A massive explosion rocked the port of Beirut, capital of Lebanon, on August 4, 2020, which killed more than 200 people, grievously injuring thousands; caused massive destruction across half the city and left more than 300000 people without any shelter over their heads. Lebanon is a small country in the Middle East with a population of 7 million and sharing its Southern border with Israel, Syria on its North East and the Mediterranean Sea on the West. It is reported that the blast took place due to the accidental fire in a warehouse at the Beirut port where more than 2750 Mt of highly inflammable and volatile chemical Ammonium Nitrate was stored for six years in unsafe conditions. The shock waves created by the blast were so severe that the roads and buildings were damaged for miles. The people of Lebanon were already suffering from the erosion of their savings and very high inflation of daily necessities of life due to the rapid devaluation of their currency for the last one year. “The Lebanon currency has lost approximately 70% of its value since last October and the World Bank forecasting that half of its population would become poor in 2020.”(1).The blast was like a proverbial last straw on the camelback. Lebanon’s ruling classes, its political establishment, and administration are infamous for callousness, corruption, and total neglect of their responsibility to its citizens. The whole country after the blast exploded in anger and came on the streets. Despite severe repression and the barbarous use of force by the army and security forces on the peaceful protesters, the government was forced to resign.
Discontent in Lebanon was brewing for years. People were exhausted from rising prices of food and fuel, poverty, unemployment, prolonged power failures, and corruption and inefficiency in the government. Since the beginning of the last year, the banking and financial system built after the end of sectarian civil war in 1990 started crumbling. The whole system was structured around the pegging of the local currency to the dollar at a fixed exchange rate and free convertibility of local currency. Very high-interest rates that were being paid to attract the dollar deposits enriching a handful of rich investors could no longer be sustained and the country started defaulting on the payment of its Eurobonds. Since the country depends upon import even for basic food items, the de facto devaluation of local currency pushed up the prices of daily necessities of life. Dependent upon an ever-increasing debt for its sustenance, a situation reached when 50 % of the government revenues were spent on servicing the accumulated debt only.
Without touching the rich, the Lebanon government attempted to shift the burden of financial crises on the shoulders of the masses. In October 2019 it increased taxes on petrol and imposed a new tax on VOP (WhatsApp calls). Hundreds of thousands of people from all religions and walks of life came on the streets of Beirut against these new taxes. This was the first time in decades that the people put aside their sectarian and religious differences and came together to fight against the unjust economic and political system. The protests soon spread all over Lebanon against the government, Central Bank, the political parties, and the political system as a whole. Then-Prime Minister Saad Hariri was forced to step down. In June 2020 again the people came on the streets against the mishandling of Coved pandemic and the financial crises, under the slogan “Great Day of Rage”. The protestors pelted rocks and stones on the army and threw Molotov cocktails at the central bank building. The anger of people was directed against the political class as a whole whom the people consider responsible for their woes. “Widespread street protests started a year ago. Chanting slogans like “The people want the fall of the regime” and “All means all,” protesters called for the removal of the entire political class.” (2)
The country of just 7 million populations had an accumulated total public debt of USD 90 billion including national and foreign debt, which ballooned to 170 % of its GDP. Lebanon is heavily dependent upon imports to serve its basic needs. It imports 95 % of its needs of medicines, 80% of its requirement of food including wheat, and 90 % requirement of oil for transport, production of electricity, and other energy needs. Its exports in 2018 stood at USD 3.6 billion whereas it imported goods worth USD 21 billion in the same period. A cursory glance at the Current Account Deficit figures from 2002 – 2018 show that Lebanon had always the problem of current account deficit which stood almost constant at 26% of GDP.(3) The foreign debt, capital inflows, and deposits in commercial banks of rich Lebanese living abroad were the main sources to overcome the balance of payment crises. Successive governments over the years have borrowed heavily from domestic and foreign lenders. After payment of instalments, interest, and salaries to the government servants, very little was left to spend on the public health, education, and maintenance of public infrastructure. Its external debt was USD 34.6 billion in May 2020. Being such a small country, it was next to impossible for it to service such a large debt. It started defaulting since 2019 on payment of bonds it sold to the foreign lenders. Over and above, the Coved-19 lockdown resulted in rapid loss of earnings and savings of poor and middle classes and condemned them to live in destitution and extreme poverty. Starvation is forcing people to sell their meagre belongings to purchase bread.
