The government’s plan: out of people’s concerns

In the structure of the government’s plan for “recovery”, there is something that suggests that it seeks to revive the same previous model that led us to the current situation, that is, the economy is at the service of capital and not vice versa. It is more like a loss assessment, rather than an economic view of the alternative model. The current model, collapsed, kept the economy hostage for more than two decades, to attend to financial flows in foreign currencies. He was working to attract these currencies from abroad by raising interest rates, and he used the following dollar proceeds to finance consumption in the context of defending the pound against the dollar. Flow utilization varied and the gap due to misallocation widened. In a clearer statement: Few have benefited and accumulated wealth at the expense of the majority who accumulated poverty.

Lyre release gap
The most important gap in the plan is that it addressed the issue of fixing the lira exchange rate against the dollar with apparent lightness. A day before its approval in the Cabinet, the plan’s calculations were based on the exchange rate liberalization to 3,500 pounds against the dollar, and then abandoned this step, leaving a phrase contrary to reality: “The government has intending to move to a flexible exchange rate, “indicating that it will hit 4,297 pounds against the dollar in 2024.
This issue raises questions about the government’s ability to standardize exchange rates in the parallel market and the regular market, as well as “it is not clear how things would be if the reforms announced in the plan are not implemented,” according to the former minister. Samir al-Maqdisi. In his opinion, “the mechanism of setting the exchange rate at 3,500 lire and the annual reduction at a rate of 5%, then withdrawing from the matter leaves much confusion and opens the way for unaccounted expectations, especially since calculating losses in the Current regular exchange rate differs greatly from its calculation after reducing the value of the lira. ” .
This means that the exchange rate policy to be followed is not clear. This is due to the lack of economic vision and the plan adheres to the accounting dimensions of the losses and their distribution only. Any level of the exchange rate should reflect the real value of trade in products and services between Lebanon and abroad, and thus reflect a clear policy towards import and export in the sense of production and consumption. For example, restricting imports in any way, whether to support specific goods, increase customs tariffs on other goods, or impose other tariffs on imported goods and services … will be directly reflected in the floating or liberalized exchange rate. Therefore, the direction that the government intends to lead economically determines its intentions towards the exchange rate and the consequences of monetary and fiscal policies, such as inflation, unemployment, poverty and others.

At the threshold of hyperinflation
There are also those who say that eliminating all losses at once is illogical in light of inflation at a rate of 53% in 2020 and 23.3% in the following year, to decrease thereafter to 6.6% and up to 6.2% in 2024. This inflation will inevitably eat up losses and lead to erosion of the value of income in the lira, and will have broader effects on the economy and can become excessive and uncontrollable inflation. … In parallel, GDP will decrease from $ 49 billion in 2019 to $ 26 billion in 2020, which means that production per capita will decrease from $ 8,000 per year to $ 4,300 per year.
However, the plan indicates the sudden return of growth in 2022 «betting on tourism activity. They can bet as much as they want, but this bet is not realistic, “says former Minister George Corm.

Unproductive path
These estimates come without noting a necessary and fundamental problem to stimulate growth and relaunch economic activity. Perhaps the most important mechanism for restoring growth lies in providing credit, that is, new money that can be injected into the market to move production and consumption and work to balance them. This path will only be available with funds channeled into the market to achieve clear economic objectives. Loans should be based on trends in national production and not on increasing the concentration of consumption levels, as it has been in the last two decades. “Initially, sectors must be encouraged if we move towards a productive society, and free trade agreements signed on the left and on the right must be removed,” says Corm. He believes that «the plan does not directly address the sources of the rentier economy and does not eliminate it, while progress towards a productive model is required. Currently, there are individual initiatives in the market, which are not part of state policy. “

Re-borrow in dollars
In exchange, the plan spoke of a solution by which to depend on foreign countries to close the financial gap in foreign currencies. In other words, borrow in dollars from abroad to obtain the necessary financing to import local goods and services. “In practice, the internal gap is covered through the external markets, so that the external debt grows, while this particular debt was the root of the problem,” says one expert. After the losses are canceled, the system is expected to replicate dollar debt tracking from the International Monetary Fund (if you agree) and from donor countries (if you agree). Consequently, we will swim again in the same cycle, that is, looking for enough dollars to cover the debt service in dollars and finance the importation of goods and services from Lebanon. This means that the need to attract dollars will increase over time, and will be urgent at some point as it is now. So why do we have to mortgage ourselves this way? “Any reform must stop the debt in foreign currency,” according to this expert.

The exchange rate must reflect clear economic policies for production and consumption.

In addition, Crimea believes that some of the loans from the International Monetary Fund “will go to financial programs related to the borders with Syria.” These programs are not necessary for the economy, but they are a political requirement. Don’t forget that it is the United States that administers the IMF. “
Although what is required is a clear vision of production and consumption, on the contrary, the plan ignores emerging problems in the public sector that absorb the largest number of local workers. Liberal exchange rate liberalization will lead to negative effects on business contracts, such as bank loans for individuals and businesses, leases and labor contracts … all unclear issues on how the plan will address them. Will all bank debts secured by real estate be canceled? Is it possible to consider 30% of the debt as bad as stated in the plan?

More austerity
As a result of the blow to the private sector, budget revenues will also suffer a setback. Depends on tax collection: “Is it possible to collect the expected taxes in the plan?” Asks the expert. In fact, there is a clear austerity plan that strengthens the existing recession, which has increased due to the closure resulting from the spread of the Corona epidemic. In addition, the plan proposes to reduce the public sector and harm the pension system for thousands of military and civil service workers or pensioners whose incomes will be eroded to alarming levels by the liberalization of the exchange rate, to zero budget deficits. Although such a proposition is not serious, it is not possible to deficit the deficit without increasing taxes and without extreme austerity.

The plan again borrowed in dollars so that we could once again sink into the pursuit of debt-servicing dollars.

And the scene becomes more confusing “because the bank deposits that the government intends to deduct are not limited to the largest depositors, but also to the deposits of the middle class, which are all national savings that determine the financing of the national economy. that those who made illegal profits will be the same as those who saved their money as a result of legitimate activities, “according to Al-Maqdisi. The problem is that “all the important economic reforms mentioned at the end of the plan, whether related to stimulating growth, improving local competitiveness, fighting corruption, social safety nets and customs reforms … everything should have been the backbone of any plan and not being on its margins. “
Crimea does not comment directly on the proposed hierarchies on bank deposits, except for the purpose of “handing over state property to the few who accumulated wealth,” while “the greatest hirkat is inflation.” The state lives outside the concerns of citizens. “