Will Reform Save Lebanon?
In any discussion of Lebanon’s future, there is always the nagging question, “Will reform come, and even if it does, will it be too late?” Somewhere in this discussion, questions of trust and transparency will come up, especially regarding the financial sector – banks and banking that is as well as questions concerning the money supply and the value of the lira.
Nowhere is this more apparent than when trying to understand how money is valued and ascertaining if it actually is worth more than the paper it is printed on. A two-part series in L’Orient-Le Jour on the new income tax system makes the point that with so many exchange rates, someone has to be burned in the trade between the dollar and the lira. In this case, it is the person being paid in lira, not dollars, that loses the most. There are at least three daily rates – the market rate, the Sayrafa rate posted by the BdL, and the consumer rate posted for transactions. There are also various rates established by the national budget. It isn’t hard to see how someone with basic trading instincts can manipulate the currency and the banks into a profitable exchange even when using the government’s exchange platform. “There is now a severe differential tax treatment favoring those who are paid salaries in US dollars over those who are paid in LBP, as the same real amount would effectively be subjected to two different tax rates,” the IMF says.
“[The IMF] has called reversing the decline in revenue a ‘critical element’ of the reforms needed for Lebanon to make its way out of the crisis.” Without a predictable revenue flow, the government cannot budget or provide a reliable floor for investors or loans from other countries. This is problematic for the Lebanese government in seeking to do any reliable planning or allocations for projects. “The income tax brackets used in Lebanon’s 2022 budget — which, against the recommendation of the IMF and outside experts, were not indexed to inflation — have tripled.” Meaning people paid lira at the official rate of 15,500 /$ get clobbered while those paid in dollars can take advantage of a market rate of 80,000/$ and pay their bills in lira.
Charles Arbid, president of the Economic and Social Council said: “We fear that Lebanon as we know it is changing under the leaders who could not care less about its fate.’’ This is where the international community and the overseas Lebanese come in. As the single largest source of stability for Lebanon’s failed economy, their decisions regarding support for the Lebanese will help rebuild the banking sector and the monetary system.
Without encouraging expats to fund the government itself, there are interventions that can be made to support the Lebanese in towns and villages via the hope for implementation of a suggested new decentralization law that would allow municipalities and other entities to sell power produced by renewable energy on the local level to the national grid. Decentralization can put basic services in the hands of the communities. Lebanon already has several serious studies underway looking at various modes of decentralization, which can serve as the basis for a national strategy. With the municipal elections approaching, there is an opportunity to mobilize a grass-roots effort to give power-sharing of power production to those communities willing to take up the challenge. Obviously Lebanon has the talent and the industry to make a green economy a win-win for the national and local governments. At least it beats waiting for parliament to adopt the IMF reforms and gives consumers the satisfaction of having some control over a part of their lives.
Disclaimer: The views and opinions expressed in these articles 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.