TIME TO STOP DREAMING AND FACE THE SISYPHEAN REALITY OF LEBANON TODAY – BY TRACY CHAMOUN

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According to legend, king Sisyphus gained infamy for his trickery and wicked intelligence, and his greatest feat was to cheat death. After the October 17th revolution the leadership of Lebanon is Sisyphus. They are in a permanent mode of attempting to cheat death by ‘great trickery’.

They too use their ‘wicked intelligence’ to find ways to pretend to cooperate and conform to the demands set forth by the people and the international community which are to bring about change and reforms through a supposedly independent government. In the meantime, this notion of an independent government has become like the immense boulder that Sisyphus rolls up the hill only for it to roll down every time it nears the top because the truth is that the present rulers will do anything to avoid having a government of really independent ministers.

For those of us who have an optimistic outlook, there are unfortunately lessons here that are going unlearned, namely that:

  1. The nomination of the latest Prime Minister Designate changes nothing no matter his stated good intentions.
  2. His selection is just a way for the ruling class to close ranks, protect themselves and ensure both their temporary and long term survival.
  3. Their baseline trickery is still at work because any Government they will agree to form will be constituted by the same people who are being called upon to be replaced.

A good government, on the other hand, would require that the country enter into negotiations with the IMF and conform with their strict standards of auditing, accountability and transparency which would expose all the diverted state funds over decades and would lead to the incrimination of many of these individuals.

It would also require that high ranking government officials be convicted of criminal negligence in the Port explosion investigation and be sent to jail for killing 200 people, and in the matter of the restructuring of the state, that the massive partisan network of unproductive workers in the public sector be dismantled which would cost the political parties and their leaders the source of their stronghold and popularity.

I am often asked what can we do? I think the first step is to stop fooling ourselves that this band of rulers will birth anything productive for this country whether for reasons of petty personal ambition or for all the reasons stated above, and the second step is to say to any country which supports this charade that they are betraying the Lebanese people and prolonging their miserable existences under the yoke of these tyrants.

For as long as they are in power, we can only continue to fight for Lebanon, to endure, to survive and be ready when the change comes because one day it will!

A RECIPE FOR THE DECIMATION OF THE NATION: DESPOTISM AND STUPIDITY – By Tracy Chamoun

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Today is the 10 month anniversary of the explosion of the Port of Beirut, the third largest non-nuclear explosion in the world, and every day brings more shocks to a people already bewildered by a series of terrible events which have torn through their lives, taken their savings, their jobs and their dreams.

The problem lies where? It lies in the ineptitude of the present leadership to remedy the situation. Instead, they have systematically missed all the avenues for possible recovery and have made bad choice after bad choice.

Their actions are full of incongruities. There is no consistent strategy to save the nation. There are no tough precise measures being taken to enforce solutions. Everything is random and designed to delay the inevitable instead of tackling it straight on.

To this day in the financial sector, the audit company hired to look into the affairs of the Central Bank (and consequently the Government) is still complaining that they have not been given full access to the information that they are demanding. As a matter of fact, nobody knows the exact amount of the foreign currency remaining in the coffers of the Central Bank’s reserves which they have used up to subsidize basic goods such as fuel, medicine and wheat.

This palliative strategy to delay the inevitable has burned through Lebanon’s wealth and is now threatening to impact the deposits in the Mandatory Fund which are the last remaining dollars owned by the depositors. 

As for the Lebanese currency, the policy there are 5 rates to the Lira in the market: the official $1570, the not-so official $3,900, the $6400 the Government used to value the exchange rate of the $240 million loan from the World Bank which is to be distributed in Lebanese Pounds to the poorest families, the $12,000 of the so called currency platform, and at the time of this paper, the $15,000 of the black market.

They have left the population without a national unified policy to facilitate the buying and selling of goods and have allowed the black market to define the market rates. This has made the platform that the Central Bank erected a redundant mockery and it is stillborn even before it starts. As a result, merchants do not how to price goods and so they prefer not to sell them and to shut down their business because they cannot keep up with the devaluation.

Instead of having a concise monetary strategy, the situation is a fiasco with a seesawing of random policies. The latest example of this was the directive issued from the Shura Council which hinted that lenders can pay their customers at the official rate of LL1,500. This triggered street protests in a number of cities as depositors saw their savings evaporate. The Government rapidly reneged on this move and allowed the banks to continue to pay their customers with foreign currency accounts at the rate of LL3,900 to dollar, but in the meantime it caused immense confusion, frustration and insecurity as people continue to struggle to salvage what remains of their deposits.

Another example of the failure of leadership is their inability to bring anything to fruition. A year and a half ago, at the beginning of the economic collapse the then functioning Government, aided by the World Bank, proposed a roadmap for the containment and restitution of the financial crisis. Today these proposals have been abandoned having been torpedoed by the default on the debt payment which the Government chose to enact, basically placing the country into potential receivership.

The lack of purposefulness by Parliament to enact the Capital Control Law is obvious in that it is still being debated by the Finance Committee in Parliament after nearly two years of unlawful and outlandish restrictions imposed by the banking sector on the depositors who have been denied any recourse to protect themselves, when none of the perpetrators, Banks and Central Bank, have been held to account or punished. On the contrary, they have been allowed to do whatever they want.

A Capital Control Law should have been voted on and imposed from the outset to protect the citizens and ultimately the banks, but it would seem that delaying its authorship provided the oligarchy enough time to transfer the remaining of their funds outside the country without being accused of breaking any law.

The Capital Control Law which they are proposing does not offer anything new, being that the de facto haircut and the blocking of funds have been in effect all this time and on top of this, the rules for the transfer of funds it is outlining is useless because the banks are claiming that they will not be able to provide the foreign currency required to effect any such transactions.

As a matter of fact, they are saying that they cannot even match the parity of fresh money required from the Governor of the Central Bank for the re-payment of $25,000, in 3 year instalments of $400 per month, to the poorest families with less than $50,000 in their accounts.

Needless to say that this latest random resolution imposed by the Governor’s does not solve anything. It is an attempt by him to sweep under the rug the problem of paying back funds by way of appeasing small depositors and getting them off his back, but what about the big depositors with the millions of Lollars sitting in the moribund Lebanese banks? Who is going to pay them back? So far there is no strategy nor the means to resolve this problem.

The matter of a bail-in has also been taken off the table because it will mean that Syrian depositors (who have more than 20 billion dollars of savings stuck in the Lebanese banking system) and the majority Shia and African depositors, including African leaders, (who have about 30 billion Dollars of deposits also blocked), will be the main beneficiary of such bail-in and will end up owning the Lebanese banking system. So what next? Nobody knows.

This inertia, procrastination and lack of bold leadership is just deepening the financial crisis and making the loss of faith in the Lebanese Banking system endemic.

As for managing the societal problems caused by poverty, foods shortages and unemployment the incompetence shown to-date to resolve these matters is reckless and causing further endangerment.

The  Finance Card for the poor which has been promised for months has not yet seen the light of day because they don’t know where to source the money to make these payments having used up all the foreign currency reserves.

