The Lebanese government is reportedly planning to devalue the local currency by up to 93% in a desperate bid to receive funding from the International Monetary Fund (IMF). As part of the plan, a major portion of foreign currency deposits in the banking system will be converted into local currency at different exchange rates.
Bailout Only Path Out of Crisis
In a bid to tackle its financial crisis, the Lebanese government is reportedly pursuing a plan that will see the country’s local currency being devalued by 93%. In addition, the government plans to convert a significant portion of foreign currency deposits in the banking system into the Lebanese pound.
According to a Reuters report, the Lebanese government hopes pursuing this financial plan will enable the country to secure a bailout from the International Monetary Fund (IMF). This bailout is seen as Lebanon’s only path out of a long-running financial crisis.
The report on Lebanon’s latest plan to devalue its currency comes nearly two months after the central bank issued a directive — one that indirectly devalued the exchange rate for residents withdrawing from their dollar savings accounts. Immediately after the directive took effect, many Lebanese residents, with funds trapped in foreign currency-denominated savings accounts, reportedly besieged banks as they attempted to cash out their funds.
The government’s latest plan will result in holders of foreign currency-denominated savings accounts ceding all their savings to the government at several conversions, including one that devalues the pound by 75%.
Aligning Lebanon’s Exchange Rates
The objective of the government financial plan is to align the official exchange rate with that of the parallel market. Doing so has been the IMF’s key demand to the Lebanese government. At the time of writing, the Lebanese pound’s official exchange rate versus the U.S. dollar stands at 1,511 to one, while on the parallel market, one USD buys 21,300 Lebanese pounds.
Meanwhile, the Reuters report explains that as part of the government’s plan, depositors are expected to incur losses amounting to $38 billion while the government itself, shareholders in banks, and the central bank will incur a combined loss of $31 billion. The plan adds that the Lebanese government will return $25 billion to depositors in a period not exceeding 15 years.
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PM Hassan Diab forced to exit, saying ‘corruption is rooted in every part of the state’
Lebanon’s besieged government has fallen, one week after a cataclysmic explosion destroyed Beirut port, with the country’s prime minister, Hassan Diab, claiming the disaster was the result of endemic corruption.
Diab announced the resignation of the government after more than a third of ministers quit their posts, forcing Diab himself to resign.
As Beirut mourns its dead after last week’s explosion, foreign meddling has plunged the entire region into chaos
The huge explosion that destroyed much of central Beirut is a daunting metaphor for the perils facing failing Middle East states.
For years, the region has been described as the world’s most unstable, as a powder-keg primed to detonate at any moment. Last week’s awful tragedy begs a bigger question about how many shocks such fragile, vulnerable countries can absorb before they fracture, crash and blast apart. Is the Middle East as a whole about to explode?
Nearly 10 years after the Arab spring’s hopes of reform were dashed in a storm of violence and counter-revolution, and at a time when regional tensions are again approaching boiling point, a possible watershed nears.
The financial crisis in Lebanon has seen its currency, the Lebanese pound, fall 80%. The International Monetary Fund (IMF) has estimated that the country’s central bank has accumulated losses as much as 170 trillion pounds. The disagreement between the Lebanese government and the central bank has stalled bailout discussions.
The economic and financial crisis in Lebanon has deepened as the local currency has been in a free-fall. The Lebanese pound sold at a rate of 8,000 to the U.S. dollar on Sunday at local exchanges, losing about 80% of its value over the past 10 months.
The IMF has warned Lebanon that its central bank, Banque du Liban, has accumulated losses of up to 170 trillion pounds, the Financial Times reported on Thursday. The publication explained that the central bank has used “a series of sovereign debt and currency swaps with local lenders … to shore up the banking sector, attract foreign currency and stabilize the Lebanese pound.” Citing people familiar with the matter, the publication reported that the IMF told the Lebanese finance minister and central bank governor:
That activity, combined with the impact of Lebanon’s default in March on the bank’s sovereign bond holdings and a collapse in the value of the currency, has resulted in accumulated losses of about L£170tn.
The losses equate to 91% of Lebanon’s total economic output in 2019 and are almost equal to the total value of the deposits held by the central bank from the country’s commercial banks, the news outlet conveyed. The pound had been pegged at 1,507.5 to the U.S. dollar since 1997.
An IMF spokesperson said last week, “Our estimates are broadly consistent with those in the government’s plan.” The central bank and some members of parliament, however, argued that the losses are substantially lower.
The disagreement between the Lebanese government and the central bank has put the prospect of obtaining much-needed emergency financing from the IMF at risk. IMF Managing Director Kristalina Georgieva said Friday that she did not “expect progress in the negotiations with the Lebanese officials.” Georgieva added: “IMF officials are still working with Lebanon, but it is not clear whether it is possible for the country’s leaders, active parties, and society to agree on implementing the reforms needed to stabilize the economy and boost economic growth.”
However, “Not accepting the diagnostic simply means that the IMF [will] walk away,” commented Henri Chaoul, a banker and former advisor to the government in the IMF talks. He resigned from his advisory role at the Ministry of Finance on June 17. Lebanon’s fiscal and monetary policy has come undone over the past six months, following weeks of anti-government protests.
What do you think about the crisis in Lebanon? Let us know in the comments section below.
