Kayan Eissa, Contributor

November 19th, 2020

Lebanon is immensely loved around the globe for its spirit and heart and while it has overcome so much over the past decades, this year has been nothing short of a nightmare for the Lebanese; including a pandemic, a dollar crisis, an explosion, political deadlock, an increase in exchange rates, lost accountability, and unemployment. All the while this may seem sudden, it is the product of years of corruption and negligence.

That being said, bridging Lebanon’s political and economic affairs would aid in our understanding of where the issues are really rooted, to avoid similar predicaments in the future, and to learn from the mistakes that other countries have made within this matter. An insightful webinar conducted by the Political Studies and Public Administration Society, in collaboration with the Economics Student Society, at the American University of Beirut aimed to outline where these issues might’ve risen from, in order to begin the process of healing and change. 

Mr. Dan Azzi is the first guest speaker that shared some of his insights regarding Lebanon’s current situation. To start off with, Azzi spoke on the Lebanese exchange rates, which he says are affected by two different elements; fundamentals (the amount of dollars that flow in and out of the country) and sentiments (psychological factors.) He further stated that some citizens believe that a Hariri appointment for PM could be seen as coming back to Lebanon with billions of dollars to aid in its economy; however, Mr. Azzi believes that what is more important is the legislation that is to be implemented and not the holders of the positions of power.

He gives a political view to this situation in which, in his opinion, it is important for the country to stretch its reserves until reinforcement interferes. The lira liquidity in Lebanon has been reduced in order to decrease spending and consumption to reduce imports and the spending of dollars, with the final goal being to stretch the country’s reserves. 
Furthermore, he provides some insight into everything that is ‘wrong’ with the process of investment in the country and how it affects the country’s economy. For instance, if a Lebanese expat were to plan on investing in Lebanon, the issue at hand would be the protocol for business once you fire people, which is like a package they're meant to be given. Being that it isn't a simple task to fire people, this is an advantage for those individuals working because the system is designed so that people above 60 are not unemployed; however, it is a problem for the economy. On one end, this ensures job security, on the other it simply increases unemployment among the youth, programming them to immigrate with hopes to get dollars back into the country only for these dollars to be subsidized or given to the individuals that haven’t been fired due to the protocol.

Azzi believes that Lebanon has taken the worst of both capitalism and socialism and combined them into one flawed system, which prevents opportunities within the country. The bigger issue is that Lebanese citizens have not experienced a free market economy, for there is no capitalism in the country and it is all simply inherited by generations. He continues to explain that the system is fully destroyed because of the kickbacks in benefits; the banking sector was a Ponzi scheme in which deposits were received and interests were paid through newer ones, and so the elderly community would be at a great loss since they depended on the money they’d receive after they’d been laid off. Moreover, he states that the solution would be through women and the youth leading the revolution, for women have never worked leadership positions in the country and so, they are the biggest losers at the hands of the Lebanese system.

When Mr. Azzi was asked where he would see Lebanon in the next 5-10 years, he said that he thinks we’re at a crossroad. He believes that the problem the country is facing is manmade, being that all the elements to fix the country are there; such as the 120 billion dollars owned by 6000 of the citizens who have not yet decided to make a change. According to him, an equitable distribution is the solution to the problem. And so, the issue could be easily resolved, it’s all about the political will to do so. 

Moving on to the second esteemed guest speaker, Mr. Ramy Smayra, shared insight on how lawyers tend to approach circumstances as the current Lebanese one at hand. The main issues to be discussed are the issues that are disputed between clients in banks, and disputes internationally and in Lebanon. He begins by describing the judicial system in Lebanon. Before the first three courts, there are three degrees of courts. Instant Courts are the courts in which you initially file your lawsuit and if, for any reason, you are unhappy with the final decision, you can file an appeal for a higher court with more experienced judges to review your case, if you are still unhappy with the decision then you may file another appeal where a higher court with even more experienced judges reviews your appeal. The purpose is to ensure fairness, justice, and accuracy that would result from multiple judges’ opinions.

