Economy & Trade, Financial Crisis, Headlines, Middle East & North Africa

LEBANON: Protected Against Melting Down

Mona Alami

BEIRUT, Dec 5 2008 (IPS) - With the recent turmoil taking global economies by storm, industrialised countries have witnessed their growth levels slowly erode. How will the regional economy fare as dark clouds congregate over the Levant?

Thus far, Lebanon seems to have remained unscathed from the economic crisis gripping the world. Citing regional investment bank EFG Hermes, a report published by Lebanon’s Byblos bank states, “Lebanon is benefiting from additional global capital inflows as non-resident Lebanese seek a safe haven due to rising concerns about global banking institutions.”

The report adds that Lebanese banks have liquid balance sheets with some of the lowest loan to deposit ratios in the region. The Lebanese Central Bank’s prohibition of investing in structured products has also protected local banks from the credit crisis debacle. According to the same report, Lebanon is well placed to weather the financial crisis. EFG Hermes has concluded that the country will maintain its growth level at 9 percent for 2009.

But economist Marwan Iskandar told IPS in an interview that Lebanon has been nonetheless indirectly exposed to the crisis. “We live in an interconnected world and the high liquidity levels experienced by Lebanese banks have compelled them to venture into regional markets, such as Tunisia and Algeria, and even to European countries, like the UK, which have been affected by the crisis. Saying that Lebanon is completely immune to what has been taking place around the world is an over-simplistic interpretation.” The market crash also reflected on the investments of many individual Lebanese, especially those who rely on margin trading. Many big names in Lebanese businesses saw an attrition of their fortunes. Nassib Ghobril, head economist at Byblos bank, underlines, however, the bond market only incurred paper losses, as Lebanon remains relatively protected from speculative behaviour in the absence of a real secondary market for treasury bills. He says, nonetheless, that a few international hedge funds have pulled out from Lebanon.

“It will be interesting to watch remittance levels in the next few months to judge if Lebanese expats will be actually affected by the crunch,” adds Ghobril. Lebanon receives massive remittances from its expat population, estimated at about 5.5 billion dollars in 2007. Many Lebanese employed in Arab countries and in the West will be victims, like many others, of downsizing as unemployment levels soar.

Lebanese have also placed their money in insurance companies dealing with industry mammoths, such as AIG, which was recently bailed out by the U.S. government. “The impact of the crisis on the real economy will be noticeable in a few months, but it is still quite difficult to provide a clear timetable, as we are venturing into uncharted territory,” says Ghobril.

In the country’s five largest banks, credit departments have seen the possible positive effect of imposing more stringent debt requirements on their clients. Similarly, the collapse of oil prices could have positive ramifications for the government in terms of public finances, as oil products are subsidised in Lebanon.

Iskandar points out that Lebanese loss of confidence in foreign banks has prompted many to transfer their funds from Europe to Lebanon. “I think we can expect to see more money flowing into Lebanon by Lebanese who are worried about further bankruptcies,” he adds.

The manager of one of the five largest banks told IPS, on condition of anonymity, that many institutions have been receiving large transfers from Europe as well as South America, where a large Lebanese community is located.

In Jordan, the credit crunch has translated into a series of pyramid schemes. Economist Dr. Youssef Mansour, CEO of Envision Consulting Group (EN Consult), estimates losses incurred by private investors at more than one billion dinars (about 1.4 billion dollars). The lower income classes seem to have been dealt the hardest blow, with about 80 percent of pyramid scheme victims earning less than 300 dinars (420 dollars) per month.

Amounts invested in some foreign trading companies, such as Matrix, are estimated at 250 million dinars (350 million dollars). People were lured by high interest, with many ‘foreign trading companies’ offering investors a monthly return on investment of 15 percent to 25 percent.

“Small-time Jordanian investors are familiar with the concept of co-ops and mistakenly believed that foreign trading companies were built on a similar structure. Most victims of pyramid schemes in Jordan wrongfully tied their losses to the international financial meltdown taking over the world, while many were actually victims of fraud,” says the economist.

Nestled between Lebanon and Jordan, Syria, which has been shunned by the international community over the last few years, remains relatively isolated. “The fact that it is not really integrated within the global economy, due to monetary restrictions and control on monetary in and outflows, has limited Syria’s exposure to the international crisis,” says economist Marwan Mkhael of BLOM Bank.

He adds that the investment activities as well as financial markets in Syria are only now starting to slowly develop, a factor that has further protected Syria from the global financial tumult.