Lebanon Averts One Crisis by Deepening Another
Beirut staves off fuel crisis by exacerbating its economic one, and Lebanese citizens will suffer, observers say
Lebanon has, for now, averted a fuel crisis at the expense of worsening its already dire economic crisis.
Lebanese President Michael Aoun made an “exceptional approval” on June 6, permitting the government-run Électricité du Liban company to obtain a treasury loan for as much as $197 million to buy enough fuel from abroad to avoid a complete power outage and alleviate gas shortages.
For weeks, Lebanese gas stations have been uncertain about whether they would have enough fuel to last more than seven days at a time as citizens have endured long lines amid rationing and shortages.
The loan, however, will be added to the country’s beleaguered financial books, with no foreseeable way to pay it back anytime soon.
Hussein Cheaito, an economist in Beirut, says that has the country has been sucked further into a “cycle of debt,” where the banks owe people money, and the government owes funds to the banks and the country’s central bank, Banque du Liban (BDL).
“Technically the bank and the Lebanese banks and central bank apply for a loan because of this capital channeling procedure but it hasn’t been able to pay out its dues,” he told The Media Line. “The country doesn’t really ‘afford’ such loans in real terms, but technically it has maintained this loaning scheme which is really a veneer of financial stability.”
Cheaito further explained that the Lebanese pound, or lira, is pegged to the dollar and BDL, which manages the dollar reserves, has a dearth of American currency, which is used to buy things like imported fuel.
Bachar EL-Halabi, MENA geopolitical analyst at ClipperData in New York City, and a Lebanese political activist, says that the actions of the Lebanese government to increase debt also ignore the need for reforms, including government-backed subsidies that are used to purchase items such as fuel.
Foreign aid, another way to purchase imported fuel, is dwindling, with organizations like the World Bank refusing to loan Beirut any more money until substantive reforms are instituted by a new government. There has been no movement toward the formation of a government, as Lebanon’s current prime minister, Hassan Diab, who resigned along with the rest of the cabinet in August following the devastating explosion in the Beirut port, acts in a custodial capacity. Saad al-Hariri, who was designated in October to form a new government, has been unable to do so, leaving the current government in a caretaker role.
“What Aoun is doing basically is an attempt to block any calls for reform within the energy sector in Lebanon and the Ministry of Energy, simply because his political party has dominated it for the past 12 years through his US-sanctioned son-in-law, Gebran Bassil,” Halabi told The Media Line.
Authorizing the bank loan, Halabi says, allows Aoun to step in and “save the day” by approving a loan that will avert a country-wide blackout.
However, he argues that it is the Lebanese population that is bearing the true cost of the loan.
“In reality, those sums needed to buy fuel are financed through whatever is left of the depositor’s money at the central bank, but Aoun, being a populist, wants to literally extract small and meaningless victories at the expense of the Lebanese citizens,” he said.
We are today at the brink of complete disaster and, within weeks, all that is left will be the final dimes left in the coffers
Moustafa Assad, a Lebanese freelance researcher on banknote issuances, says that the deepening debt makes it more difficult to ultimately address the source of Lebanon’s economic crisis, corruption.
“The problem in Lebanon is compounded and cannot be singled out, which makes solving it an even bigger challenge. The economic crisis which led the gross domestic product to shrink in severity to never-seen-before levels can be attributed to a series of irresponsible acts from the entire governing echelon that sometimes border on the criminal,” he told The Media Line. “The country and its revenues have always been robbed of its assets, but it multiplied beyond imagination in the past 15 years.”
“We are today at the brink of complete disaster and, within weeks, all that is left will be the final dimes left in the coffers,” Assad added. “I am talking here about the individual depositors’ money, as the BDL coffers have long been robbed.”
Assad believes that Lebanon’s financial situation is only going to get worse.
“Within months we will get to an implosion and jump on the train of hyperinflation,” he said. “It’s inevitable and I can be confident those who will inherit the vacant jobs at BDL should start designing new banknote bills to match the needs of the coming year.”
“We won’t be a Venezuela,” he added, referring to that country’s massive inflation crisis. “We will be Zimbabwe, multiplied by four.” Zimbabwe’s inflation rate stood at over 550% in 2020.