Lebanon’s economy on ice

Hassan Al-Qishawi , Saturday 1 Feb 2020

The extent to which the new Lebanese government is committed to reforms will decide whether the international community assists in saving Lebanon

Lebanon’s economy on ice
A protester carries an unconscious woman during a demonstration in Beirut, Lebanon (photos: AFP)

By Lebanese standards, the government of new Prime Minister Hassan Diab was formed at lightning speed. One month after he was tasked with forming a cabinet, Diab announced a government supported by the 8 March Alliance, Hizbullah, the Amal Movement and the Free Patriotic Movement.

Lebanon is suffering from an unprecedented economic crisis, and the government is coloured in the same way. Although the new cabinet is formed of technocrats, for many people it is a government of Hizbullah and its allies or of advisers to former ministers.

Lebanese President Michel Aoun and Diab signed the decree to form the new government at Beirut’s Baabda Palace. Secretary-general of the cabinet Mahmoud Makiya said it was formed of 20 ministers, including six women, none of whom had shouldered political responsibilities before. However, all the ministers are known to be affiliated to leading political parties.

Diab said the new government “expresses the aspirations of the protesters who have taken to the streets during more than three months of anger. The government will work to fulfil their demands.” He added that it was a “salvation government,” saying that it would be quick in dealing with the country’s economic and financial pressures.

At a press conference following the announcement of the new government, Diab said that “we sailed against the wind until we formed the first cabinet in the history of Lebanon with strong qualifications to save the country. I salute the revolution that has pushed in this direction and given victory to Lebanon.”

Nevertheless, anti-government protests flared up in Beirut, with demonstrators blocking the capital’s roads. Some people expressed their doubts about the independence of the new technocrat ministers from the establishment of political parties, revealed through fights between the parties over ministerial portfolios.

Some statements released by Diab and other ministers echoed negatively on Lebanon’s streets. Diab said that dismissing Lebanese Central Bank governor Riad Salameh was “out of the question,” for example, when the protesters have been expressing their rage over the bank’s policies and holds him responsible for them.

Finance Minister Ghazi Wezni said a devaluation of the Lebanese pound to 1,507 LBP to the dollar was currently impossible.

Meanwhile, former prime minister Saad Al-Hariri said the new government should be given an opportunity to do its work, and Walid Jumblatt, president of the Progressive Socialist Party, said that “any government is better than nothing, and it is better to break boundaries than be lost in the game of nations.”

Lebanon needs international economic assistance to overcome its present crisis. This was clear in Aoun’s speech, in which he said the country needed to work to restore the trust of the international community. Wezni also said that Lebanon needed foreign help, pointing to the need for soft loans from international donors ranging from $4 billion to $5 billion to finance imports of wheat, fuel and medicines.

French President Emmanuel Macron said his country would do all it could to help Lebanon. France sponsored the Cedar 1 Conference in April 2018 that was meant to provide Lebanon with about $12 billion in grants and loans at an interest rate of 1.5 per cent from Arab and European countries and banks and international institutions to be invested in infrastructure and generating jobs.

Giving Lebanon the money promised at Cedar 1 was conditional upon reforms its guarantors dictated, however, and Lebanon has tied the grants to political conditions as well.

Mike Pompeo, the US secretary of state, told the US news agency Bloomberg that the US was ready to offer support, but only to a government committed to reforms.

The US has imposed sanctions on Hizbullah leaders and affiliates, and it removed the Lebanese Jammal Trust Bank from the US Treasury Department’s Office of Foreign Assets Control, which led to its liquidation on charges of providing banking services to Hizbullah.

The irony is that 12 ministers in the new cabinet are US nationals with ties to Washington and institutions affiliated to the US administration. Many observers believe that selecting these ministers was not a coincidence. They believe Hizbullah wanted to relay a message to the international community that it was an integral part of Lebanon and wanted to maintain good relations with the West.

Hizbullah does not want to isolate itself or Lebanon, and media reports have said that the new government was the result of communications with international bodies, prime among them the French government and the UN.

For many countries, the new Lebanese government is not Hizbullah’s alone, especially since the US prefers to wait until it gets a better picture about the government based on the reforms it will embark on. The European countries share the US position.

In addition to the issue of Hizbullah, there are other subjects of interest to the US in Lebanon, such as the maritime border demarcation between Israel and Lebanon where gas and oil fields are located on the disputed border, and the security of Israel.

There is still the possibility of US escalation against Hizbullah and its allies, however. Lebanese political and banking circles are circulating information that the US will impose sanctions on a number of Lebanese former ministers, officials and businessmen based on charges of corruption and the abuse of authority.

According to this information, US regulations based on the Magnitsky Act are ready to be imposed. The law was passed by former US president Barack Obama and aimed to impose punitive measures against Russian government officials accused of corruption. It was amended in 2016 to include sanctions for human-rights violations and on officials accused of corruption anywhere in the world, in addition to freezing their financial assets and preventing them from entering the US.

In 2017, the new law was activated, and US President Donald Trump has used it against companies and businessmen across the world, focusing on corrupt contractors and government officials.

US reports have repeatedly accused Lebanese officials, especially those from Hizbullah, of corruption, saying the party and its allies are “living off” Lebanon. It has yet to be seen whether the US will welcome the new Lebanese government on the international scene or whether it will regard it as Hizbullah’s government and cut ties with it.

*A version of this article appears in print in the 30 January, 2020 edition of Al-Ahram Weekly.

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