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We send our deepest thoughts and prayers to the families of the victims, in the wake of this senseless loss in Beirut and we salute all those who assisted and responded quickly and professionally to this tragedy, on a local and international level. At these times of solidarity, we know that Lebanon does not stand alone, and that there is an ample amount of hope for freedom, peace, justice, and prosperity yet to come.
July has been a productive month for LIMS. We held 5 TV interviews, 18 newspaper interviews, and 6 radio interviews that were able to draw attention to many key issues like: the currency devaluation, the government reform plan, the tourism and banking sector restructuring, among other important topics.
Here’s a summary of our output.
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Dollar Soars against Lebanese Pound
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The dollar has continued its appreciation against the Lebanese pound since before the protests, with several officials pinning the blame on the black market exchangers. In a series of interviews, LIMS criticized the government’s overspending, which can no longer be financed by issuing further debt since the sovereign default. Thus, the central bank is financing the government by printing more money, leading to the current inflation. Also, the government’s tax revenues have decreased significantly without any real decrease in spending causing the deficit to widen.
LIMS cautioned that amidst this crisis, the economy is shrinking while money supply is dramatically increasing, further exacerbating the situation. The overspending is mainly due to the massive government size leading to an increased spending on public personnel, high current expenditures, and useless expenditure on projects such as dams and roads among other things. On a similar note, LIMS explained that Lebanon has the third highest inflation rate in the world after Zimbabwe and Venezuela. Soon Lebanon will go into hyperinflation if no real reforms are implemented. The government needs to stop monetizing debt.
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LIMS advised officials to transform the central bank into a currency board, which would mean that the local currency would be 100% covered by the dollar. A currency board would control inflation and put public spending on a sustainable trajectory.
LIMS Media Interviews:
- Cutting Spending Remains The Main Reform For Lebanon, July 18, 2020: El Ektisad, Interview AR
- Exchange Rate In Lebanon Still Unstable, July 6, 2020: An-Nahar, Op-Ed AR
- Printing Money Should Stop To Save The Economy, July 13, 2020: El Ektisad, Inteview AR
- Money Supply Increasing, Massively Devaluating The Local Currency, July 4, 2020: Tripoli FM, Radio Interview AR
- Inflation Still Having Dire Consequences On The Economy, July 5, 2020: Arabi 21, Interview AR
- Government Continues Its Spending Spree, July 7, 2020: MTV Lebanon, TV Interview AR
- Government Prints Money To Finance Its Huge Expenditures, July 3, 2020: France 24, TV Interview AR
- Printing Money Remains The Biggest Obstacle To Currency Stabilization, July 1, 2020: Lebanese Contractor Magazine Facebook Page, TV Interview AR
- Hyperinflation Will Hit Lebanon Soon, July 8, 2020: Sverige Radio, Radio Interview SE
- Lebanon’s Credit Rating Deteriorating Further, July 28, 2020 -VDL Radio Station, Radio Interview AR
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A Currency Board to Solve the Monetary Crisis
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LIMS has been working closely with Steve Hanke, Professor of Applied Economics and Founder of the Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise. He is the world’s foremost authority on hyperinflation and a leading expert on currency boards and dollarization. Professor Hanke measured inflation and showed that Lebanon became the second country, alongside Venezuela, to suffer from hyperinflation in 2020, the first in the history of the Middle East and North Africa and the 62nd in world history.
Professor Hanke explained that he has stopped more hyperinflations than any living economist, by designing and introducing currency boards. A currency board is a monetary institution (or a set of laws that govern a central bank) that issues a domestic currency that is freely convertible at an absolutely fixed exchange rate with a foreign anchor currency. A Lebanese currency board would establish confidence and stability immediately. And while stability might not be everything, everything is nothing without stability.
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He emphasized on his experience in 1997 in Bulgaria when he was President Petar Stoyanov’s chief adviser. He recommended and designed a currency board for the Bulgarian government and the IMF approved Bulgaria’s proposal immediately. When the currency board was installed, inflation stopped immediately and the country regained stability.
