Lebanon Call to Action

In the last week, since I have been to Lebanon, I have met with a handful of close friends. Each one is working on their own version of a rescue plan for the country. Some are senior members or leaders of existing opposition parties who are advocating for their version of a “Plan for Lebanon”, others are working on creating new platforms to unite the various Thawra groups who often still seem at odds with each other, the rest are starting new parties or movement to represent the very large Lebanese silent majority. I trust and think very highly of each and every one of those friends and I don’t doubt for a second their good and noble intentions. However, I am very worried that all the work they are doing, all the time, effort, and personal resources they are pouring into their work, will never have time to see the light of the day. Let me explain.

I left Lebanon in 1987 to pursue my university education in the US. With a couple of minor exceptions, we still have the same politicians or their offspring, and eerily enough, we also face today, amongst other existential challenges, a currency crisis as we were back then. As bad as that currency crisis was, it seems so pedestrian compared to what we are facing today. The major difference, we had a real country with a real economy in 1987 and the currency crisis was caused by other factors. Today, the currency crisis is the symptom of the dying economy, not an ailment of an otherwise healthy economy.

In September 1983, the exchange rate of the Lebanese pound to the US Dollar was 4.84. By September 1992, it was 2,420. That is an increase by a factor of 500. We could be looking at this magnitude of devaluation in our future if no fundamental changes are taken imminently. That would put the value of the $US at 750,000! If you do not believe that can happen to us, take a look at Zimbabwe. In our current crisis, taking the black-market recent low of the value of the LBP/USD at 6,000, and the recent base rate at 1,500 to make the math simple, that is a factor of 4! Back in September of 1983, it took 22 months, until May of 1986 to achieve a factor of 4 devaluation of the LBP. In this current crisis, it was a handful of months.

LBP/USD Monthly Data from September 1983 to September 1992. Source “investingdotcom"

LBP/USD Monthly Data from September 1983 to September 1992. Source “investingdotcom”


I believe that we have commenced the final, steepest, and most violent part of the collapse of Lebanon into a failed state. Having invested in and traded virtually every country which has descended into a failed state status in my last 30 years as a Wall Street executive and a Hedge Fund manager, from Africa to Latin America and Asia, I can almost see the final steps playing out: The political paralysis continues, preventing any real hope for a home-grown comprehensive solution. The Lira breaks the 10,000 mark and moves to a new equilibrium between 15,000 and 20,000. Imports become even more scarce, and people cannot anymore stretch their measly incomes or savings to cover their most basic of needs. Civil unrest becomes more visible and violent. That causes the Lira to slide further, creating more civil unrest. The balance of the outstanding Lebanese Eurobonds on the international capital markets gets marked down further, much closer to zero this time. That causes a further drop in the Lira and more civil unrest. The government needs to print more Lira, causing more depreciation. At some point thereabouts, either the government makes the decision that it cannot pay its employees (army, police, air traffic controllers, etc…) any longer, or it will just keep printing worthless money with no purchasing power. One way or the other, this will bring about the final step into becoming a failed state. We know from history that nature abhors vacuums. When a state fails, it is NOT the reformers who step up and take control (see Egypt after Mubarak was deposed), but rather the most powerful and organized party on the ground and their allies. The usual excuse for such a takeover is the “Preservation of Peace and Order” pending the return of the State and its institutions. We already know that the Chinese Government has made an offer to such a Lebanese Party to help Lebanon with $Billions if Lebanon abandons the west and the IMF and make a sharp tilt eastward.

I hope I am wrong, but I do believe that we have what we refer to in finance as an “Asset/Liability maturity mismatch”. Our “liabilities”, in this case, is the takeover of Lebanon by a small minority that does not represent the dreams and aspirations of the majority of the Lebanese people. That can happen in weeks, but not likely more than 6 months. Our “assets”, all the exciting and promising programs, parties, and platforms being worked on by all the good and well-meaning members of the Lebanese civil movement have a gestation period of at least 6 months on the optimistic side.

To defeat this potential, and very real takeover of the Lebanese State under the guise of “Preserving Peace and Order”, and to do it in a timely manner, I believe we need all the “free Lebanese people” and all the parties, platforms, movements, etc. being worked on to all put their differences aside for a 6-month period and band together NOW into a Lebanese National Front to offer a counterbalance to this very real threat. Once we pass this phase, then we can disband this emergency and temporary alliance and encourage the formation of many political parties and movements in order to create a vibrant and healthy democratic environment.