Lebanon: a Venezuela in the making?
Analysis by Zeina Dagher, Staff Writer
May 21st, 2020
During the last years, Lebanese-Venezuelans have been immigrating to Lebanon in waves, fleeing a disastrous financial crisis that left the country with tough food and medicine shortages, as well as extreme violence and dangerous gang activity. But little did they know that Lebanon was on the way to experience the same.
In fact, in light of the October 17th uprisings and the worsening economic situation, analysts have been drawing parallels between the two countries in an effort to predict where Lebanon may be headed and what solutions may work. The result?
Lebanon is closer to the Venezuelan scenario than to any other, or so does economist Dr. Pierre Khoury believe. This is definitely not good news, as the situation in Venezuela is a nightmare to say the least: the country is stuck in the endless spiral of hyperinflation as of 2015 – which means that a person’s monthly salary can’t even cover a gallon of milk, more than half of Venezuelans live under the poverty line, unemployment rates are staggeringly high, and President Maduro’s government does a great job at repressing protests and imprisoning/exiling any opposing voices.
Exclusive photo from Venezuela provided by Amir Jaouhari to the Phoenix Daily, April 30th, 2020
The Covid-19 pandemic has only made food/medicine/gasoline shortages worse, and there are very few doctors to treat those infected, because the majority of them fled the country, along with 5 million other people since 2014. Sadly, those who stayed can only rely on international organizations’ aid, while others join gangs, making money off of illegal activities. Some may say that Lebanon is still a long way from reaching such a low, but so did Venezuela think before collapsing in just 10 years.
In terms of handling the COVID-19 Pandemic the two states may have even more in common, according to Amir Jaouhari a Lebanese-Venezuelan citizen who recently relocated to Lechería, Venezuela. “Venezuela has been very careful” states Jaouhari, “whenever you go to enter a shop or anything they are always taking your temperature, sanitizers are handed out widespread, and curfews between areas have been put in place”. Further than this, Venezuela has put in place social distancing measures and banned all ‘larger’ gatherings and enacted policies that all citizens must wear face-masks Jaouhari tells the Phoenix Daily in a May interview.
Therefore, one big question avails: are we really on the same path as Venezuela? If yes, how do we avoid such a fate? When asked about the reasons behind Venezuela’s downfall, experts and politically independent people will state mainly: mismanagement of the economy that started under Chavez’s government, debt, and corruption.
First, let’s talk about the economy’s mismanagement. Much like the Lebanese economy relies heavily on money sent from expats and foreign investors, the Venezuelan economy is very oil-centered. As of 2017, oil production accounted for about 95% of Venezuela's export earnings, according to the CIA Factbook, and about half of the government’s revenue, while agriculture and industrial sectors are left behind, just like in Lebanon.
For example, agriculture accounts for 3% in both countries’ GDP as of 2018, while the world average is 10.39%. Consequently, every time oil prices took a blow (because of the 1980’s crisis, or during the mid-2000’s…), the Venezuelans would experience shortage of dollars, so higher inflation levels.
The same could be said about Lebanon, when money stopped coming in from abroad in 2010-2011 and foreign capitals were withdrawn: with no active industry it doesn’t have much to export, and with no agriculture it cannot self-sustain, therefore imports are a necessity. What worsened the oil situation in Venezuela was Chavez’s populist methods: he failed to cut back on government spending over his social welfare programs, and insisted on making oil prices for Venezuelans extremely cheap, costing the government $50 billion per year. Lebanon’s politicians also kept spending money over all besides of agriculture and industrial development, a notion we will discuss later.
The Lebanese government is just now trying to figure a way out of the crisis, but the Venezuelan ones (namely Chavez’s) already tried implementing different methods that proved to be useless, even worsening the situation. For example, Chavez imposed price controls on basic needs (like milk, meat, flour, chicken…) which means that he forced producers – sometimes by military force – to lower their prices below market rates, therefore prompting them to stop selling their products in order to avoid losses. According to Jaouhari, prices for basic foods and vegetables, such as 1 kilogram of tomatoes have reached the local price equivalent to $1.5 USD.
This resulted in food scarcity in the market, and higher black-market prices for that which is available. Until now, Lebanon has only forced producers to respect the legal 20-30% profit margin on their products. Chavez also blocked citizens’ access to foreign currency, which left Venezuelans with absolutely no way of avoiding famine (Lebanese capital controls, anyone?)
As a short-term survival method, this could’ve worked, but Chavez’s successor, Maduro, worsened the inflation by printing even more local money without restraint, seeing that the people were becoming poorer and thinking that the crisis was only caused by a short-term price shock. In Lebanon, the Central Bank printed fresh local money a few months ago, increasing the local banknote quantity from 5 billion to 15 billion, and stating that there was a currency shortage in the country. If that was really the case, it couldn’t have picked a worse time to do so, as Lebanon was already experiencing dollar shortages and a depreciation of the Lebanese pound.
The second major pillar of the economic crisis in both Venezuela and Lebanon is backbreaking debt, resulting in a huge budget deficit. According to the Washington D.C. Institute of International Finance, Venezuela’s national debt reached 198.4% of GDP in 2019, while Lebanon’s was at 152% of GDP. Venezuela’s debt is mostly external, having borrowed at least $63 billion from China since 2017 according to Forbes. At the time, Chavez was continuously borrowing money to serve his populist agenda, thinking that oil prices would stay high. He also owes billions in lawsuits to foreign companies, after having expropriated many of their investments in major industrial sectors with no compensation, under his plan for a “21st century socialism”.
