Currently, Lebanon is going through a severe economic depression.  However, given the controversial nature and unpopularity of the needed reforms, members of parliament (MPs) preferred to avoid voting on such policies during election season. Reforms have been delayed by the parliament and will be decided on after the May 15 parliamentary elections.

In the townhall meetings, voters were informed about the electoral system and voting procedures. Previously, Lebanon had a majoritarian electoral law where forming lists wasn’t mandatory, and individual candidates had the possibility, but not the obligation to be on the list. In contrast, the current law states that lists are mandatory and individual candidates must be included in a list, otherwise they cannot run on the ballot for elections. Also, in the majoritarian law, people had the possibility to vote for several candidates running on competing lists, while voting in the proportional law is restricted to a list and is not allowed to include candidates from different lists. The new law adopted preferential voting that creates competition between members of the same list. Throughout the organized events, a detailed explanation of the pre-printed ballots, the electoral threshold, and the impact of “white ballots” were also discussed. Other hot topics during the townhall meetings were the 10 steps that voters should follow on election day and how votes are tallied as per the new electoral law.

Townhall Meeting in Batroun, May 2, Photo Album   
Townhall Meeting in Zgharta, May 3, Photo Album
Townhall Meeting in Tripoli, May 8, Photo Album
Townhall Meeting in Tripoli, May 9, Photo Album

In the period preceding the general elections, LIMS released a series of 9 videos advocating for policies and reforms that would help Lebanon out of the crisis. The videos featured 13 graduates from LIMS Leaders’ Academy, out of which 7 were running for the May 2022 parliamentary elections.

The workshop discussed the two levels of government: centralized and decentralized. Furthermore, the principle of subsidiarity was used to define the authority of each level of government. Then, a conversation around the three different forms of power, visible, hidden, and invisible, emerged. Participants debated on the roles and responsibilities of political parties and civil society groups in Lebanon, along with women’s participation in politics, and emphasized on the roles and responsibilities of the media, journalists, and social media. During the discussion, social media was put in the spotlight, as these platforms empower individuals and provide them with tools to propagate news. Finally, the core elements of working together and the five stages of group development were explored. 

LIMS connected the recent currency devaluation to the parliamentary elections. The central bank has been draining foreign exchange reserves to provide a relatively short period of stability and allow for a “smooth election”. Once elections were over, the central bank decreased the monthly USD quota injected into the market creating an excess of demand. The inability of the central bank to provide dollars at the exchange rate set on its own “Sayrafa” currency exchange platform sent the demand to the black market, thus raising the exchange rate. The drop at the end of the month was due to the inflection of central bank’s policy and the re-injection of more foreign exchange reserves in the market. 

LIMS added that the constant interference of the central bank in the currency market using a discretionary monetary policy via the Sayrafa platform has been causing extreme volatility. This situation raises doubt about the possibility of illegal profits, made by speculators, who might have obtained information about the central bank’s intervention in advance. Furthermore, this discretionary monetary policy will eventually lead the central bank to lose its reserves (i.e the remaining depositors’ dollars blocked at the central bank). This loss will further decrease its ability to back the LBP, leading to its uncontrollable devaluation.

For LIMS, most of the prices in the Lebanese economy are tied to the dollar, while Lebanese citizens are losing their purchasing power with each passing day. It has become apparent that the Lebanese market will have to eventually resort to full dollarization to avoid the LBP’s instability. LIMS explained that the central bank cannot keep on funding the public sector debt and deficit, keep a free flow of capital, and have a stable exchange rate simultaneously. One of the three must be dropped. The IMF plans to have Lebanon drop the free flow of capital through capital controls, while LIMS believes that the central bank should be stripped from the ability to engage in active monetary policy.

Lebanon is heading towards dollarization, and such a system can be fast tracked if the country adopts a currency board. A currency board would see the country shift from an instable and discretionary monetary policy to a rule-based monetary system. Having such a system would ensure the LBP’s stability and stop the downfall of the Lebanese people’s purchasing power.

LIMS Media Interviews:

LIMS argued that the plan’s priorities are inverted as Lebanon should work on relaunching economic growth, prior to discussing the distribution losses. Growth would reduce the losses that need to be distributed, hence decreasing the size of the needed haircut. Monetary stability will play a major role in putting the economy back on track and can be achieved through a currency board.  The currency board would enforce fiscal discipline on the government and stop financing bank losses with inflation, which explains the reluctance of decision makers and bankers to this reform.

LIMS sees the bid to decrease the fiscal deficit through an increase in tax rates and tariffs, will only further incentivize tax and customs evasion. Moreover, this move would strangle the economy, in turn leading to larger negative growth. Instead, a more effective approach would be to switch to a low flat tax. By doing so, tax evasion would become a less attractive option and the larger tax base would increase the overall government’s revenues.   

On the electricity sector reform, LIMS noticed that the government proposed a hastily prepared reform that didn’t align with the IMF’s conditions. Mainly, the problem with the electricity is the extremely underpriced service (1 cent per kilowatt hour) and doesn’t cover the cost (25 cents per kilowatt hour). Therefore, the first reform should be adapting the price to cover the costs. Later on, the sector should be unbundled and opened for competition to drive down the cost and improve the service quality. 

LIMS concluded that sealing the IMF deal is crucial for Lebanon to regain the trust of the international community. Even though such reforms are not optimal, they are still better than the current direction the government is heading. 

LIMS Media Interviews:

• Restructuring Banking Sector Won’t Protect Deposits, May 2, 2022: Grad LB, Article AR
• The Economic File and Agreement With the IMF - With The CEO Of The Lebanese Institute For Market Studies May 2, 2022: VDL, TV Interview AR
• Worrisome Leaks…What’s Behind The Plan To Strike Off Deposits In Lebanon? May 8, 2022: Al Estiklal, Article AR
• Fear of Passing Controversial Laws Regardless Of Serious Reforms, IMF Agreement Relies On The Elections’ Results, May 16, 2022: Nidaa Al Watan, Article AR
• The Cabinet Towards Caretaker Mode—What Is The Fate Of The Urgent Economic Situations? May 18,2022: MTV,  TV Interview AR
• What’s Next After Adoption Of Economic Reform Plan And Increase In Telecom Fees, May 20, 2022: Sawt Beirut International,  TV Interview AR
• Financial Recovery Plan Measures Call For Reminiscence For Its Monetary Counterpart, Tax Increase During Times Of Collapse, A Life Sentence Of Recession For Economy, May 25, 2022: Nidaa Al Watan,  Article AR

LIMS Media Interviews:

Increasing Telecommunications Bill Does Not Prevent Sector’s Collapse…What Are The Solutions? May 27, 2022: Al Anbaa, TV Interview AR