Lebanon’s economic crisis is getting worse, threatens to spill over into violence
Four slightly unusual events that took place during the Queen’s funeral
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Today’s briefing is a ~4.2 min read:
- 💸 Lebanon’s economic crisis: a tale of reckless borrowing and gross mismanagement.
- ➕ Plus: Geopolitical wrinkles at the Queen’s funeral, Timor Leste and Australia sign a defence agreement, and Indonesia approves a new data protection bill.
📰 GLOBAL HEADLINES
🤿 DEEP DIVE
A look at Lebanon’s economic crisis
- Lebanon’s economic crisis has plunged 80% of the population into poverty, and desperate citizens are turning to violent means to access their own savings.
- Reckless borrowing, negligent creditors and an incompetent political elite are all to blame for Lebanon’s current emergency, and change doesn’t seem to be around the corner.
One person’s thief is another’s savings account holder
The ongoing Lebanese economic crisis has spawned a unique security concern: people are now raiding banks and demanding access to their own money.
- At least seven banks were targeted last week in a wave of holdups that forced the Lebanese Association of Banks to close all branches in the country for three days.
The crowds gathering around the targeted banks cheered on the customers/robbers inside, a clear sign of the extreme exasperation felt by the citizens.
How bad is the situation? Capital B-Bad. Have a go at wrapping your head around these numbers:
- 95%: The percentage value the Lebanese pound has lost against the US dollar since 2019, according to black market rates.
- 5.6 million: the number of people categorised as “multidimensionally poor” by the UN in 2021. That’s around 80% of Lebanon’s population.
- 240%: Lebanon’s annual inflation rate hit its highest level ever in January of this year.
The liquidity drought
The current economic crisis erupted in 2019 when it became apparent the government wasn’t going to be able to repay its debts to foreign and domestic creditors.
- The value of the Lebanese pound (also known as the lira) tumbled, and the country entered a liquidity crisis that forced the government and banks to impose withdrawal limits.
Now, citizens are effectively cut off from their savings in US dollars – the currency used for most everyday transactions – unless they’re willing to exchange their greenbacks for Lebanese pounds at ridiculously low rates.
A few of the root causes of Lebanon’s economic hardship:
- 🤑 Reckless borrowing – The World Bank has described the Lebanese financial system as a “Ponzi scheme”, where new loans were taken to cover previous financial mistakes. Having said that, foreign creditors share part of the responsibility for facilitating this mess.
- 🏴☠️ Incompetent governance – Lebanon’s political elites have failed to act and pull the country out of its crisis. For example, following the 2020 Beirut port explosion, the country was without an executive for 13 months.
- 💣 Loss of support from Gulf states – Iran’s influence over Lebanese politics has cost Lebanon the opportunity to have a productive relationship with wealthy Arab states like Saudi Arabia.
Currently, the government is attempting to work its way down a list of IMF requirements to unlock a $3B loan, but progress has been slow.
In the meantime, there’s a real risk that civil unrest could spiral out of control. Citizens have been arming themselves at historical rates in response to widespread lawlessness, even though a Kalashnikov goes for around US$450 and the average monthly wage is just $25.
As analyst Hrair Balian puts it: “the Lebanese state is on the verge of implosion. The smallest spark could provoke another civil war and create a haven for violent extremists.”
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🔦 REGIONAL SPOTLIGHT
Southeast Asia & the Pacific
On Tuesday, India and Egypt signed a Memorandum of Understanding (MoU) to enhance their bilateral defence cooperation capabilities.
- The agreement will boost joint military exercises and promises to deepen ties between the defence industries of India and Egypt.
- However, given the significant role the Egyptian military plays in its country’s economy, this MoU could have economic benefits for India too.
The Indonesian Parliament approved a new data protection bill that will give prosecutors the power to fine corporations and request jail time for the mishandling of personal data.
- The new law comes after a series of high-profile data breach cases allegedly involving state-owned corporations.
- In news that will please Brussels, Indonesian authorities have admitted the bill was based on the EU’s own GDPR legislation.
The Maldives hopes to host its first US embassy by the end of this year, as ties between the two countries “have never been this strong”, according to Maldives Foreign Minister Abdulla Shahid.
- In the past, the US has flipped-flopped on the issue of formal diplomatic representation on the archipelago nation due to budgetary concerns.
- However, the Maldives’ increasingly important role in the Indo-Pacific has pushed calculations in favour of establishing an embassy in the near future.
Officials announced Monday that they expect Thailand’s 2023 tourism revenues to reach $64.5 B, or about 80% of its pre-Covid levels.
- Gap-year backpackers searching for a Full Moon Party will be glad to know Thailand is “on the recovery path” after more than two years of pandemic-related closures for the tourism sector.
- This will also be welcome news for Thai economists worrying about a global economic downturn – the Thai tourism industry accounts for a whopping 18% of the country’s GDP.
🇹🇱 Timor Leste
Timor Leste and Australia signed a defence agreement to deepen military cooperation earlier this month.
- The new pact will allow for greater cooperation in humanitarian assistance missions and make it easier to conduct joint military exercises in the Timor Sea.
- Indo-Pacific countries are at the centre of unusual geopolitical attention as China and the US & its allies compete for their loyalties.
🗞 IN OTHER NEWS…
Beyond the glitz and pageantry
Queen Elizabeth’s funeral was a grand affair that brought together heads of state, royals and politicians from all over the world. Because gatherings of world leaders always make for intriguing occasions, here are our top four moments:
🗳 1. Bolsonaro thought it was a perfect opportunity for a campaign speech. Speaking from the balcony of the Brazilian Ambassador’s residence in Mayfair, Bolsonaro raged against drugs, the legalisation of abortion and “gender ideology” to the cheers of a small crowd of supporters.
- Paulo Abrāo, a law professor and former Brazilian government official, branded Bolsonaro’s antics as “insensitive”, adding, “the president of Brazil [holds] a rally during a wake in England. Uses public diplomatic resources and structures for the election campaign. Another international shame.”
🚌 2. People not used to taking a bus had to take a bus. French President Emmanuel Macron, King Abdullah II of Jordan and EU Commission President Ursula von der Leyen decided to take public transport to the Queen’s funeral. Well, not quite, but world leaders were bussed to Westminster Abbey in the name of security.
- Only US President Joe Biden got to travel in his own armoured car, which caused a few raised eyebrows and this strong tweet.
As George Orwell once wrote: All world leaders are equally special, but some world leaders are more equally special than others.
⛔️ 3. A Westminster Abbey ban for China: A Chinese delegation did attend the Queen’s lying-in-state despite reports from earlier in the week that they would be barred from entering Westminster.
- Only the Chinese Ambassador to the UK was prevented from attending, owing to his ban on attending Parliament which was issued in retaliation for China’s sanctioning of five UK politicians.