Was Lebanon the world’s biggest Ponzi scheme?

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Updated 09 August 2022
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Was Lebanon the world’s biggest Ponzi scheme?

  • A World Bank study accuses the political elite of making a “conscious effort” to weaken public-service delivery
  • Report finds use of excessive debt to create illusion of stability and reinforce confidence in the economy

DUBAI: A day before the second anniversary of the Aug. 4, 2020, Beirut port blast, the World Bank published a scathing report on Lebanon’s financial crisis and alleged acts of deception that appear to have made the country’s economic collapse inevitable.

Entitled “Ponzi Finance?,” the report compares the Mediterranean country’s economic model since 1993 to a Ponzi scheme — an investment fraud named after Italian swindler and con artist Carlo Ponzi.

During the 1920s, Ponzi promised investors a 50 percent return within a few months for what he claimed was an investment in international mail coupons. Ponzi then used the funds from new investors to pay fake “returns” to earlier investors.

The World Bank report claims a similar act of deception has taken place in Lebanon since the end of the civil war, whereby public finance has been used for the capture of the country’s resources, “serving the interests of an entrenched political economy, which instrumentalized state institutions using fiscal and economic tools.”

The report says excessive debt accumulation has been used to give the illusion of stability and to reinforce confidence in the economy so that commercial bank deposits keep flowing in. The study analyzes Lebanon’s “public finances over a long horizon to understand the roots of the fiscal profligacy and its eventual insolvency.”

At the same time, according to the report, there has been a “conscious effort” to weaken public-service delivery to benefit the very few at the expense of the Lebanese people. As a result, citizens end up paying double while receiving low-quality services.

The World Bank experts who wrote the report describe Lebanon’s financial crisis as “a deliberate depression” because “a significant portion of people’s savings in the form of deposits at commercial banks have been misused and misspent” over the past 30 years.

“It is important for the Lebanese people to realize that central features of the post-civil war economy — the economy of Lebanon’s Second Republic — are gone, never to return. It is also important for them to know that this has been deliberate.”




A protester stands with a Lebanese national flag during clashes with army and security forces near the Lebanese parliament headquarters in the centre of the capital Beirut on August 4, 2021, on the first anniversary of the blast that ravaged the port and the city. (AFP/File Photo)

The report adds: “These are earnings by expats who toil in foreign lands; they are retirement funds for citizens and perhaps the sole resource for a dignified living; they are necessary financing for essential medical and education services that consecutive governments have failed to provide; they are funds to pay for electricity in light of colossal failures in Electricite du Liban.”

Since 2019, Lebanon has been in the throes of its worst ever financial crisis, which has been compounded by the economic strain of the COVID-19 pandemic and the nation’s political paralysis.

In October 2019, the Lebanese took to the streets in the short-lived “thawra,” or revolution, demanding political and economic change. Their hopes were soon crushed by the trauma of the Beirut port blast, which on Aug. 4, 2020, killed 218 people, injured 7,000, and left 300,000 homeless.

These overlapping crises have sent thousands of young Lebanese abroad to search for security and opportunity, including many of the country’s top medical professionals and educators.




A World bank review of Lebanon's public finances has blamed an entrenched political elite for the economic collapse plaguing the country. (AFP)

Lebanese economists and financial analysts largely agree with the World Bank’s Ponzi scheme analogy.

“Lebanon is the greatest Ponzi scheme in economic history,” Nasser Saidi, a Lebanese politician and economist who served as minister of economy and industry and vice governor for the Lebanese central bank, told Arab News.

Unlike financial crises elsewhere in the world through history, Saidi said the cause of Lebanon’s woes could not be pinned to any single calamity that was outside the government’s control.

 “In Lebanon’s case it was not due to an actual disaster, not due to a sharp drop in export prices in commodities, it is effectively man-made.

“The World Bank talks about Ponzi finance, and they are right to point to the fact that you have two deficits over several decades. One was a fiscal deficit brought on by continued spending by the government more than revenues.

“The problem was that the government’s spending did not go for productive purposes. It did not go for investment in infrastructure or to build up human capital. It went for current spending. So, you didn’t build up any real assets. You had a buildup of debt, but you didn’t build up assets in proportion or to compare to the borrowing that you had.”

