Severe inequality and an economy near collapse behind Lebanon’s protests

  Le Monde diplomatique
News
Protests have been sweeping the Middle East and North Africa this last year. In Lebanon they are largely about corruption, austerity and financial instability, which has its roots in a neighbouring civil war and a drop in foreign investment and remittances from the Lebanese diaspora.

Lebanon’s telecommunications minister Mohammad Choucair decided on 17 October 2019 to introduce a tax of $2 a month — the ‘WhatsApp tax’ — on all free apps for mobile phones. That evening hundreds of young people, many among Lebanon’s poorest, demonstrated in major cities.

The next day they blocked the main roads and held sit-ins in symbolic spots such as Beirut’s Martyrs’ Square. The government shut down its offices, universities and state schools, paradoxically encouraging even more to take to the streets. The closure of Lebanon’s banks for two weeks from the start of the protests fuelled the anger, as depositors were denied access to their money.

Two months on, the protests were still happening. The demonstrators continued to demand an end to the regime based on power sharing between the Shia, Sunni and Christian communities. Prime Minister Saad Hariri resigned on 30 October, and on 19 December President Michel Aoun asked former education minister Hassan Diab (2011-14) to form a government of technocrats. The demonstrators were far from unanimous in approving this appointment.

On the brink of bankruptcy
Lebanon’s economy is near collapse and there is severe inequality: the richest 1% own 40% of national wealth and take home 23% of national income, according to a report by the World Inequality Lab. The country is also on the brink of bankruptcy with a public debt burden equivalent to 150% and a budget deficit equivalent to 11% of GDP. The cost of servicing its debt (interest expenses and principal repayments) is nearly $4bn a year.

Since Donald Trump became US president, tougher sanctions against Lebanese banks accused of links to Hizbullah have weighed on the economy, where banking is central
Growth is at a standstill — around 0.2% in 2018. Lebanon is less and less able to secure the foreign currency it needs to cover imports (notably fuel oil, wheat and medicine), which are four times greater than exports. Remittances from the Lebanese diaspora and foreign investment are no longer enough to sustain the system: funds are flowing out faster than in. In mid-December, the government imposed restrictions on access to foreign currency assets.

The civil war in Syria since 2011 has impacted on Lebanon’s already fragile agricultural sector, especially in peripheral regions such as the Bekaa valley and the Akkar district, among Lebanon’s poorest, which had just about survived thanks to trade with Syrian cities such as Homs. Since the fall in the price of oil in 2014, the flow of funds from the Gulf has dried up, as has the flow of tourists from Saudi Arabia, Qatar and the United Arab Emirates.

And since Donald Trump became US president, tougher US sanctions against Lebanese banks suspected of links to Hizbullah, the Shia party at war with Israel, have weighed on the economy, in which banking is central. In August 2019 the US Treasury Department accused the Jammal Trust Bank (JTB) of supporting Hizbullah and Iran, froze its assets in the US and banned it from conducting dollar transactions; JTB went into liquidation in September.

In April 2019 Hariri promised unprecedented austerity measures to stave off economic collapse. He also needed to satisfy the demands of Lebanon’s main international creditors. To secure the $11.2bn in soft loans and grants for infrastructure development pledged at the Conference for Economic Development Through Reforms and with Enterprises (Cedre) in Paris in April 2018, the government undertook to reduce its budget deficit by 1% of GDP over five years, a promise almost impossible to keep. The 2019 budget, approved by parliament only in July, impacted on the public sector with a recruitment freeze (including the armed forces), a three-year ban on early retirement, and reduced assistance with children’s school fees for civil servants.

There has been some abuse of the system in recent years, including the payment of salaries to dead civil servants and political favouritism in recruitment. But civil servants, 40% of all employees in Lebanon, are also suffering from rapid inflation and the fall of the Lebanese pound against the dollar; they see themselves as part of the impoverished middle class. The public sector has many contract workers, including some staff at the Lebanese University (UL), who do not get social security, travel expenses or pensions. The budget deficit rules out granting them tenure at present; many have been waiting for years.

Mobilising against austerity
Austerity led to protests that helped to prepare for the October 2019 revolt. Social security staff and UL teachers were on strike through the spring and summer. But it is mainly armed forces veterans who have mobilised: the 2019 budget included a 1.5% monthly tax on their pensions. On 20 May the veterans tried to force their way into the parliament building to protest against this. Through the summer they blocked some streets in Beirut, occasionally confronting serving troops assigned to guard major government institutions. A week after the popular uprising of 17 October they were at the finance ministry protesting against a nine-month delay in the payment of pensions to new retirees.

