Businesses in Lebanon told to avoid dollars or risk prosecution

Lebanese businesses can be prosecuted for failing to use the local currency for trade and to price their products, according to a circular issued by the Economy Ministry, the latest effort to ward off financial meltdown as weeks of mass anti-government protests show no sign of letting up.

As investors and the public lose confidence in Lebanon’s pound, many firms have demanded dollars for payments. Despite a peg that’s been in place for more than two decades, some have even priced the domestic currency higher than the fixed exchange rate.

Caretaker Economy Minister Mansour Bteish used the circular to urge “all traders and service providers in Lebanon to commit to using Lebanese pounds exclusively.” In the document issued yesterday, he cited the Lebanese Monetary Law that stipulates the pound to be the country’s sole currency and said the decision was warranted by the need to protect social and economic stability.

Earlier this week, the Telecommunications Ministry issued a similar decision, forcing mobile operators to sell their pre-paid recharge cards to suppliers in the local currency and at the official exchange rate.

One of the world’s most indebted countries is in dire financial straits just as it succumbs to political paralysis and protests grip the country for a third week. Thousands have been on the streets, demanding the ouster of a political class they say has left the country on the verge of bankruptcy.

Meanwhile, signs of an intensifying crash crunch are spreading across the economy. Alarmed that fuel importers are only accepting dollars as a method of payment, gas stations are warning that they will refrain from refilling their supplies if officials fail to resolve their issue.

Owners of gas stations and fuel tankers said that their stocks are down to “very little” and that instead of bringing relief, the government’s efforts have burdened them even further.

“We will sell all our stocks at the gas stations until they are depleted,” Sami Brax, head of the union of gas station owners, said in a televised conference with other union members.

Gas stations receive most of their revenue in pounds, while the price of gasoline is set by the government in the local currency.

Fuel and wheat importers have complained that they are unable to close their letters of credit in dollars because banks aren’t supplying enough hard currency. This means they were having to buy dollars at money changers that were pricing them higher than the official exchange rate of 1,507.5 pounds per dollar.

In an attempt to contain the crisis, the central bank last month said it would secure dollar supplies to banks to cover demand from importers of petroleum products, wheat and medicine. Governor Riad Salameh attributed the shortage of dollar banknotes to the increase in imports.

Still, some importers have complained that they weren’t able to access their credit lines at lenders and others say banks are charging them fees to cash their dollar checks.

The head of the Association of Banks, Salim Sfeir, said lenders were “prioritising the requests to accommodate the immediate and vital needs of the country.”

Banks have tightened restrictions that were already in place to maintain their dollar stock and curtail a run on the banks. They were shut down for nearly 10 days and reopened last week on Friday due to the unrest.

The fuel unions said that the circular is forcing them to pay for exchanging their revenue in pounds for dollars. Brax said the cost was becoming “too much to bear.”