Since the end of the civil war, Lebanon should have been undergoing a period of reconstruction. However, spending on such infrastructure projects remained low, with the money seemingly siphoned off elsewhere.

“The infrastructure that was required — electricity, water, waste management, transport, and airport restructuring — was neglected,” said Saidi.




A Lebanese activist displays mock banknotes called “Lollars” (top) for a 100 USD bill, in front of a fake ATM during a stunt to denounce the high-level corruption that wrecked the country in Beirut on May 13, 2022. (AFP)

But it was not just material infrastructure of this kind that was neglected. Institutions that would have improved and solidified governance, accountability, and inclusiveness were also ignored, leaving the system vulnerable to abuse.

“Whenever you go through a civil war, you need to think about the causes of the war, and much of it was due to dysfunctional politics, political fragmentation, and the break-up of state institutions,” said Saidi.

“There was no rebuilding of state institutions and because of that, budget deficits continued, and a very corrupt political class began owning the state. They went into state-owned enterprises and government-related enterprises and considered that all state assets are their possessions and instead of possessions of the state.”

Lebanon’s “Ponzi scheme” was also driven by current account deficits and the overvalued exchange rate caused by the central bank policy of maintaining fixed rates against the dollar.

In economics, said Saidi, this is what you called the “impossible trinity,” meaning that a state could not simultaneously have fixed exchange rates, free capital movements, and independence of monetary policy.




The portside blast of haphazardly stored ammonium nitrate, one of the biggest non-nuclear explosions ever, killed more than 200 people, wounded thousands more and decimated vast areas of the capital. (AFP/File Photo)

“If you peg your exchange rate, you no longer have any freedom of monetary policy. Lebanon’s central bank tried to defy the impossible trinity and tried to maintain an independent monetary policy at a time in which the exchange rate was becoming more and more over-valued.”

The Lebanese central bank increased borrowing in an attempt to protect the currency and, in 2015, bailed out the banking system, all the while insisting the system was sound and suppressing IMF reports claiming otherwise.

“The World Bank report states things that we have all been saying since the beginning of the crisis,” Adel Afiouni, Lebanon’s former minister for investments and technology, told Arab News.

“Of course, the crisis was predictable. The indicators were there for years. The debt to GDP level and the unsustainability of this debt to GDP level and the unsustainable deficit that kept growing, and the way (the central bank) has managed public finances in an irresponsible way was a red flag for years.

“Countries usually react in a responsible way by announcing a set of measures to control public finance to reduce the deficit and the debt. This did not happen in Lebanon. The current authorities have ignored basic principles of how to avoid a crisis pre-2019 and how to manage a crisis post-2019.”

In April 2022, Lebanon reached a draft funding deal with the IMF that would grant the equivalent of around $3 billion over a 46-month extended fund facility in exchange for a batch of economic reforms. However, in June, the Association of Banks in Lebanon called the IMF draft agreement “unlawful,” stalling the process.

“This is the first step that should have happened in the first few weeks of the crisis, not two and a half years later,” said Afiouni. “Yet we still need to see radical reforms before we see the funding, and there is no indication now that we are about to see serious implementation of those reforms.”

The World Bank report calls for a comprehensive program of macro-economic, financial, and sector reforms that prioritize governance, accountability, and inclusiveness. It says the earlier these reforms are initiated, the less painful the recovery will be for the Lebanese people. But it will not happen overnight.

“Even if the reforms and laws were passed, it will take time to recover and to restore trust,” said Saidi. “Trust in the banking system, in the state, and in the central bank has been destroyed. Until that trust is rebuilt, Lebanon will not be able to attract investment and it will not be able to attract aid from the rest of the world.”

And although Lebanon held elections in May, propelling several anti-corruption independents to parliament, Saidi doubted their influence would be enough to drive change.

“Some 13 new deputies entered parliament, but they are unlikely to make the changes that are required,” he said. “Politically, business continues as usual. There is a complete denial of reality.”


