Restoring Credibility: Is There Any Relief For Small Depositors?

Protecting the assets of small depositors has become a battle cry among those fed up with the larceny ascribed to the banks’ handling of deposits under the “financial engineering” scheme of the Central Bank. Whether coerced by the BdL (Banque du Liban – The Central Bank), as some claim, or driven by the dream of “too good to be true,” the result is the same. Lebanon has a dysfunctional banking system and it is viewed as such by much of the public.

While it is important to avoid tarnishing all of the banks with the same brush of mismanagement and greed, the results speak for themselves: an overbanked sector, with too few banks having solid foundations that will pass a rigorous audit; and a lobbying group, the ABL, that routinely opposes greater transparency and legislation conflicting with the enshrined interests of their largest depositors and shareholders, often the same people.

Based on the findings of one poll after another running up to the elections, corruption was named as the greatest issue facing Lebanon. This has also held true in rankings looking at transparency and the overall business environment. This is partially due to the obfuscation of the bureaucracies that consider contracts as a legitimate means of supporting their community. Another reason is the lack of incentives for financial actors to do what is right – whether it relates to contracting, price controls, capital controls, or just doing their jobs transparently and dutifully. Of course, the lack of an independent judiciary looms in the background as a pall over the business environment as well – not being able to have recourse to the courts without bribes or favors dampens the enthusiasm of investors and businesses to put up the capital needed to get started or expand.

If you are a bigger fish, you can always do business elsewhere, or choose to play the payoff game to suppliers, contractors, officials, and others who salivate at the prospect of your business. But what about those small depositors whose pensions and salaries were supposedly tucked away in the commercial banks? Well, until now, they are the real socio-economic losers in Lebanon. Able to withdraw only a fraction of their money and at unfavorable exchange rates, the middle and lower classes have seen their assets impounded by informal capital controls which only favored those who can move their money abroad.

So what is the government prepared to do to help the small depositors recover their funds at an exchange rate that doesn’t make their situation more intolerable? The Institute of International Finance (IIF) in their latest report on Lebanon, stated that, “the government’s clear commitment to return deposits is essential to restoring confidence in the Lebanese economy and to the credibility of the economic recovery plan.”

Various proposals to repair relations with depositors share at least three components: qualification for relief below a certain level of deposits; a unified exchange rate; and a timeframe for accessing the funds. The minimum proposed has varied from accounts with under $100,000 USD to those of under $200,000 USD. The current caretaker government is at the lower end while the upper limit is favored by international institutions and lenders who note that this represents 95% of the total number of bank accounts. The IIF also points out that this should be done over a short period of time, although others have mentioned 10-15 years as the timeframe. More progressive analysts argue that access to the accounts in the short to medium term (one to three years) is critical to restarting the economy for consumers making daily purchases and for small businesses with respect to supplies, expansion, and procurement of goods and services.

There is also sentiment for excluding from the accessible funds the accumulated interest on foreign currency deposits above comparable US interest rates – i.e. those monies paid out under the financial engineering of the Central Bank, about $12 billion from 2015-2019. There is also a proposal to factor in those Lebanese deposits converted to US dollars as the economy imploded following the October 2019 demonstrations, estimated at some $10 billion.

The bottom line is that $22 billion can be deferred until the overall system is rebalanced and credibility gets restored to the system through the adoption of the IMF package of reforms that would ultimately restructure the banking system writ large, including the BdL itself. Once a unified exchange rate is set – and at a much lower value than the current array of market rates – the BdL could then rein in its printing of the Lebanese currency to allow banks to meet the demands of depositors for their funds, in Lira.

The other option for supporting the small depositors is some combination of access to accounts and issuing government securities based on various government assets that could be held for longer periods of time (5+ years) to pay interest to the bond-holders. Variations of this option have been proposed utilizing state entities that could be leased to the private sector to operate such as electricity, telecommunications, the airport, Middle East Airlines, and other entities owned by the government but lacking sufficient oversight. Another option is packaging the government’s broad real estate holdings to produce revenues for restitution and investment; and a similar fund for potential revenues from offshore oil and gas exploitation that could be held for future generations.

The other option for supporting the small depositors is some combination of greater access to accounts and issuing government securities based on various government assets that could be held for longer periods of time (5+ years) to pay interest to the bond-holders. Variations of this option have been proposed utilizing state entities that could be leased to the private sector on an operational level such as the electricity sector, telecommunications infrastructure, the airport, Middle East Airlines, and other entities that are owned by the government but with insufficient oversight. Another option is packaging the government’s broad real estate holdings to produce revenues for restitution and investment; and a similar fund for potential revenues from offshore oil and gas exploitation that could be held for future generations.

These are not fantasies, but feasible solutions requiring political will and serious management. While Lebanon has the skills and the talent to deliver these remedies to all depositors, the commitment to make it work transparently and equitably is lacking. Moving on the issue of restoring confidence in the banking system begins with honoring those small depositors who make up the bulk of those invested in the Lebanese banking system.

Disclaimer: The views and opinions expressed in these articles are those of the author and do not necessarily reflect the position of the American Task Force on Lebanon, a non-profit, nonpartisan leadership organization of Lebanese-Americans. The above image is licensed under the Creative Commons Attribution-Share Alike 4.0 International license.

