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Rosalie Berthier
@RosalieBerthier
Jul 31 • 13 tweets • 2 min read Twitter logo Read on Twitter
1/ Egypt may be going the way of Lebanon, whose economic meltdown could portend the
future of the most populous Arab country. How much do they really have in common?
2/ Both are highly unproductive economies dependent on injections of foreign cash.
In Lebanon, this model benefits politicians and oligarchs; in Egypt the army is
central
3/ Attracting foreign currency plays two roles: funding wasteful projects that
enrich the few and subsidizing the national currency to artificially increase
people’s purchasing power
4/ This serves to buy social peace, by reducing the poverty and unemployment that
comes with unproductive economies. The only problem is how to attract hard currency
5/ The solution here and there is public debt. Unlike Lebanon, Egypt’s sovereign
debt bubble is recent, largely owed to foreign debtors, and already eating half the
state budget
6/ But Egypt is handling this threat like Lebanon did just before it crashed: It
offers sweet deals to rich depositors willing to bring fresh dollars against quick
gains in Egyptian pounds
7/ The profits are lower than in Lebanon, but create the same conundrum: The tactic
floods the market with local currency, undermines its value, and adds to the debt
in dollars
8/ To repay those dollars, Egypt will have to find ways to attract more of them;
that’s how Lebanon drifted into a Ponzi scheme, resorting to ever sweeter deals
until it went broke
9/ The other route is to fix the economy, but that inevitably means curbing the
interests of the rich and powerful. Egypt seems, like Lebanon, to be willing to do
anything but
10/ Another common trait is the belief that geopolitics bring salvation. Egypt sees
itself as “too big to fail”. That’s how it borrowed so much in recent years, yet
did so little with it
11/ Lebanon, in a sense, is the opposite: too small to fail. To avoid utter
collapse, its tiny economy can rely on a vast diaspora. Even humanitarian aid can
make a difference
12/ Egypt is a problem of another magnitude. The state is crucial to the very
survival of a large portion of its society. Bread, for instance, is still heavily
subsidized
13/ Egypt is almost "too big to help", unless it decides to save itself. But if
nothing since 2011 could convince the regime to change, can economics do?

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More from @RosalieBerthier
Rosalie Berthier Profile picture
Rosalie Berthier
@RosalieBerthier
Jun 12, 2020
THREAD Lebanon enjoys a vast source of fresh dollars it can tap to shore up its
currency and provide a social safety net: remittances. They used to average 7
billion dollars yearly—over 10% of GDP, and far more than the IMF would ever lend
in total
But Lebanon deters these remittances, through extortionate conditions imposed on
withdrawals in both banks and money transfer agencies. (The airport shutdown means
that Lebanese expats cannot bring cash in person either)
This policy aims to force incoming dollars through the financial system on terms
that are favorable to the banks and central bank, and costly to ordinary Lebanese.
That discourages transfers, reduces dollar liquidity, and increases pressure on the
pound
Rosalie Berthier Profile picture
Rosalie Berthier
@RosalieBerthier
Feb 7, 2020
THREAD Lebanese banks, after accruing astronomical profits through government-
sponsored schemes, are now cutting their losses at the expense of the state.
Lebanese citizens, ultimately, will pay twice for such greed
For years, Lebanon’s government covered its deficit by borrowing billions of
dollars, notably in the form of so-called Eurobonds—namely sovereign debt titles
denominated in a foreign currency
Lebanese banks bought a majority of these, earning high annual interests (averaging
7%) pending repayment at maturity (typically after ten years). Banks thus racked up
profits while bridging the state’s cash shortage
Rosalie Berthier Profile picture
Rosalie Berthier
@RosalieBerthier
Dec 19, 2019
THREAD The official fixed rate of the Lebanese pound against the dollar is central
to the country’s crumbling social compact. It is one aspect of the system most
people would prefer to keep, although it feeds into everything they are eager to
get rid of
Nominally, the rate remains unchanged at 1507,5 LBP per USD. State agencies and
commercial banks still use this standard, established in 1997 and known as “the
peg”, as do many businesses that have yet to adjust to creeping inflation on the
exchange market
In a rare consensus, various Lebanese officials and activists defend the peg
because it boosts and stabilizes the pound. It guarantees people’s savings and
subsidizes key imports such as flour, fuel, and medicine—in effect, protecting
ordinary Lebanese
Rosalie Berthier Profile picture
Rosalie Berthier
@RosalieBerthier
Nov 19, 2019
1/ Lebanon’s economy is fast approaching a fateful deadline: On 28 November, the
state is due to reimburse $1.5 billion dollars in sovereign debt. It faces three
choices, and choosing wrong risks intensifying the crisis while rewarding exactly
the wrong people
2/ First, the state can miss that deadline and default on its debt. This would
dramatically change the country’s economic status, raising a red flag for anyone
who would consider lending to it. For now, Lebanon’s economy relies massively on
loans
3/ A default also opens the door to external interference, like the austerity and
privatization plans imposed by the IMF elsewhere. The former would hit the poorest
hard while the latter would benefit the country’s elite
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