IMLebanon | Increase wages… the impossible

Adopting salary correction means economically embracing inflation and giving in to the will of rising prices

Public sector employees raised the “ten” in front of the threat to “kill” them slowly, with the collapse of the purchasing power of salaries and wages. The gradual devaluation of the currency from 1558 in August 2019, to 23 thousand pounds in July 2021, stripped employees of their most basic rights to a decent living. With each drop in the value of the lira, their salaries were eroding more, until today they range between 51 and 300 dollars.

Head of the Public Administration Employees Association, Nawal Nasr, reports that “the average rate of public sector employees’ salaries is 2 million pounds, or 109 dollars at today’s exchange rates. This is because with the exception of the general managers category, who constitute a small percentage of the number of employees, a large segment of the wage earners and the lower categories receive 1.5 million pounds.” This fact, which deducts $950 from every $1,000 an employee receives, is described by Nasr as a “crime of theft.” It requires, before restoring rights to their owners and compensating the affected, to punish and hold the perpetrators accountable.

Correction of salaries and wages

No need to dive into what $109 can buy an employee, because the answer is simply: nothing. The amount is less than the monthly need for food by about one million pounds, and it constitutes about 50 percent of the cost of transportation, and at best is equivalent to the subscription bill for the special generator for the month of July. What Nasr returns to stealing the value of the national currency, and holds the state responsible for recovering it, requires, from its point of view, two essential things for the continuation of the public facility, which employees did not hesitate to operate during the height of the war, namely: an immediate treatment of the employee’s living situation. And secure the basic needs of the management of departments. As the working means and tools are completely missing. Proceeding from here, “we put all our energies at the disposal of the state to develop a plan based on aligning the needs of the public administration of employees with the ability of employees to attend,” Nasr says. We called for an increase in the transportation allowance to keep pace with its high real cost, or to secure a transportation plan for public sector employees, and to secure petrol bonuses in proportion to the distances traveled by the employee. Solve the problem of the low value of health and social benefits in the State Employees Cooperative and the National Social Security Fund. Correcting salaries and wages, in proportion to the price index, or at least according to the official platform price at all times. And calculating the exchange compensation that was arranged or deposited in banks in Lebanese pounds, on the price of the official platform on the date of payment to its depositors.

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Inflation “tsunami”

The justifiable demands of the employees to increase salaries collide, in the opinion of experts, with an inflationary “tsunami” whose effects are sweeping away in a record period. The most prominent evidence is what happened to the series of ranks and salaries that were approved 3 years ago. “It is the human right of all of us, employees and people with limited income, to demand an increase in wages and salaries,” says economic researcher Dr. Layal Mansour. But the bottom line is not here, but it is in the effect of this increase on purchasing power first, and the economy second. From a scientific point of view, any salary increase that is based on an indicator of a decline in the value of the national currency exchange rate and a decrease in the amounts that the state will pay as increases, is wrong. Because it does not take into account the rest of the economic indicators. The increase from this angle may ease the “ache” of the employees, but it will contribute to killing the economy after a short period. The state is powerless. Revenue is down 8 percent. And the size of the debt-to-GDP is on the rise. Productivity is almost non-existent. The foreign exchange reserves are negative and the public sectors stop one by one. Confidence is absent… Hence, the only way to repay the increases will be by printing more money and expanding the money supply in the narrow sense M1 to fantastic levels. According to Mansour, “merely adopting wage correction, this means economically adopting inflation and surrendering to the will of rising prices. Thus, inflation becomes a structural internal factor and not a temporary and transient element,” which is exactly the same as treating weight gain by buying clothes in larger sizes, rather than following a diet. And for evidence of the dangers of correcting wages to counter inflation, Mansour cites “the refusal of European countries to address high inflation by two points within a record period through wage correction.” This is because it considers that the Corona crisis causing inflation is transient; And its desire not to adopt inflation in the economy. On the other hand, the stubbornness to correct wages in Lebanon or other countries indicates that there is an intention to resort to other policies to improve the living situation.

What are the solutions to improve the living situation?

