MIDWESTERN MARX INSTITUTE
  • Home
  • Online Articles
    • Articles >
      • All
      • News
      • Politics
      • Theory
      • Book Reviews
      • Chinese Philosophy Dialogues
    • American Socialism Travels
    • Youth League
  • Dr. Riggins' Book Series
    • Eurocommunism and the State
    • Debunking Russiagate
    • The Weather Makers
    • Essays on Bertrand Russell and Marxism
    • The Truth Behind Polls
    • Piketty's Capital in the 21st Century
    • Lenin's Materialism & Empirio-Criticism
    • Mao's Life
    • Lenin's State and Rev
    • Lenin's LWC Series
    • Anti-Dühring Series
  • Store
    • Books
    • Merchandise
  • YouTube
  • Journal of American Socialist Studies (JASS)
  • Contact
    • Article Submissions
    • The Marks of Capital
  • Online Library
  • Staff

5/19/2021

Lebanon’s Financial Meltdown. By: Yanis Iqbal

1 Comment

Read Now
 
Picture
​The Lebanese pound has depreciated about 90% in the past 18 months, driving annual food inflation to 400%, erasing salaries and savings and pushing more than half the nation into poverty. All this comes at a time when the country is battling the devastation wrought by COVID-19 as well as the ravages from the 2020 Beirut blast.

Financialization

The economic crisis in Lebanon is closely linked to the paradigm of financialization adopted by the ruling elite. This paradigm has converted the country into a “bankers’ republic”. The country that was once known as “the Switzerland of the Middle East” based its economy on the financial sector without regard for the productive sectors.
​
The beginnings of the current morass can be traced to the 1997 “peg,” which artificially fixed the Lebanese pound to the dollar at an overvalued rate, thus laying the ground for the rise of rentier capitalism. On one hand, it became more profitable to import than to produce locally. On the other hand, investing capital in unproductive economic sectors - namely financial products and real estate - became increasingly attractive as the risk of inflation receded. 

A definite set of problems emerges when a currency is pegged at a high rate. Since the government sets the rate too high, domestic consumers will buy many imports, creating chronic trade deficits. When imports exceed exports, a country’s currency demand in terms of international trade is lower. Lower demand for currency makes it less valuable in the international markets.

 In response to these devaluationary pressures, the government will have to appreciate its own currency. For this, the central bank needs to buy its currency in foreign exchange markets, paying with foreign currency. Since no central bank has an infinite amount of foreign currency reserves, it cannot buy its currency indefinitely. The government's reserves will eventually be exhausted, and the peg will collapse.

To maintain the peg, Lebanon’s central bank had to ensure a continual inflow of foreign currency, namely US dollars. This was done through a national Ponzi scheme - a scam in which existing investors are paid off with funds collected from new investors, while the organizers cream off a share for themselves. With the help of oil money from Gulf Arabs and remittances from the large Lebanese diaspora (estimated at more than 12 million persons, living on all continents), the bourgeoisie built the bases of domestic finance.

To further attract money from abroad, Lebanese banks promised high interest rates on deposits. Meanwhile, people who put money into the banks received more than 5% in interest on deposits. It was a great deal for investors in the region, who piled money into Lebanese banks. The money could have been used for productive investments but stayed in the financial chamber.

The dollar flows from abroad were used by Lebanon’s commercial banks to speculate on sovereign-debt instruments denominated in Lebanese pounds at interest rates significantly higher than the international market rates granted by the Lebanese central bank. In other words, the banks, flushed with deposits, started lending the money to the government, via the central bank. The banks had promised to pay a high interest rate on the deposits, but the central bank promised to pay even higher interest rate to the banks. It ensured the system could keep going for a little while. The banks turned around and lent the government a lot of money, pocketing the difference between the two interest rates. 

The high interest rates on government bonds and bank deposits strongly limited investments of capital in the productive economy. Most of the money the state collected through the bonds was in the end used to repay the interest rather than to fund social welfare programs or public infrastructure. While proving to be catastrophic for the working class, this profit scheme enriched bankers.

The share of public debt held by banks reached nearly two-thirds in the 1990s, and it is estimated today to be nearly 43%. Indeed, interest rates went up to as high as 40% on untaxed treasury bills, helping the banking sector’s assets grow by 25% between 1993 and 2000 and increase nearly eightfold between 1993 and 2013. In addition, between 1993 and 2018, banks’ net profits increased from $63 million to a whopping $2 billion, representing a 3,000% increase.

It is important to note that the process of financialization was fundamentally aided by the political plutocracy. In fact, politicians in Lebanon are closely stitched with the financial magnates. Individuals closely linked to political elites control 43% of assets in Lebanon’s commercial banking sector. 18 out of 20 banks have major shareholders linked to political elite.

Moreover, 4 out of the top 10 banks in the country have more than 70% of their shares attributed to crony capital. Only 8 families control 29% of the banking sector’s total assets, owning together more than $7.3 billion in equity. For example, one of the controlling shareholders (over 5% of shares) of Bank Audi is a company wholly owned by Fahad Al-Hariri, brother of the Prime Minister, Saad Al-Hariri.

Collapse

The collapse of the Ponzi pyramid constructed by the financial oligarchy began in October 2019 with the slowdown of flows of hard currencies in the context of the global crisis of capitalism, and instability in Middle East, particularly in Syria. The expatriation of capital organized by the wealthiest 1% of the population, who dominated the financial sector, exacerbated the lack of cash.
​
The banks, having lent three-quarters of deposits to the government, had become functionally bankrupt and increasingly illiquid. Unable to contain the crisis of their own making, they passed the burden on small depositors by setting illegal and discretionary capital controls that prevented them from withdrawing their pensions and wages.

