Was Lebanon the world’s biggest Ponzi scheme?

Special A World bank review of Lebanon's public finances has blamed an entrenched political elite for the economic collapse plaguing the country. (AFP)
A World bank review of Lebanon's public finances has blamed an entrenched political elite for the economic collapse plaguing the country. (AFP)
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Updated 09 August 2022

Was Lebanon the world’s biggest Ponzi scheme?

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.”

Anger in Paris over Iran ‘spy’ charges

Anger in Paris over Iran ‘spy’ charges
Updated 07 October 2022

Anger in Paris over Iran ‘spy’ charges

Anger in Paris over Iran ‘spy’ charges
  • French schoolteachers’ union official Cecile Kohler and her partner Jacques Paris were arrested in May on charges of fomenting “insecurity” in Iran
  • France condemned the arrests and allegedly forced confessions, in which Kohler said on video that she was sent by France to spark a revolution

JEDDAH: France on Thursday accused the regime in Iran of taking two of its citizens hostage after Tehran broadcast video footage of the couple making forced confessions to being spies.

French schoolteachers’ union official Cecile Kohler and her partner Jacques Paris were arrested in May on charges of fomenting “insecurity” in Iran. France condemned the arrests and demanded their immediate release.

In Thursday’s TV footage Kohler “confessed” to being an agent of the French external intelligence service, in Iran to “prepare the ground for the revolution and the overthrow of the regime of Islamic Iran.” Paris said: “Our goal at the French security service is to pressure the government of Iran.”

The video sparked anger in France. “The staging of their alleged confessions is outrageous, appalling, unacceptable and contrary to international law,” foreign ministry spokeswoman Anne-Claire Legendre said.

“This masquerade reveals the contempt for human dignity that characterizes the Iranian authorities. These alleged confessions extracted under duress have no basis, nor did the reasons given for their arbitrary arrest.”

The French couple's appearance on TV coincides with weeks of anti-government protests in Iran over the death last month in morality police custody of 22-year-old Mahsa Amini. It also came a day after a debate in the French senate in which all political parties condemned Iran's crackdown on the protests.

Rights groups say Iranian state media broadcast more than 350 forced confessions between 2010 and 2020. Four French citizens are in jail in Iran and France is assessing whether another one may have been arrested during the current protests.

In a tweet on Oct. 5, the Human Rights Activists in Iran and 19 other human rights organizations asked US President Joe Biden in an open letter "to address the Iranian regime’s violent crackdown on the Mahsa Amini protests and Iran’s ongoing human rights crisis."

"The Iranian people need the support of the United States and the entire international community to attain their rights and freedoms," the letter said. 

Arabs view access to water as most pressing environmental issue, survey finds

Arabs view access to water as most pressing environmental issue, survey finds
Updated 07 October 2022

Arabs view access to water as most pressing environmental issue, survey finds

Arabs view access to water as most pressing environmental issue, survey finds
  • The Arab Barometer interviewed 26,000 citizens between October 2021 and July 2022 in 12 countries that represent about 80 percent of the Arab world
  • Despite broad concerns about climate change and the environment, the survey found many in the region consider other issues to be higher priority

WASHINGTON: Arabs believe the climate change-related threat to water resources is the biggest environmental issue facing the region and its people.

This was a key finding of the latest Arab Barometer Report on the attitudes in 12 Arab countries about the environment, which was published on Thursday.

The Arab Barometer is a research network that gathers opinion and offers insights into the social, political and economic attitudes of citizens across the region.

Its latest survey on the environment found that the majority of the people it polled were concerned about the availability of drinking water, the pollution of water sources, and the quality of the air in their communities.

Tunisia had the highest proportion of people who considered availability and quality of water the biggest environmental challenge facing their country, at 60 percent, followed by Algeria with 50 percent, and Iraq, Palestine and Libya with 47 percent.

The findings are part of the seventh round of polling by Arab Barometer, which has been tracking the views of people in the Middle East and North Africa since 2006. It describes itself as the largest publicly available survey of the opinions and attitudes of citizens across the region.

For its latest report, it interviewed 26,000 citizens between October 2021 and July 2022 in 12 countries that represent about 80 percent of the Arab world: Algeria, Tunisia, Libya, Morocco, Mauritania, Jordan, Lebanon, Palestine, Iraq, Egypt, Sudan and Kuwait. In addition to the environment, other parts of the survey covered political, social and economic issues.

Issues related to waste management ranked second among the key environmental issues people in region are most concerned about. Recycling is already an important environmental-protection activity in many countries and the survey found that many people in the region already recycle their waste, but that they do so mostly for “cost-saving” benefits or “convenience, rather than to protect the environment.”

