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In an exclusive interview with "Lebanon 24", stock market and international investment strategist Jihad al-Hakim was asked about the fixed exchange rate target and what are its advantages? "The fixed exchange rate is generally designed to keep inflation rates low and to stabilize the environment that encourages foreign direct investment"He said.
Why is the cost of living so high in Lebanon? "" This is due to several reasons, including:
– Monopoly and lack of competition.
– The price of real estate has gone up crazy before.
–Taxes imposed, including indirect taxes.
– Imported inflation (Imported inflation) The fact that the exchange rate of the lira is fixed against the dollar, but we import to Lebanon 34% of the goods and services of the euro area. The higher the exchange rate of the euro, the higher the prices in Lebanon, but if the euro fell, this would not translate into lower prices at the same rate as in the case of the euro. rise..
Asked about the most negative effects of setting the exchange rate of the lira and rising interest rates, especially over the past three years?
He replied: "The Lebanese economy has paid a very high bill because of the stabilization of the exchange rate of the lira.The exchange rate of the pound currently weighs negatively on exports and encourages imports, especially given the strength of the dollar against other currencies in recent years.
He added: "High interest rates have contributed to the increase in the level of debt service and thus public debt, limited investment and have encouraged the rental economy and the interest rate. high unemployment, especially among young people.It should be noted that the high interest has encouraged some banks to make profits and to blackmail their banks On a regular basis, otherwise they will withdraw it at another bank, but high interest rates have also scared other clients."He said.
Is it necessary to re-evaluate the exchange rate today? Hakim pointed out that this was not the right time as this would cause a huge social disaster. "But I had hoped earlier that a large balance of payments surplus in 2008, 2009 and 2010 would become the exchange rate of the pound against 1400 dollars, with the possibility of reaching the 1600 in case of significant deficit at at a later stage, which would create a market for cuts.We have missed this opportunity (it should be noted that the balance of payments recorded a surplus for 9 consecutive years from 2002 to 2010)..
"I have also mentioned more than once that they want to adopt a stabilization policy of the exchange rate of the pound, they are not supportive of the dollar (50%) and the l '# 39; euro (50%) at the same time, especially since we import 34% of goods and services, As mentioned before, from the euro area, thus avoiding a possible future inflation of imports if the level of the 39; euro increases.
The exchange rate can also be set against a basket of currencies from several countries and their ratios are based on the volume of trade with them..
He pointed out that with the stability of the pound's exchange rate rather than its stabilization, he therefore had to work towards creating economic growth, which would later translate into stable exchange rate. Money must serve the economy and not the other way around..
Is it expected that the exchange rate of the lira will drop this year and how should the Lebanese citizen handle this situation?
He replied: "I did not expect a collapse of the pound sterling exchange rate against the dollar in 2019, and the central bank has several tools that can be used before reaching this goal. ,capital control Or control of capital, but their effectiveness depends on the economic conditions in which we are.
It should be noted that the banking sector has been able to withstand the strong pressures exerted by large withdrawals and remittances abroad, which peaked in May this year and represented a record deficit in balance of payments. stress test (Tolerance criterion) has been surpbaded, which has generated some confidence, but the necessary reforms need to be accelerated at the monetary and financial levels to avoid new pressures that could worsen things, as the economic situation is not easy. more bearable.
"As far as citizens are concerned, I advise them not to put their investments in one place.It is necessary to invest in different badets and to diversify their portfolios in Lebanon and abroad between stocks, real estate, Treasury, gold, silver in several currencies between the dollar, Sterling. "
Asked about the greatest danger facing the Lebanese economy today and on solutions or advice? MP Hariri: "The real problem lies in the balance of payments deficit, which has recorded a deficit of more than 10.25 billion dollars from the beginning of 2018 until today..
The benefits should be reduced as soon as possible and an incubation environment for investments should be created to provide tax incentives, speed up the adoption of competition law and give the necessary legal guarantees before starting to privatize certain services and sectors. in a transparent way so that Lebanese expatriates and others can participate and attract investment and financial flows from abroad. In order to improve Lebanon's credit rating, in conjunction with other known reform measures, namely: Built in spending, put an end to the waste of tax and customs fraud, tax regulation and the maritime property, solve the problem of electricity radically and fast, fight against corruption, e-government …. to reverse most taxes imposed. Solutions exist and are possible, but there must be a real intention and a firm will. "
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