Fading greenback adds up to higher prices for Lebanese

By Osama Habib Daily Star staff
Friday, September 21, 2007

BEIRUT: The appreciation of the euro against the US dollar will have a dire impact on the Lebanese economy in general and may cause the inflation rate to rise, economist and traders said on Thursday. "The appreciation of the euro against other currencies will surely affect the prices of commodities imported from Europe," economist Louis Hobeika told The Daily Star.
He added that more than 50 percent of Lebanon's imports come from Europe.
At present, inflation is in Lebanon is close to 7 percent due to the rise in the prices of commodities following the 2006 war with Israel. Consumers Lebanon said that the prices of basic commodities in the first seven months of the year reached 5.9 percent.
Reuters said the euro is at an all-time high against the dollar alone and on a trade-weighted basis, and this is restraining euro-zone inflation and economic growth as well as creating an effect similar to an interest rate increase.
The euro closed at $1.409 against the dollar on Thursday and many brokers fear that the appreciation will continue due to the US credit crunch and rise in the prices of oil.
"The euro may even reach $2 if the conditions in the international markets do not positively change," Hobeika said.
The worst problem, he added, is the fact that Lebanon's is a dollarized economy.
"Many people who are paid in dollars will feel the pinch if the euro continues to appreciate in value," Hobeika said.
Italy, Germany and France are among Lebanon's main trading partners and all these countries have a major share in the imports of cars to the country.
But one leading merchant said that the traders have kept the prices of commodities imported from Europe at reasonable levels because they realize that the Lebanese cannot afford another increase in the prices.

"People are complaining about the high cost of living. They have not seen anything yet because the importers will eventually have to order new shipment from Europe at current euro rates" said Nadim Assi, president of the Beirut Merchants Association.
He added that lot of factors have also exacerbated the problems in Lebanon.
"We [traders] are trying to cope with the high cost of transport and insurance coverage and yet the merchants refrained from hiking the prices a lot since they are aware of the delicate situation in the country," Assi said.
He added that prices during the month of Ramdan are still reasonable because the merchants decided to maintain the current rates. "But the traders will eventually have to consider increasing the prices based on the current euro rates," Assi said.
He urged the government to reduce tariffs on imports to help contain prices.
"If the government applied a 5 percent tariff on all imported items across the board the merchants would be able to sell at reasonable rates," Assi said.
He added that this would not affect the government's revenues because it will make it up from the value added tax.
But Assi said that items which have the same features as locally made goods should not benefit from the proposed tariff cuts in order to protect the national industry.
Hobeika, however, believes that reducing tariffs will not make a big difference. "One way to help consumers is to remove the exclusive dealership and this way the prices will fall by 30 percent at least," he said.