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Investigation

Where did all the money go? BDL's cash injection in the exchange market

Where did all the money go? BDL's cash injection in the exchange market

A crowd waits outside an exchange dealer in Saida in June to buy dollars. (OLJ/Mountasser Abdallah)

BEIRUT — A mechanism meant to steady the lira's value against the dollar, ensure the continuity of vital imports and protect Lebanese consumers from price hikes has instead proved a boon to unscrupulous exchange dealers and those with the right connections.

"Far more than $100 million in cash was injected into exchange offices" over the past three months, according to Mahmoud Morad, the head of the Syndicate of Money Changers. The figure was confirmed by two other sources.

Exchanges bought the dollars from Banque du Liban, the central bank, at a rate of LL3,880 per greenback. They were supposed to then sell the dollars to importers and the public at LL3,900 — making a profit of just LL20,000 on each $1,000 sold.

"I have 12 employees and my business is only making LL500,000 during weekdays," claimed Morad, who controls one of the larger exchanges.

In the face of such slim margins — and an apparent lack of oversight — evidence suggests that unscrupulous exchange companies have used the situation to their profit, and in doing so, helped undermine the very purpose of the mechanism.

A food importer who requested anonymity out of concern for their business interests said that the mechanism had worked well when it was introduced in mid-June. But that did not last.

By the second week of the program, the importer was struggling to find dollars at all. "I was offered the subsidized dollars at LL5,000. ... Other exchanges told me they had no dollars left," they said.

The lira's market rate was around LL4,700 to the dollar when the mechanism went into effect on June 15, but was slipping fast. It would hit its weakest point — just shy of LL10,000 — on July 2.

As the rate increased, some exchange houses followed suit. "I came the next day and the exchange officer informed me that he had to increase his selling rate to LL6,000 since the black market rate had jumped to LL8,500 per dollar," the importer said, explaining that he was forced to accept the offer despite knowing he was being cheated.

When asked about exchanges charging more than LL3,900 for the injected dollars, Morad said that the syndicate had not received any complaints.

Protest and panic

The program administered by BDL and exchange houses was supposed to keep the lira's exchange rate stable — and even strengthen it.

After a month of holding steady around LL4,000 to the dollar, the lira began to slip in early June. On June 11, it hit a previously unimaginable low of LL5,000 to the dollar, prompting thousands to take to the streets. Banks, which had been illegally withholding swaths of depositor money since the financial crisis erupted last year, were a primary target of protesters' ire.

Spooked political and financial leaders rushed to intervene. High-ranking officials, including the president, ministers, Parliament Speaker Nabih Berri and BDL Gov. Riad Salameh, held emergency meetings in Baabda the following day, and agreed on the cash injection mechanism. Berri announced  the program, saying it would reduce the lira’s market price toward 3,200 per dollar — a goal that was never reached.

During the program's first few days, BDL sold exchange houses somewhere between $4 and $5 million per day, according to Morad.

"Each exchange house used to receive a certain quota depending on its capital, activity, market share and liquidity," he said, with fewer than 34 exchange shops receiving up to $600,000 per day.

Over time, BDL progressively lowered the daily injections and standardized the quota to a daily cap of "$25,000 for each exchange house, no matter its size or market share," Morad said.

Little fish, big fish

The program was meant to help both the very small and very large.

Ordinary citizens could — and did — line up outside exchange shops to buy $200 at the LL3,900 rate, the maximum individual amount allowed per month.

Some turned right around and sold the dollars at the higher market rate, turning a modest profit. There was no mechanism in place to prove whether a person had already claimed their $200, so some may have claimed more than their share.

The second week of the program, the syndicate added rules allowing Lebanese citizens to buy $300 per month to pay foreign domestic workers, $1,000 per month to pay students' rent abroad and $2,500 per month for university tuition abroad.

Not everyone could benefit. Long lines meant that some ended up leaving empty-handed.

At Morad's shop, they "receive around 200 requests per day just for housekeepers; people are standing in line from early morning to buy dollars," he said.

Myrna Abboudi, a school administrator, said that she was struggling to find dollars to pay her son's rent in France. She said that several exchange shops had told her their quota from BDL had been allocated solely for food importers.

"My salary is in lira and I can’t afford to buy $1,000 at the black market rate," she said. "The bank did not accept transferring funds from my lira account. I desperately need to find an exchanger that offers the legal rate, or else my son will be kicked out of his apartment soon."

Beyond these small transactions, the modified rules granted larger quotas for importers of food and medical supplies.

The food importer who had had trouble securing the proper rate told L'Orient Today that wasn't their only problem with exchange houses.

The exchange dealer requested invoices for food imports in the hundreds of thousands of dollars, the importer said, even though they only needed tens of thousands of dollars. The implications were clear: The exchange shop intended to provide the central bank with fraudulent documents showing the allocation of hundreds of thousands of dollars for food imports, but only handing a small amount of those dollars over and keeping the rest.

"I couldn’t accept that; it would put me in so much trouble since the regulatory authorities would think I received subsidized dollars when I didn’t," they said.

In the end, the importer refused to provide fraudulent documents and was forced to turn to the black market to secure dollars. This effectively doubled the price of their products — precisely the opposite effect intended by authorities.

