April 2023

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Here's How We Made a Lasting Impact in April 2023
The 6th Edition of LIMS Leaders' Academy (LLA) Empowers Activists 

The 6th edition of the LIMS Leaders' Academy (LLA) brought together a group of activists and candidates for the 2022 parliamentary elections. Initially, 36 participants registered for LLA, but only 16 managed to successfully complete the program and graduate. The graduates worked on the reform axes suggested by the International Monetary Fund's (IMF) for Lebanon and developed their own policy propositions.

Policy Fair
The Policy Fair held at Le Royal Hotel in Dbayeh on April 29, provided the platform for the graduates to present their proposals. An esteemed audience of 58 influential figures including businesspeople, opinion leaders, journalists, and academics eagerly listened to the graduates' insightful policy recommendations. The attendees actively engaged with the participants, visiting their stands, and engaging in discussions regarding the government's current approach to the issues at hand, identifying gaps, and exploring potential alternative solutions. The impact of the graduates' policy papers reverberated beyond the event itself. Newspapers and various digital media outlets extensively covered the proposals, amplifying their reach and fostering public discourse.

Click here to check the policy Papers in Arabic
Graduation Ceremony and Advancing Liberty Award
During the Graduation Ceremony, the 2022 Advancing Liberty Award was bestowed upon the town of Toula during the ceremony. Toula emerged as an exemplary role model for successfully resolving the electricity crisis at the local level through a pioneering private initiative. The town's enterprising citizens raised funds and established a solar farm, complemented by a private generator. This innovative approach ensured 24-hour electricity supply at a significantly reduced price, with a 50% cost reduction compared to prevailing private generator rates. The Toula experience stands as an inspiring model for other towns across Lebanon, showcasing the potential of local initiatives in tackling critical challenges.

LLA 401 Policy Fair and Gala Dinner Album on Facebook
 

The LIMS Leaders' Academy continues to play a pivotal role in fostering leadership, policy development, and innovative solutions, enabling a new generation of activists and candidates to make a meaningful impact on Lebanon's future.

Syrian Refugee Presence in Lebanon Sparks Debate Amidst Economic Crisis
As the Syrian war draws closer to its conclusion and Syria readies itself to rejoin the Arab League, Lebanon finds itself grappling with the issue of Syrian refugees residing within its borders. With the number of Syrian refugees exceeding 25% of the population, the presence of this displaced population has become a contentious topic, particularly in light of the economic crisis and rising concerns over security. Populist sentiments blaming the refugees for these challenges have given rise to calls for their deportation, especially as certain parts of Syria are now deemed safe for return.
However, a nuanced perspective was offered by LIMS, which argues that the presence of Syrian refugees in Lebanon has had certain economic advantages. Many companies and factories, struggling to navigate the economic crisis, have managed to reduce their operating costs by employing Syrian workers who are willing to accept lower wages. This pragmatic approach has allowed these businesses to stave off closure and continue operations. Additionally, the dollars transferred to Lebanon by Syrian refugees circulate within the country, stimulating economic activity as these individuals purchase goods and services. This increased demand has had a positive impact on sectors such as housing, enabling Lebanese families to generate additional income by renting out properties to Syrian refugees. Furthermore, the presence of refugees has created employment opportunities for Lebanese teachers, who have been able to offer afternoon classes to Syrian children.

While it is true that the influx of Syrian refugees has placed additional strain on sectors such as electricity, communications, and sanitation, which are already burdened by mismanagement and operating at a loss, it is important to recognize that the root cause of these issues lies in governmental mismanagement rather than the presence of refugees themselves.

The complexities surrounding the Syrian refugee crisis in Lebanon demand a more nuanced understanding of the situation. While some may seek to lay blame solely on the refugees, it is crucial to consider the economic benefits they have brought, particularly in mitigating the impact of the economic crisis and providing opportunities for both businesses and Lebanese individuals.
Profitability Lies in Dismantling Monopolies for Growth
The Lebanese government is facing significant challenges in providing essential services to the population. Monopolies in key sectors have hindered the country's economic landscape, hampering its potential for growth and development in key sectors, such as electricity, telecom and airlines.
According to LIMS, the government's monopoly on the electricity sector has resulted in daily power outages, severely impeding progress. Industries reliant on electricity, including manufacturing and agriculture, have been significantly affected. Without a stable power supply, crucial activities like irrigation and cooling necessary for agriculture cannot be accomplished, stifling the industrial and agricultural sectors.
 
