Counterpunch
A $350,000 Ferrari GTC4 with private United Nations (UNP) license plates, Lebanon (April 2018, Paul Cochrane)
Lebanon managed to borrow $11.6 billion at the
Cedre
donor conference last year, the majority from the World Bank and
Europe. After a nine month wait to form a government, Beirut now has to
implement the lenders’ conditionalities: economic reforms.
What do you do as, say, a European institutional lender if Lebanon
renegades on its commitments? Stop funding programmes and aid, leaving
the poor and the 1.5 million Syrian refugees to suffer? And if Lebanon’s
economy collapses – debt has doubled over the past decade to $84 bn,
over 150% of GDP – there’d be another failed state on the Mediterranean,
within sailing – and capsizing – distance of Europe, so do you just
keep on writing out cheques?
We should take a step back first to consider the bigger picture.
Lenders have their own reasons for lending, evidenced not just in the
interest to be paid, but in the conditionalities that come with the
loans and development packages, which are invariably of a neo-liberal
bent: privatization, austerity, and economic reforms. The Europe Bank
for Reconstruction and Development (EBRD), the World Bank et al have
their own agenda to push.
Then there’s aid and philanthropy, what has been called
Philanthropic Colonialism,
“or barging in as outsiders and forcing their solutions on other
people’s problems”. And as for humanitarian aid, the closer you are to
Fortress Europe the more likely you are to get loans or aid, which is
why the Syrian refugee crisis gets
double the amount Yemen does.
So if one overlooks the lenders’ interests, and believes they
actually care about the effectiveness of the loans and genuinely want
stability and progress, how can you hold Lebanon accountable? Is the
only way to withdraw the funds, as happened following the Paris II donor
conference in 2002, when $4.4 billion was pledged but only half
delivered as reforms were not implemented? After all, with this fourth
round of donor funding since 2001, Lebanon has borrowed roughly $22 bn.
Again, we should take a step back, to before the loans were even
agreed upon. Europe, the World Bank and co. knew exactly what they were
doing providing loans to keep Lebanon afloat. The question should have
been, does Lebanon need to borrow yet more money?
On paper yes it does, but are there not more ‘deserving’ countries?
If we use a means-based assessment, Lebanon should not be going go cap
in hand to lenders when there are war ravaged countries nearby – Syria,
Iraq and Yemen – and plenty of countries with much higher levels of
crushing poverty, nearly anywhere in Sub-Saharan Africa for instance.
Because also, on paper at least, Lebanon is a middle-income country and
likes to perceive itself as such (except at donor conferences). The
banking sector has assets in excess of $258 bn (population 5 mn), while
by comparison Bangladeshi banks’ assets are $90 bn (pop. 160 mn), and
Tanzania’s $12 bn (pop. 59 mn).
How then to gauge whether a country needs loans and, moreover, be
provided to corrupt governments? Corruption is a key factor to consider,
as loans can be skimmed off, such as through tenders and contracts. But
using Transparency International’s Corruption Perceptions
Index
doesn’t cut it. It is perception, and Lebanon has long had a bad
ranking – 138 out of 180 countries (1 being the least corrupt).
Corruption has rarely stopped institutional lenders from lending.
Instead a means-based assessment could be based on sales of luxury
goods in low/middle income countries, such as the number of fancy
watches, yachts, private jets and luxury cars sold each year.
Let us take automotive sales. Out of Lebanon’s $57 billion GDP, over
$1 billion is spent on new cars, with 33,012 bought last year,
contributing to the country having the same number of vehicles per
capita as
Japan.
While 90% of car sales are below $15,000 there’s still a lot of
expensive cars on the roads. Does a country that buys dozens of
Mazeratis, Lexuses and Jaguars, hundreds of Porsches, Range Rovers and
SUVs, a handful of Bentleys, a couple of Lamborghinis, several hundred
BMWs and close to a 1,000 Mercedes every year really need foreign loans?
Lamborghini in Sin el Fil, Beirut (March 2019, Paul Cochrane)
After all, how are such luxury goods sales possible? A mixture of
corruption, tax evasion and avoidance, oligopolistic practices, elite
capture, and paying lousy wages. As a compliance officer at a bank once
put it to me, if anyone has over a few million bucks in the bank,
they’ve probably done something unethical, immoral, or downright
criminal.
In Lebanon’s case, in addition to the above, the high interest on
servicing government debt – averaging 5-7% compared to a global average
of 2% – benefits the elite. Lebanese banks hold 39.6% of government debt
of $84 bn, while 16,000
accounts (less than 1% of all deposit accounts) hold 50% of total deposits, and 1,600 accounts (0.1%) 20% of total deposits. P
oliticians
own more than 30% of the banking sector. The debt, if you will excuse
the pun, is in their interest. It is socialism for the rich subsidized
by the Lebanese public with the stamp of approval of the World Bank,
EBRD and co.
High inequality levels and luxury goods sales are a clear indicator
that the system is unfair, and that money is being squandered. The
number of high net worth individuals could therefore be included in the
means-based assessment, and Lebanon is not short of
billionaires.
If the loans were turned down because of high spending on luxury
goods – which extends beyond the segment that can afford it, with
personal debt
doubling over the past decade
– this
could cause public outcry, potentially leading to demands for greater
accountability and political-economic change. Although, alas, it is more
likely the weak suffer what they must – to use the Thucydidean title of
Varouflakis’
book– and loans and interest will keep driving luxury car sales.
But maybe I am being unfair. Politicians and the elite need
top-of-the-line vehicles to be comfortable in when they are stuck in
Beirut’s gridlocked traffic, as public transport was not considered
important and underfunded. They also need high quality air filters to
not breathe the pollution generated by their V8 engines, the diesel
fumes spewing from generators because the electricity sector is in
shambles, and the
burning
of toxic trash because the government can’t be bothered to enforce
laws. Frequent forays abroad are also necessary to cleanse the lungs, as
air pollution is shortening the average lifespan of Lebanese citizens
by
25%.
It is also hard, of course, to be the poor kid on the block. Lebanese
political leaders have to rub shoulders with Gulf billionaires, as well
as with well-suited and booted Europeans and North Americans. Although I
am sure that some lenders raised eyebrows at the expensive tastes of
those asking for Cedre funds – including Prime Minister Saad Hariri, the
son of a billionaire.
We should also consider that this means-based assessment could be
skewered by the consumption patterns of the humanitarian aid and
development industry, being big buyers of champagne and luxury cars (see
photo of the privately owned UN Ferrari).
So, after a high level institutional meeting at a five star hotel to
discuss whether a means-based assessment could be used as lending
criteria – the loans and luxury goods sales paradox – maybe the lenders’
conclusion would be it is not necessary. In a world where government
debt levels hit
$66 trillion
in 2018, roughly 80% of global GDP, why not keep the addiction to
lending and borrowing going? As the saying goes, money makes the world
go round, although debt makes the world go round would be more apt.