Moreover, there are three types of courts, the first being Civil Courts, which addresses disputes that occur between private individuals and the relation to their civil or commercial dealings. There are two sorts of courts in Civil Courts that are mainly relevant to disputes between banks and their clients. The usual courts examine the cases they receive depending on its legal foundation and the second, being the judges of expedited matters, where if the case at hand seems to bring some sort of danger, the judges then implement emergency measures in which they would not need to examine the merits of the case. The purpose of the second courts is that they're mainly faster, being that most cases require rapid and urgent decision making and so, most cases are directly sent there. 
The second type of courts would be Criminal Courts, which prosecute crimes committed by individuals. The third type of courts would be Administrative Courts, which handle lawsuits that are brought in by individuals against the government or against the state and have very particular sets of standards to accept a lawsuit; being that the person filing the lawsuit needs to have a personal interest or gain in the lawsuit, not something that benefits more than one person. He speaks on the lawsuits against banks by their clients that concern the banks not allowing their clients to withdraw their deposits and so, the client’s case would be reviewed by the judge of expedited matters. The bank would state that they would be paying in check, which is an acceptable means of payment in Lebanon; however, the client is dissatisfied for not being able to cash their deposits outside of the country, which could affect living expenses, medication, tuition fees, etc...

Even though the judgments resulting from the judges of expedited matters were to allow these transactions, the banks have filed an appeal before the court of cassation, which decided that the case must be further examined based on its merits and these decisions have been blocked since February 2020, the outcome is not very easy to predict in this case. Furthermore, since banks have not been permitting these transactions and less clients are filing lawsuits against them, most of these clients are examining possible ways to file internationally based lawsuits, putting pressure on both banks. According to Mr. Smayra, lawyers tend to believe that if the lawsuits were to be filed before the regular courts, then that could provide a more solid foundation because they abide by the legal principle that states that a right must not be abused, but must be exercised by good faith and; therefore, banks have abused their right by not warning citizens for them to be able to handle their affairs prior to the bank’s decisions. 
Moving on to the cases in which lawyers could have filed criminal lawsuits against banks, as cases of embezzlement (the money was given to the banks but was never returned.) The bank’s counterargument would state that the payment in checks was good enough; interestingly enough, there was a decision by a financial attorney general that a criminal judge blocked the assets of the banks and its directors as a punishment for the decisions they have taken; however, this decision was blocked by a higher judge and so, if these lawsuits were to be reinstated, the outcome could be unpredictable. 
The locally based cases in which banks file lawsuits against clients revolve around the guidelines of the repayment client debts. Most loans that are given to clients are given in U.S. Dollars, yet the clients would choose to repay their debts in Lebanese Pounds which would lead to lawsuits between the two parties as to whether or not the client is in fact entitled to repay their debt in Lebanese Pounds instead.  In the light of recent events, a court decision is currently pending with the decision of whether the market rate or the official conversion rate is to be applied to repay bank debts. 

When it comes to the agreements between the banks and their clients, there tend to always have jurisdiction clause which states that any disputes between the two parties must be solved in the courts of Lebanon, specifically the ones located in Beirut. Some clients have filed international lawsuits against the banks that deal with Lebanese banks in the U.S. in order to somewhat put pressure on Lebanese courts. On the other hand, a court in the UK does not consider the jurisdiction law as valid, for they view that, in the relationship between the client and the bank, the client is the weaker party and the consumer and; therefore, the clause would simply add a burden on the client and so, UK courts have jurisdiction over disputes between Lebanese banks and a dual Lebanese UK national client. This decision is not only limited to the UK, but could also expand throughout Europe. For instance, in France, a French judge had ordered a ‘conservatory seizure’ over the assets of a Lebanese bank in France, which is a way for to block the debtor from accessing and liquidating their assets as a way for them to prevent the respective creditors from collecting their debts from the assets; these seizures do not need a certainty of the existence of a debt, a mere possibility would suffice to block a debtor’s assets.