This Week In Lebanon: 07/29/2022



 

July 29, 2022

US Senior Advisor for Energy Security Expected to Return to Beirut Soon
President Aoun Reiterates Commitment to UN Resolution 1701 
Caretaker Minister: Lebanon Plans to Build New Grain Silos at Port of Beirut

US Senior Advisor for Energy Security Expected to Return to Beirut Soon
Following weeks of both anticipation and tension regarding the ongoing, US-mediated negotiations between the Lebanese and Israeli governments over the delineation of Lebanon’s Southern maritime border, the US Senior Advisor for Energy Security is expected to return to Beirut by the end of this month. [Al Arabiya English]

RESPONSE

Hochstein’s expected return and new movement by the parliament on a banking secrecy law and food aid, displays an uptick in movement by policymakers to respond to the IMF package and send signals to the international community that a new Lebanese government is serious about reform and change. To show the IMF that Lebanon is serious about reform, parliament will next need to pass a budget and capital control laws. If these laws can be passed by September, along with a Maritime border deal, Lebanon’s next challenge is the presidential election slated for November. The key challenge is whether a coalition of reform-minded parliamentarians can find a presidential candidate who represents positive change for the country.  

-ATFL President Edward M. Gabriel

President Aoun Reiterates Commitment to UN Resolution 1701 
Following yesterday’s meeting between Lebanese President Michel Aoun and UN Special Coordinator for Lebanon Joanna Wronecka, Lebanon’s head of state publicly reiterated the country’s commitment to UN Resolution 1701 as well as to the ongoing, US-mediated negotiations pertaining to its southern maritime border. [L’Orient Today]

RESPONSE
Lebanon’s leadership is under no illusions. The challenges are numerous and difficult to overcome, especially the future of the State under a new president who will face the economic disaster and political gridlock that characterizes business as usual. The choice of a president may likely involve trade-offs in naming the President, Commander in Chief of the Lebanese Armed Forces, and the Governor of the Central Bank, which may only lead to further entrenchment of the powerful political elites. Current President Aoun’s statements are a welcome thaw in the push to settle the maritime dispute and the often-delayed reckoning with his party’s political partners, the militia-party Hezbollah.

-ATFL Vice President Jean AbiNader

Caretaker Minister: Lebanon Plans to Build New Grain Silos at Port of Beirut
Based on the public remarks from Caretaker Minister of Economy and Trade, Amin Salam, Lebanon intends to build two new grain silos at the Port of Beirut. This comes amid recent concerns over Lebanon’s wheat import and storage capabilities as well as the structural integrity and imminent health risks associated with the current silos that were damaged by the August 4th, 2020 Port Explosion. [AP News]

RESPONSE

Although there is great public sentiment to create a monument from the remnants of the Beirut Port silos, politics as usual has suspended the clean up of the area, resulting in intermittent fires and continued erosion of the site. The memories of the fallen and the massive destruction of the explosions must be preserved. How to do that and build silos as proposed in three locations to rectify the damage and provide for contingencies for grain storage is a dilemma. Acting Minister of Economy and Trade, Amin Salam, has a sound plan, but before he can get started, a public reconciliation must take place honoring the site, the victims, and the survivors. 

-ATFL Vice President Jean AbiNader

Disclaimer: The views and opinions expressed are those of the author and do not necessarily reflect the position of the American Task Force on Lebanon, a non-profit, nonpartisan leadership organization of Lebanese-Americans.

Solutions In Sight? Checking Lebanon’s Pulse

As quoted in the recent edition (Issue 734) of Lebanon This Week, published by the Economic Research and Analysis Department of Byblos Bank, “Given the intensity of the compounding crises in Lebanon, it is the responsibility and duty of all political actors to work together to prioritize the national interest and to rise to the challenges facing the Lebanese people.”

This assessment in the UN Security Council report succinctly summarizes Lebanon today, torn between a continuing decline and a struggling political system fighting itself while trying to re-orient its priorities. Having mostly survived the parliamentary elections, the traditional leaders insist on a slow-go strategy when it comes to reforms. There are some breaks in the gridlock: passing reforms to the Banking Secrecy Law, adopting the World Bank loan of $150 million to support wheat purchasing and distribution, raising some public sector salaries, and the promise of a national budget are all steps in the right direction.

There is legitimate concern over whether the various amendments to the Banking Secrecy Law will be passed or not and in what form; if the conditions of the World Bank loan will be met; and if the government can find some way to raise salaries without increasing the national debt.

The global crowd-sourced database, Numbeo, ranks the cost of living in Beirut as the 12th highest in the world and the highest in the Arab world, outranking Dubai (12 vs 208 globally). This means that the costs of living in Beirut are 98% higher for its residents than most of the 510 other places in the world that were tallied. Globally, groceries in Beirut are more expensive than those even in southern California, Geneva, and New York City, but cheaper than those in Zurich, Bern, and Honolulu. Similar comparisons were made regarding rent, restaurants, and consumer goods.

Given the deficiencies in the fiscal health of the country, the untouchable gold reserves, and the soon-to-decline bump in revenues once the tourism season is over, the government only has a few options. The country may dissipate into a fragile state that can neither pay its bills nor support is people, making its state of affairs easy prey for regional actors with malign intentions. It can adopt the necessary reforms to initiate the International Monetary Fund (IMF) recovery regime. As some have advanced already, the Lebanese government can ask for UN receivership to take over the country and manage its affairs.  While the last option has some support, given the political realities, leaving Lebanon to the hands of UN administrators is a fantasy for those who either don’t believe in the capacity of the system for recovery and renewal or have their own agendas.

