Lebanon has officially entered a void as the outgoing president Michel Aoun left Baabda palace on the 30th of October. Already the country is operating on a caretaker government. According to the law, when a new parliament is elected, the present government is considered resigned, and the parliament appoints a new cabinet. This time, however, no agreement was reached between the prime minister designate Najib Mikati and the outgoing president on the distribution of the portfolios. Hence, the country has a caretaker government with limited powers and no president.
If you were to travel to Beirut, the impression is one of normalcy: the shops are open, the restaurants are full. Yet, behind the aspect of business as usual, the country is deeply dysfunctional. 79 percent of prison inmates have not been indicted because the courts are not operational, and the state is facing a problem of providing them with food and basic health services. The state cannot supply electricity. The country is running on private generators using expensive fuel that the state is no longer able to subsidize. And these are only some examples of the extent to which things have deteriorated.
On the other hand, the IMF is ready to offer Lebanon 3 billion USD – with significant strings attached. No longer will the international community subsidize a corrupt political class. In Lebanon this will only perpetuate the problems. Serious reforms are required. Predictably, the political elite is resisting those reforms as they will remove their grip on power, and they will expose their corruption and their embezzlement of public funds. Hence, the country is at a standstill. The skilled workforce has left or is seeking to leave the country. In the meantime 80% of the people are living below the poverty line. Poverty is driving people to risk their lives trying to illegally emigrate to Europe. Tripoli in the north has become a hub for illegal emigration. Despite the fatal accident that led 40 people to lose their lives last April, illegal emigration is on the rise. And the ghost of migrants flooding Europe is putting the scare into the continent that is already struggling with the Ukraine conflict and can no longer accommodate new waves of refugees. The archaic and corrupt political class in Lebanon is again playing on that fear and looking to blackmail the international community. Within Lebanon itself, they target the Syrian refugee community as a way to divert public anger. Refugees are blamed for the country’s calamities and are, at the same time, used to extort funds from donors.
All of the monies are disappearing down a black hole. Inflation is a major problem. Lebanon has a major economic problem which is the lack of a productive economy. The disastrous monetary policies implemented since the nineties which consisted of pegging the Lebanese pound to the dollar have led to an overvalued currency. This has killed the productive sector. It was cheaper to import goods than to produce them and cheaper to hire foreign labor than to employ Lebanese. This is why, in Lebanon, high unemployment co-existed with a large foreign workforce. This also killed any incentive for investment as it was more lucrative to put money in “safe” treasury bills and earn high interest rather than invest in a commercial project and bear the business risk. Even now, with the devaluation of the currency and the cheap and relatively skilled labor available, there is no boost for the productive sector because of the lack of financing. The banking sector is highly dysfunctional hence is it unable to offer any financing to any productive projects. People cannot even retrieve their own savings from banks.
The financial crisis Lebanon has been witnessing did not arise with the start of the protests; it has been in the making since the nineties. Basically, the central bank which is supposed to be in charge of monetary policy, i.e., the quantity of currency in circulation, took control of the fiscal policy. In short, the central bank has been financing the government. Due to corruption, mismanagement and incompetence, the state suffered from a bloated bureaucracy, inflated public contracts and meager revenues. Hence the country was witnessing a high budget deficit which the central bank financed by issuing debt. The debt was bought by banks which transferred it to their depositors. Therefore, the buck stopped with the average depositor, namely the Lebanese citizen. Hence the Lebanese put their money in the banks, the banks put the money in the central bank, and the central bank gave the money to the government that squandered it. The debt was serviced by issuing more debt which amounted to a Ponzi scheme. At a certain point this became unsustainable. The country defaulted on its debt and the Lebanese were unable to retrieve their deposits that no longer existed.
In addition to the economic and financial dilemmas, Lebanon’s main problem is a governance problem. Lebanon does not have state institutions, it has fiefdoms. The confessional system which is a neo feudal system led to a power sharing agreement among the different denominations. Hence, each party leader, in the name of his denomination takes over a government department and treats it as his fief. He uses it to hire supporters and enrich himself by awarding his companies or his acolytes’ lucrative contracts. This is the root cause of Lebanon’s problem. Today, the system has reached its limit and is no longer viable. The fictitious banking sector that was financing the corrupt political regime is no longer functional and the international community is no longer willing to bail them out.
In this grim scenario, there is another complication which is Hezbollah. The militia is not, as once the former Secretary of State Condoleezza Rice described it as a state within the state. It is now the “chief” of the state, it controls the state. Hence, it has an interest in maintaining the current system. Hezbollah is the major status quo power. Any solution for Lebanon has to go either through a clash or a deal with the group. In the current situation, a clash could be deadly for Lebanon and could lead to a massive wave of refugees.
Today, the only way to save the country is to have an accountable government of technocrats that conducts the IMF reforms. The formula of power sharing where each party names his candidate for a ministerial position does not work anymore. After the eruption of the protests in 2019, neither the government of Hassan Diab nor the government of Najib Mikati was able to conduct any reforms because of this power sharing formula. Since then, the situation has only been going downhill. The starting point for a solution would be with the presidential elections. Here there is a role for the international community to pressure the political class to elect a president.
At this time, the international community should be bold and push for the most suitable candidate: the commander of the Lebanese Armed Forces. The LAF is the only functional institution today. The commander has demonstrated professionalism and responsibility in the darkest hours the country is witnessing. However, pushing for him as president can be counterproductive as the political elite led by Hezbollah might accept him as a president while they choose a corrupt prime minister or a puppet they can manipulate. Hence the deal should be for a president, a prime minister and a cabinet of technocrats. Also, it is very important that the president is held accountable for the reforms. In return, he chooses his prime minister with whom he picks cabinet members.
The main problem in Lebanon is the lack of accountability where the different parties are together in the government, bound by the power sharing agreement. Hence no one takes responsibility for anything, and everyone blames the “other,” resulting in permanent deadlock. The international community has an important tool to pressure the political elite: sanctions. The starting point would be to freeze their assets abroad as a pressure point to push them to agree to the proposition. This should be coupled with a threat of sanctions. However, even if this works with the corrupt and archaic political elite, we will still have a major complication: Hezbollah. The group, listed as a terrorist entity by the US and major European countries, would resist any change to the current system which provides them with maximum control and minimum accountability. Here, France which has a line of communication with Hezbollah, can use its leverage to push them to accept this deal. France would need to provide the group with certain guarantees in return for their exit from the government and for them to take their hand off the country’s critical facilities such as the crossings, port and the airport. The question of disarmament of the group may have to be postponed in the name of critical reforms that might rescue Lebanon from the abyss. This might not be an optimal solution but it is the only possible solution at the moment that will prevent the country from an armed clash and will introduce the needed reforms. And at the end, politics is the art of the possible.
Dania Koleilat Khatib is a Middle East expert, president of the Research Center for Cooperation and Peace Building, a Lebanon-based Track II
