The Need for an International Development Fund for Lebanon

The International Monetary Fund (IMF), World Bank (WB), European Union (EU), France, and the United States are all trying to help Lebanon out of the economic and political abyss in which it has fallen. The problem is that most well-meaning donors are merely trying to address the country’s financial mismanagement, although the problems run much deeper. A fundamentally flawed system has somehow survived 15 years of bloody civil war, 18 years of Israeli occupation, and ongoing war and civil strife in neighboring Syria—only to fall victim to serious corruption and squabbling over who is responsible for the Beirut port explosion disaster in August 2020. The current paralysis has been decades in the making and will likely take decades more to resolve. Since neither revolution nor a return to a mandate by a foreign occupation are practical—or even thinkable—options, a resort to a bold internationally supported plan is a potential way out. Specifically, an international development fund with an independent management board could present hopeful possibilities.

The current paralysis in Lebanon has been decades in the making and will likely take decades more to resolve.

UN Secretary General António Guterres visited Lebanon in December to shed international light on the Lebanese problem and try to urge Lebanese leaders to do right by their increasingly impoverished population. However, Guterres could not even prod the Lebanese cabinet to meet, given its deadlock over the investigation into the port explosion and how to deal with Judge Tarek Bitar’s handling of the investigation. This paralysis over what should be a national priority measure is a clear example of the total lack of respect for state institutions (which, at any rate, have failed since at least 2015 to provide the most basic services). Indeed, the population continues to suffer from serious electricity cuts as well as the lack of safe drinking water and effective public sanitation, to say nothing of the total failure of the banking system since 2019.

Framing the Problem

By now, the collapse of the Lebanese economy has become undeniable. Shortages across the board in medicine, fuel, and most imported goods and services, coupled with a 90 percent devaluation of the Lebanese pound, have placed a full 80 percent of the population below the poverty line. The country’s political elites and factions share the blame for squandering their country’s wealth and plundering foreign currency reserves to the point that the productivity of industries, businesses, and services has dwindled, driving the prices of what remains beyond the reach of the majority of citizens.

The old adage applies here: “If you find yourself in a hole, stop digging!” Lebanon’s banking disaster and bankruptcy are the responsibility, first and foremost, of those currently managing its finances. This would include the currently stalemated government and the governor of the central bank, Riad Salame, who remains in office despite the many questions swarming about his role in the crisis. It thus should be assumed that any funds provided to help Lebanon would not be funneled through either the government or the central bank.

The country’s political elites and factions share the blame for squandering their country’s wealth and plundering foreign currency reserves.

An internationally donated and managed fund should have the following central objectives: to build an entirely new electricity grid for the country, one that would ban the massive and corrupt network of private generator owners and thus avert an ecological disaster; and to implement a national plan for public sanitation and trash disposal on a technically and environmentally sound basis. Along with those basic developmental needs, a social net must be established to cover the basic humanitarian needs of roughly 80 percent of the population. At the same time, a new implementing mechanism for monitoring corruption and imposing immediate punitive measures against violators, large and small, must be instituted. The fund would have what could be called a “Lebanon Development Board” that should include some independent Lebanese experts with Lebanese partners, mainly from well established civil society organizations.

The World Bank is currently working on 14 projects in Lebanon for a total cost of $1.72 billion. The projects are mainly in infrastructure, social protection, health, and education but also include work in the financial sector and other economic activities. More commitment from the international institution is likely once the country’s political elites implement much needed reforms.

IMF policy recommendations for Lebanon include “Pursuing a comprehensive restructuring of the financial sector” and “Tackling head-on the fundamental problem of weak governance.” The disbursement, however, of a proposed $860 million special drawing rights (SDRs) fund is contingent on “a new government that has the will and the mandate to implement the necessary comprehensive reforms.” There, of course, is the rub: in order to solve Lebanon’s most fundamental problem (the lack of good governance), the IMF proposes that Lebanon resolve it in advance of any assistance.

Lebanon has been the recipient of generous donations via bilateral aid since the end of the civil war (1975-1990). Those funds, however, have been erratic since most donors—the United States and its western and regional allies—have calibrated their donations with an eye to influencing Lebanon’s internal power dynamics. Saudi aid, for example, currently in hiatus due to the political repercussions of Hezbollah’s role in the country, has gone (and presumably continues to go) to specific allies in the country and through unofficial channels. On the flip side of political support, Iran’s contributions—which go largely to Lebanese Hezbollah—also do not appear in international tallies of foreign aid to Lebanon. Politically motivated aid, typical throughout the Middle East, suffers the same malaise in poverty-stricken countries, Yemen and Lebanon currently being the most vivid examples. Such funds go to corrupt leaders seeking a power advantage over their opponents, rather than address the welfare of the general public. Even when such aid is allocated through government channels, it ends up being siphoned off through sectarian patronage, the corruption of leaders, and the inadequacy of government institutions.

