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THREAD Lebanon has yet to take any steps to start building a productive economy. By contrast, it is moving fast to salvage what’s left of its rent economy by tapping international aid
Given Lebanon’s weak exports and dismal environment for foreign investments, the aid sector represents a rare source of hard currency, which may easily land in the wrong hands
When Lebanon’s financial institutions handle aid-related funds, they release them in Lebanese pounds at the exchange rate that suits them—which varies tremendously, and rarely aligns with the interests of donors or beneficiaries
Cash handouts by the World Food Program, for example, are disbursed to recipients at an arbitrary rate of 3,900 LBP/USD, compared with a black market rate hovering above 8,000. This allows commercial banks to retain over half the inflow
Likewise, some NGOs are forced to withdraw incoming dollar transfers in Lebanese pounds at a rate set discretionarily by their banks, which pocket the difference
The World Bank has now formalized these tacit agreements by obtaining its own “preferential” rate from Lebanon’s central bank. At about 6,000, it remains far below the going rate on the market
The problem is that significant chunks of the aid sent to Lebanon essentially evade oversight while being diverted from the money’s intended target. Indeed, how will Lebanon’s financial institutions use the surplus?
Will the central bank funnel these dollars into subsidizing essential imports? On what terms? Will commercial banks merely recapitalize, or perhaps dole dividends out to shareholders?
Meanwhile, foreign funds do reach some recipients in hard currency: namely the aid sector’s employees themselves, many of whom are paid in dollars, unlike beneficiaries
As the productive economy further erodes, jobs labelled as humanitarian are increasingly prized, leading to nepotism and politicization, often at the expense of competence
Tellingly, UN agencies have secured, from the same partners who enforce unequitable payments in pounds for the most vulnerable, dollar accounts for their own local staff
It befalls donor states, UN agencies, and the largest NGOs to tackle this problem more openly, and coordinate among themselves rather than seek quick, quiet fixes
If the aid sector continues to effectively subsidize Lebanon’s financial sector, it cannot do so unaccountably. Instead, the question must be put squarely on the table: If Lebanon’s establishment is to reap this windfall, what will it give in return?
