Deliberately inadequate policy responses by successive Lebanese governments combined with politicians’ self-serving deals are largely to blame for the country’s economic crisis, according to a World Bank report. The report concludes that the country must seriously engage “in the macro-fiscal, financial and sectoral reforms that the World Bank has been emphasizing for decades.”
Politicians who defend “a bankrupt economic system”
In its latest report on Lebanon’s economic situation, the World Bank says the Middle Eastern country’s ongoing economic crisis is the product of “deliberately inadequate policy responses” by successive governments. In the report, which analyzes Lebanon’s post-civil war economy, the global lender notes that politicians have failed to agree on effective policy measures that led to one of the worst economic crises “since mid 19th century”.
The bank argues that this absence of effective political responses combined with the “political consensus in defense of a failing economic system” has only exacerbated the misery of the Lebanese people.
In the report called Lebanon’s Ponzi financial review, the World Bank acknowledges the role the Covid-19 pandemic may have played in worsening the situation. However, the bank insists that Lebanon’s problems have more to do with past decisions made by the country’s politicians. To support this claim, the report points to the poor management of people’s savings. The report explains:
The most painful thing is that a significant part of people’s savings in the form of deposits a [the] commercial banks have been used and wasted over the past 30 years.
Lebanon’s savings losses
As Bitcoin.com News previously reported in February, the financial reform plan pushed by the Lebanese government at the time would see Lebanese depositors lose up to $38 billion. However, under the same plan, the government, bank shareholders and the central bank would incur combined losses of $31 billion, about $7 billion less than the proposed losses for depositors.
However, in its report, the World Bank argues that commercial banks and large lenders should have absorbed the losses.
“The losses should have been accepted and borne by bank shareholders and large creditors, who have benefited greatly over the last 30 years from a very unequal economic model. This should have happened at the beginning of the crisis [over 2 years ago] to limit the economic and social pain of the financial crisis,” the report said.
Expanding on Lebanon’s so-called “deliberate depression,” the report claims that the actions of successive governments showed that the country had “consistently and sharply moved away from an orderly and disciplined fiscal policy.” This can be evidenced by Lebanon’s accumulation of debt to “maintain deposit inflows under a fixed exchange rate, the overvaluation of which allowed excessive consumption, creating an illusion of wealth.” The same can also be evidenced by the use of the state as a “subsidy and transfer distribution channel to further consolidate the confessional system of power sharing”.
Concluding its message to the Lebanese people, the World Bank said citizens must be aware of how years of mismanagement have plunged Lebanon into its current crisis. The global lender added that having this background will help the Lebanese people understand why the country must seriously engage “in the macro-fiscal, financial and sectoral reforms that the World Bank has been emphasizing for decades.”
When this is done sooner, the Lebanese people can minimize the “painful cost of Ponzi Finance”.
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Terence Zimwara is an award-winning journalist, author and writer from Zimbabwe. He has written extensively about the economic problems of some African countries, as well as how digital currencies can offer Africans an escape route.
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