Not a single Lebanese company bid in the city of Beirut’s recent tender to fix the street lights along the main roads and in tunnels. In the past tenders of the sort were the bread and butter of private companies and of course, of officials who pocketed pretty hefty fees.
Meanwhile, the corporation collecting and processing trash in Beirut announced that it will stop honoring its agreement with the city unless payments to it are adjusted to the real exchange rate of the dollar. When the contract was signed, it was worth $14 million to the Lebanon company, payable in Lebanese lira. Today its value has sunk to about $2 million.
Just those two examples – and there are countless more – suffice to attest to the magnitude of the crisis Lebanon faces, and to the utter lack of faith the business sector has in state and local government institutions.
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In large swathes of Beirut, the streets look like war zones after the civil war, which ended in 1990. Traffic lights are broken or just malfunctioning. Construction detritus that piled up after the Beirut port blast last August lies unhandled. Sections of buildings that were damaged await repair but there’s no telling if and when that might happen. Street lights are shattered, the roads are potholed, manhole covers to the drainage system are missing – stolen by metal thieves. Long lines stretch at the gas stations and bakeries have had to jack up the price of pita because of shortages of flour and wheat. These are the sights characterizing the city.
Among the bits of bad news landing on Lebanon’s six million people, the worst was probably the one making it clear that this month, the power supply will be available for even fewer hours a day, because the national electric company doesn’t have the wherewithal to buy diesel fuel to power its stations. Lebanon could face total darkness, its finance minister said after the constitutional committee held up implantation of a law that would have arranged a $200 million loan to the company to buy fuel.
“This is money that belongs to Lebanese depositors, which is at the central bank. We have to check whether the loan doesn’t impair the depositors’ rights,” it was stated on behalf of the constitutional committee, which has yet to say when it will hand down its decision about the loan’s legality.
But even if the committee does approve the loan, it won’t suffice for long. The electric company needs a steady, reliable source of financing. Nor is that the only money needed by the company, which is responsible for about half the country’s budget deficit.
Not that Lebanon has an approved budget this year. It’s operating based on the framework of last year’s budget.
The electric company owes more than $175 million to the Turkish company Karadeniz, which operates the power generation barges off Lebanon’s coast; it also owes about $100 million to the company responsible for distributing power to households. These debts have been dragging on for years and Karadeniz has meanwhile stated that unless the government settles the bill, it will remove its floating power plants from Lebanon – and they supply 20 percent of its power.
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Not coincidentally, last week an investigative judge in Lebanon halted all payments to Karadeniz and ordered the vessels not to be allowed out of Lebanese territory because of suspicions that the Turkish company had defrauded the electric company, not met its obligations, and even paid graft to Lebanon officials.
But the original sin behind Lebanon’s power supply was in 1994, when the price of power to consumers was set at 9.2 cents per kilowatt, since which time it has increased only slightly, while the cost of power generation has passed 21 cents per kW.
There is a consensus that the electric company needs to be restructured from head to toe. Stations operating on diesel need to be converted to natural gas, which would save about $200 million a year and pollute the environment rather less; power lines need replacing; and the theft of electricity has to be stopped. But mainly, the company needs efficient, professional management; the rates it charges need revision; and the giant holes through which money is pouring from it into private pockets need plugging.
The constitutional committee knows the company’s chronic ills all too well and is justifiably worried that approving the new loan will just pour more money, that belongs to the people, down the drain. But it can’t wait for reforms any more.
Lebanon doesn’t have a functioning government; the country is being run, if that can be said at all, by a transition government that can’t make decisions. In April the finance minister Ghazi Wazni announced that as of this month, the country is cutting back subsidies on about 300 staples, including flour, oil and gasoline.
The new list encompasses just 100 products, for which the government’s subsidies will gradually be reduced. The goal is to reduce subsidies, which presently cost about $6 billion a year, by about half. One upshot already in evidence is that the prices of basic goods have shot up madly.
According to figures from the World Bank, more than half the population of Lebanon is already living below the poverty line, the middle class is about to vanish altogether, but meanwhile a thin layer of wealthy people, major importers and friends of the regime continues to benefit from the crisis. If anything it’s enriching them even more.
Drugs take a toll on farmers
To round out the blows Lebanon is taking on the economic front, Saudi Arabia warned last month that it won’t be importing agricultural produce from Lebanon any more, after recent shipments were found to contain large amounts of Captagon amphetamine pills – about 57 million pills in recent months, for illicit distribution in the kingdom, according to the Saudi ambassador to Lebanon.
Saudi Arabia imports about 22 percent of all Lebanon’s agriculture output; agriculture is responsible for about 3.2 percent of the national GDP. A blow of that size to the sector will badly hurt the rural population, which is sunk in the general poverty to begin with. There’s no point in discussing compensation for the farmers because the nation doesn’t have the money for that sort of thing, and its foreign currency reserves have reached the red line, below which Lebanon won’t even be able to import basic goods or essential medicines.
The establishment of a consensus government is a necessary condition for any reforms plan and for foreign aid. Without it, Lebanon won’t be able to get the donations it’s been promised, totaling about $11 billion, and a roughly identical amount it hopes to borrow from the IMF. The justifiable fear is that every dollar will simply to go paying off debt at best, or to the pockets of cronies as usual, but won’t go to fix infrastructure or build plants that could supply jobs.
The political discourse today does not indicate any foreseeable solution to the profound rift between the appointed prime minister, Saad al-Hariri, and President Michal Aoun about the constitution of a new government.
But even if one were to be established now, if it tries to impose an austerity program, it would face tremendous public rage. As an ounce of prevention before reform, the government decided to help 800,000 needy families: Each will get the equivalent of $137 per month for four people, a miniscule sum that will suffice for nothing, not that there’s any agreement yet about where the money will come from.
Lebanon is a failed state running on fumes, waiting for the next explosion on its streets.