The world let the Lebanese economy crash – and the telecommunications industry is next – Organization for World Peace

The Lebanese government recently announced that it would calculate telecom tariffs based on a much lower flexible exchange rate, resulting in prices up to four times higher, according to digital rights group SMEX. Rising prices will have an inequitable impact on Lebanon’s estimated 250,000 migrant workers, who barely earn enough to survive, let alone be sent back to their families. These workers must now limit their relations with their country of origin and their future employment.

This is not the first time that telecommunications prices have sparked outrage in Lebanon. In the years leading up to 2016, the country was running out of options to rebuild its economy. Political divisions in the Middle East have slowed remittances from millions of Lebanese migrant workers. At the same time, Sunni Muslim states in the Gulf have stopped financially supporting Lebanon due to the growing influence of Hezbollah, a heavily armed Lebanese Shia political group. A solution to the ballooning national debt came from Lebanon’s central bank, Banque du Liban, which in 2016 introduced “financial engineering” – mechanisms that offered banks immense returns for new dollars.

The system might have succeeded in the long term if it had been quickly followed by reforms, but these never came. Instead, dollar flows into foreign exchange reserves received a much-needed boost, followed soon after by an increase in liabilities. By some accounts, the central bank’s debts have exceeded its assets.

Meanwhile, the cost of collecting Lebanon’s debt has become at least a third of budget expenditure.

To improve government revenue, politicians introduced a plan in 2019 to tax WhatsApp calls. Like the recent price hike, this tax unfairly hit the poor, despite an already low tax system skewed in favor of the rich. The tax was the last straw for Lebanon’s beleaguered population, and the economic crisis erupted into political unrest as young people and aging militia leaders staged mass protests.

Shortly thereafter, the exchange stopped, banks could not pay their depositors and closed, and the government eventually defaulted on foreign debt. These events were followed by the 2020 Beirut Port Explosion, the COVID-19 pandemic and other humanitarian, economic and political crises that worsened an already apocalyptic situation.

At one point, the debt reached 150% of Lebanese production. Power plants cannot provide electricity 24 hours a day, and Lebanon’s only reliable export is human capital. The World Bank’s Spring 2021 Lebanon Economic Monitor observed that Lebanon’s GDP fell from an estimated US$52 billion in 2019 to an expected US$21.8 billion in 2021, marking a contraction of 58.1 % – the largest contraction in 193 countries that year. Government revenues are estimated to nearly halve in 2021 to 6.6% of GDP, the third-lowest ratio in the world. It is estimated that 75% of the population struggles to feed themselves. The World Bank estimates that the disaster in Lebanon ranks among the ten, if not the three, most serious crises in the world since the middle of the 19e century.

These facts speak for themselves: international and national responses to the Lebanese crisis have failed.

“Deliberate denial during a deliberate depression creates lasting scars on the economy and society. More than two years into the financial crisis, Lebanon has yet to identify, let alone embark on, a credible path to recovery. economic and financial recovery,” said Saroj Kumar Jha, World Bank Regional Director for the Mashreq. “The Lebanese government must urgently move forward with the adoption of a credible macro-financial stabilization and recovery plan. , comprehensive and equitable and accelerate its implementation if it wants to avoid a complete destruction of its social and economic networks and immediately stop irreversible losses of human capital.”

The World Bank has developed a strategy to revive the Lebanese economy, with particular emphasis on the country’s immediate and short-term needs. This approach marks Lebanon’s inability to repay its debts and its lack of foreign exchange reserves as the country’s central problems, which means that international aid and private investment will be essential for recovery.

The structure allowing Lebanon to receive aid is in place; In 2020, the World Bank Group, the European Union and the United Nations formed the Reform, Recovery and Reconstruction (3RF) Framework to address Lebanon’s short-term needs. Part of this effort was to create the Lebanon Funding Facility, to “pool grant resources and strengthen coherence and coordination of funding.” However, these initiatives did not achieve anything of note. Any path to Lebanon’s recovery requires direct, long-term financial assistance, but it is unlikely to be forthcoming without widespread reform from within.

France is leading the international community’s response to Lebanon by pushing the country to fight corruption and implement reforms to attract donors. The International Monetary Fund also followed suit, asking the Lebanese authorities “to undertake several critical reforms ahead of the IMF board meeting” when it met with them earlier this year to discuss the transfer of aid. .

Until recently, Hezbollah led the Lebanese resistance to reform. But after this year’s elections in May, Lebanese voters elected 13 independent candidates from the ruling “opposition for change” movement, ending Hezbollah’s parliamentary majority. Internal divisions will likely make it difficult for these independent candidates to work, but any level of change in government marks a greater opportunity for reform.

Another facet of the World Bank’s strategy for Lebanon involves a debt restructuring program. However, this would require a functional understanding of this debt. Before anyone can end the economic crisis, politicians and bankers must agree on the precise extent of Lebanon’s debt. Without knowing the exact debt to be recovered, it will be impossible to develop an effective financial strategy.

Other elements of the World Bank’s plan include restructuring the financial sector so that banks can repay their debts, new monetary policies focused on stabilizing the exchange rate, reducing the government’s budget deficit and improving social assistance, in particular social protection assistance for poor and vulnerable households. . The plan identifies the electricity sector as a particularly vulnerable area in need of immediate assistance, so recovery efforts should focus support there.

The World Bank’s plan is promising, but more organized efforts and approaches need to be developed from Lebanon. Most plans for Lebanon come from international sources such as the World Bank and the American Institute for Peace. For example, the Middle East Institute, a Washington, DC-based nonprofit think tank, argues that US diplomacy should “push for the formation of a [Lebanese] government that can set aside sectarian partisanship and begin to address Lebanon’s enormous challenges. While a government of this description would be incredibly beneficial for Lebanon to achieve the political reform it desperately needs, the pressure for such a government should come from the Lebanese people themselves, not from the US government.

While plans like these are created by some of the best economists in the world, the needs of the Lebanese people themselves should always come first. This does not mean that Lebanon is guilty of having been too passive so far; on the contrary, the current catastrophe is the fault of the political and economic elite and has occurred despite the resistance of the Lebanese people.

The Lebanese people must continue to stand up to those responsible who constantly ignore and even contribute to their suffering. The election of the 13 independent candidates was a promising start, but must be accompanied by the election of an effective candidate in the next presidential election later this year. Lebanese citizens may not have the right to directly elect their president themselves, but they can influence the results by showing their support and/or opposition to the candidates. With enough organized action from the Lebanese people and pressure from potential international donors, the government may be persuaded to adopt reforms.

The Lebanese economy must be revived. Every week that passes without this crisis ending is another week of injustice that needs to be fixed.

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