In the hindsight, the crisis of Lebanon’s economic architecture was predictable. The state was borrowing from or via the central bank at exorbitant interest rates, the central bank was borrowing from the local banks, who were lending the money of their depositors, who in turn were lured in by high interest rates. High interest rates of up to 15% kept this unsustainable cycle going for years. But running out of cash was inevitable. When this happened, the entire structure of accumulation broke down.

Author

​​Yanis Iqbal is an independent researcher and freelance writer based in Aligarh, India and can be contacted at [email protected]. His articles have been published in the USA, UK, Canada, Australia, New Zealand, India and several countries of Latin America.


Archives

May 2021
April 2021
March 2021
February 2021
January 2021
December 2020
November 2020
October 2020
September 2020
August 2020
July 2020

Share

1 Comment
Alexander Edward link
9/28/2022 07:41:21 am

This is an Excellent & great post. I LOVE this article! It’s such a beneficial for all visitors. Contact us on WHATSAPP for quick response. You can also start a LIVE CHAT session to place an order without any hassle. We recommend you to contact us even after placing the order using our forms.

You can also get some professional help with Income Verification from this team via WhatsApp, Email, phone number. And please visit our site.
LiveChat:https://tawk.to/chat/5b056f7bd0f6723da57ecd06/default/?$_tawk_popout=true
Call / Message on WhatsApp : +1 914 274 8666
Contact: (+1) 914 302 9443
Email: [email protected]
Website: http://bankstatementediting.com

Reply



Leave a Reply.

Details

    RSS Feed

    Archives

    May 2025
    April 2025
    March 2025
    January 2025
    December 2024
    November 2024
    October 2024
    September 2024
    August 2024
    July 2024
    June 2024
    May 2024
    April 2024
    March 2024
    February 2024
    January 2024
    December 2023
    November 2023
    October 2023
    September 2023
    August 2023
    July 2023
    June 2023
    May 2023
    April 2023
    March 2023
    February 2023
    January 2023
    December 2022
    November 2022
    October 2022
    September 2022
    August 2022
    July 2022
    June 2022
    May 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020

    Categories

    All
    Aesthetics
    Afghanistan
    Althusser
    American Civil War
    American Socialism
    American Socialism Travels
    Anti Imperialism
    Anti-Imperialism
    Art
    August Willich
    Berlin Wall
    Bolivia
    Book Review
    Brazil
    Capitalism
    Censorship
    Chile
    China
    Chinese Philosophy Dialogue
    Christianity
    CIA
    Class
    Climate Change
    COINTELPRO
    Communism
    Confucius
    Cuba
    Debunking Russiagate
    Democracy
    Democrats
    DPRK
    Eco Socialism
    Ecuador
    Egypt
    Elections
    Engels
    Eurocommunism
    Feminism
    Frederick Douglass
    Germany
    Ghandi
    Global Capitalism
    Gramsci
    History
    Hunger
    Immigration
    Imperialism
    Incarceration
    Interview
    Joe Biden
    Labor
    Labour
    Lenin
    Liberalism
    Lincoln
    Linke
    Literature
    Lula Da Silva
    Malcolm X
    Mao
    Marx
    Marxism
    May Day
    Media
    Medicare For All
    Mencius
    Militarism
    MKULTRA
    Mozi
    National Affairs
    Nelson Mandela
    Neoliberalism
    New Left
    News
    Nina Turner
    Novel
    Palestine
    Pandemic
    Paris Commune
    Pentagon
    Peru Libre
    Phillip-bonosky
    Philosophy
    Political-economy
    Politics
    Pol Pot
    Proletarian
    Putin
    Race
    Religion
    Russia
    Settlercolonialism
    Slavery
    Slavoj-zizek
    Slavoj-zizek
    Social-democracy
    Socialism
    South-africa
    Soviet-union
    Summer-2020-protests
    Syria
    Theory
    The-weather-makers
    Trump
    Venezuela
    War-on-drugs
    Whatistobedone...now...likenow-now
    Wilfrid-sellers
    Worker-cooperatives
    Xunzi

All ORIGINAL Midwestern Marx content is under Creative Commons
(CC BY-ND 4.0) which means you can republish our work only if it is attributed properly (link the original publication to the republication) and not modified. 
Proudly powered by Weebly
Photos from U.S. Secretary of Defense, ben.kaden
  • Home
  • Online Articles
    • Articles >
      • All
      • News
      • Politics
      • Theory
      • Book Reviews
      • Chinese Philosophy Dialogues
    • American Socialism Travels
    • Youth League
  • Dr. Riggins' Book Series
    • Eurocommunism and the State
    • Debunking Russiagate
    • The Weather Makers
    • Essays on Bertrand Russell and Marxism
    • The Truth Behind Polls
    • Piketty's Capital in the 21st Century
    • Lenin's Materialism & Empirio-Criticism
    • Mao's Life
    • Lenin's State and Rev
    • Lenin's LWC Series
    • Anti-Dühring Series
  • Store
    • Books
    • Merchandise
  • YouTube
  • Journal of American Socialist Studies (JASS)
  • Contact
    • Article Submissions
    • The Marks of Capital
  • Online Library
  • Staff