Driving around Lebanon, one is sure to notice the gloominess that has descended on the country and its inhabitants whose only concern at the moment is to figure out the rate of the US dollar as their local currency is no longer worth the paper it is printed on. While the official exchange rate is still pegged at 1,507 Lebanese lira to the dollar, the black market rate has alarmingly hit 9,300 lira to the dollar, leading to a total collapse of government subsidies for basic commodities, like bread and fuel, which face an ever-present risk of disappearing from the market.
At one time, successive cabinets under the late Prime Minister Rafik Hariri were able to peg the local currency to the US dollar and to subsidize this costly and somewhat hazardous process through its ability to convince the international community and the regional Arab Gulf states to bankroll this skewed system. This, however, became impossible with mounting US sanctions on Iran and its affiliates – primarily Hezbollah – and with the international community’s conviction that the Lebanese political class was unable to reform.
The recent devaluation of the currency has been coming for a long time; naturally it comes after years of unheeded corruption by the Lebanese political class and after Hezbollah’s takeover of the state. The latter placed Lebanon on the receiving end of US sanctions, and more importantly, it earned them the apathy of the Arab Gulf states.
Lebanon’s economic free fall is aggravated by a series of measures, or lack thereof, by the cabinet of Prime Minster Hassan Diab. This cabinet has endeavored to ensure that none of the adopted measures restore a sense of normalcy or even the marginal confidence that the Lebanese once had in their country and its once-booming banking sector. Perhaps one of the most dangerous moves of the ruling establishment was to empower the money exchangers and to allow them to manipulate the price of exchange as they please.
In a desperate and delusional attempt to mask their direct responsibility for Lebanon’s current predicament, Hezbollah insists that the current economic meltdown is mainly a result of bad governance and unjust US sanctions, and that the money exchangers have made the current predicament worse.
At the beginning of the economic crisis, Lebanese could access small amounts in their accounts as banks would dispense weekly allowances, typically $200 to $800, depending on the availability of dollars. Soon, however, the ruling establishment pressured central bank Governor Riad Salameh to divert these dollars from the banks to the money exchangers, who now had access to $5 to $7 million a day – theoretically to meet demand and lower the unofficial exchange rate. Rather than achieve this intended goal, these exchangers would cause the price to reach an all-time high, also creating a robust black market that is now impossible to control.
The Diab cabinet failed to provide any plausible explanation to why would they empower these exchangers, essentially creating a black-market leviathan, rather than rely on the banks. Despite the banks’ many shortcomings, they are easier to regulate than the exchangers.
Diab and Hezbollah helped create the commotion with the money changers to divert attention from the government’s failure to provide an economic recovery plan for this crisis and so that they may continue to lay blame on the greed of the people and the money exchangers, rather than own up to their shortcomings.
In essence, the currency rollercoaster is neither economic nor technical in nature, but is only a byproduct of the political crisis that Hezbollah and its main political ally President Michael Aoun refuse to acknowledge.
Moreover, Hezbollah is using the dollar crisis to further weaken the Lebanese economy as it benefits from government subsidies on essential goods that are then smuggled to Syria to help President Bashar al-Assad and make millions of dollars that are used to play the Lebanese currency market.
The money exchange market, just like the rest of the country, is riddled with corruption, and many of its key figures are part of Hezbollah’s economic network and they are committed to imposing Hezbollah-mandated informal regulations or they risk being exposed to the Lebanese legal system – and ultimately imprisoned.
The crux of this economic collapse is the Lebanese themselves who have allowed for an armed militia like Hezbollah to become the guardian to the clientelist system of corruption – a system that the Lebanese have exploited.
Regardless of how the situation plays out, the dollar will never return to its official rate, and the Lebanon that was once a success story and a model for diversity and economic prosperity is now merely a failed Iranian colony whose economy is administered by corrupt oligarchs and their client, the money exchangers.
Once this sinks in, perhaps the Lebanese can begin to rethink their priorities, and rather than play the devilish dollar game, they can stand up and begin to reclaim their country.