CWA # 331

The Middle East

Lebanon: Can Macron's visit prevent the unravelling?

Samreen Wani 10 September 2020

Photo Source: AlJazeera

With currency in freefall, dwindling savings, skyrocketing inflation, shrinking minimum wage and a vanishing middle class, the stakes for failure in Lebanon are very high. President Macron's intervention in fixing Lebanon while his own popularity dips back home is a huge risk. 

"We pay taxes to fund our suffering" - a protestor in Lebanon.

The French Commitment: No carte blanche
The 'Draft programme for the new government' that was circulated among heads of various political factions by the French Embassy seemed more like a to-do list of commitments. That the French felt the need to spell out even the most obvious administrative fulfillments like completing judicial and administrative appointments, strengthening oversight at the Beirut and Tripoli port and implementing customs reforms is quite an admission of the bureaucratic competence thus far. Macron, however, insisted that assistance and aid are conditional to factional unity and not a carte blanche. Non-compliance by the otherwise discredited politicians will be met with the proverbial stick of sanctions. Although how and when it will be applicable remains unclear. What remains clear is that Lebanese administration is essentially being run from Paris. 

The Draft makes it incumbent on the Lebanese government to resume stalled negotiations with the IMF and approve a clear roadmap to work with it in areas of capital control, structural reforms and in conducting an audit of the Central Bank. The IMF had set debt restructuring as a pre-condition for unlocking the financial rescue plan. 

The face of corruption in Lebanon
However, all of the above is easier said than done because Beirut has a severe problem with institutionalized corruption. Former Prime Minister Fouad Siniora is accused of misappropriating almost $11billion while in office. A $35 million EU waste management scheme turned out to be a  scam in May 2019, with most of the funds being directed to Hezbollah. Alain Bifani, former Director-General of the Finance Ministry reveals that bankers smuggled as much as $6 billion out from the country while restricting cash withdrawal for small depositors to $100 per week. The graft goes all the way up to the Central Bank which has normalized the practice of keeping the government finances afloat by siphoning off funds from the local banks at high-interest rates and is currently sitting on losses worth $40 billion.

Despite being a part of the problem, the Central Bank in late August asked domestic banks to implement a debt restructuring plan that analysts say has some shortcomings. Steve Hanke, director of the 'Troubled Currencies' project at the Cato Institute tweeted a roadmap to stabilization on 31 August - "In order to exit its broken economic system Lebanon must begin by putting politicians in monetary straitjackets. Establish a currency board to save the pound and smash inflation".

The Challenges remain
As France has committed to rallying international aid in an October donor conference, it is decided that the donors will channel all the money into the country through NGOs and charities to check any leakage in funds. But France has encouraged aid dependency in the past as well by hosting donor conferences four times in the last decade. However, the required funds never made it to Lebanon as donors were unwilling to deal with Hezbollah. In a press conference following his visit, Macron sounded accommodative while hinting at the group's possible inclusion in the latest process of reform. 

The Draft Programme calls for greater inclusion of civil society by changing the electoral law historically based on religious factions. Power-sharing in the Parliament based on sectarian lines and backed by opposing international powers has been a hindrance to effective governance and the reason behind rampant cronyism. Macron was met by protestors on the streets who were demanding change not only of those who wield power but of the entire system that perpetuates cycles of loot and elitism. Sadly, with the appointment of little known Mustapha Adib as the new PM without any clear timeline for elections, it seems like the warlords-turned-politicians will still hold a significant sway for now.    

Even the time frames set by the proposed Draft are unrealistic considering that in practice meeting short term deadlines on public procurement reforms, finalizing a draft law on capital control and passing a 'harmonized' budget for 2021(within three months) are all subject to the timely formation of a caretaker government which have on previous occasions taken months to form. Since sectors of the economy are individually tied to separate ruling factions, any meaningful overhaul in the economy without changing the arrangement of the political class seems very delusional. A significant indicator of how seriously the elites are in stabilizing the economy will be clear once the Selaata Power Project comes up for discussion. The Draft calls for scrapping the controversial project that was flagged by the World Bank due to its financial viability but remains a priority for the Christian faction FPM led by President Michel Aoun. 

The World Bank ranks Lebanon 155 of 209 countries in government effectiveness. Even a month after the deadly explosopm, the government remains conspicuously absent from relief and rescue operations. With currency in freefall, dwindling savings, skyrocketing inflation, shrinking minimum wage and a vanishing middle class, the stakes for failure in Lebanon are very high.

President Macron's intervention in fixing Lebanon while his own popularity dips back home is a huge risk.

As Bobby Ghosh for the Bloomberg Opinion writes "There is nothing pragmatic about expecting turkeys to vote for Thanksgiving".

The above commentary was published in Conflict Reader, part of the International Peace Research Initiative at the School of Conflict and Security Studies at NIAS.