Weekly grocery bills can equal a typical family’s income over several months. Banks do not allow people to withdraw money. Essential medicines are often unavailable and fuel lines can take several hours. There is not enough electricity in many homes every day.
Lebanon is facing a humanitarian catastrophe caused by the financial crisis. The World Bank called it one of the worst financial crises in centuries. “It feels like the country is melting,” Ben Hubbard, a Times reporter who has spent most of the past decade in Lebanon, told us. “People watched the whole way of life disappear.”
This is a shocking turning point 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 happened in Lebanon with the help of Ben.
How did it happen?
As is often the case with the financial crisis, the situation developed slowly and then quickly collapsed.
After the end of the 15-year civil war in Lebanon in the 1990s, the country decided to peg its currency to the US dollar, rather than letting the world’s financial markets determine its value. The Central Bank of Lebanon has promised that 1,507 Lebanese lira will cost exactly $ 1 and that Lebanese banks will always exchange one for another.
This policy brought stability, but also required Lebanese banks to hold a large supply of US dollars, as Nazih Oseiran of The Wall Street Journal explained, so that banks could fulfill their promise to exchange 1,507 lira for 1 dollar at any time. Lebanese firms also needed dollars to pay for imported goods, a large part of the country’s economy that produces little that it consumes.
Lebanon has had no problem raising dollars for years. But after 2011, everything changed. The Syrian civil war and other political tensions in the Middle East have damaged the Lebanese economy. The growing power of Hezbollah, which the US considers a terrorist organization, has also frightened off foreign investors in Lebanon.
To keep dollars flowing in, Lebanese central bank governor came up with a plan: banks were offering very generous terms – including an annual interest rate of 15 or even 20 percent – to anyone who contributed dollars. But the only way for banks to succeed on these terms is to pay the original depositors money from the new depositors.
Of course, this practice has a name: the Ponzi scheme. “Once people figured it out, it all fell apart,” Ben said. “In 2019, people stopped receiving money from banks.”
Officially, the exchange rate remains unchanged. But in day to day transactions, the value of the lira has dropped more than 90 percent since 2019. The annual inflation rate this year has exceeded 100 percent. The economic volume of production fell sharply.
Even before the crisis, Lebanon was a country of great inequality, with a wealthy political elite that had long been enriched by corruption.
Three new challenges
Three events since 2019 have worsened 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 infuriated people – many of whom saw it as another example of government-imposed inequality – and sparked massive and sometimes violent protests. “People outside looked at the country and said, ‘Why would I do my business in a place like this? “Ben said.
Second, the pandemic has damaged the already vulnerable Lebanese economy. Tourism, which accounted for 18 percent of Lebanon’s pre-pandemic economy, was particularly hard hit.
Third, a huge explosion at a port in Beirut, the Lebanese capital, in August 2020 killed more than 200 people and destroyed several prosperous neighborhoods. “A lot of people couldn’t afford to renovate their homes,” Ben said. (The This Times project will take you inside the port and show how corruption helped make the explosion possible.)
Lebanon formed a new government last month, for the first time since the bombing. The prime minister is Najib Mikati, a billionaire who has served twice since 2005.
The French government and other outsiders have pushed the Lebanese government to reform, but there is little evidence that it will. The Biden administration, which focused on other parts of the world, chose not to intervene.
Many Lebanese families rely on money transferred by their members 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 & IDEAS
Worst Broadway idea in history
Fifty years ago, the rock opera Jesus Christ Superstar opened on Broadway, featuring music by Andrew Lloyd Webber and lyrics by Tim Rice. Outside of sold-out shows, protesters called the musical blasphemous.
Manufacturing 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, the producers considered it “the worst idea in history” and did not want to put it on the stage.
Some initial reactions echoed these concerns. The Times critic Clive Barnes criticized the production: “It was more like a first look at the Empire State Building. Not at all uninteresting, but somewhat unsurprising and with minimal artistic value. “
Ultimately, the show captivated the audience. A spectacle that combines rock and musical theater, the musical paved the way for shows like Les Miserables and The Phantom of the Opera, writes Sarah Bar in The Times. – Claire Moses, Matinee Writer