FÖŞ wrote: Understanding the Lebanon crisis


In 1998, Global Securities, where I served as the research director, sent me to Beirut to examine the newly launched Stock Exchange. While Syrian soldiers stood guard on the roads, the walls of most of the houses were filled with bullet marks. The collapsed walls were covered with plastic tarps. But the dolce vita was in full swing on the coast, and the nightclubs were jam-packed.

I reported that Lebanon’s financial community is not ready to develop the capital market, Global’s Lebanese adventure is over. But, of all the Middle Eastern countries I have visited (Egypt, Morocco, Israel), I fell in love with this one country. Described as the Riviera or Switzerland of the Middle East in the 1970s, the Phoenician homeland was devastated by civil war. But his people were resourceful and educated. Millions of expatriates were sending huge amounts of remittances to the country as a ratio of GDP. Lebanon continued on its way with these foreign exchanges, tourism and foreign aid for a long time. But the country’s political stalemate, a rogue central bank, and unstable governments’ endless greed for spending triggered the world’s deepest crisis in 2020.

In this article, I compiled the information I obtained from various sources and explained the Lebanese crisis. Because Turkey may end up like Lebanon, not Argentina.

There are rumors that Erdogan will give up the New Economy Model, which has ruined us, by bringing Mehmet Şimşek to the head of the economy once again. I don’t believe. Although Şimşek comes to power, he also acts as a bus like democracy. As soon as Erdogan overcomes the foreign exchange problem, he returns to what he knows. In fact, there are plans among some economic staff to further solidify the system that has brought us to the brink of the abyss:

Sefik Caliskan, who is claimed to be the architect of the New Economy Model, made the following statement to Ekonomim.com 2 days ago:

“In the current period, Çalışkan suggested that the economic program should be deepened without abandoning the low interest-high exchange rate policy, and he also made suggestions in cash, credit and savings policy for this purpose.

Suggesting that the savings can be directed to the purchase of housing through TOKİ, Çalışkan suggested that TOKİ projects be developed for this purpose. Caliskan also emphasized that it is necessary to expand and diversify the gold-protected savings instruments.

Suggesting that gold transactions should not be encouraged, Şefik Çalışkan noted that measures could be taken to keep the gap between the buying value and the selling value of gold high.

Describing the prevention of foreign currency borrowing of individuals without foreign exchange income and the deactivation of the London swap market with the intervention of the economy administration as important steps towards preventing the negative effects of foreign exchange, Çalışkan stated that non-employment-oriented hot money is prevented with the low interest policy.

Çalışkan suggested that foreign exchange transactions should be carried out in a more balanced way in order to ensure the transition from foreign currency to TL and said, “As we are not encouraged to give foreign currency-based loans to individuals, effective foreign currency savings should not be made either. The margin between the buy and sell should be widened. Exchange rate increase should be taxed. As an alternative to companies holding foreign currency deposits, the Treasury may issue foreign currency bonds to companies. A one-year limit should be placed on incoming hot money, and effective trading should be made more difficult. Foreign exchange income of companies should be subject to tax, and foreign exchange losses should not be recorded as expense.

Now, back to Lebanon. Let’s see if you can sense the similarities like me.

Lebanon is grappling with a deep economic crisis after the 1975-1990 civil war, caused by unstable governments’ endless ambitions to spend and in turn accumulating debt with little productive investment to enrich the production of national income.

Banks at the center of the service-oriented economy were paralyzed. The dollar accounts of the savers were frozen. They also learned that the savings they could use were now well below their original value. The currency collapsed, driving an expanding segment of the population into poverty.


Lebanon’s financial meltdown since 2019 is the story of the exploitation of a vision of rebuilding the nation once known as the Switzerland of the Middle East by a sectarian political elite.

Destroyed by civil war, downtown Beirut has risen with skyscrapers built by international architects and ostentatious malls filled with luxury boutiques.

However, Lebanon had a public debt/GDP of 150%, which was then the world’s highest ratio. He had little to show for this mountain of debt. With its power plants unable to provide 24-hour electricity, Lebanon’s only reliable export is human capital.


Some economists describe Lebanon’s financial system as a politically condoned Ponzi scheme (Pyramid scam), in which new money is borrowed to pay existing creditors. Ponzi schemes survive until the fresh money entering the system runs out. How did a nation of 6.5 million reach this level in peacetime, when it was financially viable even after decades of civil war?

After the civil war, Lebanon continued to increase its central bank reserves, while financing its budget and external balance with tourism and worker income, foreign aid, earnings from the financial industry. The generosity of the Gulf Arab states also played an important role in financial stabilization.

