The platform, the trade deficit, and the parallel market
To understand what happened during the year 2022, it is possible to enter into the details of the balance of payments figures, which show that the deficit resulted from a decrease in net foreign assets – that is, assets in hard currency – with the Banque du Liban by about $3.04 billion, while the value of these assets with commercial banks decreased by about 152.9 million. dollar.
That is, more clearly, the depletion of the central bank’s reserves, mainly related to the platform’s operations and the pumping of dollars through it, was the decisive factor in increasing the bleeding of dollars from the financial system over the past year. Noting that the cessation of support for the import of basic commodities, which preceded the launch of the platform, took place under the pretext of limiting the bleeding of BDL dollars, which clearly did not happen last year.
In any case, it is known that the pressure on available dollars in the local market is also linked, to a large extent, to the increase in the trade deficit during the year 2022. Noting that this indicator summarizes the difference between the value of imported and exported goods, which determines the volume of dollars required to finance imports.
This deficit increased from around $9.75 billion during the year 2021 to more than $15.55 billion during the year 2022, meaning that it recorded a rapid increase of 59% between the two periods. This rise is due specifically to inflation in commodity prices worldwide, which contributed to raising the cost of importing them. Knowing that the value of imported goods in particular rose over the past year to levels exceeding $19 billion, which brought them back to levels before the financial collapse in 2019.
In all cases, it is necessary to point out here that the difference between the balance of payments deficit of $3.2 billion in 2022 and the trade balance deficit of $15.55 billion represents precisely the value of imports that were financed from parallel market dollars. The deficit in the balance of payments practically expresses the net funds that exited the financial system exclusively, which excludes the movement of funds that take place in the market from outside the budgets of commercial banks and the Banque du Liban.
Capital control and the unification of exchange rates: the two present absentees
Everything that is happening at the level of the balance of payments deficit and the trade balance deficit, and the related crises linked to the exchange rate and the need for the dollar, automatically raises the question about promised measures that are present in the daily economic debate, without actually seeing the light, the most important of which is the path of unifying the exchange rate and the law Capital Control.
From a practical point of view, Capital Control is supposed to represent the tool that the state and the Central Bank can use, on a temporary basis, to control all remaining liquidity movement in the country in hard currency, and to regulate the use of this liquidity. It is assumed that the use of this tool will be integrated with the course of unifying and floating exchange rates, allowing the financial system to absorb the movement of buying and selling dollars in the market. This is precisely what is supposed to facilitate the path of restructuring the banking sector, by taking advantage of the remaining liquid assets within the sector.
Only then can the central bank and the state control the deficit in the balance of payments and the trade balance, by taking advantage of the capital control tools on the one hand, and from the effect of floating and unifying the exchange rate on the other hand, and after the central bank has absorbed and controlled the movement of loose pieces in the parallel market. It is also possible, then, to return to attracting remittances from abroad, after addressing the bank budget gap. Noting that Capital Control tools may notice some fees that include non-urgent transfers, such as those related to the formation of deposits or investment assets abroad, for example, or the import of luxury and luxury goods.
In all cases, all these files are pending today. The content of the Capital Control bill presented today is limited to legislating the confinement of “old deposits”, in exchange for the complete liberation of “fresh money”, which contradicts the idea of Capital Control itself, as the Monetary Fund indicated several times. The Central Bank also postponed the idea of unifying and controlling multiple exchange rates, in return for adopting multiple exchange rates, some of which aim to postpone the disclosure of losses realized in bank balance sheets (see Cities). As for the talk about restructuring the banking sector, it has become mere slogans and promises that have no practical translation on the ground.
Lost time cost: $21.57 billion since 2019
All of the aforementioned does not fall within the framework of crying over the ruins, but rather within the framework of determining the cost of continuing the financial hemorrhage that is taking place today. Since the occurrence of the crisis in 2019, the total deficit of the balance of payments amounted to 21.57 billion dollars, meaning that the monetary mass that Lebanon has lost since the beginning of the crisis in hard currency is approximately equal to the size of the entire remaining Lebanese economy, if we take into account the size of the domestic product today. And all this bleeding, which afflicted the financial system, is included in calculating the mass of accumulated losses in the banking sector, which is now equivalent to 3.5 times the gross domestic product. The funny thing is that there are those who insist today on not dealing with losses of this huge size, betting on “reconfiguring” them from the investment of public assets.
As a result, and in parallel with this bleeding, the process of redistributing losses to Lebanese society continues, through the atrophy of the value of the local currency, and the remaining deposits belonging to syndicate funds and owners of small and medium deposits. These losses are inevitably added to the mass of losses that accumulated silently before 2019, and which the collapse revealed later.