October 30, 2019 / 6:02 PM / 20 days ago

At Lebanon shops, mills and petrol pumps, fears of supply crisis grow

BEIRUT (Reuters) - When Yara Kabalan’s weekly coffee delivery arrived at her Beirut minimarket on Tuesday against the backdrop of nationwide protests that have shut banks, it was not business as usual.

FILE PHOTO: A man makes a transaction at an ATM outside a closed Fransa Bank branch in downtown Beirut, Lebanon, October 25, 2019. REUTERS/Alkis Konstantinidis

The bill was no longer in Lebanese pounds, it was in U.S. dollars. The supplier’s policy had changed that morning: Kabalan must now pay dollars or else pay some 9% more in local currency based on an unofficial dollar exchange rate chosen that day.

It was the latest way Lebanese businesses are feeling the pinch of the worst economic strains since the 1975-1990 war, raising fears of commodity shortages and price hikes.

Lebanon’s currency has been pegged to the dollar for more than two decades at an official rate of 1,507.5, which the central bank has vowed to maintain.

But a build-up of economic and political pressure has made dollars harder to come by and weakened the pound against the dollar on a parallel exchange market.

Street exchange dealers were offering rates as high as 1,850 on Wednesday, with traders and wholesalers calculating invoices at rates around 1,600-1,700 pounds to the dollar. Banks, which must use the peg rate, have shut for two weeks. They will reopen on Friday.

Kabalan’s egg, biscuit and alcohol suppliers all in recent days for the first time also requested payment in dollars, some asking for even higher premiums. Shops and suppliers across Beirut are reporting the same situation.

So far, wholesalers and traders told Reuters they are largely absorbing the losses or holding off on purchases to avoid charging customers more.

‘WE WILL CLOSE’

Lebanon’s Prime Minister Saad al-Hariri quit on Tuesday after two weeks of historic protests against leaders accused of pushing the country toward collapse.

The resignation deepens uncertainty at a time of acute economic crisis in one of the world’s most heavily indebted nations.

Banks say they shut over safety concerns. Bankers also cited worries that depositors may rush to take out their savings.

Amid the unrest, the parallel market dollar rate, which had climbed in previous months as economic pressure built, has pulled further away from the official peg.

“If the situation stays this way for another week, we will close,” said Khaled Sakr, whose company sells staples like cooking oil and rice to small grocers. “We can’t buy dollars and customers can’t pay us.”

Suppliers are now also asking for immediate payment in cash rather than giving one- or two-month invoice periods to close accounts, he said.

A stagnant local economy and a slowdown in cash injections from Lebanese abroad have put pressure on the central bank’s foreign currency reserves in recent years.

The central bank said this month it would prioritize dollars for fuel, medicine and wheat after importers complained they could not source dollars. But importers told Reuters that had yet to take effect and was complicated by the bank closures.

Fadi Abou Chakra, spokesman for Lebanon’s petrol stations union, said no fuel had been imported for two weeks.

Gas stations were left with reserves for “just three or four days,” while about a quarter of stations had already closed, he said.

LOWEST STOCKS EVER

The central bank’s plan was supposed to guarantee 85% of dollar needs for wheat, millers said.

Four millers told Reuters that wheat reserves were down to only about three weeks, far below the typical three to four months.

Paul Mansour, owner of a major flour mill, Crown Mills, has had two wheat vessels stuck at Beirut’s port for a week. The miller had to deposit cash into the bank, which finally made the transfer on Wednesday.

Bachar Boubess, of Modern Mills of Lebanon, said his stocks are the lowest he had ever seen. He worried that if hard currency problems continued, suppliers might slap hefty risk premiums on shipments headed for Lebanon or stop selling altogether, driving up costs.

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A third miller who had two vessels headed to Lebanon worried they would get stuck at the port. “I’m not sure how I will pay them,” he said.

The millers agree that the government would not allow grain stocks to dry up. If the crisis drags on, the bigger problem could be how to maintain stocks and price levels for food items that do not get special allocations.

“We don’t grow rice or sugar ...We don’t have feed grains for our animals for meat, eggs and chicken,” said Mansour, who imports foodstuffs. “All these are dollar-based commodities, so the price would increase on a daily basis.”

Reporting by Lisa Barrington, Ellen Francis and Eric Knecht; Editing by Bill Berkrot

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