The catastrophic loss of the value of a currency is not an unknown phenomenon in world history.
The Chinese experienced a period of hyperinflation when they first started printing money. People taking bag-fulls of near-worthless money to buy essential groceries in 1920s Germany is legendary. The Zimbabwe Dollar went the same way many years later – the Reserve Bank stopped calculating the inflation rate once it topped 250 million percent.
The Lebanese Lira, or Lebanese Pound (international code ‘LBP’, local abbreviation ‘LL’) first ran into big trouble during the civil war when it plummeted from LL4 to the US dollar to, eventually, around LL4,000. Colleagues here have told me how they literally saw 99.9% of their savings being wiped out. It explains why so many of them stayed on after retirement age.
To bring about currency stability, the Lira was pegged to the US dollar at, in round figures, 1,500 to the dollar. It did indeed steady the ship but there is a price to pay for having a pegged currency – it is inconvertible outside the country (except in Syria in this case). The Reserve Bank controlled the erosion of foreign currency reserves during difficult times such as the 2006 war by imposing limits on how many Lira banks could convert.
When the Lebanese economy started going into meltdown a few months ago, the Reserve Bank adopted a most peculiar strategy. The Lira remained pegged to the US dollar at 1,500:1, but the only importers whom the banks could convert Lira for were those purchasing grain, fuel and selected pharmaceuticals. So traders turned to the ‘black’ currency market (in inverted commas because it is all out in the open). There, the rate quickly climbed until it was around 10,000, even nudging the 12,000 mark at one stage. It has since stabilised at around 7,500.
One of the things going into my memoirs is paying LL32,000 for a 400g pack of French butter (all butter in Lebanon is imported from Europe) at a local superette at the height of the madness. At the official exchange rate, converting first to USD and then NZD, that’s roughly NZ$35 per pound. At the ‘black’ market exchange rate at that time, it was about NZ$5.
This is just playing with figures, some of you are likely to be thinking; the true cost of the pound of butter was 5 and not 35 dollars. So what is the big deal?
It is this: I get 5½ million Lira paid into my bank account every month. That used to be about NZ$5500. But the purchasing power of those Lira has dropped to around NZ$1100 at least where imported goods are concerned – which is most consumables.
An 80% pay cut necessitates a few changes to one’s consumption habits. Goodbye French butter, hello Finnish. I like a good steak and remember placing a pack of Dutch veal into my supermarket trolley, thinking it was on special at LL12,000. It turned out that I had missed a zero – the price was LL120,000. It went straight back onto the rack. We like cheese and used to get through a 160g pack of sliced Edam or Emmenthal most lunchtimes. Not since the price went up to around the LL30,000 mark, though.
Now to the really important things in life. Our favourite Scotch used to set me back LL24,000 and now costs LL140,000. We might even have to start drinking Lebanese plonk. Roll-your-own tobacco went from LL6,500 to LL22,000. My wife had to give up on her German Camels and is now puffing away on Lebanese Cedars.
I told the budgies they might have to forego their costly Spanish seed mix and forage for food outside. That would delight the ravens who nest on campus and are always on the look-out for a colourful little snack…… no, not such a good idea after all.
Our cats are very intelligent – they can read price tags. I’m going to have to play it real smart to wean them off expensive French canned food and onto some cheap-and-nasty brands from southern Europe. I’ve already tried them on local mince and they turned up their noses at it.
Frivolity aside, I feel a bit guilty moaning away like this as most Lebanese are a lot worse off than we are. Many working class families have to make do on around half a million a month – about 10% of what I am on – and that’s when the breadwinner can get work, which many currently can not; and that in a country with no dole. However, as I noted earlier, grain importers are permitted to convert into dollars at the official rate of 1500:1. The staple food of working class people here is bread – not your loaf variety but pizza-sized discs of unleavened bread onto which they place bits of veg and cheese and, if they can afford it, meat (usually chicken), and roll up. The government also directly subsidises bread in the form of bread rolls which sell at LL1000 for a pack of six. As for vices, most people here smoke and local cigarettes are still mercifully cheap at LL3,500 a pack.
Of course all that is cold comfort for the unemployed and for the couple of hundred thousand who became homeless when that stash of ammonium nitrate went up and who can’t find or afford new accommodation. Charities have been flat out providing meals to the needy.
Also badly hit have been the many thousands of foreign workers, from Philippino housemaids to Bangladeshi men who collect the rubbish, whose families back at home rely on regular remittances. These workers are poorly paid but send half or more of their wages to their families. A hundred US dollars converts into a lot of Pisos or Takas – the difference between school or no school, medical treatment or no medical treatment. But they are paid in Lira and that hundred dollars is down to about fifteen dollars – not worth sending out after the businesses that transfer these funds have taken their cut.
Ironically, the beggars (mostly Syrians and Palestinians) are looking a lot better than they were a couple of months ago what with all the hand-outs.
Where is all this headed? I don’t know. But it might have been a harbinger of things to come when people thronged around the French president when he was here inspecting the damage done by the blast while they threw plastic water bottles at a Lebanese government minister when she arrived, forcing her to withdraw.
Lebanon made history when it defaulted on an IMF loan repayment earlier this year. I personally believe that Lebanon’s international debts should be completely written off as I see no way out for the country if they are not. Never mind about ‘setting precedents’. Think instead of the costs to the West should the Lebanese State fail completely and Lebanon comes up for grabs in a region that has long been, and remains, a geopolitical flash point.
Barend Vlaardingerbroek BA, BSc, BEdSt, PGDipLaws, MAppSc, PhD is an associate professor of education at the American University of Beirut and is a regular commentator on social and political issues.
Ah printing money now that would solve all our problems! The scary thing is many kiwis actually think that is the answer to fix all problems. We have a dumber down population who think our belovered leader is just so wonderful .. as a woman said to me yesterday just look at all the money she's giving everyone. If labour and worse the Greens hold power for the next 3 years we will end up like another 3rd world corrupt and broke nation
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