Lebanon – A spotlight on the economic problem

Hassan Diab, the new recently elected Lebanese prime minister backed by Hezbollah, now faces an almost impossible economic challenge. Diab announced on March 7 2020 that the Lebanese government has decided not to pay its debts.
Diab noted that the government debt and the interest rates are beyond Lebanon’s ability to meet and pay, and that the currency reserves have reached a critical and dangerous stage, forcing the Government to suspend the payment of bonds, in favor of the use of these funds to provide the basic needs of the Lebanese people.
According to Diab, the decision to suspend paying off the debt is the only way to stop the depletion of funds and protect the public interest. In addition, Diab promised to take action to protect the deposits in the banks, particularly the deposits of ordinary citizens.

Diab updated that the Lebanese government will begin negotiations with various debt holders “for debt restructuring” and at the same time, start reforming government spending.

Financially, Lebanon is currently in bankruptcy. Its external debt amounts to about $100 billion, which is about 200 % of its GDP, a debt that continues to increase. According to an IMF report dated 19 October 2019, the Lebanese economy has been stagnant for about seven years. The annual deficit of the government budget exceeds 10 % of the GDP, while the international balance of payments deficit exceeds 25 % of the GDP. Recently, Lebanon’s voting and speech rights have been suspended at the UN assembly in light of its debt to the organization.

The overall unemployment rate in Lebanon stands at about 30% of the workforce, while among young people the unemployment rate is over 36%. Due to this, about 35% of the population live below the poverty line. Consequently, a significant part of the population is unable to purchase commodities thus lowering the purchasing power of the local market causing many businesses, in the best-case scenario, to run into financial difficulties, or otherwise force them to shut down completely. These financial difficulties facing businesses and employers forced them to cut salaries, consequently creating a salary payment crisis; hence, many employees receive only half of their salaries. Business closures caused many families to lose their livelihoods, forcing them to join the unemployment statistics and poverty cycle. A major example of this is the financial crisis facing the “Al Nahar” newspaper. This long-established newspaper, which was founded some 86 years ago, has been hit by a financial crisis, causing a large delay in salary payments to its employees, alongside putting this major Lebanese newspaper in danger of closing. On 17 December 2019, the newspapers’ headline read: “The newspaper that donated blood asks you to donate ink …”.

The Lebanese media reported that quite a few shop owners left their shops and businesses open with signs like: “Lebanese brother, if you can’t pay for what you need, just take what you want and pay us back when you can …”.

These economic hardships can also cause mental distress. Suicide and suicide attempts are evident, as which occurred on 7 December 2019 during a large protest rally in Beirut center, where a person ignited himself in front of a crowd of protesters.

The inbound and outbound tourism usually constitutes a litmus paper indicator for its political, social, and economic and security stability. Because of the ongoing protests over the past two months, there has been a very sharp plunge in inbound and outbound tourism to and from Lebanon; images of an empty Beirut international airport can be seen in the media.

Nevertheless, we should emphasize that reports of a crisis in the Lebanese economy have been heard in recent decades many times before. Back in December 2012 the Lebanese news site “A-Nesra” quoted Hezbollah Secretary-General Hassan Nasrallah saying, “Every solution in Lebanon starts from solving the chronic economic problem and that on the issue of the public debt problem; Hezbollah has no clear outlook or proposal for resolving the economic crisis”. Nasrallah further commented that this issue has arisen because of the disintegration of the government and the intensification of corruption within it… “Hezbollah is unable to deal with corruption because it is a problem that is bigger than us and is even more dangerous than the Israeli danger …”. Nasrallah’s remarks, although spoken in 2012, actually describe today’s reality. However, Nasrallah “forgot” to state that Hezbollah is one of the main causes of the corruption culture in Lebanon and that Hezbollah enjoys this culture and has a stake in enabling it to manage the organization’s economy simultaneously and at the expense of the Lebanese economy. The question remains, what causes this crisis to be so different that it has driven the Lebanese masses into the streets protesting against government corruption?

To begin with, in addition to decades of collapsing and neglected infrastructures (the rationing of electricity and gas, roads, water, sewage, garbage collection, etc.) about a million to a million and a half Syrian refugees fleeing the Syrian civil war were added to the country’s general population, constituting about a quarter (!!) of the entire Lebanese population. These refugees do not intend to return to their country of origin any time soon, and therefore create another heavy burden on the state’s infrastructure and economy.