In addition, the $240 contribution by the World Bank which was supposed to be given to the poorest families months ago is still stuck in the quagmire of logistics and deliberations in Parliament, as they debate whether to disburse it in Pounds or Dollars and what commission should be retained by The Central Bank, notwithstanding the fact that, as time goes by, whatever they disburse will have inadequate purchasing power because of the hyperinflation in Lebanon which is nearing 150%.

Let us move on from the ineptitude to resolve the financial crisis, to the inertia and ill will in the political sector. Lebanon has lacked a full government, (not a caretaker one) since August last year (10 months ago today) when the Government resigned after the massive blast at the Port of Beirut.

The Political paralysis we are witnessing is complicating the economic meltdown, as fractious political leaders refuse to agree on a new cabinet capable of implementing reforms required to unlock foreign aid.

In the meantime, the arguments between the factions have had repercussions on every state apparatus in the country and Lebanon is becoming a failed nation on every level and in every sector.

This complete breakdown of the state apparatuses has affected the Constitutional Council where three judges having passed away is now left without the ability to form a quorum because the new nominations are held up for political reasons. The Supreme Judicial Council is also the victim of short sighted politics and has been caught in the middle of a tug-of-war since March 2020, when the President refused to sign the decree to renew its mandate and shelved the nominations to replace 7 of its 10 members whose terms expired at the end of May.

But really the worst travesty by far, which is causing the most damage to the nation, is the inability of a few of the contentious leaders to agree on a Government that can bring about the rescue packages need to remedy the present critical situation.

They have locked the debate in petty arguments and have completely lost sight of the big picture. They are using the old paradigms to form a government based on a format that is completely defunct and useless because of the conditions imposed by the unprecedented economic crisis.

They are pathetically debating who names two Christian ministers, at a time when the nation cannot offer among many other services, gasoline, imports, work, medicines, and healthcare to its citizens.

They are selling the cart before the horse as they endlessly argue for the control of a Government that has no longer a chance of working on a consensual basis after the blatant and scything accusations that each party has publicly unleashed against the other.

They just delay and delay because they personally want to stay in the game. But it is not a game anymore. It is human lives we are talking about. They have created a macabre dance around the formation of the Government, whereby they trade blame and keep turning and turning, while remaining in place.

The truth is that they are only interested in pretending to be concerned about the issues when in reality, they are satisfied with the status quo on all sides as it confers on them a pseudo legitimacy that none of them deserve at this point.

They are criminal in that have lost and forfeited months of opportunities to put the country on the path to solutions. Lebanon has sunk too far to resolve its problems on its own. Everything that it does internally at this point is diminishing returns.

What these petty leaders don’t understand is that the only avenue remaining for the salvation of Lebanon is for them to put their narrow ambitions aside at any cost and to comply with the international demands to form or a Government that can really deliver reforms.

They have to accept that they must negotiate with the IMF and then comply with the implementation of the harsh solutions that the IMF will impose.

Let us not dream too much. Until now they appear to be cowards. None of them want to forfeit their popularity by implementing these draconian requirements, preferring as always to pretend that the situation will resolve itself. The bad news is, this time it will not, and their customary survival tactics of “delay and deny” is leading us all to perdition.

Only time will tell how bad the situation will becomes in Lebanon and provided that the International community continues to help the population through non-governmental aid that reaches them directly, and that they stand by the Lebanese people to demand that parliamentary elections be held on time, and provided that we have friendly nations who are willing to give us fuel from time to time, to delay the electricity and internet blackout, and provided that the diaspora keeps sending money to their families, maybe the Lebanese people can survive long enough to remove the obstacles to their salvation.

If not, then prepare for the worst and at that time there will be no recourse but to ask for the protection of the Lebanese people by invoking Articles 39, 40 and 41 of Chapter VII of the charter of United Nations’ Security Council which determines and makes recommendations to maintain or restore peace and security, and to prevent a worsening of an already dire and deadly situation.

Finance Card For The Poor – A Mirage In The Lebanese Desert Of Incompetence. By Tracy Chamoun

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The Reserves in The Central Bank are becoming depleted, especially if the Government gives in to the bid of the Minister of Energy, who is asking for a 200 million dollar advance to keep the hemorrhaging and failing electricity company working and the country from going into blackout. Let us keep in mind that the Minister has had a full year to come up with a workable solution for the impending electricity crisis, but here again, at the last minute, they prefer to milk the very skinny and starving cow that has now become Lebanon’s economy.

Reaching near to the end of The Reserves will force The Governor of the Central Bank to tap in to the Obligatory Reserves which are in fact the savings of the depositors. Because of this terminal situation, the Government has decided to abandon its subsidies of foods (excluding wheat), medicines and 80% of the fuel costs by the end of the month.

The Government has been talking about a “Finance Card” to be given to the poorest families in place of the subsidies which were too broad to target only the poorest sector, and which never reached the people in need, as they goods they covered were mostly smuggled into Syria where they could be sold at three times their value.

Until now, the card has not been confirmed and Lebanon is rapidly approaching a food security crisis exacerbated by this impending lifting of the subsidies. It is predicted that this will lead to huge social unrest fueled by desperation over the shortages and ranging from violence to public property, raiding of supermarkets, robberies, kidnappings and assuredly deaths.

At present, with the rapid increase in poverty, 2.5 million Lebanese will need to benefit from this card which has been in deliberations for months, but the Government has not yet identified these people nor have they determined from which source they will be paid. The result will be more delays at a time when speed is of the essence.  

There are 100,000 families targeted in this drive. So far only 45,000 have been vetted. There is no “Central Registration” in place, which would be the obvious and necessary procedure to carry out such a large exercise, because as usual they have not thought it through. The World Bank by itself hired a separate company to process the qualified names.

Added to this immanent disaster is the fact that the original aid which was raised during the International Conference led by President Macron, which pledged $240 million to the impoverished sector of Lebanon, has still not been disbursed and is mired in arguments, as to how it will be paid? At what exchange rate? And whether the Government will keep a percentage of this money destined to the people as a deposit in the Central Bank? No surprise there…

Because no one has made provisions for the money to come from anywhere else, the Government is betting on the money already bequeathed by the World Bank to start to pay for the “Finance Card” and when this runs out, they will have no choice but to take it from the Obligatory Reserves.

They do not have a long term strategy to deal with this problem such as a national “Solidarity Fund” which could be obtained by imposing a calculated “Poverty Tax” on the wealthiest accounts sitting stagnant in the banks. The problem is that nobody trusts the Government to handle such a fund and to disburse it without political preferences.

This is where we are today. No money and no Government in sight, no strategy or concessions to obtain sustainable external aid and no haste in remedying the problem. These politicians and their political parties seem to have all the time in the world to watch Lebanon descend into hell as the people starve in darkness when the electricity also runs out in a matter of weeks. (But that is another discussion worthy of The Fables Of 1001 And One Nights).

The conclusion is they must really hate the people and for that, they will go to their specially reserved level in hell.   

