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    Lebanon’s Financial Collapse Hits Where It Hurts: The Grocery Store

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    The country’s currency has sunk to a new low against the dollar, sending prices for once affordable foods soaring out of reach.BEIRUT, Lebanon — In normal times, Ziad Hassan, a grocery store manager in Beirut, would get a daily email from his chain’s management telling him which prices needed to be adjusted and by how much.But as Lebanon’s currency has collapsed, sending the economy into a tailspin, the emails have come as often as three times a day, ordering price increases across the store.“We have to change everything,” an exasperated Mr. Hassan said, adding that his employees often weren’t even able to finish marking one price increase before the next one arrived. “It’s crazy.”The country’s economic distress grew more acute last week as the Lebanese pound sank to 15,000 to the dollar on the black market — its lowest level ever — sucking value from people’s salaries as prices for once affordable goods soared out of reach. It has since rebounded to about 12,000.Lebanon has been grappling with a web of economic and political crises since late 2019 that have led to rampant unemployment, skyrocketing prices, road closures by angry protesters and a government with no clear plan to slow the descent. A catastrophic explosion in Beirut’s port in August, which killed 190 people and left a large swath of the capital in ruins, only deepened the misery.In a country where most products are imported, the currency collapse has left no sector unaffected.The catastrophic explosion at Beirut’s port in August last year has deepened the misery in Lebanon.Diego Ibarra Sanchez for The New York TimesFood prices had risen 400 percent as of December compared with a year earlier, according to government statistics, while prices for clothing and shoes had gone up 560 percent and hotels and restaurants more than 600 percent.Scores of pharmacies across the country went on strike last Friday to protest conditions that have left them without some medicines and cut into their profits. Professionals including lawyers, teachers, doctors and university professors have watched the value of their salaries shrink. Many others have been pushed into poverty.In August, the United Nations said that more than 55 percent of Lebanon’s population had become poor, nearly double the number from the year before. Extreme poverty had increased threefold to 23 percent. And the situation has worsened since.The crisis springs from the collapse of a policy by Lebanon’s central bank to keep the Lebanese pound, or lira, pegged to the dollar at a rate of about 1,500 to 1 since 1997. That allowed people to use the two currencies interchangeably and made it easy for merchants selling products in pounds to convert their profits into dollars to pay for imports.But the state’s ability to maintain the peg faltered in late 2019, when mass protests erupted over decades of political corruption and poor governance. Since then, two governments have resigned and the gap between the pound and the dollar has widened. Western and United Nations officials’ calls for reforms, which could unlock foreign aid and a potential bailout from the International Monetary Fund, have gone unheeded.For many Lebanese, the most personal element of the crisis is the grocery store, where products once considered staples have vanished and other essentials have tripled or quadrupled in price. There has been a run on staples like oil, flour, sugar and rice.“Everything is soaring,” said Suheir al-Jizini, 60, after realizing that the price of the jug of cooking oil she had bought last week was now two-thirds higher. “I’m really shocked.”Riot police standing guard in front of Lebanon’s Central Bank in Beirut last week during a demonstration over the rising cost of living and low purchasing power of the Lebanese pound.Wael Hamzeh/EPA, via ShutterstockShe had come to the store planning to also buy laundry detergent and pasta, but realized she didn’t have enough cash. She said her husband brought in 750,000 pounds per month as a driver. That used to be worth $500 but was now less than $60.The World Food Program said in November that food prices in Lebanon had increased 423 percent since October 2019, the largest jump since monitoring began in 2007. Prices have continued to rise since, putting acute pressure on the poor.Faten Haidar, 29, said she was struggling to pull together meals for her three children as food prices shot up and her husband’s earnings from his coffee stand declined. Speaking by telephone from the northern city of Tripoli, she said that she had only labneh — a strained yogurt — in the fridge and that she was already in debt to her local shop.