The telecommunications sector is also monopolized by Ogero, a single company providing nationwide communication services. Ogero's expensive and sluggish internet connection, combined with frequent strikes by its employees, has hindered the emergence of a local technology sector. Highly qualified telecom engineers from Lebanon are forced to establish their technology companies abroad. To foster investment in technology, it is crucial to introduce competition and allow new companies to enter the internet sector.

The airline sector, particularly Middle East Airlines, holds a monopoly that restricts tourism growth in Lebanon. Despite being a vital economic sector, the country primarily attracts expatriates rather than foreign tourists due to high flight costs. By promoting competition in the airline sector, ticket prices can be reduced, thereby stimulating growth in tourism.

The prevailing decision makers controlling monopolies must recognize the profitability, both for themselves and the nation, in dismantling these restrictive market structures. Many monopolies are operating at a loss, making it unsustainable for the government to continue subsidizing them amidst the ongoing crisis. Fostering competition and embracing a thriving economic landscape will generate positive spillover effects for all stakeholders involved.
Government's Squandering of Public Funds Amid Tariffs and Salary Hikes
On April 18, the Council of Ministers approved a four-fold salary increase for public sector employees and an increase in the daily transportation allowance. To secure the necessary funds for this initiative, the council decided to raise the exchange rate based on which customs are calculated (also called the "customs dollar"). This change is expected to take effect by the beginning of May.

LIMS has cautioned that the increase in the "customs' dollar" will fall short in funding the augmented public sector wages. Instead, this adjustment will inadvertently benefit smugglers and customs evaders, while penalizing legitimate businesses that are unable to compete with those evading customs. Furthermore, this change is unlikely to boost government revenues. To enact substantive reforms, Lebanon must adopt a low and uniform customs rate. A lower rate would incentivize individuals to declare their imports and discourage customs evasion, while a flat rate would curtail the exemption loopholes that enable such practices.

In the absence of sufficient funds, the government will inevitably turn to borrowing from the central bank to finance the salary increases. This can be done either in Lebanese pounds, which risks exacerbating inflation, or in US dollars, which would deplete the already dwindling foreign exchange reserves and place depositors in jeopardy of losing their remaining dollar deposits. Central bank financing of salary raises not only deepens Lebanon's crisis but also erodes depositor funds and hastens the erosion of the Lebanese pound.

The squandering of Special Drawing Rights (SDRs) received from the International Monetary Fund (IMF) serves as a stark testament to the inefficiency of government spending. Lebanon received a total of $1.139 billion in SDRs in September 2021, with $747 million already expended. Shockingly, these funds were misused, with a significant portion allocated to subsidizing the failed electricity monopoly. Another segment was directed towards subsidizing medicine, resulting in their scarcity within pharmacies. Moreover, a fraction of the funds was utilized to subsidize wheat, ostensibly to maintain affordable bread prices, but in practice, the subsidized wheat found its way into pastries and patisseries sold at full price.

The wanton mismanagement of these critical funds, coupled with unsustainable policies, highlights the pressing need for comprehensive reforms in Lebanon. The government must prioritize prudent spending and responsible allocation of resources to effectively address the country's economic crisis and safeguard the well-being of its citizens.
Lebanese Pound Temporary Stability Amidst Concerns over Central Bank Leadership
In a surprising turn of events, the Lebanese pound (LBP) witnessed an unexpected appreciation in late March, strengthening from 140,000 LBP to the US dollar to 94,000 LBP to the dollar by April 5. Exchange rate stability around 95,000 LBP lasted longer than previous instances as April progressed. Meanwhile, concerns emerged regarding the leadership vacuum at the head of the central bank, given that the current governor's term is set to end in July 2023, and the challenges surrounding the appointment of a new governor ahead of the presidential elections.
LIMS provided insights into the factors contributing to the local currency's appreciation. It attributed the appreciation to a reduction in the money supply, with the total LBP in circulation decreasing from around 83 trillion in early 2023 to 65 trillion in April. To bolster the pound, the central bank injected dollars into the market and repurchased Lebanese pounds. However, this approach, while providing short-term stability, comes at the expense of depositors, as the dollars used for the repurchase represent the remaining funds of depositors, placed by the banks at the central bank. Such a move risks exacerbating the overall banking crisis, as it depletes available dollars and leaves fewer resources for future interventions. To prevent further depreciation and loss in foreign exchange reserves, it is imperative to cease the printing of LBPs.

