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Business Growth Possible If Lebanon Implements Key Steps
November 17, 2019, Al Nour Square, Tripoli, Lebanon
On the 1-month anniversary of the countrywide Lebanese protests, the Lebanese Institute for Market Studies—LIMS, held a Freedom Audit in partnership with the Fraser Institute and Atlas Network. The event took place at the protest and attracted over 250 activists, academics, and protesters with Mr. Fred McMahon and Dr. Michael Walker as speakers. Mr. McMahon explained how less government intervention reduces current monopolies plaguing Lebanon and induces prosperity. He then elaborated on how Singapore, Ireland, and Botswana benefited from opening their economies to competition. On the other hand, Dr. Walker described how less regulation helps overcome corruption and reduces public debt, citing the experience of Margaret Thatcher in Great Britain as an example. Part 1 of the Audit was a fantastic opportunity to give protesters a taste of free market ideas.
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Improving Lebanon’s Economic Freedom
November 20, 2019 - Chamber of Commerce, Industry and Agriculture, Tripoli, Lebanon
Part 2 of the Freedom Audit gathered 76 businesspeople, academics, and activists in a roundtable discussion to recommend ways to push Lebanon out of the current economic crisis. Mr. McMahon and Dr. Walker examined the country’s ranking on the Economic Freedom of the World Index published by the Fraser Institute. They explained that decision-makers should work on improving the rule of law and property rights (ranked 134), credit market regulations (133), business regulations (151) and freedom to trade internationally (104). 10 media outlets covered the event and shared the findings.
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Lebanon’s Financial Tension Could Decrease with Feasible Reforms
November 18, 2019 - Annahar TV, Beirut, Lebanon
Many Arab countries recently witnessed huge demonstrations demanding change. Mr. McMahon explained that the reason for such protests is due to the rampant corrupt systems and policies that have torn apart the dynamism of the economy and have constantly favored cronyism. Lebanon’s yearly budget deficit of $7 billion burdens its citizens and hinders its ability to prosper. To alleviate Lebanon from the financial crisis, he proposed cutting government spending and reinforcing the rule of law, which proved successful in Ireland, Spain, and Portugal.
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Regaining Investor Trust by Easing Off Regulations
November 18, 2019- Assrar Group Radio Station, Tripoli, Lebanon
In his interview, Dr. Walker discussed why Lebanon ranks 75 out of 162 countries on the Fraser Institute’s Economic Freedom of the World Index. The burden of regulation led to a corrupt system and to the low ranking. He added that capital controls and haircuts are very short-term anesthetics and would not resolve the problem. However, reducing regulation improves transparency and encourages investors to regain trust in the system, allowing for new businesses to grow as a long-term solution.
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Discussion about potential Capital Controls and Haircuts in Lebanon
November 23, 2019 - An-Nahar Newspaper, Beirut, Lebanon
Banks, struggling to meet their depositors' high demand for dollars, have resorted to capital controls. Talking to the An-Nahar newspaper, Dr. Walker postulated that such measures applied to manage withdrawals, may lead to the failure of the financial system. Mr. McMahon, on the other hand, cautioned officials against the use of haircuts, where bond holders receive less of what they had been promised on government debt. He warned that entrepreneurs will lose trust in the system if financial haircuts are adopted. They both explained how minimizing regulatory restrictions and establishing a good legal system are direly-needed reforms to attract investments and restore faith in the Lebanese economy.
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Lebanon Should Not Follow Argentina’s Financial Footsteps
November 25, 2019- An-Nahar Newspaper, Beirut, Lebanon
Financial markets have devaluated Lebanese bonds by 30%, foreseeing a negative outlook for the upcoming period. In a newspaper interview, Dr. Michael Walker urged the government to adopt timely reforms, since restructuring public debt would be difficult and ineffective. He gave Argentina as an example, which has gone through with many progressive haircuts as a quick solution to the crisis and ended up seizing all the people’s assets to cover the budget deficit. In his opinion, reducing Lebanon’s expenses simultaneously with a slow-pace debt restructuring is the ultimate solution to avoid going through a similar scenario.
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Other Outlets: Institut Des Finances |
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The Financial Collapse of Lebanon
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Banking Sector Struggling to Stay Afloat Amid Ongoing Crisis
November 23, 2019 - Sharq Awsat TV, Turkey
After the shortage of dollars, the limits on withdrawal, and the rumor about a haircut, people lost trust in the banking system and rushed to withdraw their money. Dr. Mardini explained that banks hold around 30% of government bonds and the central bank invested banks’ reserve requirement to hold another 40% of the public debt. The risks of government default on debt led to the panic of depositors. He proposed opening the sector to foreign banks to buy troubled Lebanese banks and inject the needed capital and liquidity. He also discussed the structural problem behind the crisis and argued for dismantling monopolies and reducing the fiscal deficit by $7 billion.
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Consequences of Capital Controls and Haircuts
November 25, 2019 - New Lebanon Online Magazine, Beirut, Lebanon
Lebanon is witnessing an economic breaking point that has led banks to utilize serious measures to control deposit withdrawals. Dr. Mardini cautioned that caps on withdrawals would destroy the banking system’s reputation and the country’s attractiveness to foreign investments. On the other hand, he criticized experts promoting haircuts on public debt, since it would lead to a great loss for banks. Some people are presenting the haircut option as a social justice measure since it would be limited to the rich, but Dr. Mardini stated that this would be applied to large depositors at first, and after taking their money, the government would turn to smaller deposits.
