Beirut once billed itself as a glitzy capital. Now its economy faces a painful reckoning

Along the way, you may circumnavigate broken sidewalks, and remark at pockmarked buildings, vestiges of the civil war which ended in 1990. You may revel in the mix of rawness and glamor, marveling at the city's hodgepodge of shiny high-rises and old houses with the Lebanese triple arcade at the front.But the charm of the capital belies its dark economic underbelly. Your typical Beirut walking tour conveniently sidesteps the less savory expanses of the city. Your car ride from the airport runs along a bridge that coasts over sprawling slums and refugee camps. At some point in your visit, you may enter a middle-class household and find that a live-in domestic worker has emerged from the kitchen of the modest three-bedroom apartment to serve you tea. Probe deeper into the migrant worker's living and working conditions and the details may shock you. For decades, the country's elite have deftly crafted a veneer of prosperity on the backs of the country's marginalized, analysts say, but the bubble now appears to be bursting. Lebanon is in the throes of a dual crisis that could transform the country. A financial crisis precipitated an unprecedented popular uprising on October 17 against corruption in government. Many across Lebanon are demanding an overhaul of its political and economic system.But economists warn that the country can expect a painful reckoning. Masks will fall, and the glitz may disappear as the economy's inherent weaknesses come to the fore. The country's rich will take a hit, but more so will the poor. Already, Lebanon's poverty rate stands at around 33%. The World Bank expects that one in two people in Lebanon may soon live below the poverty line.

The end of quick fixes

Lebanon's leadership consists of a group of sectarian chiefs, many of whom fought one another during the country's 15-year war. They made peace in 1990 and ushered the war-torn capital into its reconstruction era. Successive governments sought quick fixes, borrowing large loans at exorbitant rates to fast-track the restoration of the country's central district, build highways and finance high-end projects.The financial system has relied on a debt structure that generated high returns for depositors, but the economy has nearly no domestic production to speak of. The government never fully fixed damages to its electricity sector, so private generator companies have stepped in to provide electricity during hours-long daily power outages.Out of sight, out of mind, the country's political elite seems to say, appearing content to keep festering wounds in the margins. At first glance, Lebanon's economy fared well: it has the highest GDP-per-capita among non-oil producing Arab countries. Lebanon has repeatedly made headlines — not only for cycles of violence — but for its "party capital" and its picturesque mountains along the shores of the eastern Mediterranean. Luxury cars are a more common sight in Beirut than in perhaps many of the world's richest cities. Yachts fill the docks of the country's many seaside resorts.But it is also one of the most unequal countries in the world, with a privileged few having raked in large profits from high interest rates that enriched the already wealthy as the country sunk deeper into debt. The economy is almost totally reliant on imports to meet its basic needs, and even the country's leaders acknowledge that corruption is widespread and systemic. On Thursday night — the eve of Lebanon's Independence Day — President Michel Aoun called corruption "the biggest danger" the country faces. Last month, Central Bank governor Riad Salame told CNN's Becky Anderson that the country was "days" away from economic collapse if a political solution is not found. Dan Azzi, advanced leadership fellow at Harvard University, compares the economy to a "cartoon world," propped up by, what he calls, the "financial engineering" of a banking system that threw its weight into keeping the currency afloat, and bankrolling artificially lavish lifestyles. "The cartoon world of financial engineering … has now spilled out into the real world and has created a Venezuela-like crisis," said Azzi. "Today, we have two choices. Either we deal with this problem like mature people, or we keep in denial."

The 'Range Rover' diet

Since the summer, panic over an impending economic crisis reportedly induced capital flight. Dwindling foreign currency reserves has raised fears of food, fuel and medicine shortages, analysts and political activists say. Today, the country sees interrupted supplies of fuel and bread, and supermarket shelves are emptying. Banks have imposed capital controls — with withdrawal limits of around $1,000 a week, or less — and there is increasing talk of financial haircuts, or reductions to the value of bank deposits. The problems are only piling up with greater layoffs, salary cuts and closing businesses.On November 28, one of Lebanon's Eurobonds worth $1.5 billion will mature, further straining financial reserves. Lebanon has always paid its debt on time, but the prospect of a first-ever default is not out of the question. Nisreen Salti, assistant professor of economics at the American University of Beirut, says this all amounts to "economic catastrophe."In a prescient Read More – Source