The currency has now lost 78 percent of its value since October, when banks began restricting withdrawals of dollars — the main foreign currency used in Lebanon — then closed their doors for weeks. It was the first sign that they were running out of foreign currency and that the country’s economy was in deep trouble.
Widespread street protests against the corruption and cronyism at the root of the country’s problems compounded the decline and paralyzed the economy for weeks. Then came the seven week-lockdown to contain the coronavirus earlier this year, which added to the pain.
The reopening, now in full swing, has done little to stem what is fast turning into a major economic implosion that risks destabilizing the already volatile region. Intermittent protests against the government for failing to halt the financial free fall have served as a reminder of the potential for greater social unrest.
“The country is not doing well,” Prime Minister Hassan Diab told a meeting of Lebanon’s top politicians called by President Michel Aoun on Thursday to address the ballooning crisis. But only those who support the government showed up, leaving little hope of a consensus to address the troubles anytime soon.
Bailout talks stalled
The government is seeking a $10 billion bailout from the International Monetary Fund, but talks that began in February have not yet progressed beyond the preliminary stages, according to officials familiar with the proceedings who spoke on the condition of anonymity because of the sensitivity of the issue.
Reforms promised by the government, ranging from its unwieldy structures and costly subsidies of essentials such as fuel and wheat, have not materialized because of the lack of political agreement.
Lebanon has pegged the value of its currency to the dollar at the rate of 1,507 for the past three decades, and the government still officially maintains the level even as the pound collapses and banks halt all dollar withdrawals, except for what are called “fresh” transfers of dollars from overseas.
The banks have set other rates for certain transactions, meaning that Lebanese people now must navigate five different exchange rates, including the black market one, which is considered the most reliable indicator of the currency’s true worth.
In the absence of a clear policy path ahead, there is no bottom to the value of the Lebanese pound, said Nasser Saidi, a former Lebanese finance minister who is now a financial consultant based in Dubai.
Citizens have lost trust in the banking system and the country is shifting to a cash-only economy.
Some retail outlets have started accepting only dollars, which are hard to find. U.S. and European sanctions against neighboring Syria have deprived that country of dollars, too, making Lebanon the chief destination for Syrians seeking to fund imports there, increasing the demand for dollars, Saidi said.
'Going into the unknown'
Government revenue, meanwhile, has skidded to a halt because of the shutdowns and economic retraction, forcing the Central Bank to print Lebanese pounds to fund government expenditures, including salaries for the bloated civil service.
“Those go into the market and they are chasing fewer and fewer dollars,” Saidi said. “There is no longer any anchor for the value of the Lebanese pound and we are going into the unknown.”
The impact is palpable on the once-vibrant country.
Businesses are closing by the day, unemployment is rising and prices are soaring. Lebanon depends on imports for more than 80 percent of its consumption, notably food, the cost of which has nearly doubled so far this year, according to government figures, raising the risk of widespread hunger.
People who once lived comfortably are struggling to get by on incomes that have lost as much as 80 percent of their real value, pushing the price of most products, and especially food, beyond their means.
“We are surviving day-to-day because we no longer have enough to cover our needs,” said Hanan Hani, 48, as she lined up earlier this week to receive food handouts from a local charity.
Her husband’s monthly pension is now worth only a little more than $200 a month, well below the World Bank’s poverty line and not enough to provide for their family of four.
Hani and her husband spent $70,000 to put their two children through university, but they can’t find work and are living at home.
“I thought they would provide for us when they grew up,” she said. “Now we can’t even afford to feed them.”