Professor Hanke was interviewed several times during prime-time news in Lebanon and tweets from his Twitter account were mentioned in 25 various newspaper articles ( National Review, Reuters, Global Insolvency, ABC News, The 961, Janoubia, Saida Gate, Nabd, Al Ektisadiya, H 23 News, Icon News, Lebeconomy Files, Kataeb.org, Nabdapp, Nabd, Daily Beirut, Al Nadim, UAB Online, Icon News, Sawt Beirut, Al Arabiya Facebook Page, Mustaqbal Web, Kl Youm, Kl Youm, Al Loubnaniya).
Media Interviews:
- Currency Board Would Stop Surge In Inflation, July 6, 2020 - Nidaa Al Watan, Interview AR
- Currency Board: A Flame Of Hope Amidst Ramping Inflation, July 7, 2020 - El Ektisad, Interview AR
- Central Bank Reserves Depleted, And The Solution Lies In A Currency Board, July 23, 2020 – Janoubia, Interview AR
- Following Bulgaria’s Path, Implementing A Currency Board Would Solve Lebanon's Currency Crisis- July 2, 2020, MTV Lebanon, TV Interview EN
- A Currency Board Would Stabilize The Exchange Rate, Making For Smoother IMF Negotiations, July 23, 2020, MTV Lebanon, TV Interview EN
- Lebanese People Have Lost 79% Of Their Salaries- July 2, 2020, Assas Media, Interview AR
- Lebanon In Death Spiral: Domestic Workers Dumped On Street Amid Unprecedented Economic Collapse- July 3, 2020, Independent, Interview EN
- Lebanon Will Enter Hyperinflation Soon- July 12, 2020, Lebanon 24, Interview AR
- Government Prints Money, Leading To Hyperinflation- July 11, 2020, Assas Media, Interview AR
- A Currency Board Would Solve The Lebanese Crisis- July 15, 2020, Assas Media, Interview AR
- Inflation Surges In Lebanon Following Venezuela's Footsteps- July 17, 2020, Beirut Today, Interview AR
- Hanke Explains The Tremendous Benefits Of A Currency Board For Lebanon- July 22, 2020, Annahar Newspaper, Interview AR
- Lebanon Hits Hyperinflation And The Central Bank Covers Its Losses- July 25, 2020, Nidaa Al Watan, Interview AR
- Lebanon’s Annual Inflation Rate Soars To 510%- July 2, 2020, Beirut.com, Interview EN
- As Currency Plummets, Lebanon’s Retailers Close Shop- July 2, 2020, Annahar Newspaper, Interview EN
- Sharp Fluctuations In The Exchange Rate Destroys Confidence And Led The Country Into An Abyss- July 8, 2020, Nidaa Al Watan, Interview AR
- Lebanese Pound’s Crisis, An Opportunity In Disguise?- July 17, 2020, By the East, Interview EN
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IMF Negotiations Still Awaiting Desperately Needed Reforms
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The Lebanese government is still struggling to find common ground with the International Monetary Fund (IMF), given the lack of real reforms required for the financial assistance the government is seeking. In a series of interviews, LIMS explained that officials still have not agreed on a single plan to present to the IMF, which would be the gateway to support from other organizations and countries. The government has a spending problem which has led to record-high levels of debt, hence the current crisis.
LIMS determined that minimizing and restructuring the public sector is essential for any reform plan to work. This would include increasing transparency in spending and passing them through the Tender’s Department. In addition, the government needs to open currently held sectors to competition like electricity, telecom, water, roads, and aviation. The delay in undertaking these reforms is taking its toll on the Lebanese people through the continued deterioration of the economic situation and the Lebanese pound simultaneously.
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LIMS added that officials need to eliminate subsidies, which have little to no benefit, since these products are being smuggled abroad. This would stop the central bank from uselessly draining its remaining reserves.
