Who is to blame for Lebanon’s crisis?
|Habib Battah 23 May 2020|
It is not corruption, nor sectarianism alone. The answer is much more complicated than that.
Inside a Beirut bank, a security guard wearing a face shield slipped a wooden plank in between the handles of a heavy glass door as a swarm of customers waited outside. “Close the curtains,” a teller ordered him from behind the counter. “We are closed!”
It was barely noon and I was one of the lucky ones to have made it inside after waiting in the parking lot all morning among the throngs of impatient depositors. Two bank employees wearing masks handed out withdrawal forms and had them signed on car hoods. They were heckled by some in the crowd who shouted and shoved, elbowing each other to squeeze through the front doors.
The scene I witnessed was mild compared to those that have unfolded in recent days and months: fistfights and jump kicks worthy of a WWE wrestling match. ATMs have been defaced and destroyed, and during the recent riots, some bank branches were attacked with firebombs, burned and gutted overnight.
It seems the coronavirus pandemic and social distancing have taken a backseat to the worst financial crisis Lebanon has ever seen, and this tiny Mediterranean country has seen many.
The street violence came as Lebanon’s currency had been falling like a rock, losing value every day, experiencing an over 50 percent drop in its purchasing power against the US dollar since last October, when an uprising began, drawing hundreds of thousands into the streets.
The protesters called for the downfall of the government and an end to corruption and demanded living wages, better healthcare, electricity and other essential services they have been denied. Instead, they, and the rest of the population who did not protest, saw their salaries slashed, bank deposits evaporate and the price of basic foodstuffs double.
Almost half of Lebanon’s citizens are projected to sink below the poverty level this year and the government estimates 75 percent of the population will require assistance. The Lebanese economy is now one of the weakest in the world, ranking only above Venezuela, according to a list produced by The Economist. All of this in a matter of months. How?
There always seems to be a simple answer, but it depends on who you ask.
Lebanon’s new prime minister, Hassan Diab, who came to power amid the protests that brought down the previous government, has blamed his predecessors, especially the Central Bank Governor Riad Salameh, an incumbent of 26 years, for the crisis. Diab accuses Salameh of pursuing unsound and untransparent fiscal policies.
The currency devaluation can be partly blamed on the country’s plummeting credit scores, which have been downgraded repeatedly in recent months, due to political turmoil and fears over the government’s ability to repay its mounting public debt, one of the highest in the world.
Diab also claimed that some $5.7bn was taken out of Lebanese banks in January and February of this year, despite capital controls, encouraging a widespread suspicion of foul play and preferential treatment for big investors.
But Governor Salameh rejected the claim, saying that $3.7bn was used for loan payments and $2.2bn was withdrawn mostly in local currency, so it could not have left the country.
He claimed that the banks should be credited, not faulted for bailing out the state repeatedly over the last three decades and that the government has only itself to blame for its overspending and bankruptcy. This was compounded, he added, by Diab’s decision to default on a debt payment for the first time in March, which only sent more jitters into the market.
Indeed, it is difficult to imagine any financial system that could withstand such pressures: nearly every customer clamouring to liquidate their accounts as fast as possible. On the other hand, bank profits have soared on Salame’s watch, amounting to some $22bn since 1993, while wages and public services have stagnated or gone down.
The protesters, fed up with inequality and worsening living conditions, have blamed both Salameh and Diab and the entire political system of Lebanon, including nearly every politician and political party the country has ever known. That is quite a wide net in a political landscape that ranges from the far right to far left, pro-American to pro-Iranian: capitalists, communists, leftists, Islamists, fascists, neoliberals, post-colonial feudalists, militiamen, billionaires and bankers.
What all these actors have in common according to those in the streets is one simple word: corruption. It is a powerful, although intangible term. Its mere utterance evokes a certain catharsis with little need to elaborate. “Kelun Yani Kelun! [All means all!]” is the main protest slogan shouted at rallies and marches for more than six months now. Everyone must go. “A pack of thieves!” is the constant refrain.
This sentiment is echoed, albeit in more polite tones, in the dozens of articles and reports about Lebanon’s malaise published over recent months by Western media outlets and think-tanks. The culprit behind “endemic corruption”, they often report, is similarly singular and simplistic: the political class, the ruling elite or some variation thereof.
These terms are used so routinely and interchangeably, the paragraphs almost write themselves. They become bland and repetitive like any vague, overarching claim. Yet they also voice an inherently moralistic position.
The solution, analysts claim, is straightforward: admit wrong and “reform” the bad ways of the past, end the corruption, establish credibility, embrace transparency, accountability, the rule of law. Repent for your sins.
The consequences of inaction are similarly biblical: a perfect storm of wrath and rage, implosion, free fall, a big mess “teetering on the brink of economic ruin and political chaos” as the Washington Post recently put it.
But one thing these diagnoses tend to miss is detail: figures, names, a smoking gun to close the case on this alleged cesspool of depravity.