The United Nations and the international community are ready to assist through multiple avenues once reforms are instituted. In the UN Sustainable Development Comprehensive Framework (UNSDCF) with Lebanon, the UN has made clear that adopting reforms is key to achieving the Framework and restoring investor confidence in the country. The UN’s assistance in promoting a development-based approach to recovery is based on the assumption that key structural reforms will be implemented. The UN has also said that it would develop a joint financing strategy to implement the UNSDCF and to ensure multiyear financing for key emergency development priorities.

What’s critical in this proposal and others from international donors is the emphasis on the implementation of a multisector approach that includes reforms to the government and the fiscal system, with an emphasis on reinvigorating the private sector and restoring economic activity in order for people to regain their livelihoods, strengthening and broadening the social safety net, and restructuring public services to sustain a broader base of community services, among others.

There are many papers indicating what must be done; how and by whom are the needed ingredients. In any scenario, there will be painful adjustments, and both the Parliamentary and government leadership must step up and respond to the public’s desperation before it turns into rage as in Sri Lanka. It is obvious to the political chiefs that the painful implementation of restructuring will reduce their hegemony and capacity to continue their control over state business.

Lebanon needs to take stock of what it must do to regain its sense of purpose and direction to once again become a land of opportunity and promise. This will require adjustments and shocks to the system to end the current status of prosperity for the few and remnants of a quality of life for the rest.

Disclaimer: The views and opinions expressed in these articles are those of the author and do not necessarily reflect the position of the American Task Force on Lebanon, a non-profit, nonpartisan leadership organization of Lebanese-Americans.

This Week In Lebanon: 07/23/2022



 

July 23, 2022

ATFL in Lebanon
Opposition MPs Praise Passage of Banking Secrecy Law Out of Committee
Lebanon’s Baalbek Festival Back, Despite Economic Collapse

ATFL in Lebanon
During a trip to Lebanon this week, ATFL met with Lebanon’s leading politicians and political parties to discuss reforms necessary for unlocking assistance from the International Monetary Fund, a maritime border agreement with Israel, a response to the wheat crisis, and the timely election of Lebanon’s next president. Prominent meetings included: President Michel Aoun, Prime Minister Najib Mikati, Speaker of Parliament Nabih Berri, and General Joseph Aoun of the Lebanese Armed Forces. [ATFL Twitter

RESPONSE

In more than 20 meetings with government officials and a diverse group of parliamentarians it was stressed that Lebanon is facing a total collapse if the government stalemate continues. We were encouraged by the growing awareness that action must be taken by the parliament on implementing necessary reforms to unlock IMF assistance. There also appears to be an understanding that the maritime border dispute must be settled now in order to diffuse hostilities. If the parties miss this opportunity to conclude a deal now, there is little chance they will come together again for at least another generation. Finally, all key actors understand the immediate need to elect a president who represents the interests of the Lebanese people, without which hope for progress in Lebanon will dissipate. The officials we met with seem to seriously understand the importance of taking action now. We will see if their sense of urgency translates into action in the next six weeks as the process of electing a new president begins.

-ATFL President Edward M. Gabriel

Opposition MPs Praise Passage of Banking Secrecy Law Out of Committee
On Monday, the Parliamentary Finance and Budget Committee approved a draft law that would permit the removal of baking secrecy from certain accounts. It will now be sent to Parliament for debate and a full vote. MP Ibrahim Mneimneh, speaking on behalf of the “Forces for Change” bloc of 13 MPs ideologically aligned with the October 17 protest movements, stated that the bill is a positive first step. [L’Orient Today]

RESPONSE

Well, it’s the beginning of compliance with the staff level agreement with the International Monetary Fund (IMF). Much has yet to be done. Passage of these amendments as proposed to the Banking Secrecy Law will indicate that the new parliament is serious about cleaning up corruption and starting on the road to economic recovery. Lebanon’s leaders must not shield the guilty from accountability. The IMF is only acting on behalf of the people of Lebanon since many of its leadership seem opposed to sunshine.

-ATFL Vice President Jean AbiNader

Lebanon’s Baalbek Festival Back, Despite Economic Collapse
For the first time since 2019, Lebanon’s Baalbek festival is being held in front of a live audience. The festival has taken place since 1956 and has featured some of the leading entertainers from across the world over the years. [AP]

RESPONSE

Nothing brings back memories of Lebanon‘s cultural trendsetting than the Baalbek Festival. Often imitated but never surpassed, it set the standard for the artistic rebirth of the region. I can’t forget watching Ella Fitzgerald perform with the moon rising behind her through the columns. And now, Lebanese music and dance ensembles and films are once again reminding audiences throughout the world that the Lebanese are still around to host and showcase the finest.

-ATFL Vice President Jean AbiNader

Disclaimer: The views and opinions expressed are those of the author and do not necessarily reflect the position of the American Task Force on Lebanon, a non-profit, nonpartisan leadership organization of Lebanese-Americans.

From the Heart of Lebanon – Beit El Baraka

On a recent trip to Lebanon, I met with NGOs, civil society organizations, and individuals who are working to restore ‘the heart of Lebanon’, the rural and urban communities that host those most affected by the economic dislocation of the country. This profile features Beit el Baraka, one of the most prominent entities working on sustainable solutions. It has undertaken several sectors of activities to restore some normalcy to everyday life in Lebanon by creating opportunities for self-advancement, a sense of community and hope, especially for women and marginalized groups.

