Adonis Diaries

Bi-weekly report (4) on Lebanon

Posted on: December 12, 2008

Bi-weekly report (4) on Lebanon (December 12, 2008)

 

A niece of mine emailed me what Natalia Antelava from BBC News in Beirut published on the repercussions of the financial crisis on Lebanon.  Antelava summarized the effects “The world maybe in meltdown but Beirut is booming. The country best known for wars, turmoil and instability has not just survived the global financial crisis; it seems to be thriving because of it.

She goes on; Lebanon’s Central bank treasury vaults are full. Cash has been flowing in like never before, Lebanese banks are posting record deposits and bankers say this is the best year in Lebanon’s financial history. Lebanon was prepared. “I saw the crisis coming and I told the commercial banks in 2007 to get out of all international investments related to the international markets”, says Riad Salameh, the governor of Lebanon’s Central Bank.

Banks weren’t allowed to take on too much debt and they had to have at least 30% of their assets in cash. They were not allowed to speculate in risky packages of bundled up debts.

And weak banks were forced to merge with bigger ones before they got into trouble. “You could have thought they had a crystal ball. It was very wise of the Lebanese regulators not to get involved in all these risky international investments that turned out to be the doom of many banking systems,” says Edward Gardner of the International Monetary Fund.

“The system we created has been tested against wars, against instability, against political assassinations. And our sector would be much more developed if Lebanon did not have political and security risks, but it has also induced us to have a conservative reflex because we were always getting ready for the worst case scenario,” says Mr Salameh.

But the tight reign on borrowing does not apply to the government.  Over the years, Lebanon has taken on loan after loan for post war reconstruction. Today, per capita, Lebanon owes more than any other country in the world.  On paper this makes it vulnerable, but the political realities of the Middle East mean that danger is unlikely ever to materialize.

 

 

 

“This level of public debt has created serious problems for other countries, but the difference is that there is a perception that Lebanon has friends with very deep pockets who will not let it go down financially,” says Edward Gardner of the IMF. “This was demonstrated in 2006 war with Israel, when both Kuwait and Saudi Arabia were very quick to deposit large sums of money into the Central Bank to help it to remain stable,” Mr Gardner added.

But Lebanon could still feel the aftershocks of the credit crunch.  Every year, thousands of highly educated young people from Lebanon go to work abroad. With some 12 million Lebanese overseas and only 3.5 million in the country, remittances make up a vital third of the economy. (There are over 16 millions overseas and 4 millions in the country)

The rest of the world is now being forced to sober up after the wild excesses of the global markets, but here the party’s on.

The Lebanese are a nation of survivors, who have paid a heavy price for the fortunes they are reaping now. Through their troubles they have learned how to party as if tomorrow will never come, but also, against the odds, how to bank for their future.

 

My niece might have felt a displaced pride of that content of the article and I had to reply to her. I said: “I heard all that since the crisis.  It means only the banks are stable because it mainly loans to the bankrupt Lebanese government at high interest loans; why our banks would care to speculate any further? (Lebanon has so far borrowed over $65 billions, or at least four times its NGP, since 1994; a ratio that is still less than the US indebtedness). 

The Dawha (Qatar) political agreement among the Lebanese sectarian caste leaders was forced by the rich Arab States, which helped Lebanon’s reconstruction after the July war of 2006, to safeguard their investments.  

I doubt that the people have experienced any results; the prices are their highest when all over the world prices have dropped sharply.  We used to have Aspicot (aspirin for children) manufactured in Lebanon; for two months we have no Aspicot; everything is exported to the Arab States.  The wholesalers import at low prices and sell at prices before the crisis because no prices have ever declined in Lebanon once they increase on rumors only. I am not fooled and no Lebanese citizen is fooled.  What fortune are the little people reaping?

On the political front, Deputy and General Michel Aoun ended five days of an official to Syria.  The Syrian people welcomed him enthusiastically and he was considered as the civilian Patriarch, not only of the Maronites but also of all the Christians in the Middle East.  The two people have finally repaired the psychological barriers that divided them after 15 years of Syrian mandate in Lebanon. Most of the inconsequential sectarian leaders in Lebanon felt very small after this courageous openness of Aoun and kept lambasting him even before his visit (they are the mouth pieces of Saudi Arabia).  The truth is that the March 14 “alliance” does not dare criticize President Michel Suleiman and thus they target Aoun instead.

Former President Carter is in Lebanon in order to ask for permission to monitor the coming election; he has met with most political party leaders.  Hezbollah did not accord him a private meeting.

President Suleiman is visiting Jordan.  The mouth pieces of Syria have been attacking the Druze leader Walid Jumblat and claiming that he is getting into one of his lunatic phases and he is no longer a viable entity as a leader of the Druze.

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