“Special Drawing Rights” fuel in “Aton” renewing the legitimacy of the “system”

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Lebanon’s share of the SDR is a “trick” for what the country can get from cash aid in foreign currency in the short, or even medium, term. Everyone is betting on a share of the amount exceeding one billion dollars to save themselves, and to overcome the “cuts” of the crisis temporarily. At the same time, a unified vision of how to optimally use the limited assistance so as not to be wasted, similar to the billions withdrawn from depositors’ money, has not been crystallized.

The Ministry of Finance has officially been informed by the International Monetary Fund that Lebanon will receive, on September 16, about one billion and 135 million US dollars in exchange for Special Drawing Rights. To the amount of $860 million belonging to the distributions for the year 2021, to overcome the effects of the Corona pandemic, an amount of $275 million was added representing Lebanon’s share of the Fund’s distributions in the year 2009. At that time, the Fund distributed the countries’ shares of Special Drawing Rights following the “global financial crisis”, To help countries get out of the global downturn generated by the crisis. However, Lebanon did not need the money, nor did it liquidate it. This year, it achieved a record surplus in the balance of payments, which amounted to 7.9 billion dollars. Taking advantage of not being involved in poisoned US bonds, and turning it into a haven for capital fleeing from the global banking collapse.

The problem is how to exchange

The amount of $1.135 billion, despite its importance, represents only about 6.6 percent of the total dollars injected into the economy from July 2019 to July this year. According to the figures, the foreign exchange reserves in the Banque du Liban decreased from 31 billion dollars in July 2019 to 14 billion dollars in the middle of this year. This means that Lebanon consumed $17 billion in cash within two years without leaving any positive impact on the economy. On the contrary, during this period the health, production, service and educational sectors collapsed, various economic indicators deteriorated, the exchange rate declined, and unemployment and poverty rates rose. This means that the problem is not in the lack of dollars as much as in how these dollars are spent. The sum of $17 billion went to the pockets of merchants, smugglers, and a few mercenaries, mostly because of the failed policy of subsidizing goods.

If this policy is completed with the arrival of $1.135 billion from the “fund”, the amount will not last for a few months before it runs out, without leaving any practical reflection in the long run. From here, the economist d. Nadim Al-Munala said that if the amount is to be effective, its use must be accompanied, in part or even in full, with a well-defined, well-defined plan and carefully calculated goals. The amount is automatically entered into the balance sheet of the Banque du Liban and is transferred to a part of the reserves in hard currency. The government, if it wants to use part of this amount to finance the financing card, must open a credit in the general budget and borrow the amount from the Banque du Liban. This is done in return for interest and a pledge to return the principal amount, as required by the conditions of the debt. Therefore, the amount deducted is not a free gift.”

On the one hand, on the other hand, Al-Munla believes that “the second priority is to finance the energy sector.” Despite the government’s intention to address Arab funds to secure financing for the development and activation of electricity projects, Lebanon’s failure to pay its debts last March during the government of President Hassan Diab complicates the issue, and makes it difficult for Lebanon to obtain any kind of loans, even if they are from Arab funds. Thus, “reliance on financing from the private sector for electricity projects seems, at this stage, to be out of place”, from Manla’s point of view, and “there will be no solution except to use a specific amount of the Fund’s assistance to finance energy projects.” However, this does not mean, of course, according to Manla, to continue giving advances to buy fuel, but rather financing based on a plan to develop electricity from a losing sector to a sector that can pay its expenses and loans, and this can only be done under a tight plan. The government should also develop a logical vision to benefit from the amount given to finance the balance of payments deficit in the next few years.

Capital Control First

In addition to the high possibility of random exchange, “what most threatens the amount with loss is the absence of a law to restrict capital, CAPITAL CONTROL,” according to Jean Tawila, a member of the board of directors of the “Lebanese Businessmen Association,” and “after legalizing the use of the reserve, we must move to developing a plan. Clear and comprehensive how to manage the remainder of the hard currency, and consider the amount added to the SDR as “strategic assets” for the state that should not be forfeited.

Accordingly, Tawila believes, “the need to take the decision quickly to stop all forms of subsidizing commodities, and to move to strengthening the financing card in terms of quantity and number, and providing it with additional amounts to reach the basic middle class in the process of advancement and meeting the simplest living conditions for citizens. What was approved of direct support for families in Parliament with a ceiling of 556 million dollars, which excludes at least half of the middle class from the possibility of obtaining any assistance, which threatens to drag tens of thousands of families to the bottom, and has catastrophic consequences for the economic, social, cultural and life future of the country in general. It suffices to meet the simplest conditions in light of the huge rise in the prices of goods and services.Therefore, the priority is to enhance the protection of citizens, after which comes the “need to negotiate with banks and allocate an amount to restore the rights of depositors,” Tawila says, “without forgetting the need to keep a small amount of hard currency in hand. The Banque du Liban is allowed to intervene to ensure monetary stability of the currency and control sharp fluctuations, in case the government begins a plan to unify and partially liberalize the exchange rates.

Monitoring the disbursement of funds

At a time when the International Monetary Fund does not place any conditions on how countries can use their share of the SDR, economist Nicolas Chikhani believes that “countries that will exchange the “units” for cash directly or keep them, in exchange for giving Lebanon a gift that can put Some conditions on how to dispose of these amounts.

If the replacement process is successful, it is recommended to use this money in productive projects that contribute to creating an added value instead of “burning” the amount for consumption. One of the most important projects that can be implemented with the money is the establishment of one or more factories to produce electricity, and the development of the Deir Ammar and Al-Zahrani gas plants. This will provide Lebanon, after a few years, with one-time and final electricity 24/24. According to Sheikhani, “If the government started installing an economic plan yesterday before today, it will not complete it before at least a year and a half. It is possible to use part of this cash during this period as cash flows to run the work of basic state utilities and ensure the continuity of its vital organs.”

Compared to what Lebanon spent within two years, the amount of $1.135 billion will not last for more than two months, if there are no controls and a plan for how to use it.

Perhaps what observers fear most is that this amount will turn into “fuel” in the furnace of the authority to renew its legitimacy. According to Jean Tawila, “the system will delude the public opinion of reforms and positive steps only in order to reach the parliamentary elections in peace, without necessarily causing any positive change on the ground.” Hence, no matter how noble the goals for using these funds, they must be based on transparency and good governance.





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