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.”


Egyptian parliament looking to activate law for organ, cornea transplantation

Egyptian parliament looking to activate law for organ, cornea transplantation
Updated 26 November 2022

Egyptian parliament looking to activate law for organ, cornea transplantation

Egyptian parliament looking to activate law for organ, cornea transplantation
  • The parliament has not taken a decision yet despite its discussion over the past few days
  • MP Makram Radwan sparked controversy in parliament when he submitted a request for a briefing on the amendment to the Human Organ Transplant Law

CAIRO: A debate has been underway within the Egyptian parliament over amendments to the Human Organ Transplant Law.
The parliament has not taken a decision yet despite its discussion over the past few days.
The amendments focus on the activation of two laws: one issued in 2010 banning organ sales, which has not yet been fully implemented due to the revolution in 2011, and one issued in 1962 regarding the organization of the eye bank.
The Health Affairs Committee in the Egyptian House of Representatives recommended that the Ministry of Health activate the provisions of the Human Organ Transplant Law passed in 2010 in which Article 8 of its executive regulations allows people to request in their wills that their organs be donated following their death.
MP Makram Radwan sparked controversy in parliament when he submitted a request for a briefing on the amendment to the Human Organ Transplant Law.
“Egypt has fallen behind many countries that have implemented the law,” Radwan told Arab News.
“Although we have an organ transplant law, it has not been activated. There can be no organ transfer without prior approval to protect doctors.”
As for the law regarding the eye bank, the matter was raised at the request of Representative Karim Badr Helmy.
Badr told Arab News: “I am not calling for something new. This was within the provisions of the 1962 law regulating eye banks.”
Helmy demanded that all cornea banks be re-operated in hospitals licensed to establish them.
He also proposed that the health minister issue a decision to set procedures for transferring the corneas of the dead to university hospitals and other hospitals of the ministry that are licensed to establish banks to preserve them.
Dr. Khaled Omran, one of the fatwa trustees at the Egyptian Dar Al-Iftaa, told Arab News that organ donation is highly beneficial, helping many patients, and is considered of a form of charity.
Omran said that a donation takes place in accordance with conditions set by the law and approved by Dar Al-Iftaa.
The first is that the patient must be legally, and not just clinically, dead
The second is that the donation must be based on a person’s will documented by doctors.
The third condition is that the donation of organs related to the reproductive system must be prevented in order to avoid any suspicion of mixing lineage.


Egypt turns to religious edicts to protect children from harmful video games

Photo/Shutterstock
Photo/Shutterstock
Updated 26 November 2022

Egypt turns to religious edicts to protect children from harmful video games

Photo/Shutterstock
  • Apps can stimulate minds but also cause addiction, incite violence, Dar Al-Iftaa official says
  • Some games are used by extremist groups like Daesh to exploit young people, he says

CAIRO: One of Egypt’s top Islamic organizations, Dar Al-Iftaa, is trying to raise awareness of the potentially harmful impact of mobile games and apps on young people.

A recent report by the Global Fatwa Index showed that 33 percent of the fatwas on technological affairs issued this year were related to the subject and that many of them stressed the need to protect children from exploitation and violent or other harmful content.

“Video games and modern applications are a double-edged sword,” Sheikh Awaida Othman from Dar Al-Iftaa, the Egyptian government’s principal Islamic legal institution for issuing fatwas, told Arab News.

“Despite their ability to develop minds, they come with many disadvantages, most notably mobile addiction, spreading violence, social isolation, and the incidence of unrest and psychological disorders.

“The latest preemptive fatwas of the Egyptian Dar Al-Iftaa dealt with the issue of buying and selling currencies in video games because it is legally permissible, but with controls that must be taken into account … the game should not become a daily habit that devolves into an addiction that causes health and psychological issues and mental exhaustion.”

Echoing a finding in the fatwa index that suggested some apps could be used for political exploitation, Othman said ultra-right movements in the West relied on video games to recruit and exploit children and adolescents.

He added that in some online games users were able to create secret networks and chat without surveillance, just as members of extremist organizations like Daesh did.

The most prominent of these was Fortnite — one of the world’s most popular fighting games — as it incited violence, he said.

“ISIS (another name for Daesh) adopts the same terrorist strategy and ideology by exploiting video game platforms to recruit young men and minors, and using hidden channels of communication to ensure anonymity,” Othman said.

