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Month: July 2019

Government Stand-off may end this week. Exploring US-Russian Interests in Syria – Possible Collaboration

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The stalemate that has frozen cabinet meetings – and any movement on actions to proceed with the government’s legislative agenda – may end this week according to the Prime Minister’s office. The tension erupted when there was a shoot-off between rival Druze militias which resulted in two deaths and others wounded. The shooting involved the retinue of Minister Saleh al-Gharib, an ally of Druze politician Talal Arslan who is close to Damascus and enjoys the backing of the heavily armed Shiite Hezbollah. Arslan holds the party of Druze leader Walid Jumblatt responsible for the bloodshed. The holdup centers on which body will carry out the investigation and possible prosecution.

A senior official told Reuters the paralysis has held up discussions of the 2020 budget, a vital part of efforts to plug gaping holes in the public finances and convince investors the state is finally serious about long-delayed reforms. “Frankly, we can’t stay like this for much longer,” said the official, who spoke on condition of anonymity because it was his personal assessment of a sensitive situation. The official said that two credit ratings agencies are due to issue reports on Lebanon in the coming weeks and while a prompt start to cabinet’s budget discussions could reflect positively, continued tension may have the opposite impact. So once again Lebanon finds itself captive of paralyzing sectarian divides.

An interesting article in Al-Monitor broached the possibility of common goals emerging between the US and Russia in Syria and if and how collaboration can move forward. The premise of the piece is that despite several significant differences, both countries have interests that may align as the civil war draws down and issues of reconstruction and the refugees top the agenda. While it doesn’t signal a change in the Russian objective to replace the US as the dominant regional influence, it reinforces the perspective that Russia and Iran are actually in competition in Syria, and elsewhere.

For example, the author, a well-known Russian analyst, posits that Russia shares US concerns with Iran’s plans to create an overland route to the Mediterranean and Hezbollah, via Iraq and Syria, and considers this as complicating Russia’s presence in the Syrian ports. He says that Russia is “Torpedoing Tehran’s attempts to develop economic projects, as well as to build or control the critical infrastructure in coastal Syria, allegedly with an eye on supporting Hezbollah, and under the de facto air cover of local Russian military facilities,” which benefits Iran but creates risk for Russian interests.

He says that Russia has been “confronting Tehran’s efforts to convert its military presence on the ground in central Syria, both directly or through loyal militias, into long-term economic dominance across the country, demanding exclusive conditions for Hezbollah and Islamic Revolutionary Guard Corps-linked companies to participate in Syria’s economic reconstruction.” Since Russia sees reconstruction as its compensation for saving the Assad regime, it will not look favorably on Iran undercutting Russian influence on the reconstruction process.

Given Russia’s close contacts with Netanyahu’s Israel, it also is concerned that Iran’s aggressive military posture through Hezbollah and empowering local militias, will endanger Russian personnel and assets if “unanticipated” conflicts arise. In this regard, Russia is “Opposing Iran’s tactics to keep a military presence in southern Syria, adjacent to the Israeli-occupied Golan Heights.”

Finally, given Iran’s competing long-term political, security, and commercial interests in Syria, Russia does not want to give it a key role in its initiatives, such as the Nur Sultan meetings that will enable Iran to “influence the political process in Syria, especially the future constitutional reform under the UN umbrella, via egging on Damascus to stand still on possible concessions.”

While Moscow “views Iran as a strategic partner in Syria…it is anxious about Tehran’s unilateral attempts to cultivate proxies among the Syrian military and security services, as well as business and religious communities, that further fuel Russian-Iranian competition on the ground.” While this may be a marriage of convenience, greater stability in Syria may bring these conflicts and others involving Turkey into full bloom.

On a related issue, as recently as this week, Turkey reiterated its position that if it cannot agree with the US on a safe zone in Northeast Syria, it will move ahead on its own to set one up. There are several key points of disagreement including the future of Kurdish forces, the main ally of the US in the region considered a terrorist organization by Ankara. The Foreign Minister, after inconclusive talks with the US last week, and the Defense Minister on Monday, reiterated that Turkey will launch a military operation east of the Euphrates River, if there is no agreement, which would bring it in contact with US troops.

