The Beirut banking showdown exposes the desperation of the economic crisis

BEIRUT — A judge on Friday ordered a gunman who held up to 10 hostages at a Beirut bank to force the release of their trapped savings to stay behind bars, apparently to ward off copycats as desperation for the Lebanon’s economic crisis.

Several dozen relatives of Bassam al-Sheikh Hussein briefly blocked a major road in Beirut, saying keeping him in prison violates an agreement reached on Thursday. The 42-year-old food delivery driver surrendered after a seven-hour standoff in exchange for $35,000 of his money and promised he would only be questioned and then released. No one was injured.

It was the latest reminder of the pain created by Lebanon’s nearly three-year economic and financial crisis, described by the World Bank as one of the world’s worst since the 1850s. Three-quarters of the population are in the poverty, corruption is endemic and many are losing hope for quick solutions.

Like most people in Lebanon, Hussein had no access to his money because of the banks’ informal controls on money flows. He had $210,000 in the Federal Bank of Beirut and struggled to withdraw some to pay his father’s medical bills and other expenses.

Since taking hostages worked to free some of Hussein’s savings, releasing him without charge could inspire others to follow suit as people face soaring inflation and a lack of job opportunities. Many hailed him as a hero, but it was unclear whether his actions would lead to wider protests against the banks.

“They want to send a message to people that this is not going to happen easily,” Paul Morcos, founder and owner of the Justicia Consulting law firm in Beirut, said of Hussein’s arrest.

The punishment for taking hostages and threatening people with weapons is usually three months to two years in prison, but could reach life in prison if it was for the purpose of getting money, Morcos said. But he expects Hussein to be released within days or weeks once people forget what happened.

The international community has demanded reforms to ease Lebanon’s economic crisis, but entrenched political elites, guilty of decades of corruption and mismanagement, have resisted. Talks with the International Monetary Fund have progressed slowly as parliament prepares legislation required by the IMF for a bailout, including laws on capital controls and those aimed at money laundering.

Many of those in power are former warlords and militia chiefs from the 1975-90 civil war. Ruling factions use public institutions to accumulate wealth and distribute aid to supporters. Corruption is often ignored and institutions are underdeveloped. As a result, power outages are frequent, trash is often not collected, and tap water is largely undrinkable.

Poverty is on the rise as prices soar and the Lebanese pound has lost more than 90% of its value since October 2019. Most people can only withdraw small amounts of money from banks each month at a rate of change much worse than that of the unofficial market.

The situation began to deteriorate dramatically last year after the state raised fuel subsidies, leading to an increase in the prices of almost all commodities. It came at a time when blackouts lasted 22 hours a day, putting private generators out of reach for many as people now have to pay for fuel in US dollars.

Court officials said the judge decided to keep Hussein under arrest because he committed crimes such as taking hostages and threatening people with weapons. The officials, who spoke on condition of anonymity in accordance with regulations, said it was unclear how long Hussein would remain in custody.

Hussein’s lawyer, Rafik Ghraizi, who attended the questioning, told local Al-Jadeed TV that his client did not point the gun at anyone and had no intention of harming the employees. He said all Hussein needed was for him to return the money.

In January, a cafe owner withdrew $50,000 trapped in a bank in eastern Lebanon after taking employees hostage and threatening to kill them. He was released two weeks later.

When anti-government protests erupted in late 2019, protesters attacked banks, sometimes with Molotov cocktails, and lenders fortified their branches. At one point, police patrolled outside all bank branches, but that changed after the protests subsided.

Acting Deputy Prime Minister Saadeh Shami on Friday called on parliament to quickly approve a capital control law. Last year, he put the financial sector’s losses at $69 billion.

“Lebanon is at a crossroads: reforms and improvement or further collapse. It’s up to us,” Shami, who is leading the talks with the IMF, said in a statement.

Lebanese banks made huge profits in recent decades as they invested much of their money in government treasury bonds that paid high interest rates and resulted in one of the highest debt ratios in the world . This led the Lebanese diaspora and many foreigners to put their savings in Lebanese banks and earn higher interest rates compared to international markets.

Banks had been criticized for years for making risky investments despite widespread corruption in Lebanon. In March 2020, Lebanon defaulted for the first time on its debt, which later reached $90 billion, or 170% of gross domestic product.

“The excessive accumulation of debt was used to give the illusion of stability and bolster confidence in the macro-financial system so that deposits would continue to flow in,” according to a World Bank report released this month called “Lebanon Public Finance Review: Ponzi Finance?”

One economist said the banks are to blame, not Hussein.

“Banks, with the help of politicians, and financial and judicial authorities are taking people hostage. It is not a depositor who takes hostages in a bank,” tweeted economist Mounir Younes.


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About the Author: Chaz Cutler

My name is Chasity. I love to follow the stock market and financial news!