‘No Eid’ for West Bank residents who lost sons in Israeli raids

Updated 5 sec ago
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‘No Eid’ for West Bank residents who lost sons in Israeli raids

  • An armored car arrived at the site shortly after, unloading soldiers to clear the cemetery of its mourners, who walked away solemnly without protest

JENIN: Abeer Ghazzawi had little time to visit her two sons’ graves for Eid Al-Adha before Israeli soldiers cleared the cemetery near the refugee camp in the occupied West Bank city of Jenin.
The Israeli army has conducted a months-long operation in the camp, which has forced Ghazzawi, along with thousands of other residents, from
her home.
For Ghazzawi, the few precious minutes she spent at her sons’ graves still felt like a small victory.
“On the last Eid — Eid Al-Fitr, celebrating the end of Ramadan in March — they raided us. They even shot at us. But this Eid, there was no shooting, just that they kicked us out of the cemetery twice,” said the 48-year-old.
“We were able to visit our land, clean up around the graves, and pour rosewater and cologne on them,” she added.
As part of the Eid celebrations, families traditionally visit the graves of their loved ones.
In the Jenin camp cemetery, women and men had brought flowers for their deceased relatives, and many sat on the side of their loved ones’ graves as they remembered the dead, clearing away weeds and dust.
An armored car arrived at the site shortly after, unloading soldiers to clear the cemetery of its mourners, who walked away solemnly without protest.
Ghazzawi’s two sons, Mohammed and Basel, were killed in January 2024 in a Jenin hospital by undercover Israeli troops.
The Palestinian Islamic Jihad militant group claimed the two brothers as its fighters after their deaths.
Like Ghazzawi, many in Jenin mourned sons killed during one of the numerous Israeli operations that have targeted the city, a known bastion of Palestinian armed groups fighting Israel.
In the current months-long military operation in the north of the West Bank, which Israel has occupied since 1967, Israeli forces looking for militants have cleared three refugee camps and deployed tanks in Jenin.
Mohammed Abu Hjab, 51, went to the cemetery on the other side of the city to visit the grave of his son, killed in January by an Israeli strike that also killed five other people.
“There is no Eid. I lost my son — how can it be Eid for me?” he asked as he stood by the six small gravestones of the dead young men.

 

 

 


Israel’s Netanyahu announces four soldiers killed in Gaza

Updated 06 June 2025
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Israel’s Netanyahu announces four soldiers killed in Gaza

  • Netanyahu extended his condolences “to the families of our four fallen heroes in Gaza”
  • The military said the four were killed in southern Gaza

JERUSALEM: Israeli Prime Minister Benjamin Netanyahu announced on Friday the deaths of four soldiers in Gaza, with local journalists who cover the military reporting they were all killed in a booby-trapped building.

Netanyahu extended his condolences “to the families of our four fallen heroes in Gaza in the fight to defeat Hamas and bring back our hostages,” naming two of the soldiers as Staff Sergeant Yoav Raver and reservist Sergeant Major Chen Gross.

“Our four fighters sacrificed their lives for the safety of all of us,” he added.

The names of the other two soldiers have not yet been cleared for publication, the military said.

Their deaths bring the number of Israeli soldiers killed since the start of the ground offensive in Gaza to 429.

The military said the four were killed in southern Gaza, with Israeli media reporting they were in
a house in the city of Khan Yunis when it exploded.

The army said another reserve officer was severely wounded in the same incident.

Israel recently stepped up its campaign in Gaza in what it says is a renewed push to defeat Hamas, whose October 7, 2023 attack sparked the war.


Israel army issues evacuation warning for parts of Gaza City

Updated 06 June 2025
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Israel army issues evacuation warning for parts of Gaza City

  • The evacuation order comes at the beginning of the Eid Al-Adha holiday
  • Israel has faced mounting pressure to allow more aid into Gaza

GAZA CITY, Palestinian Territories: The Israeli military issued an evacuation order for residents of parts of Gaza City on Friday ahead of an attack, as it presses an intensified campaign in the battered Palestinian territory.

“This is a final and urgent warning ahead of an impending strike,” army spokesman Avichay Adraee said.

The army “will strike all areas from which rockets are launched.”

The evacuation order comes at the beginning of the Eid Al-Adha holiday, one of the main religious festivals of the Muslim calendar.

The Israeli military has recently stepped up its campaign in Gaza in what it says is a renewed push to defeat Hamas, whose October 2023 attack sparked the war.

International calls for a negotiated ceasefire have grown in recent weeks.

Hamas’s lead negotiator, Khalil Al-Hayya said on Thursday that the Palestinian Islamist group was ready to enter a new round of talks aimed at sealing a permanent ceasefire in Gaza.