MARITIME BORDER NEGOTIATIONS – IS IT A FAMILY BUSINESS? BY TRACY CHAMOUN

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For decades now, the Lebanese Maritime Border Negotiations have been the ultimate example of the leader’s botched and failed policies for the nation. After many attempts for decades to define this border, you would think that they could finally get it right?

Instead, under successive Governments, this process has included numerous delineations, failures to register the different decrees both with Parliament and with the United Nations, a bad and costly agreement with Cyprus, and a history of lack of follow up and execution both on the Northern border with Syria and in the South with Israel.

Last year, indirect negotiations with Israel were launched in an effort to revive the matter and address a major economic opportunity for Lebanon during this time of great crisis and hardship.

However, midway into the negotiations, the basis which had been agreed upon prior to the talks with all the parties which included the Americans, The Israelis and The United Nations  was changed, and the demarcation Point 23 was replaced with Point 29 giving Lebanon the right to an additional area of ​​1,430 square kilometers.

Proposing Point 29 was a drastic modification that was interjected in the middle of the negotiations, which were already underway on the basis of different set of assumptions. It is obvious that the negotiating team did not take this position alone, but with the support of the President, who pushed for the amendment of the related Decree 6433 to reflect this change.

The talks ended at that time after the President of the Republic met with the American mediator John Desrocher on December 2, 2020, and he informed him that Lebanon would maintain Line 29 as the new basis for the talks.

Then suddenly, last week, 5 months after insisting on Point 29, during the visit of the US envoy, David Hale, the President suddenly refused to sign the amendment to the Decree claiming that he required the full cabinet’s approval, even though he has in the past signed hundreds of “extraordinary approvals” to pass less urgent motions. This meant that the President for whatever reason one can speculate, was backing down from his previous entrenchment.

After the Prime Minister Designate, the Minister of Defense and the Minister of Transport had all signed the amendment to the Decree, The President’s refusal to sign it has just wasted half a year of progress when negotiations could have been taking place and the matter could have possibly been resolved.  

The questions now are: Will the President sign the amendment to the Decree today prior to the resumption of the negotiations tomorrow? Will he give his team the support that they need to stand their ground? Or will he leave them mired in confusion at the onset of the talks?

To make matters worse, a few days ago former minister Gebran Bassil gave a speech where he muddied the waters even more when he proposed that Lebanon should adopt another “imaginary” line between Hof and Line 29, excluding lines 1 and 23. This erratic set of proposals would indicate that he is looking for a reason to postpone a solution. Maybe he is hoping that it will be deferred to a time when he sees himself as President and reaping the benefits of such a deal? In the meantime Lebanon is dying and does not have the luxury of time or endless delays.

First of all on what grounds is Gebran Bassil involved in these negotiations? As the son-in-law of the President? As a deputy? As the head of a political a political party? Or as a means to insert himself in the discussion as a way of enticing the American’s to lift the sanctions from him?

This debacle over the demarcation line has just highlighted the underlying incompetence of the Presidential team responsible for this file at the palace in Baabda, and has made apparent their inability to formulate a consistent national strategy for the country to preserve and grow its wealth and assets.

Forget the humiliation of being a nation so disorganized that we cannot even get this matter right, the worst part is that this Sovereign wealth is now seemingly being forfeited as usual for narrow familial ambitions.

Let them eat cake…No government and no money – By Tracy Chamoun.

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In Lebanon, we are at a major survival crossroads and I am afraid that the shell-shocked population combined with the obstinacy and deafness of the rulers is going to lead very shortly to a catastrophic outcome in the form of two major crises.

The first crisis we will confront is that there will be no more Government delivered electricity because they cannot afford the fuel, and the second crisis will be that, the Government will run out of money to pay the subsidies for goods and fuel which are keeping the Lebanese people afloat (in light of the fact that over 50% of the population has now fallen below the poverty line).

With regard to the electricity crisis, a law was submitted recently by the MPs of The Free Patriotic Movement headed by Gebran Bassil, in which they asked for a 1,500 Billion Pounds as an advance to be paid to the Electricité du Liban (EDL).

Notwithstanding that this is an outrageous request after decades of wastage, mismanagement, and corruption which caused the Electricity Company to drain 47 Billion Dollars from The Central Bank, if the government agrees to give EDL the amount it is asking for – the advance of one Billion dollars – this will be followed by the immediate cessation of all types of subsidies on other goods such as medicine, flour, fuel, and diesel and the cost will ultimately be worse for the Lebanese.

So far, The Governor of The Central Bank, Riad Salameh, and The Head of the Caretaker Government, Hassan Diab, have stated their refusal to pay this sum from the Mandatory Reserve at The Central Bank. Beginning in the last quarter of 2020, The Governor sent clear signals to the political authorities that the funds at The Central Bank being used to cover subsidies are becoming depleted. Since then, about 4 billion additional dollars have been spent, and the reserve ceiling requirement of foreign currency has fallen from 17.5 billion dollars to just over 15 billion dollars.

This means, that at best, there are only two months of funding remaining for subsidized goods before dipping into the Mandatory Reserves which are made up of the hard currency deposits of local lenders at The Central Bank. The caretaker Finance Minister, Ghazi Wazni, has also issued a statement saying that by the end of May, Lebanon will soon run out of money to fund basic imports and that subsidies are costing $500 million a month.

In the meantime, remarks about a looming end to subsidies have triggered panic buying and fears of shortages and in a few months, things will get worse and poverty, misery and unemployment will rise even more. This will be followed by complete chaos and darkness.

Although The President, in his latest speech is claiming that a forensic audit is his priority, it is obvious that he is missing the mark again about what needs to get done first to help Lebanon navigate these very hard times.

What Lebanon needs immediately is a long term strategy to overcome the shortfalls in the Treasury that are going to lead to a complete blackout (which includes no refrigeration for foods, no internet for work, no lights etc.) and hyperinflation, leading to greater poverty and famine when the Government can no longer pay for the subsidies on basic goods.

Lebanon needs other rich nations to step in with aid and loans. We cannot do this on our own anymore. For this to happen, certain politically ambitious people must move out of the way to enable the formation of a respectable government. This will give Lebanon back its international credibility, and allow the country to re-enter into negotiations with the IMF and The World Bank, and to secure lasting solutions.

However, the opposite is happening. The president’s team (meaning his son-in-law), and their supporters are unwilling to help form a Government. Their intention is to ride out the present situation even if it means spending every last dime of the country’s reserves and the remainder of the people’s savings.

They have no problem to keep asking to cover any shortfall with the money left in the Mandatory Reserves. They are calculating that this will buy them one more year of time as they wait for the situation to change in their favor. This is also why they want to get rid of the Governor of The Central Bank who is acting as a roadblock to their intentions.

The bottom line is that, this obstinate and power hoarding leadership will not provide a solution for the salvation of this nation while they still have this remaining 15 Billion Dollars to spend. They will not agree to a new Government and they will very comfortably burn through the remaining reserves to stay in power and all the while they will let the Lebanese people be damned.

What I am saying is: be warned because this is the game at play. Solutions are available but the willingness to implement them is not.