Adoption of New Budget Welcomed but Deemed Insufficient as a “Reform” Budget

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While the government can be congratulated on finally adopting a 2019 budget, the verdict from economists and analysts is unanimous: “nice first-step, now get serious on reforms for the 2020 budget.” Investors remain to be convinced that the economy is worth investing in when reforms related to regulatory transparency, combating corruption, reforming the public sector, advancing social services, cleaning up the environment, and reducing external debt servicing obligations, among others, are still outstanding. Although the Finance Minister and the Prime Minister are planning to have the 2020 budget submitted on schedule this fall as mandated by the constitution, many remain skeptical that the next round of parliamentary compromises will be forthcoming as that will pose challenges for the existing sectarian business-sharing culture.

A Reuters article noted that “Foreign reserves, while still large relative to the size of the economy, have been falling. This has led banks to launch a new bid to attract dollars by offering 14% a year to depositors willing to lock up large sums for three years – funds which the banks redeposit at the central bank for yet higher returns.” This reliance on swapping debt for foreign currency deposits is only sustainable with continued and rising inflows of foreign capital, and yet the situation In Lebanon is just the reverse, capital outflows are increasing. A related deficit is the costs of insuring Lebanon’s debt which has risen to the highest of any government in the world.

Farouk Soussa, Senior Middle East and North Africa economist with Goldman Sachs, said Lebanon’s deteriorating foreign exchange liquidity was “the real near-term pinch.” Others are concerned that reliance on a Gulf-led bailout may not be adequate given the Gulf’s concern with Iran’s ally Hezbollah in Lebanon that further destabilizes the region. AUB Professor Hilal Khashan said that “What really matters is not what [the Saudi and Lebanese officials] say in public. It’s what they do in private. The meeting [with the former Lebanese premiers] ended well, but the Saudis always make pledges of support. These statements have to materialize and I don’t think whatever may have come out of this meeting will be implemented.”

According to tradingeconomics.com, in 2018, Lebanon’s deficit was equal to 11.20% of the government’s total budget and over 150% of the country’s debt in terms of Gross Domestic Product, neither of which will be addressed significantly by the new budget. In fact, the country’s GDP has not risen since the late 1980s, casting further doubt on a strong economic surge.

Asharq Al-Awsat posted an article recounting that a number of financial sources have warned against a slowdown in the process of restoring financial stability in Lebanon.” Lebanon simply has very little time in which to cobble together band aids that have worked in the past but are no longer adequate. This compounds the weaknesses throughout both production and consumer areas of the economy, which are impacting the banking and financial sectors. Some $3.3 billion of balance of payments deficits have been recorded for the first four months of 2019.

According to a recent report by Standard & Poor’s, “curbing the deficit is essential to reduce Lebanon’s high debt levels. This positive step, however, may not be sufficient to restore the confidence of investors and non-resident depositors, bearing in mind that the implementation of the procedures will begin in the second half of 2019,” with the adoption of the new budget, if implemented aggressively.

It is small wonder that an article in The New Yorker article was titled, “Why Lebanon’s People Are Turning on Their Politicians,” highlighting that “According to the Beirut-based research consultancy firm Information International, 85% of Lebanese citizens don’t trust their politicians.” Adoption of the budget, with its tax increases on the lower and middle class, may bring about further civil unrest after the summer doldrums.

It listed the common litany of concerns: Lebanon is the third-most indebted country in the world; 40% of its annual government revenue goes toward servicing debt; people fear devaluation of the lira – Lebanon’s currency; and rating agencies remain unconvinced that the new budget will stop the country’s scraping along.

Sami Nader, a financial and political analyst and the director of the Beirut-based Levant Institute for Strategic Affairs, reflected in the article that “Lebanon’s ruling élites appear to be betting that European powers do not want to see the country’s economy collapse because it could result in a new wave of Syrian migrants heading toward them. They think that the world will be on its knees begging us to take whatever we want but in exchange we will keep the refugees,” he said. “It’s not like that. No one is begging us.”

It will be clearer by the end of the year, when the 2020 budget should be presented to the Parliament, if Lebanon’s leaders have the will to restrict their habits of doing business and empower the government to move ahead with reforms that engender confidence and further investment in Lebanon’s future. After all, even if CEDRE monies begin to flow by that time, the projects to be funded will require an additional $60-70 billion of investment from other sources to be realized. But the private sector will be hard to persuade without the implementation of real reforms.

https://www.moroccoworldnews.com/2019/07/277443/zuhair-murad-morocco-collection/

Lebanon: Beware the Bear

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There are those in Lebanon who believe that Russia is a friend that needs to be cultivated, hence the sweetheart deal on the oil storage facilities in Tripoli. There are high hopes that Russian companies will invest in Lebanon as a prelude to reconstruction contracts in Syria, and Russian companies want to make use of Lebanese contacts to open opportunities in West Africa. Lebanese fans point to the participation of Novatek, Russia’s second-largest gas company, in the first offshore gas lease as proof of their interest in Lebanon.

