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Currency Board Would End Devaluation and Hyperinflation
May 14, 2020 – An-Nahar Newspaper, Beirut, Lebanon
In the midst of the economic crisis, Lebanon has been going through a huge devaluation of the Lebanese pound, LIMS proposed transforming the central bank into a currency board. This system would stop monetary authorities from printing money to finance the government and in turn stabilize the local currency. As such, LIMS translated Dr. Steve H. Hanke and Kurt Schuler’s book entitled Currency Boards for Developing Countries: A Handbook.
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The currency board system was successfully adopted by many countries including Hong Kong, Bulgaria, and Bosnia and helped them overcome the huge devaluation of their local currency. In fact, the book is considered a firsthand reference to help struggling economies. For Lebanon, the currency board would dismantle all capital controls and stop the hyperinflation.
The publishing of the book was covered by 20 unique news outlets.
Op-ed in Arabic
Shared by Other Media Outlets: Khabarlb, Al Ektisadiya News, National News Agency, Akhbar Al Yawm, Lebanese Forces, Nidaa Al Watan, Iraq News, Beirut News, Klyoum, Al Qarar, Lebanon 24, Ad-Dawra, El Ektisad, Shafaqna, Klyoum, Lebeconomyfiles, Kreiger, Al Joumhouria News, ABWMonline. |
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Central Bank Continues to Finance Government while Dollar Rate Surges
May 17, 2020 – OTV, Beirut, Lebanon
For the past 9 months, the Lebanese pound has lost much of its value. In an interview Dr. Mardini, explained that the central bank of Lebanon has been financing the government by printing money, leading to such a huge depreciation in the currency. He also added that given the economic situation, government tax returns are extremely low, which means that the central bank is covering an increasing budget deficit. As for the Lebanese pound depreciating, he stated that the exchange rate is subject to supply and demand meaning that trying to coerce exchange offices to sell at a predetermined price is destined to fail and will only lead to a further depreciation.
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Central Bank Keeps on Financing Government
May 15, 2020 - France 24, Paris, France
Although the government’s reform plan states that the exchange rate for 2020 will be pegged at 3,500 LBP to the dollar, the real market rate has reached 4,200 LBP to the dollar. Dr. Mardini stated in an interview, that the government is forcing exchange offices to trade at around 3,200 LBP to the dollar, however, no one is willing to provide them dollars at this rate, since people know it is worth more. He also cautioned about floating the exchange rate, while the central bank keeps on printing money to finance the government and flooding the economy with a currency which would soon enough become worthless. As a solution, he suggested adopting a currency board as a way of imposing fiscal discipline.
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Government Keeps Injecting Money into Economy, Causing Inflation
May 27, 2020- MTV Lebanon, Beirut, Lebanon
People in Lebanon are slowly moving towards dollarized transactions, given the instability of the Lebanese pound (LBP). In a TV interview, Dr. Mardini explained that shops are changing their prices to reflect the market exchange rate, since most of these products are imported from abroad or because the purchasing power of shop owners has dramatically decreased. Currently, the central bank’s monetary policy is focused on increasing the money supply by printing Lebanese pounds aiming at a de-dollarization of the Lebanese economy. He added further that this type of policy will only lead to further inflation.
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Fiscal Policy: Government Plans to Increase Taxes in Midst of a Depression
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Government Did Not Learn from Previous Mistakes
May 1, 2020 – LBCI, Beirut, Lebanon
To tackle the current crisis, the government released a new reform plan. Dr. Mardini criticized the plan, especially the financial part. The plan includes increasing corporate taxes to 20%, increasing interest taxes, increasing income taxes to 30% and capital taxes to 15%. He stated that the government hopes that these taxes would increase revenues. However, if this happens, companies would close and the government would actually have less revenue. Dr. Mardini suggested that it ought to lower taxes in order to become more competitive and attract businesses.
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Current Reform Plan Shuns Investments
May 1, 2020 - Al Yawm TV, Syria
The government drafted a reform plan aiming at requesting money from the IMF. Indeed, it specifies the size of the losses, accurately estimated at around $83 billion. Dr. Mardini was skeptic of the huge increase in taxes amidst the current economic crisis, which included corporation, savings, income, and capital, explaining that these measures would shun away investments and close down struggling businesses. He also added that the top priority of the government should be to stabilize the exchange rate, rather than floating it because in the current circumstances would lead to permanent depreciations. Dr. Mardini asserted that the government’s plan clearly aims at pleasing the IMF.