April 8, 2021

Wanted in Lebanon: An interim performance orientated transitional government for 6 months.

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In the wake of Hezbollah’s visit to Russia and following the meeting between President Aoun and Prime Minister Designate Hariri yesterday to discuss the matter of the formation of the government, Sayed Hassan Nasrallah delivered a televised speech where he declared that the solution to the above issue will lie only in a Political Government and in opening up trade channels with China and Iran.

With due respect, I would like to reply to him.

With regard to his suggestion that the salvation of this country lies only with a Political Government:

1-It was political governments over decades which never worked and were the source of corrupt practices that put Lebanon in the mess it is today. In addition to which, let us not forget that it was the political class that was in power at the start of the October 17 Revolution and that they were rejected by hundreds of thousands of Lebanese who took to the streets to get rid of them.

2- We are a parliamentary system and no government proposal or project can be approved until it is passed by a law in Parliament which Hezbollah and their allies presently control. So where is the need to politicize the government?
When he says that a Government of specialists will not have any authority on the ground to control the situation if something goes wrong, then this in itself is an act of bad faith. Any Government that comes to power today consisting of experts in the field should have the complete support of all the parties in the country in order to save the country.

4- When he talks about reviving the present caretaker Government he is forgetting that this government when it was in power was called a “one color Government” and that it was unable to deliver on the aid and international support that Lebanon needed at that time. Therefore how will that be any different now? Since then, there has been the terrible explosion at the port and this caretaker Government was forced to resign by the will of the people. To bring them back would be to completely disregard the sacrifice of the martyrs of the explosion caused by the reckless presence of the Amonium Nitrate placed amidst the civilian population.

My recommendation is that a Government of non-partisan specialists be approved in the form of an interim transitional government for 6 months, pending an extension of their mandate based on a performance rating approval which Parliament can give by removing its confidence if the need may be.

As for the fluctuations of the currency there is nothing that will bring this under control except rebuilding confidence in the future of this nation. In addition to which, there is a Capital Control Law that has been waiting to be passed in Parliament for months. This must be enacted to start the process of firstly curtailing the illegal actions of the banks, and secondly normalizing the currency’s volatility, and thirdly restructuring the whole banking sector.

I do agree with the Sayed that new constitutional reforms must be put in place to establish deadlines for important events and they should encompass deadlines for the call for consultations to choose a Prime Minister, the time allocated to a Prime Minister-Designate to form a government and I would also add the time allocated for a presidential candidate to register and submit their candidacy.

With regard to future trading partners this should be part of a neutral tender process, and not driven by political preferences. In addition to which, I would like to point out that Iran is under sanctions and cannot trade with any country, and therefore it would be unwise to buy fuel from Iran at this time and this would only compound Lebanon’s problems. When Iran will have sorted out the matter of its sanctions with the USA then anything is possible if the prices are competitive.

As a final note I would like to add that the responsibility of any further delay in forming a Government that is acceptable and credible to the Lebanese people and to the rest of the world lies in the hands of both the President and the Prime Minister Designate. They can spend their time passing the blame as much as they like but the failure will be their’s. At this point concessions have to be made by both men to save the country.

A YEAR OF LAMENTATION IN REVIEW – LEBANON 2020 – by Tracy Chamoun.

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2020 started off in Lebanon on a false note with the arrival of the fugitive, former Nissan chairman, Carlos Ghosn, after fleeing from Japan, where he was smuggled out of house arrest by a private security company. Innocent or not, upon his arrival in Lebanon, he met Lebanon’s President, defying all diplomatic taboos. This meeting took place despite Lebanon having received an Interpol warrant for his arrest, adding to the dubious activities that were becoming the trademark of Lebanon.

On a larger scale, this was followed by the assassination of Qassem Suleimani in a targeted U.S. drone strike on January 3, 2020 in Baghdad. The operation which was approved by the U.S. President, Donald Trump, sent the whole region into turmoil, as everyone waited with bated breath for Iran’s retaliation.

This action was very destabilizing for Lebanon as it impacted Hezbollah directly, who, along with Iran, have since vowed to carry out their revenge, warning everyone who was involved in the assassination that they have become targets, and setting the stage for future conflagrations.

In the meantime, the protests in Lebanon turned violent, with dozens injured after the Lebanese Security Forces used batons and tear gas and even live bullets to forcefully break up demonstrations.

Having named Hassan Diab as the next Prime Minister-Designate in 2019, it was not until January 21, 2020, that Lebanon’s new government was formed after weeks of wrangling over portfolios among Hezbollah and their allies.

On February 11th, Hassan Diab and Speaker Nabih Berri met with President Michel Aoun, and announced the new twenty-member cabinet made up of so-called technocrats. They promised to work on a new election law, to seek an independent judiciary and to return the looted public funds – none of which has happened.

The new government confronted an immediate emergency as the banks imposed random controls, making it harder and harder for people to gain access to their deposits. The Lebanese Pound began its downward spiral, and firms started shedding jobs and slashing wages.  Lebanon’s employed workforce, which had been estimated by The International Labor Organization at 1.59 million in a 2019 report, had lost more than 220,000 jobs in the private sector since mid-October when the protests erupted against the political elite.

Diab’s cabinet was supposed to be made of up of independents with no partisan or political affiliations, but this was never the case and the ministers were selected as proxies for the traditional leaders. This meant that nothing had changed in the distribution of power and this government became known as: “A ONE-COLOR GOVERNMENT”, which meant that it would have trouble winning foreign support at a time when the Gulf Arab states along with Washington had labeled Hezbollah a terrorist group and were no longer willing to provide any bail-out for Lebanon.

Back in January of 2020, Lebanon’s parliament passed the 2020 budget although its finance committee chief said that the forecast revenues might be unrealistic with the country wrestling with a major economic and financial crisis. This was a huge understatement. The budget they passed envisaged a deficit of around 7% of GDP.

Since then The World Bank has stated that real GDP is projected to decline by 19.2% in 2020, and to contract by a further 13.2% in 2021 assuming the the COVID-19 effects, the absence of macro policy responses and the limited reconstruction and recovery efforts in the aftermath of the Port of Beirut explosion, which is all being accompanied by runaway inflation.

Public debt rocketed from 131% of GDP in 2012 to an estimated 176% of GDP at the end of 2019. By August 2020, the gross public debt had widened to $94.3 billion and according to data from Lebanon’s banking association, the Eurobonds accounted for one third of that debt burden, held mostly by the Lebanese banks, who were also the government’s biggest creditors.

The government appointed Lazard and law firm Cleary Gottlieb Steen & Hamilton LLP as its financial and legal advisers on sovereign debt restructuring, to seek a way to address the payment of the debt’s maturity on time, which included a $1.2 billion Eurobond payment that was due on March 9th, and which ended up not being paid.

Hezbollah’s was opposed to such a plan and to any involvement with The International Monetary Fund (IMF). They believed that the terms required by any IMF bailout package for Lebanon would spark “a popular revolution” and they called instead for a “national solution” to the economic crisis.

