As Lebanon’s crisis-stricken political leaders bicker over yet-to-be-formed government positions, new data show that the country’s runaway inflation rate jumped to 211% in May 2022 revealed. Economist Steve Hanke argues that a currency commission is the solution to Lebanon’s currency crisis.
Fuel black market fuels inflation
Crisis-hit Lebanon’s inflation rate jumped to 211% in May, the 23rd consecutive increase in the consumer price index (CPI), according to a report. The latest inflation figures were revealed as the country’s politicians reportedly struggle to form a new government more than a month after parliamentary elections.
National Newsreportsthat Lebanon’s key reforms to receive a $3 billion bailout from the International Monetary Fund (IMF) have been delayed after the country failed to establish a new government. The report also cites a Byblos Bank memo that attempts to identify factors that are likely exacerbating the inflation situation. The memo claims that.
the inability of the authorities to monitor and control retail prices…
The bank also reported that smuggling of imported goods and the emergence of a black market for fuel contributed to the most recent spikein inflation. As the report notes, transportation costs alone have risen by 515% over the 12-month period. The health sector has seen the second highest spike, with prices rising 468% over the same period.
Currency Board Recommendation
The National News report also claims that Lebanon, which currently has over $100 billion in public debt, will need to set up a government in order to access an additional $11 billion pledged by donors in 2018. Nevertheless, this money will only become available after the necessary reforms are implemented.
Meanwhile, Johns Hopkins professor and economist Steve Hanke recently argued in atweetthat an IMF bailout would not stop what he calls “the death spiral of the Lebanese economy.” Instead of trying to save a collapsing currency, Hanke recommends a currency commission.
“Since January 1, 2020, the Lebanese pound has fallen 92% against the US dollar. The Mikati administration will not be able to stop the death spiral of the Lebanese economy with its flawed deal with the IMF. The only way for the Lev to establish confidence&stability is to set up a currency board,” the economist argued.
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