It has become common practice to say that we, in Jordan, are
heading the way of Lebanon; that is, what happened there would happen here.
This is so far from the truth. Unfortunately, few people know what happened in
Lebanon and how the crisis there came about.
اضافة اعلان
Lebanon is undergoing a financial meltdown that is spawning
one of the worst economic and human catastrophes in centuries. People have come
to witness their livelihoods and savings disappear.
The story began in 1997 when the central bank (Bank of
Lebanon), in order to maintain faith in the Lebanese economy, pegged the
Lebanese lira to the US dollar (LL1,507=$1). The policy proved successful for a
while. A visitor to Lebanon would carry either liras or dollars and have no
problem using either. It was dual currency economy.
But it also meant that banks had to hold large amounts of
dollar deposits in order to meet the demands for exchange at any time. Lebanese
firms needed dollars to pay for imports, which also increased the pressure on
banks to have dollars. Note that Lebanon is a country that relied for foreign
currency on three primary sources: remittances from the Lebanese in the
diaspora (mainly the Gulf countries), tourism, and aid from the capital surplus
countries of the Gulf and the West.
As long as these inflows kept coming, the dollars were
available to meet the demand and the economy was relatively stable. However,
the Arab Spring changed things: Syria, which was once a large trade partner,
was facing financial trouble; remittances started to fall; aid from the oil
rich Gulf countries, for political reasons, started to falter and later came to
a halt; tourism, with the promise of violent flare-ups, dwindled to almost
nothing; foreign direct investment dried up as the US and others considered
Hezbollah a terrorist organization; and the port explosion topped it all up.
... To be able to meet such an obligation, the only way for banks was to pay the initial depositors with money from new depositors, which is better known as a money pyramid or Ponzi Scheme.
With the disruption in dollar inflows, the private banks,
with the blessings of the Bank of Lebanon, devised the following plan: private
banks are to offer generous interest rates (15-20 percent) on dollar deposits
to keep the dollars coming. However, to be able to meet such an obligation, the
only way for banks was to pay the initial depositors with money from new
depositors, which is better known as a money pyramid or Ponzi Scheme. But once people
realized that a Ponzi scheme is at play, they panicked and started asking for
their money back, which caused a run on banks. Banks, not having the money,
refused to pay, and the conundrum started. Consequently, the lira exchange rate
dropped by 90 percent after 2019.
Three events in 2020 did not help matters either: the
government tried to impose taxes on WhatsApp calls in a country that is
considered the most expensive in the world in terms of telephony; COVID-19
wiped out tourism and any hopes of recovery; and the explosion of the port in
Beirut devastated whatever hopes for recovery existed.
So, how similar is this to the case Jordan? Not at all!
The unemployment rate in Jordan has been declining from a
high of 25 percent in the first quarter of 2021 to 23.2 in the third quarter of
the same year; exports have risen by 18 percent in 2021, tourism is back to
pre-2020 levels, private banks have JD60 billion (194 percent of the GDP) in
deposits and $13 billion in foreign currency, plus JD39 billion in domestic
currency deposits, credit facilities exceed JD30 billion, and the Central Bank
of Jordan has $18 billion (9.3 months’ worth of imports).
The public debts of the two countries are not comparable
either. Jordan has a national debt of 114.6 percent of the GDP, while Lebanon
has a national debt of 158 percent. Almost half of Jordan’s debt is to
international organizations at concessionary rates (4 percent) and for long
periods (15 years) while most of Lebanon’s debt is to private banks, for short
periods and at 15 percent.
Hence, there really is nothing to compare. Let us start
believing that tomorrow will bring a brighter and more vital economy in Jordan.
The writer is CEO of the Envision Consulting Group and
former minister of state for economic affairs.
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