Beit el Baraka was founded by Maya Chams Ibrahimchah, a well-known philanthropist and entrepreneur, who sees enormous potential in the people of Lebanon. Their mission is, “to ensure dignity to hard working Lebanese citizens by assisting them in their struggle with the increasing cost of living. In a spirit of respect and support, we give them access to food, decent livelihood, medical services and education.” More broadly, their vision is, “a Lebanon where families can live a secure, valued, and respectable life with access to social security, education, and retirement pensions for all.”

Their programs include:

Forsa

A fundraising effort with MUREX to enable private schools to continue to operate through donations earmarked for students, teachers, and physical facilities. Over 20,000 students were impacted in the 2021-22 academic year.

Agricultural Renewal and Regeneration

Providing the means for extensive plots of organic farming in various regions of Lebanon, Beit el Baraka enables the growing and processing of ingredients for Lebanese foods, having created a supermarket for distributing imported products and locally produced items within Lebanon in addition to a product line of food products for overseas export, thus creating jobs for women and marginalized groups, and generating incomes to give hope during these times of growing poverty.

Reconstruction and Renovation

From local homes to the Sursock Museum, hundreds of homes and small businesses devastated by the Beirut Port explosion have been renovated through Beit el Baraka’s program to utilize local craftsmen and women to repair structures.

Beit Kanz

The bottom floor of the Museum is in turn made available to host Beit el Baraka’s gourmet shop and boutique that features products from local chefs and artists. The food selections are amazing and based on traditional Lebanese recipes. The boutique includes furnishings, pottery, embroidery, textiles, and other products reflecting the cultural traditions of Lebanon.

What is most important about the projects of Beit el Baraka is their emphasis on rebuilding Lebanon from the bottom-up. As noted in a recent policy brief from the Lebanese Center for Policy Studies on the role of entrepreneurial development in rural Lebanon, it is precisely these kinds of efforts that are essential to Lebanon’s recovery. “As a bottom-up approach, it can a) help reform and improve bureaucratic and regulatory frameworks to better design an efficient entrepreneurial ecosystem that encourages entrepreneurs to start new businesses. b) It can also reduce time and cost for the private sector to formalize businesses and have better access to resources and finances.”

This policy vision is in tune with Beit el Baraka’s emphasis on local initiatives scaled to achieve national outcomes. The policy brief goes on to say that, “Viable entrepreneurial cultures foster income creation and strengthen social, environmental, and economic sustainability in rural areas, as well as achieving a balanced territorial development of rural communities.”

By emphasizing improving the livelihoods of especially vulnerable people, and doing so by achieving sustainable results, Beit el Baraka is focused on making life in Lebanon more bearable, teaching people new skills, endorsing the role of women entrepreneurs, and bringing hope where there is now desperation. For more information about Beit el Baraka and how you can support its projects, visit its website here.

 

Disclaimer: The views and opinions expressed in these articles are those of the author and do not necessarily reflect the position of the American Task Force on Lebanon, a non-profit, nonpartisan leadership organization of Lebanese-Americans.

This Week In Lebanon: 07/16/2022



 

 

July 16, 2022

Hezbollah Chief Vows ‘No One’ Will Extract Gas, Oil from Maritime Zones if Lebanon Unable to Do So
Biden’s Talks With Israeli Leader Highlight a Split Over Iran
Russia Wins Fight to Limit Aid to Syrian Rebels to 6 Months

Lebanon Just Recorded The Worst Population Decline In The World

Hezbollah Chief Vows ‘No One’ Will Extract Gas, Oil from Maritime Zones if Lebanon Unable to Do So
During a televised address, Sayyed Hassan Nasrallah stated that “[i]f you don’t give us the rights that our state is asking for…then we could flip the table on everyone.” Lebanon is currently a participant in US-mediated negotiations with Israel to delineate a common maritime border which would help decide each country’s oil and gas resources. Israel has already begun operations on the Karish oil field through London-based Energean. On July 2nd, Hezbollah directed three unarmed drones towards the vessel, which Israel intercepted. Nasrallah has threatened further attacks, stating “Karish and beyond Karish.”  [Reuters]

RESPONSE

Time is running out on closing a deal on the maritime border that is fair to both sides. Each side has to give up something to get something. Israel will continue drilling in its territories regardless of threats against it. Meanwhile the Lebanese will not be drilling in any contested areas without a resolution as oil exploration companies will not sign agreements to explore until there is a final agreement to the issue. If this problem remains unresolved, Lebanon could go another 10-20 years without seeing any remuneration from its offshore territories.

-ATFL President Edward M. Gabriel

Biden’s Talks With Israeli Leader Highlight a Split Over Iran
In a joint news conference with US President Joe Biden, Israel’s caretaker prime minister Yair Lapid opened his remarks with a warning that if Iran “continue[s] to develop their nuclear program, the free world will use force.” President Biden notably did not repeat that commitment. [New York Times]

RESPONSE

Although President Biden is facing increased diplomatic resistance from the Iranians, he continues to emphasize a diplomatic way forward because he has to balance European interests on this dossier with US interests with its European counterparts to deny any strategic win for the Russians. The President should have however declared a deadline once and for all with the Iranians as part of his diplomacy approach. 