The Lebanon debt crises is an eye-opener for the poor people the world over that how financial manipulation and collusion of banks, financial, and the State institutions can defraud and rob the citizens of their hard-earned money and transfer the wealth from the poor and middle class to few elites. Unlike India and many other developing countries, the local currency of Lebanon, Lira, is fully convertible at a fixed rate. Any private citizen can keep with and take out his money from the banks in USD or in local currency. 75 % of bank deposits in Lebanon are in US dollars. Since 2014, Lebanon, Syria, and Iran were facing the severe onslaught of the US sanctions that vastly affected the flow of incoming dollar deposits. To overcome the shortages the Central Bank of Lebanon since 2016 indulged in financial engineering which was just like a giant Ponzi scheme wherein you roll over the existing debts by paying from the new debts. To maintain the inflow of dollars at the ever-increasing amount, the Central Bank paid a higher and still higher rate of interest to the new debts and bank deposits. Commercial banks which are mostly owned by the politicians and the rich depositors made a great killing. The Central Bank encouraged the commercial banks to borrow dollars at higher than the market interest rate, deposit the same with the Central Bank in the local currency at the fixed exchange rate at a still higher interest rate and make profits. The interest spread was as high as 11%. (4)
In 2017 and 2018 commercial banks issued USD 10.2 billion Euro bonds to keep the inflows higher than outflows- the basic conditions for operating a Ponzi scheme. It started defaulting on payment of instalments in May 2020. The Lebanese elites and bankers knew that the day of reckoning was drawing near. Before others could sense, the ruling elites transferred their huge bank deposits to their foreign accounts hastening the collapse of the complete financial and banking system. The subsequent imposition of capital controls and restrictions on withdrawals of dollars from the banks hurt the common people and the small businesses badly. Alain Bifani who resigned as director-general of public finance told the Financial Times in an interview that the Lebanon bankers, politicians, and rich people transferred around USD 6 billion to their foreign banks without allowing the ordinary people to draw even 100 dollars from their accounts. “Ordinary Lebanese are to pay a terrible price.” (5)
Other than the factors stated above, the destabilizing game played in Syria by the US and its allies and sanctions imposed upon Syria and Iran contributed to hastening the crises. One would remember that in 2006 Israel forces abetted and supported by the US attacked Lebanon from the South with its expansionist aim of driving Palestinian refugees out of Lebanon and occupy its lands. South Lebanon has a large population of homeless Palestinians who have been driven out of their land by Israel. Hezbollah, an anti-imperialist organization fought valiantly and drove Israel out of Lebanon in 33 days war. Israel armed forces that defeated combined armies of many Arab states in the 1967 war and occupied their territories, faced a crushing and insulting defeat at the hands of an armed militia force of Hezbollah supported by the local population. Hezbollah since then has attracted the wrath and sanctions from the US as it is the only force in the otherwise imperialist and Zionist friendly Arab world that demonstrated its power to rein in the expansionist plans of Israel. “Sanctions against Hezbollah and Syria have been around in one form or another for decades, but the Trump administration has taken them to new heights. Since launching its “maximum pressure” campaign against Iran in 2018, the administration has unleashed a relentless barrage of wide-ranging and crippling sanctions against Tehran’s allies in Iraq, Syria and Lebanon.”(6). “U.S. pressure, in the form of a wide array of sanctions and increased scrutiny of Lebanon’s financial system, was one decisive factor that made many Lebanese abroad — and any foreign investor, for that matter — think twice about sending money home or depositing it in Lebanese banks.” (6)
Lebanon is not alone to suffer in this globalized world controlled by the imperialist financial institutions, investment bankers, and large transnational corporations – the annual output of a single corporation being many times more than the GDP of many countries. Greece, Argentina, Lebanon, and many more countries have suffered and are suffering from debt crises. Under imperialism, a few advanced capitalist countries have become the net exporter of capital to the majority of the backward bourgeois countries – whose backwardness is being maintained by the huge interest payments and fees they pay to the creditors. These developing bourgeois countries produce little, export little, or depend upon the export of their natural resources like minerals & oil to earn the hard currency like dollars to import for their everyday needs without manufacturing much from their own resources. To maintain the balance of payment the central banks of these countries pay high-interest rates to attract the hard currency deposits.
In addition, in the name of making their economies efficient and competitive the bourgeois governments of these developing countries are encouraged to take debt at high-interest rates from the global financial institutes to build infrastructures like roads, seaports, airports, etc. A large part of these loans is tied to purchase equipment and services at the monopoly prices from the donor countries. Corruption, negligence, the collision of the politicians with the local and foreign bourgeois and the financial institutions help the elites to enrich themselves out of these loans. In the absence of any simultaneous development of their national economies and a meaningful increase in the purchasing power of their people, these projects are unable to generate enough revenues and hang like a millstone around the neck of these nations. Unable to pay the heavy debts very soon these bourgeois countries land into a debt trap. More new debts are taken at a higher rate of interest to pay the old debts until a situation of default and economic collapse ensues. Debtor countries are denied any more credit until these countries take steps to impose more taxes on the people, withdraw subsidies to the poor and reduce expenditure on public health and education, and privatize state-owned enterprises and public services. Assets owned by the state are sold for a song to the local and imperialist bourgeois. Poor people bear the burden of financial crises and the bourgeois, politicians, and corrupt elites enrich themselves at their cost.
Historically, the bourgeois as a class has lost any progressive role in the present era of imperialism and monopoly capitalism. The ruling bourgeoisie or capitalist class of these countries are outright reactionary and compromising with the world imperialist powers. They are hardly interested in developing their independent economies and make the lives of their people better. Crony capitalism, financial manipulations, frauds, and corruption are the hallmarks of the present-day bourgeois or capitalist society. The task of developing their national economies and improving the lives of their people has now fallen on the shoulders of the working class who with the assistance of other exploited classes would take lead in the mass movements, overthrow the bourgeois, become a ruling class under the leadership of the genuine communist party and develop their national economies on the socialist principles. The task may be difficult; path to socialist revolution may not be straightforward and may pass through number of zigzags depending upon the peculiarities of each country. But no matter the peculiarities of each country what remains a universal need or task of the people is to seek out or create the correct revolutionary leadership through their movements to lead these towards the cherished goal. For overthrowing the ruling capitalist class from state power, establishing the rule of the working class, and developing the national economy on the socialist principles is the only way out from the economic collapse and miserable condition of the working masses in capitalist ruled countries.
- https://data.worldbank.org/indicator/BN.CAB.XOKA.GD. ZS? locations=LB