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Government Plan Unlikely to Ease Crisis
May 9, 2020 - Mugtama.com, Kuwait City, Kuwait
Even though the government’s reform plan addressed many issues facing the Lebanese economy, Mr. Aref stated that officials have not been taking the right measures to restructure the problem-causing public sector. He indicated that spending remains very high, government monopolies are still in place, and very expensive projects in electricity, water, and telecom are currently underway. Additionally, Mr. Aref pointed out that the government intends to increase taxes, which would backfire and result in lower tax returns.
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IMF Financial Assistance Dependent on Increasing Taxes
May 28, 2020 - El Ektisad, Beirut, Lebanon
Currently, the government is seeking financial assistance from the IMF. Dr. Mardini suggested that some of the proposed policies such as increasing taxes, would lead to the closure of more businesses and result in more tax evasion. Companies would choose other countries where it is easier to do businesses, he explained. He then added that the haircut on sovereign bonds mentioned in the government’s plan would decrease debt-to-GDP to 100%, however, this alone would not solve the problem, since the government has a huge public spending problem, that would in turn cause debt to increase again.
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Bank Restructuring: The Sector Held Responsible for Government Losses
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Government Decides Not to Hold Itself Accountable for Current Crisis
May 5, 2020 - El Ektisad, Beirut, Lebanon
After the crisis hit Lebanon, the new government released its reform plan quantifying the losses in the economy, and suggesting a solution. Dr. Mardini revealed that the government intends to hold banks accountable for the public sector losses. Such losses are mainly due to the government’s inability to pay off its debt and the central bank’s insistence on keeping the peg, he explained. He also added that officials are requesting exceptional authorities to perform a haircut and a bail-in, as a way of deciding on how to distribute losses between different parties except itself, which raises big questions.
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Banking Sector and Depositors Bare Losses, while Government Stays Intact
May 7, 2020 – VDL Radio Station, Beirut, Lebanon
In light of the government launching its reform plan, the banking sector refused the proposed solutions. Dr. Mardini points out that the current government plans to restructure the banking sector and hold it accountable, while keeping the public sector—which led to the current crisis— intact. He indicated that the electricity, water, and telecom plans remain unchanged, as well as central bank owned monopolies such as Casino du Liban and Middle East Airlines. Dr. Mardini cautioned that government spending and monopolies were the main reasons behind the current crisis and not reforming the public sector now will put Lebanon in the same crisis in a few years’ time.
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Bank Owners Will Lose All Their Capital in Current Plan
May 13, 2020 - Al Arabiya, Dubai, United Arab Emirates
The current reform plan sets the total losses in the economy at $83 billion and puts all actors accountable for the crisis, except the government. Dr. Mardini explained that the biggest losses were incurred by banks on the sovereign default, since they lent most of their money to the government and the central bank. He also added that the current plan intends to hold banks’ shareholders accountable for the losses by eliminating all their capital. Dr. Mardini urged officials to open this sector to foreign banks, which would be able to merge with or acquire local ones.
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Banks’ Reform Plan Still Not Enough
May 22, 2020 - Nidaa Al Watan, Beirut, Lebanon
A counter-reform plan was presented by the Association of Banks of Lebanon (ABL), suggesting that the government should resume payment on public debt mostly held by local banks. In return, they offered to reduce coupons and reschedule payments. The plan also argues for trading government bonds held by the central bank with bonds issued by a sovereign fund to be created. This scheme is meant to cut public debt without defaulting on it. The fund would then hold all public assets such as, telecom and real estate, and use their income to service the debt held by the central bank. Dr. Mardini explained that the sovereign fund will never be able to pay back the central bank’s debt, which makes the latter insolvent and, in a position, to default on its obligations to commercial banks. Being in such a situation makes banks insolvent and unable to return depositors’ money. The sovereign fund structure is meant to maintain government monopolies over vital sectors which would keep them well underdeveloped and subject to cronyism.
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Vital Sectors in Need of Serious Reforms
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IMF Not in Line with Government Electricity Plan
May 2, 2020 – VDL Radio Station, Beirut, Lebanon
Concerning the economic crisis that is prevailing in Lebanon, the Lebanese government announced that it will request financial assistance from the IMF. In an interview, Dr. Mardini explained that the negotiations will be difficult, since the necessary reforms in electricity have not been made yet, despite voting for Law 129 in May 2019. To illustrate, the government is unwilling to cut the electricity subsidies in the suggested plan, until the state-owned electricity company increases energy production, when in fact the exact opposite should be put into action.