-ATFL President Edward M. Gabriel

Russia Wins Fight to Limit Aid to Syrian Rebels to 6 Months
On Tuesday Russia achieved a victory at the UN as the Security Council approved a resolution extending humanitarian aid deliveries to 4.1 million people in Syria’s northwest for six months. Last week, France, the UK, and the US supported a resolution for a yearlong extension. Most of the 15-member Security Council supported the idea, but Russia vetoed it. On Tuesday’s vote for a six month renewal, these same three countries abstained. U.S. deputy ambassador Richard Mills charged Russia with taking the “Security Council hostage” and remarked that Russia had ignored the humanitarian recommendations of both UN leadership and the international community. [AP]

RESPONSE
Hasn’t Russia created enough havoc in the lives of Syrians? First, it played a major role in Assad’s reversal of fortune in the Syrian Civil War. Secondly, it continues to veto sufficient humanitarian support for the Syrian people, claiming that direct aid through NGOs violates Syrian sovereignty. Its solution is to force renewal of a transit point for international aid and narrow it from four down to one, for a six-months period.  Russia needs to clean up its own economic and social disasters at home and give the Russian people a fair chance at decent lives.

-ATFL Vice President Jean AbiNader

Lebanon Just Recorded The Worst Population Decline In The World
According to Index Mundi, 2020 witnessed a -8.06% change in population. This ranks Lebanon as the country with the worst population loss in the world. Conversely, neighboring Syria recorded the highest increase in population (+4.64%). Many are concerned that Lebanese leaving the country are among its white collar labor force of doctors, nurses, and engineers. [The 961]

RESPONSE

Lebanon ranked 235th, at the bottom of the list of countries, with a -8.06% decline in population in 2020. The vast majority of emigres are professionals who are leaving for employment with greater economic and political stability elsewhere. This casts a pall over Lebanon’s traditional reliance on its human resources to enable it to survive and thrive. People are fed up with having to be “resilient,” and are saving that energy for reconstructing their livelihoods abroad.  I wish them well, and hope that they will continue to support those left behind so Lebanon has the human anchors to survive this tempest.

-ATFL Vice President Jean AbiNader

Disclaimer: The views and opinions expressed are those of the author and do not necessarily reflect the position of the American Task Force on Lebanon, a non-profit, nonpartisan leadership organization of Lebanese-Americans.

Has The Time Come For Lebanon To Actually Enact Decentralization?

Although there is no current decentralization framework in place, it has been a topic of debate among politicians and analysts since it was first raised in the 1990 Taif Agreement that ended the civil war.  Since that time, this topic has become a staple among political voices seeking to protect their geographic hegemony rather than a more effective allocation of powers among various governing bodies.

Other than political rhetoric and political statements that are sometimes misleading, the most promising proposal was introduced in a 2014 plan by Ziyad Baroud. As then Minister of the Interior and Municipalities in a previous Mikati government, he presented it to Parliament in 2018, where it has remained in committee ever since. If implemented, it would provide a comprehensive and actionable strategy for enhancing local capacities for self-governance.

But what does decentralization mean, in the context of Lebanon?  There are three dimensions to consider: political, administrative, and fiscal. Each includes allocating functions in varying degrees depending on the power being transferred from a central government to subnational jurisdictions. In Lebanon, the goal is to incorporate all three types into a legal framework that assigns robust autonomy from the central government to other entities.

But, noted in the above cited report by the Freidrich Naumann Foundation for Freedom, there is no judicial independence to implement steps to eliminate opportunities for corruption, set out parameters for relationships among the 1,108 Lebanese municipalities and 8 regions, and set criteria for the role of the central government. Baroud addressed this issue by creating 33 sub-districts to consolidate the functions to be allocated locally.

Rather than dissecting Baroud’s proposed legislation, which itself is subject to debate and amendment, it may be more useful to develop an understanding of why decentralization, rather than cantonization or a federal system, offers the best opportunities for Lebanon’s political integrity and economic development.

As the Foundation report mentioned, “Decentralization is not an end in itself; it is a means of ensuring greater local participation, more accountability, and a more sustainable and enduring democracy. The current Lebanese crisis has created strong momentum for revisiting decentralization, particularly as the notion gains traction in Lebanese civil society.” But note the objectives – increased citizen input, greater accountability, and strengthening democracy. Are these characteristic of the current debates about governance? In spirit, possibly, but a concrete and viable framework is essential.

A key characteristic of decentralization is to establish locally-elected legal entities with specific responsibilities that are autonomous from the national government. If it is to succeed over time, these responsibilities must include fiscal and political autonomy from the national government, not simply allocate some administrative duties to centrally-appointed bureaucrats. This has been the weakness in decentralization as it now exists in Lebanon. Power is passed to administrators who are appointed by the central government. This is not autonomy.

In another paper written by Baroud and published by the Middle East Institute (MEI), he exposes the key weakness, “For all groups, however, decentralization is not neutral: it adversely affects the “sacred” political arena by shifting the balance of power from the central to the local government and hence limits the provision of resources that are vital to politicians’ interests. This goes some way toward explaining the willful failure to implement widespread administrative decentralization as a reform more than three decades after Taif.”

The current political leaders see decentralization as a threat to their political and economic hegemony over their fiefdoms. While it is true that Prime Minister Najib Mikati created the commission that prepared the draft law in 2012, his government, then, was unable to move it through Parliament, as is likely the case now. The MEI article concludes, “This draft law — the most recent of its kind — does not pretend to be perfect and is open to additions and further development, but it undoubtedly offers an integrated platform for decentralization. The draft had to wait until 2016 before reaching the Lebanese parliament. Five [six] years later, it is still “under discussion” in an ad hoc parliamentary committee, which says a lot about the pace of reform in Lebanon.”

