30.09.2021 Author: Viktor Mikhin

Lebanon’s Problems Are Only Getting Worse

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Lebanon’s current problems directly result from the absence of a strong state, as the country has relied on aid instead of building a solid economy. The UN estimates that 78% of the country’s population currently lives in poverty. Where warring factions have empowered and enriched their leaders, the state has consistently refused to provide the essential services and opportunities its people need.

When billionaire Najib Mikati formed a new cabinet of old faces this month, his promises to ease Lebanese suffering went unheeded. Lebanon is fast approaching one of the worst economic collapses in modern history. According to the World Bank, the country has been experiencing its most significant economic depression since the mid-1800s amid chronic systemic problems, lack of a strong government, and the effects of a pandemic. Once pegged to the dollar, the Lebanese pound has lost 90 percent of its value in the last two years due to the most significant economic and financial crisis in peacetime. Last month, Riad Salameh, governor of Lebanon’s central bank, said the state could no longer afford the subsidies as the country’s foreign exchange reserves had been severely depleted.

The cost of basic foodstuffs has risen by 200% over the last year, and the financial situation is dire. The new government has defended the removal of subsidies as an unpleasant but necessary step to lead the country to economic recovery. Without dollar subsidies, they decided to issue cash cards, much like Hezbollah did with its al-Sajjad card scheme, to provide bare necessities at low prices. The government has earmarked $556 million to distribute the cash cards, with plans to provide them to 500,000 of those most in need.

“The priority for the government will be to prevent a collapse,“ said Maha Yahya, Director of the Malcolm H. Kerr Carnegie Middle East Center. She said that subsidies should be abolished, and a social safety net should be put in place to soften the blow to the most vulnerable. For this, according to analysts, the cabinet will need to resume negotiations with the International Monetary Fund to obtain billions of dollars in financial assistance. Lebanon, which defaulted on its debt for the first time in March 2020, began talks with the IMF, but they quickly stalled amid disputes over who should bear the brunt of the losses.

What are the biggest obstacles?  The international community has demanded radical reforms and a judicial review of the country’s central bank before any financial assistance can be provided. The previous government announced a bailout roadmap in 2020 that included reforming the electricity sector, restructuring the banking sector, and abolishing the official dollar peg. But these steps have yet to be taken. In the current environment, where theft and corruption are rampant, it is unlikely that anything substantial can be done to change the Lebanese situation in any significant way.

The Libyan central bank governor was caught with €90,000 in cash (Where did that money come from?), and as the Organized Crime and Corruption Reporting Project reported that his offshore companies had nearly $100 million in assets, it is no surprise that the new government seems unable to alleviate the suffering of the Lebanese people. As for the central bank’s audit, it too has been stalled because its governor said he could not provide the audit firm with some of the necessary documents allegedly because of bank secrecy rules. Senior Financial advisor Mike Azar said reforming the oversized commercial banking sector and the central bank as well as restructuring the public sector would be key to any deal with the IMF.  “There isn’t anything you can do short of these two major restructurings,“ he told AFP reporters.

Earlier this year, the Carnegie Endowment warned that without reforms, Lebanon is heading toward becoming a failed state. The perpetuation of inequality, where the richest 10% of the country own almost 70% of all wealth, has led to the dire economic situation in which the country finds itself today. An intertwined political and business elite has created a “free competition“ economy where the rich are not taxed. With Human Rights Watch warning that millions of people in the country are at risk of starvation, the seemingly eternal good times of Lebanon’s elites have brought the country to ruin.  When Lebanese deputies met to approve the composition of the new cabinet, a power outage and a faulty generator delayed the meeting by 40 minutes. The episode gave lawmakers a glimpse into the reality of millions of people who stand in line for six hours a day to buy fuel without being able to power generators.

While petrol station owners hoard fuel – hoping to make a profit when prices rise, and the rest of the supply is stuck on tankers waiting for the central bank to part with precious dollars – the daily lives of the Lebanese people are deteriorating. Hospitals cannot provide basic health care without fuel and have to rely on donations in the form of diesel fuel. Like anywhere else, at Rafik Hariri University Hospital, patients are asked to bring their own medicine or simply go home.

Not surprisingly, the government decided to raise gasoline prices by almost 38% in an attempt to prepare the economy for the easing of subsidies. So it was no surprise that where the hapless government failed, Hezbollah entered the fray, importing more than a million gallons of Iranian diesel fuel in one week alone.  Arriving by land, though not through a border crossing, and in the total absence of any customs or police checks, the shipment, first of many, not only brought relief to many ordinary Lebanese but also highlighted the incompetence of a government with which this group does not work in collaboration or competition. This delivery, portrayed in heroic terms, served to highlight the government’s helplessness in obtaining assistance from its traditional international partners.

The shipment violates US sanctions imposed on Tehran after former President Donald Trump pulled the US out of the Iran nuclear deal with world powers three years ago.  It was portrayed as a victory for Hezbollah, which arranged fuel supply from its patron, Iran, while the cash-strapped government struggled with fuel shortages for months without success.  There were no immediate comments from Lebanese or US officials on the Iranian fuel shipments. Hezbollah’s Al-Manar TV channel called it “tanker truck columns to break the American siege.“

Iran, for its part, said it was ready to sell fuel to the Lebanese government to alleviate the shortage, days after the first shipment of Iranian fuel arrived in the country. Iranian Foreign Ministry spokesman Saeed Khatibzadeh told a news conference that the Islamic Republic had already sold fuel to a “Lebanese businessman“ without naming Hezbollah. However, Lebanon’s new Prime Minister, Najib Mikati, a billionaire tycoon, told CNN that the shipment “was not approved by the Lebanese government“ and he was “saddened“ by the “violation of Lebanese sovereignty.“ However, the billionaire somehow forgot to mention the fact that these fuel supplies somehow eased suffering for the Lebanese.

While international donors wait for Lebanon’s political elite to initiate economic and political reforms to facilitate financial assistance, the country’s corrupt and self-serving factions have become increasingly entrenched, inefficient, and living off the Lebanese people with little regard for their needs.

Viktor Mikhin, corresponding member of RANS, exclusively for the online magazine “New Eastern Outlook”. 

 


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