On March 7th the Government ended-up defaulting on this debt, citing dangerously low reserves (The government had been spending around 50% of its revenues in 2019 just to meet interest payments).

However, since defaulting on the debt, the crisis confronting Lebanon has become a toxic combination of financial and political weaknesses with no obvious economic platform on which to build a recovery. It is facing problems on all fronts including: the balance of payments crisis, the debt crisis, the bank crisis, and the political crisis.

Diab’s government did however approve a rescue plan prepared in conjunction with The World Bank. The plan aimed to pull the country out of its worst financial crisis in decades. It included interest rate cuts, the recapitalization of banks and other taxation reform, but unfortunately none of those measures materialized and have not been implemented to date.

The Government “Recovery Plan” which Diab proposed had outlined tens of billions of dollars of losses in the financial system which had helped to bankroll decades of large state budget deficits. They estimated these projected losses in the financial system using an exchange rate of 3,500 pounds to the dollar at 241 trillion Lebanese Pounds, or $69.9 billion (at the weaker rate).

The government also pledged that it would seek a contribution from those who had benefited from extremely high interest rates and from financial engineering, referring to central bank operations used to attract dollars from abroad.

This plan was immediately rejected by the Banking Syndicate. The banks objected to a central aspect of the Government’s plan which rested on covering financial sector losses of roughly $70 billion through a bank shareholder bail-in that would wipe out their capital and the cash from large depositors. The banks claimed that the government’s proposals for restructuring the banking sector would further destroy confidence in Lebanon.

Added to the economic crisis, the advent of the Covid-19 Pandemic dealt a huge blow to any chance of recovery and Lebanon confirmed its first coronavirus on February 21. Today Lebanon’s official numbers are 186K cases, 131K recoveries and 1,489 deaths although this number is expected to increase radically after the end of year celebrations.

As Lebanon sank more and more into one crisis after another, the fear of crime grew exponentially. In the first four months of 2020, murders in Lebanon doubled from the same period last year. Car thefts jumped nearly 50% and burglaries 20%, according to a report by the research firm Information International, which is based on police data.

The prices of imported foods upon which Lebanese depended were also driven up by a 70% decline in the Lebanese Pound’s value and The World Food Program reported that 50% of Lebanese, as well as 63% of Palestinians and 75% of Syrians in the country feared they would not have enough to eat.

As the currency plunged, social unrest became a source of great concernin a country with a tumultuous history, where sectarian tensions were never far from the surface.

By August, the situation had deteriorated dramatically, and The Foreign Minister, Nassif Hitti, resigned in protest on August 3rd. He blamed this decision on the lack of political will to enact reforms that could halt the financial meltdown. In his resignation statement, Hitti said that he had multiple bosses and faced contradictory interests and was frustrated at being sidelined by the Prime Minister.

On the same day as his resignation, President Michel Aoun and Prime Minister Hassan Diab appointed Charbel Wehbe, Aoun’s diplomatic adviser since 2017 and a career diplomat, as Foreign Minister.

On August 4th, The International Tribunal issued its watered-down verdict on the assassination of Former Prime Minister Rafic Hariri – a tribunal which had been in the works for 15 years and cost the Lebanese government 100’s of millions of dollars – and to everyone’s dismay, they only indicted one suspect from Hezbollah.

Then that same day, the unimaginable happened, as a massive blast ripped through Beirut, killing 200 people, injuring 6000, and destroying 300,000 homes, in the biggest non-nuclear explosion that the world has ever known.

The explosion was blamed on more than 2000 tones of Ammonium Nitrate which had been stored haphazardly in warehouse number 12 at The Port of Beirut, close to a fireworks depot that had ignited and triggered the explosion.

The chemicals that went up in flames in Beirut’s deadliest peace-time explosion had arrived in the Lebanese capital seven years ago in 2013, on a leaky Russian-leased cargo ship, The Rhosus. The ship was carrying 2,750 tons of a highly combustible chemical from Georgia to Mozambique when the order came to divert to Beirut to pick up extra cargo. There, the crew were asked to load some heavy road equipment and take it to Jordan’s Port of Aqaba before resuming their journey onto Africa, where the Ammonium Nitrate was to be delivered to an explosive manufacturer.

But the ship never left Beirut, having tried and failed to safely load the additional cargo, they damaged the vessel, forcing it to remain stranded outside The Port of Beirut for months, before becoming embroiled in a lengthy legal dispute over port fees.

It was months after that, for safety reasons, that the Ammonium Nitrate was unloaded and put in warehouse number 12 without any further action. It  was left to dangerously decompose there for 6 years – Even though, the matter had been referred to several committees and judges and nobody had done anything about moving the explosive materials to a safer location.

Following the deadly blast, the government launched an investigation into its causes, and they asked The Federal Bureau of Investigations (FBI) to provide investigative assistance. However, U.S. government sources have privately said that based on the evidence available, they believed that the explosion at the hangar where the Ammonium Nitrate was stored, was most likely due to an accident, inaction and negligence.

President Aoun, promised a full investigation, and 25 port officials were detained, without evidence, as part of the investigation. To-date nothing has been established, and the investigation process has become politicized and paralyzed. No senior Government official has been accused and no prior Government representatives questioned. None of the security agencies at The Port, including The Army which is responsible for the handling and storage of explosive materials, have been called to account for the mishandling of the dangerous chemicals and their illegal storage in a dense residential area, endangering the lives of millions.

The President himself admitted knowing about the presence of the Ammonium Nitrate and never followed up on the matter stating publicly that it was out of his jurisdiction. It would seem that all the leaders are attempting to wash their hands of this matter, and the whole investigative process is being buried under the usual sectarian rubble.

Nevertheless, in the aftermath of the blast which caused billions of Dollars in damage, the world rallied to support Lebanon, and many participated in an aid conference organized by France’s President Macron. The donors however, chose to work through local NGO’s for the distribution of their aid, fearing the history of rampant corruption prevalent in the Lebanese state’s administration.

Massive, and violent demonstrations took to the streets in the immediate aftermath of the explosion and on August 10th, angry and grieving protesters called for the removal of Lebanon’s President and other officials whom they blamed for the tragedy.

The following day, Lebanon’s Prime Minister announced his Government’s resignation, saying that the explosion that had devastated Beirut and triggered public outrage was the result of endemic corruption.

Diab accused the political elite for blocking reforms and stalling the talks with The International Monetary Fund due to a row between the Government, the banks and the politicians over the scale of the financial losses.

President Michel Aoun accepted the resignation and asked Diab’s Government to stay on as a Caretaker Government until a new Cabinet would be formed (which has still not happened).

President Aoun was then required to consult with parliamentary blocs on naming the next Prime Minister, though he seemed in no hurry to do so, despite the urgency of the situation,

In the meantime, President Macron had visited Lebanon immediately after the explosion – In the context of the celebration of The Centenary Anniversary of Greater Lebanon.

