Okay Lebanon, Now What?

I am blessed with knowing some very smart people in Lebanon, from various backgrounds, who hold the ideal of Lebanon and its possibilities close to their hearts. So in following events on social media and articles in various outlets, I hope to find how Lebanese-Americans and our friends can support the peoples’ struggles for dignity, a functioning government that is transparent, and an inclusive society that respects individual human and civil rights. It has not been easy as there are many issues deeply rooted in the dysfunctional political character of the Lebanese government since the Taif Agreement.

Recent articles by Ziad El Sayegh and Sami Atallah help frame the moods of the demonstrators, while other sources including Nasser Yassin from AUB and Bassel Salloukh from LAU have added clarity to both the demands of the demonstrators and possible solutions.

Identifying the core concern of the demonstrators is a starting point. As the President of ATFL, Ed Gabriel noted in a recent blog, the basic issues are the economy and quality of life, and these are the central issues because of the corruption, mismanagement, and cronyism of those who have exploited Lebanon in its downward spiral of increased national debt, bloated and inefficient bureaucracy, and lack of transparency in its administration. This is at the heart of the chants made by the demonstrators, that all of them, the current leadership, must go since they are responsible for the crises in Lebanon.

As one of my sources said, “I think the most important thing now is to stabilize the economic/financial situation,” which means moving aggressively to achieve the proposed zero deficit budget and ending “the kind of corruption inside and outside the state.” Tied to this is the reality that this may not be enough to convince people that the government is serious about changing. For example, Prime Minister Hariri presented more than 30 steps adopted this week by the government to reduce expenditures, relieve some of the tax pressures on the people, and move ahead with projects to clean up the infrastructure.

Commentators have questioned how the government able to do this in 72 hours when they couldn’t even agree on the 2019 budget in seven months. So the pressure from the people continues as they have little faith in promises from politicians who have consistently let down the people. One suggestion is to replace the leadership with “new, clean, independent figures, to send the kind of signals to the public that things can’t continue like this. The political economic elite over-stretched, assuming people can be oppressed forever in the name of sectarianism.”

One of the observations often mentioned is that the demonstrators come from all walks of life, cutting across sectarian identities and regions, in a common message of “enough.” One friend said, “It is such a historic and hopeful moment for Lebanon. People have beautifully, clearly, and loudly spoke about their demands for change – for genuine reforms that all the Lebanese (beyond the sectarian divide) aspire to achieve. It is equally true that people have valid feeling of apprehension of what could happen next. The challenge, coupled with anxiety, is how to move from the euphoria of street politics to negotiating workable solutions, knowing how immune the sectarian system is to change.”

This has been the nub of the challenge, how to move forward against the entrenched interests who have led Lebanon for the past 50 years. Some point to the option of having the military step in to support a transition to new leadership through a reformed and transparent election process. Another told me that “the main recommendation would be to push for a new independent provisional cabinet (from professionals, clean judges etc.) with real powers to work on a 2-year plan to enact three priorities:

  • Genuine reform drive (including fighting corruption) and quick measures to save the economy;

  • New general election law that can ensure better representation, which in turn would elect new president and select a new Prime Minister; and,

  • Start real dialogue on the future of Hezbollah.

The source added, “I know these may sound like wishful thinking; but these demands have been voiced (in different ways) by people on the streets. Today is the right moment to capitalize on the protest movement for real change while stressing on need to be prepared for pushing back the push back.”

When I asked what the US government should be doing, the answer came quickly. “The US government should state that it supports this revolution in Lebanon against corruption and calls the current government to adhere to democracy and not practice violence against demonstrators.” This would include supporting the formation of a small cabinet of technocrats who can devise, with existing power centers, a road map for reform with an oversight body and timeline to implement it. As importantly is the need to encourage the development of an internal mechanism in the country “to hold accountable all those who misused the public wealth for their own interests and sue them and regain the stolen money.”

These are the words of Lebanese who are not looking to emigrate. These are people who deeply care about their country and are fighting for its future as a democratic, free, and open society. As Lebanese-Americans who care about Lebanon, we too have a stake in their fight. Each of us, in our own way, should find a way to move Lebanon forward and remake it into a country that will once again be an example of a just and progressive society.

Does the Lebanese Government Have the ‘Courage’ to Make the Right Decisions?

On my visit to Lebanon several weeks before the current demonstrations began, two Lebanese leaders, one a minister and the other a parliamentarian, described the mood of the Lebanese people and noted the lack of courage by Lebanese government officials, one admitting, “We do not have the courage to address our problems.”

That comment now appears prescient as Lebanon’s crisis is about more than Syrian refugees, who with existing Palestinian refugees and other immigrants, make up at least one-third of the population. This presence adds to the existing pressure on government services, unemployment and underemployment, infrastructure overload, environmental damage, and increased crime. And the government has no national strategy to effectively addresses these concerns.

