The Lebanese Shiite movement Hezbollah will be the “biggest winner” of the country’s impending economic collapse, Lebanon’s former interior minister Raya al-Hassan warned this week in a wide-ranging interview with the Asia Times.
“Do you know who will be the biggest winners? Hezbollah. Because they’d be able to survive an economic collapse much more than anybody else,” said Hassan, speaking from the offices of the Western and Gulf-aligned Future Movement in downtown Beirut.
“I talk to them. They say we have our own systems, our own social safety nets. We have our own hospitals and our people can resist, in their psyche, much more than anybody else.”
Those systems have been impacted by US sanctions on Iran, but have not been broken, says Hassan, who served as Lebanon’s finance minister from 2009-2011. A Hezbollah official told Asia Times last May that the party has a “financial infrastructure that would keep it fully functional for around four to five years under sanctions on Iran.”
The US government under President Donald Trump has pursued what it calls a “maximum pressure” campaign against Iran and its Lebanese ally Hezbollah, a strategy encouraged by its regional allies Saudi Arabia and Israel.
A year before Trump took office, Saudi Crown Prince Mohammad bin Salman canceled US$4 billion in military and security aid to Lebanon, and has not looked back since.
Hassan disputes that the US-led pressure campaign is hurting its stated target in Lebanon.
“I have a question mark, frankly, on the US strategy – undermining the banking sector to put a pressure on Hezbollah. Hezbollah doesn’t use the banking sector!” she told Asia Times.
US Secretary of State Mike Pompeo, who has characterized Lebanon’s ongoing anti-corruption protests as an uprising against Hezbollah, has refrained from endorsing the new Lebanese government.
That government, composed only of Hezbollah and its allies, now risks overseeing the evaporation up of the country’s foreign-currency reserves, should it refuse to submit itself to the International Monetary Fund.
IMF ‘only option’
Lebanese Prime Minister Hassan Diab reiterated his pledge on Tuesday to court the “brotherly” nations of the oil-rich Persian Gulf region for urgent aid, but he has had no success doing so since taking office.
Hopes that energy-rich Qatar or the rival United Arab Emirates would offer substantial support have not come through.
“The Europeans may have been coaxed into providing some funding, but I think the Americans are putting some pressure on them,” Hassan said.
While Lebanon’s central bank governor Riad Salameh has assured the public there remain $30 billion in foreign-currency reserves, the amount of usable reserves likely stands at roughly $10 billion.
With 6 million people, a third of those Syrian and Palestinian refugees, living within its borders, Lebanon requires some $5 billion in US dollars each year to import its most basic needs of oil and gas, medicine, and wheat.
“If no fresh money comes in, probably the foreign reserves would dry up in a year,” Hassan told Asia Times. “There is no likelihood to get money from the outside.”
With dollars running out, she concluded: “We don’t have any other option except an IMF program.”
Nabih Berri, the head of the Hezbollah-allied Amal party in control of the Finance Ministry, has signaled he will back negotiations with the IMF over Lebanon’s debt, an undertaking the Argentine president recently likened to player poker.
According to a Wednesday report in Lebanese daily Annahar, Berri told visitors Lebanon must “send a message abroad, to the Americans in particular – as they are the most influential actor in the IMF – that Lebanon needs ‘technical’ assistance from the Fund to come up with a rescue plan.”
At the same time, Berri reportedly cautioned that Lebanon must not “hand over its affairs” to the fund, as austerity measures like those placed on its Mediterranean neighbor Greece by the European Union would be crushing.
Lebanon’s ongoing protest movement was famously sparked on October 17 by a planned tax on the messaging service WhatsApp, which serves as the de facto phone plan of the poor and middle class.
Hezbollah has yet to announce its position on a potential IMF rescue plan, a spokeswoman told Asia Times on Tuesday, declining to say whether it had decided its position or not.
IMF spokesman Gerry Rice late on Wednesday indicated that the Lebanese government had sought its “technical advice.”
“Today the #Lebanese authorities requested our technical advice on the macroeconomic challenges facing the economy. IMF stands ready to assist Lebanon. Any decisions on debt are the authorities’, to be made in consultation with their own legal and financial advisors,” he tweeted.
The nationwide economic situation has meanwhile become increasingly dire, with salaries being slashed and people losing jobs.
Banks have for months enforced arbitrary, and increasingly rigid, capital controls on dollars accounts and international transfers, leaving hospitals in crisis and businesses bordering on a standstill amid rising inflation.
