Lebanon: Who's Responsible for Country Edging Towards Bankruptcy?

© Sputnik / Valery Melnikov / Go to the mediabankClashes between anti-government protesters and security forces in Beirut, Lebanon.
Clashes between anti-government protesters and security forces in Beirut, Lebanon. - Sputnik International, 1920, 06.04.2022
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The Arab nation is now holding negotiations with the International Monetary Fund to secure some $4 billion in loans. But with losses estimated at around $69 billion, the cash injections by the IMF appear to be a drop in the bucket.
On Monday, Deputy Prime Minister of Lebanon Saada Al-Shami dropped a bomb announcing his country and the central bank were bankrupt.
The Banque du Liban has never confirmed that statement and preferred to do business as usual, but Mohammed Kleit, a Beirut-based journalist, who has been covering Lebanon's economic crisis, suggests that it might just be a matter of time until his country goes bankrupt.

Economic Woes

Lebanon is no stranger to economic hardships, but the situation started to rapidly deteriorate in 2019 after the government decided to raise prices on gasoline, tobacco, and the use of WhatsApp. Then came 2020 with the coronavirus pandemic and the deadly August explosion at the Beirut port, two events that caused Lebanon's economy to slide even further.
According to estimates, prices on basic commodities in Lebanon increased by 350% between 2020 and 2021. Unemployment and poverty rates have gone up as well, and this is why, says Kleit, that nobody in Lebanon was taken aback by Al-Shami's dramatic announcement.
"The public is rather indifferent [to such announcements] because they believe that Lebanon has been bankrupt for a very long time", said Kleit.
"Others express joy at the situation because they believe the bankruptcy of Lebanon will lead to the privatisation of public institutions and that, in turn, will lead to the reorganisation of the public sector", he added.

Main 'Culprits'

That public sector has been one of Lebanon's main headaches for years. It has been a source of less than transparent deals and corruption like the Balaa Dam project. The latter was meant to cost the nation around $25 million, but the Lebanese government ended up spending $70 million. And it was one of the factors leading to Transparency International, an NGO that aims to root out corruption, in 2021 ranking Lebanon 154 out of 180 nations, indicating that the country's mechanisms were too weak to tackle the acute problem.
Kleit says there are two main "culprits" that led to the current state of affairs in Lebanon. The first is the country's government that "used public institutions for corrupt deals with private investors, something that cost the general budget hundreds of billions of dollars". The second is the Lebanese central bank with its monetary schemes that led to the devaluation of the local currency by more than 90 percent since 2019, when the protests against the economic situation erupted.
So far, says the journalist, neither of the two actors has accepted responsibility for the quagmire Lebanon now finds itself in. Instead, they are pass off the handling of the situation to ordinary Lebanese residents by adopting the so-called Capital Control Law.
That law – which was adopted at the end of March by Lebanon's cabinet – was designed to force the government, public and private banks, as well as individual depositors to handle the losses incurred by the political system over the years, meaning that the average resident will be paying extra interest rates to cover the state's losses.
The law still needs to be ratified by the nation's parliament, but it has already become one of the main conditions for Lebanon to get the generous cash injections from the International Monetary Fund.
Other conditions include the establishment of a proper economic relief plan, the passing of a national budget, and the reconstruction of the banking sector.
Lebanon resumed negotiations with the IMF for a $4 billion loan at the beginning of this year, but according to all estimates this will hardly be enough to cover the country's losses that are estimated at around $69 billion.
Even more so, Kleit believes the loan, if it ends up being received, will not bring any good to the country.
"The loan will only add more debt. If we really want to change things, we need to alter the entire economic system and create a more productive one rather than just relying on debts and services".
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