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Time to Devalue Lebanon’s National Currency
January 6, 2020- Al Joumhouria Newspaper, Beirut, Lebanon
Given the current panic of depositors, banks were required to increase their tier 1 capital by 10% in December 2019 and 10% in June 2020. Dr. Mardini explained that instead of injecting fresh capital, banks resorted to a bail-in by depositors as follows: dollar deposits represent 75% of total deposits in Lebanon and banks capped weekly withdrawals at $200. Clients who wish to go beyond the imposed ceiling, had to withdraw their dollars in Lebanese pounds at the official rate of 1,515 Lebanese pounds (LBP), while the real market value reached 2,500 LBP. People reacted violently to these measures by vandalizing banks. Therefore, Dr. Mardini suggested a full dollarization of the economy or adopting a currency board as credible solutions to peg the exchange and unfreeze people’s deposits at the market rate.
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Feasible Solutions Exist to Improve Consumer Purchasing Power
January 10, 2020- Al Hadath Al Jadeed TV, Beirut, Lebanon
The Lebanese pound to the dollar was at 1,650 before the October 17 revolution and started to depreciate to 2,500 afterwards, while the official rate at the central bank remains at 1,500. Dr. Mardini explained that the challenges related to the devaluation of the exchange rate are already in effect: 40% inflation, shortage of imported goods, and shortage of dollars. However, all the advantages related to floating the exchange rate, such as stimulating exports and unfreezing deposits, are blocked because the official rate is disconnected from reality.
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In 2016, the Lebanese central bank started financing government expenditures and increased its exposure to public debt by subscribing to 50% of the treasury bonds. The impossible trinity of maintaining capital mobility, fixing the exchange rate, and financing the government made the central bank resort to its $30 billion reserves. These measures put a burden on banks and caused panic among depositors, who rushed to withdraw their money.
On one hand, Dr. Mardini suggested opening the banking sector to foreign banks to invest in struggling Lebanese ones, while keeping those who have good asset-liability management. On the other hand, he stressed on the importance of reducing public deficit, by minimizing government spending that reached $18 billion to $11 billion.
Click Here to Watch the Interview in Arabic |
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Updating Lebanese Currency Rate May Help Maintain People’s Deposits
January 10, 2020- Al Jadeed TV Prime Time News, Beirut, Lebanon
The Lebanese official exchange rate remains at 1,515 LBP to the US dollar. Yet, banks won’t accept to change 151,500 LBP to $100 knowing that the real rate is now over 2,500 LBP to the dollar. Dr. Mardini recommended devaluating the official exchange rate and adopting real market value, which will allow people to withdraw their money at 2,500 LBP. This will keep depositors’ money and allow them to use it for their daily purchases, since most of them have lost their jobs or half of their incomes in the current economic recession.
Click Here to Watch the Interview in Arabic
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Reasons Behind Exchange Rate Improvement
January 16, 2020- Nidaa Al Watan Online Magazine, Beirut, Lebanon
The financial markets awoke to a 12% appreciation of the Lebanese pound, at 2,170 LBP to the dollar after previously reaching 2,500 LBP. This sudden improvement raised many questions, since it happened after a wave of protests. According to Dr. Mardini, the rise in the exchange rate might be due to: (1) applying the central bank circular to repay remittance received from abroad via money transfer companies in US dollars, (2) the people feeling that the central bank is back in control after meeting with Money Exchange Union, and (3) its probable intervention in selling dollars to exchange cashiers at 2,000 LBP in order to increase the supply of dollars. He added that in order to anchor expectations and to reduce the speculation against the national currency, the new rate must be maintained for a minimum of one month. He also expected the demand for dollars to continue to grow.