What is the threat of greater local participation, accountability, and governance? With a ready-made formula for moving ahead, there should be no further delay to giving the Lebanese the tools and authority they require to reconstruct their societies. As Baroud opines, “The current Lebanese crisis has created strong momentum for revisiting decentralization, particularly as the notion gains traction in Lebanese civil society.”

Building on this momentum, decentralization can be implemented efficiently in the desired form, provided the government is open to change and to a new distribution of power. Given the paucity of resources and collective leadership at the top, perhaps the time has come to enable grassroots entities to seek alternative approaches to building a strong, more resilient governing structure for Lebanon.

Decentralization is a tool to maximize citizenship. In many countries, it is change at the municipal levels that creates the ferment that leads to significant change throughout the system. As the Naumann Foundation paper argues, “Furthermore, through institutionalized participation mechanisms the civic oversight at the local level could be enhanced and lastly promotion of Public – Private Partnership in local governance, the adoption of a gender quota in the electoral law, and a sustainable fiscal and financial system should be realized.”

This structural reform is not magic; nor will it happen quickly and spontaneously. It instead starts with making the central government more transparent and effective, and elevates the judicial system as an independent and co-equal branch of government. “Otherwise,’ as an article in the National notes, “decentralization could have the contrary effect and increase corruption as well as end up being more divisive than inclusive․ If a well – functioning central government is non–existent, the risk of shifting corruption on a local level would increase…”

There are no guaranteed solutions to Lebanon’s multiple crises. What is certain is that it cannot continue to be phlegmatic in its response to the needs of the people, sclerotic in its governing institutions, and lacking in the courage to make change happen, even in the hybrid mess of sectarian politics. Letting the people begin to rule themselves within local entities that maximize their potential will pay benefits throughout the society.

 

Disclaimer: The views and opinions expressed in these articles are those of the author and do not necessarily reflect the position of the American Task Force on Lebanon, a non-profit, nonpartisan leadership organization of Lebanese-Americans.

Lebanon Daily News Brief 7/13/2022



 

DAILY NEWS

$250m Lawsuit Filed in Texas For Damages From Beirut Port Explosion
As the first claim filed in a US court pertaining to the 2020 Beirut Port Explosion, victims of Lebanon’s deadly August 4th tragedy have put forward a $250 million lawsuit against US-Norwegian geophysical services group, TGS, for its suspected links to the tragedy. “This lawsuit is a first. It’s a way of circumventing the obstruction that the investigation has faced in Lebanon,’ [lawyer Zena Wakim] told AFP. ‘The evidence that will be generated by this lawsuit can also benefit the Lebanese investigation,’ she said. ‘The spirit of the claim is to benefit all the victims’.” [France24]

Finance and Budget Committee Reviewing Bank Secrecy Law
Today, the head of the Finance and Budget Committee, MP Ibrahim Kanaan, announced that a reformed bank secrecy law will be discussed by the Finance and Budget Committee for approval following the Finance Subcommittee’s review. [Naharnet]

USCIS Calls on Eight ‘Citizenship Ambassadors’ to Encourage Naturalization
As part of a new initiative, eight advocates and community leaders were chosen by US Citizenship and Immigration Services to encourage green card holders across the country to apply for US citizenship. These eight ‘citizenship ambassadors’, will receive training on the citizenship process and will partner with field offices across the US as part of a larger effort for the agency to improve outreach to immigrant communities. [Roll Call]

Lingering Fire Near Grain Silos at Beirut Port
After another fire erupted near the Beirut Port’s grain silos yesterday evening, the Lebanese Civil Defense struggled to extinguish it out of fear that, ‘if they douse it with water the silos would collapse.’ [L’Orient Today] According to local media reports, the fire has continued burning throughout today as well. 

Caretaker Energy Minister Evaluating Energy Deal with Iraq
According to L’Orient Today, “Caretaker Energy Minister Walid Fayad told L’Orient Today Wednesday that he has proposed to the Iraqi authorities that Lebanon would raise its electricity tariffs in order to be able to pay for a potential new fuel deal with Iraq. A previous deal under which Lebanon received fuel oil for its power plants via Iraq is set to expire in September, and Lebanon has yet to pay the money owed under that agreement.” [L’Orient Today]

OPINION & ANALYSIS

Will Lebanon Survive The Winter?
Jean AbiNaderAbiNader writes, “According to a reliable source close to the Mikati government, three pieces of legislation that are already passed but not implemented – namely, the 2022 National Budget, a Capital Controls Law, and Banking Reform – are awaiting signatures and steps needed to secure their enactment. Still on the table is a Banking Restructuring Law that is being held up by objections from the Central Bank. Given that its Governor is opposed to the IMF package altogether, and that his reappointment in 2023 is bound to be hotly contested among the elites, any progressive legislation is due to generate heated debate. The recent referral of amendments to the Banking Secrecy Law to a subcommittee seems to show that certain quarters fear the reforms would expose some of the system’s corruption as well as its beneficiaries. But the referral itself is a long-standing parliamentary practice to fast-track the amendments . . . Maybe it’s time for Parliament to consider depoliticizing local development so that adequate sums can be allocated to support sustainable projects while Parliamentarians debate over Lebanon’s future. Free the people to help themselves through sustainable projects!”Read More Here