During his first visit, he was welcomed as a savior and was the only dignitary to visit The Port blast site, which the Lebanese politicians had neglected to do. However, it soon became apparent that Macron’s efforts had a contrary effect and that instead of bolstering the demands of the people and the cause of the revolution – even after such a terrible tragedy that reflected the magnitude of the corruption of the state – it appeared that his visit served the interests of the leaders and even Hezbollah. It was seen as giving them a reprieve that they no longer deserved.

As a matter of fact, after such a seminal and tragic event as The Port of Beirut explosion, which could have been a major catalyst for radical change, Macron’s visit dealt the decisive blow to the efforts of the revolutionaries by placing the legitimacy of the state back into the hands of the failed political class.

Macron promised the Lebanese leaders that if they cooperated together and formed a government within 15 days, that sanctions would not be imposed. Obviously, he had forgotten to consult with the Americans on this subject. They promptly placed two prominent political figures under sanctions, namely, the Minister of Finance, one of Nabih Berri’s acolytes, Ali Hassan Khalil, and another former Minister, Youssef Fenianos, who had ties to Frangieh and Hezbollah.

This action by the U.S. administration was visibly done to serve the interests of the Lebanese people but it undermined Macron’s efforts by showing up the limitations of his promises, especially when dealing with Hezbollah.

Macron’s second visit was viewed with great skepticism by the people who no longer saw him as a savior but as a co-conspirator with the ruling elite. This perception was only heightened when Mustafa Adeeb the Ambassador of Lebanon in Germany was plucked from obscurity to be named as the next Prime Minister-Designate, responsible for forming the Cabinet under France’s guidance.

The choice of Adeeb was unexpected. He was known as being former Prime Minister Najib Mikati’s man – An entrepreneur with a major holding in the Port of Tripoli. Therefore, when Macron returned to Lebanon in the aftermath of the tragic explosion, accompanied by French port officials and experts, his endorsement of Adeeb’s nomination was seen by many, as being instrumental to secure the contract for the future reconstruction and management of the Port of Beirut for the next 25 years.

In the meantime, the promises that Macron had extracted from the Lebanese leaders to form a Government according to specific criteria of non-partisanship and made up of experts, was sabotaged by the very people in whom he had placed his trust.

The politicians had agreed and promised Macron to have a government in place within 15 days, e.g. by mid-September, but the Shiite duo made up of Hezbollah and the Amal movement, had been spooked by the U.S. sanctions placed on the people closest to them, and they decided to entrench in their positions. They refused to concede the Ministry of Finance, falsely claiming constitutional rights to it and proceeded to block the formation of the government. This forced Adeeb to resign from his task and simultaneously dealt an embarrassing blow to Macron’s role.

Without a candidate for the Premiership and despite the severity of the situation, President Aoun continued to procrastinate over Parliamentary Consultations to nominate the next candidate.

In addition, Lebanon now faced grave difficulties in receiving the much-needed aid of more than $30 billion to rebuild its shattered economy, since the talks with the IMF had been put on hold, due to the presence of a Caretaker Government and to the lack of progress on reforms.

At this point, the expectations and notices of the international community to the Lebanese leaders were very clear – without urgent reforms that required broad political support, Lebanon could no longer count on any bailout.

With no substantial bail-out package coming in the near future, Lebanon’s reserves originally estimated at 17 Billion dollars – which had been used to cover the subsidy of fuel, medicines and wheat, were disappearing fast with no plan to replace them.

The rapid deterioration of the situation was causing sectarian violence to emerge again, with clashes between Lebanese Sunni Muslims and Shi’ites killing two people in the Khaldeh area south of Beirut, and three individuals in the northern village of Kaftoun.

On the Christian side, the old rivalry between Christian factions, supporters of Michel Aoun, (now Lebanon’s President) and Samir Geagea’s Lebanese Forces, came to a tense standoff where gunshots rang out, but no one was hurt, though the incident did renew fears of fresh unrest.

In addition, several repeated incursions in Lebanon’s airspace by the Israeli Air Force and the constant presence of their drones over land and sea, with periodic border strikes between the two parties, also fueled fears of a potential escalation of the Lebanese/Israeli conflict.

Israeli Prime Minister Benjamin Netanyahu even accused Lebanon’s Hezbollah of storing weapons near a gas company in the residential area of Jnah. This added to public concern of reliving another devastating explosion, especially as there continued to be unexplained explosions occurring at arms depots pertaining to Hezbollah in other areas.

The biggest such explosion rocked the village of Ain Qana in South Lebanon, a region that is a political stronghold of the group. Immediately after the blast, Hezbollah set up a security cordon of about 50 km around the site and journalists were prevented from approaching the area. There was no statement from the group except to say that the cause of the blast was not clear and though they admitted that there were several injuries they never released the figures. These targeted blasts were reminiscent of the explosions that also struck Iran this past year.

In the context of this increase in alarming situations in the South of Lebanon, the U.N. Security Council finally agreed to extend its mandate for its peacekeeping force for another year – however with a reduction of the number of troops due to the U.S. and Israel’s criticism over the mission’s efficiency.

The Lebanese Government decided to enter into bilateral negotiations with Israel under the auspices of The United Nations at their base in Naqoura near the boundary with Israel, known as The Blue Line. These negotiations were to be carried out with U.S. mediation and their objective was to finally delineate the maritime borders between Lebanon and Israel for the purpose of oil and gas exploration.

The talks were marred with false starts and recriminations, as both sides presented contrasting maps. Lebanon revised its original estimates extending the size of the disputed area farther south than the original border they had presented years before to The United Nations. The Lebanese President, Michel Aoun, said that the demarcation line should start from the land point of Ras Naqoura, as defined under a 1923 agreement, and extend seaward in a trajectory that expands the disputed area some 2,300 sq. km (890 sq. miles) as opposed to the original 860 sq. km claimed.

The Israeli team also presented its own map, that pushed the boundary farther north than Israel’s original claim and accused Lebanon of changing its position seven times and contradicting its own assertions.

In addition to the maritime border, the two countries disagreed over a border wall that Israel had started building in 2018, citing 13 points of contention which included the disputed area of Shebaa farms.  

These wavering tactics created much consternation and delayed any conclusive results, deferring any further talks until 2021, under the new US administration.

Ironically, these negotiations took place against the background of normalization by some of the Arab nations with Israel, as The United Arab Emirates and Bahrain agreed to establish full relations with Israel.

On the Government formation front, things appeared to be blocked due to political rivalries and factional jostling. In addition, The President kept postponing consultations for a new Prime Minister-Designate.

It became evident that Hezbollah and Amal wanted the return of Saad al-Hariri. Faced with growing criticism over their perceived failure to deliver on promised reforms since winning their parliamentary majority in 2018, Hezbollah was being seen as protecting a corrupt political class that drove Lebanon into the ground. They wanted Hariri to return, as they considered him capable of galvanizing foreign support in the light of their own limitations.

Many Lebanese, including some Christians who once supported Hezbollah, were turning against the group because of the intolerable presence of their illegal arms and their classification as a terrorist group. Many blamed them for the sanctions and economic isolation of Lebanon and for having priorities that were geo-strategic and not Lebanon based.