This decision is not certain and so, time will tell whether French courts would have jurisdiction over the disputes between Lebanese banks in France and a dual Lebanese French national. In other cases, Lebanese banks in the U.S. are accused of fraud (Ponzi schemes) by multiple lawsuits. Some courts have even received ‘Class Action Lawsuits’ in the U.S., meaning that instead of having a single plaintive suing the bank, you’d have multiple people suing the bank for similar reasons in addition to suing the corresponding bank in Lebanon, adding more pressure on both banks. Furthermore, because this would be too costly, the bank would often pay a compensation fee as a settlement to get out of the lawsuit. 
Mr. Smayra continues to explain how the circulars that’ve been issued by the Central Bank; such as how much can one withdraw in LB or U.S. Dollars on a monthly basis, the number of debts one is allowed to pay in LB, and the official conversion rates between LB and U.S. Dollars, regulate the bank and the client’s relationship. In Lebanon, parties are free to arrange their relationship with the official conversion rate and the market rate the way they please, meaning that they are able to price their products based on the market rate as well; with the exception of products subsidized by the states, merchants are not permitted to price them based upon the market rate. The merchants that breach these exceptions are penalized by the Consumer Protection Agency of the Ministry of Economy through lawsuits; however, the level of punishment is unknown. 

When Mr. Smayra was asked where he would view Lebanon in the next 5-10 years, he emphasized the importance of stressing on the legal factors, such as accountability and implementation of laws. Like Mr. Azzi previously said as well, if there isn’t a change in the will then there will be no improvement. Mr. Smayra also states that there are so many opportunities that are lost because of the lack of political stability and that there’s no point of implementing laws if the conduct remains the same. 

Onto the third and final guest speaker, Dr. Sumru Altug, which shared her insights of the current situation through comparisons with similar circumstances that other countries have experienced and to perhaps gain knowledge from the error of their ways. She states that Lebanon was doing well in the years of 2006-2011, and even during the crisis money was still coming from developed countries. The year 2012 was Lebanon’s breakpoint, in which the government was not properly financed, and the Central Bank became the holder of public debt. She believes that all that has happened in Lebanon could have been predicted from 2012, being that the reason why Lebanon is going through a crisis is because all of the potents were there and yet, nothing was done. She finds an issue in the political narrative of the situation, where the country somewhat depended on the Central Bank, making it acquire more and more of the debt whilst hoping the remittances would be able to help; however, the remittances (being one of the major forms of finance for the Lebanese economy) have been decreasing since the years of 2008-2009.

She believes that the solution to the current Lebanese crisis is through the IMF, which comes in when a country is not able to pay its debt, providing international finance when no one else will lend any money, no remittances, and when the Central Bank is unable to lend. She firmly believes that this is the only party that can help. In order for the IMF to be able to somewhat make a change, the political aspect of the country must change, meaning that that requires political will by the citizens of the country as well; hence why the IMF did not work for Egypt and Argentina due to their politically problematic history. And so, IMF programs can actually provide aid if political will was present, it could come from existing political parties or new ones to be voted. In Turkey, for instance, an economist was running for the World Bank and was given the power to implement the IMF program and it worked. It involved cleaning up the banking sector, which she believes is something Lebanon must do; it puts institutions that the countries lack, such as Banking Regulation and Supervision Authority and another authority that oversaw bad or unsustainable banks. 

Similarly with the Greek crisis, the country was on the verge of being completely bankrupt, with a growing external debt that it could not repay and a mismanaged economy. They have taken funds from all over the EU and have solely used them for corruption and so, the socialists implemented the IMF program because it was their only solution. Dr. Sumru believes that this is Lebanon’s only hope in its current and dire situation and that minor political reforms could minimally stop the bleeding. The country needs to somewhat be able to produce something in order to receive funds from other countries. 

When Dr. Sumru was asked where she sees Lebanon in the coming 5-10 years, she said that Lebanon could go back to being the Switzerland of the Middle East only if reforms were made and steps to move forward are being unanimously taken by politicians and by nationals. 

The bridging of all of these aspects together was essential, for it brought an understanding to when and why these problems began in the first place and what could be done in order to minimize the damage and make the changes necessary to get the country back on track!