Bloomberg: Lebanon is a bankrupt country with its public and private sectors
Bloomberg began the article on Lebanon by saying: “Finally, a government was formed in Lebanon, after a period of collapse that lasted 13 months under the caretaker government. It is very good news for a country suffering from the consequences of economic collapse, political intransigence, financial irregularities, the interference of foreign powers, as well as the still mysterious explosion of the Port of Beirut last year that devastated the capital.
The announcement of the formation of the government on September 10 was accompanied by an immediate and noticeable recovery in the value of the Lebanese pound, as its formation allows Lebanon to obtain hundreds of millions of dollars promised by donors and assistance from the World Bank in the amount of 546 million dollars and an expected amount of 860 million dollars in drawing rights allocations for the International Monetary Fund.
But all this is only a temporary alternative. Najib Mikati’s return to power as prime minister or the familiar makeup of his new government does not really inspire confidence.
The country’s political leaders, especially Hezbollah, did not agree to form the government except because the option of further procrastination was no longer available. It was the central bank that forced politicians to rearrange the chairs. On August 11, Central Bank Governor Riad Salameh announced the lifting of fuel subsidies, which plunged the country into a desperate crisis.
Without hydrocarbons, there is no electricity, transportation, and many of the basic needs of modern society. In fact, Salameh was confronting President Michel Aoun and his ally Hezbollah, and indeed all politicians, with a simple truth: the state had become bankrupt on both the public and private levels.
Lebanon imports almost everything and relies heavily on its financial sector, so it is in such a very difficult situation. For several decades, Lebanese banks have been doing something like a giant pyramid scheme or a Ponzi scheme, paying depositors exorbitant interest rates on simple deposits, and contributing to the continuity of the government by lending to the state indefinitely.
However, the mass protests that began on October 17, 2019 against official corruption and inefficiency, have triggered an economic crisis. As the economy faltered, it turned out that the foreign currencies that banks claimed they held on behalf of depositors and could lend to the government did not in fact exist.
The bubble burst. Lebanon plunged into an existential crisis. He needs the IMF and the international community to recapitalize his banks, or he will never be able to recover.
With electricity outages, refrigerators stopped, queues of cars lined up, hospitals struggle for continuity, and work was disrupted in most Lebanese regions for the most part, even these masters of inaction were forced to act. Hezbollah in particular felt clearly weak. Regional powers that operate independently of Iran, such as Saudi Arabia, the United Arab Emirates, and even Syria, may find it very easy to gain influence in a completely impotent state, which may constitute a serious threat to its control with Iran over the political system.
The party is said to have put too much pressure on Aoun and his ambitious son-in-law, Gebran Bassil, to accept the formation of a government that does not appear to have enough supporters to secure an effective veto. It seems that Tehran and Hezbollah have concluded that this stalemate has become too dangerous for them, so they concluded a deal with French President Emmanuel Macron to negotiate the formation of the new government. The latter intends to distribute ration cards in US dollars to five hundred thousand of the poorest families.
On the other hand, the remaining subsidies on all fuels will be lifted, which means that gasoline and other fuels will become available again, albeit at high prices. However, in reality, nothing has changed. In order for the International Monetary Fund and donors to secure new funds, the Lebanese state will be required, among other things, to make important concessions in terms of accountability and transparency, at least creating a safety net for most of the Lebanese people who have plunged into extreme poverty, so that they do not have to resort and rely on alms that will increase scarcity. .
It is precisely those concessions that political leaders do not want to make, not only because they somewhat diminish their influence and privileges, but also because they would force them to accept basic disturbing facts, such as how much money was looted—and by whom—and how the burden of refinancing was shared. The traditional centers of power, all of which are already represented in the new coalition, fear the economic and political bargains that the International Monetary Fund and donor countries will require in order to recapitalize the crumbling financial system.
Lebanon will rest for some time from the arrival of aid and suspended loans. Those in power will have to use this time to finally reach a long-term understanding with the IMF, without which there is no longer-term solution. This period of time is also supposed to be an unmissable opportunity for the international community to compel the Lebanese leaders to make serious concessions in terms of transparency, accountability and responsibility.
Lebanon may have had some breathing room. However, one thing its leaders – and the world around it – should not forget is that Lebanon’s existential crisis is not yet over.
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