The possibility of the return of Hariri to the Premiership initially hit resistance from several parties, including Hezbollah’s main allies, President Michel Aoun and his son-in-law, Free Patriotic Movement leader, Gebran Bassil, who had been at loggerheads with Hariri since the previous year, and had stated his outright refusal to back him.

However, having fielded all the possible Sunni candidates and with his brother Bahaa breathing down his neck for the succession of his family’s political mantel, Saad Hariri decided to nominate himself during a television appearance as the next candidate for Prime Minister – This a year after he had been violently ousted by popular demand.

Saad Hariri succeeded in getting the nomination despite the fact that the two main Christian political blocs, The Free Patriotic Movement, and its rival The Lebanese Forces, refused to back his nomination.

Hariri returned as the Prime Minister-Designate with the arduous task of implementing The French Initiative which called for a non-partisan government of specialists.

The French Initiative that Saad Hariri endorsed consisted of a draft roadmap for Lebanon’s next government. The main points and timeline in the roadmap were that in the first instance, there had to be an agenda for resuming talks with The International Monetary Fund and then within one month of the new government being formed, an IMF-approved Capital Control Law needed to be implemented, with an accompanying full audit of the central bank. Reforms of the power sector needed to be launched, including appointing an electricity regulator, and presenting tenders for new power stations, while shelving existing plans for the Selaata power plant.

To tackle graft, the Government needed to appoint members of a National Anti-Corruption Authority, to reform customs and to pass a law to reform public procurement.

Then within three months of the government being formed the plan called for a schedule for raising electricity prices, and the implementation of improved border controls to stop smuggling. By the end of 2020, a 2021 budget needed to be passed, which of course did not materialize under the Caretaker Government. The plan also stipulated that within one year of the new Government being formed, that legislative elections be held, and that the electoral law should be reformed with the participation of civil society.

Despite all these requests and Hariri’s attempts to present a reduced list of 18 names acceptable to the President and to Gebran Bassil, the sectarian and partisan rifts that obstructed any change during his last term in office looked set to plague his efforts to form this government as well.

Gebran Bassil had always stated from the outset, that if Hariri returned then so should he. He had also clarified his refusal to form a non-political government led by a political leader such as Hariri, which he believed was a contradiction in terms and discredited the process from the start.

On that basis, Bassil began to obstruct the process of Government formation, even if claiming the opposite all the while, as he called for parity and one standard for all, and insisting on the proportional representation of the parliamentary blocs in the allocation of ministers.

In early November, The United States imposed sanctions on Gebran Bassil, accusing him of ties to Hezbollah and being at the forefront of corruption in Lebanon. He was sanctioned under The Global Magnitsky Human Rights Accountability Act, which targets human rights abuses and corruption around the world. It called for a freeze on any U.S. assets and prohibited Americans from doing business with him.

Ironically, the imposition of the sanctions on Bassil did not move him out of the way, but instead seemed to complicate the efforts of Prime Minister-Designate Saad al-Hariri to assemble a Cabinet. The sanctions appeared to harden Bassil’s stance and solidify his reluctance to cooperate in the formation of a new Government that would necessarily exclude him.

This new development also prompted Bassil and the President to begin to think about ways of denying Hariri’s attempts to bring about a new Government, and instead of which, The President started seeking to revive the role of the Caretaker Government which was made up of many of their, and their allies’ ministers.

The political make-up of the Caretaker Government is as follows:

The Free Patriotic Movement of Gebran Bassil has 7 Ministers, including The Deputy Prime Minister and Minister of Defense, The Foreign Minister, The Justice Minister, The Interior Minister, The Minister for The Economy and most importantly for them, The Minister of Energy and water. Their ally, Hezbollah, as 2 Ministers, one of Industry and the other of Health, whereas The Amal Movement has The Minister of Finance and the Minister of Agriculture.

Therefore, in retrospect, it becomes obvious when looking at the above line-up of ministers that the present regime would have no desire to replace the Caretaker Government and to move ahead with a new Government based of The French Initiative which would jeopardize what they already have – and are unlikely to ever get again.

Regardless of the political proclivities, this permanent procrastination was happening against the backdrop of a worsening economic crisis in the country, with poverty rising at an alarming rate.

The international community continued to warn Lebanon of the dire consequences of their inability to reach a consensus, especially after the forensic audit debacle, where the company hired to the job, Alvarez & Marsal, quit because of their inability to gain access to the information they needed form The Central Bank .

Forced into a corner by this latest scandal and admission of failure, the leaders then passed a law to lift The Banking Secrecy Act for one year, in the hopes of convincing the auditing company to return to their task.

By the end of the year, The United Nations estimated that the proportion of Lebanon’s population living in poverty – earning less than $14 per day – had doubled in the last year to 55% and within that group, those judged to be in extreme poverty had tripled to nearly a quarter of the population – This in addition to effects of the Port blast which left even more Lebanese vulnerable.

Inflation spiraled due to the collapse of the Lebanese Pound which caused the prices of foreign consumer goods to soar in a country that relied heavily on imports and produced very little locally.

The official peg of 1,507.5 Lebanese pounds to the dollar which had been in place since 1997, became available only to importers of key goods: wheat, fuel and medicine. The Pound’s street value plummeted by nearly 80% and on the black market , the price for The Lebanese Pound varied between 7000 LPB to 10,000 LBP against the Dollar. Banks cut cash withdrawals and stopped dispensing foreign currency. They paid depositors with Dollar accounts in Lebanese Pounds at a rate of 3,900.

By June, the total number of unemployed reached 550,000 or 30% of a total labor force of 1.8 million. The port explosion alone slashed at least 100,000 jobs in the tourism sector.

The most pressing danger was the continued risk to food security. Comments about a looming end to subsidies, which had depleted the foreign currency reserves, raised fears of shortages or riots. The Caretaker Prime Minister said that Lebanon could ration the $2 billion left in the reserves to pay for subsidies for the next six months only – which was not a solution in itself and simply put a Band-Aid on a gashing wound.

In addition, the situation facing the Syrian refugees in Lebanon deteriorated steadily with the Lebanese people becoming more aggressive towards them and sometimes setting fires to their encampments and chasing them out of their villages following gunfights.

After the Port explosion, Lebanon also hit a 10-year peak in immigration. People left in the thousands with no plans to return, unable to support their families and pay for the education of their children. According to Lebanese research firm Information International, about 66,800 Lebanese emigrated in 2019 due to the financial crisis, and in 2020 there was a 36 percent increase in departures from the Beirut airport after the explosion, with nearly 90,000 people leaving at that time. An increasing number of them were doctors and surgeons, many of them at the top of their profession who took with them Beirut’s proud reputation as the medical capital of the Middle East.

Finally, to top off the worst year in Lebanese history, the pandemic reached a stage that seriously threatened Lebanese lives as hospitals were not able to provide beds. People were being turned away due to lack of foresight, mismanagement, infighting and corruption. The scenario in the country became compared to Italy with the expectation of people soon dying on mass.

