No Government, No Reforms, No Recovery for Lebanon
As Jihad Azour, director of the IMF’s Middle East and Central Asia Department told Reuters last week, “The change of direction [in Lebanon] cannot be done on a piecemeal basis. It requires a comprehensive approach.” He added that, “Reforms should focus on the financial sector, public finance, governance, corruption, and loss-making utilities that have contributed to a surge in debt.” His point was recently reinforced by the Lebanese International Finance Executives (LIFE) in a joint paper with MEI and ATFL to the Biden Administration, that a forensic audit of the Central Bank, obstructed by various Lebanese power centers, is required before IMF negotiations can begin.
This sequence is critical because it short-circuits ploys by the political elite to make minimal efforts at reform, say at the electricity company, betting that international assistance will begin. Lebanon lost that option some time ago when the oligarchy passed face-saving legislation or made commitments that were never implemented. Lacking credibility, the government cannot now go back to its smoke and mirrors policy-making and assume international acquiesce. The Middle East is full of hardship cases – the Syrian people next door and Yemen can also legitimately call for support, but the answer is the same: put in a reform government that has the power to implement changes; revise how the government operates, transparently and away from expanding national debt; and make rigorous efforts to support an expanded social safety net that targets poor families and the failing economy.
Not one policy maker or international NGO has said that the international community wants Lebanon to fail. Rather, as has been stated time and again, Lebanon must begin the process of recovery by making the necessary reforms. Ironically, the fault is not the caretaker government which has several well-qualified ministers. It is the same cadre of power brokers that is either actively stripping Lebanon of its dignity or acquiescing to arrangements that favor the few over the people. Parliament’s handicaps are obvious.
An eloquent voice who knows the political oligarchy in Lebanon well is Tracy Chamoun (yes that Chamoun family) who resigned as Lebanon’s ambassador to Jordan to protest the government’s failure to deal with the consequences of the August 4th Beirut Port explosions. In her latest blog, she notes that “Lebanon needs other rich nations to step in with aid and loans. We cannot do this on our own anymore. For this to happen, certain politically ambitious people must move out of the way to enable the formation of a respectable government. This will give Lebanon back its international credibility, and allow the country to re-enter into negotiations with the IMF and The World Bank, and to secure lasting solutions.”
But the international community and the International Financial Institutions (IFIs) including the World Bank Group will not be satisfied with fresh faces if they do not carry out the forensic audit of the Central Bank to determine the actual status of government debt and the banking sector. Think of it this way – if you want a mortgage on your home, the bank starts by determining what you can afford to pay, not what you claim you can handle, or your good intentions, or your pretty eyes. Believe me, I have tried it…doesn’t work.
The truth is that the banks in Lebanon hold Lebanese bank bonds that they received from the Central Bank in exchange for their foreign currency. This means that the Central Bank owes Lebanese banks hundreds of millions of dollars that it cannot repay because it has been funding government deficits. So the banks will not give up what they have on hand to their depositors and risk insolvency. Vicious circle.
Chamoun goes on to say, “The bottom line is that, this obstinate and power hoarding leadership will not provide a solution for the salvation of this nation while they still have this remaining $15 Billion [mandatory reserve] to spend. They will not agree to a new Government and they will very comfortably burn through the remaining reserves to stay in power and all the while they will let the Lebanese people be damned.”
Can the Lebanese people hold on until the new elections in Spring 2022? Will the opposition develop alternative voices who can appeal to voters to change their habit of voting along confessional lines? Or will Lebanon collapse under the burden of inaction imposed by its leaders? Even Hezbollah is calling for a new government, whatever that means to them…while they open supermarkets and issue cash cards to their constituents to have access to essential products brought in from Iran (wonder if they paid custom duties?) and Syria. Hezbollah understands constituent services and how to count votes.
Seems the majority of the Lebanese people are still waiting for their leaders to restrain their greedy interests and reclaim credibility by letting a new empowered coalition take over in Lebanon to move it to recovery. There is no time to wait any longer. The forensic audit is on the table, ready to go. Time to start to free Lebanon from its historic burden of power sharing that only takes power from the people.
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.