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.”

Probable civilian deaths during British air strikes in Iraq throw doubt on ‘perfect’ war claims

Probable civilian deaths during British air strikes in Iraq throw doubt on ‘perfect’ war claims
Updated 22 March 2023

Probable civilian deaths during British air strikes in Iraq throw doubt on ‘perfect’ war claims

Probable civilian deaths during British air strikes in Iraq throw doubt on ‘perfect’ war claims
  • British bombing in Iraq as part of the Operation Inherent Resolve coalition efforts against Daesh started in 2014, and in Syria the year after, with more than 4,000 munitions in the two countries, the report concluded

LONDON: Civilian deaths as a result of air strikes on Daesh targets in Iraq have been linked to British forces, according to a Guardian investigation released on Tuesday.

Forces in the US-led coalition fighting against Daesh in Iraq have admitted the killings of hundreds of civilians in Iraq in the period after 2014, but Britain’s government and military have long claimed that a “perfect” war was fought, in which no non-combatants or ordinary Iraqis were killed.

However, the report, which was carried out with the watchdog Airwars, concluded that UK forces were probably responsible for civilian deaths in at least six strikes on the city of Mosul in 2016 and 2017.

In the strikes highlighted, the coalition admits the deaths of 26 civilians, and victims of two of the strikes were identified in the report.

A further strike on Jan. 9, 2017 on Mosul, which coalition officials accepted killed two civilians, has been confirmed as a Royal Air Force mission, but British officials deny that the casualties were civilian but rather legitimate militant targets.

British bombing in Iraq as part of the Operation Inherent Resolve coalition efforts against Daesh started in 2014, and in Syria the year after, with more than 4,000 munitions in the two countries, the report concluded.

UK military figures claim 3,052 Daesh militants were killed in Iraq with no civilian deaths, with 1,017 militants killed in Syria with one civilian death, between 2014 and 2020.

“There is no evidence or indication that civilian casualties were caused by strikes in Syria and Iraq,” a Ministry of Defense spokesperson told the Guardian.

“The UK always minimizes the risk of civilian casualties through our rigorous processes and carefully examines a range of evidence to do this, including comprehensive analysis of the mission data for every strike,” the spokesperson said.

However, critics say that the British position is not convincing.

Former military officials have called the claim of no civilian deaths in Iraq “a stretch” and “nonsense,” especially after the 2016 Chilcot report into the UK’s role in the 2003 invasion of Iraq found that not enough had been done to locate injured or killed non-combatants.

If Britain is forced to accept responsibility for civilian deaths, a law passed in 2021 set a six-year cut-off point for compensation claims for survivors, which leaves those in Iraq and Syria unable to make a claim against the government.


Kuwait, UK hold strategic dialogue in London

Kuwait, UK hold strategic dialogue in London
Updated 22 March 2023

Kuwait, UK hold strategic dialogue in London

Kuwait, UK hold strategic dialogue in London

LONDON: The first session of strategic dialogues between Kuwait and the UK were held in London on Monday with the aim of strengthening bilateral relations and cooperation in several fields, the Kuwait News Agency reported.

The Kuwaiti side was led by Foreign Minister Sheikh Salem Abdullah Al-Jaber Al-Sabah while the British side was chaired by James Cleverly, secretary of state for foreign, commonwealth and development affairs. 

During the session, Cleverly said although the world has witnessed significant changes, Kuwaiti-British relations had grown stronger. He also lauded Kuwait’s well-balanced foreign policy, which focuses on promoting regional security and peace. 

Sheikh Salem and Cleverly discussed the most recent regional and international developments as well as strategies for enhancing international cooperation. They also coordinated on issues such as the situation in occupied Palestinian territories and humanitarian aid for Ukraine.

Houthi court sentences Yemeni YouTubers to different prison terms

Houthi court sentences Yemeni YouTubers to different prison terms
Updated 22 March 2023

Houthi court sentences Yemeni YouTubers to different prison terms

Houthi court sentences Yemeni YouTubers to different prison terms
  • The four YouTubers were apprehended by the Houthis from various places in Sanaa and at various periods in December and January

AL-MUKALLA: A Houthi-controlled court in the Yemeni capital, Sanaa, sentenced four Yemeni YouTubers to different prison sentences on Tuesday and shut down their internet channels after accusing them of inciting the public against the militia, rekindling indignation against the Yemeni militia and their habit of punishing dissidents through courts.

