A Letter to the Lebanese Diaspora
Dear children of Lebanon,
wherever you are,
Can we talk for a moment?
A serious conversation from emigrant to emigrant?
As you know, Lebanon is going downhill, and that is still a euphemistic way to put it. In fact, Lebanon’s economy is crashing and burning. Who ever thought Lebanon would end up like this? Our country, our pride, how long will it survive more? We used to be the ‘Switzerland of the Middle East’ and look at us now: Calling ourselves the ‘Venezuela of the Middle East’ would still be a description too positive.
We all have an idea how we got where we got. And as little as we like to admit it, you and I, we are amongst the prime suspects of the crime. Please, do not leave yet. For I do not wish to burden your conscience, nor bring you sleepless nights. Indeed, I bet that the situation in Lebanon has kept you awake for long enough. Bear with me and I think we can find a way out of this situation. But, before we can get out of the dark hole, we first need to agree on what kind of hole it is, and how we got in here in the first place.
To understand the origins of the problem, we could go back to the emergence of Lebanon as a nation-state, when the ground for the hole was prepared, but going back that far will blur our vision. Instead, we can argue that the digging started after the Lebanese Civil War (1975-1990). Lebanon had just gotten out of a blood-ridden conflict, one that no author has managed to summarize in simple terms yet. After the war, the country was in pieces and needed rebuilding. Maybe your own house, too, was burned to the ground, or maybe your parents’. All had to be reconstructed brick by brick. The money for this reconstruction, at that time, seemed to appear miraculously. Looking back now, however, we can recognize that it was in between those moments of hope, rebuilding, and laws of amnesty, that Lebanon’s end started.
To rise from its ashes, Lebanon stood before a difficult challenge. It had to stabilize the economy and regain investor confidence while also reconstructing a country post-war. To achieve its first goal, the Lebanese government decided to peg the Lebanese pound (LBP) to the U.S. dollar (USD) at a rate of 1,500 pounds to 1 dollar in 1997. Lebanon was certainly not the first Arab country to peg its local currency to the USD. What was unique, however, was the way in which Lebanon has financed this peg. Whereas other Arab countries used revenues from oil and gas to finance their currency linkage, Lebanon relied on revenues from something else, or more precisely: from someone else.
This is where you and I enter the scene. We, Lebanese immigrants with good intentions send ‘home’ money, preferably as often as we can, to show loyalty to our country and love to our families. If necessary, we would even go into debt to send our remittances, wouldn’t we?
These acts of loyalty and love, they certainly have made an impact. Each year, several billions of dollars in remittances flow into Lebanese banks. For many years, remittances have been one of the main sources of capital inflows for Lebanon, together with banking and tourism. It is money from this strong financial sector, which mainly has depended on the foreign currency obtained through remittances, that has made the peg possible.
The currency peg forms only one of the characteristics of the so-called process of financialization that occurred after the Civil War. It means that Lebanon became more and more reliant on profits obtained not through trade and commodity, but through financial channels, such as interest and dividends. This process is a quite common one, nowadays, and we have seen that it occurred in the U.S. too, for example. It often goes hand in hand with three related processes. Since I do not wish to overburden you with complexities, I will turn to each of these processes separately, to show you how financialization in Lebanon took place and more importantly: what our role has been within process and how it got us into this crisis.
When Lebanon decided it wants to make profits from the financial sector, it started changing the way it governed companies and institutions, to ‘suit’ the financial market. The most prominent change Lebanon made in this context was the currency linkage that I discussed earlier. Like many developing countries, Lebanon adopted the peg with the aim to enter the world market. This helps to control inflation, and it allows financial capital to create profit and be taken out of the country safely.
During the post-war period a very powerful sector arose, the banking sector. It is quite typical for the process of financialization to bring both economic and political power to those who are important in the process of accumulation. Therefore it came as no surprise that Lebanese bankers became ‘the richest and most influential people in Lebanon’: Riad Salameh, the governor of the Lebanese Central Bank, being the prime example. Bankers like Salameh accumulated their position by lending money to the government at high interest rates. Without these banks, the Lebanese government would not have been able to accumulate the debt it is now facing.
Bankers are not the only ones who gained power because of the financialization, however. Think about it. Since when did the Lebanese government care for the votes of the diaspora? Indeed, only since a few years ago. Since 2018, the exact year that remittances declined rapidly, the diaspora has been allowed to vote for Lebanese parliament. Arguably, it was only then that Lebanon was forced to admit the role of the diaspora for its existence.
