Lebanon Risks Becoming Irrelevant

For the third time in the span of a year, Lebanese politicians are trying to go back to the proverbial drawing board. On October 22nd, President Michel Aoun appointed former Prime Minister Saad Hariri as premier-designate after a razor-thin majority of parliamentarians (65 out of a total of 128) chose him for the post. But almost three weeks after the appointment, there are no indications that Hariri is making much progress in his mission. In fact, given the many pitfalls of inter-factional relations, no one really knows how long it will take him to form a new cabinet.

Officially, Lebanon today remains in the hands of the octogenarian Aoun and a caretaker cabinet headed by Prime Minister Hassan Diab, who tendered his resignation following the August 4th explosion at the Port of Beirut that further deepened the country’s political, economic, and social woes. On September 26, another designated Sunni Muslim personality, Mustafa Adib, abandoned his effort to form a replacement government after the powerful Shia Hezbollah and Amal Movement insisted on holding onto the Ministry of Finance and naming potential ministers for others.

It is not an exaggeration to state that only Herculean efforts will help Hariri overcome the difficulties he is expected to face. Addressing them effectively with an eye on long-term solutions will go a long way to preventing Lebanon from falling into utter chaos and instability. This would also help to halt Lebanon’s slide into irrelevance in future Middle Eastern economic relations that, at a minimum, require stable political conditions and strong institutions. Such a fate would be a direct outcome of the ongoing normalization efforts between the United Arab Emirates and Bahrain, on the one hand, and Israel, on the other, that already include Sudan and may soon add more Gulf countries.

A Closed Circle of Despair

The economic situation of most Lebanese tells a story of further deterioration in basic living standards. Following a default on debt last March, the International Monetary Fund (IMF) estimated in April that the country’s gross domestic product for 2020 would decline by 12 percent from 2019, during which Lebanon’s GDP had dropped 6.5 percent from 2018. In October, the IMF put the projected decline in real GDP at 25 percent from 2019 and inflation at 85 percent. The Lebanese pound continues to struggle in relation to the US dollar––decreasing in value by 80 percent over the last year––while “poverty and unemployment rates have reached record levels.” There is ominous talk about a dangerous depletion in Central Bank reserves that support the importation of necessities, a great deal of which are subsidized by the government. The bank holds only about $1.8 billion in such reserves that may last about six months—but only if cuts are made in government support of some items—after which the country will be in dire straits.

In October, the IMF put the projected decline in real GDP at 25 percent from 2019 and inflation at 85 percent. The Lebanese pound continues to struggle in relation to the US dollar––decreasing in value by 80 percent over the last year.

On the other hand, Lebanon’s high indebtedness (150 percent of GDP) has practically closed the door on outside funding of government operations for reconstruction, following the devastation of the August 4th port explosion and the continuing efforts to repair the Lebanese economy. International lending institutions are insisting on the formation of a government that could tackle the scourge of corruption and malfeasance before they offer any assistance. Eighty-five percent of the country’s grain needs used to be imported through the Beirut port and now, no fully suitable alternative is available. American sanctions on Hezbollah have also affected other sectors of the economy and society, threatening to turn the country into another Venezuela where hyperinflation, poverty, and unemployment threaten everyday life. These and other difficult conditions have resulted in the rise of a new trend of migration across the Mediterranean aboard boats smuggling people to Cyprus, a development that could intensify with time if the economic situation in Lebanon is not adequately rectified.

An Arab Opinion Index recently published by the Doha-based Arab Center for Research and Policy Studies showed that only 4 percent of Lebanese evaluated their economic situation as good while 28 percent said it was bad and 68 percent said it was very bad (for a total of 96 percent in the overall “bad” category). The poll also showed that 91 percent of Lebanese are dissatisfied with the political situation in the country and only 22 percent are satisfied with the parliament. Surprisingly, however, while 67 percent of Lebanese respondents approved of October 2019 protests against the government, only 20 percent reported that they participated in them. In fact, the Lebanese protest movement of October 2019 has become a mere shadow of itself a little over a year after it began with hundreds of thousands of demonstrators; this is most likely a sign of apathy and lost hope in change and an example of the power and resilience of the old political arrangement.