Abdul Majeed Sabra, a Yemeni lawyer who defends abductees held in Houthi prisons, said that the Specialized Criminal Court of First Instance in Sanaa sentenced Ahmad Elaw to three years in prison, Mustafa Al-Mawmari to one and a half years, Ahmed Hajjar to one year, and Hamoud Al-Mesbahi to six months, accusing them of circulating false information to damage national security.

The court ordered the closure of their YouTube channels and a fine of 10 million Yemeni riyals ($1=547 riyals in Houthi-controlled territories). The court also ordered the confiscation of Elaw’s mobile phones, cameras, and bank accounts.

Waddah Qutaish, the YouTubers’ attorney, said on his Facebook page that the judge read out the judgment without providing any grounds or evidence for granting it, calling the sentence “unjust” and intended to stifle free speech, and stating that he has filed an appeal.

The four YouTubers were apprehended by the Houthis from various places in Sanaa and at various periods in December and January.

The Houthis abducted Hajjar, a well-known Yemeni comedian, actor, and YouTuber, as he walked down Al-Zubairi street in Sanaa in December, just days after he appeared in a video criticizing the Houthis for overtaxing people, failing to pay government salaries, corruption, and failing to address aggravating poverty.

The Houthis kidnapped the other three YouTubers in January after they released videos showing support for Hajar, calling for his release, and criticizing the Houthis once more.

Al-Mawmari is the most popular YouTuber with over 2 million YouTube subscribers and tens of thousands of Facebook fans, followed by Elaw with 800,000 YouTube subscribers.

On Monday, Houthi security services released a video of the YouTubers confessing to inciting the public to revolt against the movement, as well as creating fake content and social media accounts, apologizing for criticizing the militia, and blaming “aggression” for the worsening economic situation in Sanaa, referring to the Yemeni government and the Coalition to Restore Legitimacy in Yemen.

The ruling has provoked protests against the Houthis, who have been accused of attempting to muzzle dissenting voices. “Al-Houthi is an unruly gang that utilizes the court as a weapon for repression…and the abolition of individual liberties,” Mohammed Al-Ahmadi, a Yemeni journalist, said on Facebook.

Why Daesh is still not a spent force despite facing terminal decline in Iraq

Why Daesh is still not a spent force despite facing terminal decline in Iraq
Updated 22 March 2023

Why Daesh is still not a spent force despite facing terminal decline in Iraq

Why Daesh is still not a spent force despite facing terminal decline in Iraq
  • Unable to attract new recruits or mount significant attacks, analysts say the group is a spent force in Iraq
  • Western military leaders fear Daesh prisoners held in Syria could pose threat as an ‘army in detention’

IRBIL, KURDISTAN: Having once controlled roughly a third of the country at the height of its power, including several major cities and oilfields, there are now growing signs that what remains of the Daesh terrorist organization in Iraq is in terminal decline.

Unable to attract new recruits to shore up its dwindling numbers, nor able to mount significant offensive operations, the group that had in 2014 proclaimed its own “caliphate” today looks like a spent force — in Iraq at least.

On March 12, Iraqi General Qais Al-Mohamadawi revealed that Daesh has about 500 active militants remaining in the country. However, he stressed that they are confined to remote desert areas and mountains and have lost their “ability to attract new recruits.”

The following day, the US-led coalition tweeted that Daesh networks “remain under intense pressure,” with the Iraqi Security Forces and the Kurdish Peshmerga having “removed from the battlefield at least 55” of the militants in February alone. 

Joel Wing, author of the “Musings on Iraq” blog and who tracks security incidents in Iraq attributed to Daesh, recently wrote that recorded incidents from the start of March are a reminder that Daesh is in its “death throes in Iraq” and “remains barely active in the country.”

