If there is such a thing as seven stages of grief for countries suffering a severe economic crisis, then Lebanon entered a new one this week.
It underwent the first stage of shock and denial when the giant Ponzi scheme it had been using for years to keep the economy afloat finally came undone in early 2019 and the country’s leaders did nothing to fix the problem. It transitioned to pain and guilt later that year as the economy imploded, a wave of protests gripped the country, and the government resigned.
Next was anger (of ordinary Lebanese driven into poverty) and bargaining (with the International Monetary Fund) followed by a phase of depression (quite literally), reflection and loneliness as Lebanon’s leaders realized that the Gulf, their customary sources of bailout money, would not pay up as they had before.
Next should have been what’s known as “the upward turn.” But apparently Lebanon’s leaders are reverting back to the guilt stage. This time, however, they’re guilt-tripping others.
It started with Hezbollah leader Hassan Nasrallah blaming the country’s economic woes on the United States. “Isn’t it the USA that prevents all countries from helping Lebanon in order to secure its own interests and serve those of ‘Israel?’” he asked. Caretaker Prime Minister Hassan Diab later echoed that view when he chided a group of foreign diplomats for "the siege imposed" on his country. And, to fortify the guilt trip, Diab also warned of a “social explosion” and urged them to “prevent the demise of Lebanon.”
In short, it will be your fault for Lebanon disappearing in poverty and suffering if you don’t fork over cash now without preconditions for reform and without the people responsible for the country’s economic collapse paying any price at all for their years of corruption, mismanagement and neglect.
If the French envoy’s pointed response is indicative of the world’s attitude, Diab’s effort to pull at heartstrings has been a dismal failure. And so it should be: For better or for worse, social explosion or not, Lebanon is not facing demise.
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At death’s door
Its economy, of course, is at death’s door. Official economic data are scanty, but the World Bank last month estimated that gross domestic product shrunk more than 20 percent last year, capping two earlier years of decline and, before that, years of little or no growth.
The country’s situation is so dismal that the World Bank economists estimate that of the 100 worst episodes of economic crisis over the last century, Lebanon’s is either the third or sixth most severe.
Just counting the years from 2017 (the last before Lebanon’s economy began contracting) through 2020, per capita GDP fell 27.9%. That is more than Greece’s shrunk after its 2009 financial crisis or Argentina after its two crises in 1980 and 2001.
Neither country disappeared or even devolved failed states as a result, although it should be stressed that neither has rebounded from their disasters to become thriving economies. Even actual failed states (or to use the most politically correct term, “fragile states”) have a remarkable staying power to keep failing and failing but somehow soldier on.
Of the 10 most failing countries in the Fund for Peace’s Fragile States Index in 2011, seven were still there in 2021, even though their metrics were far worse than Lebanon’s. Argentina (whose level of development more closely approximates Lebanon’s than does, say, Somalia) has lurched from one crisis to the next for more than 40 years without ever having solved its core economic challenges
The fact is Lebanon should be able to muddle through just as it has until now. It hasn’t devolved into a no-man’s land of warlords, probably thanks to Hezbollah, so there is at least some semblance of government and order. The black market, which has always factored as an outsized proportion of the economy and has grown more during the crisis, will fill in the gaps that the legal economy can’t. Again, Hezbollah is smuggler-in-chief and acts as banker and grocer where others have failed.
The inflows of expat capital are over, but remittances from the large numbers of Lebanese working abroad sending money back home will keep many families afloat financially. Money from Iran going to Hezbollah will also find its way into the economy. The burden of feeding, housing, schooling and providing services such as electric power will shrink as more and more Lebanese emigrate and its giant population of refugees decides to return home or move to a third country. Unfortunately, the Lebanese emigrants will mostly be the best and the brightest, but we’re talking about muddling through, not an economic turnaround.
That doesn’t add up to a brilliant future for Lebanon, and that’s especially tragic because it should be a country that is thriving economically. The Lebanese have a long history of trade and business, and it has a large and successful diaspora to draw on. Lebanon’s Human Development Index was relatively high before the crisis. It was a tourist magnet and cultural center in its heyday, and could be a natural gas exporter if it ever gets its act together.
As the French envoy said this week, the fact that Lebanon has fallen to the dismal state that it is in is almost entirely due to a corrupt and self-serving political class that refuses to govern or cede governance to anyone else. Unfortunately for the rest of the Lebanese, muddling through will allow them to stay just where they are.