Prices Rising, Tyres Burning
Corruption, mismanagement and now a currency crisis. In Lebanon, the monetary system and the state apparatus have become a real problem for the citizens. How one lives in a country whose central bank placed its bet on the wrong card.
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Six months after the pink cloud of smoke – 2750 tonnes of ammonium nitrate exploded in the city’s port on 4 August 2020 – black smoke is now rising into the sky over Beirut. The smoke comes from the Thawaar, the revolutionaries, who burn old tyres in the streets to express their anger. The huge explosion in the port has neither been forgotten nor completely cleared up, but the rest of Lebanon’s problems surface again: Corruption and nepotism. Hyperinflation and economic crisis. And politicians who prefer to serve themselves rather than the people.
When the civil war ended 30 years ago, the militias and warlords saw the opportunity to enrich themselves and their clans by rebuilding the state. They exploited the country, impoverished the Lebanese and let the infrastructure decay. In many places the tap water is poisoned and the electricity is cut off for hours several times a day. Meanwhile, more than 55 percent of the population lives below the poverty line and has trouble finding even the most necessary products for a simple life.
When I first came to Lebanon for an exchange semester in 2017, no one was burning tyres yet. Why would they? It was before the collapse: the economy was functioning, people were doing well. The Lebanese pound – or the lira, as it is called here in Lebanon – was pegged to the US dollar. Both currencies were used simultaneously. It was not uncommon to receive change as a cocktail of lira and dollar. Which currency you paid in was not a subject of discussion, since you could always exchange 1500 lira for one dollar and vice versa. People confidently handed over their savings to the banks, earning an average of about 6 per cent in interest, sometimes up to 14 per cent. This was the case with my good friend Raphael, who started working at a European embassy in Beirut a few years before the collapse. His account balance just before the crisis: 21 990 US dollars. His girlfriend Vera, a copywriter in advertising, was making 1.2 million liras a month at the time, the equivalent of 800 US dollars – a lower average income, not a bad starting salary.
The Great Salamé
Responsible for this bonanza was a man who has been described by some as a financial magician and was awarded several times as one of the best central bankers. A man whose face is now a red rag for many Lebanese and whose head is called for on countless graffiti in the country: Riad Salameh, the governor of the Banque du Liban, the Central Bank of Lebanon. In his 28 years as head of the central bank, he instigated the pegging of the lira to the dollar in the late 1990s to facilitate trade for the country, which imports 80 percent of its goods. It was also him who warned banks against international investments before the global crisis of 2008, bringing Lebanon through that depression relatively unscathed. He was truly revered.
Salameh merely had one problem in linking the weak lira to the strong dollar: To remove surplus lira from the market, large dollar reserves are necessary. But he had a solution for that too. For years, the central bank granted high interest rates on US dollar deposits of Lebanese commercial banks. This key interest rate caused the banks to withdraw their investors› dollars from investments in the private sector, as well as grabbing more dollar deposits from Lebanese savers through attractive interest rates, and to channel all these dollars to the central bank. But instead of making the country more productive and thereby supporting the peg, the central bank used the deposited dollars to serve the high interest rates it promised the banks. The latter reinvested the interest right back, and thus the game went on and on – a massive Ponzi scheme on state level.
Ironically, it was the revolution that caused Salameh’s lira bubble to burst. To the people’s anger, the government could not extinguish the wildfires that blazed in the mountains in October 2019 because the firefighting plane was not maintained for lack of money and was thus unable to fly. When parliament decided a few days later to tap new capital with a tax on WhatsApp, the fuse reached the powder keg. On 17 October, tens of thousands of Lebanese took to the streets to demonstrate against their corrupt and, in their eyes, incompetent government.
Parmesan and Pine Nuts
The political uncertainty that has prevailed since then further fueled the dollar shortage and is driving up prices on the black market. The lira fell to unimagined depths. In March 2021, it reached a new low point: 15,000 lira to the dollar. Importers who have to pay in dollars adjusted their prices, and the predictable thing happened: as the lira fell, the prices of all imported goods went up. Today, 200 grams of the cheapest Parmesan cheese costs 50 000 liras (the equivalent of 33 US dollars before the crisis) and a kilo of pine nuts costs around one million liras (650 pre-crisis dollars).
