Lebanon, the IMF, and the Parliamentary Elections – What’s the Story?
A war of words is being waged against the prospects and need for an IMF rescue package as some sources claim it will force drastic measures in the name of reforms that would undermine the long-term stability of the economy. This is not a new claim, especially coming from those who have the most to lose in any alteration of the status quo and restructuring of the banking sector, transparency in public procurement, and stabilization of the currency. The lower and middle classes have already suffered the most from the devalued currency, hyperinflation, and inability to procure essential health products or pay for basic services such as education and power. The arrow of paying the price is gradually turning towards those who use Lebanon as a base and have suffered little dislocation from the economic withering of the State.
The reaction of the Association of Lebanese Banks to the proposed financial plan is just one indicator out of several revealing how those with deeply vested interests envision the pain should be spread. Of course, the plan has many flaws, especially because of its uneven distribution of losses and its reliance on a timeline that does not deliver relief to the majority of bank depositors. Where are the alternative scenarios, though, that are able to meet the three objectives of stabilizing the currency, restraining national spending, and increasing state revenues? Yes, the devil is in the details but without these steps, Lebanon remains a pariah in the investment community.
According to the Economic Research Unit of the Byblos Bank, the IMF said, after its last two weeks of consultations in Lebanon, that, “the unprecedented and complex nature of the Lebanese crisis requires a comprehensive economic and financial reform program to stabilize the economy, to address deep-seated challenges, and to lay the ground work for sustainable and strong growth.” While the negotiating teams were in agreement on the areas in which to target reform, additional meetings are needed to produce a detailed program. In other words, the government needs to do its homework, pass a national budget, and build a national consensus to support a multi-year austerity program.
The IMF identified five main areas of achievable, short-and medium-term measures that would provide a framework for future reforms. According to Byblos Bank, this includes “reforming state-owned enterprises starting with the energy sector and improve delivery services without additional public financing [subsidies]; enhancing transparency and accountability by strengthening the governance, anti-corruption, and the anti-money laundering, and combating financing of terrorism frameworks; reforming public finances to ensure debt sustainability and to provide space for social spending and reconstruction; restructure the financial sector to restore confidence and support the recovery; as well as establishing a credible monetary and exchange rate system.”
The IMF had other recommendations regarding the sequence of reforms suggesting that the government move immediately on energy sector and public procurement laws and take steps to build credibility with the Lebanese people as well as international donors. The approval of a proactive 2022 national budget will send a strong signal that the government intends to move in the right direction as the bottom line remains the same: it’s up to the Lebanese Parliament and political leadership to take the necessary first steps on the pathway of reform.
There is no lack of candidates counting on support from the Sunni community, despite the urgings of former Prime Minister and Future Movement leader Saad Al Hariri to boycott the polls. Former prime ministers aside, a number of voices are already presenting themselves as the ideal fillers of this emerging political vacuum. Bahaa Al Hariri, Saad’s brother, has indicated that his party, Sawa Li Lubnan will field around 30 candidates in May without confirming if he will run himself.
There is no certainty that the coalition of the Free Patriotic Movement, Amal, Hezbollah, and Marada will maintain their Parliamentary majority as fissures are beginning to appear. In fact, opponents only need to win a minimum of 15 seats to deny the coalition the seats needed to capture the Parliamentary votes to name the President or to make changes to the constitution. That is one of the reasons observers fear a resurgence of intercommunal violence in which people would turn to their traditional sect leaders for protection rather than take the risk of voting for the opposition.
Despite the fact that the 2018 elections cost the Lebanese government some $54 million, Prime Minister Najib Mikati announced that $18m has been allocated for the 2022 elections. Embassies have been instructed to find local funding to support overseas voting for the Lebanese registered to vote in local centers. This measure is in addition to the solicitation of funds from various countries as well as the UN to support the facilitation of elections in Lebanon which includes everything from ballot processing to funding ISF-run security at polling stations, and travel allowances for election officials. It was with some surprise that Prime Minister Mikati acceded to President Aoun’s request that the Minister of the Interior prepare an analysis of the possibility of mega-centers to be incorporated the upcoming elections.
The drama of reform and the elections continues to build, as do the indicators of the postponement of either process. Lebanon continues to inch along on the backs of remittances and family transfers. Foreign officials come and go, giving the government the same message, but hope has to emerge locally, as the vacuum is continues to be deafening.
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.