DON'T LOSE ACCESS:
Your IP access to ForeignPolicy.com will expire on June 15.
To ensure uninterrupted reading, please contact Rachel Mines, sales director, at firstname.lastname@example.org.
Lebanon’s Banks Are Burning
The coronavirus curve is flat, but inflation is raging, and protesters are firebombing banks.
BEIRUT—Lebanon has flattened its coronavirus curve, but the country’s protesters are rising up once again.
Rather than the placards and clever anti-government slogans that have defined earlier demonstrations in Lebanon, protesters are increasingly wielding Molotov cocktails and makeshift battering rams. With inflation raging, they have taken aim at the country’s banks in recent days, smashing windows and lighting them on fire.
“We are heading to a situation that is more dangerous than the virus,” said Mohamed Sabbah, 29, a protester in Beirut. “People are going to lose their house. People are going to starve.”
Ironically, on the same day that Lebanon announced it would be relaxing its coronavirus lockdown measures, the army was sent to the streets to confront desperate protesters in the northern city of Tripoli. Lebanese have been in the streets since October asking for a new political system and an end to corruption, but now the message is different: “We are hungry.”
Months of economic crisis have been compounded by a strict lockdown that helped avert a medical crisis here but has accelerated the country’s economic downfall and quickened the sink of many Lebanese below the poverty line.
As the Lebanese currency—the lira—declines, the price of food is rising, and cashiers quietly warn customers to stock up because what they are buying may increase in price the following day. Last week, the lira saw its biggest daily fall against the U.S. dollar ever, inflating to more than 4,000 lira to the dollar on the black market, helping to spark the new wave of protests.
“A can of tuna was 2,000 lira, now it’s 5,000, and it’s going up,” said Radwan, a 36-year-old protester who didn’t give her last name. “Instead of people maybe having caught corona, you have kids that will not have milk.”
Nearby the Beirut protest, police guarded a branch of a major bank with one window already smashed. A couple blocks away, the windows of the Association of Banks in Lebanon lay shattered on the sidewalk. Across the country, branches of Lebanon’s central bank have been pelted with rocks and set on fire. More and more banks in Beirut are reinforcing their facades with sheets of metal to protect them from the smashing and burning. Each morning frustrated customers linger outside in face masks waiting to get in and try to negotiate to get their money out.
The banks were a target of protest earlier this year, but now they have become the focus. Unregulated illegal capital controls mean that many Lebanese cannot access their money, with caps on withdrawals and transfers that vary among banks, branches, and even account holders.
“Imagine you can’t feed your children, but you have money in the bank you can’t access,” said Nizar Ghanem, the director of research at the Triangle think tank in Beirut.
The banks are a target not just because they are holding personal funds hostage but for their role in causing the current crisis. Lebanon’s economic system has been compared to a Ponzi scheme. For decades, Lebanese depositors put their money in the bank, and their banks lent that money to the government at high interest rates, earning excessive profits for the banking sector, in which political elites own significant stakes.
“The banks hold the majority of the responsibility because they are responsible for the bad investment,” Ghanem said. That bad investment was the Lebanese government. Ghanem said the government used this expensive debt in failing projects, expanding patronage networks in the form of public sector jobs and unneeded infrastructure projects that were plagued by corruption and did little to help the Lebanese economy. The debt grew to 150 percent of GDP, one of the world’s highest. Too few said anything about it until it was too late.
“The banks invested in a Ponzi scheme, and now it has collapsed,” Ghanem said.
As the economy faces a reckoning, average Lebanese are paying the price. Workers who have saved money for decades are watching their accounts devalue by the day, and their futures look bleaker and bleaker. Those who were living from day to day can’t afford to feed their families. And while regular Lebanese people have their money stuck in the banks, $5.7 billion was mysteriously transferred out of Lebanon in January and February—despite the capital controls and presumably by the country’s elites.
Ghanem said that as inflation pushes basic sustenance out of reach for an increasing number of Lebanese, the protests have taken on a new, more radical character.
“People are fed up, and the protests are getting more violent because the government has failed,” Ghanem said. “At the beginning of the protests, there was still a belief in the democratic process, that if we got a new government that was independent, we could respond to the crisis. That didn’t happen.”
Instead, the Lebanese currency continues to sink. The country now has four different exchange rates for U.S. dollars: the official, decades-old bank rate, a semiofficial rate the central bank wants money exchangers to use, another rate banks are promising to give account holders, and the rate actually available at black market money exchangers. The black market rate sometimes fluctuates throughout the day but has steadily worked its way down over the weeks. Prices of imported goods—which is almost everything here—have climbed in recent months, diminishing the purchasing power of most Lebanese significantly. Analysts debate whether Lebanon is headed down a path similar to Venezuela’s, though without oil.
Then came the novel coronavirus, just as Lebanon defaulted for the first time on its international debt payment in March. Experts warned that an outbreak of COVID-19 in Lebanon would be a disaster, but so far the country has pulled off something of a miracle, with just around 740 confirmed cases, two dozen deaths, and ventilators sitting idle. The country locked down early and hard, imposing a state of medical emergency and evening curfew. At the protest in Beirut, Radwan said it’s not the government that deserves credit but people who stayed home knowing the fragility of the country’s health care system and because they didn’t trust the government could protect them.
She and others say the ruling elites instead used the pandemic to their advantage, shuttering banks, increasing the presence of security forces on the streets, and dissuading protest. Those restrictions also hit the most vulnerable Lebanese the hardest, with almost no help from the government, and the currency slid even further. Those who were scraping by now can’t even do that. The protests are no longer just about changing the politicians or the political system to avoid financial collapse but about survival for the people it has impacted the most.
“The areas that are the poorest in Lebanon are seeing the largest demonstrations now,” Ghanem said. “The protests are the poorest Lebanese coming out saying they aren’t going to be silent anymore.”
In the northern city of Tripoli, the epicenter of the recent unrest, protesters clashed with security forces last week, chanting, “Our people should not starve, master. Master, you are a thief.” Dozens of protesters and security forces were injured, and one protester died. Most of the banks around Tripoli’s Al-Nour Square, the heart of the protests, are now charred and smashed. Young men picked through the rubble, looking for potentially valuable pieces of scrap.
Before the pandemic, the World Bank warned that 45 percent of Lebanese could soon be living below the poverty line, but COVID-19 has likely made that an understatement, and the government has now put the estimate above 70 percent.
At another protest, as a scuffle broke out, demonstrators shouted, “I am hungry!” Amid the confrontation, one of the officers shot back: “I am hungrier than you are.”