As an analysis in Al-Monitor pointed out, “Although the United States maintains an important degree of diplomatic clout in Lebanese energy matters, Russian economic investments in the sector have far outpaced those of the Americans, and Russian officials and business leaders have expressed their desire to take further steps to cement their roles as key players while the United States continues to lag behind.”

Various senior Lebanese officials continue to visit Moscow, which is pressing Lebanon for some type of security agreement that until now is on hold. Recent meetings in Lebanon confirmed that several government leaders hold the view that Russia is in the neighborhood and can’t be ignored; it is important to talk with them and they have shown their willingness to invest in Lebanon while no US companies are showing interest in the offshore leases.

To some politicians and others, a key point is the belief that the Russian government will intervene with Syria to ensure the expedited return of the refugees. Nothing has come out of either the Astana meetings or other Russian initiatives that offers support for this. In any case, it may be wishful thinking according to another key security official that Russia will be able to influence Syria on conforming to international conditions for the safe and voluntary return of its refugees. Syria wants direct negotiations on the many refugee issues, while the US and international community are holding back until a political consensus on a way forward is reached.

The US is increasingly seen as too focused on countering Iran to consider other priorities that Lebanon has for its needs. As the article further noted, when Secretary of State Pompeo visited Lebanon, one of his messages was that Lebanon should not embrace Russian initiatives. “Yet, whatever plans Pompeo may have had to counter Russia in Lebanon, they seem to have had little effect. Lebanese leaders have doubled down on working with Russian companies in their country’s expanding oil and gas sector in the weeks since Pompeo’s visit.”

Russia has also offered to mediate the maritime border between Syria and Lebanon, as the dispute directly affects its interests in the area. With the potential for a major role in the hydrocarbon sector in the eastern Mediterranean, it makes sense that Russia protects its potential investments there. And it is using its companies as a driver for its interests. It is clear that “Novatek is fulfilling the request of the Russian government, which actively supports the company and is working to transform its expanding military and political influence in the region into efficient business projects that are highly important due to European and American sanctions. Novatek itself is under US sanctions.” This presents a conundrum that may impact Lebanon-US relations in the future.

Lebanon has been invited to the next round of the Astana (now Nur-Sultan) meetings in late July and, while the refugees will be on the top of its agenda, Russia’s economic interests will not be far behind. As Deputy Foreign Minister Sergey Vershinin noted, “Syria’s neighbors need to be engaged in the talks to promote political settlement, resolve the refugee problem and assist in postwar reconstruction.” The proactive posture displayed by Russia has excited more than a few in the region who assume that it will be able to use its clout to convince Assad that there are concrete benefits to changing policies that impact the refugees and reconstruction, and that this may create openings to solve some of its thorniest challenges, including the survival of the Assad regime.

The US, primarily concerned with Israel’s security and dominance, and leaving the UN to lead the international community’s efforts, has not yet crafted a strategic posture that will enable it to play a more determining role in the region, if it chooses to do so.

Lebanese are Tired of Hosting Syrian Refugees

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Edward Gabriel

Edward Gabriel is a former US Ambassador to Morocco and currently President of the American Task Force for Lebanon.

Also available in العربية

July 16, 2019

A delegation of the American Task Force for Lebanon (ATFL) just returned from a trip to Lebanon, where it met with over a hundred representatives of government, business, civil society, and academia while also visiting a Syrian refugee settlement in the Bekaa Valley. During the trip, I and other members of the delegation were struck not only by the deteriorating humanitarian crisis in Lebanon but also by how many Lebanese blame the strains of their country on the significant number of Syrian refugees who remain in the country. Without the partnership of the United States, Lebanon, and the international community, we fear these suffering refugees and host communities will become even bigger losers in a larger regional conflict.

Among those with whom we discussed the issue, we found a prevalent belief in a number of factual errors regarding the refugee situation, which can lead to increasing tension in the country. One fact is indisputable: Lebanon’s Syrian refugees, displaced persons, and Palestinian refugees from Syria—numbering more than 1.5 million in total—are the equivalent of the entire population of Canada and most of Mexico flowing into the United States within a short period of time. By comparison, the United States resettled 62 Syrian refugees last year.

