The Oklahoman

Amid crises, Lebanon is leaning on US dollar

Few people have access to American currency

- Kareem Chehayeb

BEIRUT – When Moheidein Bazazo opened his Beirut mini-market in 1986, during some of the fiercest fighting in Lebanon’s civil war, he didn’t expect it to thrive. But several years later, he had shelves full of food and needed 12 employees to help him manage a bustling business.

Those days are over. Bazazo now mostly works alone, often in the dark to reduce his electric bill. Regular customers are struggling to make ends meet, and as they buy less so does he, leaving some shelves and refrigerat­ors bare.

With the Lebanese economy in shambles and its currency in free fall, Bazazo spends much of his time trying to keep up with a fluctuating exchange rate. Businesses like his are increasing­ly leaning on one of the world’s most reliable assets – the U.S. dollar – as a way to cope with the worst financial crisis in its modern history.

“I once lived a comfortabl­e life, and now I’m left with just about $100 after covering the shop’s expenses” at the end of the month, Bazazo said, crunching numbers into a calculator. “Sometimes it feels like you’re working for free.”

The Lebanese pound has lost as much as 98% in value since late 2019, and now most restaurant­s and many stores are demanding to be paid in dollars. The government recently began allowing grocery stores like Bazazo’s to start doing the same.

While this “dollarizat­ion” aims to ease inflation and stabilize the economy, it also threatens to push more people into poverty and deepen the crisis.

That’s because few in Lebanon have access to dollars to pay for food and other essentials priced that way. But endemic corruption means political and financial leaders are resisting the alternativ­e to dollarizat­ion: long-term reforms to banks and government agencies that would end wasteful spending and jump-start the economy.

Other countries like Zimbabwe and Ecuador have turned to the dollar to beat back hyperinflation and other economic woes, with mixed success. Pakistan and Egypt also are struggling with crashing currencies but their economic crises are largely tied to an outside event – Russia’s war in Ukraine, which has caused food and energy prices to soar.

Lebanon’s woes are much more of its own making.

As the country felt the impacts of the COVID-19 pandemic, a deadly Beirut port explosion in 2020 and Russia’s invasion Ukraine, its central bank simply printed more currency, eroding its value and causing inflation to soar.

Three-quarters of Lebanon’s 6 million people have fallen into poverty since the 2019 crisis began. Crippling power cuts and medicine shortages have paralyzed much of public life.

Currency shortages prompted banks to limit withdrawal­s, trapping millions of people’s savings. It’s led some in desperatio­n to hold up banks to forcibly take back their money.

The damage of the last few years was magnified by decades of economic mismanagem­ent that allowed the government to spend well beyond its means. The head of the country’s Central Bank was recently charged with embezzling public funds and other crimes.

The pulverized Lebanese pound fluctuates almost hourly. Though officially pegged to the dollar since 1997, the pound’s value is dictated now by an opaque black market rate that has become standard for most goods and services.

Last month, its value fell from about 64,000 pounds to the dollar to 88,000 on the black market, while the official rate is 15,000. Making things worse for a country reliant on imported food, fuel and other products priced in dollars, the government recently tripled the amount of tax – in Lebanese pounds – that importers must pay on those goods.

This will likely lead to more price hikes. For small businesses, it could means selling products at a loss just minutes after stacking them on the shelves.

Dollarizat­ion could give the impression of greater financial stability, but it also will widen already vast economic inequaliti­es, said Sami Zoughaib, an economist at Beirut-based think tank the Policy Initiative.

“We have a class that has access to dollars … (and) you have another portion of the population that earns in Lebanese pounds that have now seen their income completely decimated,” Zoughaib said.

The shift to a more dollar-dominated economy happened not by government decree, but by companies and individual­s refusing to accept payment in a currency that relentless­ly loses value.

First, luxury goods and services were priced in dollars for the wealthy, tourists and owners of private generators, who have to pay for imported diesel. Then it was most restaurant­s. And now grocery stores.

Caretaker Economy Minister Amin Salam said the Lebanese pound was “used and abused” over the past three years. As more people and businesses reject the local currency, the dollar gradually becomes the de facto currency. The lack of trust in the Lebanese pound has become irreversib­le, said Layal Mansour, an economist specializi­ng in financial crises in dollarized countries.

“People are fed up with the fluctuation of the dollar rate, and having to spend lots of time changing it, so practicall­y, on a societal level, it’s better to use dollars,” Mansour said. “This is the end of the Lebanese pound as we know it.”

 ?? HASSAN AMMAR/AP ?? Moheidein Bazazo, seen here at his shop in Beirut, spends much of his time trying to keep up with a fluctuatin­g exchange rate. Lebanon has begun pricing consumer goods in supermarke­ts in U.S. dollars.
HASSAN AMMAR/AP Moheidein Bazazo, seen here at his shop in Beirut, spends much of his time trying to keep up with a fluctuatin­g exchange rate. Lebanon has begun pricing consumer goods in supermarke­ts in U.S. dollars.

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