by Khaled Yacoub Oweis –thenational.ae –– Whenever Lebanon was teetering on the financial brink in the 1990s, the country’s then prime minister, the late Rafic Hariri, boarded his private Boeing twin-aisle aircraft and flew to Riyadh. The kingdom would arrange emergency help from the Gulf that staved off the economic pressures, until the next crisis loomed. Lebanon’s already huge public debt at that time has multiplied many times and Hariri’s son Saad is now prime minister, facing a similar problem. Beirut is up against deep financial strain but his father’s release valve is shut. Rafic had both a larger-than-life stature and deep trust in Riyadh and the UAE, but today the regional situation is very different. The elder Hariri also had a strained but sometimes working relationship with Hezbollah – right up to the moment he did not. The group is accused of his 2005 assassination and refuses to hand over four of its members indicted by a UN tribunal for involvement. But Hezbollah’s influence has grown over the years.
The Iran-backed Shiite group has increasingly used its status as the most significant armed actor in Lebanon to undermine its Saudi-backed rivals, intervene unilaterally in Syria and challenge Sunni states elsewhere in the Middle East. Its anti-Saudi rhetoric has helped fan Sunni-Shiite tensions across the region. The group, which has the loyalty of a large bloc in the Lebanese parliament, risks depriving Lebanon, including its own domestic supporters, when a crisis hits that requires the kind of immediate cash that only the major Sunni Gulf states have the means or the potential will to deliver. These states are reluctant to help now, concerned that their money may end up in the hands of Hezbollah, which they largely see as having taken over the Lebanese state, according to sources involved in international efforts to support the country economically.
In an indication of a possible policy shift, the UAE did not take any significant part in $11 billion pledged to help the Lebanese economy at a major conference in Paris in 2018. The pledges were in the form of infrastructure and other projects contingent on budgetary and sectoral reforms some financiers see as near impossible to carry out under what they describe as Lebanon’s dysfunctional political system. Saudi Arabia promised $1bn in Paris. But since the pledges may not be realised in the absence of reforms, their political cost could be minimal.
A Lebanese official whose department would be in charge of carrying out many of the projects reportedly resigned a few weeks ago, saying there was no political will in Beirut to implement them. Last month, rating agency Moody’s said weakening capital inflows and slowing growth in Lebanon’s banking deposits could force the government to reschedule public debt or resort to “another liability management exercise that may constitute a default under our definition”. Moody’s assigned Lebanon’s debt further to junk status and Banque du Liban, the country’s central bank, has largely failed to twist the arm of private banks to lend to the state at lower interest rates.
Lebanon has a veteran central bank team and its foreign currency reserves are large, but public debt has ballooned to 150 per cent of gross domestic product. Rouba Chbeir, a senior economist at Blominvest Bank in Beirut, said the government’s projected cuts in this year’s national budget were “optimistic”. Amid Lebanese debt market jitters, Qatar stepped in back in January this year, saying it would buy $500bn in Lebanese dollar-denominated bonds. It made some purchases last week but they failed to restore confidence. Doha, which has become friendly to Iran, might have seen a political advantage in the reduced presence of other Gulf states in Lebanon.
Karen Young, a resident scholar at the American Enterprise Institute, said the tensions between Qatar and most of the rest of the GCC states undermined the possibility of a financial rescue that could ward off a twin currency and banking crisis. “If Qatar wanted to save the day, it should have bought or capitalised a few Lebanese banks. Yet even a much larger capital injection from Saudi Arabia, Kuwait or, less likely, the UAE, would not solve all of Lebanon’s problems,” Professor Young wrote in an article for the Financial Times. Even France, an ardent supporter of Saad Hariri, has not hidden its disappointment with Lebanon’s ingrained corruption and fragmentation, which will make GCC decision-makers even less willing to become significantly involved. Beirut daily L’Orient Le Jour quoted a French diplomat as saying on Thursday that donors across the board were becoming “impatient”. “Lebanon no longer has the luxury of time,” said Jacques de Lajugie, who is in charge of economic affairs at the French embassy in Beirut.
