Updated: Oct 18, 2021
About 100 years ago, in 1915, Lebanon faced a widespread famine, the Mount Lebanon Famine, where 375,000 people died, almost half of the population at the time. The famine occurred during World War I due to a variety of causes including an Allied wartime blockade that barred food from entering, and an infectious Locust Swarm that devoured Lebanese crops.
Lebanon eventually recovered from the famine, but many believe another famine is coming in the very near future, and the combination of COVID-19 with Lebanon’s worsening economic crisis may cause it to approach much faster.
As of right now, Lebanon is in the midst of a nationwide economic fallout.
Since the Lebanese pound (Lira) was first introduced over 90 years ago, it has lost 80% of its value compared to the U.S. dollar. In addition, Lebanon has become the third most indebted country in the world, with a debt to GDP ratio of 152%. According to the United Nations, over 80% of Lebanese people are currently living on less than $2.90 a day.
How did this happen?
The Lebanese government is characterized as a sectarian government in which the power is divided between the different religious groups or “sects” which populate Lebanon. These groups include the Maronite Christians, Sunni Muslims, and Shia Muslims. According to Britannica, this form of government was created to ensure equal religious and class representation in government. However, many argue that the sectarian government promotes extreme corruption and divides the country based on political status and religion. The presence of Hezbollah, an extremist militant organization in the Lebanese government, has also caused tensions and corruption. In the 2019 Corruptions Perceptions Index, Transparency International ranked Lebanon 138th out of 198 countries.
The Lebanese government has also taken other actions which have contributed to their economic crisis. According to Forbes, imports account for over 80% of Lebanon’s products, and Lebanon has depended heavily on international aid in order to survive. Lebanon has relied on the U.S., private investors, and bank shareholders for loans and tourism, causing the country’s revenue to fall and their debt to increase.
As Lebanon’s revenue continued to sink, Lebanese banks started to take action to gain revenue. Many Interest rates were raised to 14% at many state-sponsored banks around the country, forcing citizens to make more deposits to keep up with the interest rates. This eventually forced a shortage of U.S. dollars, due to the economic decline and the reduced investments from foreign aid.
For many years Lebanon also relied on a policy which held the Lebanese pound at about 1,507 Liras per U.S. dollar. This policy allowed Lebanese people to interact seamlessly with the world economy, as they used mostly U.S. dollars to purchase products for a long time, highlighting again their dependence on outside countries. This eventually fell through due to Lebanon’s excessive debt, corruption, and the Black Market, which many say is now a better indicator of currency than the Lira. Since there was a shortage of dollars, a black market for U.S. dollars was created in Lebanon, which has its own exchange rate. Thousands of Lebanese people bought U.S. dollars illegally through the “dollar dealers”.
In addition, lawmakers also failed to hold a presidential election for 9 years from 2008 to 2016, which was partially due to the Syrian Refugee Crisis but is also another display of the country’s corruption. Lebanon has accepted over 1.5 million Syrian refugees since 2010, and the influx of these refugees only worsened the already faulty public services and caused Lebanon’s debt to increase.
In response to the crises there have also been widespread protests happening around Lebanon since October 2019. These protestors have been rallying against the corruption in the Lebanese government and the sectarian structure of the government. The anti-government protests even caused Former President Saad Hariri to resign, amid fear of reprisal, and new governing politicians were chosen to take his place. A new cabinet was appointed consisting of the new prime minister, Hassan Diab, and 20 other ministers. However, even after the government was put in place protests continued, saying change still hasn’t happened since the new politicians took office.
The Effect of COVID-19
Lebanon’s coronavirus cases have increased steadily everyday since February, with over 2,000 cases.
The COVID-19 epidemic has exacerbated the preexisting crisis. Around the world, the coronavirus has caused economies to shut down, like China, the world’s largest exporter, and other countries like Brazil and France. Lebanon is not an exception. When the government announced the lockdown on March 14, the effects of the economic crisis started to show more than ever before.
Unemployment skyrocketed due to widespread closures, leading to the unemployment of one third of the population. The loss of jobs and an inactive economy has also caused a hyperinflation in prices; and the UN World Food Programme(WFP) recently reported food prices have increased 56% since October.
The accompanying inflation has made it harder to buy food and has caused wages to drop for middle class families. Some people have even resorted to bartering online on Facebook to meet basic necessities. Many today are worried their money in the bank will become worthless, and banks are refusing to return depositors money and freezing bank accounts as well.
The government also can’t afford to maintain electricity and heat, so many people have lost power around the country. People are without food or electricity, and their situation is only getting worse, as the World Bank predicts over 70% of the population might fall below the poverty line by the end of 2020.
What is Being Done
Although the Lebanese government is greatly incapicated due to COVID-19 and its 1.2 billion dollar debt, it is currently looking to take steps to get out of the crisis. The Lebanese government recently started discussions with the International Monetary Fund, hoping to seek a $10 billion dollar bailout. However, banks and high ranking corrupt officials are against this option, as they might lose $3 billion or more.
The Lebanese government has also begun talks with China for a possible investment. However, the U.S. stated this could threaten Lebanon-U.S. ties, due to the U.S.-China tensions.
The middle and lower socioeconomic class of Lebanon, those who can’t afford to buy food and other necessities anymore, are the ones who are being affected greatest by the economic crisis. Making up 60% of the population, the working class makes up the backbone of the country. If the Lebanese government doesn’t take concrete action now, the citizens of Lebanon could face starvation much worse than the 1915 Mount Lebanon Famine, and the very backbone of the country could be crushed beyond repair.
Have you heard about the Lebanon Economic Crisis? If yes, how do you believe the issue should be tackled?
“The economy of Lebanon is currently in a state of “stagflation” with both high unemployment and high inflation rates. Historically, it has been one of the toughest economic situations for any government to endure. However, unlike with the Reagan-era United States, Lebanon’s economy mostly consists of public employment. Ideally, the government should establish reforms such as reducing subsidies, increasing tariffs, and cutting public employment and retirement benefits to increase revenue; Which would enable the private sector (with international support) to create jobs and economic growth. However, the banks, being controlled by the ruling elite, refuse to support any reforms that might cut their profits. They refuse to allow any form of debt restructuring since they own the majority of the debt. Until the corrupt ruling officials who profit off of the public sector stop interfering, I don’t see any way that Lebanon can escape this crisis.” Vikram Raghu, Rising Senior at Thomas Jefferson High School for Science and Technology, Alexandria, Virginia
“Yes, I know about the topic. I know that Lebanon is asking China for help, and are working sort of with an IMF bailout. Lebanon should pursue (and what protestors want) an IMF bailout instead of taking China’s investment, knowing China’s reputation and what they’re trying to gain from it (belt and Road initiative). However, honestly I think everything is at a standstill, at least for now, because the ruling class doesn’t want to pursue anti-corruption reform and restructure banks for an IMF loan, as they’ll lose money (3 billion!!).” Jessica Ye, Rising Sophomore at Thomas Jefferson High School for Science and Technology, Alexandria, Virginia
“Yes I have heard about it. The banks aren’t giving people their money back, so the first step to addressing the crisis would be to make sure people can actually access their money. This could take the form of using relief money to bail out the banks or forcing the banks to get loans. Another step would be working to cause deflation in Lebanon because their currency is losing value quickly.” Anonymous student, Rising Senior at Cherry Hill High School, Cherry Hill, New Jersey
“I have definitely heard about the issue. I haven’t really formed a stance on how I think the issue should be tackled, but one of the main solutions I have heard of is the IMF reform program” Cynthia Ma, Rising Junior at McLean High School, McLean, Virginia
“Yes, so I think it started because the country had difficulty saving money during their war, because of the conflict within the country and their neighbors, as well because they had a weak government system. Their main source of money from the past couple of years had been deposits and donations from wealthy investors of their country’s central bank but it was a very corrupt way of doing things. In order to drive change, a different government system and more specific laws about money and definitely more specific budgets, and more funding towards education would be essential.” Radha Vinayak, Rising Sophomore at Thomas Jefferson High School for Science and Technology, Alexandria Virginia
“I haven’t heard about the Lebanon economic crisis specifically, but I think some time ago I heard about Lebanon having some lockdowns or there being protests in the country.” Nitin Kanchinadam, Rising Junior at Thomas Jefferson High School for Science and Technology, Alexandria, Virginia