The Political and Economical Crisis of Lebanon - Seeker's Thoughts

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The Political and Economical Crisis of Lebanon

Lebanon is no stranger to political vacuums, having been embroiled in multiple crises over the years that pitted Saudi-backed Hariri against Iran-backed Hezbollah. Hariri has resigned due to pressure from protestors. 

 Hariri's national unity government, first formed in 2016, brought some years of stability as the two foes set aside their differences.

He emerged as a leader of the country's Sunni sect, and became mired in political battles with Hezbollah and its allies. The period was riddled with sporadic violence and stalemates.

But it also presided over a floundering economy.
Decades of government mismanagement and widespread corruption have crippled Lebanon's finances, adding pressure to the currency and causing the debt to swell.

The country has one of the world's highest debt-to-GDP ratios and around a third of the its population lives under the poverty line, according to the World Bank.

Hariri's resignation could deepen the latest unrest and exacerbate the economic crisis. But protesters say it also presents an opportunity to shake off the country's sectarian system and transition into civil governance.

The massive protests in Lebanon in 14 years are set to shut down the country, as a revolt against a weak government, ailing services, and looming economic collapse continues to gain momentum.

Lebanon in chaos right after new taxes were announced including a 6$ per month levy. 

The protests were triggered by a tax on WhatsApp voice calls, which was instrumental in sending protesters on to the streets. Anger boiled among citizens, which leads to the ransacking of the high-end shop in Beirut and the death of one man in northern city Tripoli.

History background

Since 1997, successive governments maintained a pegged exchange rate between the Lebanese pound and the American dollar. 

Forecast for the Lebanese economy worsened over the 2010s and by 2019 GDP per capita reached its lowest since 2008 and the debt to GDP ratio reached its highest since 2008 at 151%. 

As a result, international credit rating agencies downgraded the rating of government bonds. The combination of an economic downturn in the import-dependent country with the continuation of its dollar peg saw an increase in the government’s budget deficit and reliance on using foreign exchange reserves from the nation’s central bank to keep the currency peg.

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A subsequent dollar shortage in late 2019 further affected the economy, as import businesses and citizens became unable to acquire dollars at the official rate and a black market emerged. 

The coalition government led by Saad Hariri responded with an austerity program of general tax increases and spending reductions, with the aim to reduce the government deficit while maintaining the peg against the US dollar. 

The reduction of the national deficit as a condition of a package of US $10.2 billion of loans and US$860 million grants agreed in 2018 with the World Bank, European Bank for Reconstruction and Development and Saudi Arabia.

What protesters say?

Protesters say reforms are not enough


They also call for:

  • The resignation of the government, who they accuse of widespread corruption. 


What has been striking is the protests have cut across the sectarian lines that have been plagued Lebanon for decades.

Protester says, for the first time ever there is real unity in the country and not a fake one like we’ve seen before.

People are realizing that a Christian living in extreme poverty is no different from a Sunni and Shia living in extreme poverty.

Lebanon’s political system allocates the top political jobs according to religion. That has produced a patronage system expertly exploited by the politicians.

The protesters have called on all their leaders to resign- a handful of ministers have gone but so far most are resisting.

Prime Minister Saad Hariri unveiled a raft of economic reforms, which he hopes will assuage some of the protester's anger. He promised to slash politicians' pay invest in power plants and also tax he had heard people’s anger.

However many demonstrators believe it is too little too late and they are vowing to stay on the streets to “topple the regime”.

What is undeniable is that Lebanon is a country that reborn in the past of October 2019?

People who are marginalized for decades suddenly feel they can hold their political elite to account and demand changes.

The power-sharing agreement that ended the civil war 30 years ago may have kept the peace but it has also created economic misery for many Lebanese- and is now creaking.

However, the carnival-like atmosphere, where kids come to protest with their parents and demonstrators dance up to the storm.

What step the government has taken to shut down the protest?

Apparently, Hariri’s office cited the country’s UN coordinator Jan Kubis as saying several foreign government-backed government reforms announced a day earlier.

The prime minster med ambassadors from the USA, Russia, China, the European Union, and the Arab League, among others. The diplomats urged the government to address the demands of protesters, refrain from using violence against them, and work to curb corruption.

Lebanon expects foreign donors to react positively reactions. It is hoped that Lebanon in a very short period of time will be able to restore the capacity to fund debt requirements.

Foreign donors and investors last year pledged $11 billion to help Lebanon finance a capital investment program, as long as it enacts reforms.

Lebanon's president decries protesters 'generalising' fraud accusations

President Michel Aoun said it was unfair to tarnish everyone with corruption allegations, adding that banking secrecy should be lifted from the accounts of current and future ministers.

"What is happening in the streets expresses people's pain, but generalizing corruption [charges] against everyone carries big injustice," he said.

Lebanon has strict rules over bank account privacy that critics say makes the country susceptible to money laundering.

A chorus of voices, from union leaders to politicians, has joined calls for Prime Minister Hariri's government to resign.

Lebanon to cut ministers' pay in a bid to ease protester rage

Lebanon's cabinet is expected to halve ministers' wages among other reforms.
The package of moves includes a 50 percent cut in the salaries of current and former presidents, ministers and politicians, and benefit cuts for state institutions and officials, officials told Reuters news agency.
It further provides for the central bank and private banks to contribute $3.3bn to achieve a "near-zero deficit" for the 2020 budget.
Protesters have said this would not be enough to send them home, demanding the politicians they accuse of rampant corruption to step down.

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Volunteers clean streets after massive protest

Lebanese protesters are back on the streets, but this time to scoop up demonstration debris in downtown Beirut.
People responded to a general call on social media to clean up the streets and squares that were occupied by tens of thousands.
"This is not organized by organizations or NGOs, it was a personal initiative.

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