As the coronavirus pandemic accelerates an already unprecedented economic crisis, Lebanon’s national currency has lost almost two-thirds of its value over the past six months.
The depreciation of the Lebanese pound has slashed salaries, triggered rapid inflation and threatened to wipe out the life savings of hundreds of thousands of people. Food prices have also risen by at least 58 percent since October, when mass anti-government protests swept across the country and brought down a government.
In September last year, a parallel market for the pound emerged for the first time since 1997, when it was pegged to the U.S. dollar at a rate of LL1,507.5. The official peg was established in order to curb hyperinflation following Lebanon’s 15 year civil war.
As the country’s situation has worsened, unofficial exchange rates have crashed to more than LL4,000 to the dollar. Lebanese authorities have cracked down on currency traders, blaming them for the collapse of the pound. Desperate to stem the bleeding, the government has now blocked dozens of apps that provide information on the currency’s true market value.
On April 30, the Lebanese state prosecutor Ghassan Oueidat ordered the Telecoms Ministry to restrict access to 28 mobile apps that displayed the average dollar exchange rate being used at money changers across the country, claiming that they have encouraged speculation that has contributed to the pound’s decline.
Mohamad Najem, executive director of the Beirut-based digital rights organization SMEX, described the blocks as only the most recent episode in a series of repressive measures by security agencies on freedom of expression related to financial matters.
“They are protecting the banks and moving fast on cases brought forward by them, while the banks themselves are not allowing people to access their money,” he said.
For decades, Lebanon’s import-dependent economy relied on remittances from the millions of Lebanese living abroad, along with generous donations from Gulf states, to keep the dollars flowing in.
However, those sources of foreign currency have dried up in recent years, which — combined with an economic slowdown and the knock-on effects of the war in neighboring Syria — has led to a recent dearth of hard currency.
In a frantic attempt to keep hold of their dwindling dollar reserves, Lebanese banks last year began to impose their own strict capital controls on account holders, banning transfers abroad and enforcing withdrawal limits of as little as $100 per week.
Accordingly, banks have become prominent targets for protesters, who view the financial elite as complicit with politicians in the creation of an unmanageable national debt burden, now estimated to be one of the highest in the world at 170% of GDP.
But expressing such criticism can come at a cost. Several social media users have been called in for questioning by the police cybercrime unit, after taking banks and their officials to task online.
Not only does the blocking of currency exchange rate apps raise questions about the establishment’s willingness to accept responsibility for the country’s dire financial situation — according to SMEX, it also forms part of a wider pattern of online censorship.
In 2019, Lebanese authorities banned the Grindr dating app in what was widely viewed as an assault on the freedoms of the LGBT community. The website builder Wix was also shut down using laws that boycott Israel, with which the country has been officially at war since 1948.
“All of these sites we’ve seen blocked have been as the direct result of a deliberate push by the security apparatus,” Najem said. “They are trying to control the online space.”
Mohamad Faour, a postdoctoral researcher in banking and finance at University College Dublin, described the shutdown of exchange rate apps as a “pathetic” attempt by those in power to divert attention from their own part in the crisis.
The primary purpose of the apps, he added, is not to trade and profit, but rather to provide information to users by reflecting current average rates in the market.
Such apps have proliferated since the peg first began to erode last summer, and thousands of people across the country have contributed to open-source platforms that track exchange rates.
However, Lebanon’s finance minister Ghazi Wazni told Al-Joumhouria newspaper on April 24 that the rapid depreciation of the pound was down to speculation, rather than wider economic factors affecting the country.
“Of course, there might be some speculation in this environment of so much economic uncertainty,” Faour said. “But being speculative is only a symptom of a far bigger problem that those in power have failed to address.”
The governor of Lebanon’s Central Bank, Riad Salameh, has occupied the post since 1993 and is one of the most reviled targets of the Lebanese protest movement. In a televised speech last month, he said that while he had sought to stabilize the lira by mandating set exchange rates, controlling it was difficult, due to the scarcity of cash dollars in Lebanon.
He was responding to comments by Prime Minister Hassan Diab, who had described Salameh’s handling of the currency crisis as “suspicious and mysterious,” accusing the bank of being the “instigator” of the pound’s depreciation.
“Both sides are just bickering and blaming each other for what is, at the end of the day, a supply issue,” Faour said.
The lack of available dollars has left traders who import products from abroad struggling to stay afloat and many consumers barely able to afford essential supplies.
Sixty-four-year-old Michel, who declined to give his family name, has been running a grocery store in Beirut’s Furn al-Shubbak neighborhood for almost 50 years. While he purchases goods in Lebanese pounds, not dollars, his suppliers have tripled their prices. This has forced him to hike prices for his customers.
“I have never seen a crisis like this,” he said. “Even in the war, the pound didn’t drop to these levels.”
He now sells a pack of butter that previously cost LL6,000 for LL19,000.
“Of course the customers complain, but what else can we do?”
In an attempt to gain control of the pound and curb inflation, the Central Bank has mandated several maximum rates that exchange shops can charge, the most recent at LL3,200.
As the authorities enforce a crackdown on what they describe as illegal exchange activity, dozens of currency dealers found to be violating the order have been detained and had their shops shut down by Lebanon’s Internal Security Forces.
The national currency dealers syndicate has been on strike since April 23 against the “continued deterioration of the exchange rate.” The action has been extended indefinitely, until exchange dealers are released from detention and their shops reopened.
Four currency dealers contacted for this story refused to comment on the arrests, for fear that they could be prosecuted.
Last week Mahmoud Mrad, the syndicate’s head, was arrested following a police investigation that allegedly caught him selling dollars at an inflated rate to wholesale traders who need hard currency to import goods.
Following Mrad’s detention, the syndicate stressed that its members were trying to abide by circulars from the Central Bank, but that it is difficult to stick to a set price in a market dependent on supply and demand.
Enforcement efforts have so far proved futile in controlling the exchange rate. Meanwhile, despite many shops being officially closed, customers have been able to contact dealers directly and conduct transactions informally.
For Faour, this proves that measures such as blocking apps and arresting currency dealers will only force exchange activities underground and create a more extensive black market.
“By taking this approach of a police state,” he said, “they are missing the elephant in the room: an economic meltdown.”