Furthermore, the economic sanctions exerted on Hezbollah for more than two years have had an overall damaging effect on the Lebanese economy in general and on the financial institutes and banks in particular. Hezbollah has always pursued a policy of assimilating its economic activity within the Lebanese economic market to conceal its financial money laundering endeavors. For example, the United States imposed direct sanctions on Jammal Trust Bank (JTB), accusing it of “assisting Hezbollah in financing terrorism”. The bank with its 25 branches spread throughout Lebanon with a cash reserve value of billions of dollars closed its doors due to the sanctions.

At the individual level, banks have imposed various restrictions on money withdrawal (a maximum of $ 300 per week) and money transfers, fearing that citizens will switch to the use of cash while withdrawing their dollar saving accounts.

The sanctions on Iran and Hezbollah have also affected Hezbollah supporters in Lebanon. Due to budget difficulties, Hezbollah had to cut salaries and reorganize its system. We can find evidence of this in Al-Arabiya Network documentation, dated 8 December 2019, in an interview with a Shiite young man named Hassin Ali from the city of Baalbek in Lebanon. This documentation briefly summarizes the Lebanese economic problem and provides a spotlight on unemployment, debt, poverty, corruption, and distrust in government institutions.

In the interview, the young man points out that he served as a volunteer in Hezbollah until he stopped volunteering without giving a reason. The young man noted his hunger for bread. His debts estimated at two million Lebanese pounds (about $ 1400). The young man also added that many people are sick of the situation in Lebanon and that he saw people in Baalbek and Elhermel (another city in the Beqaa) eating from garbage cans. During the interview, the young man tore up his professional certificate issued by the Lebanese Interior Ministry as a paramedic in the Civil Defense Administration in protest, stating that if the senior government officials have nothing to contribute then they should resign their positions.

According to the young man, when he was looking for a job in Hezbollah or the Amal movement, he needed nepotism, this being one of the many signs of corruption that transpires almost everywhere in Lebanon. All Lebanese institutions, and not only Hezbollah and Amal, are affected by the corruption that is reflected mainly in the giving and taking of bribes and nepotism. This corruption severely damages the proper administrative process and the stability and governance of Lebanon.

According to Al-Sharq al-Awsat newspaper (aawsat.com), economists estimate that the losses to the Lebanese state coffers since the beginning of the protest (about three months before this article) exceed $ 400 million. They also warned of a possibility that citizens would not pay taxes as a civil disobedience action, which could lead to further financial and economic deterioration.

The IMF delegation that recently visited Lebanon departed with a negative impression after meeting with the Lebanese officials that did not present an orderly and comprehensive economic plan.
From the statements of the IMF delegation, we can learn the essence of the economic problem in Lebanon:

“Lebanese officials are still in a deficient mind-state as to what they should do. They are confusing between what is political and what is economic and each and everyone one of them is trying to profit on the political and public levels while dealing with matters at stake, while responsibility should require them to act outside their narrow considerations.”

Hezbollah deputy Secretary-General Sheikh Na’im Qasem stated: “we will not give in to the IMF“, as Hezbollah is very suspicious of the goals behind the IMF assistance offered by the Lebanon Fund.

Some encouragement arises, as the foreign currency reserves of the Lebanese Central Bank are currently valued at $ 19 billion. This figure allows Lebanon at this stage not to sink into the sea of ​​debt and allows the Lebanese state some economic leeway.

Following a meeting between Hezbollah representatives, Amal and the Free National Party (President-Michel Aun’s party), it was decided to support the non-payment of the public debt policy. The parties expressed their agreement that the government should not bear any of the burden to elude the current crisis, as the crisis in their eyes, derived primarily from the banks financial incompetent actions, given that the banks sold their bonds to foreign entities.

In addition to international sanctions, Hezbollah will find it even more difficult to manage financially as external factors are involved in the Lebanese economy system. Such intervention is likely to bring firm financial measures and regulatory processes. This control could harm Hezbollah’s independent and parallel economy it controls within the Lebanese economy and under the governments patronage, hence Hezbollah’s main concern of such external intervention.

The economic problem in Lebanon is a catalyst that repeatedly raises the rest of the country’s problems on to the surface, the ethnic manifestation system in the government, the multiplicity of security mechanisms and Hezbollah’s dominance as an organization subject to Iran’s will within the country’s systems.

Lebanon today is “torn” between its traditional western character and the Shiite ideological direction Hezbollah is striving to. To date, it is very difficult to assess whether the Lebanese economic problem is solvable. Months of protests are a product of the ongoing economic problem.

In our estimation, there will not be a solution in the years to come as long as there is no radical change in Lebanese government culture.

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Tal Beeri

Tal Beeri

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