LIMS Media Interviews:
- Agreeing On A Single Reform Plan Is Essential For Lebanon, July 18, 2020: Radio Lebanon, Radio Interview AR
- Government To Bear Part Of The Losses, July 25, 2020, VDL Radio Station, Radio Interview AR
- Following Reforms Should Be A Priority To Stop The Crisis, July 12, 2020: Assas Media, Interview AR
- Shortages Of Subsidized Goods As They Are Smuggled Abroad, July 4, 2020: Lebanon 24, Interview AR
- Government Expands List Of Subsidized Goods Deepening The Crisis, July 25, 2020: Arabi 21, Interview AR
- Central Bank Reserves Will Parish Because Of Subsidies, July 21, 2020, Lebeconomy Files, Interview AR
- Increasing Electricity Bill, Crucial For Reform, July 31, 2020 - LBC Prime Time News, TV Interview AR
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Restructuring Banks Should Happen with Presence of Foreign Ones
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Amidst the high exposure of Lebanese banks to the sovereign debt and the central bank’s debt, it’s become clear that most banks cannot survive without some sort of merger or acquisition. LIMS stressed on the importance of allowing foreign banks to partner with local ones, which would provide the much-needed liquidity and confidence in the sector. Dr. Mardini explained that the restructuring of the sector should differentiate between good banks and bad ones. This would be based on each bank’s solvency and in its ability of attracting money from abroad. Thus, the central bank should allow new banks to open or merge with existing ones in Lebanon, which would give greater confidence to the sector as a whole. LIMS cautioned on using the committee responsible for assessing the banks as a means of cronyism, in turn favoring banks over others in the mergers and creating an oligopoly in the sector.
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On a similar note, LIMS mentioned if officials impose any kind of restrictions on fresh dollars, then people would probably use cryptocurrency for their transactions, since this type of monetary system has no restrictions and is harder to trace.
LIMS also explained that the forensic auditing company the government intends to hire to go over the central bank’s records does not have the expertise to go through such a process, mentioning their experience in other countries. However, they have a solid record in restructuring commercial banks and resolving financial crises.
LIMS Media Interviews:
- Restructuring Banks Should Be Opened To Foreign Ones, July 18, 2020: VDL, Radio Interview AR
- Banks Should Be Allowed To Merge With Foreign Ones, July 22, 2020: Xinhua Net, Interview EN
- Cryptocurrency Could Be A Solution If Banks Put Restrictions On Fresh Money, July 22, 2020: Mondato, Interview EN
- Forensic Auditing Company To Examine The Central Bank, July 22, 2020: MTV Lebanon, TV Interview AR
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Lebanese Citizens Suffer with No Income nor Purchasing Power
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The crisis hitting Lebanon today has never been seen by the Lebanese people ever before. Hundreds of thousands have lost their jobs, the rest have lost part or most of their salaries, their savings have lost most of their value, and their purchasing power has dramatically decreased. LIMS has been describing the economic situation as worse than the civil war, mentioning how the minimum wage has dropped from $450 to effectively $75, an 83% decrease disregarding salary cuts. LIMS also cautioned against cutting part of the remittances sent by people working abroad to their families, which would lead to a further appreciation of the dollar. He also cautioned against forcibly converting remittances into the Lebanese pound which would halt all transfers and push the dollar exchange rate even higher hence worsening the crisis.
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Amidst the huge devaluation of the Lebanese pound, the tourism sector remains the biggest asset the country has to attract fresh money. In an interview, LIMS emphasized on the importance of this sector in attracting foreign money and alleviating the crisis. He explained that Lebanon has a well-developed tourism sector with plenty of high-end restaurants, hotels, and clubs. Dr. Mardini urged officials to open the airport quickly to attract diaspora and tourists, who would benefit from the low prices currently being witnessed in the country, and he called for more competitive and cheaper airlines to be allowed to fly into the country’s sole airport which in turn can prompt an increase in touristic activity.
LIMS Media Interviews:
- Fresh Money May Also Be Confiscated, July 17, 2020: Nidaa El Watan, Interview AR
- Lebanon Continues Its Collapse And Citizens Suffer The Most, July 15, 2020: MTV Lebanon, TV Interview AR
- People Have Lost Their Incomes, Savings And Purchasing Power, July 6, 2020: Anadol Agency, Interview AR
- Tourism Is Essential For Lebanon In The Current Crisis, July 9, 2020: Al Jazeera Net, Interview AR
- Opening The Airport Is Essential To Bring Fresh Money To The Country, July 4, 2020: OTV, TV Interview AR
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