The current economic problems of Lebanon are entirely a reflection of the West in decline. When the US-led world order was established, the West was economically far more dominant than it is today, so they invested in Lebanon, allowing for some growth, however, much of this was consumption heavy, serving wealthy elites.
In 1997 Lebanon pegged the Lira at 1507 to one USD and kept an open capital account to attract capital inflows under the assurance that it could flow out again at the same rate thereby negating depreciation risk. So long as inflows exceeded outflows, this could work, but after the GFC when capital flows started to dry up globally, Lebanon’s banks raised interest rates to attract more foreign money. Then during the Syrian war, Lebanon benefited from the capital fleeing Syria, which kept the influx of cash going.
Subsequently under Trump, the US has been raising interest rates, which for Lebanon meant the open capital account began working against the national economy, resulting in outflows of hard currency from Lebanon. In the past the West pumped money into Lebanon, now they’re attempting to suck the Lebanese banking system dry, like a dealer turned addict, hooked on their own supply.
Why else would the US Ambassador to Lebanon Dorothy Shea appear to protect the governor of Lebanon’s central bank, Riad Salameh? According to Shea, “Salameh enjoys great confidence in the international financial community” and that if this “confidence” were to be withdrawn, “then I believe there will be no flow of investment or the cash that Lebanon’s economy needs”. France too has intervened in the debate, taking the side of Salameh.
According to the Institute of International Finance, Lebanon lost $30 billion in capital flight from Oct 2019 to March 2020, which is about the size of Lebanon’s import bill from 2018, before the current crisis. By now the figure I’m told is well over $50 billion.
The major political struggle in Lebanon was between the former PM Hassan Diab, and Salameh, the central bank governor. Salameh wanted Lebanon to keep paying its debts, whereas Diab wanted to negotiate and restructure the debts. Naturally, the US & France supported Salameh because he’s happy to keep paying even if the people of Lebanon are not.
Back in May, the Financial Times had reported on a “rift” that “began this year when the new government [of PM Hassan Diab] decided to default on its foreign obligations, bankers and government officials said. Mr Salameh was opposed to halting the repayments, preferring to keep using foreign reserves to pay interest to international creditors.”
This is why the “kiloon y3ani kiloon” slogan in Lebanon is dangerous. The slogan literally means, “all means all”, as if to say that all Lebanese politicians are just as bad as each other, which degenerates into political slave-morality, i.e. celebrating the downfall of any politician, because “they’re all the same”.
Diab wanted to stem the financial bleeding, whereas Salameh wanted to keep it going. Diab conveniently enough, then took the fall in the aftermath of the Beirut explosion, but Salameh is still is still in power and protected.
Now the discussion in Lebanon is being reframed as Hezbollah blocking the road to recovery by refusing to disarm. In this manner the legitimate grievances of the Lebanese protest movement have been transformed into a Western backed colour revolution against the least corrupt party in Lebanese politics.
There are economic alternatives for Lebanon. No country builds ports faster and cheaper than China, and they won’t make demands that undermine Lebanon’s sovereignty. According to Sayed Hassan Nasrallah, “Chinese companies are ready to inject money into this country” amounting to $12.5 billion worth of investment into Lebanese infrastructure projects.
Another problem is that Lebanon is a net-importer of food, which accounted for 18 percent of total imports two years ago, so I’m guessing it would be much higher now. These are precious foreign exchange reserves that could be saved by reducing import dependence.
According to Nasrallah, “We all have to go back to being farmers to save Lebanon as a whole. We have to sow on every suitable plot of land, including in the cities. When we eat what we sow and wear clothes that we make, then we will become a sovereign people.”
Since 2011 malnutrition has been rising in Lebanon, which in the past could rely on Syria as its breadbasket, but now that the US and Turkey occupy large swathes of Syrian territory in the north, particularly in areas containing oil and arable land, simply relying on Syria for agricultural imports as Lebanon has done for decades will only worsen the inflationary burden on the Syrian people.
French President Emmanuel Macron attempted to pit the Lebanese against Hezbollah by accusing them of working for Iran. Nasrallah has responded to these smears for decades now with the same question, which I will paraphrase, name one instance where Hezbollah has prioritised Iranian interests over Lebanese interests?
Iran is willing to accept Lebanon’s cheapened pounds in exchange for oil, but the Lebanese government dragged its feet, most likely to comply with the sanctions. Will any other OPEC state make such an offer? This is what Hezbollah brings to the table from its foreign allies, not threats and ultimatums, which is what the foreign allies of other Lebanese political factions bring.
The US Ambassador to Lebanon, Dorothy Shea, who Nasrallah has labelled Lebanon’s unofficial “governor”, was deemed so toxic and divisive that the Lebanese courts have blacklisted her from being interviewed by Lebanese media, with possible fines for media outlets that breach the ban. The judge accused her of, “pitting the Lebanese people against each other“, and that’s because every time she opens her mouth, it’s usually threats and ultimatums.
The US demands that Lebanon enforce the sanctions on Syria, which means Lebanon missing out on becoming a conduit for investment flows into Syria. According to Nasrallah: “When the doors are opened to participating in the reconstruction of Syria, the economy will grow for tens of years”. Right now, Lebanon is bowing to US pressure to enforce the Caesar Act, which are the latest round of crippling economic sanctions imposed on the Syrian people, that are squeezing and starving Syrians.
The whole rebuilding effort poses important questions for the Lebanese. Which countries are attempting to choke Lebanon economically and undermine its sovereignty? Which countries have demanded Lebanon sanction Syria, the country it was separated from by France’s arbitrary borders? And which countries actually want to see Lebanon succeed?