This sometimes leads to tragic-comic situations: Vera, Raphael and I go to the Italian restaurant around the corner and treat ourselves to pizza and pasta for dinner. The order only works on the third try. One has already become accustomed to waiters in restaurants shrugging their shoulders apologetically and explaining that they didn’t get this or that ingredient. Sorry, bess ma fi pecorino el yom – Sorry, there is no pecorino today.
«It’s the normal flatbread that surprises me the most,» Raphael says after the meal. «The package used to cost 1500 liras and there were about ten to twelve pieces in it. First they reduced the content to six or seven, and then a few weeks later they doubled the price.» The local cigarettes we smoke while talking used to cost 1000 liras four years ago. They were so cheap that you always had a few packs on the table – if you want, help yourself! Last summer the price reached 3000 Lira, and today I pay 6500 Lira per pack at the small shop in my street. You no longer pay for the tobacco, people quip on the streets, but for the small piece of imported silver paper that you tear off when opening a pack.
In the floating annual average of February 2018-2019, inflation was still at 3.8 per cent. The following year, contributing to the general uncertainty, it climbed to 11 percent. In January this year it reached 147 per cent, and a month later 155 per cent. Concretely: food prices have quadrupled within a year, and the cost of clothes and shoes, household and restaurants has even increased six-fold.
This extreme inflation would still be somewhat bearable if the dwindling middle class could access their holdings of dollars to exchange them on the black market. But after the demonstrations, the banks opened with capital controls that make it impossible to withdraw and transfer dollars. One can only withdraw in lira, with strict monthly limits, at a fixed rate. Per dollar you get 3950 lira – fresh off the press.
If Raphael wants to save his fortune, he has to convert it into lira and then buy dollars on the black market. If he could withdraw and change his assets all at once, his 22,000 bank dollars in this process would become a little less than 8,000 real cash dollars, at best. Raphael is still lucky. For the embassy pays him the equivalent of his salary in dollars, at the pre-crisis rate, in cash – «out of courtesies», as he says. Vera however, like most Lebanese, is still paid in lira. Although she now earns twice as much, through inflation her salary only has the purchasing power of a fifth of her starting wage: 160 dollars a month – that’s 8.6 kilos of parmesan or 2.4 kilos of pine nuts.
Souk Al Masari – The Money Market
The dollars available on the black market are called fresh dollars and come from people like me. Journalists, employees of NGOs or international companies, Lebanese expats – people who have an account abroad. When I fly to Beirut, I always carry an envelope in my hand luggage with lots of small dollar bills that I later exchange for lira on the black market. I usually text my black market dealer how much I want to exchange, he hops on his scooter and arrives – like a clockwork – half an hour later in my street. He usually pulls me into an alleyway a little off the crowded street and discreetly, just like a drug dealer, slips me the thick bundle of green 100,000 lira notes.
This covertness is the effect of one of the few attempts the government has made against the inflation. In April 2020, it decided to crack down on the thriving black market and arrested over fifty money changers for currency manipulation. This resulted in a strike of the official, licensed money changers, which allowed the black market to flourish and – together with the exchange rate of the lira – only drove it further underground.
«Afraid?» asks Hady, laughing. «I’m not afraid. I only deal with people I know. They won’t get me that way.» My money changer’s name is not Hady, but despite his fearlessness, the risk of going by his real name is too great for him. He shows me the 30 or so WhatsApp groups where the money changers arrange deals, pass customers to each other and exchange information about exchange rates. I ask Hady if the market is free and he looks at me bewildered. «The market is the opposite of free: the politicians get involved, the banks, the syndicates, and above all the mafia – everyone tries to control it.» The fact that the value of the lira fell from 10,000 to 15,000 per dollar within a few hours in early March is the mafia’s fault, he says. It dictated the exchange rate via apps and websites that belong to its network and where black market customers would check the rates. This was a signal addressed to the government, which had just decided to take tougher action against the illegal market.
Hady won’t tell me exactly who «the mafia» is. If you ask informally on the street, people always point to the other side. Depending on the confession of the person asked, the market is then controlled by the Shi’aa or the Sunnis, the Christians or the Druze, this party or that militia. Hady only says: «The really big money dealers who change millions of dollars work together with Salameh and Hariri», meaning that this market too is controlled by those who already own the whole rest of the country: The warlords, the militias, influential clans like the Hariris, whose offspring celebrated his third comeback as prime minister last autumn.
