Lebanon in the Age of Coronavirus

Tuesday, April 14, 2020
Opinion by Jean AbiNader

The pandemic is affecting Lebanon deeply, as it is globally, and its impact is being felt in three related circles: the health toll of the virus, the stress on the local economy from the lockdown, and the larger impact on the failing financial system. While it has not reached the level of other countries in the region, as of April 13, there were 630 confirmed cases, 80 have recovered, and 20 have died. Some have pointed out that this may be an under count due to uncounted visitors from Iran being cared for by Hezbollah. Reporting from the Palestinian and refugee camps has been inadequate to date but the Ministries of Health and Social Affairs have pledged to work with UN agencies and NGOs to coordinate efforts to combat the pandemic among the refugee populations.

A lockdown was initiated on March 15, with enforcement by the LAF and security forces in urban areas. It has significantly reduced business activity expect for purveyors of food, pharmaceuticals, fuel and energy, and other essential items. However, since the economy depends on US dollars for its external transactions, and without sufficient dollars in the banks, importers are unable to buy supplies. This has left some 200,000 Lebanese who have been furloughed from their jobs with little or no income. They are furthered punished by the devaluation of the currency (lira) and the spikes in prices for basic food and health supplies. Recent assessments from the World Bank and Human Rights Watch are that “more than half the population may not be able to afford food and basic necessities.” This scarcity is compounded by the fact that the government has yet to enact a formal policy with regard to access to lira and dollar accounts besides allowing Lebanese depositors to exchange up to $3000 for lira at a fixed rate that is still nearly 30% less than the fixed exchange rate.

The Lebanese government pledged to give needy families a one-time payment of 400,000 lira, about $150. How this and other support measures are to be implemented have not yet been publicized. The Social Affairs Ministry has allocated around $12m to provide food and medicine for 100,000 vulnerable families. While the Lebanese army has distributed aid packages in various locations, remote areas still have not received support and there is a lack of details on how distribution of future support packages will work. Given the lack of discretionary funds in the budget, the Ministry of Economy admitted that this aid would only support about a quarter of needy families.

Another step the government has taken is to freeze utility bills and other payments for a specific period. However, this has been met with pushback from NGOs that maintain that after months of unemployment and marginal subsistence, people who return to work will be unable to pay the suspended payments as well as mortgages, loans, and other bills. They are recommending that these payments be forgiven along with a policy to halt evictions for non-payment of rent.

In the health sector, the lockdown has been credited for avoiding a catastrophe to date in terms of number of infections. Hamad Hassan, the health minister, said the country has 1,250 ventilators across the country for all illnesses and just 700 ICU beds prepped for coronavirus patients. This includes both the public and private hospitals. Lebanese engineers and health officials at AUB have built their own ventilators using locally available components. However, sufficient production to meet projected needs requires more funding.

The only public hospital equipped to treat the virus is the Rafik Hariri Hospital. A source at the hospital said that while they have received donations from the UN and other agencies, they needed additional support and were literally operating donation to donation. Sadly, the Lebanese government is in arrears in its payments to the Hariri Hospital and all of the other public health agencies that provide services to retirees, government employees, needy communities, and others. It owes the hospital millions of dollars in dues for 2019.

This past week, news was leaked of a draft economic plan for reviving the economy, introducing fiscal reforms, and reducing Lebanon’s extraordinary deficit. I suppose one might measure its seriousness by the amount of opposition from political elites. Every major sectarian leader condemned the plan, mostly because it calls for “a phased restructuring of commercial bank balance sheets [that] would include a full bail-in of existing shareholders estimated at $20.8 billion in capital write-offs, with the remaining $62.4 billion covered by the ‘transitory exceptional contribution from large depositors.’ A special fund would compensate depositors’ losses, with the proceeds coming from a program that will track and recover ill-gotten assets.”

Experts disagree with the politicians and believe that the plan is moving in the right direction and would garner support from the IMF, which is critical for credibility with international funding sources. Steffen Reichold, portfolio manager at Stone Harbor Investment Partners, described the plan as a “serious blueprint.” “With a plan like this you could get the IMF onboard,” he said. “Putting the debt on a sustainable path, restructuring all key institutions, wiping out all the capital of the banks, introducing a flexible exchange rate, reforming the electricity company – this is all the stuff that would be on the IMF’s likely list of requirements.”

What upsets the politicians, from their remarks, is asking large depositors, who profited from the financial engineering by the Central Bank, to remit some of their gains. This would be supported by a haircut (reduction in the value of the asset) on the principal on Eurobonds and domestic debt.

The darkest days for Lebanon are ahead. The economic plan has yet to be sent by the Cabinet to the Parliament for debate and approval. Lebanese citizens and the refugees continue to get sick, and the health services are stretched to capacity. There are many good news stories of communities coming together to support those in need and calibrated social actions (respecting distancing guidelines) that create hope in the face of the disasters people are experiencing. But much more is needed and it begins with the politicians making the country’s multiple crises their first order of business, not their partisan constituencies.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the position of the American Task Force on Lebanon, a non-profit, nonpartisan leadership organization of Lebanese-Americans.