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Telecom Sector in Dire Need of Reform
May 6, 2020 – VDL Radio Station, Beirut, Lebanon
Recently, the government has decided to take back the management of the two state-owned mobile companies previously operated by private companies. In an interview, LIMS Senior Policy Analyst Mr. Majdi Aref revealed officials’ plan to hold the same tender that caused the massive over employment and financial squandering in the two companies. He then explained why this plan is set to fail and that a new system should be implemented, which allows for competition and prevents additional government expenditure on the sector. Mr. Aref urged officials to cut spending on the sector amidst the current financial crisis and rely on the private sector to advance and grow the economy.
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Electricity Sector Still Undergoing Ambiguous Deals
May 15, 2020 – VDL Radio Station, Beirut, Lebanon
Lebanon’s electricity sector is responsible for about half of the sovereign debt. Known as one of the worst electricity providers, the state-owned electricity company is constantly wasting away monetary and energy-related resources. Such waste is due to the lack of transparency and accountability, which has led to shady deals, accusations of corruption, and poor quality of service. In an interview, Dr. Mardini explained that officials insist on going around the scrutiny of the Tenders Department, in order to pass down deals in importing fuel and building power plants without checks and balances. He insisted on applying Law 129 that allows private companies to enter the sector, build, and own power plants, and then sell electricity to the public instead of relying on further investments in a failed government company.
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IMF Would Require Government to Eliminate All Subsidies
May 21, 2020 – VDL Radio Station, Beirut, Lebanon
As a response to the economic and financial crisis the country is facing, the government has put in motion a reform plan. In an interview with VDL, Dr. Mardini suggested that this plan include increasing taxes and floating the exchange rate in order to satisfy the IMF. He then stated that the IMF would not provide any assistance if the government continues on subsidizing different commodities and goods. He urged the government to repeal subsidies and rely on directly helping the poor instead.
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IMF Support for Lebanon Reliant on Real Reforms
May 19, 2020 - Arabi 21, London, United Kingdom
As Lebanon has requested financial assistance from the IMF, this means long negotiations will be underway leading to a set of requirements the fund would impose in order to offer help. LIMS Senior Policy Analyst Mr. Majdi Aref explained that the IMF tends to be a last resort for struggling economies given the harsh requirements the organization places on borrowers. He also added that it remains essential for the government to cut spending on water, electricity, and telecom, and to allow the private sector to finance such projects, which would shield the economy from similar future shocks.
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COVID-19 Lockdown Aggravated Lebanon’s Economic Situation
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Lebanon Economy Halved and Inflation Hits a Staggering 180%
May 21, 2020 - France 24, Paris, France
For Lebanon, the COVID-19 pandemic came at the worst possible timing. The country is experiencing huge inflation estimated at around 180% and the GDP is expected to shrink from $49 billion dollars to $26 billion in 2020. Dr. Mardini pointed out what the devastating effect to the related lockdown had over the already struggling economy that has led to further closures and more poverty. Urging the government to stop increasing the money supply, Dr. Mardini stipulated that the situation will only get worse as the government continues to spend more than it earns.
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Importance of Intellectual Properties in Finding COVID-19 Cure
May 26, 2020 – An-Nahar Newspaper, Beirut, Lebanon
The Lebanese Institute for Market Studies joined a coalition of 96 think tanks from 50 countries encouraging leaders to protect intellectual property and arguing against compulsory licensing. In his interview Dr. Mardini shows that compulsory licensing will reduce the chances of finding a cure for COVID-19, since it prevents companies from getting a financial return on their discovery. Furthermore, this policy is unnecessary since businesses such as biopharmaceutical company AbbVie suspended their exclusive right to the production of Kaletra, a medicine that might help patients. Dr. Mardini mentioned the low ranking of Lebanon on the property right index where it ranks 63 out of 120, which means Lebanese companies have less motivation to find a viable cure or contribute to the global cause that could successfully defeat COVID-19. Also, Lebanon ranks 63 out of 86 countries on the 2019 International Trade Barrier Index published by the Property Rights Alliance organization. To illustrate the impact of this specific ranking, Lebanon imposes a 2.5% tariff on medical equipment and 2.14% tariff on hand sanitizers.
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