Nearly daily, Israel threatens to intervene militarily in Lebanon against the Iranian-backed Hezbollah. Israeli jets and drones conduct illegal overflights of Lebanon, while Hezbollah threatens to wreak havoc inside Israel. One miscalculation by either side could lead to a catastrophic war. One almost occurred a month ago when Israel sent drones to the Hezbollah stronghold in the southern suburbs of Beirut; another in December, when Israel first discovered tunnels dug by Hezbollah from Lebanon into Israel.

However, the Israeli military threat and the refugee crisis are not taking up most of the attention of the Lebanese these days. It’s their economy and people from all over the country and across all sectarian groups are demonstrating in the streets.

Incredible! A literal ocean of demonstrators in #Beirut as 1.5 million people (1/4 of #Lebanon’s entire population) hit the streets today to protest corruption and economic inequality.

The Lebanese are fed up with this atrocious system. #LebanonProtests pic.twitter.com/63qGpKsJxE

— Sarah Abdallah (@sahouraxo) October 20, 2019

They have many reasons to demonstrate. Economic growth could be in negative territory in 2019; bond agencies have rated Lebanese bonds as “deep junk;” unemployment and poverty are on the rise; and the government has little in the way of resources and management to address the country’s socio-economic problems. The Central Bank of Lebanon has enacted monetary policies to maintain the value of the Lebanese pound to prevent economic collapse, rampant inflation, and wage instability. But this cannot last without sound fiscal measures taken by the government. Adding to these pressures are the decrease of remittances and deposits from the Lebanese diaspora and the decline in significant deposits and foreign direct investment from Gulf countries, principally the UAE and Saudi Arabia, who have blocked their investments to Lebanon due to the Iranian influence on Hezbollah. In addition, the Syrian war has also cut off Lebanon from its only overland trade routes.

The U.S. has made its position clear by taking on Hezbollah by taking tough steps to weaken Hezbollah and Iran, sanctioning individuals and two banks in Lebanon, most recently, Jammal Trust. This affected 85,000 mostly innocent Shiite depositors who face challenges in retrieving and transferring their accounts. This is perceived by some as the U.S. targeting Lebanon’s Shiite community. The banking sector makes up 14% of the GDP of the country, and protecting this industry is a must if Lebanon is to recover.

There is a new U.S. Assistant Secretary of State for Near East Affairs and there will soon be a new U.S. Ambassador to Lebanon. These changes lead Lebanese officials to wonder if ongoing U.S. support will continue, especially regarding its negotiations on the Lebanon-Israel land and maritime borders, putting into question the future potential of natural gas development.

#Lebanon ??: this is #Beirut today after two days of protests.

This movement is cutting through sectarian divides, Sunnis, Shia and Christians all join together to call for a better Lebanon pic.twitter.com/3xaLge3oVd

— Thomas van Linge (@ThomasVLinge) October 19, 2019

“It’s the perfect storm,” said one Lebanese official. Another remarked, “The U.S. wants us to be more aggressive with Hezbollah and in our economic policies. We have little room to maneuver,” adding, “We need breathing space…This is not our problem alone.” It is a problem involving outside actors much larger than Lebanon: Syria, Russia, Iran, Israel, Saudi Arabia, Turkey, and the United States. They have as much an effect on Lebanon as Lebanon’s internal actors.

As the U.S. has reduced its involvement in the Middle East, Russia sees an opportunity to fill the void and exert leadership. Russia claims to be a more dependable alternative, promising Lebanon and its neighbors increased trade, military equipment, and conflict mediation regarding Lebanon’s refugee repatriation. So far, Russia has shown little action and questionable capability, but this propaganda works at a time of U.S. regional retreat.

Despite Lebanon’s fears of abandonment, and in response to the legitimate concerns of the demonstrators, the U.S. can be helpful in many ways. For example, emphasizing its commitment to the sovereignty, independence, and stability of Lebanon, providing significant funding in direct military and foreign assistance, and continuing visits by senior diplomatic and military officials.

Time is running out however for the Lebanese government to show the courage to make the tough decisions necessary to right its economy. Thousands of Lebanese are demonstrating in the streets, expressing their frustration with a government that is failing to take decisive action on the economy.

The government has the power to make the needed changes, address its economic woes, and take control of its destiny. It has been offered $11 billion in soft loans and grants by international donors to rebuild infrastructure, kick-start the economy, and privatize government-run entities.

The international community however expects Lebanon to reduce its budget and public workforce, create transparent oversight mechanisms, and institute anti-corruption policies that will allow this beautiful country to reclaim its historic role as an economic model in the Middle East. The demonstrators are showing their concern and commitment to a more free, open, transparent, and inclusive Lebanon…will the politicians take up the challenge? All it takes is a little courage.


