Lebanese default

Politicians playing their games in the midst of a serious economic crisis has disastrous consequences. On March 9, 2020, Lebanon could not repay a $1.2 billion Eurobond. That day Lebanon defaulted, the first sovereign default in Lebanon’s 77-year history (Lebanon’s public debt had reached $90 billion). That day, the Lebanese pound, officially pegged to the dollar, lost 40 percent of its value in the black market. Banks did not have the hard currency to repay depositors. “How can we pay the creditors while there are people in the streets without the money to buy a loaf of bread?” said Hassan Diab, an academic who served as the 137th prime minister of Lebanon.

Post-default, three-quarters of the population now lives in poverty. Post-default, the rate of unemployment has hit 50 percent. Lebanon’s “economic collapse has been compounded in recent days by a looming political crisis…” Lebanon now has no dollars to buy oil to run power plants. The Beirut-Rafic Hariri Airport has little or no electricity and everyone else is facing long hours of total blackouts.

The Lebanese Armed Forces (LAF), founded in 1945, has 80,000 ground troops, 2,500 air force personnel, 1,700 in the naval force-and an annual budget of $2.5 billion. On average, a soldier is paid 1.2 million Lebanese pounds a month, which is “$800 at the official exchange rate but only about $80 on the black market.” At $80 a month, soldiers are now below the line of poverty. According to Brig-Gen Youssef Haddad, “each soldier needs an additional bonus to help him cover his basic needs on a monthly basis….which should total around $90 million to $100 million.” For the record, the local currency has lost “more than 90 percent of its value on the black market.”

General Joseph Aoun, the commander-in-chief of LAF, said, “We are doing the impossible to ease the suffering and the economic woes of our soldiers.” Last year, the army “scrapped meat from the meals offered to on-duty soldiers, because of rising food prices.”

In June 2021, France hosted a virtual conference in order to gather donations for LAF. According to the French Ministry of Defense, the “crisis was alarming because the Lebanese military was the key institution maintaining security.” The LAF highlighted “very specific needs for milk, flour, medicine, fuel and spare parts for maintenance.” Among the LAF’s main food donors are France, Egypt, the UAE and Turkey (Spain offered medical assistance).

Last year, Qatar announced that it would “provide Lebanese armed forces with 70 tonnes of food a month for a year”. In February 2022, President Biden paid salaries to the soldiers of LAF under a new ‘livelihood support’ for members of the LAF. According to Senator Chris Murphy, “It is in the US national security interest to help these servicemen make ends meet…” In March, Italy donated military vehicles – including two 20-seat buses, a tanker and an inflatable boat-as the first installment of a larger donation.

Sovereign default has serious consequences – food inflation, high unemployment, rampant poverty, food shortages, widespread crime and a complete wrecking of the country’s war-waging capacity.

The writer is a columnist based in Islamabad. He tweets @saleemfarrukh and can be reached at: farrukh15@hotmail.com