One of the most reliable sources of dollars is the money sent home by millions of Lebanese who go abroad to find work. Even during the global financial crisis in 2008 they sent cash home.

However, since 2011, sectarian strife has emerged on the political scene in Lebanon. Remittances began to slow as much of the Middle East, including neighboring Syria, was plunged into chaos.

Sunni Muslim Gulf states, once trusted supporters, have begun to turn their backs on the growing influence of Hezbollah, a heavily armed Lebanese Shiite group whose political power is growing in Iran.

The budget deficit skyrocketed and the balance of payments deteriorated to an unsustainable level as worker transfers failed to cover imports of everything from basic groceries to fancy cars.

The final stage on the road to the crisis was the notably high interest rate payments by banks on dollar deposits in 2016. In a short time, even more extraordinary rates began to be offered for Lebanese lira deposits.

What did hot money have to lose, given that the Lebanese pound has been pegged at 1500 for over two decades? Dollars flowed back into the system and banks continued to finance public and private sector spending.



Political stalemate in Lebanon in those years had left him without a president for most of 2016.

Led by former Merrill Lynch banker Riad Salameh since 1993, the central bank Banque du Liban embarked on a “financial engineering” that amounted to offering banks generous returns on dollar swaps. This engineering might have been appropriate if reforms were made immediately afterward – but the fragmented political structure was not open to any reform.

The rising dollar flow was reflected in the rising foreign exchange reserves. Less obvious was the increase in central bank liabilities. By some accounts, the central bank’s net reserves had fallen significantly to negative. Meanwhile, Lebanon’s finance expenditures rose to about a third of its budget expenditures.


At this critical juncture where the government must rein in spending, politicians raised public salaries before the 2018 elections. The government’s failure to deliver on promised reforms meant that foreign donors withheld billions of dollars they had promised.

The final spark for the unrest came in October 2019 with a plan to tax WhatsApp calls. With a large diaspora and Lebanon grappling with a warped low-tax regime in favor of the rich, imposing taxes on the most popular Lebanese communication channel was disastrous.

Mass protests by disillusioned youth demanding change paralyzed the country. The service-intensive economy also lost tourism revenues in the pandemic.

Foreign currency inflows dried up and savings began to flow out of Lebanon. Banks no longer had enough dollars to pay depositors queuing outside, so they closed their doors. The government also defaulted on foreign debt.

The currency first stabilized at around 23,000 in late January 2022 after falling from 1,500 to 34,000 against the dollar.

In addition to these problems, an explosion in the port of Beirut in August 2020 killed 215 people and caused billions of dollars in damage.

Accompanied by a rapid economic contraction, public debt soared to 495% of gross domestic product in 2021.



Political support for Riad Salameh, the head of the Lebanese central bank, seems to have begun to wane, according to a report by Reuters, citing political sources. In an interview with Asharq News in February, and repeatedly afterwards, Salameh announced that he would not seek a new term in office. However, there are unconfirmed reports that Salameh submitted his resignation to interim Prime Minister Najib Mikati in March. This is reportedly awaiting government approval, which is said to be a complex process due to the need to maintain a sectarian balance of power.

Meanwhile, investigations into Salameh’s alleged financial crimes in Lebanon and Europe are apparently gaining momentum. Salameh faces multiple alleged crimes, including embezzlement of public funds, corruption, illegal enrichment and money laundering. European investigators returned to Lebanon at the end of April to continue questioning witnesses and individuals accused in Lebanon in connection with these allegations. In May, Interpol issued a red notice for Salmeh.

These developments mean political paralysis as Lebanon continues to stalemate over electing a president. The country is facing an unprecedented economic and financial disaster. While there is an urgent need to restore confidence in Lebanon’s financial and banking institutions, it lacks the leadership and the will to do so. Combining a host of dire economic and financial factors, including a foreign debt default, triple-digit inflation, deadly devaluations, bankrupt banks, an alarming GDP contraction and growing shortages of essential goods, the crisis has been described by the World Bank as one of the worst in modern history. .

At this critical point, the election of the central bank governor is almost as important as the election of the president.

But the real effort for Lebanon will begin after this dual election. Politicians need to set aside their sectarian differences, reduce the influence of Hezbollah, and put forward a comprehensive reform plan that will attract foreign aid to a new and stable government for a consensus that will bring the economy out of the crisis.

While this dish was slowly being cooked in the pot, the people switched to the black market economy, which now returns with dollars. Hunger and poverty are at disaster levels.

For those who understand, mosquito saz



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