Wondering Aloud, Can It Get Any Worse? Oh Yes!

In this blog, rather than focus on Lebanon’s economic and political issues and others in the region, I’m offering my analysis of current events. These are my personal opinions. I am concerned that as Lebanon’s leaders make statements that exacerbate differences with no apparent purpose but to churn up constituencies to harden their positions, larger threats to Lebanon’s independence and integrity are mounting. The Lebanese should not underestimate the threats to the country’s survival, maybe the most serious since the end of the civil war.

The most important issue facing Lebanon is to question if its leaders will summon the political will to implement reforms desperately needed to reshape the country’s government or will Lebanon move inevitably towards becoming a failed or fragile state? While one would like to avoid such stark terms, this is the reality that must be faced. The definition of a failed state is “a state whose political or economic system has become so weak that the government is no longer in control.” And a fragile state is defined as “a developing country characterized by weak state capacity or weak state legitimacy leaving citizens vulnerable to a range of shocks.”

Inside Lebanon, citizens from all sides would argue against either category being applied to Lebanon, while at the same time expressing disdain for the political system, politicians, political parties, government services, corruption, environmental degradation, etc. etc. Their reflexive response is not puzzling considering that the many Lebanese believe that their country is exceptional.

However, categorizing Lebanon in harsh terms without repercussions illustrates the challenge of labeling a phenomenon so that it can be categorized and analyzed ad nauseam without effective change. If the manipulation of the state in political and security affairs by Hezbollah does not indicate a lack of government control, and inconclusive implementation of critically needed reforms show a weak state capacity, it is only because of the trade-off that keeps the current leadership in place.

Domestically, while proud of their country’s capacity for survival, Lebanese families are resigned to the reality that they must pay high tariffs to have their children educated, that many of their children will work abroad to earn a suitable living, that costs for health care, sanitation, and basic power and telecommunications continue to rise despite miserable service, and that every government action of any consequence is decided less on its merits than on its benefits to the powers that be.

Lebanon hosts refugees, Palestinian and Syrian among others, and the social and psychological costs are borne by local communities that have to endure erosion of their quality of life. This is hardly the fault of the refugees, who really would like to go home no matter what some politicians claim. Of those who returned home, a significant proportion has returned to Lebanon, usually illegally, because their communities, their homes, their livelihoods, and security have been devastated by the war.

On the regional stage, the current offensive against the Kurds should make the Lebanese think twice about their alliances. The US and Russia, as great powers, have little regard, given their current leadership, for propping up little friends like Lebanon when they have larger interests to pursue such as Turkey and Iran. On the other hand, maybe President Trump is a strategic genius who believes that Russia will implode if it tries to establish its unilateral influence in the Middle East. Maybe he thinks this will happen to China in Asia, but alas, it’s not that simple.

The current US administration is neither clever, nor strategic, nor visionary in plotting US policy. Self-interest and disengagement seem to be the watchwords of actions that hardly reflect a consensus of US policy makers if the current atmosphere is any indicator. While self-interest is useful, especially in addressing domestic audiences, elevating it to a virtue is overreach and hubris. And we have plenty of that in both our domestic and foreign affairs.

Some of the indicators about Lebanon, noted in the weekly analysis by the Economic & Analysis Department of Byblos Bank, make it difficult to imagine if Lebanon can ever reclaim its role as a leader in the region. In the Rule of Law Indicator, for example, which measures government effectiveness, regulatory quality, control of corruption, political stability and absence of violence, and voice and accountability, Lebanon places in the lower half of Arab countries, following Mauritania and ahead of Algeria, Djibouti, Sudan, Iraq, Libya, Yemen, and Syria. While Lebanon has recently improved its score since 2016’s restart of the government, its score is still almost half of what it was in 2004 (44% vs 23.6%).

In terms of global competitiveness, Lebanon is 10th among the 14 Arab countries, polling ahead of only Algeria, Egypt, Mauritania, and Yemen. Even 41.4% of Lebanon’s business leaders consider unemployment or underemployment to be the major risk that their business will face in the next 10 years, followed by the failure of national governance, a fiscal crisis, failure of critical infrastructure, and the state collapse or crisis, before other economic concerns.

