Armed with a toy gun and a jerrican of fuel, Sali Hafez broke into a Beirut bank to “steal” $13,000 of her own savings as she could not access them.
While live streaming this September 2022 event on Facebook, Sali together with other activists doused the branch with petrol and threatened to set the place alight if the staff did not give her the cash.
She succeeded in what may have looked like a fool’s errand, but in actual fact is a Lebanese tragedy of monumental proportions.
Sali’s 23-year-old sister was in a Beirut hospital being treated for cancer, and she needed to pay for her treatment. This was not the first bank hold-up in the city and following an increase in crime, the Lebanese banking industry shut down branches in October 2022 citing security concerns.
The banks suspended front-office services, but back-office operations continued. In the first week of February this year, Lebanese banks went on strike.
According to an Associated Press report by Kareem Chehayeb on ABC News, the protest was against a court ruling that forced one of Lebanon’s largest lenders to pay US dollar cash to two of its depositors whose savings had been trapped by the dollar scarcity.
The banking lobby, the Association of Banks in Lebanon, called the action an open-ended strike saying the ruling was detrimental to all depositors since the banks could not afford to pay out all depositors in the banking system in full.
Where did the Lebanese rain begin beating on its citizens? Following 15 years of civil war that ended in 1990, successive Lebanese governments went on a spending binge fueled largely by generous donor aid from the Arab Gulf States.
US dollars also flowed freely into the country in the form of remittances due to Lebanon’s largest export, labour. Riad Toufic Salameh was appointed as governor of Lebanon’s Central Bank in April 1993 and continues to hold the role to date making him the longest-serving central bank governor in the world.
The former Merrill Lynch senior executive was credited for maintaining the stability of the Lebanese pound for the longest time. Until it, all went pear-shaped in 2019.
Geopolitics driven by the war in Syria and the rise of the Iran-backed Hezbollah group meant that donor aid from the Gulf Arab states dried up.
The country began to endure a budget deficit while, simultaneously, dollar remittances started to slow down. Commercial banks began to offer incredibly high-interest rates for US dollars, driven by the Lebanese central bank’s financial engineering scheme.
It offered commercial banks huge returns for dollar deposits but, simultaneously, there was no corresponding monetary discipline.
By 2016 the national debt was at 150 percent of national output and over a third of the country’s budget was being spent on debt servicing.
Fiscal discipline was lacking, with politicians successfully pushing for public sector wage increases months before the 2018 elections, leading to enormous budget deficits.
Added to this, money was being siphoned out of the country by the elite, with the central bank governor Riad Salameh at the top of the money heist.
He has been accused by various entities of running the largest Ponzi scheme, where the State borrowed incessantly leading to bankruptcy and a collapse of the local currency.
His personal assets offshore are allegedly worth nearly $100 million tucked away in the United Kingdom, Germany and Belgium. This week Salameh was charged with money laundering, embezzlement and illicit enrichment.
So why was the court ruling directing the bank to pay its two depositors in foreign currency cash so groundbreaking? Due to the biting foreign currency shortage, depositors were being forced to withdraw their foreign currency savings in local currency cash at steep discounts to the real exchange rate.
Withdrawal at the bank rates would mean that depositors would lose up to 90 percent of the value of their foreign currency savings which is what had been happening. However, the court ruling precedent is dangerous as it essentially could lead to a total run on the banks.
The World Bank has cited the Lebanese crisis as the worst financial crisis in modern times driven largely in part by the government’s reluctance to execute urgent economic reforms.
It is a classic case study where official hubris meets greed, corruption and utter lack of discipline. Tie all of this up with a ribbon of political instability and you have the makings of total chaos.
Could we ever descend to these levels? Surely not. We pray at the national altar for sagacious macroeconomic leadership.
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