Educational background tended to affect people’s views on environmental issues such as climate change, air quality, pollution and trash, with those who were better-educated expressing greater concern about them.

In addition, issues related to climate change were more of a concern among people living in rural location than those in urban areas.

Aside from the availability and quality of water and its quality, other attitudes toward the environment varied.

A previous survey, in October 2020, found that less than than seven percent of citizens in Arab countries believed that reducing pollution should be the top priority of government spending in the coming year. In research carried out in the spring of 2021, less than nine percent said that foreign aid should be used to address environmental concerns.

In the latest poll, less than five percent of people surveyed in the majority of Arab countries said foreign aid donated to their nations should be used to tackle climate change and environmental challenges. In Egypt, Jordan and Palestine, the figure was as low as 1 percent.

Yet the research also found that citizens of the region blame themselves for not being proactive enough on environmental issues, and their governments for failing to take action to properly address climate change and environmental challenges in their communities.

They expressed high levels of support for their governments to take action to tackle environmental issues. But despite broad concerns about climate change and the environment, the study found most people in the region view other issues as being more urgent and of higher priority.

Alexandria Film Festival pays tribute to departed performers

Alexandria Film Festival pays tribute to departed performers
Updated 07 October 2022

Alexandria Film Festival pays tribute to departed performers

Alexandria Film Festival pays tribute to departed performers
  • Festival management remembered Egyptian stars who passed away in 2022 by showing a video clip during the opening ceremony

CAIRO: The 38th session of the Alexandria Film Festival for Mediterranean Countries has opened at the Bibliotheca Alexandrina.

It is named after the artist Mahmoud Hemida.

Festival management remembered Egyptian stars who passed away in 2022 by showing a video clip during the opening ceremony.

Famous names included Hisham Selim, Maha Abu Auf, Samir Ghanem, Dalal Abdel Aziz, Ahdi Sadiq, Ali Abdel Khaleq, Ahmed Halawa, and Aida Abdel Aziz.

Film critic Amir Abaza, who has a leading role in organizing the event, told Arab News: “We chose to name the festival in the star Mahmoud Hemida’s name because he is of a great cinematic stature who has presented a large number of important works.”

Hemida has also reinvested profits into cinema, as well as participating in the production of a number of films without looking for profit, added Abaza.

The festival also honored a number of art stars, namely director Mohamed Abdelaziz, actress Donia Samir Ghanem, director Saeed Hamed and producer Wajih El-Leithi.

Radio broadcaster Imam Omar was also honored the King of Comedy Medal went to the late Samir Ghanem and Dalal Abdel Aziz.

The festival also honored the Greek star Alexis Protopsalti, the French artist Marianne Borgo, and the Armenian-Egyptian star Nora Armani.

A movie called “Barsoum Looking for a Job” — produced in 1923 and directed by Mohamed Bayoumi — was played at the end of the ceremony.

A publication on the 100 most important comic films in Egypt was among a number of books released on the sidelines of the festival.

However, the inclusion of non-comic films such as “Between Heaven and Earth” by Salah Abu Seif created some controversy and some questioned the lack of high-level comedy movies such as “Kit Kat” by Daoud Abdel Sayed and “Umm Ratiba,” directed by Alsayed Badir.

Critics also highlighted the absence of any Mohamed Sobhi flicks, one of the biggest comedy stars in Egypt.

Adel Imam topped the poll as best actor, Shwikar as best actress, Fatin Abdel Wahab as best director, and Abu Al-Saud Al-Ibiari as best author. Thirty-two film critics and researchers participated in the poll.

Turkey, Israel ties warm with naming of ambassador

Turkey, Israel ties warm with naming of ambassador
Updated 06 October 2022

Turkey, Israel ties warm with naming of ambassador

Turkey, Israel ties warm with naming of ambassador
  • Ankara appoints new envoy 4 years after last was expelled
  • Ambassador knows region, has experience: Analyst

ANKARA: Turkey has appointed a new ambassador to Israel, as both countries move to end four years in the diplomatic wilderness.

Sakir Ozkan Torunlar has been named to fill the role left empty after the two regional powers expelled each other’s ambassadors in 2018 in a row over the killing of 60 Palestinians by Israeli forces during protests on the Gaza border.

His appointment comes weeks after Israel named career diplomat Irit Lillian as its new ambassador to Turkey. President Recep Tayyip Erdogan was also expected in the coming months to reciprocate a March visit to Ankara by his Israeli counterpart, Isaac Herzog.