Some say the refugees are getting so much aid money that they want to stay in Lebanon. This is not true; most Syrian refugees survive on less than 3 dollars a day. UNHCR reported to us that the average refugee family pays more to lease land for their temporary shelters from local land owners than they receive from UNHCR. One refugee mother we visited said, “The Lebanese were welcoming at first, but now they don’t want us here anymore. I want to go back.” A UNHCR survey confirms this sentiment: 89 percent of the refugees polled want to go back home, about 5 percent want to go to third countries, and about 5 percent give other responses. For those who want to return, their principal hesitation about going back is security, both personal and economic.

Lebanese also feel as though Syrians are taking jobs away from them since Syrians will work for less pay. According to an NGO in Lebanon that we met with, Lebanon was creating about 3,800 new jobs per year before 2011. Since the refugee crisis, Lebanon has actually created about 10,000 jobs per year, including a net increase for Lebanese teachers and other skills.

On the other hand, the Central Bank Governor said that Syrian refugees impose a direct cost of about $1 billion a year and an indirect cost of $3.5 billion on Lebanon, which is much more than the $1.1 billion received in 2018, although this does not include economic multiplier effects from donor aid.

Government security officials told us that the greatly inflated number of crimes attributed to the refugees has actually increased by less than 1 percent. Most Syrians are arrested not for petty or more serious crimes but are instead detained for not having proper paperwork. Since about 190,000 refugees who returned to Syria were not registered under UNHCR, their ‘crime’ was attempting to enter Lebanon or transit to Syria without proper documentation.

In informal discussions with UN officials, we were told the time may be ripe to create incentives in Syria to attract some refugees home. Although initially these efforts may only be marginally effective, UN officials believe Russia and European countries should discuss amnesty from military service for returning refugees with the Syrian regime, revising laws to make it easier for refugees to reclaim and rebuild their homes. It is also vital that the UNHCR have access to returned refugees inside of Syria to address their needs.

However, the UN and international donors also emphasized that significant refugee relocation from Lebanon will not occur without a political settlement that guarantees safe return and opens the door to reconstruction monies in Syria. Several American and UN diplomats added that this would not happen with Assad in power, at least for several years. In the meantime, one suggestion to handle reconstruction was to release frozen stabilization monies for projects in eastern Syria, where U.S. forces are already present to oversee reconstruction efforts.

The growing crisis in Lebanon appears unsustainable without significant intervention. It will require U.S. leadership to find solutions that not only provide aid and calls for the safe and voluntary return of the refugees, but also examine other proposals that hold the potential to ease the burden on all parties.

Among the efforts that should be on the table, the international community, including Russia and Europe—and eventually the United States—should press Syria to consider proposals that make it easier for refugees who want to voluntarily return. These refugees must have their safety guaranteed and access to international support. They must know also be assured they can return to their homes and those of military age will not face conscription.

The United States should release stabilization monies in areas of eastern Syria under its protection to rebuild there. Resettlement efforts should prioritize refugees from Lebanon who want to move to eastern Syria voluntarily.

While the international community must encourage the eventual return of refugees to Syria, international donors should also join with U.S. efforts in providing aid to Lebanon to support host communities and the refugees. Such aid should reflect the actual cost incurred by the Lebanese economy, which is strapped with burgeoning budget deficits.

At the same time, the Lebanese government should take responsibility to tamp down the increasing negative reactions by the Lebanese towards the refugees. Negative rhetoric by government leaders only fuel the anti-refugee sentiment. Government leaders instead should balance such comments with an understanding that they support the safe and voluntary return of refugees according to international standards, and in the meantime call on international donors to support programs that assist host communities and refugees in this plight.

Lebanon and the United States need to show each other there are win-win solutions that benefit all parties, and together they can work towards a fair, just, voluntary, safe, and timely resolution to this crisis.

 

 

 

Fikra Forum is an initiative of the Washington Institute for Near East Policy. The views expressed by Fikra Forum contributors are the personal views of the individual authors, and are not necessarily endorsed by the Institute, its staff, Board of Directors, or Board of Advisors.​​

In Lebanon, a new chance … or another missed opportunity?

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Following Lebanon’s parliamentary elections in May 2018, and almost nine months of negotiating, the various elected parties finally have formed a government. This comes just before the one-year anniversaries of three international conferences in which billions of dollars in aid were pledged to Lebanon for refugees and infrastructure and military support. Most of the aid was contingent upon the formation of a government passing significant reforms, which happened just as international donors were about to give up on their pledges of support.

This could spell good news for the country if it is able to take the necessary steps to maintain the support of international donors, and separately, show that the government can operate independently despite the apparent growing role of Hezbollah.