LIMS further warned that the current exchange rate stability is transitory as the government will end up borrowing LBPs from the central bank to finance the budget deficit, particularly in light of the decision to increase wages fourfold. Another factor that could contribute to future devaluation is the decision to print higher denomination currency notes. LIMS highlighted that the current hyperinflationary environment has rendered many circulating denominations more expensive to produce than their actual value. This situation makes printing money a losing operation. However, the plan to introduce new banknotes with additional zeros would unleash the ability to increase money supply even further.

Regardless of the identity of the incoming central bank governor, LIMS emphasized that the primary priority should be to halt the expansion of the money supply to prevent a further collapse in the value of the Lebanese pound. Concurrently, it is crucial to safeguard and prevent any further depletion of foreign currency reserves. The continuous intervention by the central bank, printing LBP then buying it back with foreign exchange reserves must come to an end. A more sustainable approach would involve halting the printing altogether and adopting policies that address the root causes of the crisis.
Reforms to Public Procurement Law Amidst Municipal Challenges

The new public procurement law limited municipalities' ability to effectively serve the population. LIMS has been advocating for changes to this law, which has hindered municipal operations and the provision of basic services to the public. Recent amendments, voted by the parliament, seek to address these issues, and streamline municipal operations.

These amendments bring notable improvements, including the establishment of contracting and receiving committees, accommodations for cases with a single official price, and alternative purchasing methods for petty cash expenses. Furthermore, the amendments enhance transparency through the disclosure of beneficial ownership, aligning with international calls for reforms in Lebanon.

However, these amendments were challenged at the constitutional council by some Members of Parliament who argued that the vote took place during a presidential void, potentially questioning its legality. Additionally, an entity linked to the Ministry of Finance, which played a significant role in designing the original law and enjoys substantial advantages, opposes the amendments due to their reduction of privileges held by this entity.

LIMS also attended the press conference organized by the Public Procurement Authority (PPA) on April 25 to discuss the amendments. The conference showed the large number of complaints filed by municipalities regarding the existing public procurement law and elucidated how the amendments effectively address these concerns. The conference underscored the paramount significance of these amendments in upholding transparency and integrity standards. 
Lebanon's Banking Crisis and Cash Economy

Lebanon, once known as the "Switzerland of the Middle East" for its robust banking sector, continues to grapple with a deepening financial crisis that has left depositors in a state of despair. The severe economic downturn, currency devaluation, and lack of confidence in the banking and real estate sectors have resulted in limited options for individuals seeking to safeguard their savings. As a consequence, the country has witnessed a transition to a cash-based economy, exacerbating the numerous challenges it already faces.

LIMS has shed light on the dire consequences of this cash-centric economy. While gold and cash dollars have emerged as the preferred means for individuals to protect themselves against unforeseen emergencies, this shift poses significant risks. One of the most pressing concerns is the potential for widespread tax evasion. With cash transactions enabling individuals to obscure their financial activities and evade accurate reporting to authorities, the government's tax revenues have experienced a sharp decline. Consequently, this phenomenon further bolsters the growth of the parallel economy, exacerbating Lebanon's economic woes.

The proliferation of a cash economy also amplifies the risks associated with illicit financial activities, including money laundering. By facilitating transactions outside the purview of the formal banking system, the country becomes a breeding ground for individuals with illicit funds to operate freely, evading detection and contributing to the erosion of Lebanon's financial integrity. Moreover, this transition to a predominantly cash-based economy has adverse effects on lending opportunities, hindering access to financial resources.

Beyond the immediate repercussions on the domestic economy, Lebanon's banking crisis and reliance on cash transactions have far-reaching implications for the country's international standing. The disruptions within the banking sector, coupled with concerns surrounding the transparency and integrity of financial transactions, may prompt correspondent banks to exercise caution when dealing with Lebanese entities. Consequently, reduced financial transactions and potential damage to Lebanon's reputation loom as credible risks, threatening the nation's global standing and exacerbating its isolation.

