Annahar: Repercussions of high-interest rates on Lebanon and its economy/Dan Azzi/Annahar: The smuggling of dollars into Syria/Georgi Azar/Annahar: Aoun blames dollar crisis on “external pressures/النهار: تداعيات ارتفاع الفوائد على لبنان واقتصاده/دان قزي/النهار: تهريب الدولارات إلى سوريا/جورج عازار/النهار: عون يحمل مسؤولية أزمة الدوار للضغوطات الخارجية
Repercussions of high-interest rates on Lebanon and its economy النهار: تداعيات ارتفاع الفوائد على لبنان واقتصاده Annahar Staff /September 27/2019
The smuggling of dollars into Syria دان قزي/النهار/تهريب الدولارات إلى سوريا Dan Azzi/Annahar/September 27/2019
Aoun blames dollar crisis on “external pressures” جورج عازار/النهار: عون يحمل مسؤولية أزمة الدوار للضغوطات الخارجية Georgi Azar/ Annahar/ September 27/2019
Repercussions of high-interest rates on Lebanon and its economy النهار: تداعيات ارتفاع الفوائد على لبنان واقتصاده Annahar Staff /September 27/2019 High-interest rates not only put a burden on the shoulders of citizens but also on those of the state and the banking sector What would be the repercussions on Lebanese citizens and the economy if interest rates remain high? High-interest rates not only put a burden on the shoulders of citizens but also on those of the state and the banking sector. This would cause a multitude of problems that could negatively impact the Lebanese economy as a whole. According to the economist Charbel Kordahi, high-interest rates curb expansion and investment while leading to an increased leverage ratio. This would also push the depositors to increase their savings instead of using their money for consumption and investment. The economic downturn would endure, and the rising trend in interest rates would prevent any economic growth, Kordahi emphasized. Three factors would contribute to the cutting of interest rates, he said. – Declining trends in US and European interest rates. – The Lebanese state’s ability to control its budget deficit. – An agreement between BDL and the Ministry of Finance to reduce interest rates through state borrowing from local banks with lower interest rates. It should be noted that Lebanese banks are trying to maintain their profitability by raising interest rates and forcing other sectors to bear these costs. However, Kordahi believes that this will prove to be counterproductive, unprofitable and highly risky for all parties. Meanwhile, economist Louis Hobeika said that the political and financial developments in Lebanon are an obstacle to efforts aiming at cutting interest rates. Hobeika emphasized the need to implement the 2020 budget as soon as possible noting that modifications, if any, can be discussed at a later date.
The smuggling of dollars into Syria دان قزي/النهار/تهريب الدولارات إلى سوريا Dan Azzi/Annahar/September 27/2019
The reality is that ATMs ran out of dollars simply because there’s excess demand for them. Recent reports are circulating that the shortage of dollars in the country is due to those “darn Syrians” withdrawing cash from our ATM machines and smuggling them into Syria. First the “poor ones” steal our arghile charcoal jobs and now the “damn rich” ones are causing trouble by moving their money back to their country. So let’s reconstruct this operation for a second. Take I: Intelligence Officer General Rustom Kanaan comes into the Achrafieh branch of TrustMe Bank and says, “Shlonak Akhi. My name is Philippe Chalu and I’d like to open an account. Here’s $10 million in cash.” OK, so what’s the likelihood that this would pass? And if it did, why would he deposit $10 million in cash, only to take it out from ATMs, at the rate of $1,000 per day, over the next 10,000 days, i.e. 27.4 years? Of course, hundreds of intelligence officers would have to do the same thing. OK, that’s not it.
Take II: He doesn’t deposit cash. He wires it from a bank in Luxembourg. But wait a minute — if he has an account in Luxembourg, it means he’s already been successful in laundering the money and can use the ATM of that bank anywhere in the world, so why transfer it to a higher risk country. OK, that’s not it either.
Take III: The accounts already existed for rich Syrians, which means these are the guys who evacuated their wealth here years ago, so their money doesn’t get stuck in a war zone. So the theory is that maybe they heard the call of President Bashar Assad who said he needs dollars, so like the good patriots that they are, heeded the Baathist slogan: “One Arab nation, with an eternal message!” They immediately withdrew their money from ATMs and took it to Syria and gave it to Mr. Assad, for free. Do you really buy this?
