Lebanon: how can it avoid self-destruction?
I just got back from Lebanon, a country that I know well and where I was born, where the atmosphere is now as palpable as it was during the dark days of the civil war. Admittedly, it’s not the armed conflicts that threaten, though this nation remains a hostage – often consentingly – to the regional hazards. This country – that is very well connected – is not sheltered from “fake news” and rumours thrown around by the various factions that share a sham semblance of power, and whose objective is to show their flock that they are still in control of the situation…while the abyss gets ever nearer. This country, that once prided itself on having a preponderant, developed and educated middle class, now has a hundred thousand families living below the poverty line (63,000 according to even the current government). At the same time, the interest paid by Lebanon on its bond debt is so high that it is literally stifling its room to manoeuvre and preventing it from taking care of its most vulnerable citizens that still make up the majority of the population. At the end of the civil war, at the beginning of the1990s, the payment of just the interest of the country’s debt denominated in lebanese pounds already made up almost half of all government expenditure. With such a backdrop, how can a state properly fulfil its most basic responsibilities when – around 1996 – two thirds of new bonds issued by Lebanon were done so in an attempt to be able to pay off just the interest on its debt? At the turn of the millennium, the amount going to paying off the Lebanese government’s debt fatally exceeded its budget deficit, with the issuing of new bonds no longer being sufficient to pay off the interest.
In a country dogged by corruption, where it is impossible to raise taxes due to a weak government that is rotting away in both the body and the head, the leading factions at the time (who are still in place today, just as they were 20, 30, 40 years ago…) had no other choice but to levy the easiest taxes, those being indirect taxes, in order to maintain the same level of government spending despite the payments going to pay off debt reaching stupendous levels. Lebanon’s fiscal system relies almost entirely on taxes on consumption (mainly levied by private actors) instead of taxes on income, wealth, capital gains and others, that must imperatively be collected by a government, that is either nowhere to be found, deficient, or perverted, or all three at once… As is to be expected, such a biased system of taxation will have perverse effects as it will touch every citizen, when it is only the most well off who, having money to invest, profit from the substantial interests paid by the state. We are therefore witnessing Lebanon redistributing wealth the wrong way, and his politicians making the deliberate choices consisting in essentially taking from the poor and giving to the rich. VAT, taxes on imports and on telecommunications (that make up nearly two thirds of the country’s fiscal revenues!) are affecting every consumer – whatever their income, wealth and class – and are evidently a phenomenal factor of social regression. These successive governments, caring only about generating income for the here and now by imposing these indirect taxes, have evaded all measures that would alienate them from the most wealthy, for example introducing a selective VAT rise on luxury products. Quite the contrary in fact, since the current government has just proceeded with a widespread increase of VAT from 10 to 11% that will of course hit everyone, but that will be most strongly felt by the worst-off. This year, didn’t it require twenty-odd cabinet meetings for Lebanon to give birth to a magical fantasy budget that only differs from those before in that it cuts wages for civil servants i.e. those who make up the backbone of the country?
These are unlikely decisions that go against all equality and that will end in further exacerbation of inequalities – and therefore tensions – whereas one solution would be to make Lebanon’s banking sector contribute, with global profits in the way of 4.7% of GDP, when that of British banks make up 1.2% of their country’s GDP, and those of German banks 0.3% ! Actually, profits of Lebanon’s banking institutions like BLOM and Audi rival those of Western banks. In fact, the Lebanese government’s and banks’ statistics have, for 20 years, been following diametrically opposed trajectories, because Lebanon’s first bank – BLOM – itself makes more than 700 million dollars in yearly profits, while the whole of the Lebanese banking sector earned around 400 million dollars at the end of the 1990s ! So: wouldn’t Lebanon’s salvation – rescuing its economy and pulling a considerable portion of its population out of great poverty – come from its banks whose growth over the last twenty years has been much greater than that of the other sectors of the economy? The banks, who have so far had life very easy, have profited immensely from an unjust structural set-up in Lebanon that has led to an interest rate offered to savers and depositors that is lower than that offered by the state on its bonds. It is in fact this differential, this veritable cash cow for the banks, that, instead of fulfilling their intermediary function of taking risks to benefit the economy, of identifying profitable investments for the private sector of which some would certainly have been failures, have basically contented themselves with reinvesting their clients’ deposits in their country’s public debt for the purpose of pocketing an easy premium along the way.
Essentially an annuity for all intents and purposes conferred to the banks of Lebanon, it has almost irreversibly ravaged the country’s economy, because with the state very generously remunerating its creditors, it is for one transforming banks into simple middle-men – simply into brokers, even – receiving with the one hand the holdings of depositors that they invest with the other in public debt. All the while, for another, demotivating private investment: why effectively go to the bother of creating a business when the rates offered on savings in dollars is 7%, and 12% for those in lebanese pounds? In such a situation, we can better understand why the Lebanese banking sector holds more than two thirds of Lebanese debt when loans given out to the private sector are negligible. We also understand the easy profits made from this cash cow that has been churning out profits for several decades. We understand the substantial proportion of their country’s GDP as lebanese banks’ profits. We understand why Lebanon has so many banks, attracted by a basic business model. We finally understand why they have just cast away a 0% government funding proposition, arguing – it is true, not without reason – that this aid would prevent it from adopting measures to clean up its public accounts.
The banking sector will however have to pay up because it is, today, the only one that can still save what there is left to save of the Lebanese economy. It holds immense resources, easily accumulated over the years, and only its contribution would be great enough to avoid further austerity that would hit the same people it always does. Demonstrating a cruel absence of willingness and courage – simply legendary indifference – towards the worst-off, Lebanon’s politicians will have to be put back on the right path by the country’s bankers who have both the financial means to do so and the intellectual capacity. Failing this, the ticking time bomb’s explosion is imminent, and Lebanon will turn into a wasteland. The cinema that was evacuated because of torments and conflicts, very recently painted and conveyed by the Lebanese artist Ayman Baalbaki in his latest work “Piccadilly Theatre”, is an allegory that is now more relevant than ever.