Only three incidents were attributed to Daesh in the first week of March, down from eight in the last week of February. Furthermore, since the start of 2023, eight out of nine weeks have witnessed security incidents in the single digits, which Wing says continues a trend that began in 2022, when the majority of weeks saw fewer than ten attacks. 

An Iraqi fighter flashes the sign for victory on top of an armed vehicle in the village of Albu Ajil, Tikrit, on March 8, 2015, during a military operation to regain control of the Tikrit area from Daesh militants. (AFP)

“I don’t see a Daesh revival any time soon,” Wing told Arab News, using another name for Daesh. “They’ve had five years to recover from their defeat in Mosul and all signs point to the group getting weaker, not stronger.”

Mosul is Iraq’s second city and the largest urban center the group annexed into its self-styled caliphate, which, at the height of its power in the mid-2010s, covered about one-third of Iraq and one-third of Syria. 

Iraqi forces recaptured Mosul with the support of the US-led coalition in July 2017 after months of intense fighting. Iraq declared victory over the group the following December. 

Having lost its territorial caliphate, Daesh mounted an insurgency from rural and mountainous redoubts. For years, there were fears that the group had reverted to its pre-2014 status as an insurgent threat and could one day retake significant swathes of territory. 

It now seems that dire prospect is a remote one.

“They haven’t been able to recruit many new Iraqis to their cause,” Wing said. “Their main activities appear to be trying to smuggle members and their families from Syria into Iraq and protecting the rural areas they control. There are hardly any offensive operations and they are completely absent from Iraq’s urban centers.”

And while Daesh could feasibly continue in this state for years to come, since there are few people and a minimal government presence in the areas where they operate, Wing says that they have “little to no effect upon Iraq anymore.”

Michael Knights, the Jill and Jay Bernstein Fellow at The Washington Institute for Near East Policy, sees two different scenarios potentially unfolding. 

“If current trends continue, Daesh is headed in the same direction as Algeria’s terrorist groups — disintegration into criminal gangs, inability to destabilize the country, and occasional terrorist outrages that are easy to quickly forget,” he told Arab News, using another acronym for Daesh. 

“The question is whether — as in 2011-2014 — the Iraqi government will politicize the security forces and adopt a sectarian agenda, thus breathing life back into Daesh,” he said. 

The government of former prime minister Nouri Al-Maliki adopted just such an agenda after the US withdrew the last of its troops from Iraq in 2011. Consequently, when Daesh entered Mosul in June 2014, the ISF infamously did not fight, despite having vastly superior numbers. 

The destroyed Al-Nuri mosque in the Old City of Mosul. (AFP)

Daesh invaded northern Iraq in 2014 after gaining a sizable foothold in Syria amid the chaos of that country’s brutal civil war. If the security situation in eastern Syria again deteriorates, there are fears this could reenergize diminished Daesh remnants in Iraq. 

After visiting prisons holding thousands of Daesh militants in northeast Syria earlier this month, General Michael Kurilla, head of the US military’s Central Command, CENTCOM, warned of a “looming threat” posed by these detainees.  

“Between those detained in Syria and Iraq, it is a veritable ‘ISIS army in detention,’” he said in a CENTCOM statement. “If freed, this group would pose a great threat regionally and beyond.”

The Al-Hol camp in eastern Syria also houses tens of thousands of the relatives of alleged Daesh militants, roughly half of whom are Iraqi citizens. 

In January 2022, Daesh detainees in Ghwayran prison in the northeast Syrian city of Hasakah rioted in coordination with an external attempt to free them, igniting 10 days of bitter fighting with Kurdish-led security forces. Daesh reportedly had similar plots for Al-Hol. 

“Sneaking people out of Al-Hol and getting them into Iraq is a major priority because they haven’t been able to bring many new people to their cause in Iraq,” said Wing. “So they’re relying upon getting their current members out of the Syrian camp to try to bolster their numbers, but it hasn’t added to their capabilities at all.”

Ryan Bohl, a senior Middle East and North Africa analyst at the risk intelligence company RANE, emphasizes the importance of recalling the context in which Daesh initially emerged to “better understand the conditions that would allow it to return in the future.”