The gradual collapse in the economy is accompanied by a dangerous slide in efforts to fight the novel coronavirus epidemic. As of November 10th, Lebanon reported 95,355 cases of infection––more than 2,000 per day––and 732 deaths. The health care system is on the verge of collapse as the government appears less and less capable of providing financial support to hospitals and clinics, with the August 4th explosion in Beirut exacerbating the coronavirus crisis. Scores of towns were put under lockdown as schools were forced to implement a combination of in-person and online learning because of poor Wi-Fi connectivity and cuts in electricity. Indeed, it is difficult to see how a practically bankrupt government can provide the necessary tools for a good education in urban or rural areas as parents continue to struggle to provide basic necessities for their families.

The health care system is on the verge of collapse as the government appears less and less capable of providing financial support to hospitals and clinics, with the August 4th explosion in Beirut exacerbating the coronavirus crisis.

Accompanying this dismal socioeconomic picture is a nonfunctional political environment run by self-interested politicians and political factions. Following the ill-fated Mustafa Adib appointment to form a government and after saying for months that he was not interested in the premiership, Saad Hariri offered himself as a candidate and declared that he “will not close the door on the only hope left for Lebanon to stem this collapse.” But as the Lebanese face of a French initiative to help pull Lebanon back from the abyss, Hariri knows that his appointment may be nothing but a fool’s errand that could simply fail and completely and irredeemably kill his political career and future.

After all, Hariri resigned in October 2019 because he failed to address the legitimate grievances of hundreds of thousands of demonstrators, and he continues to represent some of the same corrupt interests in the economy and the state that protesters decried. Second, the slim majority of parliamentarians who named him for the post may not be enough to carry him through the formation of a government of nonpartisan experts because the competition over the portfolios will be intense. Lebanon’s putative ministers, nonpartisan or otherwise, will still be chosen according to the same sectarian basis that is controlled by confessional bosses who are the beneficiaries from the corrupt political system. Third, this majority is unlikely to be sufficient to help Hariri stay in office––should he succeed in forming the government––as his detractors such as Hezbollah and the Free Patriotic Movement (FPM) erect obstacles or oppose whatever reform agenda he might propose. This has come into sharp relief with the Trump Administration’s latest sanctions on Aoun’s son-in-law and leader of the FPM, Gebran Basil, for alleged corruption and graft (the Treasury Department announcement did not include his close association with Hezbollah as a reason); this development could very well derail any hope for a Hariri government anytime soon.

Perhaps inescapable for Hariri is the fact that Hezbollah has become unenthusiastic about President Emmanuel Macron’s wish to manage Lebanon’s affairs, which the Party of God would like to influence without impediments. There actually have been overt expressions of disagreement between Macron and the party. When Mustafa Adib––the man proposed by Macron to form Lebanon’s government––abandoned his effort in late September, the French president criticized the country’s leaders but laid special blame on Hezbollah, demanding that the party should decide whether it wants to be a military force or play a positive role in politics. In response, Hezbollah’s leader Hassan Nasrallah rejected Macron’s “patronizing” attitude and accused him of wanting to be Lebanon’s ruler—obviously reminding everyone of France’s mandate over the country in the early part of the twentieth century.

To be sure, Hariri’s task of forming a new government will continue to be difficult, making the other problems in the country almost impossible to resolve.

To be sure, Hariri’s task of forming a new government will continue to be difficult, making the other problems in the country almost impossible to resolve. His woes are mostly domestic and related to the corruption and impasse that characterize the sectarian political system, but they also are related to Lebanon’s regional environment. Much talk in Lebanon today focuses on the impact of the US presidential election on Hezbollah and, by extension, Iran, with analysts venturing to say that former Vice President Joe Biden’s win bodes well for US-Iran relations. Developments in Syria are also impactful as supporters of the Syrian regime––almost entirely opposed to Hariri––are keen on securing the regime’s interests in Lebanon. Ongoing indirect talks with Israel regarding maritime borders add a high degree of uncertainty and sensitivity to an already tense political environment in the country. All this unfolds while Hariri does not appear to have the full and important backing of Saudi Arabia while the kingdom embarks on new ventures in its own strategic regional landscape.

