Before a deadly blast rocked Lebanon’s capital on Tuesday, the country’s economy was already on a Venezuela-like trajectory. Now, with at least 100 people dead in Beirut, thousands wounded, many more displaced, and likely billions of dollars required to repair the damage, Lebanon is careening toward that devastating future.
Two explosions in Beirut’s port area sent a red mushroom cloud thousands of feet into the air. Lebanese officials said a fire at a warehouse containing 2,700 tons of ammonium nitrate — which can be used in agricultural fertilizer, bombs, and rockets — that had been stored six years prior fueled such a gigantic explosion. By comparison, less than two metric tons of the substance was used in the 1995 Oklahoma City bombing.
It’s no surprise, then, that the resulting detonation was felt about 150 miles away on the island nation of Cyprus.
Hospitals are now overrun with the injured. Unfound bodies lay under rubble or in the Mediterranean Sea, leading locals to seek help to find their loves ones on social media. Leveled city blocks are hard to clear because they’re covered in broken glass.
Lebanon’s Prime Minister Hassan Diab immediately vowed swift justice. “I promise you that this catastrophe will not pass without accountability,” he said during his Tuesday night televised address. “Those responsible will pay the price.” The next day, the government placed Port of Beirut officials under house arrest while an investigation into culpability continues.
But the fate of Lebanon’s elites after the tragedy may not be as bad as the fate of the everyday person in Lebanon, as the blast only exacerbated their longstanding problems.
The nation’s leaders mismanaged the economy for decades, namely with a Ponzi-like scheme whisking away the hard-earned money of Lebanese people from banks to keep the government afloat, pay off public debts, and line the pockets of those in charge. The troubled policy screeched to a halt after the country’s banks simply ran out of money last year — meaning Lebanese workers lost savings they’d stored in accounts and expected to be available when needed.
That worsened an already bad situation: the unemployment rate hovers around 25 percent and about a third of the country lives below the poverty line.
The lack of funds has pushed millions into poverty, forcing some to eat at best every other day. That’s made worse as the lira, Lebanon’s currency, has collapsed, driving the prices of necessary items like food upward. It’s why many experts fear Lebanon may soon see refugees flock out of the country, though they have few places to go in the war-torn region.
Any potential financial relief from the International Monetary Fund (IMF) likely won’t come after it watched the government mishandle the nation’s economy and because Lebanon’s most powerful political player is Hezbollah, a Shia Muslim party and militant group with close ties to Iran that the US considers a terrorist organization.
Add to all this the nearly 5,500 cases of coronavirus in the country as of August 5, and Lebanon is facing a nightmare scenario from which it may take years — even decades — to recover.
“The situation is definitely dire: political crisis, economic crisis, lack of resources, the pandemic, and now the explosion,” Laura Bell, a Lebanon expert at West Texas A&M University, told me. “Lebanon could easily become a failed state if leadership and international assistance is not adequate.”
Lebanon is on its way to becoming the new Venezuela
To understand how Lebanon got into this economic mess, you need to understand two things: 1) why Lebanon pegged its currency to the US dollar, and 2) how the government siphoned, and eventually lost, the money of Lebanese citizens from local banks.
Let’s start with the lira-dollar connection. As Washington-based Lebanese American commentator Hussain Abdul-Hussain explained it to me, Lebanon’s big economic play after its 15-year civil war ended in 1990 was to attract investors and tourists, and bolster its services sector. After all, Lebanon wasn’t big enough to have agricultural or industrial prowess, but it did have an educated population, skilled labor, and lovely sights for foreigners to visit.
Pegging Lebanon’s lira to the US dollar, which the government did in 1997, was meant to show the world Lebanon was a safe investment — but it wasn’t. Israel occupied southern Lebanon until 2000, and Hezbollah proceeded to fight with Israel many times, most prominently engaging in a month-long war in 2006. That kind of instability scared off multinationals and other investors, thus hindering growth over the long term.
Yet through all of this, Lebanon’s Central Bank kept the same exchange rate: 1,507 lira to $1. Lebanon is heavily dependent on imports — for example, about 80 percent of the food in the country is brought in from elsewhere, per the United Nations’ Food and Agriculture Organization. Adhering to the fixed exchange rate kept those prices down, thereby making products cheaper for Lebanese people to buy.
That worked for a time. But in recent years, remittances from expats and loans from countries like Saudi Arabia dried up, while government dysfunction and corruption depleted what resources Lebanon had left. Private banks tried to fill Beirut’s coffers with loans, which came mostly from US dollars Lebanese workers put into their accounts (people in Lebanon can pay for goods and services with either the lira or US dollars, and many carry both currencies in their wallets).
Most knew this was happening, but they were convinced not to withdraw their cash with promises of a great return thanks to interest rates up to 15 percent. “Hence,” Abdul-Hussain said, “the Ponzi scheme.”