There are few options available for Lebanon at this point – economic reforms that have a political impact are on the table demanding action. Without a rigorous and penetrating shakeup of the status quo, Lebanon faces a crisis that is exacerbated by regional pressures. However, those forces cannot continue to be an excuse for little or no action by Lebanese leaders. As Pogo famously remarked, “We have met the enemy, and they are us.” It will properly be labeled a miracle if Lebanon can achieve even a modest recovery of its economic and political wellness in the coming years. Let us pray…

Trying to Understand the Puzzle that is Lebanon’s Forward Thinking

Okay, I get it…democracy is messy, but it seems to me that Lebanon has taken this notion to great heights (depths) in charting its course forward. Many of its leaders seem to shred the social contract with its citizens by engaging in competitions to ensure that their constituencies, not the country, come first. What is of immediate importance is to shore up Lebanon’s declining status as a result of its repeated omissions in terms of reforms, living up to its commitments under various agreements and resolutions, and allowing its beauty to be marred by complacency and laissez-faire approach to development.

In addition to serious efforts to codify and implement CEDRE and other reforms, there needs to be a change in attitude from exploiting to enabling and empowering government institutions. At the heart of the resistance to change are a politician and their business allies whose ambitions are only constrained by what other power brokers will tolerate. This starts with the partnerships at the top that mask relationships that are many times at odds with the national identity of Lebanon. This was made clear by Sami Gemayel, of the Kataeb Party, who is unable to explain why the coalition between uber-nationalist President General Michel Aoun’s and Hezbollah, whose leader has declared that he follows the leadership of Iran, is in Lebanon’s national interest.

In a recent interview, he said, “The problem in Lebanon is that officials know what must be done, but they are not lifting a finger. We have also lost friends who used to stand by our side after some parties insulted and threatened them. The irony is that they want to challenge and threaten the world and then ask it for help and money.” While the isolation with the Gulf Arabs is easing, tensions with long-time partners in the West are rising. “We have reached the edge of the abyss, and no one has yet to slam on the brakes,” he warned. “They speak of reform, but instead of implementing them, they are now blaming each other.”

While one can attribute his dismay to many causes, his general critique about how unstable external relations reinforce domestic power wrangling, is relevant because many in Lebanon are profiting from the current state of institutional weakness, from the economy and judiciary, to corruption and deal-making. As a recent study from The Lebanese Center for Policy Studies (LCPS) pointed out, “Despite the economic challenges, political actors still benefit excessively from the status quo.” For example, the 2019 “austerity budget” “Only formally curbs the budget deficit. It leaves untouched the structural conditions that gave rise to the economic deterioration in the first place, such as a regressive tax that exacerbates existing inequalities and crowds out much needed public investments.” Proposed cutbacks never made it through Parliament, and “Expenditure targets are achieved by simply deferring the bill of investment projects to the upcoming years.”

And it is the lower and middle classes that will pay the costs of reforms in the short term as public sectors jobs are cut back and taxes are increased. Reforms are tied to CEDRE funding that are primarily for capital-intensive and infrastructure projects which create jobs initially but taper off in the medium and long term. Under any scenario, Lebanon’s survival is at stake in the coming months and it will take more than speeches and resolutions for the future to brighten, for all Lebanese.

There is no better example of incoherent policies than the confusion surrounding the exchange rate of the Lebanese pound to dollars which appeared to be in short supply. Details are in this story. Suffice it to say, Lebanon has been able to maintain the current exchange rate through the Central Bank buying government debt and paying high interest rates to incentivize people to deposit dollars in the country. “A side effect of this was that local banks could make money through favorable interest rates and buying up government debt as opposed to investing in productive industries.”

While the crisis passed quickly, thanks to the leadership of the Central Bank and assurances from political leaders, it marked again the fragile confidence in government policies. The Executive Magazine wrote that whether experts blamed “financial/corruption, fiscal/monetary, or regional/geopolitical angles, what these narratives on the reasons for the sudden crisis have notably in common is that their explanations come in tandem with dire warnings that more, worse, and far longer pain is likely to visit upon the people if no true and radical change is accomplished very soon.”

Its short list of needed changes mention that “Lebanon is in need of an economic resuscitation whose dimensions need to incorporate efforts of constructing, restoring, reforming, rebuilding, and reinventing crucial pillars of public trust, governmental credibility, and economic strength.”

This was reinforced by the recent decision by Moody’s, the international rating agency, to review Lebanon’s progress, if any, on reform. “A decision to downgrade the country’s rating would take place if the review was to conclude that Lebanon’s fiscal, liquidity, bank deposit, and balance of payments dynamics will likely continue to weaken, potentially destabilizing the currency peg and/or increasing the risk of an imminent debt rescheduling or other liability management exercise that may constitute a default.”

Moody’s also mentioned the need to adopt and implement the CEDRE reforms and the failure to attract support from other countries, such as the Arab Gulf States, will be critical factors. “We all know the government needs to take measures and cannot rely indefinitely on the banking sector and this is another reminder for the authorities to take in-depth and credible reform measures that would generate a positive shock in the financial market and private sector,” said Nassib Ghobril, chief economist of Byblos Bank. “It’s a question of confidence … they need to take measures to boost confidence.”