Lebanon in the Eye of the Storm

The Lebanese crisis has become more linked and even dependent on the regional impasse, especially following Hezbollah's entanglement in the Syrian war and around the region from Iraq to Yemen. The region has been witnessing major geopolitical transformations, which could change the map of influence drawn by the US after the Second World War and set after the Cold War. US influence and interests are starting to face a challenge from Russia and China, who joined the equation alongside Iran and its Syrian ally. Russia's establishment of military bases on the Syrian Mediterranean coast and China's attempt to access warm waters through Lebanon attests to that, not to mention the continuous Israeli occupation and its government's policies, as well as Turkey's novel role. Chinese companies, for example, offered to build gasification and power plants in two points on the Lebanese coast (Silaata and Zahrani), requiring the construction and equipment of seaports that may form the envisaged Chinese foothold on the Mediterranean.

Recently, China and Iran announced a 25-year US$400 billion deal ($280 billion for oil and gas and $120 billion for investments in infrastructure). It will allow China to use Iranian lands to establish military bases and use Gulf ports for warships. Russia also agreed to deploy surface-to-air missiles (SS400) in Iran, in exchange for the use of Iranian airspace and ports. The above situation adds a security-military dimension to the transformations.

The US replied by imposing sanctions on Iran, Syria, and the Lebanese Hezbollah (the Caesar act that came into effect this July), on the one hand, and to escalate its political attacks through Iraq and Lebanon and military assaults in Yemen and Libya against the Chinese-Russian-Iranian alliance, on the other. And as the Iranians play the waiting game for the upcoming US presidential elections, hoping for a change in foreign policy, leading presidential candidate Joe Biden appears to be more inflexible regarding Iran, China, and Russia.

Amidst this regional and international reality, Lebanon finds itself in front of a complicated and multidimensional crisis. The country has been facing financial and monetary collapse brought about by a significant shortage in foreign currencies in an economy that is 70% Dollarized. Its banking sector is in the midst of something akin to an undeclared bankruptcy. Public debt has surpassed 170% of the GDP, at a time when both the state treasury, the balance of trade payments, and the public budget suffer from a large deficit.

However, it is also a reflection of a deep and formidable economic crisis, above all, due to the disintegration of the real and productive economy and the shift to a form of rentierism dependent on the banking, financial, and real estate sectors, as well as tourism and other services. At its core, it is also a deep political crisis in the nature and structure of the regime, manifested in ineffective state oversight bodies, including Parliament. The consociational nature of governance transformed the Council of Ministers into a mini-parliament where all blocs are represented. The formula spread to all state institutions, judicial, administrative, and financial, disrupting their role and allowing the borrowing and spending without oversight. Between 2005 and 2015, for example, the state budget was frozen and never discussed in Parliament.

The October 17, 2019 revolution was brought about by the financial crisis and the general deterioration of economic and social conditions that seriously threatens the livelihood of the population in Lebanon. Establishments had started to close shop, dismiss workers, or reduce their salaries. Inflation has led to a frantic rise in prices, pushing 50% of the population into poverty and employment to more than 25%. Adding to the calamity and revealing some aspects of the structural imbalance in the Lebanese economy before the crisis, 55% of the workforce had been in the informal sector, and the unemployment rate for university graduates had reached 36% in 2018/2019.

The financial crisis surfaced in August 2019. Local currency prices began to be manipulated, and banks imposed restrictions on financial transactions, a trend that escalated after October 17. The Revolution had called for the resignation of the government and the appointment of independent figures to

reconstitute powers, though strengthening the independence of the judiciary and holding accountable for corruption those who wasted public money and caused this crisis. It demanded that measures be taken to recover looted public and private money and organize early parliamentary elections based on a new electoral law and the election of a new President. It also called for the implementation of the Taif Constitution in terms of establishing a civil state and the abolition of sectarianism.

Following the government's resignation, the political forces in power began a counter-revolution, suppressing activists by all available means, including the use of irregular militias (affiliated with their parties) to attack protesters in their areas of political and confessional influence in a country whose political and administrative systems are built on sectarian power-sharing. The applied para-martial measures included the arrest and intimidation of activists and journalists in contravention of the law, as well as intentionally sending agents to the demonstrations to cause trouble.

These practices allowed the authorities to subdue the voices of the Revolution and appoint a puppet government whose members appear to be independent, but who owe their loyalty to those who appointed them. Moreover, the vote of confidence the government was unconstitutional, as all roads leading to Parliament had been blocked, and only some MPs managed to sneak in. The session started before reaching quorum, in clear violation of the Constitution. The government won confidence with a meager majority, based on a modest ministerial statement. It asked for 100 days to carry out the necessary reforms to surpass the crisis. However, Lebanon was closed immediately after that due to the Covid-19 pandemic that swept the world and led to significant changes in international relations, as European and American shut down entirely and refrained from international activity for some time. In Lebanon, as in other countries, the pandemic was a lifesaver for the regime, which utilized it to entrench authoritarian tendencies, suppress the protests, and transform a health emergency into a state of security and political emergency to restrict freedoms.

