Opinion

For Lebanon’s Leaders, Reforms Are the Last Priority

The people in power who created the crisis have too much invested in the system to abandon it in the face of mass protests, and they have no plans of leaving

Demonstrators carry national flags and banners during an anti-government protest in downtown Beirut, Lebanon October 20, 2019.
Ali Hashisho/Reuters

“The Power Of The People Is Stronger Than The People In Power,” claimed a placard held up during the ongoing protests in Lebanon.

It’s a compelling idea and clearly one that is animating the protesters disgusted by the dire state of the country’s economy and the inability of the politicians to do anything about it.

In Lebanon's case, however, my bet is with the people in power.

Lebanon is teetering on the brink. The country has one of the highest debt rates in the world and has been running huge budget and current account deficits for years. Poverty is endemic, unemployment is high and economic growth has stalled.

The government barely supplies basic services, so forest fires go unfought, electricity is sporadic, garbage isn’t collected, the tapwater is unhealthy and the telephony rates are high.

The situation has been like this for years. Lebanon kept itself afloat by aid from the Gulf and money deposited by wealthy Lebanese expats in local banks. These days, however, the Gulf oil states are less generous. Low oil prices have left them with less spare cash to dole out. Nor do they want their money to go to an Iranian ally like Hezbollah.

Depositors are also getting cold feet. Even generous rates of as much as 20% are no longer bringing in foreign money, because the economy’s in such deep distress and one of its pillars – the dollar peg in force since 1997 – is under threat. And then there’s the added stress from tighter U.S. sanctions on Hezbollah-affiliated banks and the one million-plus Syrian refugees. But the fundamental problem is the system itself.

Promises, promises

Lebanese protesters rally in downtown Beirut during ongoing demonstrations to demand better living conditions, on October 21, 2019.
Joseph Eid/AFP

After much dilly-dallying and a series of false flag reforms, like the 2019 budget, Prime Minister Saad al-Hariri on Monday unveiled plans to salvage the situation. Broadly speaking it offers an angry public and worried investors two things.

On the fiscal front, it promises to cut the deficit to just 0.6% of GDP from a previous (fantasy) target of 7% and to reduce subsidies to the state electricity monopoly by hundreds of millions of dollars. No new taxes will be imposed on individuals, but Lebanon’s banks will have to pony up $3.4 billion in one-time taxes.

On the corruption and self-dealing front, the plan calls for a 50% cut in the salaries of politicians and ex-politicians, a crackdown on smuggling, scrapping obsolete government bodies, a vow to create an anti-corruption body by the end of the year and the establishment of regulatory bodies for electricity, telecommunications and civil aviation.

And, to address the problems of ordinary Lebanese, the budget contains some help for the poor and home buyers and accelerating construction of new power plants to cope with the electricity shortage.

Even Ama pearl divers shouldn’t hold their breath waiting to see if this all actually happens. The people in power who created the crisis have too much invested in the system to abandon it in the face of mass protests, and they have no plans of leaving.

Lebanon maintains the façade of a democracy, but it isn’t in the sense that there is never any real change in power. Instead everyone at the top gets a piece of the action from the "confessional system" that awards government offices and the spoils that come with them according to religious affiliation. The same people have been in power since the Taif accords ended the country’s civil war in 1990.

They are the ones living off government largesse. They profit from smuggling, and the luxury real estate development that is a mainstay of the economy. They control the banks that are the other mainstay and profit from financing the government’s deficits. They make money by providing the electricity the state monopoly can’t.

Lebanese Prime Minister Saad Hariri speaks during an address to the nation, in Beirut, Lebanon, October 18, 2019.
Hassan Ammar/AP

Hariri’s reforms don’t offer any real answer to the problem of corruption. His promises in that respect are things for later, and more probably not at all.

If the system were less dysfunctional, the elite would be better able to act. The system is clearly economically unsustainable but each constituent of the confessional system has veto power, and reform invariably will create winners and losers. It has no way of stopping the train even if it is about to careen off a cliff.

Hariri hoped to wrangle some money from the United Arab Emirates, just like in the good old days. This week’s measures are aimed at obtaining $11 billion in grants and soft loans promised last year by Western and Arab donors in exchange for reforms.

But the one measure those in power won’t consider is surrendering it. That augurs ill for Lebanon, not only economically but politically. Already the first signs that the elite is ready to use violence to end the demonstrations have appeared. 

Hezbollah leader Hassan Nasrallah says he supports the protesters' demands in principle but has made clear he won’t tolerate talk of a new government, even one composed of confessionally neutral technocrats. Hezbollah not only has a stake in a corrupt system: it has nothing less than an army to make sure it stays in place.