October 2008


The same tone of careful optimism pervades the Lebanese press today with the regards to the financial crisis. Citigroup reiterated its positive assessment, saying that Lebanon’s economic “insulation” has become an asset under the current crisis. It warned at the same time, that Lebanon is not past the danger mark (Arabic & English links). An al-Nahar writer has even given himself the liberty of dreaming of a return to the “golden age” when Lebanon was the main bank of the region (Arabic link).

A more cautious assessment was delivered by economist Ghassan Dibah in a lecture at the Lebanese Communist Party’s HQ in Witwat (round the corner from the best fawwal in town). While repeating the mantra of the Lebanese banking sector’s relative immunity from the effects of the financial crisis, Dibah outlined three possible dangers:

  • Decrease in Lebanese commodities’ ability to compete in European markets, especially because the Lira is linked to the Dollar, which is rising.
  • Decrease in migrants’ remittances due to the crisis abroad. This might be somehow off-set by cash flow coming from the Gulf in search for a safe investment haven.
  • Increase in unemployment, due to the high rate of exported Lebanese labor or, what he calls, “exported unemployment.”

Dibah also said that while supply and demand is already bringing down real estate values, he thought it unlikely that a real estate crisis will ensue in the near future (since the real estate market is not linked to the elaborate investment schemes that triggered the international crisis).

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The Lebanese, like everyone else, have been watching the international financial crisis with a mixture of excitement and apprehension. A crisis of a different sort has already hit Lebanon earlier with the inflation in the prices of primary materials. It hit Lebanon even harder because of a system of monopolies and cartels over gaz, petroleum, pharmaceuticals, and wheat. The inflation rate over the past year was 12%, three times the average of countries exporting to Lebanon (Arabic link).

But with the current global crisis, prices of primary materials are going down. The Lebanese Lira is also rising with the dollar (from 1EURO=2201 to 2051.26 LL). In addition, ironically, the fall in share prices on the international scene has invigorated the Beirut stock exchange. Investors who are losing money abroad are selling shares on the BSE to acquire liquidity, which has stirred up a buying movement (Arabic link). In addition, expats and Arabs have been transferring assets to Lebanese banks, which are regarded as safe by many (English link).

The reason Lebanon has been spared the repercussions of the crisis so far has less to do with its being a developing country and more to do with the Central Bank carrot-and-stick policy: high-interest government bonds and stringent rules on risky investments. The confidence inspired by the Lebanese banking system is the result of reputation as well as reforms undertaken over the past twelve years — a confidence recently reinforced by the positive assessment of a World Bank delegation (Arabic link).

All is not rosy, however. The director of the World Bank in Lebanon, Edward Gardner, believes the crisis might still hit Lebanon from the back door: the Gulf. Direct investments aside, a crisis in the Gulf could affect Lebanon in two ways: decreasing migrant remittances and increasing unemployment (Arabic link).

It is too soon to say whether this long-term scenario will materialize or not, and obviously it depends on how long the crisis will last and how severe its impact will be. But the short-term view is working to the country’s advantage for a change. With its characteristic blend of parochialism and internationalism — a finance economy revolving around local banks and an investor/depositor body in Diaspora — this particular cup might actually pass.

One of Marx’s more interesting thoughts on capitalism concerns its ability to overcome its internal contradictions by engulfing them. One such contradiction can be simplified as such: the desire to hoard is contradicted by the need to recirculate, for to only hoard would otherwise lead to stagnation. That is why capital is constantly looking for new ways for recirculating itself: by creating new market niches, investing in infrastructure, expanding into new geographical areas, etc. By constantly expanding and increasing its productivity in these ways, capitalist incentives generate more capital which, in turn, searches for more release – thus creating a vicious dynamic of which capitalism is both prisoner and generator.

What does this have to do with anything? Apparently, the Ministry of Telecommunications auctioned “platinum” mobile phone numbers in order to fund itself. 13 of the 110 richest people in Lebanon paid a total of $2.5 million for 32 numbers. 70707070 sold for $450 thousand. Next were 70777777 and 70700000 which sold for $400 thousand each. Ridiculous sums by ridiculous people. Or are they?

Doubtless, to some of the buyers, like Wadih Kassab, a few hundred thousand dollars is peanuts. Money is made elsewhere. It is spent elsewhere. Lebanon is just for “recreation”, including throwing money around for show. But it seems to others, this is actually an investment. To sell to the Gulfites, according to Bilal Bundaqji, owner of Petit Café.

A handful of people in Lebanon are making (too much) money that needs to be recirculated and Lebanon is as good a place to do it as any. Given the instability, however, investments generating work for people and producing more capital that can then be reinvested in the country — a sound basis for some economies — are a risk. The real estate market, a classical area where capital recirculates itself, has reached stagnation point — too much to sell and not enough buying power. The Lebanese themselves can barely cough up enough cash to lead a decent life, let alone spend it on Zein al-Atat ($42 thousand for two numbers) products and Ramadan nights at Petit Café. There are Gulfites, on the other hand, with even more capital in need of recirculation and we have already offered them all the vacation apartments we can build, all the women we can sell, and all the intoxicants we can ferment. So, what to do? Why of course, buy ridiculously expensive mobile phone numbers and sell them for even more!

Thus a new market is created. Ingenious. And when you feel like venting, you know the numbers to call.