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Capital Controls Adding Fuel to the Fire
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0% Trust in Banking Sector Brings High Tension to Crisis
January 11, 2020- Nidaa Al Watan Online Magazine, Beirut, Lebanon
In a press conference, Lebanon’s central bank governor stated that the lack of trust in banks is due to banks closing for 2 weeks at the start of the revolution, without giving any reason for such closure. This transformed Lebanon into a cash economy, as people began withdrawing their money once banks reopened. As a result, banks placed a $200 per week cap on depositors’ withdrawal amounts. Dr. Mardini warned about these measures towards dollar depositors, knowing that 75% of all accounts are in dollars. These procedures took away the long-held trust Lebanese people had with the banking system and sharply reduced capital transfers and remittances to Lebanon. Banks used to rely on those transfers to finance loans, investments, and other operations. This cycle will intensify the current recession and exacerbate the financial problems facing banks.
Click Here to Read the Article in Arabic
Other Media Outlets: Lebanon 24 , IMLebanon, Akhbarna Online, Nabd Beirut, Lebanon Economy, Marsad Chaabi Facebook Page |
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Time’s Up. Will Lebanon Pay or Default?
January 16, 2020- France 24 Studios, Beirut, Lebanon
Millions of dollars have been transferred out of the country from politically exposed people, while average folks are not allowed to access more than $200 per week of their own deposits. The central bank claimed that it did not have the authority to stop banks from selectively allowing international transfers and asked for exceptional legislative powers, to ensure common restrictions on all depositors. Dr. Mardini explained that it would be preferable to allow the free movement of capital for every individual, rather than imposing restrictions. This can be done by floating the exchange rate. He also weighed on the possibility of government default on sovereign debt. The government is expected to pay a $1.2 billion debt maturating in March, but the funds are not available, and lenders are unwilling to extend more credit. The central bank has been advised to pay international investors from the central bank’s reserves and restructure Eurobonds held by local investors. Dr. Mardini explained that credit rating agencies would consider this action as a selective default.
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Financial Crisis Causing Banks and Depositors to be Uncivil
January 9, 2020- VDL Radio Station, Beirut, Lebanon
Lebanese people have been sabotaging and destroying banks’ properties especially with tellers exercising capital control and allowing depositors with US dollar accounts to only withdraw in Lebanese pounds at the official exchange rate, which is around 40% less than its present market value. This policy is carried out if a depositor exceeds their $200 weekly withdrawal limit. Dr. Mardini explained that destroying banks is counter-productive and disadvantage all depositors. People won’t be able to perform regular bank operations such as balance checks, money transfers, or cash withdrawals. Most importantly, people will lose the opportunity to negotiate their loans’ maturity dates and repayment during these hard times.
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Economic Reforms Start by Opening the Lebanese Market to Competition
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Opening Internet Sector to Competition Could Help Struggling Industries Flourish
January 20, 2020- VDL Radio Station, Beirut, Lebanon
Lebanon ranks 161/177 in internet quality according to Ookla. The average speed in Lebanon is merely 8 Mbps while the average speed worldwide is 73 Mbps. Internet costs are among the highest in the world and mobile internet is the 4th most expensive. Even though 76% of Lebanese people have access to internet, most productive sectors and companies lack the ability to get adequate speeds. LIMS Senior Policy Analyst Mr. Aref gave the example of how video-on-demand services prospered outside Lebanon, while it still lags in the country. Also, farmers suffer equally from expensive and inadequate internet services, which hinders their ability to connect with buyers or learn from global trends. Mr. Aref retraced this to the monopoly of the fiberoptic marine cables and infrastructure by Ogero and the duopoly of Alfa and Touch in the mobile service industry.
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Mr. Aref suggested opening these sectors to competition thus insuring better internet and mobile services. The government would benefit from more revenues from the sector by selling mobile licenses, 5G frequencies, and the current fiberoptic networks, as well as having higher tax returns from profiting companies. He argued that private internet service providers would guarantee up-to-date services and be responsible for all costs of maintenance instead of the government.
