Lebanon Plunges Into an Economic Debacle

Since August 2020, when a massive explosion at the Beirut port killed over 200 people, with no one held accountable so far, Lebanon has been engulfed in an intensifying economic and political crisis. The World Bank in a report had described it as one of the sharpest economic depressions in modern history.

The worsening situation had led to demonstrations and violence in Beirut and other cities like Tripoli, Lebanon’s second largest and most impoverished city. There had also been a public warning voiced by the army chief that the country's armed forces, the institution that could hold the country together, would be in "critical condition" by September 2021 and that, if the army collapsed, Lebanon would be lost.

Western diplomats were reported to have said that France, the U.S.A and Saudi Arabia were focused on saving the armed forces and in July had held discussions to subsidise the army with monthly allowances for 80,000 soldiers and officers.

The economic statistics underscored the alarming position. The Lebanese Pound had depreciated more than 90 percent of its value in less than two years and reports said that it was now trading on the black market at 22,000 to the dollar, around 15 times the official rate of 1,500. The Crisis Observatory at the American University of Beirut had emphasised that families would have to spend around five times the minimum wage just to put sufficient food on the table as the cost of food had increased by 700 percent over two years.

It was reported that 1,000 Lebanese pounds could buy four litres of bottled water in 2019 but just a 500ml bottle cost that much today. There were shortages of fuel; of medicines; and energy shortages had affected the provision of essential services including hospitals. UNICEF reported that without fuel the power grid would crumble affecting the supply of water and that water shortage would hit 70 percent of Lebanon’s population with children the most affected.

In August 2020 Lebanon’s central bank said it could no longer finance fuel imports at heavily subsidised exchange rates. It wanted to be allowed to market rates, something the government first refused but on August 21, the government decided to increase the price of fuel by 66 percent in an attempt to ease the fuel shortages.

A statement said the central bank would open an account for that purpose up to a maximum of $225m until the end of September 2020 when the subsidy would end. The moves had resulted in Lebanon having the highest petrol and diesel costs in the world according to the website GlobalPetrolPrices.com.

Since August 2020 Lebanon had been ruled by a caretaker government led by Prime Minister Hassan Diab, who had resigned with his cabinet after the Beirut port blast. But in the absence of any agreement among the political parties, his caretaker government remained in place. Mustafa Adip, a former Ambassador and academic was named as PM designate but failed to form a cabinet.

Subsequently Said Hariri had been named to take over the Prime Minister’s post. But he fell afoul of President Michelle Aoun who, even after two meetings, did not agree to the composition of his proposed cabinet which Hariri had said would include persons based on their expertise and their ability to reform the economy .

He said Michelle Aoun, on the other hand, did not want this and the President claimed that Hariri had already decided to resign in advance of their last meeting and his office said that the differences hinged on the ministries, the sectarian distribution, and the names associated with them.

After Hariri it was former PM and billionaire businessman Najib Mikati’s turn who was designated to fill the role on 26 July 2021. He received 72 votes out of 128 MPs. Lebanese Sunni leaders had endorsed him to form the new government. He also had the support of the Druze-majority Progressive Socialist Party; Speaker Nabih Berri’s Amal; and it was likely Hezbollah would support him. But Mikati did not have the support from the majority of Christian parliamentarians.

The Lebanese Forces’ 15 MPs announced that they would not name a candidate, while the Free Patriotic Movement’s 31 MPs reportedly opposed Mikati saying he was affiliated with Hariri. President Michelle Aoun was said to be siding with Mikati but other groups were making demands over positions in the future cabinet with the goal of forcing Mikati to quit. Mikati had issued a statement that he would continue his efforts to form a government.

The inability of the Lebanese politicians to form a stable government that would take the necessary policy decisions to alleviate the suffering of the people had earned the wrath of the citizens of Lebanon while exasperating Lebanon’s international friends and donors. France had been taking the lead in trying to get the Lebanese politicians to form a government able to implement reforms and President Macron had visited the country on different occasions after the 2020 blast.

