Ending Lebanon’s Government-Made Disaster

Like millions of Lebanese people, Rima is no stranger to the violence and humanitarian disasters that have made life difficult in her country for decades. But it’s her government’s own policies that caused the most pain.

Rima lived a comfortable life earning the equivalent of US$2,000. It was enough to provide for her three children and care for her aging mother. But in 2020, the Banque du Liban, the country’s central bank, instituted the Central Bank Subsidy Program (CBSP). The stated goal of the CBSP was to reduce the costs of essential products, such as heating oil, gasoline, food, medicine, and baby formula by imposing price controls and providing government subsidies for these goods. The result could not have been further from the government’s goal.

The CBSP quickly led to empty store shelves as smugglers took advantage of the subsidy and simply sold goods elsewhere at a markup. Long lines of people waited for what goods could be found. As a result of the lack of fuel, electricity became scarce and unreliable, and businesses and hospitals were forced to shutter.

“People could not care for the sick, or feed their children. These subsidies were destroying their lives,” said Kristelle Mardini, director of Atlas Network partner organization Lebanese Institute for Market Studies (LIMS).

As if the shortages alone weren’t enough, inflation skyrocketed. The value of Rima’s income plummeted to around $60 per month, pushing her well below the poverty line. She couldn’t find gas to fuel her commute, and the medicine her mother needed disappeared. Rima was forced to resort to the black market for medicine of dubious quality.

As their country struggled to survive under the subsidy program, LIMS launched a campaign to end the CBSP and restore more market-friendly policies. They called the campaign “Subsidy Free Lebanon.”

Supported by Atlas Network grant funding and under the direction of Kristelle and LIMS CEO and founder Dr. Patrick Mardini, the initiative revealed the cost of the subsidy program, in terms of both government spending and the toll it wrecked on the population. The government’s expenditures on the CBSP exceeded $6 billion, more than double the government’s total expenditure in 2020.

Undeterred by the danger they could face for criticizing government officials, LIMS pointed out that many policymakers were benefiting from the suffering of the Lebanese people as they enjoyed kickbacks and bribes from smugglers and other beneficiaries of the subsidy program.

The organization’s effort garnered significant media attention, with 313 interviews or media mentions, averaging six appearances per week across top national TV stations, radios, newspapers, and online media channels in 2020. This visibility increased in 2021, with media appearances by LIMS experts totalling over 1,000.

Thanks to their relentless media campaign and countless meetings with policymakers, the tide began to turn in May 2021 when price controls were removed on over 300 food items. Overnight, goods reappeared on store shelves, immediately improving the lives of people who had struggled to find food for sale. By November of the same year, most medication price controls were lifted. In 2022, wheat and fuel were removed from the CBSP, and in January 2023, infant formula was finally freed from price controls.

As fuel became more accessible and the electrical grid became more reliable, hospitals and businesses were able to reopen their doors.

The repeal of the subsidy program and the stabilization of the currency brought Rima relief. Currency stabilization, coupled with a few salary raises, took pressure off her strained budget, and she found it much easier to find the medicine her mother needed.

LIMS capitalized on the change in leadership at the central bank in July 2023 to bring a final end to the CBSP. When the new central bank governor proposed lending US$1.2 billion in foreign exchange reserves to the government, LIMS stood alone against this plan. Their persistent opposition led to the central bank committing to refrain from lending money to the government in either Lebanese pounds or foreign currency.

“By stopping the central bank from financing the government, we achieved the impossible in 2023: an end to years of fiscal deficits, hyperinflation, and currency devaluation,” Kristelle said. “The power of free markets has prevailed over state control.”

Beyond addressing immediate shortages, LIMS's work had far-reaching economic implications. In 2023, they successfully prevented another central bank bailout, reducing government spending by over US$6 billion in bank subsidies. This paved the way for a historic moment in January 2024, when Lebanon's parliament ratified a zero-deficit budget for the first time in decades.

LIMS has earned frequent recognition for their tremendous accomplishments. In 2024, Atlas Network named LIMS the winner of the Middle East & North Africa Liberty Award and a finalist for the prestigious Templeton Freedom Award, which recognizes the world’s most significant achievement for individual liberty and economic freedom.

While LIMS's success in ending the subsidy program has removed a significant obstacle to economic recovery, Lebanon still faces numerous challenges. The overall economic situation remains dire, exacerbated by regional conflicts and ongoing political instability. LIMS continues to work towards maintaining a subsidy-free environment and advocating for further market-oriented reforms.

“As war intensifies, some call for a return to government intervention,” Kristelle said. “But with Atlas Network by our side, we stand ready to defend freedom, because when markets are free, people prosper.”