“I don’t know how to pay them,” she said.Other essentials also depleted her funds, she said, like sanitary pads, whose price had quadrupled. That burden will increase when her 12-year-old daughter reaches puberty.“I can’t afford mine,” she said. “How can I afford hers?”The value of soldiers’ and police officers’ salaries has also fallen, heightening concerns that social unrest and crime will increase. This month, Mohammed Fahmy, the interior minister, who oversees the security forces, said those salaries had “reached rock bottom.”Stocking up at a gas station in Beirut. The price of fuel has also increased.Wael Hamzeh/EPA, via Shutterstock“Three months ago, I would have said the security situation is starting to break down,” Mr. Fahmy told a local news network. “Now, I am saying it has broken down.”Addressing military leaders, the head of the Lebanese Army, Gen. Joseph Aoun, earlier this month issued a rare public criticism of the leaders in Lebanon’s sect-based political system, warning them that his soldiers were also “suffering and going hungry.”Addressing the leaders, he asked: “Where are we going? What do you intend to do?”Parliament recently authorized a $246 million loan from the World Bank to provide cash assistance to poor families, but no significant efforts have been made to stop the wider collapse.The cabinet of the departing prime minister, Hassan Diab, resigned after the disastrous explosion in the Beirut port on Aug. 4 and has yet to be replaced. That has left the government operating in a reduced, caretaker capacity for longer than it was in power.A former prime minister, Saad Hariri, was designated in October to form a new government. But he has made little progress, despite 17 meetings to discuss political horse trading with President Michel Aoun. Last Thursday, they agreed to meet again on Monday.Jihad Sabat, 48, has watched the decline from the window of the Beirut butcher shop he has run since 1997. Over the last year, he said, the price of meat has kept rising while the number of customers has dwindled.A Beirut supermarket.Mohamed Azakir/ReutersA pound of beef now costs more than three times what it would have before the crisis, he said — more than three times what it cost before the crisis. He has also seen a rise in people wanting to buy on credit and interested in taking bones to boil for soup.“Meat has become a luxury,” he said.He accused the country’s politicians of stealing the state’s money through corrupt schemes and criticized them for failing to stabilize the economy.A friend hanging out in the shop interjected, “The problem is the people.” Mr. Sabat nodded.“That’s an essential point,” he said. “If there were elections tomorrow, the same people would be back.”In the grocery store, Mr. Hassan, the manager, said his branch sold less meat every month and more lentils, even though they, too, are imported and cost five times more than before the crisis.Fights have broken out in the aisles over staples like rice, sugar and cooking oil subsidized by the government, he said. And it is common for customers to get sticker shock in the checkout lane when they realize they can afford only a few essentials.“I don’t know how people keep going,” he said. “But it will eventually cause an explosion.” More

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    How Can Biden Bring Back Manufacturing Jobs? Weaken the Dollar

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    #masthead-section-label, #masthead-bar-one { display: none }The Jobs CrisisCurrent Unemployment RateWhen the Checks Run OutThe Economy in 9 ChartsThe First 6 MonthsRevere Copper Products in Rome, N.Y., once had two plants and nearly 600 workers. Today the company employs about 300 and operates only one plant.Credit…Joshua Rashaad McFadden for The New York TimesHow Can Biden Bring Back Manufacturing Jobs? Weaken the DollarCritics of a strong currency say it hurts American factory workers by making imports cheap.Revere Copper Products in Rome, N.Y., once had two plants and nearly 600 workers. Today the company employs about 300 and operates only one plant.Credit…Joshua Rashaad McFadden for The New York TimesSupported byContinue reading the main storyMarch 1, 2021, 10:47 a.m. ETPresident Biden has made reviving American manufacturing a top priority. To deliver, he may first have to deal with something even more fundamental to the U.S. economy: the strength of the dollar.Because a strong dollar lowers the price of imports and raises the price of exports, it gives foreign companies an advantage over American competitors and can drag down U.S. employment.