«The money in the accounts is lost» says Dan Azzi, economist and professor, who just auctioned off his brand-name sunglasses for 6600 US dollars on social media. Not because he needs the money, but to support six students in paying their university fees. Now, he says, society is paying for the life it lived in the twenty years before the crisis. «The peg gave every Lebanese a standard of living much higher than the country’s productivity.» This had to be made up for now.
For a millionaire, he has a rather unusual proposal for solving the crisis. He thinks that the losses should be borne by the top percent, which was nothing other than consequent capitalism. His plan is to first reduce the amounts deposited in accounts. Those who earned money with exorbitant interest rates before the crisis should hand it over. According to Azzi: «They should have known what was coming. You’re a fucking millionaire, and you don’t realize that there’s something wrong with the 17 percent interest you’re earning on your million? Then you deserve your loss. Tough shit, sorry.» The next step is to retrieve the many millions of dollars that the ruling elite have moved abroad despite capital controls. If US dollars are then still in short supply, existing accounts could be converted into shares in the bank as a last resort: «A forced bail-in. My fucking bank can’t pay you? Guess what, you own it now.»
Azzi comes to talk about the huge social inequality in Lebanon. «Six thousand people own more than 50 percent of the deposits. In this situation, that’s good news for once,» he thinks. «Because if you distribute the losses among these guys, you spare the 5 million people who remained poor during the good times.» However, he says, we are far from that ideal at the moment: «Salameh is devaluing the lira unnecessarily right now by printing more and more of it. That’s how he spreads the losses among everyone.»
Bitcoin as a Chance of Freedom
For the general population, it is a matter of saving what can be saved. Many buy physical gold, in the form of bars, sometimes also as jewellery. Cryptocurrencies are also in high demand, led by Tether, closely followed by Bitcoin. «There are four types of crypto buyers in Lebanon» says Marcel Younes, founder of Bitcoinduliban.org, a comprehensive information platform on Bitcoin. First, those who invest in Bitcoin and hope to regain the capital they lost in the banks. Second, traders, and third, those who use Bitcoin to get paid for work and services online. «And then there are those who transfer money this way. Money earned in Europe or America is then not sent to the bank, but directly to the family.» Currently, the Lebanese diaspora mostly does what I do, and brings physical cash in their carry-on luggage into the country. Raaye7 3a beirut? Fiik takhud alf dollar la khale? You’re going to Beirut? Can you take a thousand dollars for my uncle? A digital currency that is easy to obtain and transfer provides a remedy.
Mostly, cryptocurrencies are exchanged directly between people, peer-to-peer, in Telegram chats. To use Bitcoin directly on a broad scale, the possibilities are lacking, because acceptance is still too low. «Because trust in Bitcoin is still low, people don’t yet accept it as a form of payment. While there are many more places accepting it recently. But we are still in the early stages» says Younes. When he excitedly tells me about a shop in Saida where you can now buy tyres for Bitcoins, he does get carried away for a moment.
He basically advises everyone who is now stockpiling dollars to invest part of their assets in Bitcoin. For him, it is less about speculation on profit than about security: governments cannot influence the decentralised currency and therefore cannot plunge it into a crisis. «A government always sees the people as a source of money, of income» says Younes. «If a Lebanese citizen uses a monetary system that the government cannot control, then he or she takes away its blood supply.» Because of Bitcoin, he says, the government has to behave and if they don’t behave, then we just leave them and then they die out.» Bitcoin gave people the sovereignty they deserve.
It is by no means only the Bitcoiners, who have lost trust in the state. Today, taxi drivers no longer talk about the most beautiful places in their home villages or about the trips they used to take. The beautiful stories have given way to hateful rants about politicians and accounts of mismanagement and corruption. Mashekel kbeereh – big problems, they sigh. Bess shou fina na3mel – but what can we do? It sounds as if everything has already been given, as if the whole country is succumbing to a collective exhaustion. Even the revolution that initially brought almost everyone onto the streets seems paralysed.
Those who can, leave the country. And those are especially the young and well-educated, the doctors, the researchers, the engineers. Raphael and Vera also want to leave. Canada, they say, or maybe Germany. Or any other place where they can get visas with their Lebanese passports. Just getting away, away from here. «Dude, you just ran out of options here. How are you going to build a future in this shithole country?» says Raphael, quoting Trump. Behind the gallows humour he hides legitimate disappointment. Because what is happening here is probably Lebanon’s greatest tragedy: its future is leaving it.