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.”


Thousands protest in Iraq against the Iran-Israel war

Updated 53 min 29 sec ago
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Thousands protest in Iraq against the Iran-Israel war

  • “No to Israel! No to America!” chanted demonstrators gathered after Friday prayers in the Sadr City district of Baghdad
  • In Iraq's southern city of Basra, around 2,000 people demonstrated after the prayers

BAGHDAD: Thousands of supporters of powerful Iraqi cleric Moqtada Sadr rallied Friday in Baghdad and other cities against Israel’s war with Iran, AFP correspondents said.

“No to Israel! No to America!” chanted demonstrators gathered after Friday prayers in the Sadr City district of Baghdad, Moqtada Sadr’s stronghold in the capital, holding umbrellas to shield themselves from Iraq’s scorching summer sun.

“It is an unjust war... Israel has no right” to hit Iran, said protester Abu Hussein.

“Israel is not in it for the (Iranian) nuclear (program). What Israel and the Americans want is to dominate the Middle East,” added the 54-year-old taxi driver.

He said he hoped Iran would come out of the war victorious, and that Iraq should support its neighbor “with money, weapons and protests.”

In Iraq’s southern city of Basra, around 2,000 people demonstrated after the prayers, according to an AFP correspondent.

Cleric Qusai Assadi, 43, denounced Israel’s use of Iraqi airspace to bomb Iran. “It is a violation of Iraq’s sovereignty,” he said, warning against “a third world war against Islam.”

Echoing the views of Sadr, Assadi said that Iraq should not be dragged into the conflict.

In a statement earlier this week, Sadr condemned “the Zionist and American terrorism” and the “aggression against neighboring Iran, Palestine, Lebanon, Syria and Yemen,” referring to Israel’s military operations in those countries.

Sadr, who once led a militia fighting US-led forces after the 2003 invasion, retains a devoted following of millions among the country’s majority community of Shiite Muslims, and wields great influence over Iraqi politics.

He has previously criticized Tehran-backed Iraqi armed factions, who have threatened US interests in the region if the United States were to join Israel in its war against Iran.

On Friday, Israel launched a surprise attack targeting Iran’s military and nuclear sites and killing top commanders and scientists, saying it was acting to prevent Iran from obtaining a nuclear weapon, an ambition Tehran denies having.

The assault has prompted Iran to retaliate with barrages of missiles aimed at Israel, with residential areas in both countries suffering.

Iraq is both a significant ally of Iran and a strategic partner of Israel’s key supporter, the United States, and has for years negotiated a delicate balancing act between the two foes.

It has only recently regained a semblance of stability after decades of devastating conflicts and turmoil.


Fearful of Iranian missiles, many sleep in Israel’s underground train stations

Updated 20 June 2025
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Fearful of Iranian missiles, many sleep in Israel’s underground train stations

  • “We’re not sleeping because of the anxiety and because of the sirens that are happening during the nights,” said Shraibmen
  • Melech said the scene, with hundreds of people in their pajamas in the train station, reminded her of her grandfather’s stories from World War II

RAMAT GAN, Israel: Aziza Melech felt her body relax for the first time in days when she settled onto her inflatable mattress in an underground station of Israel’s light rail system on a recent evening.

For the next few hours, at least, the 34-year-old event planner wouldn’t need to run every time a siren warning of Iranian missiles sounded.

Since the war began a week ago with Israel’s airstrikes on Iran, families with young kids, foreign workers, and young professionals have brought mattresses and sleeping bags, snacks and pets into the stations each evening.

Repeatedly running for shelter
On Wednesday night, in a station that straddles Tel Aviv and neighboring Ramat Gan, parents settled in their kids with stuffed animals, while young people fired up tablets loaded with movies.

Many walked in carrying boxes of pizza. Workers set out snacks and coffee.

It was Melech’s first night sleeping in the brightly lit train station, and she was joined by her friend Sonia Shraibmen.

“We’re not sleeping because of the anxiety and because of the sirens that are happening during the nights,” said Shraibmen. “It’s very scary to run every time to the shelter.”

That morning, Shraibmen fell on the street while rushing to a nearby shelter, and decided to move somewhere where she wouldn’t have to get up and run each time her phone blared.

Melech said the scene, with hundreds of people in their pajamas in the train station, reminded her of her grandfather’s stories from World War II. “Now, we’ll be able to tell our grandkids about this,” she said.

The war between Israel and Iran began on June 13, when Israel launched airstrikes targeting Iranian nuclear and military sites as well as top generals and nuclear scientists.

More than 600 people, including over 200 civilians, have been killed in Iran and more than 2,000 wounded, according to a Washington-based Iranian human rights group. People in Tehran have also packed into metro stations as strikes boomed overhead.

Iran has retaliated by firing 450 missiles and more than 1,000 drones at Israel, according to Israeli army estimates. Those strikes have killed have killed 24 people and injured hundreds in Israel. Missiles have struck 40 different sites, including apartment buildings, offices and a hospital, according to authorities.

Footage of pancaked buildings or apartment towers with faces sheared off has forced some people to reconsider what they do when a siren blares.

The Tel Aviv light rail, which is not running because of the war, has several underground stations. In addition to the hundreds who sleep in them each night, thousands of others come only when there’s a siren, crowding into every part of the station not taken up by mattresses.

