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1/ BDL appears to be proposing that all official intl humanitarian aid (~$1.5bn in 2021) be channeled through BDL and given to recipients in LBP at a rate of 6,200 LBP. BDL says this will allow it to sustain the 1500/3900 subsidy longer. It's a gross misuse of humanitarian aid. https://twitter.com/n_newsom/status/1357707898135212036
2/ Firstly, as we've said before, the issue is HOW the $ are being used. If the $ are used to sustain the peg, a large portion of which benefits monopolies, smugglers, money launderers, &the wealthy, then the value of the aid is NOT going to the people it's meant to help. For ex:
3/ It doesn't matter if the Govt/BDL gives recipients the aid at a rate of 9,000 LBP! If the actual real $ are squandered, then the country is losing regardless of the rate it gets because the impact will be further inflation.
4/ Secondly, if BDL receives $1.5 billion fresh $ per year, this significantly lowers any incentive it and the political decision-makers have to implement reforms, phase out the peg, implement sustainable financial policies. There have to be conditions attached.
5/BDL says it wants the $ to sustain the peg.Doesn't make sense for the int'l community/IMF to ask Leb to unify exchange rates/end the peg & develop a sustainable subsidy scheme, while they also finance the continuation of the peg at the same time. BDL's argument works against it
6/ There is no reason for BDL not creating a proper transparent exchange market. We wouldn't be having this argument if they just created an exchange market, then everyone would know the price of a $ in LBP and there would be no debate and no black market.
7/ BDL's analysis implies that the $ aid money will cause inflation. This is a weird way to spin it. How can $ flowing into Lebanon create inflation when demand is in the ground and inflation is the result of NO DOLLARS flowing into Lebanon?
8/ The real argument is that inflation is on an upward trajectory (imagine the peg is removed). The aid money can help BDL slow the pace before we reach this trajectory by delaying removal of the peg.
9/ If BDL pays 6,200 LBP for those $, it will take longer to reach that trajectory than if it pays 9,000 LBP. But the $ are not causing inflation. They are delaying the inevitable because they're allowing BDL to sustain the peg a little longer. The only question is by how much.
10/ By using the aid money to sustain the peg, the poor are not benefitting by as much as they should be because, again, the value is being spread to monopolies, smugglers, money launderers, and the wealthy.
11/ In theory, BDL is right that the $ going to the exchange shops can be problematic because those $ can end up hidden in peoples houses or used in money laundering. The solution to that is to create an official exchange market, NOT to waste a huge chunk of the money on the peg
12/ If BDL wants the $, it should commit to a timeline to create an official regulated exchange market, provide the donor community with a monthly report on exactly how the $ are being spent, and commit to a timeline for phasing out the peg in its current form.
13/ The whole point of the World Bank program (which is a small part of the $1.5bn), is to help families ADJUST TO the lifting of the peg. Using the money to sustain the peg defeats the purpose of it.
14/ "As for the noise around us..."
These are the words of an institution that doesn't realize it is a public institution that has to share info, listen to stakeholders, and is accountable. This alone would cause people to be fired in a country that respected its citizens.
These are the words of an institution that doesn't realize it is a public institution that has to share info, listen to stakeholders, and is accountable. This alone would cause people to be fired in a country that respected its citizens.
15/ The Govt has to wake up and start restructuring the banking system and taking steps to restore macro stability now. This memo from BDL indicates that it has no confidence in its own bank restructuring plan (Circular 154).
16/ We have a COVID-19 technical team, why don't we have a financial crisis technical team? Create a emergency working team now! How much longer are we going to keep waiting before doing anything?
17/ We're now at the stage of trying to use humanitarian aid money to sustain this dysfunctional system. It's not right and it's not fair.
18/ One last thing, even allowing the commercial banks (rather than BDL) to keep the $ and hand out the money in LBP at a low rate is outrageous, and that's what's happening to a lot of the aid money now. Create a real exchange market. Let's get this over with already.