Will Lebanon Survive The Winter?
Jean AbiNaderAbiNader writes, “According to a reliable source close to the Mikati government, three pieces of legislation that are already passed but not implemented – namely, the 2022 National Budget, a Capital Controls Law, and Banking Reform – are awaiting signatures and steps needed to secure their enactment. Still on the table is a Banking Restructuring Law that is being held up by objections from the Central Bank. Given that its Governor is opposed to the IMF package altogether, and that his reappointment in 2023 is bound to be hotly contested among the elites, any progressive legislation is due to generate heated debate. The recent referral of amendments to the Banking Secrecy Law to a subcommittee seems to show that certain quarters fear the reforms would expose some of the system’s corruption as well as its beneficiaries. But the referral itself is a long-standing parliamentary practice to fast-track the amendments . . . Maybe it’s time for Parliament to consider depoliticizing local development so that adequate sums can be allocated to support sustainable projects while Parliamentarians debate over Lebanon’s future. Free the people to help themselves through sustainable projects!”Read More Here

Disclaimer: The views and opinions expressed in these articles are those of the author and do not necessarily reflect the position of the American Task Force on Lebanon, a non-profit, nonpartisan leadership organization of Lebanese-Americans.

Lebanon Daily News Brief 07/12/2022



 

July 12th, 2022

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DAILY NEWS

UN Security Council Votes to Limit Humanitarian Aid in Syria
During a session of the UN Security Council, a resolution was approved to extend the humanitarian aid deliveries to the 4.1 million people residing in Syria’s rebel-held northwest region. The extension, however, only sanctioned an additional six months’ worth of aid, in contrast to the proposal for a year-long extension that was nearly supported by the entire fifteen-member council, with the exception of Russia. [AP News]

Lebanon to Receive 35k Tons of Wheat from Ukraine and Russia
According to the head of Lebanon’s mills association, Ahmad Hoteit, Lebanon will receive 35,000 tons of wheat from Ukraine and Russia this week amid serious wheat shortages occuring in the country. [Reuters]

Israeli UN Ambassador Submits Complaint to Security Council on Hezbollah’s Drones
According to L’Orient Today, “Israeli Ambassador to the United Nations Gilad Erdan submitted Monday a complaint to the UN Security Council demanding to condemn the launch of the drones by Hezbollah towards the disputed Karish offshore gas field, adding that ‘the Lebanese government bears responsibility’ for such actions, according to a tweet by the ambassador’s official Twitter account.” [L’Orient Today]

PM Office Comments on ‘Escalation’ Should President Aoun Remain Past Tenure
According to Al-Jadeed TV, “There will be an escalation in the coming period should the way begin to be paved for the possibility of (President Michel) Aoun’s staying in the Baabda Palace following the end of his tenure,” say sources close to Caretaker Prime Minister Najib Mikati. [Naharnet]

OPINION & ANALYSIS

Will Lebanon Survive The Winter?
Jean AbiNader

AbiNader writes, “According to a reliable source close to the Mikati government, three pieces of legislation that are already passed but not implemented – namely, the 2022 National Budget, a Capital Controls Law, and Banking Reform – are awaiting signatures and steps needed to secure their enactment. Still on the table is a Banking Restructuring Law that is being held up by objections from the Central Bank. Given that its Governor is opposed to the IMF package altogether, and that his reappointment in 2023 is bound to be hotly contested among the elites, any progressive legislation is due to generate heated debate. The recent referral of amendments to the Banking Secrecy Law to a subcommittee seems to show that certain quarters fear the reforms would expose some of the system’s corruption as well as its beneficiaries. But the referral itself is a long-standing parliamentary practice to fast-track the amendments . . . Maybe it’s time for Parliament to consider depoliticizing local development so that adequate sums can be allocated to support sustainable projects while Parliamentarians debate over Lebanon’s future. Free the people to help themselves through sustainable projects!”

Read More Here

Atlantic Council
Evolving MENA power balances: What is next for US engagement in the region?

Karim Mezran, Valeria Talbot, Jonathan Panikoff, Sanam Vakil, Maha Yahya, Mark N. Katz, Gangzheng She, and Julien Barnes-Dacey

Mezran et. al. write, “The war in Ukraine is further diverting US attention from the Middle East and North Africa (MENA) region where Russia and China have expanded their footprint over the past decade. US President Joseph R. Biden Jr.’s upcoming visit to the Middle East—his first since he took office—provides an opportunity to assess the kind of role the United States will play in the MENA region in the future. The big question is whether the region is entering a post-US era and how the new regional order will be structured.”

Read More Here

Viewpoints Series, Wilson Center
Can Iran Serve Biden To Overcome Yet Another Nadir In US-Saudi Relations?

David Ottaway

Ottaway writes, “Major crises in US-Saudi relations over the past eight decades have brought the two countries to near divorce before. Twice they were overcome by finding a common cause to rebind and rebuild their troubled relationship. Iran may serve that purpose in the current crisis, and President Biden’s trip to Israel and Saudi Arabia this week will likely signal whether or not it will . . . The question now is this: Will Biden’s meeting with the current Saudi crown prince and de facto ruler resemble more Bush’s first “ugly” meeting with Abdullah in 2002 or his second, kiss-and-make-up meeting in 2005? And will the two sides announce a new common cause in dealing with Iran and its nuclear ambitions?”

Read More Here

EVENTS

Arab Center Washington DC
Biden’s Trip to the Middle East: Objectives and Potential Outcomes
Thursday, July 14th, 2022 | 10:00 AM ET 

Arab Center Washington DC is organizing a webinar to examine the objectives, implications, and expected outcomes of President Biden’s upcoming trip to the Middle East and assess whether his campaign promises of a foreign policy guided by the values of human rights and democracy will take a back seat to strategic, economic, and geopolitical considerations, especially in this US midterm election year.