The evidence presented against “the corrupt class” even in the most reputable Western news agencies and newspapers is largely circumstantial: decrepit public services operating at a significant loss, an uncontrolled currency crisis, a lack of social welfare programmes, the high cost of living, unemployment, negative GDP growth. Are these really symptoms of bad moral behaviour from a handful of really bad men?
If corruption – or “thievery” as protesters call it – could cause this much damage, then why hasn’t it paralysed wealthier countries? In the United States, for example, it is not billions but trillions of dollars that are wasted every year, on inflated military and infrastructure contracts, corporate bailouts, failed projects and programmes, tax evasion and avoidance.
There has been much criticism of Lebanon’s old patronage networks that keep power concentrated in the hands of the few. But how different are they to the unnecessary and politicised allocations of taxpayer funds by members of the US Congress to bring jobs and contracts to their local districts known as “pork barrel spending”?
Similarly, many have faulted Lebanon’s banking system as an elaborate Ponzi or pyramid scheme, in line with the stereotype of the unscrupulous Lebanese businessman. But how unique is debt risk and reshuffling in the world of business and finance?
Some Wall Street insiders have likened much of what goes in the stock market, the US Social Security Fund and even the Federal Reserve to a Ponzi scheme of sorts. Trillions of dollars evaporated from accounts during the subprime real estate crisis. Yet there was no currency collapse, no electricity shortages, no run on the banks in the US. And in terms of the much-vaunted accountability Lebanese officials are expected to face in order to save the country, rarely has a major Wall Street broker or banker ever been sent to prison.
Those now waving their fingers at Lebanon over its financial misconduct should be reminded that the architects of the country’s postwar economy came largely from prominent US financial institutions.
The late billionaire Prime Minister Rafik Hariri, who engineered massive reconstruction spending that racked up the national debt, surrounded himself with veterans of global financial institutions who spearheaded a “liberal” investment strategy to draw in foreign capital, marked by low taxes and little regulation.
Among the members of this dream team were former Finance and Prime Minister Foaud Sinora, who worked at Citibank, as well as Salameh, the Central Bank governor, who served as vice president of Merrill Lynch in Paris.
For decades, Hariri and his entourage and their policies were welcomed and praised in Western capitals. Salameh was even voted Central Bank governor of the year in 2009 by the Banker magazine, a subsidiary of the Financial Times, best central banker in the world by Euromoney in 2006, an award of honour from the French president, among other accolades. As recently as last year, he was given an “A” rating by Global Finance, outperforming his counterparts in several European countries including Switzerland and the United Kingdom.
Looking back, there is much criticism of these neoliberal policies evangelised by the global financial industry, and for good reason. They are top-down, market-driven equations that prioritise investors over workers, profits over social welfare programmes and the environment. But how can these policies explain Lebanon’s unique “mess” if supply-side or “trickle-down” economics have been implemented all over the world?
Could it be that neoliberal policies are far more damaging for small, war-torn countries that lack strong institutions, political stability, natural resources or major manufacturing industries? Such countries are already considered high risk, lack investor confidence and thus pay a high cost for borrowing.
Consider this on the individual level: how hard is it for someone to climb out of bad credit? It is easy to blame their poor decisions and upbringing. It is more difficult to examine the circumstances that led to their misfortune because this necessitates putting one’s own privileges under a microscope.
Like neoliberalism, corruption and cronyism are also not absent from most political and financial systems. But they too have a far greater impact when there is not enough money in the economy to keep people quiet.
Even if we were to dismiss all of the above, this still leaves the favourite scapegoat for Lebanon’s woes: sectarianism.
It is loathed particularly by younger generations, who grew up after the war and are rightly puzzled by its relevance and ability to empower a handful of parties to wield so much control over the state. But here too there are parallels to partisanship, an inescapable reality even in the most successful countries.
After all, it is not really sects or political parties that take decisions at the end of the day, but groups of influential persons at their helm, largely wealthy, largely male, those who sign the big contracts and help write the legislation that guarantees them. In developing countries, it is called clientelism, whereas, in more developed nations, it is known as lobbying, political action committees and excellent legal teams.
This may explain part of the reason why rich countries rank so low on corruption indexes: the language is different.
None of this is to say bad governance and stark wealth disparities should be ignored. But some perspective could help the ways we demand and fight for better systems.
Having spent several years investigating many Lebanese government problems – wasteful public works projects, overpriced telecommunications, unreliable electricity, destructive land use and pollution – I, like many of my colleagues, struggle to identify clear-cut, prosecutable charges of corruption and culprits, ie bad guys and bogeymen.
When we dive into the abyss of public sector failures, what we usually find instead are labyrinths and layers of structural problems that have been mounting for decades. These include outdated, malfunctioning infrastructure, understaffed and underfunded facilities, a lack of maintenance and monitoring.
These problems are further compounded by defunct or non-existent oversight bodies to act as a watchdog on industry and contracts, unclear jurisdiction and conflicting views from different government agencies over who is responsible, slow, ineffective and inaccessible courts.
