Lebanon: The staying power of the ruling caste, and the stalled “WhatsApp revolution*”

Thursday, June 24, 2021
Opinion by Samir Daher

In the eye of the storm, Lebanon is in the midst of the most acute social and humanitarian crisis it has known through its recorded history (save possibly the 1915 Great Famine that decimated one third of Mount Lebanon’s population). The banking system has failed, the people are facing rising unemployment and poverty and inflation, and many families are surviving on handouts and food assistance. This situation has been tragically compounded by the devastating toll of the pandemic and the aftermath of the Beirut port explosion. As the government intends to phase out subsidies given vanishing foreign reserves and drop in capital inflows, it [the non-government] is considering a welfare scheme with cash transfers to 80% of the population, a percentage of beneficiaries hardly seen under social welfare programs elsewhere. Last year, the World Bank referred to the situation in Lebanon as a “deliberate depression,” brought about by reckless policies and unconscionable lack of response by the Nomenklatura holding the nation’s destiny for nearly half a century and now presiding over its demise.

History will judge Lebanon’s leadership for dereliction of duty, some may say criminal negligence, for abandoning nearly destitute people on a steep slope into the abyss. Rather than charting a road to recovery, this leadership is oblivious to the pain of a nation buffeted by the vagaries of regional politics and partisan rivalries, leaving its people to the whims of an overreaching central bank blatantly mishandling monetary policy and tinkering with the wreckage of a banking sector methodically defrauding an ever-shrinking middle class.

The dire situation has been years in the making and should come as no surprise. What may be surprising is the resilience of a ruling caste ostensibly loathed and vilified by the people and weakened by months of discontent, yet still steady in the saddle on the rugged road the nation is going through on all fronts. What could explain such tenacity?

In Lebanon, nationals and foreigners alike had for a long time a standard of living well above what the country’s economic fundamentals would warrant. They enjoyed the largess of a welfare state subsidizing residents across all social strata. The regime of non-targeted subsidies usually benefitted in disproportionate ways the affluent over the poor. The main lever of this wide net of subsidy was the overvalued exchange rate which made imports so cheap that they accounted, directly or indirectly, for some 80% of Lebanon’s consumption. Conversely, local production, save for non-tradable goods (such as construction) was depressed, and exports were heavily penalized by the fictitious value of the exchange rate that made exports so expensive that they could not compete with imports of the same product.

How could Lebanon afford a fixed, over-valued exchange rate regime for nearly three decades? That was only possible given the steady capital inflows from a large Lebanese diaspora – Lebanon suffers from the “Dutch disease” where its main export commodity is its own people – and deposits lured into an overgrown banking system by lofty interest rates (and sometimes discretion and tolerance regarding the origin of incoming funds). When regional events, notably the war in Syria, an increasingly unwelcoming, at time hostile business environment, and shameless governance practices disrupted the smooth inflows, the unstable imports-and-consumption-based economic model could no longer be sustained. The pillars of the whole structure (currency value, banking system, public finance, social welfare, and way of life) caved in, abruptly spelling the end of the joy ride.

Yet, almost two years after a vast cross-confessional, cross-regional and inter-generational national uprising expressed overwhelming popular discontent at the absence of credible plans and actions to manage let alone solve the crisis, innumerable natural and man-made disasters (Beirut port explosion, covid pandemic, failing health care and education systems, decaying infrastructure, irreversible environmental degradation, hollowed public institutions, plus the unbearable brunt of Syria’s 1.5 million refugees) the cohort of confessional warlords and their partisan brigades are still holding the reins of power.

In my view it is because many, beholden not to the state and its institutions but to their respective clan godfathers – who have engrained in the individual and collective psyche a culture of dependency and cronyism over the values of citizenry – blame political opponents for the nation’s woes, and fear that in the absence of their protective godfathers, the alternative to today’s near collapse could be an even more calamitous fate, an “Apocalypse” of sort.

To illustrate, say the standard of living index as a measure of Lebanon’s economic fundamentals would have been 100. Lifted by lavish subsidy, the Lebanese standard was at the 200 level. The system’s recent precipitous collapse brought it down to 40. Still, many harbor the hope of sinking no further and believe that, once their godfathers prevail upon their rivals at the polls or otherwise, those leaders – to whom they owe their jobs and livelihoods, or who shielded them from prosecution when they breached the law – will steer them through the crisis.

Feeding into the fear of the Apocalypse, the leaders’ strategy is to preserve the status quo through a variety of “bribes” until the May 2022 legislative elections. In the meantime, they are striving to maintain subsidies on essential consumption (food staples, medicine, and oil derivatives) despite creeping shortages of supply. In parallel they are proposing a scheme, assuming banks can afford it, to free part of the dollar-denominated bank deposits in targeting some 800,000 accounts of up to about US$25,000 each. During this period, the neediest are kept somewhat afloat by external and internal humanitarian assistance flowing through NGOs; a cash transfer program funded by a US$250 million World Bank loan yet to be approved by Parliament; and last, but most importantly, some US$2-3 billion in annual remittances for family support from Lebanese abroad.

In conclusion, although the various relief measures go some way in easing the pain of many Lebanese households, the political outcome may be disheartening and could come as a shocking disappointment for those who hope to drive the ruling caste out of power at next year’s elections – were they to be held on schedule – especially under the existing made-to-measure electoral law and the fragmented, ineffectual opposition of the “WhatsApp mutineers.”

However, great caution is called for in the case that serious reform leadership and governance changes cannot be secured at the polls. So far social peace has been preserved due to the good nature of the Lebanese, hot-blooded yet generally ready to help fellows in need; their proven resilience to hardship acquired throughout Lebanon’s painful history of conflict and strife; and their ability to devise substitutes for failing or sub-par public services – neighborhood power generation, private water supply through tankers, private education, and even…. private army – and the occasional lifeline provided by family members abroad.

However, with conditions ever deteriorating and no solutions in sight, tolerance of deprivation may reach its threshold, stoking social tensions which could degenerate into disturbances and violence with untold consequences on peace and stability. Were crowds of impoverished citizens to overrun metal gates now spiking around hospitals, climb fences protecting banks, break into supply stores, and block main thoroughfares, the armed forces, guardian of law and order, entrusted with protecting public and private property, would be put in a difficult spot, as too forceful a crackdown could erode the goodwill they have earned in the hearts and minds of the Lebanese people. It is not too early for those at the country’s helm to wake up to the stark situation that seems to elude them and shoulder their duties towards a people in need of salvation. But do they have the vision and willingness to do it?

(*) – Lebanon popular uprising of October 17, 2019, was prompted by a government decision, subsequently rescinded, to impose a 20-cent daily levy on WhatsApp accounts.

Samir Daher is a former economist at the World Bank and former advisor to the government of Lebanon.

The views and opinions expressed here are those of the author and do not necessarily reflect the position of the American Task Force on Lebanon.