World Bank ‘Ponzi Finance’ report is damaging both to Lebanon and the bank itself

August 24, 2022


The publication this month of a World Bank report on Lebanon, which presents a damning account of financial and fiscal policy in the country over the past 30 years, raised many eyebrows.

Anyone reading it would come to the conclusion that the Lebanese brought the current crisis upon themselves through misguided and irresponsible financial maneuvers. In a state that is struggling to regain the trust of its own population, as well as that of the international community, the report, if taken seriously, represents a significant setback.

The content of the report — titled Lebanon Public Finance Review: Ponzi Finance? — is quite rigorous and precise. The overall message and ideological bias are debatable and could be harmful to the country. The language, authorship and conclusions are damaging to the World Bank itself, raising huge questions about the process of producing such a report and, most importantly, about the World Bank’s own role over the past 30 years in supporting such damaging policies and participating in their formulation. The bank was a partner to successive Lebanese governments and financed most of the projects mentioned in the report.

Barely three years before the current crisis began, the fall 2016 edition of the World Bank’s Lebanon Economic Monitor was full of praise for what it described as the proactive policies of Banque du Liban, the country’s central bank.

Indeed, the World Bank and the International Finance Corporation provided loans and grants, as well as technical support, for the programs and measures the report said deliberately led to catastrophic results. If the report is correct and there was a “Ponzi scheme” and a “deliberate depression,” then the World Bank was an active partner in both and bears a significant share of responsibility for the outcomes.

What appears even more puzzling about the report is the activist tone and populist language, which are a radical departure from the normal dry, robotic jargon of Washington bureaucracy. Since when does a World Bank report start with a “message to the Lebanese people,” informing them that the loss of their savings was the result of deliberate measures implemented by the establishment with the intent of impoverishing them.

The title, “Ponzi Finance,” is itself quite sensationalist and irresponsible, if not patronizing

Nadim Shehadi

Indeed, the authors seem pleased with their slogan “deliberate depression” and repeat it several times in the preface, with italics for emphasis. The title, “Ponzi Finance,” is itself quite sensationalist and irresponsible, if not patronizing.

The analytical conclusions and policy recommendations contained in the report contradict each other. If the bank thinks this is right, they cannot at the same time have the structured program they implemented in the country.

The populist language and tone become far less of a puzzle, however, when we consider the team that was entrusted with authorship of the report; instead, it is the judgment behind the World Bank’s choice of such a team that is perplexing.

The report was developed in collaboration with Charbel Nahas, who is described as a professor of political economy and public policy at the American University of Beirut. He was assisted by a team of three researchers who are members of his political party, Citizens in a State. Two of them stood with him as candidates for the party in the 2018 elections. They collaborated with the Lebanese Citizenship Foundation, headed by Alain Bifani, and had the support of a large number of World Bank staff both in Lebanon and in Washington.

Both Nahas and Bifani have been active in, and important pillars of, the very system they now criticize. They were both candidates for the Beirut municipal elections in 1998 under the banner of the Free Patriotic Movement of Gen. Michel Aoun, the current president of the republic. They were both advisors to Gen. Emile Lahoud when he was president, and close to Gen. Jamil Al-Sayyid when he was head of the General Security Directorate.

Nahas held cabinet posts twice on behalf of the FPM, in two consecutive governments: He was telecommunications minister between November 2009 and June 2011, and labor minister from June 2011 until February 2012.

In a televised statement he reminded President Aoun, with whom he had fallen out, how in 2011 he (Nahas) held meetings with Bifani, MP Ibrahim Kanaan, Gibran Bassil, who is now leader of the FPM, and Riad Salame, head of the central bank, and had agreed to “blow up” the system.

Bifani, meanwhile, was director general of the Ministry of Finance for 20 years until he resigned in 2019. He was also a member of the board of the central bank and headed the government’s Debt Management Unit when it was established in 2008. He signed on for all budgets and debt operations and was the highest-ranking official with the perspective of both the ministry of finance and the central bank, and had full knowledge of fiscal and monetary operations. There is no way he can pass as a neutral observer.

Imagine the scandal if the World Bank adopted a political party in any country other than Lebanon and provided it with the resources and backing, as well as its endorsement and the credibility of its institutional support, to produce its own political manifesto. If the World Bank is to apply the principle of even-handedness, it would have to do this in other countries in the region, such as Turkey, Syria, Iraq or Yemen. The criteria for choosing which parties to support would be interesting.

In fact, it would be quite a coup if radical Western politicians such as Bernie Sanders in the US or Jeremy Corbyn in the UK managed to get the World Bank to throw its weight behind their political careers. Like Nahas, they are both charismatic figures and have a significant following among millennials.

Nahas went one step further; he publicly asked Sayyid Hassan Nasrallah, the secretary-general of Hezbollah, to hand over power to him and his party and sponsor him as temporary leader of the country so that he could fix it. Nasrallah did not fall for this and nor did the electorate in 2018 — but apparently the World Bank did.

• Nadim Shehadi is a Lebanese economist. Twitter: @Confusezeus