With the central bank down to the required reserves, continued funding to the subsidy program is no longer an option. LIMS explained that the lifting of subsidies is necessary to stop the hemorrhaging of reserves and enabling an economic recovery plan. Previously subsidized products will rise in price, but most of those products are in short supply already. The smugglers and market monopolists will effectively fall out of favor, and shortages will become a less frequent occurrence. LIMS reiterated that supporting citizens out of the crisis can solely be done by solving its main concern, which is the currency depreciation. An instant relief program could be put in place the time the currency is stabilized. A Quasi Universal Basic Income (QUBI) would cost 6 times less than the current subsidies program and be more effective in helping the population in need. 

LIMS Media Interviews:

LIMS weighed in on the matter saying that the choice of either racking up more debt or living in complete darkness is unacceptable. In a time of crisis, the ministry is looking to appropriate the remaining central bank’s foreign exchange reserves to fund the same policies that resulted in $34 billion of losses in the past decade. Instead, the government entity should implement ways to cut spending and increase income. Electricity is too expensive because for years, the ministry has been bypassing the Tenders Department by signing illegitimate procurement contracts at an exorbitant cost through dubious bidding documents. Additionally, renting powerships has been an extremely expensive “temporary” solution, while the power plants are functioning at half capacity, due to a lack of funds to purchase fuel. Repatriating the powerships would free up enough funds, LIMS stated, that would improve the electricity coverage from 12 to 15 hours daily. 

While the ministry claims to want to switch the power plants to function on cheaper natural gas, LIMS believes this plan is outdated and ineffective. Around half the electricity supply is wasted on technical losses and uncollected bills. The other half is sold at a loss. Changing the fuel type will not resolve those two problems. 
LIMS noted that private generator owners have an almost 100% collection rate and they sell their electricity for profit. Yet, their generators have a high production cost and pollute. With the recent breakthroughs in lithium battery technologies, solar power seems to be the ideal solution for Lebanon’s electricity crisis. By licensing private power generators and incentivizing their switch to solar panels and storage batteries, multiple problems would be resolved. Pollution would be eliminated, invoice collection ensured, and the inherently decentralized solar grid fixes the technical losses in transmission. With 300 sunny days a year, a privatized solar power grid can turn Lebanon into a pioneering country in renewables and ensure a permanent solution to the electricity problem, while costing the government 0 dollars. If implemented, LIMS estimates the cost of electricity production would drop from 25 cents/kWh to about 5-9 cents/kWh.

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LIMS explained that recapitalization was accomplished by using local assets including: (1) shareholders’ deposits that were in effect frozen due to the de facto capital controls, (2) shareholders’ real estate whose nominal value increased due to hyperinflation, and (3) re-evaluating banks’ real estate portfolio. However, to enhance their position at their corresponding counterparts, several local banks raised “fresh” dollars on the black market. Such a move made the demand for dollars spike and sucked liquidity out of the market. LIMS expects the LBP’s devaluation to persist, until the Banking Control Commission’s final report is published. 
LIMS reiterated that the LBP depreciation will persist, so long as the government does not undertake monetary reform and refuses to cut its expenditures. The continuous increase in local currency supply to finance public debt and deficit explains the general foreign exchange rate trend. Banks restructuring requires a completely integrated plan that would take into consideration the stability of the currency and importance of restoring growth.  A currency board would play this role and would pave the way for other crucial reforms to follow. LIMS also suggested allowing foreign banks to enter the Lebanese market, as a way to revitalize financial intermediation, and restore public trust. 

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LIMS refuted the “manipulation” claims and explained that devaluation is normal given the absence of reforms. LIMS insisted that devaluation will persist with or without online platforms, as long as Lebanon keeps on printing Lebanese pounds (LBP). Cracking down on online platforms is actually counterproductive and catastrophic, LIMS noted. It will obscure the market value of exchange rate and make potential sellers unwilling to part with their dollars fearing a possibly unfair rate. Similarly, prosecuting unlicensed money changers for allegedly underpricing the Lebanese pound will result in a shrinking dollar supply on the black market and consequently even more devaluation.

LIMS also warned that the resulting smaller black market will be more prone to manipulation as politically protected online platforms and black-market exchangers will have the monopoly. Even the central bank’s proposed exchange platform is bound to fail and will lead to the squandering of the small amount of remaining foreign reserves, if an artificially lower exchange rate is set. Only a cut on public spending and a halt to money printing can stabilize the exchange rate. LIMS urged for fundamental reforms to be enacted to tackle the root causes of the depreciation, rather than the ramifications. The continuous freefall of the LBP makes the currency lose its function as a unit of account. Consequently, Lebanese markets are moving towards a well-needed dollarization of prices, which can allow businesses to perform proper economic calculations and ensure continuity in times of hyperinflation. 

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Establishing a currency board would also allow Lebanon to take advantage of arbitrage opportunities. According to LIMS, the LBP interest rate would be lowered, but remain slightly higher than its USD counterpart, as interest rates incorporate country risk, among other factors. Therefore, investors would be interested in taking advantage of the higher interest rates by depositing their dollars in Lebanon and exchanging them for LBPs. This time around the LBP would be fully backed by the dollar, creating stability for the LBP. The inflow of foreign capital would allow banks to restart their banking activities which would help them reduce their losses and stimulate the economy. 
LIMS urged the parliament to take the initiative by amending the Lebanese Code of Money and Credit and establishing a currency board. Such moves would put Lebanon back on the right track before the damage is irreversible. 

LIMS Media Interviews:

LIMS Media Interviews: