Today in Lebanon, the unaffordability of food is a bigger threat to people’s survival than the coronavirus.
For years, the country has suffered severe shortcomings in the most basic public services, including adequate public education, health care, drinking water, power, sanitation, and transport. But the situation deteriorated drastically last winter. In September 2019, about a third of Lebanon’s population lived below the poverty line. The figure today is closer to one half, with the top 1% of the population earning more than double the income of the poorest 50%. Lebanon now claims the third largest debt relative to GDP, some 40% of which is denominated in US dollars.
Given the opacity and unaccountability of the Lebanese central bank, the first effects of dollar shortage to impact society at large were disruptions in fuel and flour imports, in September 2019.
A popular uprising broke out mid-October as the government attempted to impose a package of austerity measures, including a now infamous tax on Whatsapp calls. Local banks used the excuse of the uprising to impose limits on deposit withdrawals. In mid-March, the government defaulted on its debt. In mid-April, the central bank announced that dollar deposits could only be withdrawn in the local currency at the official rate of exchange, despite the fact that the currency had lost more than half its value on the market. These measures, which robbed residents of their purchasing power and of their savings, were passed in the midst of the COVID-19 lockdown.
We, the undersigned, understand the crisis in Lebanon to be part and parcel of a single dynamic operating on a global scale, with different local manifestations contingent on local economic and political landscapes. What is referred to as a global debt crisis is effectively a crisis of accumulation; for the debt could be repaid if the surpluses paralyzed in banks around the world could be invested in income-generating activity.
In the wake of the Cold War, governments around the world, pressed on by the Washington consensus, adopted policies biased towards the interest of financial capital. These policies included the deregulation of capital movement and of corporations’ activities, but also a shift in the overall goal of economic policy, from full employment to low inflation, to the benefit of the financial sector and at the expense of society at large.
In Lebanon, the warring militias sat at the negotiating table with international brokers to share the spoils of reconstruction funded through sovereign debt. Like many other countries in the global South at the time, Lebanon pegged its local currency to the dollar. The fixed exchange rate regime and resulting high interest rates allowed foreign capital to enter the country, benefit from high interest rates, and exit safely, to the advantage of both foreign investors and the domestic financial sector acting as their intermediary. The cost of these financial profits has been paid for by domestic manufacture and agriculture. These crucial sectors have lost access to credit because of high interest rates, they face ever-increasing rents, and their competitiveness has been eroded on domestic as well as foreign markets because of the overvaluation of the currency. In other words, the huge inflows of capital have only served to inflate real estate prices and financial profits, rather than fund productive activities that create stable jobs.
Financed by heavy inflows of capital from abroad, the Lebanese commercial banks emerged as powerful political agents. Bankers were appointed to many key positions in executive authorities, and their lobby has partnered with the leadership of the central bank to maintain a monetary and fiscal policy that served their interests.
Today, politicians who are, or have been, in government since the end of the Civil War directly own about 40 percent of assets in the local banking sector. As a result, Lebanon boasts one of the lowest tax rates on interest income worldwide, while banks have about three quarters of their assets (either directly or indirectly through the central bank) invested in an unjustifiably expensive sovereign debt, which at times yielded more than 35 percent in annual returns.
Growth in the banking sector was therefore more akin to a windfall of rents, rather than the result of financial risk-taking and intermediation. Debt servicing constitutes about a third of government expenditure and takes up more than half of government revenues, which consist overwhelmingly of flat consumption taxes that disproportionately burden the poor and middle classes—a perverse transfer of wealth from the many to the few.
Local elites connected to the financial sector backed such policies across the global South, brokering a political alliance between the state and transnational financial interests. Once financial liberalization took place, policy autonomy became constrained, as countries that failed to comply with investor interests would get punished by capital flight. Financial elites gained greater influence over policy. They then pushed for policies that further transferred income from agriculture and industry to the financial sector, increasing income inequality and contributing to unemployment and wage stagnation.
Lebanon has one of the most severe cases of financialization, having completely ruined its economy for the sake of financial interests. 80% of local consumption is imported, while half the population lives below the poverty line. Developing countries frequently announce a peg but few adhere to it as firmly as Lebanon did. Allowing the currency to slide would help exports, thus creating employment and relieving pressure locally. The extraordinarily stable peg in Lebanon is a testimony to the vast power of the local oligarchy, which is maintained by the confessional cleavages dividing society in Lebanon and hindering social resistance.
To be transformative, social movements around the world must work towards a shared vision and a global solidarity among debtors. The problem at hand is evidently political. The solution should not be left to the alliance of politicians and bankers whose interests work against the imperatives of shared prosperity, nor to the economists at international institutions who serve as bailiffs on behalf of creditors. In early July 2019, an International Monetary Fund (IMF) report commended Lebanon’s over-valued currency peg, praised the local banking sector, and called for “fiscal adjustment” which the report itself described as contractionary. The measures included a freeze of public sector hiring, an increase in excises on fuel and diesel, an increase in the value-added tax, and a tax on taxi license plates—keeping in mind that taxi driving is the source of income of most unemployed or underemployed people in the country.
Meanwhile, an economic plan published by the current government in the first week of May 2020 proposed measures to attract an IMF bail-out package that included more fiscal austerity and an abandonment of the peg, without tackling the structural problems that Lebanon is facing or offering a tangible proposal for social welfare. Tellingly, this same week saw more instances of increasing brutality in the repression of demonstrations, including the torture of detained demonstrators.
The only viable solution to this crisis is a restructuring of the public debt that includes significant principal reduction, alongside a program of reforms to guarantee social protections. A purposeful, just, and fair distribution of the losses can be accomplished through an exceptional progressive wealth tax, or, short of that, an exceptional progressive tax on the huge fortunes deposited in the banks, in order to spare small depositors. It absolutely must preclude a bail out (or a bail in) of the banks and largest depositors, who have benefitted most from the economic policies that Lebanon has followed for three decades. The Lebanese people should not be made to bear the costs, neither through unfair taxation, nor through hyperinflation, nor through the fire sales of public assets.
The undersigned, empowered by the urgency for systemic change in Lebanon, bring together progressive voices from across the country to build a true alternative to the political system that is paralyzing and bankrupting the country. Only a truly progressive alternative can build a productive economy characterized by social justice. This requires new fiscal, monetary, and social policies, including a fair tax system, reliable and universal social protections, and a reduction in the size of the banking and real estate sectors as part of the shift in the main sphere of accumulation from rent-based activities to productive sectors that create dignified employment.
This vision is crystallized in the popular uprising in the country, yet we believe that the struggle against financial oligarchies and their political partners is global in scale, and therefore one which requires global collective action. We call on progressive forces around the world to back us in our common struggle against inequality, environmental degradation, and the hijacking of democracy by bankers and the ultra-rich.
Signatories:
Lihaqqi
Qantari Collective
Youth Movement for Change
Mada Youth Network
AUB Secular Club
NDU Secular Club
Housing Monitor at Public Works Studio
Workers in Art and Culture
Lebanese Coalition of Health Professionals
Lebanese Assembly of Engineers and Architects (LAEA)