Contrary to expectations, Torunlar is not a political appointee and is an experienced career diplomat. He was consul-general in Jerusalem and ambassador to Palestine between 2010 and 2014, and was awarded the Order of the Jerusalem Star by Palestinian President Mahmoud Abbas.

Israel is expected to endorse Torunlar’s appointment.

Selin Nasi, a non-resident scholar in Eliamep’s Turkey Program, said that Ankara’s choice was positive for Israel.

“Previously, the foreign ministry was planning to appoint Turkey’s pro-government SETA Foundation foreign policy director, Ufuk Ulutas,” she said, who she added was seen in Israel as a “controversial figure” for his “anti-Israeli views” and lacked diplomatic experience.

Upcoming domestic elections in both countries had accelerated the reconciliation process, she said.

“Given the upcoming parliamentary elections in November, the Israeli side in a way tried to consolidate the process by naming its ambassador in advance, preventing possible interference of domestic politics,” she told Arab News.

“Turkey has also entered the election season. The government is trying to balance domestic concerns with its commitment to restoring ties with Israel,” said Nasi.

Experts say that Turkey and Israel want to deepen their cooperation in tourism, energy, agriculture, water technology, trade and defense.


This section contains relevant reference points, placed in (Opinion field)

Nasi said defense cooperation had ground to a halt after the Mavi Marmara incident of 2010, when Israeli commandos stormed a Turkish aid ship headed to Gaza as part of a “freedom flotilla.” Nine crew members died in the attack.

“The docking of the Turkish frigate Kemalreis at Haifa port on the sidelines of a NATO drill for the first time since the Mavi Marmara, indicates a possible thaw in this area as well. It will take time to repair broken trust,” she said.

Both countries’ opposition to the Iranian regime is also expected to push Turkey and Israel closer, she added.

“More importantly, as two militarily strong actors in the region, these two countries have the power to shift the balances on the ground when they cooperate.”

However, Nasi warned that Turkey’s ties with Hamas would be closely monitored by Israel and that domestic politics “may still interfere in the normalization process.”

According to an annual public opinion poll by the Mitvim Institute, an Israeli foreign policy think tank, 72 percent of respondents wanted strengthened relations with Turkey. The figure was up 12 percentage points on the poll last year.

Gallia Lindenstrauss, a senior research fellow at the Institute for National Security Studies in Israel, said the choice of career diplomats by both sides was a good start to better relations as careful and skillful diplomacy was needed.

“There are a few challenges ahead: Elections in Israel, growing tensions in the West Bank, elections in Turkey.”

However, she said that a decision earlier this year to discuss an update to a 1996 free trade agreement was “a good opportunity to see where to expand the already flourishing trade relations between the countries.”

Turkey’s resumption of full diplomatic ties with Israel could also improve Ankara’s image in Washington, which has been damaged by its arms deals with Russia and squabbles in NATO.

The rapprochement is also expected to boost the Turkish tourism industry, Lindenstrauss added. “Israeli tourists are once again flocking to Turkey and we will soon see the return of Israeli airlines to Turkey,” she said.

UAE president thanks education workers in World Teachers’ Day speech

UAE president thanks education workers in World Teachers’ Day speech
Updated 06 October 2022

UAE president thanks education workers in World Teachers’ Day speech

UAE president thanks education workers in World Teachers’ Day speech
  • Sheikh Abdullah bin Zayed underscored teachers’ role in fostering generations that are proud of their values and identity

ABU DHABI: The UAE President Sheikh Mohammed Bin Zayed has thanked teachers in a statement on “World Teachers’ Day,” where he outlined the Emirati roadmap for improving the education sector.
Sheikh Abdullah bin Zayed, the UAE’s minister of foreign affairs and international cooperation and chairman of the Education and Human Resources Council, said the statement on Thursday illuminated the UAE’s commitment to teachers.
Sheikh Abdullah thanked all teachers on the occasion, expressing the UAE’s gratitude for their efforts to ensure that children receive a top-quality education, the Emirates News Agency (WAM) reported.
Noting that educators played a key role in accelerating recovery across the educational sector, Sheikh Abdullah highlighted the great responsibility they bear and their dedication to educate children and youth in the UAE, especially throughout and after the COVID-19 pandemic.
He underscored teachers’ role in fostering generations that are proud of their values and identity, noting that teachers prepare them with the skills and knowledge required to drive development across society and pave the way for a brighter tomorrow.
The minister added that education is crucial for accelerating sustainable development across all sectors. He said that the UAE’s celebration of World Teachers’ Day is an expression of the pride it has in its educators.
Sheikh Abdullah said the education sector has seen a major shift over the past five decades, making great strides in developing and improving its outputs.