Lebanon is going through its worst economic crisis in history. Due to the multi-faceted nature of the crisis, there remains clashing perspectives in society regarding the main factors of the crisis.
In terms of economic fundamentals, the crisis was due to the accumulation of unsustainable balance of payment (BoP) deficits over 30 years, mainly attributable to the twin deficits, “trade and fiscal”.
These deficits primarily stem from reliance on external savings to fund imports, rentier investments and government corruption.
When Lebanon emerged from war in 1990, it had less than $2bn in public debt, compared to $90bn prior to the default in March 2020. However, it had to confront the challenges of damaged infrastructure and occupation. Mafia rules and short-term calculations became the dominant norm.
High interest levels have been omnipresent since 1990. Interest payments have consistently been above 30% and for some years above 50%, of yearly government expense.
Besides the influence of the banking mafia, geopolitical and security uncertainty have at times been used to justify these astronomically high rates.
These high debt expensing costs, on top of over $40bn spent on subsidizing EDL fuel purchases, comprise the majority of the public debt spent.
Since 2005, the Lebanese Parliament has allowed for the government to run 13 years without an officially approved budget, enabling the government to spend without accountability.
After three years of BoP surpluses exceeding $20bn, the BoP deficits began to worsen starting in 2011, as Lebanon struggled to contain itself from the economic effects of the Syrian war, sanctions and lower remittances.
Finally, the financial engineering Ponzi scheme came in to play in 2016, providing $13bn to an already insolvent government, ultimately increasing financial losses in the banking sector even more.
The unsustainability of the system triggered large amounts of withdrawals pre-2019 that dried up dollar liquidity, led to capital controls, Eurobond defaults, and banking insolvencies, creating a vicious downward cycle compounded by corona virus effects.
The scapegoat cards being played are purposefully sensationalized to bear the brunt of the entire crisis. It represents attempts by one sulta faction to divert blame and preserve itself at the expense of another.
All these individual reasons for the crisis used as scapegoat cards are in fact factors contributing to the crisis. It is the accumulation of them combined, rather than any individual one on its own that has led Lebanon to its current state of affairs.
There are many points in common amongst these factors, underpinning the justification for the “kelon ya3ne kelon” motto.
Administrative mismanagement. Ministries used as cash cows. No budgets. Lack of state services. Exorbitant corruption. Spoil’s system. Political vacuums. Mafia tactics. Tribal fiefdoms. Sectarian excuses.
The club of 6, which has exercised control, via both legal and supralegal methods, over more than 80% of decision-making, bears absolute total responsibility for the crisis.