parliament amended the corresponding law, prompting A&M to start the previously agreed-upon financial examination, but delays keep popping up. LIMS explained that the investigation would probably manage to expose politically exposed people and individuals with high-ranking connections, who transferred huge sums of dollars abroad after the 2019 banking crisis began. Those transfers were not illegal, since Lebanon has a free movement of capital, but they were unethical as the rest of depositors were being barred from accessing their US dollar deposits. Once the “connected money” was allowed to flee the country, the parliament started studying a capital control law that does too little too late.
|
|
|
|
On another hand, a forensic audit on the central bank would help accurately determine incurred foreign reserves losses, but it is not enough to uncover how public funds were siphoned. Wasteful spending of taxpayers’ money actually occurred in ministries and public bodies, boards, and funds. The forensic audit should include those entities.
Coincidentally, Director General of the Tender Board, Dr. Jean Ellieh, came forward in a press conference and requested that his Tender Board be subjected to a forensic audit. LIMS labeled the event as historic, as it was the first time a high-ranking official agreed, let alone requested, to run an investigation on their own public entity. Auditing the Tender Board is a great opportunity to identify the ministers responsible for unlawful public contracts and spending. If found guilty of power abuse, the Lebanese Public Accounting Act would force the culprit minister to refund the lost amount from their personal assets. LIMS saw Dr. Ellieh’s proposal as a step forward in recovering looted funds and preventing dubious public contracts in the future. Unfortunately, Dr. Ellieh’s request fell on deaf ears and no action has been taken so far to include the Tender Board in the forensic audit.
|
|
|
LIMS Media Interviews:
- Forensic Audit Can Uncover Who Transferred Money Abroad After 2019, April 8, 2021: Al Arabi, TV Interview AR
- Director Of The Tenders Department Demands An Audit On His Own Institution, April 13, 2021: MTV, TV Interview AR
- An Audit Of The Tenders Department Can Uncover Corruption In Names And Sums, April 14, 2021: Al Jadeed, TV Interview AR
- Why Are Ministers Dodging The Standard Tender Procedures?, April 15, 2021: Annahar TV, TV Interview AR
- Who Is wronged By The Capital Control Law?, April 30, 2021: Sawt Beirut International, TV Interview AR
|
|
|
Natural Gas Cannot Solve Lebanon’s Electricity Problem
|
|
|
|
|
Lebanon’s electricity sector has been severely mismanaged for decades. Periodic power outages have citizens suffering, while productive sectors stay crippled. Since 2010, the Ministry of Energy and Water has been claiming its willingness to decrease energy production costs by switching the operation of power plants to natural gas. LIMS argued that such a solution is outdated and no longer plausible, as it fails to tackle the main issues plaguing the electricity sector, namely high technical losses, uncollected bills, and selling electricity at loss. Rather than pumping more money into the failed national electricity company, Lebanon has a chance to undergo a direct transition to solar power via the private sector. Thanks to technological breakthroughs, people can harness solar energy and store it for as low as 5 to 9 cents per kWh. A comprehensive, renewable solar power plan would eliminate both technical losses and uncollected bills, as the system is inherently decentralized. Moreover, this solution would serve to combat the acute pollution generated by the aging power plants.
|
|
|
|
LIMS Media Interviews:
- Electricity Crisis Faces Two Options: IMF Or Darkness, April 2, 2021: Nidaa Al Watan, Article AR
|
|
|
Still No Negotiations One Year After Debt Default
|
|
|
|
In March 2020, Lebanon officially defaulted on a $1.2 billion foreign debt payment amid a deepening economic crisis. Since that time, no serious talks have occurred with creditors and Lebanon’s Eurobonds lost up to 87% of their market value. Some pundits argued that Lebanon should buy the Eurobonds back at the market-discounted price using foreign exchange reserves.
|
|
|
|
LIMS pointed out that the unilateral, unnegotiated default on the Eurobonds payment and the following delay to work out a restructuring deal, damaged Lebanon’s reputation with creditors and even donors. This remains especially true, since the country has been suffering from multiple crises and is in desperate need of support. As for buying back Eurobonds, LIMS explained that the market price is actually a marginal price that reveals the amount requested by the seller, who would accept the lower price. Not all bondholders are willing to sell at such a depreciating price. As soon as the government starts buying bonds back, the price will start increasing. Resolving the debt crisis through negotiations with creditors is the right way to go and will be a critical component in the economic recovery process.
|
|
|
LIMS Media Interviews:
- Lebanon: Purchasing Bonds Not An Option, And Negotiations With Creditors Are Frozen, April 19, 2021: Al Sharq Al Awsat, Article AR
|
|
|
LIMS Takes Part in The Joint Parliamentary Committee on Special Economic Zones
|
|
|
|
|
LIMS, through its president Dr. Patrick Mardini, participated in three meetings organized by the joint parliamentary committee to discuss establishing Special Economic Zones (SEZs) in Lebanon. Meetings included MPs, ministers, representatives from the ministries of Industry, Agriculture, and Finance, representatives from the Tripoli Special Economic Zone (TSEZ), and from the Investment Development Authority of Lebanon (IDAL). More than 20 media outlets reported on these meetings.
LIMS explained that the entire country ought to be a free economic zone given that Lebanon ranks 143rd among 190 countries on the Ease of Doing Business Index, published by the World Bank. The ranking highlights that it is complicated and expensive to start a company or secure the necessary infrastructure services to operate in the country. LIMS then presented a study showing that SEZs are more likely to fail if certain conditions are not met and explained those thoroughly. The TSEZ should serve as a pilot project for other SEZs to come.
|
|
|
|
Media Exposure:
- Parliamentarian Sub-Committee Resumes Discussions To Establish And Organize Economic Zones, April 12, 2021: Lebanon 24, Article AR
- Parliamentarian Sub-Committee Listens To Remarks Regarding Economic Zone Laws, April 19, 2021: Lebanon 24, Article AR
- Laws To Establish Special Economic Zones Still Under Scrutiny, April 26, 2021: NNA, Article AR
Media Exposure – 1st meeting:
Lebanon 24, Al Manar, Al Markazia, Al Ahed, MTV, Cedar News, OTV, Al Anbaa, Multies.net, Beirut Time, Daily Beirut, El Nashra, Mustakbal Web, Hona Beirut, El Qarar, Wafaa Magazine, Klyoum, VDL News, Gulf365, LBCI, Lebanon Files, Nidaa Al Watan, Liban Aujourd’hui, Sawt Beirut International, Lebanese Forces, Al Kalima Online
Media Exposure – 2nd meeting:
Lebanon 24, El Nashra, Aliwaa, Al Manar, NNA, Ch23, El Qarar, Wafaa Magazine, Al Arabi Press, South LB, MTV, Palestine News, Baldati, Akher Al Akhbar, Al Horria Online, Cedar News
Media Exposure – 3rd meeting:
NNA, Nabd, Al Manar, LBCI, Cedar News, Al Ahed, Gulf365, Nidaa Al Watan, El Nashra, IM Lebanon, Al Joumhouria |
|
|
|
|
|
|
|
