Lebanon is experiencing an economic crisis unlike anything it has seen since the 1940s. Although there are a multitude of factors contributing to the country’s economic turbulence, one of the biggest problems is the hyperinflation of the Lebanese pound. A currency is labeled as “hyperinflated” if the country’s inflation rate exceeds 50% per month over an extended period of time. The casualties are so extreme that Lebanon is now the third-most indebted country. The loss of value for this currency has resulted in 5.4 million people struggling to manage an unstable economy, skyrocketing food prices and inadequate government assistance.
Life in Lebanon
Lebanon is located in the Middle East and has a diverse religious makeup. Many of its residents are refugees from Syria and the Palestinian territories, and as such, the country has survived many obstacles stemming from nearby conflicts. Lebanese luxury culture has famously endured through wars, political upheaval and civil violence, with people still willing to go out to nightclubs and buy expensive clothes. Nevertheless, it appears as though the country’s freewheeling lifestyle has finally hit a wall.
Life in places such as the capital, Beirut, is so wracked with uncertainty that months of protesting over the past year has led to the forcing out of Prime Minister Saad Hariri in October 2019. The protests revolved around frustration at Lebanon’s politics and politicians, citing corruption and incompetence in their chant of “Give back the looted money!” Despite the swearing in of a new prime minister, Hassan Diab, in January, the protests continued into March. They only dissolved once the government implemented quarantine measures in order to manage COVID-19.
One essential industry that is suffering acutely this year is Lebanon’s electrical providers. Blackouts have always been a fairly regular occurrence and are a regular money drain on the country, costing Lebanon up to $1.5 billion annually. This year, however, the power is exceptionally poor as a result of mismanagement, fuel problems and alleged foul play. Power cuts can last as long as 20 hours in some places, subsequently causing many people to depend on expensive generators. Perhaps most concerningly, these power cuts have been affecting hospitals. With hourslong power outages, hospitals have to redirect precious funding in order to buy fuel for their generators so that they can have light, air conditioning and surgical equipment. During a pandemic, this is especially concerning.
Understanding the Problem
The primary catalyst for Lebanon’s economic crash is the loss of currency value. The Lebanese pound used to be held fairly consistently at 1,500 pounds per dollar. People swapped the two currencies so interchangeably that one could pay for an item in one currency and get their change back in the other. However, that ratio has since tanked. The pound has sunk by about 80%, leaving more than 45% of Lebanese people in poverty, 33% unemployed, and most unable to access their savings.
Lebanon’s first misstep was its dependency on foreign investors and offering them high rates of return, especially during a time when other countries cut rates in order to encourage economic recovery. These high rates were appealing to wealthy foreign investors and drew many of them in, but once the Lebanese government began relying on an increasingly bloated debt to pay off its bills, investors began to withdraw. The country also failed to implement policies or reforms that could have accommodated this change, such as finding ways to unlock international aid. The country tried to counter the withdrawals by offering even higher interest rates, but they could only be covered by increasingly large deposits. As such, the situation spiraled out of control in a manner likened to a Ponzi scheme.
Ultimately, the value of a single unit of currency has been completely changed, affecting the daily lives of Lebanese residents. While the Lebanese pound has decreased in value, food costs have surged by around 190% since May 2019, leaving people hungry and desperate. Banks are only allowing limited money withdrawals or have stopped altogether as they struggle to manage the mountain of debt. The concern for many is that any money that banks are able to make is being used to pay back foreign investors rather than aiding people in Lebanon. The country now stands at a gross debt of $90 billion, a debt only topped by Japan and Greece.
Moving Forward
The government is struggling to get the economy under control, or at the very least to slow the mounting pile of debt. At the end of April, the country released a statement saying that it would seek $10 billion of aid from the International Monetary Fund, but the country has been unsuccessful in its previous bids. Above all, the country must find a way to stimulate the economy, or else its people will continue to suffer.
Phoebe Jacoby
is a Media Studies major and Studio Art minor at Vassar College who believes in the importance of sharing stories with others. Phoebe likes to spend her free time reading, drawing, and writing letters. She hopes to continue developing her skills as a writer and create work that will have a positive outward effect.