Last March, some 40 countries participated in a meeting, along with United Nations Secretary General Antonio Guterres and Lebanese Prime Minister Saad Hariri, to reaffirm their commitment of aid “in support of the stability, security, sovereignty and political independence of Lebanon.”

At the Friends of Syria donor conference in Brussels in May, donor countries pledged $4.4 billion in refugee humanitarian support to Lebanon and other neighboring countries. Most importantly, Lebanon won aid pledges exceeding $11 billion in April 2018 at a Paris CEDRE conference aimed at rallying international support for an investment program to boost its economy.

Two important actions could take advantage of these international commitments and jump-start an otherwise deteriorating Lebanese economy and debilitating growth rate. The government must show that it can manage more than $11 billion in concessionary loans and grants in a transparent manner according to international standards, and properly administer major infrastructure projects, free of corruption. Lebanon also must privatize a number of government-run businesses, such as energy and electricity. Privatizing these government responsibilities will reduce the Lebanese budget deficit by $2 billion.

Some analysts say, however, that the effort to reform government is fraught with major hurdles as the new government represents the same political factions guilty of exploiting public funds to strengthen their bases and maintain their electorates. As they say, old habits die hard.

In the newly formed government, Hezbollah has increased its responsibility by taking control of the minister of health position, a ministry with the fourth-largest public budget, which gives it the resources to bestow patronage jobs and subsidized health care benefits to constituents. The United States already has imposed sanctions on known terrorists associated with Hezbollah and could ratchet it up further, if it finds that resources or services of the ministry are supporting Hezbollah.

The U.S. Embassy in Beirut has made its position clear: “[Insisting on the Health Ministry] is yet another example of Hezbollah openly holding Lebanon’s security and prosperity hostage,” said Rachel Mikeska, a spokeswoman for the American Embassy in Lebanon. She added that the United States is “prepared to take whatever actions are necessary to protect the interests of the Lebanese people.”

Curbing the influence of Hezbollah requires deftness on the part of the Lebanese government and its supporters, such as the United States. It will require a scalpel, not a shotgun approach, since it’s in the interest of both the United States and Lebanon to control the increasing influence of Hezbollah in such a way that will not destabilize the country and will support other key U.S. interests in the region.

At the same time, the United States understands it must be careful in its approach. By strengthening Lebanese civil society and educational institutions free of Hezbollah influence — such as the two American universities of higher education, the American University of Beirut and the Lebanese American University — and remaining the major supplier of military aid to the Lebanese Armed Forces, it provides a counterbalance to Hezbollah. The United States also has tightened banking restrictions against specific Hezbollah members, but preferred not to target the organization as a whole. In doing so, it has helped to preserve the important banking sector while weeding out bad actors.

Lebanon already is in a tenuous situation, economically and politically. The U.S. tempered response thus far has avoided further destabilizing the country but achieved its anti-terrorism goals in the country.

America’s patience won’t last forever, however.  The Lebanese government must take steps to pull factions together in common cause for good governance, open reforms, security and rejection of terrorism. Hezbollah represents a minority of the Lebanese people. It is time for Lebanese citizens to refuse to tolerate the status quo. This is an opportunity, and Lebanese citizens should  expect their government to retake its historic role in the Middle East as an island of peace, tolerance and prosperity.

Edward M. Gabriel is president of the American Task Force for Lebanon and former U.S. ambassador to Morocco (1997-2001).

Lebanese youth on their country and their future; Reflecting on the economic crisis that is Lebanon

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As criticism grows among various political elites in Lebanon over rising sectarian strains that erupted recently in violence, a recent poll, the Arab Barometer, released its findings. The results are useful in developing perspectives on Lebanese society that may give indications of future responses to shifts in the political space of the country.

First, a caution: as with all polling, much depends on the way questions are phrased; the size and representation of the participants; the type of survey instrument which could be by questionnaire, face-to-face, or phone, to name the most prominent; the timing – is it before or after a critical event; and the reliability of the firm conducting the survey.

This is the fifth edition of the Arab Barometer and analysts have given it high marks in all categories so its results should be treated seriously, especially when they track other trends noted in previous surveys. Rather than go through each category, here is a summary of results in pertinent areas. The full report can be found at this link.

The economy is by far and away most mentioned as the primary challenge in the country. Some 45% put it ahead of corruption at 13% and public services at 15%. Confidence in the economy has increased since the first survey in 2006-07, from a measly 4% to a meager 14% in 2018-19 who say it is very good or good. Respondents in the Middle East North Africa (MENA) region are going in the opposite direction, however, falling from a high of 36% in 2012-14 to 23% in 2018-19.

