The government of Lebanese Prime Minister Hassan Diab has announced it will seek US$10 billion from the IMF, to enact a plan that will ensure a “just” reckoning over past policies.
“We will seek to absorb losses in a just manner, without imposing any burden on those who did not benefit from the policies of the past,” the premier said in a televised speech Thursday night.
The government will instead seek to recoup losses from those who reaped the benefits of extremely high interest rates, profited from a mechanism known as “financial engineering,” and who had “broken the law and stolen funds.”
At present, “the Lebanese economy is in free fall,” warned the opening line of the Diab cabinet’s plan, released by the Ministry of Finance.
The two-decade-old Lebanese currency peg to the dollar has come undone, resulting in steep inflation and leaving grocery stores struggling to price goods. The National Beverages Company, which holds Lebanon’s Coca-Cola franchise, announced its dissolution on Monday – citing the dire economic environment.
Finance Minister Ghazi Wazni said the government would work to level the Lebanese pound at 3,500 to the US dollar, even as black market rates reached 4,000.
While Lebanon in the past may have looked to traditional allies Saudi Arabia or France for help, the government has emphasized that a bailout from foreign partners is “highly unlikely.”
“The international community will provide resources to Lebanon only if the authorities are able to propose and implement a comprehensive reform program that creates the necessary conditions [for a] rebound and addresses all the imbalances accumulated over the past decades,” read the government plan.
Hence, it will seek $10 billion from the IMF, and to unlock a further $11 billion pledged to Lebanese infrastructure projects at the Paris-sponsored CEDRE conference of 2018.
The Shiite movement Hezbollah, which previously resisted IMF involvement, was among the cabinet members to vote unanimously for the plan.
Buy-in from across the political spectrum, however, is far from guaranteed.
Old guard tremors
Even before Prime Minister Diab took to the podium on Thursday night, a quartet of former Lebanese prime ministers signaled they would not go quietly into the night.
“If it fails, I will certainly support ousting it in an ugly manner,” said former Prime Minister Saad Hariri of the current government.
He was holding court at his Future party headquarters in downtown Beirut with billionaire ex-PM Najib Mikati and two other former premiers.
Hariri resigned from his post in late October, after nearly two weeks of paralyzing nationwide protests in which demonstrators called for the fall of their sectarian elites with chants of “All of them means all of them.”
In recent days, Lebanese protesters have returned to the streets, focusing their anger toward the banks, which have instituted arbitrary capital controls since October while allowing billions to leave the country.
In the northern city of Tripoli, a political battle appeared to be happening amid the chaos of demonstrations and riots, as well as dangerous confrontations with the army, which left one young protester dead earlier this week.
Even as the movement’s stalwarts struggled to keep the crowd focused, others appeared to be guiding people toward attacks on small businesses.
“The street in Tripoli is full of undercover groups that were able to break into the revolution, and those are in direct contact or oriented by the intelligence or the army or security forces, or the politicians themselves. In those cases, those people are there to take the people to another place,” Jihad Jneid, an activist in the city, told Asia Times.
“Every movement in the street is linked to a higher agenda on the upper level. They are trying a lot to break our movement and to take it to other places.”
The Lebanese system is largely composed of political parties born out of civil war-era militias, Jneid points out. “Those people, in their psychology, will never give us this government or system for granted.
A key target of the core protest movement, he said, is the banking sector, as well as companies like Western Union and LibanPost that are linked to sectarian elites.
He added: “What’s happening in the street is very organic and very true. Those people are very hungry and they’ve been through a lot.”
During Tuesday protests in Tripoli, hours after the funeral of a demonstrator, there was a marked absence of signs and slogans that characterized earlier protests. While some former activists said they were going down to the streets, others told Asia Times they were standing on the sidelines.
While PM Diab condemned the recent wave of destruction, he also accused political forces of stirring chaos “which benefits them.”
The Arab Venezuela
Lebanon has one of the highest debt to GDP ratios in the world, at more than 150%. The small Middle Eastern nation beat only Venezuela in a ranking of 66 emerging markets published by The Economist magazine.
In March, faced with dwindling foreign reserves and the prospect of fuel and wheat shortages, Lebanon defaulted for the first time in its history on a $1.2 billion Eurobond maturity payment.
The Association of Banks in Lebanon had lobbied fiercely against that decision, cautioning it would decimate international faith in the Lebanese financial sector.
The decision of the young Diab cabinet to defy the Association of Banks signaled the weight of its marching orders from the street, as well as the severity of the dollar shortage.
In his latest speech, the prime minister pledged to formalize negotiations with Eurobond creditors and present to them – along with the IMF, partners and investors – Lebanon’s vision for economic recovery.
While pledging cooperation with the financial sector, Diab said his government would look to the properties and capital of Lebanese banks abroad, as well as the Central Bank’s assets, in order to level its balance sheet.
His cabinet’s plan also placed special emphasis on recovering stolen funds from abroad.
While the plan rules out the idea of selling off all of Lebanon’s assets as unfair to future generations, it assesses that revenues of some state-owned enterprises could benefit from “better management.”
In Lebanon, public utilities have long been divided up between sectarian ruling elites, with jobs doled out to patronage networks – often resulting in huge losses and endemic corruption.
The state-owned Électricité du Liban, which has been under the control of President Michel Aoun’s party for the past decade, incurs a yearly debt of more than $1 billion while generating only 12 hours of electricity per day to a population of only 6 million.
On Thursday, a judge in Mount Lebanon ordered the interrogation of Lebanon’s longstanding Director-General of Tripoli Oil Installations over “fraud in import operations” – the latest attempt at a reckoning over the practices of past years.