Shafaq News / Lebanon, which was once one of the most thriving nations in the Middle East, has been grappling with a severe economic crisis since 2019, including a massive currency depreciation as well as fuel and medical shortages.
Therefore, a Lebanese government official's declaration of state and the Banque Du Liban bankruptcy were not much of a surprise. The Lebanese people are well aware that their state, suffering a crisis dubbed one of the world's worst economic crises in the past 150 years, has been faltering or almost unable to meet its minimum financial obligations for many months.
The news dashed the hopes of hundreds of thousands of Lebanese families who had become destitute as a result of years of mismanagement, corruption, and sectarian quotas that had gradually dragged the country into a debt quagmire totaling nearly $100 billion in a country of only 6 million people.
That is why the announcement by Lebanese Deputy Prime Minister Saadeh al-Shami, who made the announcement unexpectedly through an interview on a local television channel rather than through Najib Mikati, the prime minister, who makes almost daily statements about every economic development, has raised many questions among the Lebanese.
From a legal perspective, despite his government position, al-Shami's statement does not reflect the official position of the Lebanese State, which, if the current peril is real, must make public to the Lebanese people.
It must also notify the relevant international authorities, particularly the World Bank, international donors, and aid and loan providers to whom large amounts of Lebanon's foreign debt are owed.
In the interview, al-Shami said that the losses would be shared by the state, the Banque Du Liban, banks, and depositors.
Despite the country's ongoing economic crisis since late 2019, no government official has declared the country bankrupt. Moreover, the state has not acknowledged the existence of a haircut policy. On the other hand, banks have imposed massive restrictions and unfair cuts on bank depositors' accounts, totaling 70% of the value of their detained funds.
Even though the Lebanese were expecting this unpleasant surprise, they are now wondering about the significance of its timing, in the early days of Ramadan, and a few weeks before the supposed opening of the ballot boxes, in the first post-October Revolution parliamentary elections, and the total collapse of the Lebanese pound against the dollar.
Many now fear al-Shami's statement because he signaled that depositors will again bear part of the distribution of bankruptcy losses, "Losses will be distributed to the state, Banque Du Liban, banks, and depositors, with no specific proportions."
"There is a fact that cannot be ignored. We cannot live in denial, nor allow bank withdrawals to all people," he added.
Pending further official clarifications from the government, shock prevailed over the Lebanese about this strange declaration and raised countless questions about what this means for their ever-deteriorating economic conditions.
The United Nations estimated that 70% of the Lebanese people live below the poverty line.
The range of Lebanese concerns was broad: how much more will we lose? What happens to our money? How much will be haircut? And what is the exchange rate? Will deposits in US dollars or Lebanese pounds be affected? Will their properties, houses, lands, ...etc. be affected by "bankruptcy"? Will "bankruptcy" drive additional legions of young people, physicians, engineers, nurses, and teachers, to migrate at higher rates than in the previous two years?
Furthermore, the Lebanese official's announcement raises many concerns about the country's future, given that it has been negotiating with the International Monetary Fund (IMF), for months, on economic rescue programs that require radical "reforms" that have so far been stalled.
This means that negotiations with the IMF and the international community may now enter a major turning point with the harsh IMF terms burdening the Lebanese people.
State bankruptcy…
Economically, a state is "bankrupt" when it becomes unable to meet its financial obligations, such as its employees' salaries, the implementation of various projects, and also struggles to pay for goods purchased from abroad, including its basic needs such as wheat, fuel, medicines, and others.
The declaration of bankruptcy usually causes investors' money to flee the country and depositors to scramble to withdraw their money from banks, which has been the case in Lebanon for more than a year.
By declaring bankruptcy, the government is forced to negotiate with external entities such as the IMF under difficult conditions, as it usually requests debt restructuring. Harsh requirements would be placed on citizens' pockets, requiring that the government implement steps such as reducing the public sector by laying off employees, implementing higher tax policies, and increasing subsidies on basic commodities such as wheat and fuel, resulting in price floating.
Many countries have already declared bankruptcy on various continents, including Europe, where Germany, for example, has declared bankruptcy eight times over the past three centuries, and the United States five times.
However, some bankrupt countries may not have the strong and rich resources to emerge from their depression quickly and easily, such as Lebanon, which lacks resources like oil, gas, and minerals that could help it overcome the deepening economic crisis.
Other countries, such as Brazil, Mexico, Ecuador, Uruguay, Chile, Egypt, and Spain, once declared bankruptcy.
Russia also declared bankruptcy in 1998 due to the failure of its post-Soviet economic policies in 1991.
A notable example of states declaring bankruptcy in the recent past is Argentina, which in 2001 stopped paying its debt of $132 billion, after plunging into a years-long recession that left the government unable to meet its obligations.
Argentina was forced to resort to the International Monetary Fund (IMF) to break the crisis and implement harsh austerity measures that sparked many strikes and popular protests.
Another recent example is Greece, which declared bankruptcy in 1827, 1843, 1893, 1932, and 2012. The European country failed to pay 313 billion euros of the government debt. Greece's total debt, including debts to domestic banks and corporations, amounted to roughly half a trillion euros.
Greece's recent bankruptcy was instigated by the heavy spending on arming in the face of constant tension with Turkey, which in addition to a long history of political and administrative corruption, shaky investment laws, and ineffective tax collection, took a toll on the Greek economy. However, in depth, Greece's issues began the moment it joined the European Union. The domestic industry collapsed when the Greek market was struck by a torrent of higher quality and lower price imported products.
To mitigate the crisis, Lebanon is pursuing the infamous "Haircut" policy with the massive losses it caused to the Lebanese government bondholders, while negotiating a +130 million dollars European bailout with the IMF; a replication of Athens' scenario with tougher measures to reduce the budget deficit, such as salary cuts, with all the detriment this might bring to the lives of millions of people.
Exclusive to Shafaq News agency.