Shifting geopolitics offer glimmer of hope for Lebanon’s new government

من الصحافة اخترنا لكم

David Gardner – Financial Times

After squabbling for more than a year in a country with an economy in freefall, Lebanon’s political and financial clans just greenlighted a new government. Yet nothing suggests Lebanon will escape the sectarian dynasties and superannuated warlords who have plundered its treasury, confiscated the wealth of its middle classes and wielded power without responsibility for decades.

The latest government, succeeding the one that resigned in August last year after a giant stockpile of chemicals exploded in the port of Beirut, leaving central districts of the capital in shreds, is headed by Najib Mikati, a billionaire telecoms tycoon who has been premier twice before.

It is a mix of technocrats and placemen, nominated by the country’s Shia, Sunni, Christian and Druze power brokers. In this latest compromise, the puppeteers ostensibly share power without surrendering it. It follows a long tug of war that paralysed policy and governance during a crisis the World Bank rates as one of the worst economic depressions since the mid-19th century. Leading economist and former Lebanese economy minister Nasser Saidi says real GDP has declined by a cumulative 45 per cent since 2018 and 77 per cent of Lebanon’s population is below the poverty line, amid a mass exodus of doctors, engineers, teachers and consultants — the lifeblood of the formerly upper middle-income country.

 The economy was felled by a compound fiscal, financial, debt, banking, currency and balance of payments crisis. All this was well advanced before the civic uprising of October 2019, the Covid pandemic, and last August’s catastrophic port blast, one of the biggest non-nuclear explosions in history.

While almost any government appears welcome, and better than armed conflict, the forces behind it have dug Lebanon into a worse hole than even the 1975-90 civil war. This temporary pause in digging has been welcomed by the country’s foreign donors. Mikati has made the right noises about reform and the Lebanese are supposed to be grateful to the “poligarchs” that treat them as supplicants rather than citizens.

The new team does have some impressive members, such as health minister Firass Abiad, acclaimed leader of the fight against the pandemic, who has denounced Lebanon’s unequal access to healthcare. Yet even if the government is serious about reform, it has only until general elections next May to make a mark. Its ultimate patrons look focused on doing the minimum necessary to muddle through until then.

The government will go back to the IMF, which, faced with Lebanese obfuscation, last year froze talks on a standby package French-led donors were prepared to back. But the political class is banking on the IMF releasing $1.14bn in special drawing rights, reserve assets held by the fund. The outgoing caretaker government did much of the unpopular work of removing subsidies on fuel, medicines and bread. Its successor gets to issue 500,000 families with ration cards worth up to $126 a month.

Yet will it be up to getting to grips with the fiscal crisis and fixing the exchange rate? The Lebanese pound has lost 90 per cent of its value against the dollar over the past two years, yet import levies are still at the artificial rate fixed in 1997 — a huge loss of revenue that is worth even more than the smuggling by the political factions.

The government is even less likely to restructure public debt, which is estimated to be at least twice the size of the economy, since that would mean restructuring an insolvent banking system and auditing central bank losses the last government estimated at $50bn. Lebanese bankers and their political partners reaped windfall profits, which they kept lending back to the government and central bank at ever rising rates. Recommended Rachman Review podcast22 min listen Is Lebanon a failed state?

 Having lent 70 per cent of their assets to a bankrupt state — leaving a hole in the banking system the government last year calculated at $83bn — the banks still claim to be solvent. In fact, their strategy is to inflate themselves out of the crisis, forcing dollar depositors to withdraw in Lebanese pounds at a fraction of the market rate, an expropriation of Lebanese savings.

In an ideal world, what Lebanon needs is a new republic shorn of its parasitical political class. The mass protests that erupted two years ago were national and included all sects. But they have yet to come up with a structure or leadership able to challenge the traditional power brokers, who are strengthened by the exodus of Lebanon’s middle and professional classes. Lebanese unable to leave will be even more dependent on sectarian patronage, however diminished.

Yet if the politics are the same, the geopolitics may be changing somewhat. France has been lobbying for a government of independents for a year, but recently President Emmanuel Macron targeted Iran, calling the new Iranian president, Ebrahim Raisi directly. Once Tehran assented to the new government, Hizbollah, its Lebanese paramilitary proxy, followed and, as a de facto parallel state, ensured the support of its Christian allies, headed by Michel Aoun, the president who had vetoed various cabinets.

This looks to be part of a pattern after the US withdrawal from Afghanistan, and its gradual pullback from Syria and Iraq. Regional actors from Iran to Saudi Arabia are exploring de-escalation. If that progresses, countries like Lebanon, arenas of deadly competing influences, might just benefit.

الكاتب

David Gardner – Financial Times