While the banking crisis has undoubtedly taken a toll on various sectors of the Lebanese economy, the real estate industry has been particularly hard-hit. LIMS reports a significant decline in the sector, with property prices plummeting by 30% to 60% depending on the type and location of the property. This sharp decline is closely intertwined with Lebanon's broader economic collapse, as evidenced by the precipitous drop in the country's GDP. From a once thriving $54 billion, Lebanon's GDP has shrunk by a staggering 60% to a meager $20 billion at present. The revival of the real estate sector hinges upon the recovery of the banking industry, which would enable developers and buyers to access much-needed loans. However, given the current surplus of available properties and the prevailing economic challenges, a notable breakthrough in real estate development remains elusive.

Dollarization Tempers Price Increases in Lebanon, But Global Inflation Persists

Amid the dollarization of prices in Lebanon, prices have experienced an upward trajectory, albeit at a tempered pace. LIMS explained that the adoption of dollarization has acted as a stabilizing force, mitigating the impact of the devaluation of the Lebanese pound. Unlike in the past, when prices were expressed in Lebanese pound, the dollarization of prices has curtailed large price increase, but the impact of global inflation continues to show. Central banks worldwide are taking measures to raise interest rates as a means of controlling and stabilizing prices in the face of inflationary pressures. Despite these efforts, inflation rates remain high, albeit with a slight dip observed in food and fuel prices. Discussions held during the spring meetings of the International Monetary Fund (IMF) and the World Bank centered on the need to diversify supply chains, address economic protectionism, and promote free trade. These measures aim to reduce costs and stimulate growth. Geopolitical alliances are playing a pivotal role in shaping global supply chains, and international institutions are striving to support developing countries during this period marked by low growth, capital outflows, and inflation.

References
LIMS Media Interviews

The 6th Edition of LIMS Leaders' Academy (LLA) Empowers Activists 

Syrian Refugee Presence in Lebanon Sparks Debate Amidst Economic Crisis

  • Syrian Displacement Between Lebanon's Economic Losses And Gains ...Where Does The Scale Tip? April 13, 2023: This is Lebanon, Article AR
Profitability Lies in Dismantling Monopolies for Growth
  • Economist Publishes Good News To The Lebanese Regarding Impending War: Thank You For Bankruptcy! April 22, 2023: Spot Shot, TV Interview AR
Government's Squandering of Public Funds Amid Tariffs and Salary Hikes
  • Lebanon Is Looking For A Way Out Of Its Economic Crisis In Light Of Obstacles That May Impede The Progress Of Reforms, April 3, 2023: Al Hurra, TV Interview AR
  • Salama Supports Employees And Reduces The Market Dollar: “Financing” The Crisis, April 4, 2023: Al Modon, Article AR
  • Increasing Salaries In The Public Sector Will Cost Lebanon More Collapse And Will Make It Difficult To Reach An Agreement With The International Monetary Fund, April 5, 2023: MTV, TV Interview AR
  • How Was The SDR Money Spent And How Much Is Left? April 5, 2023: VDL, Article AR
  • How Was The SDR Money Spent And How Much Is Left? April 5, 2023: VDL, TV Interview AR
  • For These Reasons, The Exchange Rate Has Decreased, And What Does It Have To Do With “Haircut” On public sector salaries? April 6, 2023: News Folio, Article AR
  • Is Lebanon's bankruptcy inevitable after losing two-thirds of its money? April 11, 2023: Independent Arabia, Article AR
  • What Are The Hopes Of Reaching An Agreement With The International Monetary Fund? With The Economist, Dr. Patrick Mardini, In Discussing Politics, April 11, 2023: VDL, TV Interview AR
  • Fake Salary Increase...The Government Treats Inflation With Inflation, April 19, 2023: VDL News, Article AR
  • Will The Minister Of Finance Raise The Customs Dollar To 60 Thousand LBP? Mardini to Al Diyar: Raising The Customs Dollar Promotes Customs Evasion And Strengthens Illegal Economy At The Expense Of The Legal Economy, April 19, 2023: Addiyar, Article AR
  • Mardini To “Voice of Beirut International”: Raising The Customs Dollar Will Weaken The Economic Movement In The Country, April 19, 2023: SBI, Article AR
  • In This Case... Will The Dollar Reach 200,000 Pounds? April 20, 2023: Lebanon Debate, Article AR
  • What Is The Impact Of The Financial Incentive Package That Was Presented On The Financial Reality? April 20, 2023: VDL, TV Interview AR
  • Raising The “Customs” And Pensions Is Matched By The Collapse Of The LBP And The Rise Of The Dollar, April 20, 2023: Lebanese Forces, Article AR