Take IV: Syrian Intelligence people are traveling all around the country to the Sarrafs and anyone in front of an ATM, and scooping up all the dollars in the country and smuggling it into Syria. But what did they exchange it for? Syrian Lira? Lebanese Lira? What? What would all these Lebanese that took out cash from ATMs get from this Syrian Intelligence guy in return? Clearly, another nonsensical theory.
Thus, the reality is that ATMs ran out of dollars simply because there’s excess demand for them.
The first thing to understand is the different types of dollars we have in the country.
Think of dollars like water. If you freeze water, it becomes ice, a solid.
If you boil it, it becomes vapor, a gas, and are all fungible (meaning easily converted or exchangeable one for the other), under the right conditions.
We have three types of dollars in Lebanon. The electronic, real dollars that the Central Bank calls reserves. I call these real virtual dollars, because they can buy stuff from outside the country but can’t be transferred into physical form (easily).
BDL doesn’t actually have a vault in his basement with a stack of hundred dollar bills worth $30 billion. So the central bank reserves can be transferred overseas to buy goods and services, such as a car.
Then there’s the dollar at the exchange house or Sarraf. This is the piece of paper (cotton actually), with a picture of Benjamin Franklin on it. Those are called fiat notes. This is the one that you can take anywhere in the world and people will give you stuff in return.
The third type of dollar is the one you have in the bank. Its value (in your mind) is what your bank statement says. A year ago these three forms of dollars were fungible.
Today, the money in your account is no longer fungible because it’s not a real dollar. The actual real value is whatever the bank has available to give you if you asked for your money.
To be more precise, it’s the amount of liquidity he has divided by the aggregate demand of all the people at any moment in time. For example, say you have $100,000 and Fatmeh has $200,000 at TrustMe bank. If TrustMe bank only has $30,000 in liquidity, and you and Fatmeh want to withdraw all your money today, the practical or usable value of your account is actually $10,000, while the value of Fatmeh’s account is $20,000. This assumes life is fair. Say Fatmeh has a huge Wasta and is able to take all of the bank’s liquidity, i.e. your $10,000 as well, then the value of her account is $30,000, while the value of yours is zero.
This is why you’ll hear many horror stories about people not being able to get their money, and then suddenly Ramzi jumps in and says “I withdrew money today and had no problem.” Basically, the allocation of this limited liquidity by banks is based on a lot of factors, such as the amount you’re withdrawing relative to your total assets (they wouldn’t want to piss off a big client), how loudly you yell, your Wasta, if you’re accompanied by a good lawyer, and sometimes sheer luck. The value of your account is whatever liquidity the central bank wants to release from his reserves to cover demand (for Lira exchanged to dollars or transfers).
Thus, in a time of crisis, trust dwindles, and the “realest” dollar is the one you can see, feel, and smell — the greenback with Benjamin Franklin’s picture — that’s why it’s trading at a premium of 1600-1650 Lira now, in the real world, as opposed to 1514 in the virtual world of a computer screen.
Think of this difference similarly to being shot at by a pistol in a PlayStation game or a 9mm Glock in the real world. Of course, the central bank can use a billion dollars of his reserves to transfer overseas and ship in a planeload of fiat dollar bills to alleviate the crisis, so why doesn’t he?
The answer is because everyone is withdrawing cash and hoarding it, which means he would use up his reserves for no productive reason and he would just “feed the beast.” Thus he has wisely opted to let market forces determine the real value of a Benjamin Franklin versus our Lira, keeping his reserves for essentials such as medicine, grain, and fuel, so we don’t end up like Venezuela.
*Dan Azzi is a regular contributor to Annahar. He has recently been invited to be an Advanced Leadership Initiative Fellow at Harvard University, a program for senior executives to leverage their experience and apply it to a problem with social impact. Dan’s research focus at Harvard will be economic and political reform in a hypothetical small country riddled with corruption and negligence. Previously, he was the Chairman and CEO of Standard Chartered Bank Lebanon.
