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Lebanon’s cabinet has met for the first time since October 2021 after the Shiite political parties, Hezbollah and Amal, agreed to return to the negotiating table. The two parties say the deteriorating economic and security situation were the main reason behind their decision.
“This stalemate has complicated the lives of people socially and economically in the country because we need a government that can rescue the situation and try to really jumpstart the economic cycle,” Dr. Imad Salamey, a senior Middle East policy advisor and associate professor of political science and international affairs at the Lebanese American University, told Fanack.
“We are living under extreme hyperinflations and devaluations of the currency and many companies and businesses are shutting down in the public sector that is very much paralyzed by the ongoing economic and political crisis in the country.”
The Lebanese lira has lost more than 90 percent of its value since August 2019. While the official exchange rate is still 1,507 lira to the US dollar, the black market rate has gone as high as 33,000 lira to the USD in early 2022 – the result of decades of corruption, economic mismanagement and incompetence, according to Human Rights Watch. A video of United Nations Secretary General Antonio Guterres was leaked in December where he gave a scathing assessment of the Lebanese economic situation.
“As far as I understand what has happened in Lebanon is that Lebanon was using something similar to a Ponzi scheme…which means that together with corruption and other, probably, forms of stealing, the financial system has collapsed,” Guterres said in the video.
The cabinet’s deadlock has battered people in Lebanon – citizens as well as refugees and domestic workers – as the World Bank describes the economic crisis as one of the worst the world has seen since the mid-1800s.
More than eighty percent of the country has slipped into poverty since 2019. Lebanese in less economically privileged parts of the country are becoming desperate enough to risk their lives on boat journeys to Cyprus.
Meanwhile, ministers have been meeting behind closed doors, without Amal and Hezbollah, to prepare the 2022 budget for upcoming talks with the International Monetary Fund. The IMF expects Lebanon to present a comprehensive economic reform plan. The IMF plan is seen as crucial to lifting Lebanon out of its current economic malaise.
Prime Minister Najib Mikati has said his government will seek a preliminary agreement with the IMF in February while an IMF spokesperson told Reuters that virtual talks would be held with the Lebanese government in late January. Mikati’s government will hope that receiving IMF funds will help offset the $68.8 billion in financial sector losses. However, there are doubts if Lebanon can implement the IMF’s demanded reforms.
“The economy is very much linked to the politics and the politics is very much linked to regional dynamics,” Salamey said. “[If] there is a fundamental change in the region’s political balance of power, like a collapse of the Iranian or Saudi regimes, that could have political and economic implications but as long as the same political alignment is present it will dominate the country.”
Salamey said the priority for the government will be to find short term solutions for the country’s most pressing issues. Such challenges include getting public sector employees back to work in spite of their devalued salaries, figuring out a solution for the banking sector that also accommodates depositors and how to manage the upcoming elections on May 15, 2022.
Mikati’s government was threatened by a vote of no-confidence by Free Patriotic Movement leader Gebran Bassil in January, though Bassil’s calls seem to have been undermined by Hezbollah and Amal’s return to the negotiations.
“Amal and Hezbollah have already demonstrated their power,” Salamey said. “They are the one who calls the shots so to speak and they are the one who can determine the fate of the government.”
Hezbollah and Amal originally demanded that Tarek Bitar, the lead investigator in the probe of the 4 August 2020 Beirut port explosion, be removed before they would return to any cabinet discussions. The two parties claim Bitar has politicized the investigation after he issued an arrest warrant for former finance minister and high ranking Amal MP Ali Hassan Khalil. Bitar hasn’t been removed but the probe is currently suspended.
“This boycott has complicated various issues,” Salamey said. “Prime among them is the investigations into the Beirut blast making this investigation a source of sectarian division rather than a source of supporting the judiciary and investigation process and bringing justice.”
Salamey said the effectiveness of the investigation to reach any conclusions “appears pretty dim” in the short term.
With the probe put on the backburner, the Lebanese government will also be looking to alleviate the energy crisis. A regional plan agreed in September 2021 says that Egyptian gas will travel to Lebanon via Syria and Jordan. Dorothy Shea, the US Ambassador to Lebanon, told the Lebanese government not to fear sanctions for receiving energy supplies that travel through Syria – a move criticized by some US politicians.
The importing of Egyptian gas would be a boon for a country where a lack of fuel led to internet outages in January 2022. Of course, this will also just be a short term solution to long standing structural problems in Lebanon.
“Right now, the electricity sector is collecting hardly 40 percent of [costs for] what it is providing,” Salamey said. “It’s unlikely that the government will be able to increase the price of the kilowatt in order to repay the World Bank loans.”
Without widespread economic, social and political reforms, Lebanon will be ever offsetting one crisis with another. But to even begin thinking of reforms may be a bridge too far when even basic services are seemingly out of reach.
“This shows you how complicated it is in Lebanon to provide basic services that are so vital for the country’s economic revival,” Salamey said.