Talks aimed at brokering a new ceasefire have failed to yield a breakthrough since the last brief truce fell apart in March with the resumption of Israeli operations in Gaza.

Israel and Hamas appeared close to an agreement late last month, but a deal proved elusive, with each side accusing the other of scuppering a US-backed proposal.

Israel has faced mounting pressure to allow more aid into Gaza, after it imposed a more than two-month blockade that led to widespread shortages of food and other essentials.

It recently eased the blockade and has worked with the newly formed, US-backed Gaza Humanitarian Foundation to implement a new aid distribution mechanism via a handful of centers in south and central Gaza.

But since its inception, the GHF has been a magnet for criticism from the UN and other members of the aid world — which only intensified following a recent string of deadly incidents near its facilities.

Hamas’s unprecedented attack on Israel resulted in the deaths of 1,218 people, mostly civilians, according to an AFP tally based on official figures.

According to the health ministry in Hamas-run Gaza, at least 4,402 people have been killed since Israel resumed its offensive on March 18, taking the war’s overall toll to 54,677, mostly civilians.


Homes smashed, help slashed: no respite for returning Syrians

Updated 06 June 2025
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Homes smashed, help slashed: no respite for returning Syrians

  • The community center, funded by UNHCR, offers vital services that families cannot get elsewhere in a country scarred by war
  • “We have no stability. We are scared and we need support,” said Fatima Al-Abbiad, a mother of four

DAMASCUS: Around a dozen Syrian women sat in a circle at a UN-funded center in Damascus, happy to share stories about their daily struggles, but their bonding was overshadowed by fears that such meet-ups could soon end due to international aid cuts.

The community center, funded by the United Nations’ refugee agency (UNHCR), offers vital services that families cannot get elsewhere in a country scarred by war, with an economy broken by decades of mismanagement and Western sanctions.

“We have no stability. We are scared and we need support,” said Fatima Al-Abbiad, a mother of four. “There are a lot of problems at home, a lot of tension, a lot of violence because of the lack of income.”

But the center’s future now hangs in the balance as the UNHCR has had to cut down its activities in Syria because of the international aid squeeze caused by US President Donald Trump’s decision to halt foreign aid.

The cuts will close nearly half of the UNHCR centers in Syria and the widespread services they provide — from educational support and medical equipment to mental health and counselling sessions — just as the population needs them the most. There are hundreds of thousands of Syrian refugees returning home after the fall of Bashar Assad last year.

UNHCR’s representative in Syria, Gonzalo Vargas Llosa, said the situation was a “disaster” and that the agency would struggle to help returning refugees.

“I think that we have been forced — here I use very deliberately the word forced — to adopt plans which are more modest than we would have liked,” he told Context/Thomson Reuters Foundation in Damascus.

“It has taken us years to build that extraordinary network of support, and almost half of them are going to be closed exactly at the moment of opportunity for refugee and IDPs (internally displaced people) return.”

BIG LOSS
A UNHCR spokesperson told the Thomson Reuters Foundation that the agency would shut down around 42 percent of its 122 community centers in Syria in June, which will deprive some 500,000 people of assistance and reduce aid for another 600,000 that benefit from the remaining centers.

The UNHCR will also cut 30 percent of its staff in Syria, said the spokesperson, while the livelihood program that supports small businesses will shrink by 20 percent unless it finds new funding.

Around 100 people visit the center in Damascus each day, said Mirna Mimas, a supervisor with GOPA-DERD, the church charity that runs the center with UNHCR.

Already the center’s educational programs, which benefited 900 children last year, are at risk, said Mimas.

Nour Huda Madani, 41, said she had been “lucky” to receive support for her autistic child at the center.

“They taught me how to deal with him,” said the mother of five.

Another visitor, Odette Badawi, said the center was important for her well-being after she returned to Syria five years ago, having fled to Lebanon when war broke out in Syria in 2011.

“(The center) made me feel like I am part of society,” said the 68-year-old.

Mimas said if the center closed, the loss to the community would be enormous: “If we must tell people we are leaving, I will weep before they do,” she said

UNHCR HELP ‘SELECTIVE’
Aid funding for Syria had already been declining before Trump’s seismic cuts to the US Agency for International Development this year and cuts by other countries to international aid budgets.

But the new blows come at a particularly bad time.