Sheikh Sayed Abdulaziz, secretary-general of Egyptian Family House — an initiative started in 2011 that promotes religious coexistence — said that religious institutions, families and educational and media groups needed to work together and heed the warnings about video games.

“The steady and intensive increase in video games and phone applications is difficult to monitor and therefore requires religious institutions to dedicate people to follow up on these developments and issue proactive fatwas regarding them,” he told Arab News.

“The lack of fatwas related to video games directly reaching the youth and children category requires work in parallel with religious bodies, the media, schools and universities.”

He added: “We must also pay attention to following up on new apps and making sure that they are following public morals in order to prevent the spread of material among youths that is religiously or nationally inappropriate.”

 


Egypt slams European Parliament report on human rights situation

Egypt slams European Parliament report on human rights situation
Updated 26 November 2022

Egypt slams European Parliament report on human rights situation

Egypt slams European Parliament report on human rights situation
  • Many Egyptian deputies and politicians voiced their rejection of the European Parliament’s call and asserted that it was blatant interference in Egypt’s affairs

CAIRO: Egyptian MPs and politicians have rejected what they are calling the European Parliament’s “blatant” interference in Egypt’s domestic affairs.

In a statement issued on Friday, the European Parliament called for the immediate and unconditional release of dozens of human rights defenders, lawyers, journalists, activists, politicians and social media influencers currently sitting in Egyptian prisons and for the reversal of the excessive use of arbitrary pre-trial detention in Egypt.

The European Parliament also appealed to the member states of the EU “to support the call for the creation of an international mechanism for monitoring and reporting gross violations of human rights in Egypt at the UN Human Rights Council, as well a deep and comprehensive review of the EU’s relations with Egypt in light of the very limited progress in Egypt’s human rights record.”

Many Egyptian deputies and politicians voiced their rejection of the European Parliament’s call and asserted that it was blatant interference in Egypt’s affairs.

Hind Rashad, a member of the House of Representatives, told Arab News: “I strongly reject all lies and attempts to interfere in the affairs of the Egyptian state.”

His comment came as Egypt’s parliament asserted that the EU position reflected only a biased and subjective view of the reality in the country.

Tamer Abdel Qader, also a member of the House of Representatives, told Arab News that the European Parliament’s statement on human rights in Egypt constitutes “blatant interference” in the affairs of “a country that enjoys all sovereign rights.” He also said the statement violates UN charters, “as it included many lies, fallacies and rumors.”

Abdel Qader added: “This old school has had its...policies exposed more than once, and everyone knows what the intentions of the (drafters) of these policies (are) towards the Egyptian state, which recently launched the National Strategy for Human Rights and laid frameworks for its implementation in front of everyone.

“Among the inaccuracies in the statement is that Egypt executes children, bearing in mind that Egyptian laws criminalize the trial or execution of children…Egyptian laws stipulate that they be placed in care homes for their rehabilitation and integration into society.”

Political expert Hazem El-Gendy, deputy head of the Egyptian Wafd Party, told Arab News that the decision of the European Parliament confirmed beyond any doubt that “there is a state of hostility and ambush adopted by some international institutions against Egypt” and that these are “not sufficiently aware of the developments of the situation in Egypt.”

El-Gendy said: “The resolutions say that Egypt has been living under a state of emergency since 2017, despite the announcement by Egyptian President Abdel Fattah El-Sisi to cancel it in October 2021 … The declaration of a state of emergency came in light of the war waged by the state and terrorist groups in Sinai.”

Mahmoud Bassiouni, member of the National Council for Human Rights, also told Arab News that the European Parliament’s statement constitutes meddling in Egypt’s domestic affairs and ignores the efforts of the Egyptian state to improve human rights.

He added that the controversial statement relied on a single source of information.