On Tuesday in the northern city of Tripoli, the dollar was trading for 2,200 Lebanese pounds at black-market exchange offices, marking a roughly 50% depreciation for the local currency in less than six months. The official exchange rate is 1,507.5 pounds to the dollar.
Lebanese traders are until now selling goods in local currency, exchanging those profits for USD at black market rates, and then bringing those dollars to banks to be transferred to their international suppliers. “But how long can you sustain that?” Hassan asked.
Eurobonds in flux
The question hanging over Lebanon at present is whether the central Banque du Liban will honor a $1.2 billion payment in Eurobonds, due in less than four weeks.
Lebanon has one of the highest debt-to-GDP ratios in the world, at more than 150%. But it has never defaulted on its debts, a point of pride for a banking sector that was once one of the most respected in the region.
Civic organization Kulluna Irada, which has been lobbying the new government against the upcoming payment, argued in a policy brief on February 4 that:
“Defaulting is not a matter of national pride. It is unwise to proceed to paying bonds at full, when the market has already written down their values by 40-50% and is expecting a restructuring of debt.
“It is a matter of time before Lebanon’s rampant socioeconomic crisis develops into a full-blown humanitarian crisis,” it said, adding: “It is inadmissible to proceed with the payment of debt principal and interest, privileging interests of few banks and investors, when the economy is not able to bear this burden.
“We call on the government to honor its responsibility towards the Lebanese people and proceed immediately to an orderly default.”
Even some of the foreign funds that hold Lebanon’s bonds are urging the beleaguered Lebanese government not to pay, sources in those funds have told Bloomberg.
Yet the new cabinet is facing “intense lobbying from some local bankers and foreign bondholders,” said Kulluna Irada’s director, Karim Bitar.
In her interview with Asia Times, Hassan said she was “of the opinion we should not pay; that we should announce a moratorium and immediately start negotiation.”
“Because if [the central bank governor] uses whatever little he has, then whatever is remaining will only probably be sufficient until maximum the end of the year to cover for fuel, wheat and for medicine.”
With the payment due March 9, however, she believes Lebanon is dangerously close to defaulting before it can come to an agreement on a moratorium and secure the legal and financial expertise to negotiate a restructuring of its obligations.
She acknowledges that there are divergent views on this issue even within her own party, however, and in the government as a whole.
The Diab cabinet, in the end, may pass the buck to the IMF and ask for its determination on whether or not Lebanon should pay up in March.
Blocking the screams
As Lebanon faces an economic and even humanitarian precipice, with half the population in danger of falling below the poverty line according to the World Bank, the protest movement has struggled to keep up momentum.
Hundreds of Lebanese protesters on Tuesday attempted to block the paths of lawmakers’ SUVs to the parliament, now surrounded by concrete barrier walls, but were unsuccessful in halting a vote of confidence.
Hassan, who held the post of interior minister from January 2019 until last month, says she fought to allow space for demonstrations to take place, even when it meant bumping heads with government rivals and putting the overstretched riot police force in a complex situation on the ground.
During the last weeks of her tenure, Lebanon saw fierce confrontations between the security forces and protesters, with a handful of people having their eye shot out at point blank range by rubber bullets.
Hassan acknowledged “grave mistakes” were made, and said internal investigations and consequences were being taken, though not publicized. She also defended the performance of the security personnel, who she says were often working 15-hour shifts and deployed between demonstrators and Hezbollah and Amal partisans attacking the sit-ins.
The protest movement, which began October 17, also interrupted a major British-led retraining of the Lebanese riot police, she said, which saw only the top class of officers graduate.
In total, Lebanon’s riot police number 1,400 nationwide, of which only 500 could be deployed to downtown Beirut at a time.
“You didn’t have the proper institutional training to accompany that kind of movement,” said the former minister, who says her worst fear was that someone would be killed.
“Thank God there were no death casualties,” she said.
Lebanon’s new interior minster, who comes from a military security background, has signaled zero tolerance for the demonstrations, expanding and fortifying a circle of concrete barriers around the parliament.
The protest movement, which began with what could have been a million people on the streets, has also seen its numbers wear thin, ground down by disillusionment, frigid weather, and the literal flight of Lebanese seeking a livelihood outside the country.
Speaking of the government’s expanded cordon, Hassan reflected: “It’s going to be like they’re in isolation.
“They will not hear people screaming and shouting any more.”