Lebanon’s Woes Will Take It Straight Into Iran's Arms

The reform plans are just for show. In the end, Lebanon's financial crisis will tighten the grip of Hezbollah and Iran

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A man walks near burning tires during a sit-in protest against the fall in pound currency and mounting economic hardship, in Ghazieh, south of Lebanon, Lebanon June 12, 2020.
A man walks near burning tires during a sit-in protest against the fall in pound currency and mounting economic hardship, in Ghazieh, south of Lebanon, Lebanon June 12, 2020. REUTERS/Aziz TaherCredit: AZIZ TAHER/ REUTERS
David Rosenberg
David Rosenberg

No-one watching Lebanon sink into a mire of poverty and dysfunction can have anything but sympathy for the protestors who have returned to the streets in the last few days after a coronavirus-forced hiatus.

Their grievances – a devalued currency, massive unemployment and inflation and the money they have trapped inside the banks – are very real. But the protestors themselves are nothing more than a bit players in an elaborate drama written to convince everyone on the outside that Lebanon is reforming the system of corruption and mismanagement that led to financial crisis.

The grim reality behind the scenes is that neither a bailout nor reform is imminent. On the contrary, Lebanon is on its way to joining Syria, Libya and Yemen as a failed state –  or more precisely, a semi-failed state dominated by Iran’s ally Hezbollah.

On stage, we have watched a chastened Lebanese leadership cede control of the government to a cabinet of technocrats led by Prime Minister Hassan Diab. That government has produced a reform program, unveiled in April, that expertly diagnoses the country’s problems and proposes a comprehensive program for exiting the financial crisis.

The actor on stage promises to reform just as he's been asked to: he'll restructure the banking sector, he'll make depositors take big haircuts on their savings, and demand that they pay back the fat dividends and interest income they had enjoyed at Lebanon's expense.

An alert audience might notice that the actor doesn’t propose addressing the corruption and waste that’s at the root of Lebanon’s financial woes, but they can’t help but be impressed by the performance. We’re willing to make painful sacrifices, just help tide us over, Lebanon says. The audience is in tears.

Now, enter the International Monetary Fund stage right. The players enter into negotiations about an aid package amid expectations that a deal is within reach and had been reached. The audience is waiting with bated breath.

The next act in this drama hasn’t begun, but it will almost certainly show the IMF storming off stage in frustration while Lebanon turns to the audience, many of them holding up placards and turning over dumpsters, to offer a soliloquy about how he did his best but alas the IMF just won’t help. We’re on our own now and we’ll do our best to reform. The curtain falls.

With all due respect to Shakespeare, however, not all the world’s a stage. Off stage, Lebanon’s leadership has no interest in an IMF bailout because the price is impossibly high. It’s not just that the IMF demands austerity in exchange for help but an end to the system of patronage that’s at the heart of the Lebanese political system. Lebanon’s leaders might be willing to countenance a big drop of ordinary people’s standard of living. They might be willing to give creditors a haircut. But they are not willing to destroy the system that keeps them in power.

Lebanon could theoretically get its finances in order, if there was the political will to do it. Its high-cost, short-term debt could be converted into more manageable low-cost, long-term debt, but unless the corruption that caused it to amass debt to begin with is reined in, Lebanon will be back hat in hand in a few years.

Only when the curtain does come down and the actors have taken their bows will Lebanon deal with its problems, and it won’t be pretty.

When the curtain falls

Apart from the IMF and the collection of Western and Gulf countries that have offered $11 billion in aid in exchange for reform, Beirut has no one to turn to for financial assistance. That leaves Iran and its local agent, Hezbollah.

Iran and Hezbollah don’t have the financial resources to rescue Lebanon, but they can leverage the crisis to tighten their grip on the country. One way would be to implement “reforms” that target their political opponents, for instance by imposing consolidation on the banking sector, which is controlled by Christian and Sunni interests. Another is to order selective haircuts that spare Shia depositors. Since there is no shortage of malfeasance to investigate, they could keep investigators busy for years just targeting their opponents.

The Lebanon that emerges from this would likely be poorer, more corrupt and even more dysfunctional than it is today. But at the risk of sounding too cynical, that’s not such a big problem for Iran. The rest of its Middle East empire, in Iraq and Syria, operates much the same way.

It’s not an ideal arrangement for a hegemon, as the economic crises in Iraq and Syria demonstrate, but for a financially hard-pressed hegemon, it’s the only one it can afford. The political benefits of weak and failed states unable to resist Iranian encroachments are adequate compensation.

As for the Lebanese, my advice to the protestors would be to wise up. They played the role of Greek Chorus effectively, but the drama is almost over.

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