The weekly grocery bill can equal months of an average family’s income. Banks refuse to allow people to withdraw money. Basic medicines are often not available and the lines at gas stations can take hours. Every day many houses have no electricity.
Lebanon is experiencing a humanitarian catastrophe caused by a financial collapse. The World Bank calls it one of the worst financial crises in centuries. “It really feels like the country is melting,” Ben Hubbard, a Times reporter who has spent much of the past decade in Lebanon, told us. “People have seen an entire way of life disappear.”
It’s a shocking turnaround for a country that was one of the Middle East’s economic success stories in the 1990s. Given the magnitude of the suffering and the modest media coverage it has received while the rest of the world remains focused on Covid-19, we dedicate today’s newsletter to explaining what happened in Lebanon, with the help of Ben .
How did this happen?
As often happens with a financial crisis, the situation built up slowly – then quickly collapsed.
After Lebanon’s 15-year civil war ended in the 1990s, the country decided to peg its currency to the US dollar, rather than let global financial markets determine its value. Lebanon’s central bank promised that 1,507 Lebanese lira would be worth exactly $1 and that Lebanese banks would always exchange one for another.
That policy brought stability, but it also required Lebanon’s banks to hold a large supply of US dollars, as Nazih Osseiran of The Wall Street Journal has explained – so that the banks could fulfill their promise to exchange 1,507 lira for USD at any time. 1. Lebanese companies also needed dollars to pay for imported goods, a large part of the economy in a country that produces little of what it consumes.
Lebanon had no problem attracting dollars for years. But after 2011, that changed. A civil war in Syria and other political tensions in the Middle East are hurting Lebanon’s economy. The growing power of the group Hezbollah, which the US considers a terrorist organization, in Lebanon also deterred foreign investors.
To keep the dollars flowing, the head of Lebanon’s central bank developed a plan: Banks would offer very generous terms — including a 15 percent or even 20 percent annual interest rate — to anyone who would deposit dollars. But the only way banks could deliver on these terms was by paying back the original depositors with money from new depositors.
Of course, there is a name for this practice: a Ponzi scheme. “Once people realized that, everything fell apart,” Ben said. “In 2019, people could no longer take their money out of the bank.”
Officially, the exchange rate remains unchanged. But in everyday transactions, the lira has plummeted by more than 90 percent since 2019. Annual inflation has surpassed 100 percent this year. Economic output has fallen.
Even before the crisis, Lebanon was a very unequal country, with a wealthy political elite long enriched by corruption.
Three new problems
Three developments since 2019 have worsened the situation.
First, the government tried to raise money by levying a tax on all WhatsApp conversations, which many Lebanese families use because calling is so expensive. The tax infuriated people — many of whom saw it as another example of government-imposed inequality — and sparked large and sometimes violent protests. “People outside looked at the land and said, ‘Why should I bring my company into a place like that?’” Ben said.
Second, the pandemic has hurt Lebanon’s already fragile economy. Tourism, which made up 18 percent of Lebanon’s prepandemic economy, was particularly hard hit.
Third, a massive explosion in the port of Beirut, Lebanon’s capital, in August 2020 killed more than 200 people and destroyed several affluent neighborhoods. “A lot of people couldn’t afford to fix up their houses,” Ben said. (This Times project takes you to the docks and shows how corruption made the explosion possible.)
Lebanon formed a new government for the first time since the explosion last month. The prime minister is Najib Mikati, a billionaire who has held the position twice before since 2005.
The French government and other outsiders have pushed the Lebanese government to implement reforms, but there is little evidence that this will happen. The Biden administration, which is targeting other parts of the world, has chosen not to get deeply involved.
Many Lebanese families depend for their survival on money transferred from relatives living in other countries. “The only thing that keeps many people going is that most Lebanese families have relatives somewhere abroad,” Ben said.
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ART AND IDEAS
Broadway’s ‘Worst Idea in History’
Fifty years ago, the rock opera “Jesus Christ Superstar” — with music by Andrew Lloyd Webber and lyrics by Tim Rice — opened on Broadway. Outside of the sold-out shows, protesters called the musical blasphemous.
Production was a risk. It tells the story of the last seven days of Jesus’ life through the eyes of one of his disciples, Judas Iscariot. As Lloyd Webber recently told British newspaper The Telegraph, producers considered it “the worst idea in history” and didn’t want to put it on stage.
Some of the initial reactions echoed those fears. The Times reviewer Clive Barnes criticized the production: “It all looked a bit like the Empire State Building at first sight. Not at all uninteresting, but somewhat unsurprising and of minimal artistic value.”
In the end, the show won the audience. A spectacle that brought rock and musical theater together, the musical paved the way for shows like ‘Les Misérables’ and ‘The Phantom of the Opera,’ writes Sarah Bahr in The Times. — Claire Moses, a morning writer