Consensus on formation of government in Lebanon

Lebanese leaders have finally agreed to formation of a new government led by Sunni tycoon Najib Mikati, after a year of feuding over cabinet seats that has exacerbated a devastating economic collapse, opening the way to a resumption of talks with the IMF.

The breakthrough followed a flurry of contacts from France which has led efforts to get Lebanon’s fractious leaders to agree to a cabinet and begin reforms since last year’s catastrophic Beirut port explosion.

In televised comments, Mikati’s eyes welled up with tears and his voice broke as he described the hardship and emigration inflicted by the crisis, which has forced three quarters of the population into poverty.

The biggest threat to Lebanon’s stability since the 1975-90 civil war, the crisis hit a crunch point last month when fuel shortages brought much of the country to a standstill, triggering numerous security incidents, adding to Western concerns and warnings of worse to come unless something is done.

Mikati and President Michel Aoun, a Maronite Christian, signed a decree establishing the government in the presence of Nabih Berri, the Shia Speaker of Parliament.

Mikati said divisive politics must be set to one side and that he could not go for talks with the International Monetary Fund only to encounter opposition at home.

He pledged to seek support from Arab countries, a number of which have shunned Lebanon because of the extensive influence wielded in Beirut by Hezbollah.

Lebanon could no longer afford to subsidize goods such as imported fuel, he said, adding the country did not have the hard currency reserves for such support.

Addressing the daily hardships, he described how mothers had been forced to cut back on milk for their children. “If a mother’s eldest son leaves the country and she has tears in her eyes, she can’t buy a Panadol pill,” he said, referring to medicine shortages.

Mikati also said parliamentary elections scheduled for next Spring would go ahead on time.

Like the outgoing cabinet of Prime Minister Hassan Diab, the new one comprises ministers with technical expertise who are not prominent politicians but have been named by the main parties.

Youssef Khalil, a senior central bank official and aide to Governor Riad Salameh, has been named Finance Minister in the proposed new cabinet line-up.

Hezbollah, a political ally of Aoun, has named two of the 24 ministers.

Saving Lebanon from total collapse

Reportedly, Lebanon is hurtling toward total collapse. The World Bank believes that the country’s financial and economic crisis is one of the severest the world has witnessed in the past 150 years. 

A number of factors have contributed to Lebanon’s disastrous situation, but a major cause of its troubles is the dominant position that Iran has managed to acquire in the nation’s political life, by way of its proxy Hezbollah. But now that Iran is undergoing a severe economic crisis of its own, a window of opportunity may have opened for its malign influence over Lebanon to be weakened, if not entirely eliminated.

Lebanon is on the verge of a political, economic and social catastrophe. It has been without a government for eight months. Food and medicines are in short supply, electricity cuts last for much of the day, while people are queuing for hours at gas stations and, as they clash over who gets to fill their tank first, fist fights have turned into shootings. Now criminal gangs are moving in to exploit the situation. A representative of the union for fuel distributors and gas stations in Lebanon said, “Individuals claiming to be in charge of security at gas stations are using extortion… The owners of over 140 gas stations are refusing to accept deliveries of gasoline because they have been exposed to extortion and beatings.”

On 22^nd June the acting administration raised the price of bread for the fifth time in a year.  The latest increase — 18 percent from the last raise in February — was the result of the decision to end subsidies on sugar and yeast, which both go up in price in consequence.  

In June the World Bank issued a report on the rapidly deteriorating situation. It believes that more than half of Lebanon‘s population may have been pushed below the poverty line. While the official rate of exchange for one US dollar is 1,507 Lebanese pounds, the banks do not permit currency conversion or foreign fund transfers and so dollars are simply not available at the official rate. On 25^th June the rate on the black market was 16,450 Lebanese pounds. The country’s gross domestic product, close to US$55 billion in 2018, plummeted to some US$33 billion last year.  Foreign currency reserves are at an all-time low. 

The World Bank pulls no punches in its criticism of Lebanon’s political elite in which Hezbollah features so strongly. It accuses them of deliberately failing to tackle the country’s many problems, which include the economic and financial crisis, the COVID pandemic and last year’s Port of Beirut explosion.  The inaction, says the report, is due to failure to agree on policy initiatives but also a continuing political consensus that defends “a bankrupt economic system, which benefited a few for so long”.

Following the explosion in Port Beirut in August 2020, Saad Hariri was named by the Lebanese parliament as prime minister designate, and charged with forming a new government. So far, because of an ongoing dispute between him and President Michel Aoun over the composition of the new administration, he has failed to do so.  

Hariri wants to assemble a technocrat cabinet dedicated to enacting the reforms long demanded by the World Bank, the International Monetary Fund and donor countries such as the United States and France. In March he stormed out of a meeting with Aoun, telling reporters that the President had sent him a proposed list of ministers and asked him to sign off on them. Hariri had rejected the request as unconstitutional.  Aoun is a strong supporter of Hezbollah, the Iran-backed group that dominates Lebanese politics and underpins his presidency. According to Hariri, Aoun was pushing for a third of all cabinet seats for his Hezbollah allies and their supporters, which would give them, veto power over government decisions.

The shoeing into power in Iran on 18^th June of a hard-liner, Ebrahim Raisi, as its new president can be seen as a desperate effort by the ruling élite to shore up the power of a regime in economic freefall.  The value of the Rial, the national currency, has halved over the past two years, inflation is running at 50% and the country is experiencing mass unemployment. Popular protests are bursting out in major towns and cities all over Iran.

Hezbollah’s popularity among the Shia population owes much to the vast sums it has spent in its social and health programs.  The collapse of the Iranian economy means that the regime is no longer able to pay its Hezbollah proxy in dollars.  Its financial support is now provided in the rapidly depreciating Lebanese currency. 

Bahaa Hariri, the brother of Lebanon’s designated Prime Minister Saad, is a billionaire businessman.  He is reported to believe that if Iran cannot continue with its payments, support for Hezbollah will quickly collapse. “Some die-hard supporters will maintain their allegiance to Hezbollah,” he is reported as saying, “but many others will no longer be prepared to support the movement if the payments stop.”  

One failing economy is attempting to support another, while simultaneously trying to maintain the political status quo.  That is scarcely a sustainable situation.  If Iran’s deteriorating economic position results in Hezbollah losing power in Lebanon, this might provide the opportunity for Hariri to assemble his technocrat cabinet and institute the economic reforms necessary to pull the country back from the brink of disaster.