This is interesting because the diaspora’s remittances have formed the backbone of the Lebanese economy for years. It was with money coming from remittances that Lebanese banks have been able to provide loans to the government. Lebanon’s banks ‘once powered the economy by sucking in billions of dollars of deposits from abroad’. The diaspora, by sending remittances, financed indirectly the debt of the now close-to-bankrupt government. Only through remittances could the economy keep growing.
The third and final process related to financialization concerns financial innovation, and the increase of reliance on financial flows over income from ‘real’ economic activity. For many years now, Lebanon relied exclusively on monetary policies to attract foreign capital inflows, and banks over time became more efficient in creating an attractive environment for foreign capital. Until 2012, remittance inflows were stable and even increasing.
When banks saw remittances dropping, and Lebanon started struggling with attracting capital flows because of internal political chaos, the Central Lebanese Bank came with an ingenious idea that they labelled ‘financial engineering’: to offer banks abundantly high interest rates in exchange for new dollars.
This whole Lebanese financial system has been based on something that resembles a Ponzi scheme, in which old creditors are paid through deposits from new creditors. The whole system is like a financial air bubble, which will burst once new deposits stop flowing in. The whole bubble which allowed Lebanon to cover itself in luxury and gold – we all know how much Lebanese like to live the high life – came to burst when oil prices suddenly fell at the end of 2018, and remittances from Lebanese in the Gulf dropped drastically. The money to pay high interest rates as well as to pay back debts was now gone.
To deal with the sudden decrease of remittances, banks decided to limit the amount of dollars that people could withdraw from the banks. This resulted in the emergence of ‘lollars’ – dollars stuck in Lebanese banks – with consequences that are, in contrast to what the name would suggest, far from funny. You remember the images on TV: People waiting in rows for hours to withdraw their hard-earned money. As you know, the policy of limited withdrawal resulted in the opposite of what it intended to realize. Instead of stacking up a dollar pile, banks saw a further run on dollars as well as a further drop in remittances, resulting in an even worse dollar shortage.
Financialization, then, is what has characterized the Lebanese financial system, and remittances have been one of the main drivers of this system. For long, the importance of the diaspora’s goodwill was underappreciated. Only during the current financial crisis did the role of ‘diaspora dollars’ become evident. There’s a saying that you only realize what you have once it’s gone, and I think that applies very well here. Only when remittances stayed away, Lebanon saw the important role of these capital flows.
You may now think: so what, those remittances play such a major role? Isn’t it great to see the money we send make an impact in our motherland? Certainly, it is. But maybe our remittances have made too much of an impact. Maybe, because we took care of our beloved ones back in Lebanon so well, we took every responsibility and every task out of the hands of the Lebanese government. Health care: check; welfare: check; education: check. All is guaranteed through remittances. What is left for the Lebanese government than to lay back and watch how we make the mess that is Lebanon livable?
Lebanon is eating its children, and we as a diaspora were the ones that provided the olive oil, Lebanese bread and sumac, so it can enjoy its meal happily. We prepared one of its favorite sweets, knefeh bil jibn, a delicious pastry filled with cheese. Who does not associate these warm tastes with the carelessness of their childhood?
These times are over now. The cheese is rotting because Lebanon’s electricity is barely functioning, and the price of bread is now tenfold the price of what it was before. The people are suffering. No day goes by that I do not worry about my family and about my beloved ones.
Dear friend, we have been part of the reason why Lebanon has become like this. We may have fled the country, but we did not – I must say, cannot – leave it. I believe it is our responsibility to at least try and change the current situation. Are you with me?
Please do not expect me to propose a definite and exhaustive solution; that would be dishonorable to Lebanon’s inherent complexity, and it would be beyond the scope of this letter. Instead, I want to give a crude blue print for a two-step solution that will put the remittances at use in favor of the Lebanese people, instead of against them.
The first step is straightforward but confronting, and maybe it is for this reason that it has been neglected for so long: Stop sending money if it is not an emergency. I am not telling you that you should not send money to your sick grandma. Instead, I am telling you that your uncle can live fine without new Adidas sneakers, and that your little nephew should maybe get used to living without the iPad he broke. Taking this step is important because it makes the government vigilant again; it will make them realize that their population will not live a wealthy life based on ‘free’ money forever.
This brings me to the second step: Instead of sending ‘free’ money, it is time for the Lebanese diaspora to organize, and bundle their remittances. It is time to use these almost 7 billion USD, on which the Lebanese economy is dependent, to push Lebanon to change its political structure fundamentally, starting with the abolition of the sectarian system. It is time for the diaspora to show those who stayed in Lebanon that they were never really left behind. It is time to go back home. Are you coming with me?
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