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Privatizing Water Sector Could Alleviate Economic Burden
January 6, 2020-Annahar Newspaper, Beirut, Lebanon
The October 17 revolution shed light on costly spending on the water sector and other infrastructure projects the government had planned in its budget. Despite the public’s disapproval to execute the Bisri dam, the government decided to proceed with it disregarding the incompatible soil quality of the area, the possibility of activating seismic activity, and the fact that water will be drawn from the polluted Litani river. LIMS Senior Policy Analyst Mr. Majdi Aref criticized how the government plans to spend $1350 million on water projects in the midst of a sovereign default crisis. He suggested leaving infrastructure projects to the private sector, to relieve the government’s budget. He gave the example of France where 75% of people’s needs for water are provided by private companies.
Click Here to Read the Article in Arabic |
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Allowing Private Sector into Telecom Would Secure Internet Service
January 15, 2020- VDL Radio Station, Beirut, Lebanon
The director of Ogero assured the Lebanese people that the internet won’t be cut off in 2020 as suspected. LIMS Senior Policy Analyst Mr. Aref clarified that, this problem might emerge again next year if the government is not able to pay for the internet’s yearly dues, despite the 300 billion LBP in revenues to the treasury. Lebanon’s poor ranking of 164 in internet speed is due to the government monopoly of the marine cable line, among others, while there are 25 lines in the UAE and 26 in Singapore privately owned. He proposed allowing the private sector to invest their own money to avoid government future inadequacy and secure better internet quality at lower prices.
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Downsizing Government More Urgent than Ever
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Regaining People’s Trust Starts by Decreasing Government Spending
January 21, 2020- France 24 Prime Time News, Paris, France
Properly managing the economic and social crisis now facing Lebanon is in the hands of the newly formed cabinet. Dr. Mardini explained that the focus should be on what reforms the government is planning to make. On one hand, he criticized the government’s inclination to transform depositors’ money to shares in government owned companies like telecom, electricity, casino, etc. This kind of haircut was used in Cyprus where depositors were given shares in the banks’ capital, but the share price was never able to rise enough to repay their full deposits. On the other hand, asking for external support would be like a morphine shot with only a limited effect. The needed reforms, Dr. Mardini explained, would be to minimize government spending in order to regain people’s trust in the system.
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Rescue Lebanon from Financial Crisis by Reducing Government Budget
22 January 2020, VDL Radio Station, Beirut, Lebanon
Rescuing Lebanon from its financial crisis appears to be an uphill battle that the new cabinet is presently facing. Dr. Mardini emphasized on the depth of the financial and economic crisis the country is going through. Lebanon’s economy is expected to shrink by 3% in 2020 after shrinking 1% in 2019, meaning the crisis this year will be 3 times worse. This is due to the government’s huge spending, with an annual deficit of $7 billion and $90 billion in public debt. The government turned to the banks and the central bank to cover this deficit, thus leading to a banking crisis and a shortage of dollars. Dr. Mardini insisted on the necessity of minimizing government spending from $18 billion to $11 billion by reducing the size of the government and stopping all public investment projects.
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Lebanon’s Long Game
January 9, 2020- Atlas Network, United States of America
LIMS was mentioned in an Atlas Network report on Lebanon’s long game. On October 17, 2019, hundreds of people flooded the streets of major cities in Lebanon protesting their government. The demonstrators demanded the immediate resignation of all elected officials, all of whom they deemed to be corrupt. The Lebanese government has punched above its weight in a skyrocketing national debt at $85 billion, which is approximately 1.5 times the country’s GDP. In November 2019, LIMS hosted Mr. Fred McMahon and Dr. Michael Walker from the Fraser Institute as well as Mr. Erik Eppig from the Atlas Network at a series of events in Tripoli that focused on the findings of the most recent Economic Freedom of the World report. Dr. Mardini urged the government to eliminate needless debt-generating expenditures through privatization and open markets, which would lead to increased competition, innovation, and revenue generation in the marketplace. Any future cabinet will need to start a series of economic reforms, he added.
Click Here to Read the Article in English
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