Current Affairs

Bankers are not the most popular people among nations, but the bankers in Lebanon and Libya are that little more hated than elsewhere in the world. In Lebanon there have been housewives and pensioners holding up banks to get their money, the reason is that the dollar accounts they held no longer exist in the banks. Most Lebanese transact in dollars rather than Lira the local currency, which is a signatory to hyperinflation and has banknotes that are worthless and been superseded by US dollars.

Since the financial crisis in 2019, the Lebanese have been witness to their banks imploding; the bankers and government have held the country to ransom rather than take an IMF package, which would force the government to restructure the economy and the banks. The interests politicians have in the banks are because they are shareholders or parties to the banks downfall, which has led to the government rejecting the IMF package and the transparency the economist at the IMF would demand.

The banks once thought of as fiscally responsible in the Middle East can no longer suck up the money that was given so freely, instead there is a realisation that Lebanese bankers have been living on borrowed time because of government borrowing. Capital controls have been put on the banks for the past five years and like any good bank they have locked their depositors out of their dollar accounts since the economy collapsed.

The Central Bank tried to hide $7 billion dollars from their creditors and with the lack of capital to manage the Central Banks debt, the whole banking system collapsed in 2019 as did the government. Since the collapse, Lebanon has been transfixed by a parliament that has been paralysed and operates through sectarianism and proven incapable of taking hard decisions, except when forgiving the banks that took part in what one investor called a Ponzi scheme.

Decisions are not being taken politically and alleviating the hardship on the Lebanese population has proven impossible for the politicians to do because of the interests the politicians have in the banks. With de facto capital controls in place, one banker spoke out on condition of anonymity, “the sector is dead. It does not lend, it doesn’t make profits.” And with the ghost war between Israel and Hezbollah, the Lebanese are facing another year where tourism (Lebanon’s main industry) has failed.

The dollar is king in Lebanon, and with business’ strictly doing business in dollars, most Lebanese have been isolated from the structures that have been dollarised. Those that can have emigrated and the dollars that the emigrants send back are supporting families that once had good government jobs. Interviewed by Middle East Eye, Joseph Bitar, an economist at the IESEG School of Management in France, said that Lebanon’s market is deciding which currency it wants to use…. “Lets not intervene in market forces.,” [the] “market will weed out the unproductive sector and favour the productive sector which is paid in dollars.”

The infrastructure is at 25% of its capacity, because the government have been forced to cutback on services. Electricity, gas and fuel for transport is expensive, but to a degree it is better than it had been earlier during the crisis. Those lucky enough to do business in dollars have been surprised by the amount of dollars that the well off have. Hotels, clubs, bars and restaurants that are in wealthy areas have been doing brisk business and between April 2023 and April 2024, the Lebanese restaurant industry saw 15.3% growth.

But poorer members of society who have to rely on the Lira for their pensions are struggling as the Lira has lost 86% of its value. Put into perspective the Lira today is LBP89,948.203 to the dollar, eighty percent down on 5 years ago, which makes life impossible for those who are vulnerable or surviving on pensions in Lira. Poverty among those who had good jobs in the public sector is high, unfortunately the dollarisation of this sector is only just coming into place as the government are now paying soldiers and civil servants in dollars.

The banks in Lebanon are slowly coming out of the recession that little bit richer with the dollarisation of the economy. But the confidence that the Lebanese once had in their banks has ebbed away. Politicians are mostly ignored as they have done so little to manage a crisis that they were responsible for, but the reality is that those Lebanese who have stayed in the country are managing to keep their heads above water through either having a business rich in dollars or dependence on relatives who have emigrated and are sending dollars to their families. The proxy war between Israel and Lebanon has damaged the tourist season, which boomed in 2023. Lebanon fiscally is now dependent on tourism and whether the country gets through this winter is dependent on the war in Gaza ending. If Lebanon is lucky the 2025 season should boom as investment will be coming into the country through new international business’ which have committed to invest in the economy.

LIBYA

In Libya, Sadiq Al-Kabir, who was the central bank governor was in a stand off with the authorities in Western Libya. The government in Western Libya (GNA) is struggling to pay civil servants, politicians and militias their bribes and salaries. There is enough money in the Central Bank, but the stand-off between the Central Bank Governor and the authorities has come to a head with Dbeibah sending militias to threaten the bankers and try and force the Central Bankers to release funds to prop up his government.

Sadiq Al-Kabir on Sunday filed a complaint with Libya’s attorney general to stop the storming of the bank regulators headquarters by government proxies who had kidnapped an employee and threatened violence against the families of banks workers.

The relationship between Al-Kabir and the Tripoli based prime minister Abdul Hamid Dbeibah has been at an all time low in the past year. The Dbeibah regime tried to enter the bank and physically put a new board in place, but security in the bank rebuffed the attempt saying that the 18^th August order to replace the central bankers was unconstitutional. The government of Dbeibah accused the Al-Kabir of mishandling funds and argued that a new board should replace the present board.

Dbeibah is trying to underpin his powerbase, so he needs resources to pay off politicians and militias who are challenging his government both internally and externally. There are analysts who believe that the Dbeibah government is on borrowed time and even if he does get the funds to pay the bribes for the militias and members of parliament, the government will last only six months at the most.

“Dbeibah’s need for financial resources is not just about governance – it’s about survival, as he uses funds to bribe militias and secure loyalty,” explained Karim Mezran, senior fellow at the Atlantic Council, in an interview with The New Arab

Though the Libyan bank had stood strongly in support of Al-Kabir, there is a realisation that the stand off will have consequences for the economy. The problem is that the Western Libyan state is not generating enough revenue to pay the salaries of civil servants, politicians and militias. The Central Bank has sovereign reserves of $17 billion and Al Kabir argues that this money is its reserves and cannot be used to prop up the Tripoli government.

Libyan media argue the regulator’s suspension of operations has led to services being affected, which has included foreign currency purchases and money transfers.  Osama Hammad, the prime minister of Libya’s eastern based government has ordered oilfields to shut-down in solidarity with the leadership and employees of the Central Bank of Libya. He wrote in a facebook post that“ the force majeure applies to all [oil]fields, terminals and oil facilities….”. The United Nations Support Mission in Libya (UNSML) has stated that the deteriorating situation in Libya “will come at a high cost for the Libyan people [and] to resolve the protracted crisis, […] risks precipitating the countries financial and economic collapse.”

Al-Kabir and members of the Central Bank have been forced to leave Libya, his replacement Abdel Fattah Ghaffar a respected banker has been appointed by the Presidential Council as interim governor. In a statement Abdel Fattah Ghaffar stated that “operations will be restored in the upcoming days,” and that a smooth transition had taken place. Ghaffar said that “90 percent of the banks employees [would] resume work at the Banks headquarters on Wednesday.” and in a statement said “the IMF and World Bank had been assured of the Banks commitment to “respect national and international legislation.”

The crisis in Libya is coming to an end, but the question still remains whether the GNA can get the funds from the Central Bank to pay civil servants politicians and militias. The question is whether Ghaffar has the support from the factions vying to take over the bank, and whether the factions realise how deep a crisis Libya is in. The compromise in naming Ghaffar as interim head of the Central Bank challenges his position as a banker with integrity and whether the management of the bank will be held for ransom by the GNA government determined to get its hands on the funds the bank is responsible for. For the time being the crisis has been averted by the support of the international community, which has invested its resources in negotiating the Central Bank’s future for the time being.