The Troubled Future of Lebanon

As Lebanon entered 2020, the centennial of its establishment by France, the country was entitled to ask whether its 100th birthday would be among its last. In November of the previous year, the economy had collapsed, the result of an insurmountable public debt, declining capital inflows, economic mismanagement, and pervasive corruption.

Today, Lebanon’s economic situation is so dire, that it is legitimate to ask whether the country will soon emerge from it. A fall 2021 World Bank report described the situation as “one of the top ten, possibly top three most severe economic collapses worldwide since the 1850s.” The report spoke of a “deliberate depression,” orchestrated by a political elite that had captured the state and lived off its rents, leading to the disintegration of key pillars of the post-civil war political economy. The local currency has lost 90 percent of its value since October 2019, and nearly 80 percent of the population lives in poverty.

While Lebanon concluded a staff-level agreement with the International Monetary Fund last April, the political leadership has failed to introduce any serious reform measure in the past three years that could allow for implementation of the agreement. A European diplomat said this to me in late July: “It is clear that the Lebanese have no desire to implement the conditions of the IMF deal.”

In light of this bleak situation, Lebanon will face several major challenges in the coming months. The first is a presidential election whose timeframe begins at the end of August. The second is finalization of an agreement with Israel over disputed offshore gas fields. And the third is, simply, the introduction of reform measures to make the IMF deal possible before foreign currency reserves run out.

Lebanon’s last presidential election was scheduled to take place in 2014, but was delayed two years because Hezbollah and its allies boycotted parliament (which elects presidents) in order to impose their candidate, Michel Aoun. It is unlikely that this year we will see the same scenario. The economic crisis does not allow it, and few parties seem willing to obstruct parliament to bring a favorite candidate to office, or to prevent voting for a rival.

The general assumption today is that any president who comes to power must have the tacit acceptance of Hezbollah. While no one has emerged yet as a favorite, many people believe the candidate who has the best chance of being elected is Suleiman Franjieh, a grandson and namesake of a previous president. Franjieh is close to Hezbollah and has strong ties with the Syrian regime. His election would not necessarily do Lebanon much good, as he is a member of the political class that helped destroy the country, while his backing of Hezbollah will only harden the party’s efforts to keep Lebanon under strong Iranian influence. However, Franjieh is on good terms with the man likely to be his prime minister, Najib Mikati, so that there may be a concomitance of views between the two men in addressing economic policy. The rivalry between Mikati, who is currently the caretaker prime minister, and Aoun effectively crippled all progress on reform.

For Hezbollah, a president it can trust is a necessity at a time when two broad alignments are forming in the region. On the one side is Iran and its allies, including Hezbollah; on the other, Israel and most of the Arab states opposed to Iran, building on what was known as the Abraham Accords of 2020. Whoever Lebanon elects as president will have a bearing amidst this regional divide. While Franjieh, if he is ever elected, is not hostile to the Arab countries, especially the Gulf countries, if he is viewed as Hezbollah’s choice, this could have negative repercussions for how Lebanon is treated by Arab governments in the region.

A second challenge Lebanon faces is that it must soon reach an agreement with Israel on contested offshore gas fields. The Lebanese position has shifted, but it is clear that given the economic situation, this is a national priority. The main bone of contention today is that Lebanon has officially claimed that its gas fields lie within what is known as line 23, but it would like to see this zone extended to include all of the Qana gas field. It is still waiting for Israel’s response, which is expected soon via an American mediator.

Yet Hezbollah has threatened Israel with a military response if Lebanon’s rights are not respected. This may be a tactical move, to show its destitute electorate that it is defending the country’s economic interests. However, the threat means that if no agreement is reached, the prospect of war will rise. At the same time, Hezbollah wants a deal, as the anticipated revenues could allow Lebanon to avoid the IMF reform path, with which Hezbollah is unhappy. It regards the IMF as an extension of American power.

The third challenge is to address IMF demands for reform. The political class regards any substantial reforms as a threat to its patronage and corruption networks. Its immobility in the past three years has proven this, regardless of the population’s suffering. However, one thing the politicians must consider is Lebanon’s dwindling foreign currency reserves. For a country that imports most of what it consumes, the implications would be disastrous. The IMF has promised $3–4 billion, but unless the political class can find a way of introducing even limited reforms, it could conceivably reach a stage where, after Lebanon’s valuable gold reserves are used up to buy time, it will have little margin of maneuver with the IMF.

Beyond these immediate problems, it is apparent that the Lebanese political system no longer works. The past years have been one long period of political dysfunction and blockages. State institutions are no longer operating as they should, and the country is losing much of its youth to emigration. A new social contract is urgently needed, but absolutely no one is discussing this at the official level. That is why, even if Lebanon resolves its problems, the long-term outlook for the country will remain uncertain.