The food importer's experience is not unique. A manager at a medical equipment firm also told L'Orient Today they were unable to secure the dollars needed for imports.

BDL runs a separate scheme to allow importers of wheat, fuel and medical supplies to get 85 percent of the dollars they need at the official rate of LL1,507.5 to the dollar. But to qualify, importers need to provide the other 15 percent. Since banks stopped providing normal financial services like currency exchange last year, importers have been forced to turn to exchange shops.

"I contacted several exchange shops to buy dollars to cover 15 percent of my bills; they all told me to check elsewhere since their quotas were already allocated to other merchants," the medical equipment importer said on condition of anonymity, citing business concerns.

"I really don’t understand what they are doing. How are they allocating dollars to housekeepers’ employers without making sure the medical sector receives enough dollars to cover their imports? They should prioritize health care instead of burning Lebanon’s dollars by feeding the wealthy."

The manager said that their workplace was at risk of shutting down due to the difficulties of securing the dollars needed to cover imports. "It is unfair what is happening to us," they said. "I am currently buying from the black market at a very high cost, which is reflected in my bills, while they’re subsidizing luxury. This is unacceptable."

Class conflict

BDL's troubled program does not treat all exchange shops the same. Only large exchanges — typically those with at least LL750 million in capital, also called Class A exchanges — can collect dollars from the central bank. These exchanges have full control over how and to whom to allocate these funds.

Nonetheless, Morad said Class A exchanges were requested to allocate a share of BDL’s dollars to Class B shops. During the first weeks of the injection, "Class A shops were selling a share of the injected dollars to Class B exchanges, but when the injected amount considerably decreased, they were not able to continue on doing so," he said.

But did they actually do so in the first place? In the Hamra neighborhood, an employee at the Al Amir Exchange Co., a Class B exchange, said that they hadn’t received any dollars. "I challenge you to get $1,000 from the money they are collecting; they won’t give you a thing," they said.

Another Class B exchanger, speaking on condition of anonymity since he’s trading at the black market rate, became furious when L’Orient Today told him about the requested allocations for smaller exchanges. "No one told me anything — they didn’t even mention it in a memo or an official statement. How am I supposed to know?" the shop owner said.

"We didn’t receive anything from them. They are greedy liars," he fumed.

These smaller exchanges have been caught between a tumbling exchange rate and their lack of access to BDL's dollar injection mechanism.

"How am I supposed to work? I am forced to sell dollars at LL3,900, but no one is willing to hand me dollars at the legal rate," the second Class B operator said. "I had no choice but to work using the black market rate."

Authorities closed the small exchange house.

The money changer accused those in power of turning a blind eye to exchange shops operating at black market rates who are "politically backed," saying that is why he was shut down while others remained open for business. "Do you think the intelligence agencies don’t know about those who work as delivery exchangers? Or the Telegram and WhatsApp groups?" he said.

A spokesperson for the Internal Security Forces, one of the main agencies dealing with exchange shops, declined to comment on the record.

A senior banking source, speaking on condition of anonymity since they were not authorized to speak to the press, said that BDL and the Economy Ministry had been communicating with security forces regarding enforcement measures.

Yet BDL appears to have been unable to police its own program.

Ten days after the injection mechanism was launched, the central bank unveiled Sayrafa House, a platform connecting all exchanges so that no one would be able to game the system by visiting multiple money changers.

Morad said the platform didn't work as intended. "We agreed with the central bank to fill all exchange operations on BDL’s platform, which was supposed to connect all the transactions that are taking place. But the application didn’t provide us with this feature," he said, adding that exchange houses had informed BDL about the problems.

Without a functioning platform, the only guard against abuse was the paper trail — as submitted to BDL by exchange houses themselves.

The senior banking source cast doubt on whether blame for the lack of oversight should be directed at BDL itself.

“No central bank can … scrutinize every player,” they said, adding that central banks can best target macroeconomic figures “rather than following up with every exchange dealer.”

Furthermore, “the money that ends up in the pockets of big, big players cannot be controlled” by BDL, they said, in an apparent reference to large, politically connected exchange houses — precisely the ones who benefited from the program.

The injection scheme, after all, was not agreed to at BDL’s headquarters in Hamra, but between the country’s top political leaders in Baabda, and announced by Berri.

The apparent lack of oversight means that the public may never know how much of the injection money has been — and continues to be — misspent.

This comes at a steep cost: $100 million is a significant sum of money in the best of times, but today, the central bank is struggling to conserve as many dollars as possible as its reserves dwindle.

While BDL claims to have some $20 billion in foreign currency reserves, Salameh recently warned bankers that it could only continue subsidizing vital imports for two to three more months, according to a statement from the Association of Banks in Lebanon, the banks' lobby group.

Once subsidies are cut, experts warn that prices of basic goods will skyrocket, leaving an increasingly impoverished population even worse off.

Yet at the same meeting between Salameh and bankers, the governor proclaimed, "The severe part of the crisis is over."


BEIRUT — A mechanism meant to steady the lira's value against the dollar, ensure the continuity of vital imports and protect Lebanese consumers from price hikes has instead proved a boon to unscrupulous exchange dealers and those with the right connections.

"Far more than $100 million in cash was injected into exchange offices" over the past three months, according to Mahmoud Morad,...