The collapse of the Central Bank of Lebanon following a major state scam plunged the country into an unparalleled economic and financial crisis. The country is now paying for its 76 years of political dependence and 8 years of complete political vacancy. The reality of its situation is very different from the perception of its citizens.
The Central Bank of Lebanon has again authorized private banks to freely deliver Lebanese pounds, but still no dollars.
This exchange control is illegal in law because it has not been validated by Parliament. Several large companies have already filed an application for interim relief before the courts. The wheat, oil and medicine import sectors are out of business, all the others are in recession.
Public debt stands at 154% of GDP. The Lebanese pound was depreciated by half its value in three months, taking the Syrian pound, already mistreated during the war by the Saudi and Qatari counterfeit currency, into its fall.
Causes of the crisis
This financial crisis led Parliament to adopt a new tax that triggered the demonstrations that have paralysed the country since October 17, 2019. In all likelihood, it originated in a massive scam set up by the country’s political leaders through the Central Bank.
A historical reminder is necessary here:
In fact, Lebanon has never been an independent state since its creation during the Second World War (1943). France set up a confessional system there that allowed it to preserve its influence after decolonization by depriving the Lebanese of any national political life. The attempt by US Secretary of State Henry Kissinger to settle the Israeli question by making Lebanon the homeland of Palestinian Arabs provoked a civil war (1975-1989) and ended in failure. The Saudi Peace, imposed by the Taif Agreement (1989), restored the confessional system and extended community quotas to all public service jobs. The Syrian military presence (1989-2005), validated by the international community, made it possible to rebuild the country, but did not solve any problems.
Former Prime Minister Rafiq Hariri (1992-98 and 2000-04) looted Lebanon by plundering 55,000 families, then confusing the Treasury with his personal fortune. He had raked in $16 billion at the end of his life. Under the Taif Agreement, Rafiq Hariri, as a representative of the Saudi Royal Family, was protected by the Syrian peace force present in the country to end the civil war. During his assassination, it was discovered that he had corrupted the two Syrian officials responsible for overseeing peacekeeping: the head of the intelligence services, Ghazi Kanaan, and Vice-President Abdel Halim Khaddam. The first committed suicide and the second fled to France where he made an alliance with the Muslim Brotherhood and prepared for the overthrow of President Bashar al-Assad.
In 2005, the Syrian peacekeeping force abruptly withdrew at the request of the Lebanese population, which saw it as a symbol of its own crimes during the civil war and held it – wrongly – responsible for the assassination of former Prime Minister Rafiq Hariri. From 2006 to 2014, i.e. during the power vacuum and then the presidency of Michel Sleimane – protected mainly from Qatar and secondarily from France – the Lebanese political leaders did not establish any accounting documents. Lebanon and Saudi Arabia were the only two states in the world without an official budget. It is now materially impossible to determine what taxes have been levied, what international aid Lebanon has received, or what it has spent. During this period, Central Bank Director Riad Salamé set up a Ponzi scheme comparable to that of Bernard Madoff, but for the personal benefit of political leaders. Dollar deposits earned twice as much interest as in other countries.
But the interest on these deposits was paid with the money of the new depositors. With the agreement of the United States, private banks agreed to launder the dirty money of South American drug cartels, while a US bank bought a third of the capital of the main Lebanese banks. When a major depositor withdrew his money, the system faltered. Political leaders had time to transfer their loot abroad before it collapsed. Thus, last October, former Prime Minister Fouad Siniora broke all records by secreting away between 6 and 8 billion ill-acquired dollars.
In response to the disaster, the Acting President of the Government, Saad Hariri (the legal son of the former), requested an advance payment of $1 billion from the European Union. He then wrote to China, Egypt, France, Italy, Russia, Saudi Arabia, Turkey and the United States to ask them to guarantee unpaid amounts for the import of basic necessities, which must be repaid as soon as exchange controls are lifted. In response, the main states involved in the economic rescue of Lebanon met on December 11 in Paris. In the morning, they discussed behind closed doors their political interest in saving Lebanon or letting it sink, then in the afternoon, they received a Lebanese delegation. They made the appointment of a new pro-Western government and the establishment of effective control over the use of any money a condition for any assistance.
Indignant at the idea of new foreign supervision over the country, Lebanese petitions have been sent to foreign donors to dissuade them from paying money to the Central Bank until the origin of the crisis has been established.
Sunni government President Saad Hariri then addressed the IMF and the World Bank, but they immediately questioned the authenticity of the Central Bank’s balance sheet and the probity of its director, Riad Salamé, hitherto considered an exemplary banker.
This historical reminder highlights Hezbollah’s lack of responsibility for the crisis, despite the fact that the Western press claims the opposite. Similarly, it is important to note that while Hezbollah accepts the zakat (Muslim donation) of drug traffickers in the Bekaa Valley and the Shia diaspora in Latin America, it has always opposed drug cultivation. When it came to government, it proposed and implemented social assistance programs so that farmers could evolve and change their crops. Finally, it should also be stressed that most of the Lebanese dirty money does not come from local drugs, but from the laundering of the income of South American cartels; money laundering instituted by the United States and benefiting Lebanese bankers, mainly Christians and Sunnis.
