Foreign currency causing dilemma in Lebanon

BEIRUT, Lebanon’s monetary system, maintaining strength since 1992 despite political, security and military conflicts, is facing the risk of having two exchange rates for the local currency, Lira.

Lebanon has recently been witnessing difficult economic circumstances after big importing companies lacked liquidity in US Dollar, while appreciation of the USD against the local currency rose to 1,507 Liras.

Marwan Barakat, Research Director at Ouda bank, said the fact deposits at the Central Bank exceeded USD 38 billion was “a good protection element for the national and contributes to a stable market.” Dr. Jaad Shaaban, an economics professor at the American University in Beirut (AUB), said he did not believe there would be two exchange rates of the Lira.

“However, failure of the state to provide US Dollar in the market will result in price increase because import will be costly. This will affect the purchasing power of citizens, especially that the Lebanese economy is clearly shrinking,” he told KUNA.

Shaaban said currency exchange offices were trading with only six percent of foreign currency in the country, therefore a problem would be minimal. “However, the problem surfaced when big importing companies failed to get enough US dollar thus causing a strain on currency market, which undermined confidence among people.” Muwaffaq Al-Yafi, a financial expert, said the local market lost 40 percent of foreign currency in cash, or USD four billion.

Al-Yafi, in a statement to KUNA, claimed USD two billion were transferred to Syria, whose currency was under immense strain, and the rest withdrawn by citizens who were worried about future of their savings.

He said the central bank was forced to create a gap between official exchange rate in order to provide commodities, and the rate used by private exchange bureaus.

“Failure to find a quick solution could drive us towards two exchange rates, which will negatively affect low-income people,” he warned.

These setbacks are coupled with government budget deficit, decline in growth, less foreign investment and new US sanctions on people dealing with Hezbollah. Lebanon’s debts exceed USD 85 billion.

These troubles encouraged people to take to the streets to protest against deteriorating economic conditions, blaming the government for rising unemployment and large numbers of foreign workers.

Even gas stations were affected by the lack of the US Dollar, forcing them to close on September 26.

The central bank promised companies that import fuel, medicine and wheat to set exchange rate at 1,507 Liars per USD. But the firms found themselves against two exchange rates: one by the central bank and the other set by the currency exchange agencies.

Lebanese President Michel Aoun urged currency exchange bureaus to set ethical standards for the rate.

Financial experts believed the Lira could no longer be protected by the central bank’s foreign assets against huge budget deficit and public debts.

Barakat called for serious reforms to boost income, impose more austerity measures, fighting corruption and tax evasion, while Shaaban urged the central bank to pump more US Dollar cash in local market and provide facilities for importers, as well as avoid un-necessary funding.

Source: Kuwait News Agency