What got Lebanon into such crisis as of 2023?

Question

Every time you read a story covering Lebanon, it usually mentions the terrible crisis.

Lebanon Cholera - BBC

Lebanon has collapsed from a reasonably affluent country into one at risk from the chaos that a preventable, treatable disease like cholera can cause.

Cash is King - Reuters

Cash is now king in Lebanon, where a three-year economic meltdown has led the country's once-lauded financial sector to atrophy.

Things I do know about

• I am aware that Lebanon has a dysfunctional political system with reserved positions by religion (Christian, Sunni, Shiite).

• I am aware Hizbollah/Palestinians cause trouble. Israeli pressure, both directly on those groups, and on Lebanon to rein them in, can be problematic as well.

• I am also aware that Syria's role in Lebanon is always toxic (already seen in song lyrics from 1982).

• There was a political assassination some time ago that gets mentioned. But political assassinations are unfortunately not infrequent there.

But asides from Syria's civil war and its refugees, these are all longstanding issues. The Lebanon crisis seems to have been ongoing before Covid got started and while many countries got whacked by Covid, Lebanon does not seem to have been uniquely vulnerable to it.

So what caused this abysmal crisis in a country which, if anything, seemed to be in better shape right after their civil war than they are right now?

i.e. what's the really simple missing 5 minute intro and reminder to all those articles talking about Lebanese problems about how they got there? What's special about the last 5-6 years?

Answer 1

In 2014-2017 the Middle East region saw multiple conflicts - some of them spilled over to Lebanon's territory. This hurt Lebanon's investment attractiveness - which was a big problem, because Lebanese pound was/is pegged to US dollar (at a rate of £L1,507.5 per US$1) since 1997, as a stabilizing measure after the severe devaluation of national currency after the civil war. Lebanese economics needed a constant influx of foreign capital to support this artificial exchange rate - mostly via tourism and financial sector; both of those were harmed by political instability in the region. Lebanese central bank was forced to engage in financial engineering, exchanging public debt it owned in national currency to foreign currency at a significant loss.

This is the point where crisis had started.

As a result, the liquidity crisis (in other words, the lack of US$ to exchange for Lebanese pounds) was averted in 2016, but Lebanese economy as a whole now had less money to circulate. And the regional instability was still far from gone, so the money leakage from Lebanese economy continued, and the central bank had to engage in course correction again and again.

By late 2018, Lebanese banks started imposing fees on operations their depositors made with foreign currency (currency those depositors owned!) to deter them from withdrawing USD in cash. At this point the general populace started becoming aware of the problems in the financial sector.

At this point, the crisis is already in full swing.

As multiple other public problems led to mass protests in 2019, commercial banks, fearing a bank run (very unsurprising in this situation), restricted access to depositors' funds. Unofficial exchange rates skyrocketed, and the following COVID pandemic only made things worse - by March 2021, the black market exchange rate was ~£L15,000 per US$1 - ten times the official rate from 2019. And the situation continues to deteriorate - as of today (February 2, 2023) black market rates are in excess of £L60k per US$1; the government is also finally acknowledges the devaluation officially by re-pegging the official rate at £L15k per US$1.

P.S. You really could say that Lebanon was better off right after the civil war than today. The "other problems" I mentioned in the last paragraph included the lack of stable electricity and water supply, rampant pollution, and even more rampant corruption. The financial crisis was really only one more sign of Lebanese government failing to solve problems the population faced after the civil war.

Answer 2

It isn't about the last 5-6 years. It has been a downward spiral for 30-50 years.

• The sectarian civil war was 'settled' with a compromise which perpetuated sectarian divisions and gridlocked the administration.
• Southern parts of the country were taken over by anti-Israeli militants, which caused Israel to variously bomb or invade southern Lebanon to stop their attacks. This was not conductive to good governance.
• Iran decided to meddle to counter Israel, which did not have the benefits of the Lebanese at heart.

Two things happened over the decades. Civil society and infrastructure crumbled, and knowledge about the conditions in Lebanon and the world have spread. Modern media brings better knowledge of the situation inside Lebanon to audiences outside, and it shows the difference between Lebanon and other countries to the Lebanese.

Consider the 2020 fertilizer explosion. From all reports, a functional government would have stepped in years before that happened.