BEIRUT: In Lebanon these days, with the pound having lost more than 80 percent of its value, discussion on the daily US dollar rate has become as commonplace as the weather or football.
Over the past months, sharp falls in the pound’s value have prompted outbursts of popular anger, while steady gains have offered short-lived hope that the worst has passed. Essentially, the pound’s exchange rate against the dollar has become a national benchmark for measuring Lebanon’s economic suffering.
Relatively, the pound’s current demise pales in comparison to its collapse in the ’80s. At the start of the decade and despite the country’s Civil War, the pound stood strongly at LL3.1 to the dollar. But by the end of 1986 it had dropped to LL87. A year later it hit LL505, a 480 percent drop.
Former Economy Minister Nasser Saidi pointed to a set of parallels between then and now. “There are elements in common. The low level of economic growth, the large budget deficits, the political uncertainty and infighting, the low level of international reserves which meant the Central Bank could not intervene,” Saidi told The Daily Star. “The depreciation destroyed financial wealth and the middle class.”
Wael, a retired accountant now based in Abu Dhabi, remembers returning to Beirut in October 1984. “I received a job offer with a salary worth $2,000,” he recounted over the phone. “It was a great offer for a 25-year-old. But by the time I got there it had halved in value and the following February, dropped to less than a third,” Wael recalled. While his firm offered him a raise, the devaluation and soaring inflation rendered the raise negligible. A few months later he decided to leave Lebanon for good. Returning often to visit friends and family, Wael remembers relatives whose pensions and savings were slowly wiped out by devaluation, “but the banks still functioned,” he emphasized in contrast to now.
A 1987 Washington Post article entitled, “Devalued Currency Terrorizes Beirut,” spoke of the rising numbers of garbage scavengers in the city, rush-buying for “toilet paper and bottles of scotch,” and parents no longer able to send their kids to private schools.
“It was quite something,” recalled a Lebanese woman earning dollars in Beirut at the time. “I remember vividly buying a dress for $1 that had previously cost $500.” She also remembers an acquaintance complaining that her dollar-earning driver earned a better salary than him, a qualified Lebanese academic.
There were shortages too.
Gabi, a Palestinian militia fighter based in Sidon during the ’80s with his wife and child, recalled how people would leave their cars lined up in a queue at night, in anticipation of the gas station’s opening the following day. “The problem was not money,” Gabi explained, “but accessing certain items.”
One such item was baby formula. “I couldn’t find any milk for my 3-year-old son,” he explained. “I knew the shopkeeper was hoarding it so I took out my gun, pointed it at his head and said I needed it,” Gabi recalled candidly over the phone, in what seemed a startling facsimile of a similar incident that trended on Twitter a few weeks ago. Gabi got the milk. “He was surprised when I asked him how much it was,” he continued. “He said it was a gift. But I did not want to steal.”
According to Gabi, incidences like this often ended tragically. “In gasoline queues, there were armed guys unwilling to wait and there’d be a fight. Many people died like this, even innocent people got killed.”
Despite the difficulties, Gabi believes things are far worse now than back then. “Nobody needed food or was humiliated like now. Now people are really destroyed, they are really starving,” he insisted. “The only suffering back then was water or electricity supply, and of course the fighting. But daily life, food, living, there was no problem.”
Saidi concurs. “The depreciation in the ’80s did not have a severe impact on the real economy as the current crisis because there were flexible exchange rates and secondly, the economy was highly dollarized which people had access to, unlike now.”
Indeed, as the Lebanese pound collapsed in the ’80s, the economy began to informally adapt to dollars, before it was formalized under the now-redundant peg.
“There was no problem getting hold of dollars then,” Gabi recalled. “All the militias’ funding came in dollars.”
Without capital controls and restrictions on remittances, dollars could flow freely through the economy. “Now dealers are chasing dollars to buy things from abroad. It was not like that then,” Gaby said.
“Bit by bit we slid into dollars. Taxis and restaurants would take dollars. I remember in 1989 I could withdraw dollars from the ATM,” one woman recalled. According to Lebanese historian Fawwaz Traboulsi, speculation on the dollar became “a national sport.”
By 1988 there were at least 200,000 US currency bank accounts in Lebanon. “Everything was in dollars,” Wael recalled. “The pound was nothing. Even some salaries were being offered in dollars.”
The absence of capital controls and payment restrictions rendered the ’80s currency collapse a purely monetary crisis. “You did not have a major banking or financial crisis like today,” Saidi affirmed, referring to the collapsed Ponzi scheme that has shattered confidence in Lebanon’s banks, threatened depositors’ savings and ultimately made the current crisis a far deeper depression than back in the ’80s.
Saidi partly attributes this to major policy mistakes by the government. “You should never shut down the banks. I was in Banque du Liban for more than 10 years, through Israeli invasions and political uncertainty. We never shut down the banks. Never in the history of Lebanon have the banks been shut down. This is unprecedented.”