Though banks reopened this week in Lebanon, with the country’s financial institutions remaining front and center in massive anti-government protests amid accusations of corruption and wild mismanagement, withdrawal limits have now been made official by the country’s Banks Association — previously unofficially enforced.
The formal controls now include limiting withdrawals to $1,000 per week, with transfers abroad only ambiguously defined necessary for “urgent matters”.
Yet the collective panic, driven by fears patrons won’t be able to retrieve their deposits from banks, has only compounded, as now The Washington Post reports “Dollars have virtually disappeared.”
“Over recent weeks, ATMs in Lebanon have been spitting back bank cards, refusing to provide dollars to those who ask for them, though people here have long used the American currency alongside the Lebanese pound,” the WaPo reported.
Protest-racked Lebanon over the past month has seen its banks opened for only half that time. Given that most of the country’s debt is held by local banks, and with the scene of police literally standing at teller windows having to enforce controls and restrain patrons from removing all of their own money, the vicious cycle continues hurtling the $86 billion indebted country toward economic collapse.
First, the deteriorating security situation since Oct. 17 forced their prior closure for two weeks, with the country’s association of banks then fearing a run on deposits, and after a brief opening staff went on strike, citing personal safety at the hands of angry citizens demanding their cash from the “thieving” banks (literally in some cases involving clients with guns).
— Ali Reslan (@Ali___lb) November 1, 2019
The crisis continues to be felt across multiple sectors and in citizens’ daily lives, as the Post report continues:
“Panicked tenants have begun asking to pay their rent in pounds, but landlords are refusing to accept them as the local currency hemorrhages value.”
And further: “Some restaurants and bars have stopped taking credit cards, instead requiring cash to pay vendors. Other eateries have limited their menus, unable to pay for imported goods in dollars.”
At the heart of the banking crisis, which predates the latest record million-strong protests which were sparked in mid-October by a proposed tax on WhatsApp and other popular Voice over IP services, remains extreme lack of confidence in the local currency and corrupt officials which oversee the depleted system. This alongside a years-long severe slowdown in capital inflows, vital for financing the state deficit and pay for imports, fueling an ongoing liquidity crisis.
And per WaPo, the Lebanese lira which is officially supposed to be pegged to the dollar, continues to weaken at an alarming rate: “The black market exchange rate has now soared to 1,900 pounds to the dollar, 26 percent higher than the official rate.”
Though Lebanon can boast it’s never defaulted on its sovereign debt — now standing at about 150% of GDP and with the finance ministry vowing it can pay off a $1.5bn bond maturing this month — it’s never seen a crisis of this magnitude, causing economists to urge Beirut to pursue a debt restructuring plan as the default risk worsens.