Aoun blames dollar crisis on “external pressures” جورج عازار/النهار: عون يحمل مسؤولية أزمة الدوار للضغوطات الخارجية Georgi Azar/ Annahar/ September 27/2019 Aoun was taking part in the 74th session of the U.N. General Assembly, during which he sought out international support for Lebanon as it struggles to stay afloat. BEIRUT: As Lebanon’s precarious monetary situation continues making rounds, President Michel Aoun hinted at possible “external pressures” hindering progress on his way back from New York.
Speaking to reporters before returning to Beirut, Aoun pointed to “familiar external pressures” that are playing a role in Lebanon’s current shortage of U.S dollars without further elaboration. Instead, Aoun expressed the need to “clarify the truth” before a position can be taken.
Aoun was taking part in the 74th session of the U.N. General Assembly, during which he sought out international support for Lebanon as it struggles to stay afloat.
“Our allies reiterated their keenness to support Lebanon in preserving its sovereignty, independence and territorial integrity,” adding that discussions centered on “direct support to help Lebanon rebuild its national economy through a program reflected in the 2020 budget.”
Dollar strapped wheat importers the latest to sound the alarm The budget, he said, would “achieve the ambitions of Lebanese with the help of a new economic vision that strengthens Lebanon’s productive sectors.”
The past week saw a number of suppliers raise the alarm over the scarcity of U.S dollars in the market, as banks continue showing reluctance in issuing dollars.
Despite the uncertainty, Aoun vowed “to not let Lebanon fall,” while expressing his satisfaction with the results achieved by his participation in the General Assembly.
On Friday, the Syndicate of Gas Station Owners in Lebanon suspended the gas station strike in the lead-up to what is set to be decisive talks scheduled with Prime Minister Saad Hariri later in the afternoon.
Participation in the strike wasn’t unanimous, with gas stations split on whether to escalate the matter in the early hours of Friday morning.
Around “70 percent of gas stations” shut down momentarily, according to the head of the Syndicate of Gas Station Owners Sami Brax.
Fuel importers meanwhile, refused to partake in the strike.
Confusion erupted late Thursday as news of a possible strike took citizens by surprise, prompting them to hit gas stations to fill up their vehicles in anticipation of a potential cut off.
“We need dollars to pay importers, but banks and money exchange houses are not giving us dollars because there is a shortage in the market,” Brax said.
Dollars have come at a premium in recent weeks, with a number of suppliers, including wheat importers, finding it increasingly difficult to finance their wide-scale operations.
They, as a number of other businesses, receive payments in Lebanese pounds while paying their own suppliers in dollars.
The shortage has pushed them to resort to money exchange houses, which have exploited the current state of affairs to increase rates to around 1560 Lebanese to the dollar. In some cases, Annahar has reported rates exchanging at 1600 Lebanese pounds to the dollar.
Governor Riad Salameh dismissed the “crisis” last week, saying that “dollars are available in Lebanon,” while labeling reports of a shortage an “exaggeration”.
However, a prominent banker who spoke on condition of anonymity painted to Annahar a different picture.
He noted an increase in deposit account conversion, from Lebanese pounds to dollars, with a slight increase in capital flight as uncertainty over Lebanon’s financial stability lingers.
“People are holding on tightly to their dollars,” he said, noting that one-shot conversions are now a thing of the past. Instead, he told Annahar, conversions have become gradual, with banks reluctant to process hefty requests swiftly.
Banque Du Liban has also taken a more conservative approach, limiting its seepage of dollars to banks by “discouraging purchases,” he said.
Faced with repeated political deadlocks and a protracted Syrian refugee crisis, growth in Lebanon has hovered near the one percent mark while its public debt has skyrocketed.
It currently stands at around $86 billion, or around 150 percent of GDP, the third highest in the world.
Eighty percent of that figure is owed to Lebanon’s central bank and local banks.
With officials slow to implement necessary reforms to appease international donors, both Fitch ratings and Moody’s downgraded Lebanon to CCC over “intensifying pressure on Lebanon’s financing model”.