Weekly grocery bills can equate to months of a typical family’s income. Banks refuse to let people withdraw money. Basic medicine is often unavailable and gas stations can last hours. Every day, many homes lack electricity.
Lebanon is enduring a humanitarian catastrophe created by an economic collapse. The World Bank has called it that one of the worst financial crises for centuries. “It really feels like the country is melting,” Ben Hubbard, a Times reporter who has spent much of the last decade in Lebanon, told us. “People have seen a whole way of living disappear.”
It’s a shocking turnaround for a country that was one of the Middle East’s economic success stories in the 1990s. Given the scale of the suffering and the modest media attention it has received while the rest of the world is still focused on Covid-19, we dedicate today’s newsletter to explaining what has happened in Lebanon, with Ben’s help.
How did this happen?
As is often the case with a financial crisis, the situation slowly built up – and then quickly collapsed.
After Lebanon’s 15-year civil war ended in the 1990s, the country decided to tie its currency to the US dollar rather than let global financial markets determine its value. Lebanon’s central bank promised that 1,507 Lebanese lira would be worth exactly $ 1, and that Lebanese banks would always swap one with the other.
This policy brought stability, but it also required that Lebanese banks have a large US dollar store, like Nazih Osseiran of The Wall Street Journal have explained – so that the banks could do well on the promise of exchanging 1,507 lira for $ 1 at any time. Lebanese companies also needed dollars to pay for imported goods, a large part of the economy of a country that produces little of what they consume.
For years, Lebanon had no problem attracting dollars. But after 2011, that changed. A civil war in Syria and other political tensions in the Middle East damaged Lebanon’s economy. The group’s growing power of Hezbollah, which the United States considers a terrorist organization, in Lebanon also deterred foreign investors.
To make the dollar flow in, the head of the Central Bank of Lebanon developed a plan: The banks would offer very generous terms – including an annual interest rate of 15 percent or even 20 percent – to anyone who would deposit dollars. But the only way for the banks to do well on these terms was by repaying the first depositors with money from new depositors.
Of course, there is a name to this practice: a Ponzi scheme. “When people realized that, everything fell apart,” Ben said. “2019 was when people stopped being able to get their money out of the banks.”
Officially, the exchange rate is unchanged. But in everyday transactions, the value of the lira has fallen by more than 90 percent since 2019. The annual inflation rate has exceeded 100 percent this year. Economic output has fallen.
Even before the crisis, Lebanon was a very unequal country with a wealthy political elite that has long enriched itself through corruption.
Three new issues
Three developments since 2019 have exacerbated the situation.
First, the government tried to raise money by imposing a tax on all WhatsApp calls that many Lebanese families use because phone calls are so expensive. The tax angered people — many of whom saw it as yet another example of government inequality — and sparked large-scale and sometimes violent protests. “People outside looked at the countryside and said, ‘Why should I involve my business in a place like this?'” Ben said.
Second, the pandemic hurt Lebanon’s already vulnerable economy. Tourism, which accounted for 18 percent of Lebanon’s pre-pandemic economy, was particularly hard hit.
Third, more than 200 people killed a major explosion at the port of Beirut, the capital of Lebanon, in August 2020, destroying several thriving neighborhoods. “A lot of people couldn’t afford to tidy up their homes,” Ben said. (This Times project takes you inside the harbor and shows how corruption helped make the explosion possible.)
Lebanon formed a new government last month, for the first time since the explosion. The prime minister is Najib Mikati, a billionaire who has held the post twice before in 2005.
The French government and other outsiders have pressured the Lebanese government to adopt reforms, but there is little evidence that it will. The Biden administration, focused on other parts of the world, has chosen not to be deeply involved.
Many Lebanese families rely on money transferred from family members living in other countries for their survival. “The only thing that keeps many people afloat is that most Lebanese families have relatives somewhere abroad,” Ben said.
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ART AND IDEAS
Broadway’s worst idea in history ‘
Fifty years ago, the rock opera “Jesus Christ Superstar” – featuring music by Andrew Lloyd Webber and lyrics by Tim Rice – opened on Broadway. Outside of the sold-out shows, protesters called the musical blasphemous.
Production was a risk. It tells the story of the last seven days of Jesus’ life through the eyes of one of his disciples, Judas Iscariot. As Lloyd Webber recently told the British newspaper The Telegraph, producers were considering it “the worst idea in history“And would not put it on stage.
Some initial reactions repeated this fear. Times critic Clive Barnes panned production: “It all looked more like one’s first glance of the Empire State Building. Not at all uninteresting, but somewhat surprising and of minimal artistic value. ”
In the end, the show won the audience. A performance that married rock and musical theater, the musical paved the way for shows such as “Les Misérables” and “The Phantom of the Opera”, Sarah Bahr writes in The Times. – Claire Moses, a morning author
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