A Lebanese limbo

The devastating blast that annihilated both Beirut’s famous port and its seaside districts, leaving up to 300,000 people homeless felt like a horrifying, apocalyptic scenario. To many Lebanese, the explosion was also symbolic of Lebanon’s systemic decay, economic stagnation, government neglect and rampant corruption, compounded by the social and economic devastation brought about by the COVID-19 pandemic. Lebanon’s post-civil war reconstruction largely benefited its elites, and the post-explosion reconstruction is bound to do the same. Yet the system is showing cracks. The following personal perspective is from NCF Research Officer Ivan Tarkhanov and does not necessarily represent the view of the Next Century Foundation.

Even without the horror of the Beirut explosions, Lebanon’s economy was already sliding towards disaster. A vicious cycle of stagnant economic growth, subpar infrastructure, unemployment and a lack of investment have left the Lebanese economy hopelessly dependent on diaspora inflows, which have in turn mainly benefited the inefficient real estate sector. In addition to this, an entrenched and monopolistic elite continues to block important reforms. As a result despite Lebanon’s status as a middle-income country, its infrastructure was ranked 113 out of 137 countries by the McKinsey report in 2019. 

Lebanon’s political system, built on sectarian lines in an uneasy post-civil war consensus, has now largely lost legitimacy with the average young Lebanese voter. Even in the economy’s better days, the omnipresence of corruption, nepotism and government incompetence left a great number of Lebanese falling through the cracks of the system. Social inequality arguably remains one of the root causes of Lebanon’s 2019-2020 protests and has been a significant obstacle to economic growth and social prosperity. To make things worse, Lebanon’s vibrant middle class has been eviscerated by the succession of crises, and many Lebanese are desperate for a political solution. The majority of Lebanon’s citizens are now trapped in poverty.

Prime Minister Hassan Diab’s government fell one week after the explosion. This resignation came only one year after then PM Saad Hariri’s announced his resignation in the wake of earlier Lebanese protests. But many Lebanese citizens are no longer satisfied with mere cosmetic changes. They are demanding fundamental change at all levels. 

Some have called for a national unity government. But Lebanon has already been run by a unity government. It mostly failed to provide pragmatic solutions to important issues, instead getting trapped in ideological and sectarian debates.

Lebanon needs immediate change. And this change must come through comprehensive economic reforms. Lebanon does not have many options – the economic limbo of the fiscal crisis was only compounded by the damage caused by the Beirut blast, estimated at 15 billion dollars. 

Pushing through significant economic reforms would qualify Lebanon to receive assistance from the International Monetary Fund. That said, IMF programs are not without very considerable controversy. Even the IMF’s own study into austerity policies concluded that they can increase inequality and hamper long term economic growth. Before the explosion rocked Beirut, PM Hassan Diab said that Lebanon needed $10bn in international support. Self-evidently, its needs now far exceed that. But in my personal view, besides the IMF bailout package, Lebanon currently has few credible options. If Lebanon managed to find an agreement with the IMF, it could unlock further aid packages. Meanwhile, also in my personal view, the so-called ‘Chinese option’ for Lebanon remains insufficiently explored: after all Lebanon’s ports could play a key role in China’s Belt and Road initiative.

Entrenched interests impede economic reform in Lebanon. In the years preceding the fiscal crisis, crucial laws and reforms have been either indefinitely stuck in Parliament or avoided altogether. A hostile and monopolised business environment has both repelled investors and placed a heavy toll on small businesses. To make matters worse, Lebanon’s financial services industry remains overwhelmingly dominated by banking, which impedes the nations’s economic stability.

Following the explosion there was an outpouring of international support for Lebanon. Yet direct economic aid to the Lebanese government has been scarce. An emergency donor conference claimed to have raised 253 million euros for humanitarian relief, but the donors demanded stringent transparency in the management of the aid money and most of this money will never reach Lebanon. This is because many international actors remain conscious of the Lebanese government’s corruption and systemic reluctance to reform. Hezbollah, of course, remains an elephant in the room. Since its parliamentary victory of 2018, the organisation has often proven incapable of delivering on reforms demanded by outsiders. Hezbollah’s strong presence in Lebanese politics has led to unwillingness on the part of the United States, most Gulf States and certain European countries to commit resources to Lebanon.

Hezbollah understandably remains hostile to many of the calls for reform, most notably the IMF-demanded customs reorganisation, which would spell the end of the Hezbollah’s share in the militia monopoly over the sector and its control of large swathes of the Lebanese- Syrian border, along with what I view as its lucrative oversight of smuggling operations into Lebanon.   

Ideas of disarming Hezbollah are unrealistic and risk further antagonising the group. Hope remains that a strong, non-sectarian protest movement might finally lead to a new government and a new system built along non-sectarian lines. In any case, corrupt oligarchies, armed militias and rabid sectarianism have served the Lebanese people’s interests poorly.

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