Page 7 - MEOG Week 14
P. 7
MEOG FInanCe & InVestment MEOG
remittances from Lebanon’s large diaspora. Suffering from a dollar liquidity issue, banks imposed increasingly harsh capital controls in
november.
Depositors had only been allowed to with-
draw a few hundred dollars per month from dollar-denominated accounts, forcing many to withdraw cash in Lebanese pounds at the official rate, which was substantially less than the mar- ket rate and thereby caused them to incur sig- nificant losses. The decision also allows people with accounts in the local currency under 5mn Lebanese pounds ($3,330, at the official rate) to convert their money into dollars at the official rate and then withdraw it in Lebanese pounds at the higher parallel rate.
The decision’s parameters apply to roughly 60% of accounts in Lebanon, worth a total of around $1bn. Jad Chaaban, associate professor of economics at the American University of Bei- rut, said 1.7mn people would be affected.
But Chaaban said that “what is portrayed as something beneficial is actually a forced conver- sion to Lebanese pounds at a market rate, and it’s not a clear rate.”
While the recent decision affects only a small fraction of the Lebanese banking system’s more than $150bn in total deposits, analysts see it as the first step in permanently converting dollar deposits into the local currency, a process known colloquially as “lirafication.”
“Given the large dollar gap in the system, it’s unlikely that depositors will be getting their deposits back in dollars.” Mike Azar, a financial advisor and former lecturer in economics at Johns hopkins University, told Al Jazeera.
Despite the criticism, the banking source has told Al Jazeera the move is a win-win for both banks and depositors.
Banks, which have faced an outburst of widespread anger over the limitations on dol- lar withdrawals that led dozens of branches to be vandalised and even set on fire, will now be able to give people local currency at an accept- able rate.
Meanwhile, people who had already been struggling to pay for basic needs under the eco- nomic crisis - and who now face the additional pressure of the coronavirus (COVID-19) pan- demic - will be given some breathing room.
In the short term, the decision might also ease widespread anger against the country’s entrenched political elite, a sentiment that stoked an unprecedented uprising in the country last October.
Further devaluation
Analysts also warned that Friday’s circular might lead the Lebanese pound to depreciate rapidly on the parallel market because a large amount of local currency would suddenly become available while dollars remain scarce.
Those with even a small amount of local currency to spare would have an incentive to
exchange them into dollars due to the volatility of the Lebanese currency, a source said.
The banking source concurred: “If people take this money to buy dollars and then stack it at home, there will be more pressure, and the price could go higher.”
“It depends on the reaction, but I think this category of small depositors usually need to spend and shouldn’t be stacking money at home.”
Cannabis the cure
Meanwhile, it was reported that the Lebanese government is looking to cannabis cultiva- tion for medicinal and industrial purposes to improve the country’s economic situation.
Lebanon is the third-most indebted country in the world, with a debt-to-GDP ratio of 170%, and the Finance Ministry announced on March 23 that Lebanon would be suspending payments on its $30bn worth Eurobonds after defaulting on a $1.2bn call on March 9.
Lebanon’s deputy parliament speaker Elie Ferzli commented: “Parliamentary committees passed a draft law on February 26 legalising cannabis cultivation for medical and industrial use. The law is expected to be passed when the Lebanese Parliament reconvenes after the coro- navirus outbreak.
Ferzli explained the economic benefits of the cultivation and export of cannabis, saying that legalising the cultivation of cannabis would “bring in up to $1bn per year in revenue for the government.”
“Each dunum (an area of land that can be ploughed by an ox in a day) can yield up to $10,000. Cannabis legislation also aims to reduce unemployment and achieve economic growth, as well as stimulate exports toward foreign coun- tries, enabling the use of foreign currency, which enhances the central bank’s reserve of foreign currency,” a paper added.
Mohammad Mroueh, a professor at the Medicinal Cannabis research Center in Beirut, told Al-Monitor that cannabis has a high medi- cal value and that Lebanon’s climate is ideal for its cultivation.
he added: “The medical use of cannabis dates back 700 years across the Arab region”
The government has permitted Mroueh’s research but has not yet formally approved the establishment of his research centre, which opened in May 2018.
Mroueh pointed out that cannabis seems to prevent the multiplication of cancer cells and localised tumors, but it is necessary for the patient to continue chemotherapy in parallel with consuming the therapeutic oil.
he revealed that the Food and Drug Admin- istration has approved cannabis products like Sativex, a mouth spray used for neuropathic pain and spasticity in multiple sclerosis patients; Marinol, a treatment for chemotherapy-induced nausea in cancer patients; and Epidiolex, a treat- ment for severe and recurrent epilepsy.
Week 14 08•April•2020 w w w . N E W S B A S E . c o m P7
