The financial crisis in Lebanon – Tehran Times

The Lebanese pound has depreciated by around 90% over the past 18 months, pushing annual food inflation to 400%, wiping out wages and savings, and plunging more than half the country into poverty. All of this comes as the country battles the devastation caused by COVID-19, as well as the devastation of the Beirut explosion in 2020.


The economic crisis in Lebanon is closely linked to the paradigm of financialization adopted by the ruling elite. This paradigm has made the country a “republic of bankers”. The country formerly known as the “Switzerland of the Middle East” has based its economy on the financial sector without regard for the productive sectors.

The beginnings of the current slump date back to the 1997 peg which artificially pegged the Lebanese pound to the dollar at an overvalued rate, thus laying the foundations for the rise of rentier capitalism. On the one hand, it was becoming more profitable to import than to produce locally. On the other hand, investing capital in unproductive economic sectors – namely financial products and real estate – has become increasingly attractive as the risk of inflation recedes.

A definite set of problems arise when a currency is pegged at a high rate. Since the government sets the rate too high, domestic consumers will buy many imports, creating chronic trade deficits. When imports exceed exports, a country’s demand for foreign exchange in terms of international trade is lower. The decline in demand for foreign currency makes it less valuable in international markets.

In response to these devaluation pressures, the government will have to appreciate its own currency. For this, the central bank must buy its currency on the foreign exchange markets, paying with foreign currencies. Since no central bank has an infinite amount of foreign currency reserves, it cannot buy its currency indefinitely. Government reserves will eventually run out and the picket line will collapse.

The central bank of Lebanon had to ensure a continuous inflow of foreign currencies, namely US dollars, to maintain the anchor. This was done through a nationwide Ponzi scheme – a scam in which existing investors are paid with funds raised from new investors while the organizers get their share. With the help of oil money from Gulf Arabs (Persian) and remittances from the large Lebanese diaspora (estimated at over 12 million people living on all continents), the bourgeoisie built the foundations of domestic finance.

To attract more money from abroad, Lebanese banks have promised high interest rates on deposits. Meanwhile, people who put money in banks received more than 5% interest on deposits. It was a good deal for investors in the region, who deposited money in Lebanese banks. The money could have been used for productive investments but remained in the financial chamber.

Lebanese commercial banks have used inflows of dollars from overseas to speculate on sovereign debt instruments denominated in Lebanese pounds at interest rates significantly higher than the international market rates granted by the Lebanese central bank. In other words, the banks, full of deposits, began to lend money to the government through the central bank. The banks had promised to pay a high interest rate on the deposits, but the central bank promised to pay an even higher interest rate to the banks. This allowed the system to continue operating for some time. The banks turned around and loaned the government a lot of money, pocketing the difference between the two interest rates.

High interest rates on government bonds and bank deposits have severely limited capital investment in the productive economy. Most of the money the state collected from bonds ended up being used to repay interest rather than to finance social protection programs or public infrastructure. While proving catastrophic for the working class, this profit ploy has enriched the bankers.

The share of public debt held by banks reached almost two-thirds in the 1990s, and is now estimated at nearly 43%. Indeed, interest rates soared to 40% on untaxed treasury bills, which allowed banking sector assets to grow 25% between 1993 and 2000 and nearly eight times between 1993 and 2013. In addition, between 1993 and 2018, bank net profit balance rose from $ 63 million to $ 2 billion, an increase of 3,000%.

It is important to note that the process of financialization has been fundamentally helped by the political plutocracy. In fact, politicians in Lebanon are closely linked to financial tycoons. Individuals closely linked to political elites control 43% of the assets of the Lebanese commercial banking sector. 18 out of 20 banks have significant shareholders linked to the political elite.

In addition, 4 of the top 10 banks in the country have more than 70% of their shares allocated to crony capital. Only eight families control 29% of total banking sector assets, together holding more than $ 7.3 billion in equity. For example, one of the majority shareholders (more than 5% of the shares) of Bank Audi is a company 100% owned by Fahad Al-Hariri, brother of the Prime Minister, Saad Al-Hariri.


The collapse of the Ponzi scheme built by the financial oligarchy began in October 2019 with the slowdown in hard currency flows amid the global crisis of capitalism, and instability in the Middle East (Asia) West), especially in Syria. The expatriation of capital organized by the richest 1% of the population, who dominated the financial sector, exacerbated the lack of liquidity.

The banks, having lent three quarters of the deposits to the government, had become functionally bankrupt and increasingly illiquid. Unable to contain the crisis on their own, they have placed the burden on small depositors by putting in place illegal and discretionary capital controls that have prevented them from withdrawing their pensions and wages.

Looking back, the crisis in Lebanon’s economic architecture was predictable. The state borrowed from or through the central bank at exorbitant interest rates; the central bank borrowed from local banks, which lent money to their depositors, themselves attracted by the high interest rates. High interest rates of up to 15% have kept this unsustainable cycle going for years. But running out of money was inevitable. When this happened, the whole structure of the accumulation collapsed.

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