Slumping Dollar Has Nasty Surprise in Store for Lebanese Consumers

Even as Lebanon tries to avoid falling into civil war, the country’s fortunes are further imperiled by the falling US dollar. The dollar plays a prominent role in Lebanon’s economy: It is universally accepted alongside the Lebanese pound, and bank machines routinely dispense money in both pounds and dollars. Now, a weaker dollar means that Lebanese consumers can expect to pay more for goods imported from Europe, where the euro has held strong against US currency. Since Europe produces more than half of Lebanon’s food imports, price increases will affect nearly every Lebanese. Lebanon has endured the assassination of former Prime Minister Rafiq Hariri, war with Israel and growing sectarian discord. Now it must struggle to endure a falling dollar, too. – YaleGlobal

Slumping Dollar Has Nasty Surprise in Store for Lebanese Consumers

Merchants warn of rising prices of European imports
Michael Bluhm
Monday, December 11, 2006

BEIRUT: Consumers will soon pay more for goods imported from Europe because of the

US dollar's sharp drop against the euro, importers and currency traders told The Daily Star on Wednesday. "Prices for sure will become higher," said Lina Fares, PR manager for Amine Aour Middle East Foods. More than 50 percent of Lebanon's food imports come from Europe, she added.

The dollar sank almost 5 percent against the euro in November, and was trading at $1.33 to the euro Wednesday afternoon, according to Byblos Bank currency dealer Dany Ghanem. With Lebanon's highly dollarized economy, a strong euro means importers pay more for European products in dollar terms, and that increase will likely be passed along to consumers. Merchants expect the dollar to fall to $1.35 to the euro in December, Fares said.

Along with food prices, the costs of pharmaceuticals are also sure to increase. For two decades the Health Ministry has fixed pharmaceutical prices according to exchange rates, so a rising euro means prices of drugs imported from Europe will also rise, said Armand Phares, president of the Lebanon Pharmaceutical Importers Association.

At the Vitale Pharmacy in Gemmayzeh, a box of the popular, cholesterol-lowering drug Lipitor - made in Germany - costs LL99, 000 ($66), but soon that price will climb to LL102, 000, said pharmacy employee Aida al-Hage.

Merchants typically tweak prices immediately when the dollar fluctuates, but they might hesitate to push prices higher with the economy already reeling from the July-August war and the current political morass.

To blunt the weak dollar's effects, merchants might turn to Asia and other markets for lower-priced commodities, said a Fransabank currency dealer on condition of anonymity.

"They will search for cheaper places," he said. "We will lose quality, but we will still have the commodities we need."

The slumping dollar could also influence the choice of holiday-travel destinations, as the dollar shrinks against certain currencies and holds against others, such as the Japanese yen.

The Lebanese pound, tied tightly to the dollar, has felt little pressure during the dollar's recent slide, currency traders said. The demand for dollars was predominantly from commercial enterprises and not individuals looking to ditch their Lebanese pounds, said a dealer at Bank Audi.

The Lebanese pound held up under much greater pressure during the July-August war and after the assassination of former Prime Minister Rafik Hariri, he added.

"We really think the Lebanese pound can hold like this," said Ghanem of Byblos Bank.

Exporters sell most of their goods to Arab countries and so should not expect a boost in sales because their products now cost less in euros. Only a few export items that focus on the European market could see a benefit; such items might include wine, handcrafts and some textiles, said Wajih al-Bisri, vice president of the Lebanese Industrialists Association.

"It's too early to see the effect," Bisri added.

The dollar has been weak all year against the euro - down 12.5 percent since January - but it typically declines at the end of every calendar year, currency traders said.

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