Register Here

House Foreign Affairs Committee, US House of Representatives
Examining the U.S. Interest in Regional Security Cooperation in the Middle East and North Africa: Opportunities, Obstacles, and Objectives
Thursday, July 14th, 2022 | 2:00 – 4:00 PM ET 
Location: Rayburn House Office Building, Room Number 2172, and Virtually via Cisco WebEx

Subcommittee on Middle East, North Africa, and Global Counterterrorism

Tune-In Here

Our New Lebanon
Speaker Series: Dr. Saade Chami
Sunday, July 31st, 2022 | 3:00 PM ET 

Our New Lebanon’s speaker series will feature Dr. Saade Chami, the Deputy Prime Minister in the caretaker government and principal architect of the Lebanese financial recovery strategy.

Register Here

Disclaimer: The views and opinions expressed in these articles are those of the author and do not necessarily reflect the position of the American Task Force on Lebanon, a non-profit, nonpartisan leadership organization of Lebanese-Americans.

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Will Lebanon Survive the Winter?

Even with the possibility of the stabilization of energy prices, the value of the lira, and sources of fuel for heating and transportation, there will definitely be a surge in demand as the weather turns cooler, making heat and travel even more expensive for the already desperate Lebanese. The economy is currently buoyed by tourism dollars and remittances from Lebanese visiting families and friends. This will come to an end during the fall.

Out of all the scenarios facing the country, total collapse to a beggar state is one that is increasingly likely given the government’s inability to pass legislation needed to advance the reforms called for by the IMF staff-level agreement.

According to a reliable source close to the Mikati government, three pieces of legislation that are already passed but not implemented – namely, the 2022 National Budget, a Capital Controls Law, and Banking Reform – are awaiting signatures and steps needed to secure their enactment. Still on the table is a Banking Restructuring Law that is being held up by objections from the Central Bank. Given that its Governor is opposed to the IMF package altogether, and that his reappointment in 2023 is bound to be hotly contested among the elites, any progressive legislation is due to generate heated debate. The recent referral of amendments to the Banking Secrecy Law to a subcommittee seems to show that certain quarters fear the reforms would expose some of the system’s corruption as well as its beneficiaries. But the referral itself is a long-standing parliamentary practice to fast-track the amendments.

Spending foreign reserves at a rate of $25 million a day, it won’t be long before Lebanon is officially bankrupt with few optionsleft, if any. Since these monies are drawn from the depositors’ accounts, there is further debate about how to best prepare for the eventual demise of the lira if no remedial action is taken to stabilize the currency.

Some alternatives already being implemented across Lebanon are sustainable grassroots development projects, mostly in revitalizing agriculture, producing energy from renewable resources, reviving small businesses, and promoting recycling. While these are small steps, and quite decentralized at this time, they could lead to a more effective, decentralization strategy that the new Parliament could embrace, making it more cumbersome for Lebanon’s political fiefdoms to pursue their objectives and maintain control. This makes next April’s municipal elections are even more noteworthy, as there is no guarantee that a “deal” for naming the new President will be emerge by the deadline in October. In that case, the Council of Ministers incorporates the Executive functions to a degree and works with Parliament to pass needed legislation in certain categories.

Although stories have been written about the move toward a more decentralized country, commentators note that the biggest obstacle to this alternative structure, other than the usual political machinations of the elites, is lack of needed legislation to create programs that enable small businesses to acquire the resources needed to access energy, financing, and equipment. A key metric is the coordination and cooperation among the central government and the municipalities to, “find local solutions to best support small businesses that can play a role in entrepreneurial survival and recovery,” according to a recent paper from the Lebanese Center for Policy Studies.

Another factor affecting the likely success or failure of local efforts mentioned in a Frederick Naumann Foundation paper is that, “weak local financial institutions jeopardize the accessibility of the rural community to financial resources, in addition to creating wealth inequality. These factors can create an adverse entrepreneurial culture, the constraint that rural areas in Lebanon are confronting, and there is a need today to shift to non-conventional financing models.’

While I will continue to write about decentralization in a future blog, it is critical to understand how rural and small communities can be supported as they work to achieve self-sufficiency, create income producing projects, and achieve results that can be replicated in other communities. One such project I visited is Alzourou3, which is an agricultural whole-of-community approach pioneered by Jessica Hokayem. She has created items refashioned from recycled materials, food items, and other homemade products for sale that illustrate what small communities can do to sustain themselves.

Most importantly, as a young university graduate, she has mastered the use of social media to promote her efforts and products. Imagine linking dozens of communities where similar projects are based and benefiting from access to overseas markets made possible by Fair Trade Lebanon and other NGOs that help promote local products in overseas markets for fresh dollars.

Giving hope and means to villages and small communities in Lebanon is not a heavy lift for Parliament. For example, the production of electricity through renewable energy, such as solar panels, is being pioneered by Rotary International. Several other community and agriculturally-focused projects supported by USAID in addition to itsINAL solar power initiative. Maybe it’s time for Parliament to consider depoliticizing local development so that adequate sums can be allocated to support sustainable projects while Parliamentarians debate over Lebanon’s future. Free the people to help themselves through sustainable projects!

 

Disclaimer: The views and opinions expressed in these articles are those of the author and do not necessarily reflect the position of the American Task Force on Lebanon, a non-profit, nonpartisan leadership organization of Lebanese-Americans.