Politically motivated aid, typical throughout the Middle East, suffers the same malaise in poverty-stricken countries, Yemen and Lebanon currently being the most vivid examples.

Lebanon was again the recipient of large sums of aid after the 2006 war between Hezbollah and Israel. As before, much of the aid for funding for the period 2006–2011—from the United States, United Kingdom, EU, Saudi Arabia, and Iran—was motivated by political, religious, and economic reasons. While UN agencies at least tried to coordinate among themselves the mostly humanitarian aid, nothing of the kind was even attempted between donor countries. It has been the bane of foreign assistance to third world countries that the funds are disbursed according to the needs and interests of the donor countries, the often corrupt bureaucracies of international organizations, and the corruption of the leaders in recipient countries. For Washington, foreign aid has to be aligned with foreign policy interests, defined primarily in the past two decades in terms of the global war on terror, and before that, as part of the cold war with the former Soviet Union. For regional Middle Eastern powers, the competition for influence between Iran and Saudi Arabia tends to be paramount in determining which side they favor in the recipient country. In the past, the US Senate Committee on Foreign Relations had alluded to pitfalls of Saudi aid to Yemen and Lebanon, as follows: “While such cash transfers may help meet short-term needs, over the long term the lack of transparency surrounding them is unhealthy. Moreover, they may enable the perpetuation of poor governance practices, such as patronage.”

It is rare indeed for international donors to prioritize the goal of helping a country stay afloat, in order to avoid state failure, since foreign aid has to be justified in terms of their own national interests. Multinational funds are not anathema to World Bank and UN agency collaboration; the intent is to include assistance in the recovery and reconstruction of failing economies, refugee resilience, and renewing the social contract. Despite the preferred focus on economic assistance, the stated goals lend themselves to delving into thorny social and political matters as well.

The Proposal for an International Development Fund

An international fund that pools and targets foreign aid and is managed by an independent board of directors is a rational solution when compared to the prevailing fragmentation and politicization of aid for Lebanon. To be sure, it would be an ambitious, complicated, and difficult project to undertake, especially politically. Donor countries do not historically like to hand off their funds for some other entity to control and disburse. The political will must be there before the mechanism could be set in place. The motivation can be humanitarian in nature, elicited by the dire situation—such as humanitarian disaster, as is the case in Yemen, and impending state failure with serious social, economic, and security consequences, as is the case in Lebanon. The established need, however, will not lead to a concerted effort to help unless big powers, or an international organization like the United Nations, suggest it and exert leadership and influence to make it happen. The mechanism is available via the UN, World Bank, and IMF, if suggested by the UN General Assembly, the secretary-general, and/or a unified UN Security Council.

Donor countries do not historically like to hand off their funds for some other entity to control and disburse. The political will must be there before the mechanism could be set in place.

Trust funds established under the UN umbrella can be very limited in scope and are always dependent on donations by member states on a voluntary basis. In some cases where the needs are broad and extensive, such as the Afghanistan case in the wake of the departure of US and international forces, humanitarian and development needs are urgent and likely long term. It is too soon to tell if the needed funds will be allocated for Lebanon, and if an ambitious long-term plan will be put in place.

The example of Iraq is not an ideal one, given the highly controversial context and manner in which it was implemented. An international Development Fund for Iraq was initially established in 2003 via UN Security Council resolution 1483 and placed in the hands of the Coalition Provisional Authority (CPA)—thus controversial from the beginning as a presumed tool of foreign control (it is noteworthy that Iraqis and US critics often referred to the CPA as the occupation authority instead of the provisional authority). More specifically, criticism focused on the fact that Iraqi oil production funds were used, and that the Iraqis’ needs for basic services were never fully addressed; electricity shortages, for example, were not adequately resolved while Iraq was under occupation.

The trust fund morphed into the International Reconstruction Fund and Facility for Iraq in 2010 under which 17 donors contributed close to $500 billion for projects meant to help the Iraqi government strengthen its institutional capacity and deliver basic services to its people. However, eight years of occupation and nearly ten years of international aid afterward have not served to satisfy the needs and expectations of the Iraqi population, as the 2019 riots showed. Foreign interference and poor governance continue to plague the political and economic development of the country.

As the cases of Iraq and Afghanistan show, political considerations can always rear their ugly heads and ruin the best of intentions when there are efforts to help nations in distress. Politics, however, is the name of the game currently and historically in Lebanon: the country has been at the mercy of regional and international players, each using their patronage to influence one side or the other in the ongoing domestic feudal and sectarian strife. An effort to pool resources and follow one overall plan for meeting urgent needs and long term development could only be an improvement on the current situation. To date, no international leader of any stature has emerged to champion such a course.

The Biden Administration, given its stated goal to transform US foreign policy in order to “restore moral leadership” and put diplomacy ahead of the use of force, should be motivated to demonstrate this new direction in Lebanon. The United States could be the instigator of a fund to pool international resources and implement a bold plan for the economic and political revival of a country in desperate need, one that no longer wants to be exploited by regional and international struggles for power.