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This was expected to happen as soon as the price subsidy for imported commodities began to be removed. In fact, this development comes after the start of the elimination of subsidies on some imported food products and after the market dried up due to the dollars that the banks had withdrawn and caused widespread currency speculation. What happens is only the beginning. Finance Minister Ghazi Wazni, “we were told” yesterday, in an interview with “Bloomberg”, to reduce subsidies on food and gasoline, stating that some products will be removed from the list of subsidized goods, while it is anticipated that Gasoline prices will rise in the coming months “reducing gas subsidies from 90%. To 85%.”
My weight explains the equivocal results of this policy. He said: “These measures will fuel inflation, which is expected to reach 77% this year, before subsidy cuts are taken into account.” In this sense, the minister wants the reduction of subsidies to raise inflation rates even more. He did not put a ceiling on it, but went on to talk about the justifications for this behavior: saving reserves in dwindling foreign currencies. He pointed out that the reserves subject to the financing of the support amount to 1,500 million dollars of the 16,000 million that the Banque du Liban has, “which is enough for two or three months.”
At first glance, my weight seems correct on the dollar-saving inflation it promotes. But at the same time, it also seemed to justify accelerating the dollar exchange rate from £ 10,000 to £ 15,000 in a few days. The minister did not refer to the sin of wasting dollars in subsidizing imported goods, nor to the catastrophe that would leave him behind. Faced with the continuation of the powers of power represented by the minister (all forces and not just the political party that he represents in the ministry within the sectarian structure) to deny the collapse, and his subsequent efforts to “beautify” it, he created the conditions and the right environment for an accelerated fall in the price of the lira. This acceleration will increase when the grants are lifted. The subsidy removal mechanism clearly means that Banque du Liban will stop pumping dollars to finance the import of goods, which means that traders will turn to the market for dollar amounts to finance the import of goods that were financed by Banque du Liban. . . Faced with a market clouded by the drainage of dollars, the additional demand will become a factor that will accelerate the increase in the price of the green currency against the lira, and a catalyst for the expectations that lead the market.
The behavior of the authority and its executive director, the governor of the Central Bank, led in less than two years to double the price of the dollar 10 times compared to the rate set at 1507.5 pounds on average. A jump like this is one of the ugliest and worst types of taxes that any authority imposes on its people. Former Minister Charbel Nahhas calls him “Tashleh.” It affects the purchasing power of income and savings. The lowest income groups are the most affected. You melt and squeeze them. It is a despicable tax similar to the mind that imposes it. Its repercussions are long-term, it causes economic poverty and food poverty, and it pushes young people, especially those of high caliber, to emigrate.
This happened because the authority stayed on the sidelines. Each “breach” step further fueled the collapse. The “gap” is a hedge for all speculative operations on the currency. And a cover for all BDL circulars. And a hedge for illegal and discretionary capital control decisions imposed by banks on their clients … The “gap” created an environment conducive to price inflation (including the exchange rate). It ignited negative expectations that fueled inflation and then fueled it in return.
At first, it was left to the governor of the Central Bank of Lebanon, Riad Salameh. The latter abandoned the fixation of the exchange rate in most banking and commercial activities, with the exception of a basket of goods (fuel, wheat, medicines, medical supplies and, later, a group of food products). Creation of a platform that set the price of the dollar at 3,000 pounds, then 3,900 pounds, set months ago. Before that, the banks had stopped all withdrawals and transfers. The two measures coincided, and the local dollar check trade grew from there. Today, the local dollar is down 24% against a new dollar. With the suspension of withdrawals and transfers, the financing of foreign trade has become the responsibility of the parallel market, which cannot obtain enough dollars to meet the demand of merchants. Little by little, the price of the dollar rose and the central bank began to print pounds to cover bank depositors’ withdrawals on the exchange rate. More than 30 trillion lire were printed in a year and a half. The monetary block in circulation has multiplied by six in this period. In a clear sense, the value of the lira declined, and with it the purchasing power. The collapse of the exchange rate was a determining factor for inflation, before the latter, at high rates, became a determining factor for a further collapse of the exchange rate. The purpose of this equation was to amortize the losses of the banking sector. For every dollar that the central bank pays for the price of the platform, the banks extinguish one dollar for it at the price of the 1,500 deposits registered in their books. And the result of this process is more additional money that is injected into the market and becomes an additional demand for dollars.
The subsidy removal mechanism means that the Banque du Liban will stop pumping dollars to finance the import of goods.
At some point in this process, the question of determining losses to allocate them was the main story. The identification process was carried out by the government. Neither the ruling order nor the bankers nor the largest number of deputies liked the people they represented. Therefore, a committee of the House of Representatives addressed this issue in the first place. Instead of studying the mechanism and criteria for distributing losses, the discussion in the committee focused on the size of the losses. With magic, the losses were reduced from colossal to minor. Then came the explosion in the port of Beirut and the government was overthrown. Prime Minister Saad Hariri appointed him, but he is still stalling the writing. One of the reasons for its procrastination is that it wants to lift subsidies and liberalize the exchange rate in its broadest form, before its creation.
In practice, the governor of the Central Bank of Lebanon was left to understand the collapse and deal with its aftermath. Its rescue plan, in the name and on behalf of the Authority, decided to issue circulars destined to extinguish the losses of the banking sector. They are the losses between a triangle: the Banque du Liban, the banks and the depositors. In the middle of this matter, there was a pole called “subsidies”, that is, the basic products whose importation by the Central Bank of Lebanon was kept at the 1520 dollar. This subsidy was financed with the remaining dollars in the Banque du Liban. Subsidies drained of dollars. As for reversing it, it would cause a huge inflationary shock. This is how it was decided to dose the shock. Reduce and streamline subsidies so that people continue to pay the price with their income and savings. A very insidious and ugly plan that will generate more poverty and a lot of emigration.
Between today and yesterday
Most of the parties in power lived through the eighties and went through the stages of monetary collapse, from 10 lire at the end of 1985 to 500 lire at the end of 1987, then to 1100 lire at the end of 1990, reaching 2,400 lire at late 1990. late 1991, and then return it to 1507.5 lire on average to be set within a margin that intervenes The Banque du Liban, to preserve it, has a maximum limit of 1515 pounds and a minimum of 1,500 pounds.
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