“ISIS emerged in a power vacuum, one first caused by the US invasion of Iraq and then the Syrian civil war that began in 2011,” Bohl told Arab News. “It was best able to grow and exploit local grievances for its radical agenda when its rivals were split and when it was not the focus of a major power, like the US, Turkiye, or Russia.

“Today, Iraq, despite deep political dysfunction and violence, is not nearly as divided as it was during the run-up to the Daesh blitz in 2014 into Iraq. Syria’s civil war has stabilized, leaving little room for them to grow there as well.”

Nevertheless, completely eradicating a group such as Daesh will remain a difficult, if not impossible, task for Iraqi authorities. 

“There will always be online recruitment and localized grievances that can turn into small cells or radicalized individual attackers,” Bohl said. “Iraq’s social contract also remains fractured, and until there is a strong, sustained governing consensus, radicalism of all stripes will find a home there.”

“Between those detained in Syria and Iraq it is a veritable ‘ISIS army in detention,’” said Gen. Michael Kurilla, Commander of US Central Command. (Supplied)

While he believes Syria is the most likely place from which Daesh can make a resurgence in the region, there would first have to be a strategic shift, such as a US withdrawal or some power vacuum caused by Damascus forcibly reestablishing its rule over the area. 

“Under those conditions, it would become possible for Daesh to retake some initiative in that area and use Syria’s northeast to attack Iraq,” he said. 

“However, it shouldn’t be entirely ruled out that Daesh could resurge in Iraq, particularly if political problems there grow so severe that it reignites sectarian war. 

“Under those (more remote) circumstances, Daesh would once again have a shot at restoring territorial control within Iraq, even if Syria remained stable.”

Knights also stresses that any chance of Daesh making a successful resurgence in Iraq depends on Baghdad’s management of its security forces. 

“Syria is like a freezer in which Daesh can hibernate, waiting for it to experience a springtime in Iraq,” he said. “If the Iraqi government mismanages the security file, then a cross-border pollination could start again.”


Egypt hopes to attract 30m tourists by 2028

Egypt hopes to attract 30m tourists by 2028
Updated 21 March 2023

Egypt hopes to attract 30m tourists by 2028

Egypt hopes to attract 30m tourists by 2028
  • 30% rise expected by year-end, to total 15m visitors
  • Untapped market of 272m people globally, says minister

CAIRO: Egypt’s Minister of Tourism and Antiquities Ahmed Issa hopes the promising rise in tourists this year will translate into a 30 percent increase by the year-end, bringing the total to 15 million.

Issa said there was an increase of 34 percent in the number of tourists over the past two months compared to the same period last year.

He made the remarks during a symposium organized by the Egyptian-Lebanese Businessmen Association titled “Tourism and Industry: Promising Opportunities for Economic Development.”

Issa said the Egyptian government has developed a new national tourism strategy and hopes numbers will double to 30 million by 2028. More effective collaboration is being sought with the private sector and 3,000 operators in the industry that are aligned to five tourism chambers and the Egyptian Tourism Federation. Growth rates are projected at between 25 to 30 percent.

Issa said there are three components for success by 2028: Doubling the capacity available to Egyptian Airlines; boosting services including protecting tourists from harassment and fraud; and improving the investment climate to triple the capacity of hotels and leisure activities.

He said that Egypt has not tapped a huge market, estimated at 272 million tourists globally who want to enjoy the country’s products. Issa said there were positive signs of the country making headway to capture a greater portion of the market, citing the rise in last December’s figures.

He said the government was focusing on 12 specific areas of the market, including the Pyramids Area Development Plan.

Last week, Issa said 11.7 million tourists visited Egypt in 2022.

According to data from the Central Agency for Public Mobilization and Statistics, the number of tourists visiting Egypt increased by 85.4 percent to 4.9 million in the first half of 2022, compared to 2.6 million over the same period in 2021.

There were 8 million tourist from all countries in 2021, up from 3.7 million in 2020, representing a 117.5 percent rise.