The downward trend in looking at Lebanon’s economy continues, as only 11% believe that the economy will be much better or better in a few years, well below the regional average, which comes in at 36%. On everyone’s favorite topic, perceived corruption, 91% believe that it is a problem to a large or medium extent, down from 96% in 2010-11. At least 27% of the respondents believe that there are efforts against corruption to a large or medium extent.

What is surprising, and at odds with the Arab Youth Survey, is that only 28% of Lebanese listed their desire to emigrate as an option to deal with lack of economic opportunities. In the region, overall, 32% feel the same way. Youth age 18-29 exhibit the strongest desire to leave (35%) led by those with higher (33%) and secondary school (21%) education. The challenging reality throughout the MENA is of too few jobs for too many applicants, with various skills.

On the social front, 77% of urban and 80% of rural Lebanese agree that a woman can be a head of state; with the same percentages agreeing that men are better leaders. To complete the picture of the country’s leadership, 64% agree or strongly agree that religious leaders are as corrupt as non-religious leaders.

The results of this survey, along with others released the last two years, is that the Lebanese by and large have little confidence that the government will find a way through the current economic malaise and political jockeying. With a third of university graduates wanting to leave to find a better life, Lebanon is squandering its most important resource for attracting foreign direct investment, its qualified people.

Thanks to Deeb Keamy for pulling together the numbers for me…

In reference to the economy, my colleague Ambassador Edward Gabriel, president of ATFL, published his reflections on the economy during a recent delegation trip to Lebanon in a blog published by The Hill. His perspectives were echoed in an Asharq Al-Awsat article that provided a review of challenges to the economy. It noted that “High-level financial sources have warned against a slowdown in the process of restoring financial stability in Lebanon. The sources said that the time factor does not give the concerned authorities the margin of “luxury” that allow them to rely on the extension of public expenditure according to the “twelve-year rule” (an exception that allows one month’s payment according to the previous budget) until mid-July.

The article points out that, simultaneously, there are negative indicators in the productive (think construction and real estate) and consumer (clothing, durable goods) sectors, which is impacting and being impacted by the banking and financial sectors, hitherto the key stabilizers in the economy. Both articles express concern with the very low growth rate, the continued deficit in the balance of payments, and the passing of almost seven months without an approved budget. It is not clear how much longer the government can control the growing fiscal dilemma. As the Asharq Al-Awsat points out, “the public debt, which amounted to around $87 billion, is equivalent to over 155 percent of the GDP – one of the highest global rates.”

The article goes on: “According to a recent report by Standard & Poor’s, curbing the deficit is essential to reduce Lebanon’s high debt levels. This positive step, however, may not be sufficient to restore the confidence of investors and non-resident depositors, bearing in mind that the implementation of the procedures will begin in the second half of 2019.”

Similar concerns have been expressed by Fitch International and JP Morgan that the government is taking too long to move ahead with desperately needed reforms. While the Central Bank will continue “to protect the exchange rate of the Lebanese pound and to secure debt service financing in the short term,” serious fiscal reform is required.

The Lebanese economy faces a critical turning point

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It is an understatement to say that the Lebanese are preoccupied with the state of their economy. Yet during a recent visit to the country, the American Task Force for Lebanon did not find a consensus within the government on the tough actions needed to prevent the Lebanese economy from collapse.

Lebanon barely recorded a 1 percent rate of growth this past year. It has the fourth worst debt to GDP ratio in the world and is at the bottom of the rankings for infrastructure development. Its deficit is running at about $5 billion annually, which will push the debt to GDP ratio to 200% in a few years. Also, Lebanon’s credit rating is declining and this is eroding confidence in attracting foreign investment.

The Central Bank has engineered a monetary policy that many experts believe has bought the country two more years of time to enact a strong fiscal policy before the economy hits bottom. One can only hope that the government understands this and acts quickly.

The Lebanese economy is plagued by two problems: growing public deficits, in large part because of the financial drain of government-run businesses, and a lack of government transparency. Many believe the two issues are interrelated and can be fixed if the government recognizes it no longer can put personal interests ahead of the country’s interests and must find consensus.

International donors have stepped forward, encouraging Lebanon to deal with its dilemma by offering up to $11 billion in soft loans and grants (called the CEDRE) for infrastructure projects such as electricity, roads, information highways and privatization of other government businesses such as the ports, airports and telecommunications. This support, however, is dependent on the government reforming the way it does business by creating more transparency through an open tender process, independent regulatory sector agencies, and disengaging itself from government-run businesses.

