Deliberately inadequate policy responses by successive Lebanese governments and self-serving agreements by politicians are major causes of the country’s economic crisis, says a World Bank report. The report concludes that the country needs to seriously address the “macro-fiscal, financial, and sectoral reforms that the World Bank has emphasized for decades.”
Politicians Defend “Failed Economic System”
In its latest report on the economic situation in Lebanon, the World Bank asserts that the ongoing economic crisis in the Middle Eastern country is the product of “deliberately inappropriate policy responses” by successive governments. In a report analyzing Lebanon’s economy after the civil war, the World Bank blames the failure of politicians to agree on effective policy measures for causing one of the most serious economic crises “since the mid-1800s.”
The Bank argues that the absence of an effective policy response, coupled with a “political consensus in defense of a failed economic system,” has only exacerbated the misery of the Lebanese people.
In areportcalled the Lebanon Ponzi Scheme Review, the World Bank acknowledges the role that the Covid-19 pandemic may have played in the worsening situation. However, the Bank argues that Lebanon’s problems have more to do with past decisions made by the country’s politicians. In support of this claim, the report points to the mismanagement of people’s savings. The report explains that.
Most egregious is that a significant portion of people’s savings, in the form of deposits in commercial banks, have been misused and misspent over the past 30 years.
Savings Losses in Lebanon
About
As Bitcoin.com News previously reported in February, the financial reform plan presented by the Lebanese government at the time would have cost Lebanese depositors $38 billion Lebanese depositors would lose $38 billion. However, under the same plan, the government, the bank’s shareholders, and the central bank would have lost a combined $31 billion, about $7 billion less than the losses proposed for depositors.
Nevertheless, the World Bank argues in its report that commercial banks and large creditors should have absorbed the losses.
“Bank shareholders and large creditors, who have profited greatly from a very unequal economic model over the past three decades, should have accepted and borne the losses. This should have been done early in the crisis (more than two years ago) to limit the economic and social pain of the financial crisis,” the report states.
Expanding on Lebanon’s so-called “deliberate recession,” the report argues that the actions of successive governments proved that Lebanon had “deviated markedly from a consistently orderly and disciplined fiscal policy.” This is evidenced by the fact that Lebanon “accumulated debt to maintain deposit inflows under a fixed exchange rate, whose overestimation allowed excessive consumption and created the illusion of wealth.” The same is evidenced by the use of the state as a “distribution channel for subsidies and transfers to further consolidate the power-sharing congressional system.”
In concluding its message to the Lebanese people, the World Bank said that the public needs to recognize that years of mismanagement have brought Lebanon to its current crisis. The World Bank added that it would be helpful for the Lebanese people to understand the context of why Lebanon needs to take seriously “the macro-fiscal, financial, and sectoral reforms that the World Bank has emphasized for decades.”
If this is done quickly, the Lebanese people may be able to minimize the “painful cost of Ponzi finance.”
Image Credits: Shutterstock, Pixabay, Wiki Commons, Editorial photo credit: Erich Karnberger / Shutterstock.com.