Lebanon’s national airline will stop accepting payment in US dollars from deposits in local banks, its chairman said, intensifying questions about the real value of $87bn of deposits in Lebanon’s stricken banking sector.
“We will start selling our tickets in fresh dollars,” said Mohamad el-Hout, Middle East Airlines chairman, distinguishing real dollars transferred from abroad and free of severe banking restrictions from the assets denominated in US dollars trapped in Lebanon’s moribund banks.
A decision to reject “local dollars” by MEA could make travel unaffordable for Lebanese people lacking a foreign income — a blow for a country proud of its mercantile, international image, now facing poverty levels exceeding 50 per cent because of its economic crisis.
Lebanese used to spend dollars and Lebanese pounds (LBP) interchangeably, and 80 per cent of private sector deposits are in US dollars — worth $87bn, banking data show. But the illiquid banks now only permit dollar movement via bankers’ cheques inside Lebanon and only the most urgent foreign transfers. Customers must withdraw their dollars as LBP cash, at a L£3,900 rate even though $1 on the black market currently fetches more than L£8,000.
Because a “dollar in the banks is equivalent to 40 per cent of […] a dollar outside Lebanon,” Mr Hout said, continuing to accept these local dollars was commercially unviable because 85 per cent of the airline’s expenses were in hard currency.
“If I continue . . . I will have all of these [local] dollars in our bank and I’m not able to use them or to transfer them outside,” Mr Hout told the Financial Times, insisting: “This is not bread. This is travel . . . you pay for your hotel in fresh dollars.”
The national carrier, whose majority shareholder is Lebanon’s central bank, stopped accepting Lebanon’s national currency in February. Lebanese pounds have now lost about 80 per cent of their value on the black market. MEA only accepts international credit cards for direct sales. But travel agents in Lebanon, who sell more tickets in the local market than MEA, still take local dollars.
“If the BdL-owned national carrier will stop accepting local dollars, what more evidence is there that the deposits are significantly impaired?” said Mike Azar, an international finance expert and former economics lecturer at Johns Hopkins University. “Decision makers’ inability to come to terms with this reality is leading to disaster.”
Although the government this spring estimated financial sector losses totalled $44bn, Lebanon’s banking lobby argues funds are safe but that lenders risk a bank-run if they lift restrictions. The government has not imposed capital controls.
Mr Hout said MEA would shift to fresh dollars when the Central Bank of Lebanon (BdL) stopped subsidising jet fuel, which he said could happen in “maybe one month”. BdL said: “No date has been foreseen to stop.”
Riad Salame, BdL governor, has said financing essential imports at the official exchange rate is the main reason reserves have dwindled to $18bn and there is a debate about whether they should be used on subsidies.
Lebanon was once admired for financial stability in a troubled region. But in the past 18 months people have been cut off from their money saved in the country’s previously lauded lenders, while Lebanon’s international allies and potential donors have called for a forensic audit into BdL — where more than half the banking sector’s assets are frozen.
The embattled airline will “shrink[ … ]”, despite striking a sale-lease back agreement on nine planes just to secure $140m of liquidity abroad for 2021.
Mr Hout said that continuing to accept local dollars threatened the airline’s existence: “I have a choice between continu[ing] the operation of the company . . . or to reach a certain stage where I cannot continue.”