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Lebanon’s Economic Cure: Smaller Government
November 25, 2019 - Sharq Awsat TV, Turkey
The banking crisis and the devaluation of the national currency pushed the Lebanese economy into financial quicksand. Dr. Mardini explained that people lost faith in Lebanese pound and they will not keep their money at the banks despite the high interest rates offered on deposits. They know that banks transferred their money to the government and the government is unable to pay it back. He urged decision-makers to reduce the size of government, cut spending, dismantle monopolies, and lessen restrictions on businesses and trade. Those reforms would restore credibility and bring confidence back to the system.
Click Here to Watch the Interview in Arabic
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Dollar Shortage Forces Gas Stations to Go on Strike
November 27, 2019 - France 24, Paris, France
Gas stations decided to go on strike after lacking dollars to pay for fuel. According to Dr. Mardini, Lebanon could suffer from a shortage of gasoline, bread, and medicine since their prices are set by the government. The devaluation of the Lebanese pound on the black market and the shortage of dollars at the banks have led to a cost increase on all imported goods. Gas stations, bakeries, and pharmacies are not allowed to adjust their prices to reflect the higher cost, hence the shortages. As for the reason of devaluation, Dr. Mardini highlighted the banking system’s exposure to public debt and the government’s high deficit.
Click Here to Watch the Interview in Arabic
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More Transparency Needed in Public Purchasing
November 20, 2019 - VDL Radio Station, Beirut, Lebanon
Given the shortage of dollar, the Ministry of Energy and Water decided to purchase gasoline on behalf of the Lebanese people. Dr. Mardini expressed his suspicion towards this move asking: “where did the ministry get the dollars from? The ministry also avoided going through the scrutiny of the Tender Department as legally required, resulting in less transparency and a potentially bias tender. This suspicious approach happened in the past. Back in July, the tender department was bypassed, and three Floating Storage Regasification Units (FSRU) were tendered while Lebanon needs only one. Dr. Mardini proposed expanding the role of the Tender Department to prevent corruption and waste, as well as reducing government expenses on the sector.
Click Here to Listen to the Interview in Arabic
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Public Policy in Disarray
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Government Reform Paper
November 1, 2019 - Ana Hon Blogger Online Page, Tripoli, Lebanon
In response to the protest, the Lebanese government adopted a series of economic reforms. Dr. Mardini visited the Karami Square in Tripoli and had a discussion with the protesters in a “Taxicab Format”. He explained that the government has a large fiscal deficit and the new plan asks the central bank to finance this deficit. The central bank is struggling to maintain the exchange rate, let alone sacrificing $3 billion in reserves. The government needs to reduce spending and open monopolized sectors to competition, and thus alleviating the public deficit.
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New Government Must Implement Real Reforms
November 9, 2019 - An-Nahar Newspaper, Beirut, Lebanon
Protesters refused the government reform plan and demanded the formation of a new technocratic government independent from all political parties. LIMS Senior Policy Analyst Majdi Aref clarified that the focus should be on reforms the government ought to implement. Following the same economic policies of previous government would definitely lead to the same bad results. To revitalize the economy, Lebanon must open its markets to competition, to attract investments and entrepreneurs. A study by the Fraser Institute concluded that a country’s economy grows faster with a smaller government in charge. Mr. Aref explained how Britain and Turkey succeeded in getting out of a similar crisis following this path.
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Delay in Government Formation Puts Pressure on Lebanese Pound
November 14, 2019 - Al-Hurra TV, United States
In his interview, Dr. Mardini retraced the correlation between political circumstances and the economic situation. He explained that postponing government formation has created distrust and led Lebanese depositors to rush at once to withdraw their savings from banks. The run on the banks and the conversion of deposits from the risky Lebanese pound to the dollar led to the devaluation of the pound in the black market. Eventually, prices on all products increased dramatically to reflect the devaluation.
Click Here to Watch the Interview in Arabic |
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Faster Internet Speeds Possible, By Opening Telecom Market
November 11, 2019 - Madrasat Al Mouchaghibin Tent, Tripoli, Lebanon
Lebanon ranks 164 out of 175 in internet speed and is the 6th most expensive in the world. The government plans to spend $700 million on the sector in the coming years, including $50 million for fiber-optic networks through. LIMS Senior Policy Analyst Mr. Aref suggested allowing competition in telecom, to relieve the government of costly projects. This would improve internet quality and allow the government to lease 5G frequencies. Mr. Aref encouraged people to push for initiating the telecom law that allows competition in the sector, so customers could have access to better services and lower prices.
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Electricity Reforms in Production, Transmission, and Distribution
November 27, 2019- BBC News 1, Beirut, Lebanon
The public electricity sector suffers from high production costs, waste in transmission, and uncollected bills. Dr. Mardini urged the Ministry of Energy and Water to take measures similar to Law 129 enacted in May 2019 that allowed for independent power producers to enter the production sector. He suggested contracting the transmission network to the private sector using rehabilitate-operate-own contracts. He also recommended changing distribution contracts to Electric Distribution Companies (EDC) in order to solve the problem of uncollected bills.
Click Here to Read the Article in Arabic |
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