Between the Grey List and Normalization with the Crisis

Lebanon is groaning under a stifling economic crisis that is growing ever more complex due to the vacuum sweeping across state institutions, particularly in the presidency, while the executive branch remains stuck in caretaker mode and the legislature is divided among political factions that agree among themselves only at the expense of the Lebanese people. While the Lebanese wait for the authorities to formulate an economic plan that halts the economic collapse, secures favorable conditions for economic revival, and jump-starts growth, the political factions are kicking up dust around the presidential election to buy time, the cost of which to the national economy is rising, prolonging the period needed for the wheels of the economy to turn normally again. Amid the faltering of timid attempts to address the rampant crisis and the failure of the authorities to fulfill their role in tackling its causes, the Lebanese have had no choice but to coexist with this crisis and its repercussions in order to secure a bare minimum livelihood, which is becoming increasingly difficult. After the political establishment and the banking sector jointly and severally plundered the savings of the Lebanese, the collapse of the national currency wiped out their purchasing power and dashed their hopes of maintaining a minimum standard of decent living, particularly for civilian and military public sector employees. While most Lebanese struggle to make up for the losses they have suffered, whether in their savings or their purchasing power, job opportunities are dwindling due to the absence of new investments amid political instability, the erosion of state authority, and the state's failure to play its role in stimulating economic investments on the one hand, and regulating and guiding these activities on the other. At a time when estimates projected a rise in the number of poor among the Lebanese, demand for consumer goods, including foodstuffs and other items, reveals the exaggeration, not to say inaccuracy, of these estimates; and if there are newly poor, we find, by contrast, newly affluent as well. The “Lebanon Economic Monitor” report titled “Normalization with Crisis is No Road to Stabilization,” published by the World Bank in the spring of 2023, sheds light on the latest economic developments in the country, noting the continued contraction of the Lebanese economy in 2022 and the ongoing distress in the banking sector, in addition to the persistent depreciation of the Lebanese pound. The World Bank report estimates the size of the dollarized cash economy at around $9.86 billion, or 45.7% of gross domestic product, in 2022. It considers the widespread and growing dollar cash economy a major impediment to economic recovery in Lebanon, as it not only threatens to compromise the effectiveness of fiscal and monetary policy, but also heightens the risks of money laundering and increases tax evasion and informal economic activity. Meanwhile, the Sayrafa foreign exchange platform, the main monetary tool used by Banque du Liban to stabilize the pound's exchange rate, is viewed not merely as an unfavorable monetary instrument, but also as a mechanism or tool for generating arbitrage profits, representing, in many respects, an example of the weak and often ineffective policies adopted by the Lebanese authorities since the outbreak of the crisis. The report expects those in charge of public affairs to continue refraining from taking appropriate decisions to address the crisis, alongside a lack of political will to implement favorable and equitable reforms during 2023, concluding that normalization with the crisis under this reality obscures the fact that the Lebanese economy is still experiencing a sharp decline and remains markedly far from meeting the prerequisites for stabilization, let alone the requirements for recovery. For its part, the Middle East and North Africa branch of the “Financial Action Task Force,” a body tasked with monitoring financial crimes, conducted a preliminary assessment of the Lebanese economy whose cumulative score placed Lebanon “one point above the grey-list threshold.” This followed Lebanon's classification as partially compliant with standards across several categories, including anti-money laundering measures, transparency regarding the beneficial ownership of companies, and mutual legal assistance in relation to the freezing and confiscation of assets. Meanwhile, some assessments suggest that Lebanon is likely to be placed on the “grey list” of countries subject to special monitoring due to unsatisfactory practices for preventing money laundering and terrorist financing. Placing a country on the grey list of the “Financial Action Task Force” may disrupt capital flows into it, with correspondent banks potentially ceasing dealings with banks and clients located in high-risk countries in order to reduce compliance costs, according to a 2021 International Monetary Fund document. Such a listing also damages the listed country's reputation and leads to an adjustment of its credit rating, entailing difficulty in obtaining international financing and higher costs for its financial transactions. Notably, most countries on the grey list of the “Financial Action Task Force” are fully fledged states, unlike the Lebanese state, whose authority is fading and whose institutions are being eaten away by vacuum day after day. It should also be noted that four Arab countries are currently on the grey list, two of which (the United Arab Emirates and Jordan) enjoy effective central authority, whereas Syria and Yemen suffer from wars whose chapters have yet to close. Listing Lebanon comes as a further indictment of the Lebanese financial system after the French judiciary issued an international arrest warrant for the central bank governor, as the German judiciary also did today, at a time when economic, financial, and political crises are intensifying. Meanwhile, the government is incapable of taking appropriate measures to prevent Lebanon from being placed on the grey list, and is unwilling to dismiss the governor of Banque du Liban amid the presidential vacancy on the one hand, and the evasion of applying the provisions of the Code of Money and Credit regarding the first deputy governor assuming the governor's duties after his dismissal or resignation on the other. Conversely, the steady succession of reports concerning Lebanon's financial and economic situation, along with the proliferation of leaks falling within the same framework, calls for a careful reading of both the reports and the leaks, however important their sources may be, especially since the financial collapse in Lebanon has already severely restricted banking transactions and many banking and financial institutions have severed their ties with the country without any need to place it on the grey list. This indicates that this leaked news, or threat, is part of a plan to liquidate what remains of financial and banking institutions in Lebanon. As for the World Bank report, which links the growth of the dollarized cash economy to the collapse of the banking sector and deems it an obstacle to economic recovery, it ignores the reasons that led to the cash economy, namely the banking sector's refusal to continue financing economic sectors and meeting depositors' demands. Without the cash economy, it would not have been possible for various economic activities to continue; indeed, this economy secured a soft landing for the national economy and guaranteed the possibility of its relaunch. A cash economy may facilitate money laundering, tax evasion, and perhaps terrorist financing, yet these financial violations are not confined to such economies; indeed, they flourish even in countries with long-standing financial systems for combating money laundering and curbing tax evasion. Lebanon today is in direst need of facilitating its economic activities by the available means, since restoring economic growth lies in preserving existing economic sectors rather than fabricating obstacles in their path. And if normalization with the crisis is no road to stabilization according to the international fund's report, for the Lebanese it is nonetheless a means of staying alive. While the Lebanese are criticized for how quickly they coexist with and adapt to circumstances, whatever their hardships, their confrontation of the current crisis is closer to resistance than to normalization, which even in economics means surrendering to a fait accompli. Perhaps the decline in the rate of economic contraction during 2022 compared with what it was in the preceding years is evidence of this resistance, bearing in mind that some economists consider, contrary to the World Bank's estimates, that we have entered a phase of positive growth, albeit at modest rates.

Translated from Arabic with AI. Read it in Arabic