Lebanon’s financial system is just smoke and mirrors – and it is leaving many struggling to survive

The crisis, which is sparked by decades of chronic mismanagement and corruption, has left a mark across every social class, writes Bel Trew

There were protests all over Lebanon for months before coronavirus hit - demonstrating against the financial situation in the country (EPA-EFE)

It hit home when I realised every price tag along the supermarket aisle in front of me had been removed or scratched out. Food prices were rising so rapidly the shop’s employees were scrambling to keep up.

This happens fairly regularly now. Customers are forced to try to guess their supermarket bills. Chests tighten at that moment of truth in front of the cashier: you hope the rapidly depreciating Lebanese currency in your wallet is enough.

I now keep a tally of prices to try to make sense of the unprecedented economic collapse that is ravaging Lebanon. The price of a kilo of tomatoes at my local vegetable stall has tripled since I landed here mid-March.

Two weeks ago, a 500g packet of a cheap processed turkey-ham slices cost $20 (£16), if you convert the amount of lira at the official exchange rate. A jar of peanut butter is now the equivalent of $14.

The problem is no one knows the true value of the Lebanese lira, which is officially pegged at the vastly inaccurate rate of 1,500 lira to the dollar.

In a somewhat futile effort to fight the currency’s freefall, the authorities have attempted to set several confusing parallel “market exchange rates”, including last week ordering money changers to sell the dollar for no more than 3,200 lira or face jail.

This week they also banned currency exchange mobile apps, to stop people knowing the black market rate, adding to the confusion and uncertainty.

It hasn’t been successful. On Friday afternoon, black market dealers told me they were quietly selling the dollar for 4,200 lira behind shuttered shopfronts.

And so here neither the coronavirus nor the lockdown is at the forefront of everyone’s minds.

Instead WhatsApp chats are dominated by anxious discussions about the true exchange rate, about which banks are turning their customers away and why, about which money-changing places are open, about which ATMs are running dry.

Most people, myself included, have stopped using foreign bank cards entirely as you lose three times the value of your money at each ATM withdrawal or card payment.

Many are instead locked in the exhausting quest of locating dollar cash.

The crisis, which is sparked by decades of chronic mismanagement and corruption, has left the poorest struggling to survive on dwindling donations from cash-strapped charities. It is dragging the middle class below the poverty line.

It has even touched the most privileged – once protected by the armour of foreign bank accounts and the means of getting out of the country.

Those options ceased to exist when the airport was closed, when the government ordered money transfer companies like Western Union to only give out lira at terrible parallel market rates and when nearly every other source of foreign cash was strangled.

At the heart of the problem is the crippling lack of foreign reserves in Lebanon, a country where seventy per cent of deposits are in dollars. Banks stopped foreign currency withdrawals, instead forcing customers to take out lira at terrible bank-set rates which according to economists is only triggering hyperinflation.

Those with Lebanese lira accounts, meanwhile, have been forced to watch their life savings evaporate. The only depositors who can get dollars are those with “fresh money” accounts, but even then, banks regularly send customers away with no money and no explanation.

Meanwhile banks are creating increasingly bizarre ways to try to attract more dollars from outside. Bank Audi announced a few weeks ago they would more than double “fresh” dollar deposits: put $10,000 into your account and it instantly becomes $21,000 – which seems like a dream.

In reality, customers cannot spend this money outside Lebanon, and they are not permitted to withdraw the cash within the country. Instead they can only use this amount with payment cards or bankers cheques at the unrealistic pegged exchange rate. And so, the $21,000 is just a number on a computer screen: it is just smoke and mirrors.

It feels like the entire financial system in Lebanon has been just that: smoke and mirrors.

And now, a harsh reality is setting in.