Lebanese Pound Temporary Stability Amidst Concerns over Central Bank Leadership

  • The Dollar Is Down...The Situation Is Stable Or Is Time Passing?! April 4, 2023: Leb Talks, Article AR
  • How Did Mardini Comment On The Exchange Rate Dropping To 100,000 LBP? April 4, 2023: Leb Economy, Article AR
  • The Dollar Controls 60% Of The Reserves Of Central Banks…These Threaten The Throne Of The “Green”, April 6, 2023: Al Ain, Article AR
  • Five Questions About The Stability Of The Dollar And Future Of The Exchange Rate? April 12, 2023: Leb Economy, Article AR
  • Patrick Mardini: There Is No Ceiling For The Rise Of The Dollar As Long As The Authority Continues With The Same Approach, April 12, 2023: Naqd, TV Interview AR
  • Mardini To Hadath Online: This Is What Is Required Of The Future Central Bank Governor, April 13, 2023: Hadath Online, Article AR
  • At What Price Did The Dollar Exchange Rate Open This Morning? April 14, 2023: LB Mirror, Article AR
  • Patrick Mardini: There Is No Escape From The Rise In The Exchange Rate Of The Dollar In The Absence Of Reforms, April 14, 2023: Al Jadeed, TV Interview AR
  • Voidness Series Casts A Shadow Over Banque Du Liban, Who Is The New President? April 14, 2023:  Spot Shot, TV Interview AR
  • Will The Dollar Rise Again After The Holidays? April 15, 2023: SBI, TV Interview AR
  • Pacifism Of The Dollar Is A Lie? An Economist With Shocking Expectations, This Is What Will Happen After
  • The Feast, April 18, 2023: Al Jadeed, TV Interview AR
  • Government Avoided The “Mine” Of The Million Dollar Bill, April 19, 2023: Al Joumhouria, Article AR
  • Printing The Currency Between Feeding Inflation And Enacting Political Intervention In The Central Bank, April 19, 2023: LebTalks, Article AR
  • Will The Exchange Rate Remain Stable? April 23, 2023: VDL, TV Interview AR
  • How Serious Is What Is Being Reported About A Tendency To Print Banknotes Of 500,000 And One Million LBP? April 23, 2023: NBN, TV Interview AR
  • Main Reason For Decline In Demand For The Dollar! April 28, 2023: LebEconomy, Article AR
Reforms to Public Procurement Law Amidst Municipal Challenges
  • Amendments To “Public Procurement”: Harming The Essence Of The Law Or Activating The Role Of Municipalities And Increasing Transparency? April 26, 2023: This is Lebanon, Article AR
Lebanon's Banking Crisis and Cash Economy
  • It Is Puzzling…Where And What Do The Lebanese Save? April 1, 2023: Leb Economy, Article AR
  • Monetary Economy Is Dragging Us Towards Ruin: Lebanon Is Within The “Gray Zone” Soon, April 4, 2023: Naqd Lebanon, Article AR
  • Real Estate Market Decreased By About 30 to 60%, Which Reflects State Of The Economy In Lebanon, April 14, 2023: OTV, TV Interview AR
Dollarization Tempers Price Increases in Lebanon, But Global Inflation Persists
  • International Monetary: Global Economy Is Facing Weakest Growth In 30 Years, April 12, 2023: Al Jazaer Al Dowalya, TV Interview AR
  • Dollarization Did Not Curb The Price Chaos... And Global Inflation Exacerbates Lebanese Collapse, April 27, 2023: Al Anbaa Online, TV Interview AR
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