Those living older apartments lack shelter
Around half of the nighttime residents at the train station are foreign workers, who often live in older apartment buildings that are often not equipped with adequate shelters.

While new buildings in Israel are required to have reinforced safe rooms meant to withstand rockets, Iran is firing much stronger ballistic missiles. And shelter access is severely lacking in poorer neighborhoods and towns, especially in Arab areas.

Babu Chinabery, a home health aide from India, said he went to the station ”because we are very scared about the missiles because they’re so strong.”

Chinabery, 48, has been in Israel for 10 years, so he is no stranger to the sirens. But the past week has been something different. “It’s very difficult, that’s why we’re coming to sleep here,” he said.

The light rail stations aren’t the only places people have sought shelter.

Around 400 people also sleep in an underground parking garage at one of the city’s biggest malls each night, according to organizers. Mutual aid groups set up more than 100 tents, each one in a parking space, providing a bit more privacy for people who wanted to sleep in a safe area.

Tel Aviv’s Central Bus Station — a half-abandoned cement behemoth — also opened its underground atomic shelter to the public for the first time in years.

While likely one of the safest places in Israel during a missile attack, the creepily deserted rat- and cockroach-infested shelter, filled with standing water from leaky pipes, attracted only a handful of curious onlookers during the day and no residents at night.

Not taking ‘unnecessary risks’
Roi Asraf, 45, has been sleeping at the train station in Ramat Gan for the past few nights with his wife and 3-year-old daughter, even though they have a safe room at home.

“I don’t like to take unnecessary risks,” he said.

They now have the routine down: They give their daughter a bath at home, get everyone in their pajamas, and walk to the train station by 7 p.m. Local volunteers have run a nightly show for kids to help settle them before sleep.

“I hope (the conflict) will be short and quick,” said Asraf, after his daughter, Ariel, bounded off with her mom to catch the show. Despite the difficulties, he supports Israel’s attack on Iran.

“If I have to sleep a week of my life in a train station for everything to be safer, I’m willing to do it,” he said.


Libya objects to Greek tender for hydrocarbon exploration off Crete

Updated 20 June 2025
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Libya objects to Greek tender for hydrocarbon exploration off Crete

  • Greece opposed the agreement, saying it had no legal basis
  • Last month Athens invited bidders for hydrocarbon exploration in two blocks south of Crete

TRIPOLI: Libya’s internationally recognized government of national unity has objected to Greece’s approval of an international tender for hydrocarbon exploration off the island of Crete, saying some of the blocks infringed upon its own maritime zones.

The two countries have been trying to mend relations strained by an accord signed in 2019 between the Libyan government and Greece’s regional rival Turkiye, which mapped out a sea area between them close to the Greek island.

Greece opposed the agreement, saying it had no legal basis as it sought to create an exclusive economic zone from Turkiye’s southern Mediterranean shore to Libya’s northeast coast, ignoring the presence of Crete.

Last month Athens invited bidders for hydrocarbon exploration in two blocks south of Crete following an expression of interest by US major Chevron.

Libya’s Tripoli-based foreign ministry said in a statement late on Thursday that some of the tendered sea blocks off Crete fell within disputed zones and were “a clear violation of Libya’s sovereign rights.”

The ministry objected “to any exploration or drilling activities in these areas without a prior legal understanding that respects the rules of international law,” it said, calling on Greek authorities to prioritize dialogue and negotiation.

Responding to questions at the Greek parliament, Greek Foreign Minister George Gerapetritis said Greece was willing to discuss with Libya “the delimitation of maritime zones within the framework of international law.”

Gerapetritis is expected to visit Libya in the coming weeks, an official with the Greek foreign ministry told Reuters on condition of anonymity.


Israeli defense minister warns Hezbollah against joining conflict with Iran

Updated 20 June 2025
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Israeli defense minister warns Hezbollah against joining conflict with Iran

  • Hezbollah has made no explicit pledge to join the fighting

JERUSALEM: Israeli Defense Minister Israel Katz warned Lebanon’s Hezbollah to exercise caution on Friday, saying Israel’s patience with “terrorists” who threaten it had worn thin.

The head of Iran-backed Hezbollah, Naim Qassem, said on Thursday that the Lebanese group would act as it saw fit in the face of what he called “brutal Israeli-American aggression” against Iran.

In other statements, the group has made no explicit pledge to join the fighting and a Hezbollah official told Reuters last week that the group did not intend to initiate attacks against Israel.


Gaza rescuers say 43 killed by Israeli forces

Updated 20 June 2025
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Gaza rescuers say 43 killed by Israeli forces

  • Civil defense official says 26 people killed while gathered near aid distribution center

GAZA CITY: Gaza’s civil defense agency said Israeli forces killed at least 43 people on Friday, including 26 who had gathered near an aid distribution center, the latest in a string of deadly incidents targeting aid seekers in the Palestinian territory.
“Forty-three martyrs have fallen as a result of the ongoing Israeli bombardment on the Gaza Strip since dawn today, 26 of whom were waiting for humanitarian aid,” Mohammad Al-Mughayyir, director of medical supply at the civil defense agency in Gaza, told AFP.