It has become common practice to say that we, in Jordan, are heading the way of Lebanon; that is, what happened there would happen here. This is so far from the truth. Unfortunately, few people know what happened in Lebanon and how the crisis there came about.
Lebanon is undergoing a financial meltdown that is spawning one of the worst economic and human catastrophes in centuries. People have come to witness their livelihoods and savings disappear.
The story began in 1997 when the central bank (Bank of Lebanon), in order to maintain faith in the Lebanese economy, pegged the Lebanese lira to the US dollar (LL1,507=$1). The policy proved successful for a while. A visitor to Lebanon would carry either liras or dollars and have no problem using either. It was a dual currency economy.
But it also meant that banks had to hold large amounts of dollar deposits in order to meet the demands for exchange at any time. Lebanese firms needed dollars to pay for imports, which also increased the pressure on banks to have dollars. Note that Lebanon is a country that relied for foreign currency on three primary sources: remittances from the Lebanese in the diaspora (mainly the Gulf countries), tourism, and aid from the capital surplus countries of the Gulf and the West.
As long as these inflows kept coming, the dollars were available to meet the demand and the economy was relatively stable. However, the Arab Spring changed things: Syria, which was once a large trade partner, was facing financial trouble; remittances started to fall; aid from the oil-rich Gulf countries, for political reasons, started to falter and later came to a halt; tourism, with the promise of violent flare-ups, dwindled to almost nothing; foreign direct investment dried up as the US and others considered Hezbollah a terrorist organization; and the port explosion topped it all up.
With the disruption in dollar inflows, the private banks, with the blessings of the Bank of Lebanon, devised the following plan: private banks are to offer generous interest rates (15-20 percent) on dollar deposits to keep the dollars coming. However, to be able to meet such an obligation, the only way for banks was to pay the initial depositors with money from new depositors, which is better known as a money pyramid or Ponzi Scheme. But once people realized that a Ponzi scheme is at play, they panicked and started asking for their money back, which caused a run on banks. Banks, not having the money, refused to pay, and the conundrum started. Consequently, the lira exchange rate dropped by 90 percent after 2019.
Three events in 2020 did not help matters either: the government tried to impose taxes on WhatsApp calls in a country that is considered the most expensive in the world in terms of telephony; COVID-19 wiped out tourism and any hopes of recovery, and the explosion of the port in Beirut devastated whatever hopes for recovery existed.
So, how similar is this to the case of Jordan? Not at all!
https://www.jordannews.jo/Section-36/Opinion/Hoping-for-a-more-vital-economy-13389
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