As soon as rumors spread about the availability of the dollar currency in the banks, everyone started withdrawing his dollars or looking for ways to transfer them abroad. Same when gas station owners declared a strike, everyone rushed to fill up their tanks and form queues at the stations, but these are all diversions from the real problem at hand: The lack of an economic initiative to get us out of this mess.
To begin with, let’s try to answer basic questions:
Why aren’t we allowed to withdraw as much dollars as we want now?
It’s not rocket science to be honest and we’ve been hearing the same “reasonable” explanation for years:
– The Central Bank wants to defend the peg (1$ = 1507.5LL) and needs foreign currency reservers to do so.
– Since the reserves (excluding gold) are declining, and government debt is increasing, there’s more pressure on BDL to sustain his reserve levels to maintain confidence.
– Add to that the major decrease in capital inflows which helped keep its reserve high for years. In simpler words, expats are no longer sending in money as they used to do before.
Should we blame the BDL and its governor?
It’s quite funny reading some people criticize BDL and its policies for the crisis, not because I agree with them but because they expect the governor to run the country while his job mainly consist of implementing monetary policies and setting the official interest rates as well as controlling the national’s entire money supply.
He’s not supposed to implement reforms, form governments, incite politicians to reconcile and save the economy, or set up monetary policies to cope with the lack of a state budget, political void, increased corruption and unaccounted for expenses. The governor is not supposed to be as powerful as Salameh is right now, but it is the ruling parties that made him that way, and he figured out a way, which again I disagree with, to appease everyone throughout the years and keeping the Lira afloat.
Blaming him for the economy crisis or Lira collapse is like asking a football manager to replace the goalie while the team is down 10-0 and then blaming him for not creating chances and scoring any goals. One thing I blame him for is not being transparent about the measures being taken and helping banks obstruct the work of small to medium businesses that need their dollars to buy from abroad.
Why aren’t banks lending to the economy?
This is a legit question and the answer to it once again is the instability in the country, the lack of vision among the ruling class, the inability to apply any reforms and show a willingness to cut down on expenses. Local banks are paying up a big chunk of the debt and they’d rather play it safe than throw in money on investments. I don’t agree with this approach but then again this should have been a short-term one assuming we had a functioning government capable of reviving the economy and cutting cost.
Should BDL and the banks agree on one fixed rate for the next 2 years or so? Low rates with an increasing debt and government expenses will harm the banks, so chances are slim this ought to happen.
What’s next?
I don’t believe we’re in a financial crisis yet. We’re in an economic crisis and in recession that’s for sure, and we’re struggling financially but it’s not a fully-fledged crisis yet. However, BDL and banks are running out of tricks to use and this is a race against time right now.
Unfortunately, and as pointed out before, what led us to this situation is years of negligence, corruption and theft. CEDRE is not the solution and foreign leaders won’t give us a penny if the ruling political class keeps behaving that way. Few days ago, everyone was outraged by the President’s $1M dollar trip to New York and they have every right to do so, and they should also know that the Prime Minister spends ten times as much, that the Head of Parliament also is spending left and right. Add to that the thousands of illegally hired in the public sector, the flagrant corruption at the Lebanese customs, the lack of transparency in bids and contracts etc etc …
We CANNOT get out of a crisis with those in power right now. This is the real problem and everything happening around it is a diversion. How do we get them out? We had our chance a year ago and we blew it. Let’s just hope there won’t be a financial breakdown before the next elections take place, and pray that Lebanese voters hold their leaders accountable once and for all. Until then, panicking won’t get us anywhere. Revolting might but I don’t see it happening.
I recommend you hear this interview on the current situation.