[This article was originally published in An-Nahar November 25, 2018]
BEIRUT: Last week we received a cable from President Donald J. Trump, congratulating Lebanon on its Independence. Local analysts poured over the 38 words, searching for some major policy shift or statement of support.
The following is a dramatization of this event:
An intern brings Trump a memo to send to Lebanon. He’s pretty junior, two years out of Georgetown University. He had put six choices for the countries he wanted to be assigned. Being junior, he got none of them, and ended up getting Lebanon, and writing this cable that he cobbled together from old ones, and updated based on a google search of current events.
Intern: “Mr. President, I wrote this memo for you to sign on Lebanon’s Independence Day.”
Trump: “Lebanon? You mean London? Isn’t that a city?
Intern: “Lebanon, sir. It’s south of Syria.”
Trump: “Oh I love Syrians. You know Steve Jobs was Syrian? Very educated people. He invented the iPhone. Great phone by the way. Like Trump Tower. Great building.”
Intern: “Mr. President, Lebanon is a country, south of Syria and north of Israel.”
Trump: “Oh, they’re Jewish? There’s another Jewish country over there? I love Jews. You know my daughter married one. Great people.”
Intern: “No, sir. They’re not Jewish. It’s a small country with a GDP of $50 billion.”
Trump: “$50 billion?! Hahahahaha. That would have been my net worth if I didn’t take this damn government job. Why are you wasting my time with this?”
Intern: “Well, sir, it’s protocol. We have to send cables like these to every country.”
Trump: “Why do I have to send them to every country? Can’t I just send them to the ones richer than me? Actually, you’re right, otherwise, half of them wouldn’t qualify. Hahahahaha. OK, fine.”
Recently, during lunch with a former senior monetary official, we were comparing views about the current economic situation. We agreed on pretty much everything: slowing growth, bursting of the real estate bubble, the unsustainability of the twin trade and budget deficits, and ballooning debt. We diverged on one tiny thing — the conclusion. He stated confidently that this will not lead to collapse, explaining that “the United States wouldn’t allow it.” He was convinced that we were so crucial to the global order that Uncle Sam would write a check bailing us out.
Not unlike this gentleman, most Lebanese think that POTUS (President of the United States) starts his day with a 3-hour meeting on Lebanon, then 15 minutes on Syria and Iran, 10 minutes on Russia and China, and his remaining time randomly dispersed among the insignificant pions in the rest of the world. The last half hour is for US domestic affairs — like selecting a nominee for the Supreme Court or signing off on the $4 trillion Government budget.
At a recent conference, another senior official stated unequivocally that they had an outstanding relationship with the Office of Foreign Assets Control (OFAC) — the entity within the US Treasury that enforces sanctions. What this gentleman, and the rest of the attendees, were missing, is that there are no less than eighteen entities in the United States that can wreak havoc upon us, and they’re all independent of one another, as well as the US Executive Branch. In fact, many of the more aggressive actions by US regulators were lead not by OFAC, or anyone from the US Federal Government, but by Ben Lawsky or Preet Bharara, who worked for the State of New York. In case you don’t understand the significance of this distinction, imagine the Mayor of Dbayeh investigating a Saudi Bank in Riyadh, on the basis that it has a branch in Dbayeh, and sending a subpoena to the CEO of this bank asking for internal memos from Saudi Arabia. If he received this order from Dbayeh, the Saudi CEO would find this a funny prank; but replace Dbayeh with New York and now he knows he’s in deep doo doo.
Logistically, banks transacting in dollars must have a custodial account at an international institution with a presence in the United States, such as Bank of New York (BONY). That means any transfer in or out of Lebanon has to flow through BONY. We have $175 billion in deposits in this country, the vast majority of which is in US dollars. If custodial banks stop dealing with us, every dollar account becomes useless for anything other than making checks within the country or limited amounts of ATM withdrawals (until they run out of cash); which is basically game over.
For example, a few years ago, the fifth largest bank in Lebanon was shut down, not by OFAC, but by the DEA (Drug Enforcement Administration). These are the guys whose mission is to go after the likes of some of our cooler, but naughtier, brethren in the Bekaa. In the 16-page settlement order of this bank with the US, there was no admission of wrongdoing. The settlement even included a statement by the bank’s management denying any improprieties, in contrast with similar settlements in the last few years.
This illustrates the frailty of the system and how susceptible it is to being knocked over, especially in a dollarized economy. We seem to insist on confronting the world’s sole superpower, by including members of government who are part of an organization sanctioned by this superpower, while being highly dependent on them by pegging our currency to theirs. Let’s leave out the fairness of this labeling or the sanctions, or the fact that a strong lobby in the US was probably behind it. I would have liked to be as handsome as Brad Pitt. But in either case, life is not fair — we have to work with the cards we’re dealt. So, do people understand the grave danger this poses to the system? Do they realize that if we pay the salary of a minister, who’s a member of this sanctioned organization, or someone in an allied party, even in cash, we just technically violated US sanctions?
Our whole bet is that the US will turn a blind eye to its own sanctions. What a huge amount of faith we must have betting our entire system on the largesse and patience of America, despite their having so few friends left in Lebanon, that we continue to challenge them and push the limits, without much reflection or debate.
But what would it take for this bet to be lost?
Imagine President Trump waking up tomorrow on the wrong side of the bed, say after Melania just told him, “Not tonight, honey, I have a headache.” He watches a scathing Fox News report about Lebanon, which riles him up even more, so he spontaneously tweets, “Lebanon is a conduit for terrorist financing and we will shut them down.” Instantly, institutions like BONY would cease and desist from any dealings with Lebanon, and that would end our world as we know it.
If I were a decision maker, confronted with this paradox, would I peg the currency to the US Dollar, and rub their noses in it, or use some other alternative like the Euro or Hong Kong Dollar or basket of currencies … or, God forbid, nothing at all, and let the currency find its own equilibrium level? Hell, we might as well peg ourselves to the Iranian Rial, since we clearly like to live on the edge.
Does this scenario even come up when they’re discussing the composition of the new government or is it all about splitting the cheese?
Dan Azzi is a regular contributor to Annahar. He has recently been invited to be an Advanced Leadership Initiative Fellow at Harvard University, a program for senior executives to leverage their experience and apply it to a problem with social impact. Dan’s research focus at Harvard will be economic and political reform in a hypothetical small country riddled with corruption and negligence. Previously, he was the Chairman and CEO of Standard Chartered Bank Lebanon.
I am unsure how will we be able to reach a basket peg while dedollarizing the economy. While acheiving any of them, the religious quota will transform into a forex quota with a geopolitical seasoning, and the POTUS will enforce a 51% (pulling off a Randa) if not impose his own terms to compensate the loss of control.
Yet I agree that it will be better than the status quo.