Lebanon’s Economic Crisis: The Root Cause

Lebanon’s current economic unrest can amount to many reasons, one of its main being the undeniable fact that Lebanon does not have the foundation nor independence that allows for a real economy. A real economy depends on certain sectors for determining its strength, typically consisting of the manufacturing sector, agricultural, tourism, trade, services, finances, etc. and in Lebanon, no matter how well these sectors may be doing, the Lebanese pound (Lira) against the Dollar remains constant.

For over two decades, the stability of the Lebanese economy depended on a fixed exchange rate to the US dollar when in 1997, the Central Bank of Lebanon, as per the decision of the United States, pegged the Lira to the US dollar at 1507 to 1. In no free market economy can a currency be fixated upon another for such an extensive period of time without fluctuation. 

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Lebanon is the fifth-most indebted nation in the world relative to GDP according to the IMF, and immense costs in Lebanon’s post-war reconstruction were a leading precursor in the financial problems faced today, as the government favoured the country’s rich and mostly focused on gleaming property developments in Beirut central district.

Prior to the 15-year civil war and the Israeli invasion in the ’80s, the treasury of Lebanon wasn’t in debt to foreign countries, namely the US, as it did not need to borrow. The politicisation of the country and its dependence upon the financial support of the US means that the slightest withdrawal of American support, as is the current situation, leads to choking the Lebanese economy and consequently poses strain upon the population. 

What constitutes the Lebanese economy?

Diaspora 

The Lebanese diaspora is more than three times the population of Lebanon – approximately 14 million Lebanese living abroad to 4.7 million residing in Lebanon – and due to the few sources of foreign exchange, Lebanon depends heavily on its diaspora to remit cash to the banking system, which is then recycled to finance imports and state deficit.

Those from abroad transacting, buying property and pumping money into Lebanon play an important role in feeding into the economy, an estimate of remittances worth up to 12.5% of Lebanon’s GDP [1]. 

Sectors 

Lebanon is predominantly a service-based economy heavily dependent on tourism, most of which is conducted in US dollars, and the open lands of Lebanon caters for many tourists – a great revenue source. Its fertile lands benefit from a moderate climate and abundant water resources, however, the agricultural sector is under-developed and only contributes up to 2.9% of the GDP [2].

Furthermore, sectors such as transport and energy need urgent overhauling – especially Lebanon’s infamous electricity infrastructure. The country did not develop self-sustaining domestic industries like many of its neighbours, and therefore the manufacturing sector has a very small share in the economy – no car, no fridge, not even a lighter is produced in Lebanon, hence resulting in importing a staggering 80% of its products – including most of the country’s oil, meat, grain and other supplies from abroad [3]. 

Sponsorships 

Lebanon has a number of leaders and parties with positions that are apportioned by quotas among 18 officially recognised sects, such as the Shia, Sunni, Maronite, etc. The main sects have parties that maintain connection and links with other countries who finance them, as these countries think it’s important for the parties to be strong and active in serving their interests within Lebanon. External intelligence interferes and endeavours to counter Iranian influence by setting up American universities, hospitals, etc. within Lebanon, due to the rivalry that exists between the foreign countries that compete for influence. 

The Lebanese economy is therefore captive to external entities that are controlling the economic situation through political decisions. The United States, a country known for bending political powers to its will through sanctions, drowned Lebanon in debt through the placing of individuals who align with them in positions of power, and consequently, Lebanon lost the ability for independent decision-making.

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The US figured that in order to impose their decisions on Lebanon, this is best achieved through dominating the economy, to then blackmailing – that X & Y must be done in order to keep receiving the financial support, or else, the country will suffer. 

What is the cause of the current economic crisis?

The fact is that over the years, the American presence in Lebanon has been shrinking, the American domination in the area has been receding, and the axis of resistance has been advancing. Therefore, suffocating the Lebanese economy through lifting financial support was the decision the US took – a method of provoking the people into revolting against the resistance party.

It is of no doubt that the resistance is advancing in various sectors, not just security and military but also socially and economically, as well as occupying an important presence within the government, influencing the country, holding independence and its own institutions and co-operations, so that the new American policies are centred on creating the worst possible conditions for the people – and that if they want to rid themselves from these brutal conditions – they’ll have to submit.

Sources