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“The money printing press stopped,” Mansour says. Transition to the adoption of a new exchange rate system based on the CURRENCY BOARD. Or the dollarization of the economy entirely. The proposal of the “Council Stabilization of Parts”, which Mansour would not have adopted several years ago, says that it “has become the only option before us today in light of the combination of negative monetary and economic factors.”

Cutting Board

In short, the “Council Stabilization Council” forces the state to search for sources to secure its deficit from outside the printing of money, which is handled by the Banque du Liban. According to international figures for information on the 2020 budget, revenues amounted to 15,342 billion pounds, compared to expenditures of 19,425. That is, the deficit amounted to 4,085 billion pounds. This, of course, does not include the foreign debts that the state has stopped repaying. Otherwise, the deficit would have risen to the limits of 10 billion pounds at the official exchange rate. However, if the Council is adopted, a large part of state employees will be subject to dismissal due to the inability to secure their salaries. And the fear is growing, of a rise in the number of unemployed people and a deepening of the economic crisis, so that we will be “instead of giving her a kohl.” However, according to Mansour, “one of the causes of the problem is the large number of state employees and the decline in their productivity. What is the resentment against the “Cornice Board”, specifically by politicians, only because it limits their ability to employ in the state for electoral purposes and stuff it with their people. On the other hand, Mansour, who did not give her personal opinion whether she is with or against privatization, considers that “the latter has become an inescapable fait accompli to reform the public sector and absorb the surplus of necessary employees and dismiss the rest who have no work.” And if those in charge of the state, in her opinion, “were keen on the interest of public institutions, they would not have wreaked chaos, devastation and corruption, and brought them to the state of collapse in which they are today.”

Financing the increase from the budget is possible… BUT!

For her part, head of the Public Administration Employees Association, Nawal Nasr, considers that the salary increase will not have any inflationary effects. Because the state can secure it from:

Its many neglected or wasted, unjustifiably endowed, plundered or misdirected resources. Including, but not limited to, public properties donated to individuals and institutions free of charge or at nominal rents.

The waste that occurs in the rents of government buildings, which drain billions annually, and for which alternatives can be built or purchased at a much lower cost, such as the ESCWA building, whose rent allowance exceeded 15 billion pounds annually, and other buildings in the city center with rents that exceed the cost of their purchase, and many other headquarters.

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Reorganizing and distributing unbelievable salaries in some public utilities and amounting to tens of millions. While public administration employees are looking forward to a slight increase in their salaries.

– Activating the collection of revenues from public utilities, especially those produced from them, such as cell phones, mechanic inspections, and car park revenues that, in principle, belong to the state. Activate the collection of water and electricity bills…

To stop the hand of companies affiliated with the administrations that drain the state’s finances, without doing what is required.

Cancellation of tax exemptions and settlements for companies, especially large ones, estimated at billions.

Cancellation of financial contributions to sectors that do not deserve it, such as free schools, most of which are bogus, and troubled private schools that keep raising their premiums annually with or without devaluation of the currency, and the reduction of the number of their employees and teachers, and the bogus social and charitable associations affiliated with the great concubines and concubines.

Cancellation or merging of funds that have completed or almost completed their tasks.

Reconsidering the eligibility and fairness of distributing salaries in the public sector.

Implementing the laws related to the compensation ceiling and complying with this ceiling.

Unleashing the hand of supervision and the judiciary and providing them with sufficient human cadres, to search for lost funds.

In short, what is required from Nasr’s point of view is “a comprehensive administrative and financial reform, whether inside or outside the public administration, that alone will be able to finance any increase in salaries.”

Regardless of the lost capacity for voluntary administrative reform, and the contribution of these measures on the ground to financing the cost of raising the salaries that are not yet calculated, Mansour considers that “regardless of the source or how to secure the funds to increase the salaries of the 320,000 state employees, this means that” There is an intent to reform.” From her point of view, it is not possible to take the variables of employees and salary increases only into account to improve the living situation, but the rest of the economic variables must be taken into account as well. Otherwise, the result will be that the economy falls victim to populist politics once again.

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