The electricity sector is a prime example of how privatization can help bring down the deficit and significantly reduce corruption. Subsidizing the sector costs the government $1.5 billion a year, roughly a quarter of the deficit. Privatizing electricity generation would be a good beginning if carried out transparently and according to international standards. With responsible electricity reform, the government is proposing a budget with a 7.6 percent deficit, as opposed to an 11.4 percent deficit last year.

The devil is in the details. We found that the Lebanese policy community at large, and the government in particular, may not fully understand the specifics of various projects and surely lack agreement on what to do. Some want to leave part of the decision-making of newly privatized companies with the government. Others want CEDRE loans to go directly to the private sector and not the government, to build and operate the privatized facilities; the government would establish independent regulatory authorities to regulate operations and pricing.

Still others say the loans should be given without strings attached, meaning without a demand for reforms. They say that “we need time” to find consensus and, with only a two-year window, no real change can happen in this short period. Saving Lebanon from default should come before reforms, they argue.

Several government officials said the CEDRE money originally was meant to help Syrian refugees by creating construction jobs. Their logic is that the international donors, therefore, would have no choice but to provide funding, regardless of reforms, as long as nearly 1 million refugees remain.

One official with whom we met said, “You can’t clean a house with a dirty mop,” suggesting that they were trying to change the very people who are benefitting from the old order of doing business. Another official opined on who would blink first, the World Bank or the Lebanese? Many Lebanese politicians are banking on the former.

Is there a middle ground? Can increments of money be allocated based upon certain reform markers being met within certain timeframes? Who will blink first? Maybe it’s time for the international community, especially donors, the U.S. and France, to come to a clear understanding with their Lebanese partners about the detailed aspects of donor expectations as well as understanding the tenuous state of the Lebanese economy.

The U.S. Embassy also should continue, and expedite, its dialogues with key decision-makers to clarify donor expectations and facilitate stakeholder consensus around common U.S.-Lebanon objectives on revitalizing the economy. Time is of the essence.

Edward M. Gabriel is president of the American Task Force for Lebanon and former U.S. ambassador to Morocco (1997-2001).

So what’s New Lebanon? Where are you Headed?

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Our recent ATFL delegation to Lebanon was a chance to listen and assess in four areas: the economy/national budget, the Syrian refugees, the southern border, and regional politics. What we learned is both helpful and challenging to our mission to better inform and educate Americans about the value of the US-Lebanon relationship.

We started with a detailed briefing at the US Embassy, which only increased our appreciation of the professionalism and dedication of Ambassador Elizabeth Richard and her staff. They work hard to master the granularity of what’s going on in Lebanon as few others are able to do. After two weeks of meetings and site visits, we are even more aware of their efforts to have balanced insights into a very tough neighborhood and very difficult issues.

My conclusions and opinions are my own, not official ATFL positions. They are informed by both my American training and my deep affection for Lebanon, despite its many obstacles to empowering citizenship and economic growth as a result of its skewed sectarian decision-making apparatus. I am particularly sensitive to the historical role that the various communities have played in Lebanon but rather than excuse excesses or faults, I am more interested in encouraging a “Lebanese” mindset rather that any of the current parochial views.

Having first visited Lebanon in 1972, I experienced the “good old days” as well as the decline of civil order during the civil war and the subsequent power restructuring that left the government and much of society to reckon with a new order based on clientelism. The corroding effect over time of this patronage system has robbed the country of an accountable civil service and government bureaucracy that act for Lebanon rather than its various sects. And this weakness extends to those parts of the private sector that depend on the government for their survival.

Regardless of this macro-level critique, it is also very clear that Lebanon functions in spite of its political culture. Business is done, students are educated, intellectual initiatives are welcome, and solid relationships exist among Lebanese regardless of sect, all of which makes the current situation even more disheartening.

Follow the Money is one principle for gaining insights into how the economy could function more effectively. The key is transparency, from government tenders to promotions, regulations, and the judiciary, there are few straight lines in Lebanese transactions. This is no longer humorous. Lebanon is in trouble. The value of its bonds has fallen again in the Eurobond market, its public debt debacle is well known, and the avoidance of discipline by the political leadership, despite their public posturing, is frustrating international donors who want the Lebanese to help themselves by not just adopting but enacting reforms.

