24 March 2020
What is Hassan Diab’s government doing?
What do we know about the Corona Virus in Lebanon? We know the numbers of deaths among infected patients undergoing treatment. But do we know the actual numbers of infected people? Of course not. And therefore, we do not know the mortality rate among those infected with the virus, nor do we know its severity. This is because the vast majority of the infected people are not treated, and they do not even know that they are infected.
What we actually know, other than the number of deaths, is the capacity of the hospitals. The decisions of in-house quarantine and curfew aim only at delaying the arrival of large numbers of patients to hospitals, and aim to cover up the hospitals’ lack of capacity, the lack of equipment, and the lack of detection and examination mechanisms. This is true in Lebanon, as in most countries. What the ruling classes fear is not the outbreak, since, according to what they say, it will spread unless a vaccine exists, sooner or later. What they fear is that hospitals will be unable to receive patients coming to them and thus reveal the ruling classes’ failure and mismanagement to the public.
Serious questions are asked: How long will the curfew last? What happens to people, not as a result of illness, but as a result of preventing them from moving around and working? This question occurs in all countries; however, its severity is doubled in Lebanon, because the Corona did not come to erase the effects of bankruptcy as some would like to imagine, or hope, starting with their happiness by the halt of the popular protests; rather Corona amplifies the impact of bankruptcy.
Corona hit all the world’s economies and reduced, among other reasons, oil prices. Getting aid for Lebanon has become much more difficult. And the gates of emigration for Lebanese have become much narrower, not only because of the travel ban procedures, but also because of the deteriorating economic conditions in the countries of destination.
How do people manage their affairs when most of them are deprived of any income?
This reality did not “fall” on a healthy economy. Two weeks ago, the government discovered that the state could no longer pay its creditors in dollars, so it announced a default, and so merely acknowledging the miserable reality into a decision, and all Eurobonds- i.e. 30 billion dollars- became due at once. Sectarian leaders praised this achievement, because they were “keen” on depositors’ deposits, and they themselves are the ones who accumulated this debt, and they were cheering for each issuance of the Eurobond for twenty-five years, and they themselves, in the last national unity government, are the ones who paid, for assets debt and benefits, seven billion and seven hundred million dollars ($7.7 billion) to the holders of the Eurobond, (four billion seven hundred and ten million ($4.10 billion) for asset debts, two billion nine hundred and ninety million ($2.990 billion) interest) despite the explicit warning that “Citizens in a State” sent to them in October 2018.
They have missed that what allows depositors to get their deposits in dollars, if this really matters to them, is one of three things: (1) Either the state pays the Eurobond to the banks that owns the majority of the Eurobond; (2) or the Central Bank of Lebanon returns the deposits in dollars that it previously attracted from the banks; (3) or the banks sell their Eurobonds to foreign investors. The first two solutions are no longer available because the Central Bank of Lebanon is also bankrupt because the liabilities in foreign currencies by far outweigh its assets, and this is precisely what has made the country stop paying the Eurobonds. The third solution was adopted by the banks, but it led to the introduction of new creditors to the arena. These creditors did not enter in the first place due to their confidence that the Eurobonds would be repaid, but because they knew for certain that it would not be repaid, and what they sought, after they bought the Eurobonds for a quarter of their nominal value, was to enter as a powerful party in the management of the bankruptcy and the negotiations on the way forward, to get the remaining meager money, especially the gold, or to deduct from new loans that may be provided by the International Monetary Fund or the World Bank, which exceeds their investment so they make great profits.
As soon as defaulting was announced, it was forgotten. The government’s first and foremost concern became the capital control. Dozens of versions of the expected legal text are in circulation, and they are all based on the first version that the Central Bank of Lebanon had drafted before the formation of the government, appended by comments and suggestions from here and there. What is Capital Control? It is a set of mechanisms established by governments to limit the transfer of funds in foreign currencies outside the country and to limit it to expenditures mainly related to the local ration and production needs according to what is determined. These are measures that are taken when the country’s foreign assets balance is low or at risk to decrease as a result of expected losses. In Lebanon, capital control measures have been taken since the Central Bank specified the goods to be funded for import and since the banks decided to stop transferring depositors’ money abroad, which excluded the “lucky ones” of course. Today, there are no longer any foreign assets held by banks in foreign currencies, while the remainder of them are with the Central Bank of Lebanon and it is not even allowed to finance the import of medical supplies. There is no capital left to put control over. So why is there this interest? The only explanation is that this law only aims at legislating the seizure of the savings of depositors with retroactive effect.
After the capital control comes the talk about the “haircut”, which is omitting part of the deposits to reduce the liabilities incurred on the banks and thus covering part of their losses. This is attached to a proposal about converting another part of the deposits into capitals to enhance and improve the conditions of banks as well. All these operations are nothing more than book tricks that cancel part of the deposits but do not save the remaining part, because the deposits that are not affected by the haircut or that are not converted into capitals cannot be obtained in foreign currencies since there are no available foreign currencies at all. What is possible is to pay the remaining part of the deposits in Lebanese pounds that have already lost 50% of their value and that will lose more as more pounds are pumped through what is called “the release of small deposits.” This discourse is decorated with the keenness of the people in power on the interests of the poor. They claim that the deposits that will be canceled through the haircut or by converting them into capitals won’t be the deposits of small depositors. What they do not say, and perhaps do not know, is that among the major deposits that they target and intend to sacrifice are the funds of the National Social Security Funds and Mutual Support Funds for teachers, lawyers, doctors, engineers, pharmacists and others, and these two funds exceed ten billion dollars. But, in fact, this money belongs to half of the Lebanese people. And the losses that threaten these funds will be added to the fact that the portion of the funds in Lebanese pounds has already lost nearly half of its value, while the portion in dollars can no longer be obtained at a time when revenues of the funds have declined due to the deteriorating economic conditions and the institutions, starting with the state, failing to pay their obligations.
All of this only serves one goal: continuing to feed the illusion that there is still a functioning banking system in Lebanon.
It became clear, first with bankruptcy first and then with Corona, that the people in authority are not only incapable of anticipating catastrophes that threaten the country, but also incapable of acknowledging them when they occur and dealing with them whenever their impact imposes acknowledging their occurrence. On the other hand, people in authority do have the ability to cover up a crisis with another one that they create themselves if they don’t find it ready, and to cover up a concern with greater concerns.
And here they are today, under the pretext of poverty, preparing to revive the glories of clientelism and buying loyalties that they have practiced for decades. Rather than establishing universal health coverage, compiling a census of residents, ensuring the basic rights of citizens to health and education, allocating the necessary resources to hospitals, and compensating for the forced disruption imposed by the curfew on specific sectors (of course, they are incapable of all of this), they are organizing donation parties so that the poor can thank them and forget about the mistakes and sins they committed. They are seeking a five hundred million dollar loan from the World Bank to be used in financing what is called the anti-poverty program, whereby every leader, through his men in the municipalities and the mukhtars, mobilize his “poor” and buys their loyalty.
Poor Hassan Diab’s government: Bankruptcy was announced in its time. The capital control law fell on its shoulders, and when the enormity of its effects emerged, its authors renounced it and from it. The smuggling of Amer al-Fakhouri fell on its head, and the coming Corona tragedies will hit it.
How long will the actual leaders need this government? Or will the members of the government decide to disavow from the superficial role that was given to them to say frankly what the experience allowed them to discover: The need for a real state, not a coalition of sectarian leaders, but a capable civil state that doesn’t borrow its legitimacy from anyone, but derives it from direct interaction with the society in its reality. Then, they would resign and join those who work on developing this alternative before it is too late.