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Lebanon plunges into economic chaos

The economic and health crisis leaves thousands of Lebanese without income, who have come to resort to bartering
Miles de residentes en Trípoli (Líbano) luchan por poner alimentos en la mesa, ya que la peor crisis económica del país en décadas se ha acelerado en las últimas semanas

AFP/ JOSEPH EID  -   Thousands of residents in Tripoli, Lebanon, struggle to put food on the table as the country's worst economic crisis in decades has accelerated in recent weeks

Some offer clothes in exchange for diapers, and others need clothes and promise food. This is the case of the "Exchanges in Lebanon" page, which has 12,000 participants just a few weeks after its creation, according to the AFP agency. And it's not the only website to help, Libantroc was created months ago and has more than 50,000 followers. It quickly became a hot spot. "The website has become very big in a very short time," one of the site's founders, Hala Dahrouj, told AFP. Tens of thousands of people have lost their income and the prices of goods have been rising for more than a year now because of the economic collapse of the country. The COVID-19 pandemic has come to tip the balance in a situation that has long been unsustainable.

Gráficos
AFP/AFP - Information chart on the Lebanese economy

Food prices have increased 72% since the end of May, according to the Consumer Protection Association. Although the exchange rate between the dollar and Lebanon's local currency has not officially changed, on the black market each dollar is worth 8,000 pounds, far more than the 1,570 pounds per dollar recorded by official agencies. A salary of $700 a year ago today is equivalent to barely $150. In response to these dramatic figures, demonstrators have cut off several roads in Beirut and other regions this Tuesday. In addition, power cuts are becoming more frequent. "The electricity barely works for two hours a day and private generators (the system for obtaining electricity when there are cuts) have raised prices to pay for diesel. Now they also want to install water meters to raise prices further. Lebanon is falling victim to politicians, they have ruined everything," Mouna Wardé, a Lebanese woman living in Beirut, told Atalayar on Facebook. 

The poor functioning of infrastructure is compounded by rising food prices. The government announced on Tuesday an increase in the cost of bread for the first time in a decade. Bakery owners have complained about the rise in prices of plastic bags, yeast and diesel, and have asked to sell their product more expensively to weather the crisis. "The bakers cut off the bread supply and people have had to queue up to find it, it wasn't easy," says Mouna. 

Panaderos
PHOTO/REUTERS - Workers pack bread in a bakery in Beirut, Lebanon, on 30 June 2020

The spiral of rising prices has led to consumers hoarding food from shops and supermarkets. A supermarket chain, Al-Makhazen Coop, closed its stores in Beirut on Tuesday due to lack of supplies, according to the digital newspaper Naharnet. Economy Minister Raoul Nehme has even asked the Lebanese not to stockpile flour in their homes. This product, along with medicines and some oil products are subsidized in the country. 

"If I sell, I lose, and if I don't, I lose too," the owner of a perfume shop told Naharnet. "If I sell products today, I will have to buy them later at a much higher price," she explained. The owners of the bakeries have complained about the rise in prices of plastic bags, yeast and diesel, so they have asked the government to be able to increase the price. 

Tipo de cambio
AFP/ JOSEPH EID - Evolution of the exchange rate on the black market, according to calculations on specialized pages. From $100 compared to the Lebanese pound at the end of January (top-left), February (top-center), March (top-right), April (bottom-left), May (bottom-center) and June (bottom-left) of 2020

Many freelancers and small entrepreneurs have lost their businesses. The trickle of closed shops is flooding the capital these days. Public sector workers are also being hit hard by the crisis and have seen their salaries reduced to around $100. "My son is an army officer and can barely afford to eat and pay for transportation. He wants to go abroad, like many young people," Wardé says angrily. The middle class is being hit hard, and more and more people who are used to a wealthy life are having more financial problems. The World Bank estimates that half the population is living below the poverty line. The country is moving further and further away from the image it had in the early 1970s as the "Switzerland of the Middle East". 

An economic system dependent on politics

Although the pandemic has contributed to weakening the Lebanese economy, the financial problems are longstanding and have their origin in the peculiar political system that was established in Lebanon after the civil conflict (1975-1990) that bled the nation dry. "Decades ago, it was decided that religious groups would share out the country's economic activities. A clear example is electricity. Citizens pay it to a certain group that controls the area where their house is located," Itxaso Domínguez, coordinator of North Africa and the Middle East for Fundación Alternativas, told Atalayar. 

Neveras vacías
PHOTO/AFP - Combination of images showing Lebanese citizens, all over the country, displaying the contents of their refrigerators. The economic crisis has led to the collapse of the local currency and purchasing power

The amalgamation of religions and cultures has led to a fragmentation of economic activity to satisfy the different factions that exist, resulting in a dysfunctional economic system. Lebanon has the highest public debt in the world, at over 170% of GDP. In early March, the Government declared the first default on its financial commitments in the country's history by failing to disburse $1.2 billion.

The banks have even imposed their own capital controls, in the absence of clear regulation by the Lebanese Central Bank. They are not allowed to withdraw more than $300 every two weeks in a very dollarised economy with the Lebanese pound very much devalued. The government has launched several attempts to restructure the banking sector in order to prevent it from accumulating so much power.

Despite the compromising situation in which the country finds itself, Dominguez does not believe that the nation will ever go bankrupt. "It is not in the interest of the big countries that Lebanon falls. Debt restructuring and IMF (International Monetary Fund) reforms will come to straighten out the situation," he concludes.