Lebanon: economic crisis rooted in political divisions

Wed 5 Aug 2020

Lebanon: economic crisis rooted in political divisions

Lebanon is in the middle of an acute economic and political crisis that is endangering people's rights, and the government is repeatedly failing to address it. "Lebanon should commit to undertaking the difficult but long-overdue reforms that will put its economy back on track and ensure that all residents have access to health care and education," said Aya Majzoub, Lebanon researcher at Human Rights Watch. The Lebanese pound has lost 80% of its value since mass protests against the Hariri-government in October 2019. The new Diab-government has appealed to the International Monetary Fund for billions of dollars in aid, but there has been little progress on the reforms demanded in return for a bailout. The COVID-19 pandemic has only accelerated what is seen as the worst economic crisis in decades in Lebanon, and the health system is having difficulties in coping with a spike in case. 

Economic crisis: the IMF talks deadlocked
A third of a million people had lost their jobs since October 2019, when mass protests forced the government to resign. Food prices doubled, and many unemployed people were forced onto charity and food banks. Based on the World Bank 2019 report, around 48% of Lebanese are living below the poverty line. An additional problem is a public sector which is significant, inefficient and paralysed by the sectarian division. Public sector jobs are often distributed by sectarian political leaders on the basis of party loyalty rather than merit thus succesive government have been spending much of public resources to reward its supporters.

The Diab-government acknowledges that the aid from the IMF is the only way out of the crisis, but it refuses to undertake conditional reforms. Discussions stumble between the government and central bank over the scale of losses in the banking system.  On the one hand, the government and IMF claim a shortfall of more than $90 billion. On the other hand, banks, the central bank and members of parliament representing powerful political factions say it is around $45 billion.

Main reforms conditioned by IMF encompans judiciary reforms, cutting public sector spending and tackling problem with electricity sector. A fair and independent judiciary is among the main demands of the IMF. Taking into account that judges are chosen based on their sect and the seats are divided under the typical sectarian division, making independant decisions is very hard. Also the electricity sector in Lebanon has long been symbol of corruption. The state-run Électricité du Liban (EDL) generates an annual deficit of up to $2 billion, and still residents of Beirut have to live with three-hour daily power cuts, while some rural areas face 18-hours with no electricity. Monir Yehya, former member of the Board of Directors of EDL explained that high-value contracts made investing in the sector attractive which led to political parties favoring their own interests over the benefit of the sector.

"Talks suffered additional blow with  the resignation of two members of Lebanon's negotiating team who have accused the political class of not being serious about the reforms required by the IMF," said Joseph Bahout, an academic fellow at the Carnegie Endowment for International Peace.

Lebanon has been dependent on the foreign donors led by France, the US, the UK, for decades. However, these countries are no longer willing to help without real, verifiable reforms imposed by the IMF.  "If this road (IMF) is closed, all other roads will be shut," said the French diplomat.

Political crisis: resignation of the foreign minister
Politically, the country is also blocked. Foreign minister, Nassif Hitti resigned over the absence of a government's will to undertake the structural reform demanded by the national and international community. Hitti was appointed in January this year when Diab’s cabinet took office with the support of the Iran-backed Hezbollah movement and its allies. He was quickly replaced by Charbel Wehbe, diplomatic adviser to President Michel Aoun and a career diplomat.

Prime Minister Hassan Diab's barely six-month-old government has been attacked by its opponents for weak decision-making and depending on dominant forces in the cabinet, most notably Hezbollah and the Free Patriotic Movement. Diab recently criticised France's foreign minister for insisting on reforms posed by the IMF. In connection to that, Walid Jumblatt, whose Progressive Socialist party is not part of Diab's cabinet, said  Lebanon needs a new prime minister to get the country out of the current crisis.  

One of the main reasons for the ongoing political crisis is political sectarianism. Namely, Lebanon officially recognises 18 religious communities - four Muslim, 12 Christian, the Druze sect, adherents to a small offshoot of Islam, and Judaism. The three leading political positions - president, speaker of parliament and prime minister - are divided among the three most significant communities (Maronite Christian; Shia Muslim; and Sunni Muslim, respectively).  In this religious diversity, every group is seeking its interest, and it also makes the country an easy target for interference by external powers, as seen with Iran's backing of the Shia Hezbollah movement. 

Sources: Arab News 1, Arab News 2, Human Rights Watch, Reuters 1, Reuters 2, Reuters 3, DW, Aljazeera
Photo: Pexels