For the first time, Lebanese we spoke with put the economy as their top concern, topping the hot button issue of the Syrian refugees. Despite the breathing space on the lira as a result of the Central Bank’s decisive defense of the currency’s value, without rigorous and thorough fiscal reforms, Lebanon faces a collapse that will of course hurt the Lebanese people much more than their leaders. The private sector and professionals in the government know quite clearly what must be done, what reforms must be implemented, and what practices need to be revised to revitalize the economy, but all of the solutions come at a cost to the existing order of cake-cutting that is the base of government economic policy.

In my upcoming blogs, I will reflect in depth on the four topics we discussed in Lebanon with a view towards recommendations for US and international policies that can enable Lebanon to choose between a past that has hobbled economic growth and political openness and a future that is inclusive, dynamic, and draws on the best Lebanon has to offer – its people and their wisdom.

UNIFIL and the Lebanese Army, a worthwhile US investment

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Recently, there has been concern over whether U.S. assistance for foreign militaries and UN global peacekeeping missions is worthwhile. I just returned from the Israeli-Lebanese border, where I saw first-hand the work of the Lebanese Armed Forces (LAF) and its partner, the United Nations Interim Force in Lebanon (UNIFIL). This is a positive story that the Washington policy community should be made aware of.

My colleagues and I at the American Task Force for Lebanon (ATFL) visited the LAF southern headquarters, the UNIFIL headquarters, and the Blue Line, established in 2000, separating Israel and Lebanon. We were encouraged by what we saw.

UNIFIL was established in 1978, under UN Security Council Resolution 425, to confirm the withdrawal of Israeli forces from Lebanon. Following the 2006 Israel-Hezbollah conflict, the UN adjusted its mandate to facilitate the entry of the LAF to south Lebanon and monitor the cessation of hostilities.

Each August the UN Security Council reviews and votes to renew the mandate of UNIFIL. Last year, the Council encouraged Lebanon to deploy a model regiment and an offshore patrol vessel in UNIFIL’s area of operations and accelerate its deployments in the area. Evidence today shows that UNIFIL and LAF are fulfilling this mission with great success.

Lebanon and Israel do not have a peace agreement and often refer to each other as the “enemy.” However, it is scarcely known that Israeli and Lebanese generals have been meeting in a building on the Blue Line about every six weeks for more than a dozen years, discussing infractions and disagreements on the demarcation of the Blue Line. UNIFIL chairs and facilitates the discussion. They and UN representatives make up two sides of a four-sided table with Israeli and Lebanese generals facing each other.

During their meetings over the past decade the generals have identified 13 areas on the Blue Line called “reservations,” which indicate disagreements on precisely where the Blue Line should be drawn when examined on an enlarged, more detailed map. Although the generals are not empowered to negotiate on behalf of their countries, this ongoing dialogue demonstrates what is possible if the two governments one day negotiate a final settlement of their border. These are tangible confidence-building discussions.

We learned that Israeli and Lebanese experts believe that only two areas of the 13 reservations remain “difficult.” One could be settled by exchanges of secure heights overlooking an Israeli settlement for more land to Lebanon. The other contentious reservation is the Mediterranean Sea marker (commonly referred to as the Hof Line), which some believe is an issue that requires a separate negotiation.

In our meetings we learned that UNIFIL conducts an average of 460 operations per day, including 75 with the LAF, to monitor infractions and enable the LAF to extend its operations in the south. We were informed that the LAF is capably carrying out its mandate, limiting infractions from Lebanon to a few minor incidents each month, mostly shepherds crossing the Blue Line. The Israelis violate Lebanese airspace with more than 100 illegal monthly overflights of planes and drones as well as illegal incursions over the Blue Line.

Although there have been some points of contention, such as the Israelis deciding to build a wall and fence on two disputed areas without a resolution, and the Lebanese not making a public statement confirming tunnels discovered on the Israeli side of the Blue Line, a historic breakthrough could still happen.

Following Secretary of State Mike Pompeo’s visit to Lebanon in March, Special Envoy David Satterfield has been shuttling between Lebanon and Israel to engage the parties in a political dialogue to settle either the land or maritime border, or both. It would be historic to achieve even a partial settlement of the border dispute.

The work of LAF and UNIFIL is proving to be worthwhile and, if negotiations begin in earnest in the coming weeks, they should take a large part of the credit, given their great work in interacting with Israeli generals and keeping peace on the border for nearly 13 years. The excellent performance by the UN and LAF should be acknowledged by the U.S. policy community as well.

 

Ambassador Edward M. Gabriel is the former U.S. Ambassador to the Kingdom of Morocco and President and CEO of the American Task Force on Lebanon. The views expressed in this article are his own. 

Photo by Muhammed Ali Akman/Anadolu Agency/Getty Images