The Economic Crisis In Lebanon - How It All Happen?

Lebanon that we see today is facing one of its worst economic downturns. All the banks in Lebanon have placed a strict process for cash withdrawals and most of its people are in the most critical situation.

Most of the common necessities have skyrocketed by multiple folds with food and medicine at shortages on top of the people not having the money to even purchase them. Some are forced to pawn their most beloved jewelry for the sake of surviving to buy food.

The situation became a lot worse when almost all the banks blocks the process of cash withdrawals even though the people have it in their bank accounts. The block that was implemented since 2019 has caused an uprising among its people with riots and demonstrations becoming very rampant.

The economic crisis in Lebanon does not show any sign of improvement. But what is it that really happens to have caused the fall of Lebanon's economy and their difficulties in ever getting back on their feet?

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Destructive Effects Of The Civil War

With the title of Switzerland of the Middle East, Lebanon is a country with a strong economic structure at one point in time. But the civil war that erupted around 1975 - 1990 changed everything.

It all starts on 13 April 1975 when the Kataeb Party group launched an attack on a bus carrying the Palestinians to a refugee camp in Tall al-Za'tar Lebanon. The attack sparked a series of aggression that involved the Kataeb Party group and the Lebanese National Movement(LNM).

Ever since then, there were several hostilities between both sides as there were many casualties and damages occurring all over Lebanon. On August 1982, Bashir Gemayel, the young leader of the Kataeb Party was chosen as the 7th president of Lebanon.

However, 3 weeks after being appointed, the headquarter of Kataeb Party was bombed and he was killed in the incident. The killing of Bashir caused the Christian army to retaliate in return.

It was estimated that around hundreds of thousands of Lebanese that were residing in the refugee camps in Sabra and Shatila were killed. Despite the efforts of neutralizing the tension by appointing the brother of Bashir Gemayel, Amine Gemayel to the president position on September 1982, the effort made clearly failed.

More casualties were recorded due to the drastic fights occurring between the Muslims and Christians. Due to the civil war that was ongoing for 15 years, the Lebanese have witnessed mass destruction of infrastructure across the country.

Schools, government buildings, roads, and all the facilities around have been totally destroyed due to the war. It was estimated that roughly 100,000 people died and more than 1 million people lost their homes.

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Influence of Arab Spring

The year 2011 was the year that most Arabs rise to fight against oppression due to the Arab Spring wave. This wave started with an attempt at suicide that occurred on 17 December 2010 in Tunisia.

Mohamed Bouazizi, a 26-year-old street vendor burnt himself to death due to his disappointment in his country's ruling. 90% of Mohamed Bouazizi was burned and he passed away on 4 January 2011.

Following his death, a huge protest occurred causing Zine El Abidine Ben Ali, the president of Tunisia at the time to be forced to step down from power. After his fall, the spirit of the Arab communities demanding changes rises even further.

The protest has spread to other Arab countries including Lebanon. Due to the immense pressure coming from its people, Saad Hariri who was prime minister at the time stepped down and was replaced by Najib Mikati.

Ever since then, the political stability in Lebanon did not seem to improve, and from 2011 until 2022 the prime minister position was changed 5 times.

Serious Financial Problem

After the end of the civil war in 1990, Lebanon had many attempts in balancing its economy with tourist attractions, foreign investments, financial services, and even monetary aid from Arabian Gulf countries.

One of the most consistent sources of income for Lebanon will be the remittance coming from millions of its people living abroad. Despite the world financial crisis in 2008 the people of Lebanon working overseas still sent their money home.

But this however starts to slow down in 2011 when there was a dispute between the religious parties in the country. Due to the low influx of cash into the country, the country starts experiencing deficits, and debts were rising high.

The country's income failed to balance out its high expenditures as almost all of the necessities of the country need to be imported into the country. This situation went on until 2016 when the bank started to impose a substantial interest rate for new depositors of American Dollars and Lebanese Pounds.

This initiative was to stimulate the country's economic activity and ultimately restore balance to its economy. In the same year, the Lebanese Central Bank also introduced financial engineering which is a mechanism that offers decent returns to commercial banks for new deposits of dollars.

This program was led by Riad Salameh, an ex-banker of Merrill Lynch. Despite the move seeming as interesting from the start, the result was quite the opposite. The value increase of the United States dollar has caused an increase in foreign reserves.

All banks have a rise in their liabilities and debts exceeding the value of assets indicating that they are experiencing a huge loss. This situation has made the Lebanese government allocate 1/3 of the country's expenses to serving the debts.

The Cause Of Economic Collapse

As more people start to limit their expenses, the Lebanese government, however, made huge expenses by increasing the salary of public servants.

According to the data, salary, remuneration and any payments related to public servants amounted to 2.1 billion USD in the first half of 2018 increasing by 26.2% from the previous year of only 1.6 billion USD.

The year 2018 was also a huge struggle for Lebanon as the general election that was held failed to form a stable government. Political instability also caused billions of dollars of foreign investments to be pulled out from the country.

Its economic and political unrest was at its peak on October 2019 when the government under the rule of Saad Hariri decided to impose taxes on the use of the Whatsapp application.

The tax will be inflicted on the users as they make calls through Whatsapp and the Lebanese did not take it well. Huge protests can be seen across Lebanon to object to such a decision. Many local banks held their operations for two weeks amidst the riot that was happening.

And once again, the prime minister of Lebanon, Saad Hariri stepped down from his position as tensions rise. After announcing his withdrawal from the administration, he held the prime minister position in the act until 21 January 2020 and was replaced by Hassan Diab.

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Final Words

It can be said that Lebanon requires drastic actions to amend its political and economical crisis. The issue of its people that are living in poverty and hardship must be addressed quickly to avoid more problems in the future.

The leaders that are appointed to rule the country have to play their role to curb this problem and must take responsibility to find the solution to these overwhelming crises that the people are experiencing.

Source:

• APHD

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