In Lebanon, the public debt is (was) mostly internal. According to figures released by the Lebanese Ministry of Finance, Lebanese banks owned 60.57% of the country's total gross debt as of the end of January 2019, the rest owned by international creditors. However, at the start of 2020, seeing that the economic situation was getting worse, banks in Lebanon sold $2.3 billion in Eurobonds to foreign buyers at very low prices, to ensure a dollar income and the protection of big deposit account holders.
This transferred the government’s debt from mostly internal to mostly external, putting it at the mercy of international creditors. In fact, the Lebanese government announced on March 10th that it won’t be honoring a $1.2 billion bond that was due a few days before, its first default. Just like the money Chavez borrowed was, for a big part, squandered in failed social programmes, economic mismanagement, and corruption, the money Lebanon borrowed was used to reconstruct a war-stricken nation, but at a cost much higher than that it should’ve had. In the following years, corrupt Lebanese politicians would borrow money for useless, very costly projects, that would only benefit them and their allies (for example, the electricity sector and the controversial ship, or water dams built on unsuitable ground…), money that the Lebanese people had to repay. Today, both countries borrow money to stay on their feet.
It is clear that with no active industry, Lebanon cannot rely on mass exportation to balance its deficit, and therefore arguably has the option of either asking the IMF for help, selling its gold, or slashing government spending (to less than the very little it already spends on its citizens) and implementing long-term tax-hike programs.
However, Venezuela sits on one of the largest oil reserves in the world, and once had an extremely active oil sector. So one may ask, why do they not increase their oil exports to fix their budget deficit? The answer is that the Venezuelan oil industry has been severely neglected for the past 15 years, after oil prices dropped and national debt increased: its production today is 2.3 times less than it was in the 1970s, according to Forbes. Also, Venezuelan oil is crude, and very heavy by international standards, which means that much of it needs to be refined and processed to be used. Those who took care of this process were foreign companies, that Chavez and Maduro expelled in order to have the oil sector entirely controlled by the Venezuelan government. Now, Maduro is silently asking for foreign refineries’ cooperation to keep the last bit of the economy afloat, a demand that isn’t always answered, because of the international community’s aversion towards his authoritarian regime.
In fact, the US has imposed ‘sanctions’ on Venezuela that hit the oil sector, ultimately hurting the people the most. Some of Trump’s sanctions aim to freeze sale proceeds from Venezuelan state-run oil firm PDVSA’s exports (of roughly 500,000 barrels per day of crude) to the United States, through blocking US refiners’ payments to the firm until it is controlled by a new government.
The unpopularity of the Maduro regime is very much rooted in a reality, that of an authoritarian regime. Corrupt Venezuelan politicians not only depleted the government’s reserves, thus denying citizens their right to healthcare, food, and education, but also answered any protests with extreme violence, arresting, imprisoning and exiling many. According to an article written on the Foreign Policy by Carlos Vecchio, active protester and member of an opposing party, Voluntad Popular, many Venezuelans were arrested after the 2014 protests, and he was one of them. “The leadership of our party was persecuted. Some were imprisoned, others exiled, forced into hiding, or driven to seek asylum in foreign embassies […] This experience has also become the new normal for other political parties and the National Assembly; according to an assembly report, more than 30 deputies have been exiled and five are currently in detention.”
The lack of democracy can also be found in elections, making change from the inside near impossible. In fact, 2018’s presidential elections were disastrous in terms of transparency, and resulted in the elections of Maduro for another term, with 67.7% of votes. Venezuela’s election board put turnout at just 46.1%, way down from the 80% registered at the last presidential vote in 2013, due to a boycott by Venezuela’s mainstream opposition, and many suspected vote-buying and electoral fraud.
In fact, the European Union, the Organization of American States, the Lima Group and countries including Australia and the United States rejected the electoral process. Although Lebanon has never yet had “show elections”, elements of undemocratic elections are known to occur, like some political parties buying votes, or shutting down polling places and leaving people outside in order to alter vote results (like in the 2018 parliamentary elections).
It is also worth mentioning that, with the ongoing protests, many stories have emerged stating violence from the Lebanese army towards protesters. The Lebanese army has used tear gas, rubber-coated bullets, and live fire to stop riots and open blocked roads, injuring many. In fact, only a few weeks ago the army allegedly shot and killed 26-year-old Fawaz Samman who was protesting the deteriorating living conditions. Many have testified about the army torturing, beating and electrocuting the detainees, backed by medical reports. An investigation is currently being undergone into the allegations of torture. “If proven, [these allegations] is a troubling escalation in the army’s attempt to stifle dissent,” Michael Page, deputy Middle East director at the Human Rights Watch told Al Jazeera. Lebanon is not yet classified as an authoritarian regime, but could very much be on the way to it if violations of human rights were met with impunity.
Seeing how politically unpopular the Maduro government is, benefitting from the IMF’s aid is not really an option for Venezuela, especially since the government is divided on whether to ask for it or not, and there is no unified, coherent plan for getting out of the crisis. In Lebanon, despite the fact that the current government is, as many may say, a “Hezbollah backed government”, and it is well known Hezbollah’s leaders and supporters fear an IMF involvement, although having remained officially neutral on the matter, it still came up with an official action plan that it submitted to the IMF asking for aid. What’s next is how willing the IMF is to help, and at what cost.
In conclusion, the Lebanese government’s approach to the crisis is generally more informed and democratic than Venezuela’s, but that doesn’t mean that Lebanon is not risking hyperinflation and the start of an authoritarian regime. In these times, it is crucial to stay aware of all that is being done, and hold the wrongdoers accountable for their mistakes. As for Venezuela, it is hopefully, and after almost a decade of suffering, on the way to recovery, with Juan Guaido, leader of the National Assembly, being recognized by several countries as the true President of Venezuela, and the US willing to discuss with him ways to overthrow Maduro and help the country out of the sinkhole it’s stuck in.