Identically, this reminder highlights the apparent stability of the country since the election of the Christian President of the Republic, Michel Aoun. Lebanon had never been able to simultaneously fill the functions of Christian President of the Republic, Sunni President of the Government, the Unicameral Assembly and the Constitutional Council from 2005 to 2016.
Impact of the crisis
Exchange controls, which aim to stop capital flight, have caused the economy to collapse. At least 10% of the country’s companies have gone bankrupt in the last 3 months. Most of the others have reduced their working hours in order to proportionally reduce the wages paid without having to lay off their employees. The first companies affected are charitable foundations, so the entire sector of aid to the poor is devastated. Foreign workers – especially Asian domestic workers – who are paid in Lebanese pounds, have lost half of what they used to transfer monthly in dollars to their families. Thousands have already left the country.
Everyone will have noticed that the demonstrations that have been taking place since October 17 are very coordinated. The agitators are permanently connected by telephone to a mysterious HQ. The slogans are exactly the same throughout the country and in all communities, which gives the demonstrators an illusory sense of the end of the confessional system. The designation of the Christian President of the Republic, Michel Aoun, as the main target of the Free Patriotic Movement (CPL) suggests that the movement is organised against him.
The United States’ position is ambiguous. On the one hand, the USAID administration blocked a $115 million grant to the Lebanese army to purchase equipment, while on the other hand, Secretary of State Mike Pompeo released the grant. Former US ambassador to Lebanon, Jeffrey Feltman, testified before Congress stating what he had written. That is, according to him, every “American” must fight the Iran-Herbollah-CPL-White House alliance.
The proposal to appoint businessman Samir Khatib as Sunni president of the government was rejected by the Grand Mufti. Indeed, in Lebanon, the Christian President of the Republic is appointed by the Maronite Patriarch, the Sunni President of the Government by the Mufti and the Shiite President of the Parliament by the mullahs, and then they are confirmed by the Single Chamber. It is the only country in the world with such a confusion of religious and political powers. For their part, the Kateb (Maronite phalangists) proposed diplomat and magistrate Nawaf Salam to make a good face. In any case, the mufti is in favour of a renewal of Saad Hariri, but this time at the head of a government of technocrats who, in any case, will be chosen by the three presidents.
Accused of prevarication, the Free Patriotic Movement (CPL) of the Christian President of the Republic Michel Aoun has already indicated that it would not participate in the next government. He does not intend to be held responsible for future problems under the pretext of covering the embezzlement of funds for which it is accused and which it denies.
The clashes, which took place on December 14 in Beirut, illustrate the emptiness of the unrest. In the early afternoon, young Shia members of Hezbollah and Amal attacked groups linked to George Soros who had set up tents in the city centre. In the evening, other young people, from the groups that had been attacked shortly before, tried to invade Parliament and proclaim it “the colourful revolution” as they did in Serbia, Georgia and many other countries. For the Lebanese, haunted by the memory of the civil war, the hundred or so wounded – including the forces of order – cause unbearable anguish. The fact that the press speaks of the wounded Lebanese, but says nothing about the stateless Palestinian or Syrian national deaths speaks volumes about the country’s violence.
We are therefore heading once again towards a wobbly system because the major powers have been playing with Lebanon for 76 years and the Lebanese have been submitting to it.
How to get out of the crisis?
Contrary to the demands of the demonstrators, there is no proper Lebanese politician. And there can’t be any in a system like this. At best, they stole money to serve their community, at worst to enrich themselves personally. Lebanon is one of the few countries in the world where billionaires suddenly appear without anyone knowing where their wealth comes from. Therefore, it is not necessary to drive them all out, but to rely on the former by encouraging them to serve the Nation rather than their only community and to imprison the latter.
Lebanon’s misfortunes are directly attributable to the Lebanese themselves, who for 76 years have accepted an abstruse constitutional system and fought for their community rather than for their country. They have still not resolved the trauma of the civil war and continue to see their religious warlords as the only bulwarks against possible aggression from other communities.
These misfortunes will only end with a change of constitution and the adoption of a truly democratic system; this implies the recognition of the most legitimate personality to lead the country to its destiny. It doesn’t matter what his confession is. And in this case, it is clearly Sayyed Hassan Nasrallah after the victory of his network of Resistance against the Israeli invader who is indisputably the legitimate personality. It will remain for the Lebanese to hope that he will not use their trust to betray them for the benefit of the Iranians.
For the moment, it is impossible to change the Constitution. The parliamentarians who would be massively swept away are too attached to their seats and will not do so. A referendum will not do this either because corruption is everywhere, including among voters: 45% of them admit to having been solicited to sell their vote. In Lebanon, political parties are denominational. They do not have a national ambition, but they defend their community and distribute prebends to it. It is therefore necessary to proceed gradually by creating a strong administration, and therefore by decapitating the main corrupt agents within a short period of time; this is what the Sunni president of the government, Saad Hariri, had proposed and which was refused him by the demonstrators. Then it will be necessary to attack warlords from the civil war who must prove their usefulness today or leave public life.