End of the party: why Lebanon’s debt crisis has left it vulnerable | Financial Times:
In 2008, as mountains of bad debt collapsed and economies around the world crumbled, carefree gamblers at the central bank-owned Casino du Liban rolled dice and spun roulette wheels. Unscathed by the global financial crisis, Beirut glittered as the Middle East’s party capital and purveyor of discrete financial services.
Lebanon offered wealthy investors something they could not get elsewhere — high interest rates for low risk investments. While the rest of the world’s central banks tried to boost post-crisis recovery by holding borrowing costs at 1 per cent or less, the Banque du Liban pushed rates up so high that returns of more than 10 per cent became common for depositors. The central bank paid so much because it badly needed a constant supply of dollars to maintain a currency peg against the US dollar, pay for imports and fund the government. “Lebanon relies on remittances,” Riad Salame, central bank governor, told the FT in 2018.
That reliance on money from overseas left the government vulnerable and sliding ever further into debt, especially as economic growth has been sluggish since the start of the Arab spring in 2011. A bungled October effort at raising funds via a tax on WhatsApp calls triggered Lebanon’s biggest protests in over a decade, adding to the political paralysis and deepening the economic crisis.
In 2008, as mountains of bad debt collapsed and economies around the world crumbled, carefree gamblers at the central bank-owned Casino du Liban rolled dice and spun roulette wheels. Unscathed by the global financial crisis, Beirut glittered as the Middle East’s party capital and purveyor of discrete financial services.
Lebanon offered wealthy investors something they could not get elsewhere — high interest rates for low risk investments. While the rest of the world’s central banks tried to boost post-crisis recovery by holding borrowing costs at 1 per cent or less, the Banque du Liban pushed rates up so high that returns of more than 10 per cent became common for depositors. The central bank paid so much because it badly needed a constant supply of dollars to maintain a currency peg against the US dollar, pay for imports and fund the government. “Lebanon relies on remittances,” Riad Salame, central bank governor, told the FT in 2018.
That reliance on money from overseas left the government vulnerable and sliding ever further into debt, especially as economic growth has been sluggish since the start of the Arab spring in 2011. A bungled October effort at raising funds via a tax on WhatsApp calls triggered Lebanon’s biggest protests in over a decade, adding to the political paralysis and deepening the economic crisis.
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| A bungled October effort at raising funds via a tax on WhatsApp calls triggered huge street protests © Mohamed Azakir/Reuters |
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