Of course, this convoluted environment provides many opportunities for exploitation, but more often, this is done through legal loopholes and not the glaring robberies our imaginations can conjure.
Contrary to popular opinion, these are not necessarily problems wedded to personalities that are currently in power. It is not only their annoying mannerisms and snarky smiles that should draw our attention and ire, but hundreds of local and national elected officials and bureaucrats making thousands of decisions on a daily basis, voted in by millions of citizens, many enjoying some benefit from the “ruling class” and its patronage economies.
This discussion of power relations brings us to the final and perhaps most popular argument to explain Lebanon’s financial problems: warlords. Here is another visceral term, like corruption, in which we have become accustomed to depositing our well-justified anger and angst.
But once again, we must ask ourselves how we imagine political structures around the world were established, particularly those most economically powerful and admired today. Is a state not formed through war? By tribes and clans and militias and bloody battles between them?
One difference with Lebanon is that no victor prevailed, the warlords or “the founders” have not given up, the other side has not been conquered to make way for an “indivisible” nation built on the bones of its detractors.
In many ways, Lebanon is unfinished business. It is frozen in the embryonic stage of nation-building, the militias have evolved into parties, but only in name. No system keeps them in check, there is no higher power to adjudicate conflicts and settle jurisdictions, no agreed-upon law enforcement to have a rule of law. Each side can justify its transgressions as part of the ongoing battle.
Cynics will say this void is Lebanon’s fate, destined to be a wasteland, a chessboard where major powers can manoeuvre and manipulate to settle scores without getting their hands (or countries) dirty. The decades of nearly uninterrupted war, from its founding during World War II to the itinerant street battles, air strikes and assassinations of recent years testify to that. No side could have kept up the fight without external support.
Curiously, this militarism from foreign states is rarely included in analyses of corruption in Lebanon. In particular, the billions of dollars in destroyed infrastructure, inflicted upon roads, bridges and power stations over decades of Israeli air strikes using American-made bombs, the untold losses to tourism, shipping and other industries are almost never included in tallies of corruption and economic losses. Lebanon also pays the cost of foreign-funded wars in neighbouring countries, accepting more refugees per capita than any other country in the world, putting an undeniable added strain on already-collapsing employment, services infrastructure.
All of these factors will continue to complicate Lebanon’s options going forward. The new government, consisting largely of unknown individuals and college professors, some of them advisors to political parties, have made some ambitious proposals. On the surface, their tone is more serious than their predecessors’ and they have been more responsive to public demands, arresting business owners accused of price gouging, and demanding a full audit of the central bank’s activities.
But they are being sharply criticised, particularly their bid to ask for billions of dollars in assistance from the IMF and their failure to call for immediate elections and rid the country of corruption more rapidly.
Indeed, the government’s every action should be scrutinised. Renewed demand for accountability and investigations is one positive aspect of the uprising culture the protests have helped inspire.
But analyses that fail to contextualise the daunting, historical, structural and geopolitical challenges even the best possible Lebanese government would face, are telling only part of the story.
Fear, like corruption, stability and creditworthiness are intangible indicators often assessed and determined by those in far more privileged and powerful positions than any politician or bureaucrat in Lebanon. Global institutions help determine the country’s fate but do not share its national interests.
As always, Lebanon will continue to face an uphill battle in attracting foreign capital, perhaps now greater than ever before. Not only are there the concerns about security – a stigma stretching back over 40 years – but also about the solvency of the country’s financial system, which has never faced a challenge of this magnitude even during the height of civil war shelling.
How realistic is it to expect Lebanon to build a competitive industry from an already weakened position with no natural resources, strong central government or significant technical know-how to call upon?
Aside from a few light industries, such as food, jewellery and paper, Lebanon simply does not make much, nor does it have the basic infrastructure to do so in major quantities. Tapping into the country’s abundance of nature and historic sites is also beset by “confidence” concerns, travel warnings from the world’s most powerful nations and deep-set negative perceptions that have kept wondrous ancient and natural sites largely empty. US sanctions, and a ban on direct flights since the civil war, have not helped either.
There is some hope that potential oil production and renewed interest in cannabis growing (long banned under US pressure) could come to the rescue. Neither is anywhere near certain as the fact that new loans will bring renewed borrowing costs, new political strings attached with increasingly difficult and potentially dangerous conditions to meet.
All of these future developments and financial transactions should be followed closely. But in doing so, we should resist the lure of reductive conclusions to create neat paragraphs, easily digestible analyses and tired moralistic stereotypes that appeal to international audiences and publishers. Pointing the finger at localised bad behaviour avoids a more serious conversation about the injustices of global finance.
There are no easy answers to explain the story of Lebanon – it is essentially the story of many countries and peoples and circumstances that reflect our interconnected political and economic realities, shared vulnerabilities and darkest fears. Be wary of fairy tale narratives about villains and heroes and missed opportunities for happy endings.
The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial stance.