05.12.2022 Author: Viktor Mikhin

The Lebanese Crisis and its Aftermath

Lebanese legislators have failed for the seventh time to elect a successor to former president Michel Aoun, even as the absence of a president hinders efforts to rescue an economy that has fallen into the abyss.  Parliament is split between supporters of the Hezbollah group and its opponents, and none of them has a clear majority.

MP Michel Moawad, who is seen as a close ally of the United States, won the support of 42 out of 128 MPs, but that number fell short of the required majority. In addition, there were a large number of spoiled ballots cast by pro-Hezbollah legislators. Moawad’s candidacy is opposed by Hezbollah, whose leader Hassan Nasrallah called on the future president to resist US interference in the country’s internal affairs. “This is not an electoral process, it is a process of waiting for a compromise that harms the country, the people, the economy and the constitution,” said Christian MP and Moawad supporter Sami Gemayel

But this is not surprising, since there have been similar long delays in the election of presidents before. For example, Aoun’s own election in 2016 followed more than two years of vacancy in the presidential palace, as lawmakers made 45 failed attempts before reaching consensus on his candidacy. But the inability to choose Aoun’s successor before his mandate expired late last month has left Lebanon mired in an economic crisis that the World Bank has dubbed one of the worst in modern history.  The country has also had only an interim government since May, despite warnings from lenders that sweeping reforms are needed to clear the way for billions of dollars in emergency loans.  “The unprecedented institutional vacuum is likely to further delay any agreement to resolve the crisis and ratify critical reforms, exacerbating the plight of Lebanese citizens,” the World Bank warned in a statement. Lebanon’s overall contraction of 37.3% in real GDP since 2018 – one of the worst in the world – has already derailed 15 years of economic growth and is undermining the country’s potential for recovery.

By all accounts, the country has catapulted into an abyss and everyone is blaming each other. People blame the bankers, who in turn blame the central bank. On its part, the Central Bank blames the politicians who blame each other, and so on. Everyone is guilty, including depositors who are accused of being greedy for placing their money in high-interest accounts; but they are also somehow innocent because they acted according to their own benefit.

A total collapse is a complex phenomenon. Engineers have a concept according to which the accumulation of shocks – the systematic and constant destruction of a building, with none of the shocks being strong enough to destroy the building itself – can have a fatal cumulative effect. They call it fatigue. The collapse of Lebanon can also be explained by the constant blows that the country has experienced over a long period. The chronology is amazing, and professionals simply wonder how many countries could survive such a systematic series of crises. “Tremors” in Europe began emerging when it received 2 to 3% of its population as refugees. Lebanon received more of them within a short period due to the Syrian war. Since 2004, the country has experienced a series of assassinations that have led to a constant state of terror. Then there was the devastating war with Israel in the summer of 2006, the 18-month political crisis, the Hezbollah battles in Beirut in 2008, and then the imposed agreement in Doha that continues to paralyze decision-making and government formation to this day.

In a coup d’état in January 2011, the government was overthrown. Then came the aftermath of the war in Syria, followed by a major political crisis with the country’s main economic partners in the Persian Gulf. The result of this isolation and boycott by the Gulf states led to a disruption in the banking system that began in November 2017. That was when the country’s partners and leaders decided that Lebanon was completely under the control of Hezbollah and gave up on it.

As a result of these successive crises, accompanied by an increase in the budget deficit and the balance payment, the economy suffocated year after year until a coup occurred when, under political pressure, wage and benefit revisions cost several times more than the Ministry of Finance had calculated. This more than doubled the annual budget deficit in just one year. Financiers who opposed it predicted that the consequences for the country would be several times more severe than the war with Israel in 2006 – and they were proven right.

Measures could have been taken to prevent the complete collapse of the country, but not when the government and state institutions were permanently paralyzed. Prolonged stagnation and inactivity in any organism can cause what doctors call atrophy – deterioration and decline leading to degeneration and inability to function. For many economists, this is what best describes the effect of political paralysis in Lebanon. These “tremors” first began to appear in 2011, and a wise monetary policy could have prevented a complete collapse. However, for more than three years there was total paralysis, with no functioning parliament, government or president. And all this at a time when constant tensions were fueled by several declarations of war on Israel every year, which led to the cancellation of tourist seasons and the annulment of investment projects. Under these circumstances, it’s hard to imagine a central banker making decisions like depegging the currency to the US dollar or announcing the end of subsidies for electricity and basic necessities like bread and fuel, and then resigning.

Events after the initial collapse were much worse. A debt service default in spring 2020 and a bankruptcy declaration hastened the depreciation of the Lebanese currency, while the depletion of the balance of reserves, and with it people’s access to their deposits, continued through the smuggling of fuel and other subsidized goods across fragile borders. Debts were also paid in Lebanese lira for a fraction of their value.

The Deputy Secretary General of Hezbollah Sheikh Naim Qassem said that if there were no presidential elections in the country today, the economic, social situation and the reconstruction plan could not move forward. That is why the mandatory way to start reforms and start working to save Lebanon is to elect a president, and all blocs bear equal responsibility for his election. In a speech delivered at a meeting with the energy and water committee at Hezbollah’s government working body, Qassem added that they had a certain number of MPs in the House of Representatives who could influence the presidential election, but other blocs also play an important role in the election procedure.  No bloc has yet been able to resolve the situation, and Hezbollah has called for an agreement between the various parties on appropriate specifications for the largest number of blocs and MPs. “Since we agree on the priority of the economy and the fight against corruption, let’s resolve all contentious issues through dialogue,” Kassem concluded. “Of course, these demands do not apply to those who have prioritized depriving Lebanon of its strength and exposing it to Israel in its former positions.”

Right now Lebanon has entered another period of paralysis of three main institutions: an interim government unable to make important decisions, a parliament that meets with one item on the agenda, and a presidency in a complete vacuum with no visible candidate.  Professor Saleh Mahnouk estimates that between 2005 and 2021, Lebanon was in a state of paralysis and stagnation for 2,925 days, more than half of the time.   And now there is a difficult question: will politicians, economists, financiers and ordinary citizens be able to overcome this difficult crisis and revive the country that until fairly recently was called the “Switzerland of the Middle East”?

Viktor Mikhin, corresponding member of RANS, exclusively for the online magazine “New Eastern Outlook.

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