The 100-day deadline the government requested to implement its promises passed without any accomplishment worth mentioning. Instead, Lebanon refrained from paying its dues to creditors abroad and at home, knowing that most of the internal debt was held by Lebanese banks that preempted the move by selling it internationally (to falcon funds) at 70 % of its value to protect their capital, which they had transferred to banks outside Lebanon. It should be noted that the overlap between the banking sector and the ruling political class is profound. For example, a report by the American University of Beirut experts had indicated that Lebanese politicians owned 30% of bank shares in the country.

Thus, negotiations with the IMF became mandatory for Lebanon to receive aid or loans from the international community. Since 2017, the IMF had been proposing a series of necessary "reforms," and the CEDRE donor conference held in Paris in 2018 had proposed a package of financial, economic, and administrative reforms as a condition for obtaining the funding to save the country. Nevertheless, as a result of the confessional and partisan quota system, which benefits the powers that be and their cronies, the Lebanese political administration refused to carry out any reforms or measures to stop the waste in the public sector.

One key area is the reform of the electricity sector, including the establishment of power plants to save between one and a half and two billion dollars wasted annually. Furthermore, there is a growing need to control legal and illegal border crossings and stop tax and customs evasion and cross-border smuggling, which costs Lebanon about four billion dollars annually. Other required reforms include the restructuring of the public administration, which consumes 30% of the annual budget due to the political appointment of associates, on the one hand, and the inflation of public senior official salaries and allowances (7% of employees account for 50% of salaries, which sometimes reach 50 times the wages of ordinary employees). Furthermore, there is a need to stop waste in public facilities due to consensual contracts, contrary to international principles for public procurement. Advice from Lebanese experts, on the other hand, focused on the need to increase taxes and fees that affect the rich through income taxes, taxes on companies and real estate inheritance, and adjusting the value-added tax to affect luxuries in the first degree (knowing that the value-added tax revenues constitute about 70% of the total tax revenue, which indicates the lack of justice in the Lebanese tax system).

Lebanon will not receive the support of the international community before seriously implementing the required reforms. However, instead of a genuine, participatory social dialogue, the government started a conflict with the banks, the political forces behind them, and the central bank over determining the losses and, thus, the responsibilities. In its recovery plan, the government called on the banking sector to recapitalize, using the tremendous profits from inflated interest rates at the expense of public finances, and to exempt the state from a significant portion of its debt. The banks, on the other hand, including the Central Bank and the political class, want the state to bear the majority of losses and sell its assets to ensure the necessary liquidity to get the economy moving again. In the middle ground, there is a growing call to establish a recovery fund to collect all state assets, property, institutions, facilities, and begin a SWAP process following their valuation, turning the assets to money in the banks. However, amidst this back and forth in the regime, the absence of citizens and vulnerable social segments is palpable, including the poor and middle classes and the majority of the business community outside the circles of power and money united at the top of the financial and political hierarchy.

Between the internal impasse related to a comprehensive political solution and the regional deadlock and deteriorating situation with Russia and China's advance, the Maronite Patriarch called for Lebanon's neutrality. In the direct sense, this means that Lebanon should leave regional conflicts, including Hezbollah's retreat from Syria and other countries and its abandonment of the Iranian project in the region. The other camp must also give up its support to Gulf and US policies and adopt a policy of positive neutrality in international relations. The position from the Arab-Israeli conflict and rejection of implantation remains part of the Lebanese consensus, as well as membership in the League of Arab States and its Charter and the international community through the UN, its Charter, and principles. However, the Patriarch's call is more about international law in its approach to neutrality than internal political transformation and choices. It comes at a point of escalating international conflict in the region and is limited to foreign policy solutions, without regard to the issues mentioned above.

Any solution to the current crisis should go back to the primary demands of the October 17 Revolution, the reestablishment of authority through the government's resignation, and forming a government with legislative powers to enact the necessary economic and financial reforms to survive the crisis. In addition, it should aim to reinforce the independence of the judiciary to enable accountability for corruption and apply mechanisms to recover the looted money. It should form an independent elections commission, adopt a new electoral law, and elect a new President of the Republic.

In this context, the October 17 Revolution called for the establishment of an independent, civil state with full sovereignty over its internal decisions and foreign policy, including the withdrawal from all regional axes on all sides; gaining control over a balanced foreign policy that respects its national interests; and the state alone, as a representative of the Lebanese people, having the exclusive right to possess arms and decide over war and peace.

Can Lebanon surpass this situation, which is undoubtedly not temporary and has led to a multidimensional existential crisis requiring a comprehensive and subjective approach and whose burdens should be distributed on the various components of society in a fair manner?