There were violent scenes as protesters took to the streets across the country for the third consecutive day
Hundreds of demonstrators angered by a deepening economic crisis rallied across Lebanon for a third consecutive day on Saturday, after violent overnight riots sparked condemnation from the political elite.
Protesting against the surging cost of living and the government’s apparent impotence in the face of Lebanon’s worst economic turmoil since the 1975-1990 civil war, protesters in central Beirut brandished flags and chanted anti-government slogans.
Emerging market investors are no strangers to sovereign debt crises, but few have been as perilous as the one facing Lebanon given a toxic combination of financial and political weaknesses and no obvious economic platform on which to build a recovery.
The lock-downs across much of the planet have put an end to the wave of massive street protests in countries such as Iraq, Algeria, Chile, France and Hong Kong in 2019. Lebanon appears be the first country to see the re-emergence of the masses onto the streets. Christian Pistor, PSL/LSP (ISA in Belgium) The lock-down […]
In late April, migrant workers from the Ramco waste collection company in Lebanon began a confrontation with the company’s management. Their demands are for wages to be in U.S. dollars, as stipulated in their contract, and not in the totally devalued Lebanese pound. But they’re also fighting against the daily abuse they suffer by the company. In Lebanon, migrants are subjected to the “kafala” system, a system that only allows migrants to legally reside in the country under the terms of their relationship to their job and employer.
Ramco, which won a five-year contract to take over garbage collection in Beirut, employs around 400 workers, including 250 Bangladeshis, the rest being Indian, Syrian, and Lebanese workers. According to the company, their salary is about $400 USD a month. However, Lebanon is going through a deep economic crisis and its currency has been severely devalued. In response to this, Ramco started paying its employees in local currency and not in U.S. dollars. This caused widespread outrage, especially among migrant workers who need to be paid in dollars in order to send remittances to their families back home.
The company says it pays the equivalent of wages in Lebanese pounds. But the workers complain that their wages in pounds correspond to an undervalued exchange rate: 1,515 pounds to one dollar, while the rate in the market is 4,200 pounds to one dollar. With that exchange rate, their wages have effectively been slashed by two-thirds of its original value.
As a reaction to this massive pay cut, Ramco’s migrant workers, mainly from Bangladesh and India, went on strike to demand their wages. They’re also denouncing the company’s decision to pay them only a part of their already slashed wages, following the lockdown measures taken by the Lebanese government. Instead of being paid 26 days a month, they’re only receiving the equivalent of 13 days.
In addition to this financial exploitation, foreign workers are fighting against the the violent torture of one of Ramco’s employees. According to several workers interviewed, on April 8, Enayet Ullah, an employee with mental illness, was locked up for three days on company premises, where he was subjected to physical and psychological torture. “He was beaten so mercilessly that even we were shocked” said a worker to Al Arabiya.
Riot police “trying to contain a riot” when in fact this is the riot police attacking migrant workers.
The company, as well as the Bangladesh embassy (which is trying to end the strike along with Ramco), deny these reports of torture. However, what they cannot deny is the onslaught of police repression against workers last week after they blocked the main gate of Ramco in Beirut, preventing trucks from leaving.
Despite this repression, the workers’ determination has remained intact and they are standing up to the company. The gravity of this choice should not be simplified. This is a historic strike: according to the Legal Agenda of Lebanese NGOs, this strike is perhaps the first of its kind and could mark a “turning point” for migrant workers in the country.
In Lebanon, migrant workers are subject to the “kafala” system that directly links the rights of foreign workers’ residences to their boss. Migrant workers are excluded from the Lebanese Labour Code. However, the collective force of the strike is proving that when workers act together, repressive legislation can do nothing. Ultimately, it is the balance of power that decides the fate of the conflict.
This strike is also important because it takes place during a period of class tension in Lebanese social life. Since last October, the country has been plagued by demonstrations against poverty, against the corruption of political parties, and against the current regime. In recent weeks, following the worsening of the economic situation, the demonstrations have become more radical. In this context, the resistance of Bangladeshi and Indian workers in Ramco is a part of a larger trend of working class resistance. Inspired by the October revolution in Lebanon, the Bangladeshi workers chanted “Zaura,” which means revolution in Arabic, a word that has resonated throughout the Middle East for a decade.
Within several countries in the region, especially those in the Persian Gulf, foreign labor is over-exploited and mostly in the private sector. Employers and governments use the old tactic of pitting workers against each other. Migrant workers are often used as “scapegoats” to blame for the economic crisis.
So far, the overexploitation of migrant workers has been presented as a differential between maintaining the “privileges” of native workers — a kind of ultra-reactionary pact between the dominant classes and the local populations.
Now, in the face of the crisis and rising unemployment, they are trying to put pressure on “national” workers to take over the jobs of foreign employees, i.e., pushing down the cost of labor. This is what Ramco’s CEO understood when he said that “perhaps new jobs will be opened for Lebanese citizens, many of whom need this opportunity more than ever.
The strike by Bangladeshi and Indian workers at Ramco is, in this sense, very good news, a hope against the reactionary post-Covid world that the capitalists want to build. A victory for the Ramco strikers could have important consequences not only for migrant workers in Lebanon, but for the whole region.
Protesters waving Lebanese flags rallied in cities and towns in their thousands on Sunday to mark a month of protests against the ruling elite as politicians struggled to form a government and solve the worst economic crisis since the 1975-90 civil war.