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Why COVID-19 could be the ‘last straw’ for Lebanon’s fragile economy

For years, Lebanon’s financial practices have been unsustainable and its economy lagging. The country has one of the highest levels of debt per capita in the world. Now the foundation of Lebanon’s financial house of cards is giving way -- right as the deadly threat of novel coronavirus approaches. Special correspondent Jane Ferguson reports from Beirut on a gathering perfect storm.

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  • Judy Woodruff:

    For years, Lebanon has been a financial house of cards. Its debt is one of the world's largest per capita.

    Now the foundation of that house is giving way. Add in a global pandemic, and the result is a gathering perfect storm.

    Special correspondent Jane Ferguson reports from Beirut.

  • Jane Ferguson:

    Beirut is famous for its bars, restaurants and cafes, a mixture of Arab and Mediterranean hospitality.

    But the government has now ordered everything here shut, in an attempt to contain COVID-19. Only grocery stores, bakeries and pharmacies can welcome customers.

  • Siham Perham:

    It's very difficult.

  • Jane Ferguson:

    Yes.

  • Siham Perham:

    We don't know. Maybe next week, we cannot open the shop, they will take a decision to close all the shops.

  • Jane Ferguson:

    Siham Perham opened this small corner store 37 years ago. Yet, she says business has never been this bad.

  • Siham Perham:

    Everyday, everything is becoming worse. And at the end, we have the corona. This was the full stop of everything.

  • Jane Ferguson:

    So far, fewer than 100 cases have been announced here, but that number is expected to grow.

    On Sunday, the government declared a state of medical emergency, and from midnight tomorrow, the country will go into lockdown, with its international airport shut for at least 12 days. Police are chasing people away from public spaces, like the seafront. And schools have been shut for two weeks already.

    The president, Michel Aoun addressed the nation.

  • President Michel Aoun (through translator):

    Each of us is called upon to continue his work from home in the way he sees appropriate, so that the students will be able to study, and workers will be able to work, and our institutions to remain alive and efficient as much as possible.

  • Jane Ferguson:

    The coronavirus couldn't come at a worse time for Lebanon. The country is already in a deep recession. And for many businesses like this, this will be the final straw.

    Lebanon is facing its worst economic disaster in decades, and a banking crisis threatening the livelihoods of millions. Last week, the country defaulted on its debts for the first time in its history.

    Prime Minister Hassan Diab broke the news in a televised speech.

  • Prime Minister Hassan Diab (through translator):

    Our reserves have reached critical and dangerous levels. Today, we are paying the price for the mistakes of past years. Must we bequeath them to our children and the coming generations?

  • Jane Ferguson:

    Not even during its devastating civil war from 1975 to 1990 was Lebanon unable to repay its debts.

    Now, after decades of mismanagement and corruption, the country is the third most indebted in the world.

  • Mike Azar:

    The country imports a lot and barely exports. You have to finance that gap. And it's been financed in Lebanon using the dollars that have been sent by the Lebanese diaspora to Lebanon. Over the years, that money has been spent to finance the imports.

  • Jane Ferguson:

    Mike Azar is a former economics lecturer at Johns Hopkins University.

  • Mike Azar:

    So now you have this huge balance of dollar deposits in the system, but those dollars have all been spent to finance either the trade deficit, the government fiscal deficit.

  • Jane Ferguson:

    Since the end of the war here, this unorthodox method of balancing payments seemed to be working to hold the country's finances together, for a while at least. But those dollars from Lebanese people living abroad slowed down in recent years.

    For one, the conflict in neighboring Syria crippled the economy in Lebanon. Also, a downturn in oil prices means a lot less money being sent home by Lebanese migrants working in the Persian Gulf.

  • Mike Azar:

    Once those dollars stopped flowing, the central bank had to offer higher and higher interest rates to attract those deposits.

    So, in the U.S., at a time when people were earning zero percent, 1 percent on their deposits, in Lebanon, you could earn 6 to 8 percent on your dollar deposits.

  • Jane Ferguson:

    But it was little more than a Ponzi scheme. And now the central bank can't balance the books.

    In the country's second largest city, Tripoli, volunteers hand out food to the poor, filling a gap where the government refuses to help. These people created a soup kitchen for the most desperate.

    Now even this charity work has stopped to prevent the new coronavirus from spreading. Helping people with food handouts could put them at risk. And for a million-and-a-half Syrians here, many surviving in miserable refugee camps, the global pandemic adds a new layer of fear to their hardships.

  • Ahmed Mahmoud (through translator):

    We heard from the TV about corona. We are afraid now if a child coughs or sneezes. We have 80 tents, and in each tent, there are four to five people. It would be catastrophic if it spreads here.

  • Jane Ferguson:

    Parents in the camp worry how they will afford treatment if their kids get sick. Lebanon has no real public health care system.

  • Juma’a al Ali (through translator):

    If we go to the hospital, they won't let us take our kids in unless we pay. If you have money you are welcome. If you don't have money, you are not.

  • Jane Ferguson:

    Lebanon has long faced a multitude of calamities, but this wave of new disasters is the greatest test of its resilience for decades.

    The generations here who have survived war and political crises now face an unprecedented set of challenges that only continue to get worse.

    For the "PBS NewsHour," I'm Jane Ferguson in Beirut, Lebanon.

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