The Threat of Economic Irrelevance

While official Lebanon remains in an impasse on vital domestic issues, the regional environment is slowly eroding the eastern Mediterranean country’s geographic advantage. For decades, Lebanon served as a gateway for the Arab hinterland through which countries as far away as the Arabian Gulf acquired American and European goods. But its port now lies in ruin after having been among the largest and busiest in the region. Maritime facilities on the Gulf coast have also become world class venues for international trade. In addition, Beirut banks were a center of business banking for decades; now, they can barely operate after having mysteriously lost some $100 billion of their assets, following the government’s large-scale borrowing, and are incapable of moving whatever capital they still have because of new regulations on capital control. The entrepreneurship that has sustained Lebanese society for decades has receded as hope for change in the country fades and government recovery programs fail to pick up steam.

Beirut banks were a center of business banking for decades; now, they can barely operate after having mysteriously lost some $100 billion of their assets, following the government’s large-scale borrowing, and are incapable of moving whatever capital they still have because of new regulations on capital control.

Importantly, the recent normalization agreements with Israel allow the joining of Gulf capital, especially in the UAE, with Israeli technology, know-how, and international connections. A new port in Haifa is finding Chinese interest and its success is likely guaranteed in the Asian giant’s Belt and Road Initiative. The United States may be exercising some pressure to prevent Chinese-Israeli cooperation on that front, but the reality remains that the port in Haifa will eventually be expanded to handle a large volume of the trade that used to go through Beirut. Gulf venture capital is already finding investment partnerships with Israeli entrepreneurs and firms in the fields of defense, medicine, finance, and agriculture.

Even in the energy sector, the ongoing economic normalization between Gulf countries and Israel will likely deprive Lebanon of its significant role as one of the overland routes for Gulf oil to Europe and elsewhere. For decades, Lebanon’s Trans-Arabian Pipeline Company (Tapline) has transported Saudi Arabian oil to Europe and the eastern United States. Tapline saw its glory days after a Saudi pipeline to Haifa was shut down in the aftermath of Israel’s establishment in 1948 and the ensuing Arab boycott. (Another old pipeline from Iraq to the northern city of Tripoli still awaits reopening, presumably because of the civil war in Syria.) But looming on the horizon is an old project for rehabilitating a pipeline that connects Israel’s Eilat in the south to its Mediterranean coastal city of Ashkelon, which could easily replace the Lebanese Tapline. Such a renewed pipeline would also negatively impact Egypt because it could be considered a bypass of the Suez Canal.

What Now for Lebanon?

As the last hope among Sunni politicians, Hariri’s failure to form his putative government will likely lead to Lebanon drifting toward full-fledged chaos and instability. Stemming this scenario will require an admission on the part of Hariri and others that the old ruling bargain between sectarian politicians has finally reached its ignominious end. Moreover, with the economy continuing its downward spiral and the continued proliferation of the coronavirus, state institutions are slowly losing the sustaining power to hold the line on social cohesion and civic peace. There is no escaping the reality that Lebanon may very well be on its way to partition or civil strife, or both, and neither is a good or cost-free answer.

It is thus high time that the powers that be in Lebanon allow for a transition to a committed program of reforms. A technocratic government of experts that fights corruption and malfeasance and gains the confidence of international financial institutions is what will address the immediate social and economic concerns of the Lebanese. Such a government could then preside over the writing of a new secular electoral law according to which a new parliament representing the people can be elected. It could also oversee reform of the judiciary and the bureaucracy, on its way to creating a responsible governance apparatus that treats the Lebanese as citizens and not as subjects. Regional and international actors such as Saudi Arabia, Egypt, and others, the United States under a new Biden administration, and France and other European countries all could provide the friendly advice and material assistance to prevent what could very well become another open wound in the Middle East.

Imad K. Harb is the Director of Research and Analysis at Arab Center Washington DC. To learn more about Imad and read his previous publications click here