Lebanon’s Russian Doll Crisis

Few doubt the complexity of Lebanon’s body politic. ‘A House of Many Mansions’ one book described the political landscape of a country that has a significantly devolved series of authorities existing simultaneously and where national government has severe limits to its powers. This national government has undergone a rolling set of crises of the last several years that has been accelerated by wider global economic trends and of course the emergence of COVID-19.

Today Lebanon, a country that’s recent history demonstrates both resilience and fragility, faces a significant test as it faces the prospect of a ‘Russian Doll’ series of challenges all urgent, interlinked and with the potential to change the country’s politics dramatically.

Veteran Lebanon commentator Michael Young, summed up the economic challenge facing the country as essentially a choice between accepting an IMF bailout and all the conditions that come with it, or face a “path of bankruptcy, state collapse, chaos, possibly famine, and mass emigration”.

Prior to COVID-19 Lebanon had faced another period of political gridlock with street demonstrations precipitating a collapse of the Government and negotiations between the political elite struggling to find a consensus on a technocratic interim leadership. All the meanwhile the issues of corruption and the structural challenges defining the country’s economy continued to squeeze the living standards of normal Lebanese.

COVID-19 exacerbated existing trends and although the recorded numbers have been far off Europe or America’s rates, the country has already faced a second wave closure forcing another damaging shutdown that the country can ill afford. Studies by Lebanese research company InfoPro estimate that around 220,000 people lost their jobs between October 2019 and the end of January, while half of the companies surveyed reported salary cuts of over 40% whilst the Lebanese pound lost around 60% of its value by May.

Social Affairs Minister Ramzi Musharrafieh has said that 75% of the population are in need of aid and the World Bank has warned of startling increases in rates of poverty. Lebanon’s economy has previously been sustained by critical income from remittances from abroad something that has been steadily squeezed and then fallen off a cliff following COVID-19. Locals have told reporters that they could afford food during the country’s prolonged civil war but have never seen hardship like this.

Prime Minister, Hassan Diab, has acknowledged that Lebanon is on the brink of an “unimaginable food crisis” and Human Rights Watch have warned that “a large swathe of the population may be unable to meet the daily minimum dietary energy requirements, which could have huge public health consequences, including stunting the physical and cognitive development of children and making the population more prone to disease.”

The only practical way out of this maze of interlinking crisis would appear to be through the IMF. As Michael Young explained; “without such funds, Lebanon will not be able to feed itself within a few months, nor will it be able to import fuel or medicine”. However, IMF money is not a blank cheque and the critical question is whether Lebanon’s political system is able to stomach the reforms demanded of it in exchange for this money?

Evidence from the 53-page rescue plan agreed in April didn’t bode well in this respect. Whilst it recognises the scale of the challenge, estimating the country’s total sovereign debt at about $90 billion or 176% of GDP — one of the highest debt ratios in the world, it has yet to grip the scale of reforms needed in response.

The 101 of the issue is the tackling an economic crisis against the background of a public health crisis that has at its core a legacy of historical and active political reasons for existing. For instance, economists have citied key areas of reform being the state power company Electricite du Liban (EdL); Telecom, customs and ports; public pensions and the state payroll. Yet all of these sectors have differing relations with different political stakeholders in the country all of whom will be ultra-sensitive to perceived attacks on their powerbase.

Yet such is the spectre of mass starvation and economic devastation if the IMF loan is not agreed that some speculate that if Lebanon is ever to have a political revolution from within, this is the moment for it. It is indeed a huge test of whether a sub-national and often regional body-politic can address a national challenge in a genuinely different way and the clock is ticking as the food continues to run out.