Simply put, the government’s mismanagement saw it run out of funds, which in turn led private banks to lend it more dollars, which meant the bank’s customers saw their deposits run out. Repeat that process over and over and over again, and it was always likely nothing would be left for the government to borrow.
That long-predicted outcome came true last September as banks saw up to $100 billion disappear, according to government figures. That, among other reasons, caused the lira’s exchange rate to spike, and the Central Bank was out of options (read: other people’s money) with which to bring it back down.
Now the local currency is pretty much worthless. In the past month or so, the lira has lost about 60 percent of its value, and about 80 percent total since October. That’s made purchasing necessities like food difficult as those prices have gone up about 200 percent. As an example, the cost of two pounds of meat is now equivalent to around $33 — a figure so high that Lebanon’s Army stopped purchasing meat for its soldiers.
It’s such a dire situation that experts say it’s likely Lebanon will find itself in a similar economic spot as Venezuela. “We are going in that direction,” said Faysal Itani of the Center for Global Policy think tank in Washington.
If true, it could mean a total collapse of the country — and pure horror for the millions of people in Lebanon.
The human toll of the Lebanon crisis is staggering
Two weeks ago — well before the explosion at Beirut’s port — the Washington Post described the worsening situation in Lebanon:
Bread, a staple of the Lebanese diet, is in short supply because the government can’t fund imports of wheat. Essential medicines are disappearing from pharmacies. Hospitals are laying off staff because the government isn’t paying its portion, and canceling surgeries because they don’t have electricity or the fuel to operate generators.
Newly impoverished people are taking to Facebook to offer to trade household items for milk. Crime is on the rise. In one widely circulated video, a man wearing a coronavirus mask and wielding a pistol holds up a drugstore and demands that the pharmacist hand over diapers.
Such scenes may soon compel millions of refugees to flee the country in search of a better life. That will be hard, experts tell me, because of Lebanon’s geographic location. To its west is the Mediterranean Sea; to the south, Israel; and to the east and north, Syria, which has spent much of the past few years in a civil war. “There aren’t that many places for people to go,” Itani said.
What’s worse, about 20 percent of Lebanon’s 7 million population are refugees, with most coming from Syria to flee the fighting. They will likely be among the hardest hit by the economic collapse, as they had few means to begin with.
Still, Lebanese workers who’ve toiled day in and day out to make a living have seen their wealth fade away. In July, NBC News interviewed Mohammad Kekhia. When he had a job, he used to earn up to $33 per day. The problem is that income is worth around $5.50 today. “We used to eat with this money,” Kekhia, who lives in one room with his wife and three kids, told NBC. “Now there’s no food. No work. No medication.”
Some, like Kekhia, may get some relief: The UN World Food Program, which is in Lebanon to feed the Syrian refugees, will now support Lebanese families for the first time since the 2006 war with Israel. That’s also necessary since Tuesday’s blast took out all but a month’s worth of grain stores.
But the country as a whole is unlikely to get financial help. The IMF has watched Lebanon’s leaders derail its economy for years, and in June the Central Bank saw about $49 billion disappear from its coffers — equivalent to about 91 percent of Lebanon’s 2019 economic output. Between that and having Hezbollah basically in charge of the country’s government, there’s little appetite at the IMF to send much-needed billions in assistance to Beirut.
“It has been really difficult,” Kristalina Georgieva, the IMF’s managing director, told reporters in July about weeks of negotiations her team has had with Lebanese officials. “The core of the issue is whether there can be unity of purpose in the country.”
The question many have now is if the economic crisis, mixed with the deadly blast and coronavirus outbreak, will spark a nationwide popular uprising against the government. “In a country facing dire economic consequences and then hit by the Covid-19 pandemic, which only exacerbated the situation, it is possible that we could see a complete breakdown of ordered society,” said West Texas A&M’s Bell.
Indeed, Lebanon’s largest protests since the civil war sprang up last October against government corruption and austerity measures, leading to the then-prime minister’s resignation. A new set of anti-government demonstrations started this summer as Lebanese citizens watched their currency crash. And an imminent verdict in the murder trial of a beloved former prime minister — which has four Hezbollah members as defendants — might reignite deep-seated animosities toward the leading political-military group.
Further unrest isn’t guaranteed. But if many in the country fault their leaders for the deaths and wounds of thousands, the tanking economy, and the pandemic — and can withstand rallying in the streets despite worsening conditions — Lebanon may soon see a mounting political crisis only get worse.
“It’s a tinderbox,” said Leah Graham, a Lebanon expert at the University of North Alabama.
Support Vox’s explanatory journalism
Every day at Vox, we aim to answer your most important questions and provide you, and our audience around the world, with information that has the power to save lives. Our mission has never been more vital than it is in this moment: to empower you through understanding. Vox’s work is reaching more people than ever, but our distinctive brand of explanatory journalism takes resources — particularly during a pandemic and an economic downturn. Your financial contribution will not constitute a donation, but it will enable our staff to continue to offer free articles, videos, and podcasts at the quality and volume that this moment requires. Please consider making a contribution to Vox today.