This is why we can't have nice things
By Capital Thinking • Issue #881 • View online
I’m a millionaire. A million in crisp, new bills is stacked up on the table in front of me.
Unfortunately, it’s Lebanese lira and cost me about $75 a week ago. It’s already worth only $65, and by the time you read this, it will be worth even less.
What happens when your currency collapses?
The Lebanese currency has lost more than 90 percent of its value over the past 18 months and is continuing its steady decline.
It would be foolish to keep more than a few days’ spending money on hand, so everyone has a moneychanger. Mine is Mohammed, who pops round on his moped with ever-fatter stacks of notes with ever more zeros on them.
The currency grows physically as it shrinks in value. He passes over a wad of cash and says, smiling: ‘Our leaders are stupid and corrupt.’
That’s true, but only part of the story of what has gone wrong.
Mohammed is here because no one uses the banks to change money anymore. That would be crazy when the official exchange rate is still 1,500 lira to the dollar, one-tenth of the black-market rate of just over 15,000 to the dollar (at the time of writing).
Mohammed used to be a chef, a job where he made things that people wanted, adding a small but tangible amount to the nation’s wealth. Now he’s one of thousands of people employed in the completely useless but absolutely indispensable business of ferrying stacks of printed paper back and forth by moped, to make up for the catastrophic failure of the banking system.
It’s one small example of the inefficiencies that creep into an economy when you can’t trust the money anymore.
Everyone is poorer as a result. Mainly, people are poorer because wages can’t keep up with runaway prices.
The head bookkeeper at a large hospital told me he was now making the equivalent of $120 a month. The doctors were on about $200, he said, and half of them had left to work abroad. People can’t live on those salaries, not least because Lebanon imports more than half of its food.
Parked outside a nearby church is a line of Audis, Mercedes, BMWs and Range Rovers. This isn’t a smart wedding or a christening, as you might expect in normal times.
Instead, the church is giving out food aid: small, mean-looking boxes of rice and pasta and the cheapest kind of sunflower oil. The people trudging away with these boxes, eyes fixed on the ground, are from Lebanon’s traditionally comfortable middle classes.
Others are far worse off.
A sense of unreality surrounds every transaction as, by law, the dollar amount at the official rate is printed on every lira receipt.
I hand over a couple of 100,000 lira notes for a pizza at lunchtime. That’s $12 or $13 but the receipt informs me that if I pay in dollars, the bill comes to $130. Perhaps a (very) rare tourist has been caught out by this, buying the world’s most expensive pizza.
The government continues to insist that for imports of some vital goods — food, fuel and medicines — the lira is worth the fictional rate of 1,500 to the dollar. What this means is vast government subsidies to import these goods.
This has had some perverse effects.
For a long time, you could fill up your car for about five bucks. The gas station would charge you, say, 60,000 lira, which was $40 at the official exchange rate, except your lira would have come from the black market at a fraction of that.
As any economist will tell you, if you don’t ration by price, you ration by queuing, as in the Soviet Union. So there have been long lines at gas stations and now actual rationing, a quarter of a tank per customer — and that’s if you can find a gas station open at all.
A side effect of the fuel shortage is that the internet is slowing to a crawl, sometimes breaking down altogether. The commonly accepted explanation is that there’s not enough diesel to run the power plant belonging to the national phone and internet company.
It’s the same with medicines. We’ve just bought a year’s course of treatment for our daughter’s nanny, who has breast cancer.
We went to the hospital with 225 million lira in cash. It filled a small backpack. Those lira cost some $15,000 on the black market but they paid for $150,000 worth of medicines at the official exchange rate.
Lebanon is temporarily the cheapest place in the world to have cancer. People are coming here for treatment; subsidized medicines of all kinds are being smuggled abroad.
A hypertension drug named Atacand has turned up for sale in Kinshasa, at $20 a box. It was bought in Lebanon for $2 a box. Atacand is therefore unobtainable here now.
One report about this absurd situation quoted a Lebanese expat in Kinshasa who was buying the drug there to send back to his village at home.
As people used to say in Britain in the 1970s, this is the economics of the madhouse. This can’t continue and it won’t — it’s like watching a country slowly cut its own throat.
Lebanon’s foreign currency reserves are almost drained. Soon there will be no more dollars to subsidize imports. Prices will have to reflect the real, increasingly debauched value of the currency.
*Featured post photo credit: Annie Spratt on Unsplash