“Dollar overvaluation is the big problem,” said Mike Stumo, chief executive of the Coalition for a Prosperous America, which represents small and midsize manufacturers and farmers. Mr. Stumo describes policies that prop up the dollar as a “war on the working class.”Few recent presidents have devoted much attention to this issue. Donald J. Trump fulminated against the decline of U.S. manufacturing and occasionally mused about weakening the dollar, but focused his policies more on tariffs than on currency.But Mr. Biden has hired a handful of senior economic advisers who are concerned about the dollar’s strength and have explored ways to reduce it.“There are a lot of folks who want to try some new things in there,” said Mr. Stumo, whose group presented ideas for weakening the dollar to three of Mr. Biden’s agency transition teams.The dollar’s strength over much of the past few decades has bloated the U.S. trade deficit, which roughly tripled as a share of gross domestic product in the late 1990s and has remained high.At its simplest level, the trade deficit represents a kind of leakage from the U.S. economy: Americans buy more in goods and services from abroad than the rest of the world buys from the United States, and the country takes on foreign debt to pay for the difference. If Americans bought more domestically made products and fewer imports, the spending would create jobs for U.S.-based workers and require less debt.Traditionally, most economists have nonetheless taken a blasé posture toward trade deficits, arguing that they reflect underlying economic fundamentals — namely, a country’s appetite to consume or invest rather than save.A country with a young population may run a large trade deficit because young workers tend to consume more than older workers, who are focused on saving for retirement. An economy growing unusually quickly can also run a larger-than-usual trade deficit, as spending spikes for goods like cars and phones.The problem for the United States is that its trade deficit appears to be far larger than demographics and other fundamentals would predict. According to an analysis by the International Monetary Fund, a reasonable current account deficit, a somewhat broader measure of the trade deficit, would have been about 0.7 percent of the $21 trillion U.S. economy in 2019. The actual deficit, adjusted for short-term factors like the strength of the economy, was about 2 percent of gross domestic product — larger by hundreds of billions of dollars.This divergence between economic models and the actual trade deficit partly reflects the dollar’s strength relative to other currencies. In some cases, other countries have suppressed their currencies’ value to make their goods cheaper for Americans.China was the world’s leading currency manipulator during roughly the first decade of the 2000s, according to a paper by Joseph E. Gagnon, a former Federal Reserve Board economist now at the Peterson Institute for International Economics, and C. Fred Bergsten, the institute’s founding director. The paper estimated that currency manipulation cost the United States one million to five million jobs in 2011. Manufacturing jobs tend to be hit particularly hard by the strong dollar because manufactured goods are easy to import.Over the past several years, medium-size economies like Switzerland, Taiwan and Thailand have been most active in holding down their currencies, Dr. Gagnon found in a more recent study. Collectively, currency interventions by such countries have been more than half the size of China’s earlier interventions, he notes.But the dollar can appreciate even without currency interventions — for example, if foreign investors increase their appetite for American bonds, which require dollars to buy, as they have in recent years.The former Rome Cable complex in Rome. President Biden has made reviving American manufacturing a top priority.Credit…Joshua Rashaad McFadden for The New York TimesDr. Gagnon estimates that as a result of these forces, the dollar was 10 to 20 percent above its expected value in 2019, probably costing hundreds of thousands of manufacturing jobs.Revere Copper Products in Rome, N.Y., which makes copper strip used in automobiles and air-conditioners, has suffered from these changes. In 2000, Revere had two plants and nearly 600 workers. Today the company, founded in 1801 by that Revere, employs about 300 and operates only one plant.The strong dollar has made it difficult for the company’s customers to compete with imports, said its chairman, Brian O’Shaughnessy. In the 1990s, for example, Revere supplied several American door-lock makers with copper or brass. Today, Mr. O’Shaughnessy said, most of the lock makers have shifted production abroad, undercut by imports made cheaper by the strong dollar.