Amnesty International lauds UN probe into Iran human rights violations

Amnesty International lauds UN probe into Iran human rights violations
Updated 26 November 2022

Amnesty International lauds UN probe into Iran human rights violations

Amnesty International lauds UN probe into Iran human rights violations
  • ‘The cries of the people in Iran for justice have finally been heard’
  • The fact-finding mission comes 73 days on from the murder of 22-year-old Kurdish woman Mahsa Amini

LONDON: Amnesty International has applauded the establishment of a fact-finding mission to investigate human rights violations in Iran as “long overdue” given the “dire situation” in the country.
Responding to Thursday’s announcement from the UN Human Rights Council that the “landmark” resolution had been passed, Amnesty’s Secretary-General Agnes Callamard said: “The cries of the people in Iran for justice have finally been heard. It not only enhances international scrutiny of the dire situation, but puts in place a process to collect, consolidate and preserve crucial evidence for future prosecutions.
She added: “We hope it marks a fundamental shift in the international community’s approach to tackling the crisis of systematic impunity that has long fueled crimes under international law and other serious human rights violations in Iran.”
The fact-finding mission comes 73 days on from the murder of 22-year-old Kurdish woman Mahsa Amini while in the custody of Iran’s notorious morality police.
Amini’s death ignited a tinderbox of pent-up frustrations over falling living standards and discrimination against women and minorities, and has fueled the most widespread protests seen in the country since the 1979 revolution, with no signs of the protesters backing down.
The fact-finding mission is mandated to “collect, consolidate and analyze evidence of such violations and preserve evidence, including in view of cooperation, in any legal proceedings.”
Amnesty said as the resolution was being negotiated, Iranian authorities continued to reject the findings of UN experts and human rights organizations, and have persisted in widespread use of unlawful lethal force and sought the death penalty for protesters.
Iran has faced repeated cycles of protests since 2018, all of which have been met with violent reprisals.
“States must now ensure that the mandate is made operational and sufficiently resourced without delay and call upon the Iranian authorities to cooperate fully with the mission and allow unhindered access to the country,” said Callamard.
“This vote must also serve as a wake-up call for the Iranian authorities to immediately end their all-out militarized attack on demonstrators.”
Callamard said Amnesty has “consistently” documented crimes under international law committed by Iranian authorities against protesters, including unlawful killings, unwarranted use of lethal force, and mass arbitrary arrests and detentions.
It has also recorded enforced disappearances, torture and other ill-treatment, and the sentencing of individuals to lengthy prison terms or death.
Amnesty said: “Iranian authorities have ignored repeated calls by the international community to open criminal investigations into such crimes.
“Instead, they have sought to destroy evidence of crimes while persecuting survivors and victims’ relatives.”


Israeli wounded in Jerusalem bus stop bombings dies

Israeli wounded in Jerusalem bus stop bombings dies
Updated 26 November 2022

Israeli wounded in Jerusalem bus stop bombings dies

Israeli wounded in Jerusalem bus stop bombings dies
  • A 15-year-old Israeli-Canadian was also killed in Wednesday's twin blasts
  • Thirteen others were wounded, medics said, in the first bombings to hit the contested city since 2016

JERUSALEM: An Israeli wounded in rare bombings to hit Jerusalem earlier this week died Saturday, the hospital treating him announced, the latest casualty as violence surges in the Israeli-Palestinian conflict.
Jerusalem’s Shaare Zedek hospital announced the death of Tadesa Teshuma “who was fatally wounded in an attack at the entrance to Jerusalem.”
A 15-year-old Israeli-Canadian was also killed in Wednesday’s twin blasts, which hit bus stops frequented by ultra-Orthodox Jews at the city’s western exit.
Thirteen others were wounded, medics said, in the first bombings to hit the contested city since 2016 according to Israel’s Shin Bet domestic security agency.
A security source told AFP the explosives were detonated remotely and no group has claimed the attacks, which were celebrated by Palestinian militant group Hamas.
The bombings come amid a spike in violence, which has claimed the lives of six Israelis and 14 Palestinians this month across Jerusalem and the occupied West Bank.
Israeli security forces remain on high alert and on Saturday police briefly closed a main road in Jerusalem, not far from the site of the bombings, due to a suspicious package. The incident turned out to be a false alarm, police said.
During the second intifada, or uprising, in the early 2000s, Palestinian militants repeatedly planted bombs at urban bus stops, including in Jerusalem.
Much of the recent violence has centered on the West Bank, where more than 125 Palestinians have been killed this year according to an AFP tally.
At least 26 Israelis have also been killed in attacks across Israel and the Palestinian territories.
The dead have included Israeli troops, Palestinian militants and civilians on both sides including multiple children.
Earlier this year, 49 Gazans were killed in a three-day conflict between Israel and Palestinian militants in the coastal enclave.