Led by France, the EU had proposed a government of 24 specialist technocrat ministers to form a government that could undertake reforms to restart the inflow of foreign aid. France had organized an international donors’ conference to raise US $ 350 million on the first anniversary of the blast. But in his remarks President Macron had criticised the Lebanese politicians for the economic turmoil.

While pledging an additional 100 million euros ($118.54m) worth of emergency aid for Lebanon, and 500,000 doses of COVID-19 vaccines for the country he said the Lebanese leaders were banking on a stalling strategy, and there would be no blank cheque for the Lebanese political system.

Criticism had also come from the American Secretary of State Blinken who said that Lebanon’s political class had squandered time and was instrumental in the free fall of the Lebanese economy and the non provision of basic services. He said the people urgently wanted the politicians to put sasie their differences and form a government that served the Lebanese people.

The drop in the value of the Lebanese pound had affected the army as the average salary of a soldier was earlier worth around the equivalent of $800 a month, but now it was just about $80. Army Chief Gen. Youssef Haddad had said that Lebanon's armed forces needed an immediate injection of $100 million to cover the basic needs of its soldiers. Reports said that

One significant outcome of the economic crisis was that the Hezbollah, prominent in Parliament and once considered an almost sacred, untouchable force fighting for a noble cause against the Israeli enemy, was now having to share the blame for the crisis. In its strongholds, predominantly inhabited by Shiite Muslims, people had begun to speak against the group. Hezbollah they said was paying salaries in U.S. dollars at a time when most Lebanese were getting paid in the highly depreciated Lebanese currency.

In one incident Hezbollah fighters returning to their base after firing rockets at Israel had had the windshields of their vehicles smashed by villagers. In another incident a deadly shooting took place at the funeral of a Hezbollah fighter. Hezbollah had also faced indirect criticism from the country’s top Christian religious leader. Hezbollah angered Christians after supporters launched a social media campaign against the head of Lebanon’s Maronite Catholic church accusing him of treason after he criticized the group for firing the rockets on Israeli positions.

Hezbollah leader Nasrullah’s recent speeches put the blame for the shortages and the crisis on the west saying things were being engineered from “a black room” in the US Embassy. The group had taken measures to ease the situation. While the government had not yet issued ration cards to poor families, Hezbollah had issued two such cards to poor families living in Hezbollah strongholds--one called Sajjad after the name of a Shiite imam, and a second called Nour, or light, for its fighters and employees of its institutions who numbered about 80,000.

In addition, while the government had now sent a high level delegation to Syria to secure fuel and electricity, Hezbollah, apparently without government approval, had organized tankers from Iran. But this move was met with criticism with opponents who feared that getting fuel from Iran might open Lebanon to additional sanctions. Though Hezbollah had not been named as the culprit many believed that the explosives involved in the Beirut blast had been stored there by Hezbollah.

People in Lebanon remained furious that those involved in the Beirut blast had not been identified, much less punished. Former PM Diab had refused to appear before Judge Fadi Sawwan who was investigating the blast. In February 2021 Sawwan was removed following legal challenges by senior officials he had accused of negligence that led to the blast.

His replacement Judge Tarek Bitar had issued a subpoena for the country’s caretaker prime minister after he failed to show up for questioning. The prime minister had also declined to be interrogated last year by Bitar’s predecessor. Bitar was named to lead the investigation in February after Sawwan was ousted. In a media interview Diab said that he was being singled out and charged while others knew more.

There seems little likelihood of the crisis easing in the near future. Whether Mikati can deliver when others could not remains to be seen. While international donors can help, if they provide funding before reforms are undertaken they stand to be accused by the people that nothing meaningful has been done and Lebanon’s corrupt sectarian politics continue.

The situation appears ripe for Hezbollah to capitalize on its connections with Iran and, as long as the results are positive, people are unlikely to worry about Hezbollah’s links. Food, fuel, medicines are essentials and possibly Hezbollah is the only organized group that can deliver—unless Israel stirs the pot or Mikati performs a miracle.

Cover photograph AFP