The movie Capernaüm (“Chaos”) tells the story of Zain, a Lebanese boy who sues his parents for the “crime” of giving him life. Ironically, Zain is played by Zain al-Rafeea, a Syrian refugee. In the Bible, Jesus moves from Nazareth to Capernaum at the beginning of his mission because the Nazarenes attempted to stone him when he began to preach in Nazareth. He escapes, but you know how that story ends…
These bits of information carry several messages and I’ll focus on these: the Lebanese can’t separate their fate from that of the Syrian refugees – those challenges must be solved for both peoples. Jesus had good news, the gospel, but it didn’t matter, his message of urgency and change was not welcome.
And so it is as the World Bank keeps ringing the alarms on how Lebanon’s disastrous leadership is abetting the collapse of the country, but to no avail. On June 1, it released the most recent Lebanon Economic Monitor entitled, “Lebanon Sinking to the Top 3,” an ironic twist on achieving something that is far from desirable, becoming perhaps the one of the worst economic crises in more than 150 years.
The report begins with a lucid and helpful summary of the more than 90 pages of analyses, charts, and special annexes that follow, worth reading, even skimming the bold face sentences that highlight the text. The many conditions that caused the current crisis are clear: the economic collapse, the pandemic, the Beirut blast, and mismanagement by the leadership cadre. Short-term solutions are also clear: stabilize the currency, build a reliable social safety net, strengthen humanitarian relief and assistance to small businesses, and tame the oligarchs from causing further damage. Each of these requires myriad actions by Lebanon’s leaders, none of which is forthcoming. The capital controls law is languishing in Parliament. Hyperinflation is eroding the value of humanitarian, social, and health services. And the party leaders are immune to sharing responsibility for moving Lebanon forward, only to the abyss.
According to Asharq Al-Awsat, “The bankrupt state is unable to settle many of its bills and Lebanon’s own energy minister, Raymond Ghajar, has warned that electricity supply was becoming critical and that the country could be plunged into total darkness by June’s end.” Illustrative of this failure was the notice from the Central Bank to the electricity company to come up with a plan to repay the government its $25 billion in past loans (out of $42+B), just another day in the debt-ridden country.
An editorial in The National placed the blame squarely on “A leadership vacuum that has seen politicians wrangle for months on end over control of various ministries, with seemingly little interest in actual policymaking, is both a cause and an amplifier of the crisis. Compounding it is Covid-19, as well as the fallout from last summer’s Beirut blast, one of the largest non-nuclear explosions in history.” It went on: “The economic meltdown has made worse the political and sectarian fragmentation of the country, undermining an already-weak rule of law.”
This sentiment was echoed in the World Bank report which pointed out Lebanon’s status as a “Fragility, Conflict & Violence (FCV) State, and as such, the dire socio-economic conditions risk systemic national failings with regional and potentially global consequences.” Two of the consequences are obvious in the economic repercussions in Syria and the increase in extensive cross-border smuggling. The Report goes on to say, “This illustrates the magnitude of the economic depression that the country is enduring, with sadly no clear turning point on the horizon, given the disastrous deliberate policy inaction.”
It is hard to ignore how the elites are insulated from the worst of the currency manipulations. “The burden of the ongoing adjustment/deleveraging is regressive and concentrated on the smaller depositors, who lack other source of savings, the local labor force, that is paid in lira, and smaller businesses,” according to the report’s authors.
There is a section on the proposed 2021 budget that exposes the unrealistic approach being favored by the oligarchs. By ignoring that any projected savings are due to the decreased purchasing power of the currency accompanied by high inflation, its numbers are not credible. As the Report opines, “This predisposition can either (i) degrade the proposed budget’s creditability, due to expected social pressures and real costs resulting from the high inflationary environment; or, if forced through, (ii) further entrench the severe decline in purchasing power for another year.”
Regarding the need for a social safety net, the Report mentions that “The economic crisis and resulting rising in poverty raise an urgent need for social assistance. High levels of poverty can have a long-lasting impact on Lebanon’s human development and increase vulnerabilities across the lifecycle. Adequate social assistance will therefore be critical both in the short term to provide emergency relief, and in the medium-long term to improve resilience to shocks among vulnerable Lebanese.”
This lead to its conclusion that “The Government of Lebanon (GOL) needs to prioritize a comprehensive, consistent, and credible macroeconomic stabilization plan, the fiscal part of which should include a social safety net (SSN) component.” This was also one of the major points mentioned by Ambassador David Hale in his address to the MEI conference as a needed effort by the international community to stabilize Lebanon while needed reforms are implemented.
With the end of subsidies in sight, no apparent willingness to creatively stabilize the currency, and no movement to shrink the country’s budget, Lebanon’s governing class is running out of excuses. They must take needed steps toward reform or recuse themselves so that the hard work can begin.
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.