Since the fall in the price of oil in 2014, the flow of funds from the Gulf has dried up, as has the flow of tourists from Saudi Arabia, Qatar and the United Arab Emirates
The veterans’ actions have won sympathy from the public and they have become leaders against austerity. In the political conflicts that divide Lebanon, the army is often regarded as neutral, less susceptible to community politics, and a guarantor of precarious national security. The veterans’ movement has also put President Aoun, himself a former general, in a difficult position. Aoun still has the support of many army officers and veterans, but his party, the Free Patriotic Movement (CPL), has been accused of failing to pursue the reforms necessary to fight corruption and dirty money. The CPL was hit hard by the events of 17 October 2019. A week later, two CPL deputies announced their resignation from Aoun’s parliamentary bloc. One was Chamel Roukoz, Aoun’s son-in-law and likewise a former general, popular with the army.

The movement that began in October 2019 stems directly from the austerity policies and their impact on the public sector and the middle class, but also from the continual tax increases, which affect the working class in particular. The government dropped the WhatsApp tax after the protests, but the 2017 increase in value added tax from 10% to 11% and increases in tax on tobacco and alcohol are still in place. The movement is also the result of unanimous condemnation of corruption among the political elite and a lack of good-quality public services: 20% of the population has no access to safe drinking water, and power cuts can last up to three hours in Beirut and 12 hours in the rest of Lebanon.

The power of Lebanon’s banks is also criticised, and one of the movement’s slogans is ‘Fight the power of the banks’. From Beirut to Nabatieh in Lebanon’s south and Tripoli in the north, there have been repeated demonstrations outside the offices of the Bank of Lebanon and leading private financial institutions, which respectively hold 35.3% and 40.1% of Lebanon’s public debt. Since the civil war (1975-90), former prime minister Rafik Hariri (assassinated in 2005) and the political elite have sought to finance reconstruction through government borrowing from banks (some owned by politicians), which have profited from high interest rates.

New demands have emerged from the demonstrations: that Lebanon’s internal debt to the banks be restructured so as to save the economy, that the public debt burden be lightened, and that part of the budget should be reallocated to the benefit of the working class. In a country where neoliberalism rules, these are bold ideas. They are supported by the most leftwing elements within the Hirak (movement): the Lebanese Communist Party; the Citizens Within a State movement, led by former labour minister Charbel Nahas, one of the few politicians not shunned by the people; the Youth for a Change movement; the People’s Movement, led by former Arab nationalist deputy Najah Wakim; and the Popular Nasserist Organisation, led by Oussama Saad, a deputy from Sidon.

These parties are also opposed to the government’s policy of privatisation, which aims to sell off Lebanon’s last state-owned enterprises cheaply. On 21 October 2019 Saad Hariri, then still prime minister, responded positively to the demonstrators’ complaints, promising an early general election, and announced that Lebanese banks would be helping to reduce the budget deficit. But he also talked of partial or complete privatisation of the national airline, telecommunications, Beirut’s port and the Casino du Liban, without any element of social redistribution.

The protest movement’s ideas — a restructuring of Lebanon’s debt, opposition to privatisation, a shift from a rentier economy that imports goods and commodities to a production-based economy, and redistribution to the poorer classes — have come a long way since 17 October, but there are limits. Some members of the movement would be satisfied with a ‘clean’ Lebanese version of capitalism, in which a new electoral law and fighting corruption would cure all ills. And several confessional parties, including Hizbullah, are opposed to the Hirak.

Hizbullah withdraws from protests
The priority for Hizbullah is to defend President Aoun, its most faithful ally since 2006. Aoun gives Hizbullah political protection in the context of US sanctions against it and frequent tension with Israel in southern Lebanon. Unlike Hizbullah and its ally the Amal movement, or the CPL, other community-based parties have adopted some of the movement’s demands, such as for a government of independent technocrats. They include the Lebanese Forces (Christian) and Walid Jumblatt’s Progressive Socialist Party (Druze).

Lebanon has three choices. It could strive for greater redistributive justice, favoured by the most leftwing members of the movement. Or it could return to the principles of community solidarity. In the event of total economic collapse, it is possible that the confessional parties would eventually make a triumphant comeback: in the absence of a state to ensure redistribution, they alone would be able to provide a survival income to the poorest.

Or Lebanon could ask for an urgent rescue from bankruptcy by the International Monetary Fund. The cost would be even greater austerity, leading to Lebanon being sold off cheap with its last remaining public assets being privatised. And that would give rise to even more radical protest movements.