“The industry moved offshore,” he said. “It was currency. It overwhelms everything else.”The U.S. government could reverse these trends using one of two approaches. It could essentially fight fire with fire — buying enough foreign currency to lower the value of the dollar by 10 to 20 percent and restoring the equilibrium that would exist without foreigners’ excessive dollar-buying. Or it could tax foreign purchases of U.S. assets, like stocks and bonds, an approach prescribed in a bill sponsored by Senators Tammy Baldwin, a Wisconsin Democrat, and Josh Hawley, a Missouri Republican.A tax would make these investments less attractive to foreigners and therefore reduce their need for dollars. It would also raise revenue for the government.But a tax would ignite opposition from financial firms, which would see it as driving away customers, and could raise interest rates by reducing the supply of potential lenders to the U.S. government. (John R. Hansen, a former World Bank economist who has designed such a proposal, said the rate increases were not likely to be significant.)To date, a major obstacle to action on currency and the trade deficit has been resistance from senior economic policymakers in the U.S. government. Mr. Stumo said his group’s efforts to persuade the Obama administration of the dangers of an overvalued dollar and a large trade deficit were “the opposite of fruitful.”Dr. Gagnon said that institutionally, the Fed and the Treasury Department tended to oppose adjusting the value of the dollar, both on philosophical grounds — economists there believe that markets should set exchange rates — and on practical ones. Doing so could require complicated judgments about when a foreign country’s efforts to influence the dollar should trigger an intervention, while the Treasury is likely to resist anything that makes U.S. government debt harder to sell, like a tax on purchases of debt by foreigners.Menzie Chinn, an economist at the University of Wisconsin, said foreign investors could find ways around paying the tax, as they have to some extent in similar instances abroad.Brian O’Shaughnessy, the chairman of Revere Copper Products, said the strong dollar had made it difficult for his customers to compete with imports.Credit…Joshua Rashaad McFadden for The New York TimesEven experts, like Dr. Bergsten, who acknowledge that the dollar is overvalued and results in job losses for manufacturing workers are reluctant to call for aggressive action. Some argue that the trade deficit is helping sustain economies abroad during a delicate moment for the global economy.“It would essentially be an act of economic war to aggressively intervene to push the dollar down against the euro, the yen, the Canadian dollar,” Dr. Bergsten said. “Those countries are doing worse than we are.”But the political landscape has shifted in recent years, as reflected in Mr. Trump’s rise, and momentum for reining in the dollar and the trade deficit may be building. Though Mr. Trump’s tariffs on products like steel and aluminum were ineffective on this front — tariffs tend to increase the dollar’s value, leading to more imports of other goods — the Trump administration gave the Commerce Department new authority to penalize countries that had weakened their currencies.It used that authority for the first time in November to impose tariffs on Vietnamese tires, after the A.F.L.-C.I.O. submitted a petition saying Vietnam had used its currency as an unfair subsidy to producers.Mr. Biden’s team may be picking up the baton. One of his top economic advisers, Jared Bernstein, has long expressed concern about the overvaluation of the dollar. A second, Bharat Ramamurti, oversaw economic policy for Senator Elizabeth Warren’s presidential campaign, which proposed “more actively managing our currency value to promote exports and domestic manufacturing.” And the Biden administration hired Brad W. Setser, a skeptic of the strong dollar, as a counselor to its trade representative.These aides may face resistance from Biden advisers with more orthodox views. Treasury Secretary Janet L. Yellen said at her confirmation hearing in January that the dollar’s value “should be determined by markets” and that “the United States does not seek a weaker currency to gain competitive advantage.”But some former Treasury officials interpreted this as a more nuanced position than that of other recent secretaries, who have explicitly supported a strong dollar.“Secretary Yellen speaks for the administration on the dollar, and her approach fully reflects the president’s focus on fostering strong and equitable economic growth,” a White House spokeswoman said.Those who have discussed the dollar and the trade deficit with Mr. Biden’s advisers have gotten the impression that many see it as a problem and are willing to press for action internally.“I think they are probably having that conversation,” Mr. Stumo said. “Who comes out on top — we’ll see.”Ana Swanson More