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State Collusion or Erosion During a Sovereign Debt Crisis: Market Dynamics Spawn Informal Practices in Lebanon

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Informality, Labour Mobility and Precariousness

Part of the book series: International Political Economy Series ((IPES))

Abstract

This chapter contributes to an understanding of the role of Lebanese political elites in molding state institutions and distorting Lebanon’s public finances, which severely skew Lebanese citizens’ attitude toward informal economic practices as Lebanon plunged into a sovereign debt crisis in 2020. While it faults elites for nurturing an unsustainable political-economic model that builds on state debt, harms the balance of payments, and structures the economy around unproductive sectors that benefit a privileged few, it gages the impact of these institutional shifts on citizens’ embracement of informality. It finds that central bank restrictions on citizens’ access to their U.S. Dollar bank deposits, coupled with monetary dislocations that create multiple currency exchange rates on the market, spawn a set of informal economic practices. It reveals that citizens’ adoption of this informality helps them salvage part of their frozen assets, challenge state regulations of the market and national currency as a larger volume of business activity now occurs outside formal channels, and, quite significantly, contest the political-economic model undergirding Lebanon’s sectarian system. In so doing, citizens’ espousal of informality helps them implicitly negotiate a new social contract with the state and Lebanese elites by shifting the old economic model that underpinned this dominant sectarian system.

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Notes

  1. 1.

    Author’s Interview with Dan Azzi, Former CEO of Standard Chartered Bank in Lebanon, Former Harvard Fellow for Leadership and Financial Expert and Commentator on 14 November 2020.

  2. 2.

    Author’s interview with Hanna Gharib, Former Head of Public Secondary-School Teachers' Association and Current Secretary General of the Lebanese Communist Party on 28 June 2018.

    Author’s interview with Rodolph Abboud, Head of Private School Teachers' Syndicate on 29 June 2018.

  3. 3.

    The balance of payments (BOP) is a statement of all transactions made between entities in one country and the rest of the world over a defined period of time, such as a quarter or a year.

    For more see Kenton, W. 2020. Balance of Payments definition. https://www.investopedia.com/terms/b/bop.asp.

  4. 4.

    Author’s interview with Dan Azzi.

  5. 5.

    Ibid.

  6. 6.

    Author’s Interview with Dr. Fouad Zmokhol, President of the Global Lebanese Businessmen’s Association (RDCL World), Professor of Business and Lebanese Businessman on 23 November 2020.

    Author’s Interview with Dan Azzi.

  7. 7.

    Lollars became the commonly known name for U.S. Dollars stuck in a Lebanese Bank Account during the sovereign Debt Crisis. Making reference to Lollar banker’s cheques means that the U.S. Dollars are worth more than the official rate of 1500 to the Dollar but less than the market rate. Therefore, this creates a Lollar market in which Lollar bankers’ cheques are valued according to a specific formula.

  8. 8.

    Please note, this calculation is a function of the actual market rate of Lebanese Pounds. According to the informant, this operation stood when the Lebanese Pound exchanged at 7000 to the Dollar.

    Of course, with Lebanese Pounds exchanging at 8500 to the Dollar, the price of goods such as diamonds in Lollar cheques would have to exceed threefold its original price in cash.

  9. 9.

    Author’s interview with Key Informant, speaking on condition of anonymity on 22 November 2020.

  10. 10.

    This condition stood when the Lebanese Pound exchanged at 7000 to the U.S. Dollar.

    Also only a limited amount of U.S. Dollars in Lebanese bank Accounts can be withdrawn according to the 3900 Lebanese Pound rate. Therefore, considerable sums exceeding 10,000 Dollars will take months to withdraw from accounts according to the 3900 rate else they would have to be withdrawn according to the official rate of 1500 Lebanese Pounds.

  11. 11.

    Author’s interview with Dan Azzi.

  12. 12.

    Author’s interview with key informant.

  13. 13.

    Author’s interview with Dr. Fouad Zmokhol.

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Helou, J. (2022). State Collusion or Erosion During a Sovereign Debt Crisis: Market Dynamics Spawn Informal Practices in Lebanon. In: Polese, A. (eds) Informality, Labour Mobility and Precariousness. International Political Economy Series. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-82499-0_11

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