Since former president Assad was ousted by Islamist rebels last December, around 507,000 Syrians have returned from neighboring countries and around 1.2 million people displaced inside the country went back home, according to UN estimates.

Llosa said, given the aid cuts, UNHCR would have only limited scope to support the return of some of the 6 million Syrians who fled the country since 2011.

“We will need to help only those that absolutely want to go home and simply do not have any means to do so,” Llosa said. “That means that we will need to be very selective as opposed to what we wanted, which was to be expansive.”

ESSENTIAL SUPPORT
Ayoub Merhi Hariri had been counting on support from the livelihood program to pay off the money he borrowed to set up a business after he moved back to Syria at the end of 2024.

After 12 years in Lebanon, he returned to Daraa in southwestern Syria to find his house destroyed — no doors, no windows, no running water, no electricity.

He moved in with relatives and registered for livelihood support at a UN-backed center in Daraa to help him start a spice manufacturing business to support his family and ill mother.

While his business was doing well, he said he would struggle to repay his creditors the 20 million Syrian pounds ($1,540) he owed them now that his livelihood support had been cut.

“Thank God (the business) was a success, and it is generating an income for us to live off,” he said.

“But I can’t pay back the debt,” he said, fearing the worst. “I’ll have to sell everything.”


Netanyahu admits Israel supporting anti-Hamas armed group in Gaza

Updated 06 June 2025
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Netanyahu admits Israel supporting anti-Hamas armed group in Gaza

  • Israeli and Palestinian media have reported that the group Israel has been working with is part of a local Bedouin tribe led by Yasser Abu Shabab

JERUSALEM: Prime Minister Benjamin Netanyahu admitted that Israel is supporting an armed group in Gaza that opposes the militant group Hamas, following comments by a former minister that Israel had transferred weapons to it.
Israeli and Palestinian media have reported that the group Israel has been working with is part of a local Bedouin tribe led by Yasser Abu Shabab.
The European Council on Foreign Relations (EFCR) think tank describes Abu Shabab as the leader of a “criminal gang operating in the Rafah area that is widely accused of looting aid trucks.”
Knesset member and ex-defense minister Avigdor Liberman had told the Kan public broadcaster that the government, at Netanyahu’s direction, was “giving weapons to a group of criminals and felons.”
“What did Liberman leak? That security sources activated a clan in Gaza that opposes Hamas? What is bad about that?” Netanyahu said in a video posted to social media on Thursday.
“It is only good, it is saving lives of Israeli soldiers.”
Michael Milshtein, an expert on Palestinian affairs at the Moshe Dayan Center in Tel Aviv, told AFP that the Abu Shabab clan was part of a Bedouin tribe that spans across the border between Gaza and Egypt’s Sinai peninsula.
Some of the tribe’s members, he said, were involved in “all kinds of criminal activities, drug smuggling, and things like that.”


Milshtein said that Abu Shabab had spent time in prison in Gaza and that his clan chiefs had recently denounced him as an Israeli “collaborator and a gangster.”
“It seems that actually the Shabak (Israeli security agency) or the (military) thought it was a wonderful idea to turn this militia, gang actually, into a proxy, to give them weapons and money and shelter” from army operations, Milshtein said.
He added that Hamas killed four members of the gang days ago.
The ECFR said Abu Shabab was “reported to have been previously jailed by Hamas for drug smuggling. His brother is said to have been killed by Hamas during a crackdown against the group’s attacks on UN aid convoys.”
Israel regularly accuses Hamas, with which it has been at war for nearly 20 months, of looting aid convoys in Gaza.
Hamas said the group had “chosen betrayal and theft as their path” and called on civilians to oppose them.
Hamas, which has ruled Gaza for nearly two decades, said it had evidence of “clear coordination between these looting gangs, collaborators with the occupation (Israel), and the enemy army itself in the looting of aid and the fabrication of humanitarian crises that deepen the suffering of” Palestinians.
The Popular Forces, as Abu Shabab’s group calls itself, said on Facebook it had “never been, and will never be, a tool of the occupation.”
“Our weapons are simple, outdated, and came through the support of our own people,” it added.
Milshtein called Israel’s decision to arm a group such as Abu Shabab “a fantasy, not something that you can really describe as a strategy.”
“I really hope it will not end with catastrophe,” he said.