Having reached the end of the year with no Government, no reforms, and no political concessions, it ended with the Lebanese drifting rudderless towards hell – just as The President declared.

Tracy Chamoun – January 2021

THE BEIRUT PORT EXPLOSION FAKE INVESTIGATION

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Ignorantia juris non Excusat (ignorance of the law does not excuse)

I am not going to reiterate the disaster that happened on August 4th, 2020, at the Port of Beirut, that was caused by the explosion of 2,750 tons of ammonium nitrate which had been stored there for more than 6 years, without safety precautions, in deteriorating conditions, and with nobody questioning its presence in such a densely populated area.

But, after that terrible explosion, the President of The Republic promised a transparent investigation into its causes, even while simultaneously refusing the call by the families of the victims of the explosion for an international investigation – which no doubt for him would have circumvented a judicial process that he and his allies controlled, and which could have risked exposing them to criminal negligence.

At that time, Ghassan Oueidat, The Public Prosecutor, recommended that the Cabinet refer the case to the Higher Judicial Council. The Higher Judicial Council is a special court whose decisions are not subject to appeal, and because referrals are made to it on a discretionary basis via a Cabinet decree, it has been a vehicle for political interference for decades.

Eight of the ten members of The Higher Judicial Council are appointed by the Executive Branch of government and since the beginning of the Aoun presidency, the Free Patriotic Movement (FPM), and their allies, have played a central role in the appointment of these judges.

Therefore, right from the start, the appointment of Judge Sawan as the Judicial Investigator by the Minister of Justice, Marie-Claude Najm, was an opaque process mired in allegations of political interference.

Since the beginning of Judge Sawan’s investigation, very little information was provided to the public about his findings and almost all the information about the status of the case came through media leaks including information about tampering with evidence such as the removal of documents from the public works ministry which oversees the port. This incident was followed by two huge fires in the port on September 8th and 10th, which also prompted many allegations of tampering with the crime scene. When The High Judicial Council failed to take action against these allegations it immediately put in question the investigation’s credibility.

It is obvious that the responsibility for the Beirut explosion extends far beyond the port and customs employees and the inquiry should be addressed to any person who was in a position of responsibility over the last 6 years, to allow for the admission of the explosive material into the country, its inadequate storage and to prevent it from being moved out of harm’s way or even to veto its removal.

Then, on October 13th, local media reported that 25 people had been arrested in relation to the case, and 30 had been charged. But, to this day charges against those arrested have not been made public. The individuals who were arrested are being held in prison cells and the Lebanese authorities have failed to detail any evidence against them. This apparent attempt to make the administrative port and customs workers scapegoats for the investigation shed further doubt on the process which appeared to be attempting to shield higher ranking political officials from prosecution.

Many court records and official correspondence leaked to the media, have indicated that since 2013, a large number of high-level civil servants, including the head of the customs department, had repeatedly circulated official letters saying that the ammonium nitrate in the port posed a grave danger. Customs and security officials wrote to judges roughly every six months asking for the removal of the material. (Those Judges and customs officials have declined to comment on the matter).

In addition, most of Lebanon’s political leadership including the President and the security agencies have admitted to knowing about the stockpile of ammonium nitrate before it ignited on August 4th. On July 20th, a letter prepared by the Prosecutor General Ghassan Oueidat was delivered to Prime Minister Diab and President Aoun by the General Directorate of State Security (which oversees port security), warning them that this could destroy Beirut if it exploded.

This letter summed up the findings of a judicial investigation which had been launched in January this year, and which had concluded that the chemicals needed to be secured immediately – proving that the matter was under examination for 8 months prior to the tragedy and nothing had been done to prevent it.

Notwithstanding his prior knowledge of the impending dangers, President Aoun has denied that he was responsible for the devastating blast, saying that he had no authority over the port and had ordered that action be taken and then admitted that he had never followed up on that request.

The President also added that the previous government had known about the dangerous stockpile which had been confiscated in the port since 2013. It would seem obvious however that if that government was aware of this fact, then his son-in-law Gebran Bassil, who was the Minister of Energy at the time that the ammonium nitrate entered the country, would have also known about the presence of these explosive materials.

It is very strange therefore, that The President of The Republic after four years in office, would only find out about this matter three weeks prior to the actual explosion. He is a military man after all, and for him to publicly say to the press at a news conference, that “they said it is dangerous and I am not responsible. I don’t know where it was placed. I don’t even know the level of danger,” is hardly believable or even acceptable.

To make matters worse, now, more than three months into the investigation, not a single minister, former or sitting, has been questioned as a suspect. It was not until last week that Judge Sawan issued four indictments, which appeared random and inadequate, to the former Prime Minister Hassan Diab, and to three former Ministers including two of which who had already been placed on the US’s sanctions list for their involvement in aiding Hezbollah. They have all refused to comply and testify.

The challenge by the political class to Sawan’s latest summons goes to the crux of the matter and is rooted in the attempt to shield people in power and in the different legal interpretations over who has the authority to question ministers and heads of governments.

The High Judicial Council claims to not have the jurisdiction to prosecute sitting or former presidents and ministers. However, The Lebanese Judges’ Association has disputed this reading of the law contending that the crime of killing or causing the death of citizens is not subject to immunity, as it is not directly related to the exercise of duties in office.

The Judicial Council is claiming that this responsibility falls on “The Supreme Council to Prosecute Presidents and Ministers”. However, this body has not yet been fully decreed by Parliament. It is to consist of eight judges and seven deputies.

Last March, after years of stalling on the creation of that council, Parliament elected seven representatives, representing most of the parliamentary blocs, to the membership of “The Supreme Council to Prosecute The Presidents and Ministers”.

However, when it came to selecting the 8 judges to complete the process, Speaker Berri rejected the list of names presented to him by the former president of the High Judicial Council, Judge Jan Fahd.

The fact that these 8 judges were not selected to complete the membership of the Council completely stopped its formation in its tracks – even if it is expected that this procedure will be finished at some point in the future with the new head of the High Judicial Council, Judge Suhail Abboud.

But, in the absence of such a judicial body the responsibility befalls on the High Judicial Council to prosecute those responsible, including very high-ranking members of government.

Let us therefore discuss where the responsibility of this crime of public endangerment and gross negligence leading to the loss of lives, really lies. No matter how much the facts are blurred, and responsibility is deflected, there are some baseline truths that need to be brought to light and used in the pursuit of justice for this terrible case.

Without going into conspiracy theories and speculations about why such huge amounts of ammonium nitrate ended up in Lebanon under very suspicious conditions, I want to focus on how the matter was handled once the ammonium nitrate landed on Lebanese soil. This is the real question that matters when it comes to allocating responsibility for the cause of the death of more than 200 innocent civilians.

Aside from some high-level members of the port authority management, those who are responsible for this terrible act of negligence, are those, over all these years, who were in positions of power and responsibility in government and who must have known about the presence of these explosives – and if they did not know, they should have known. These include presidents and their ministers who worked in the sectors of government relevant to the incident, including: Defense, Security, Energy, Agriculture, Public Health and Safety, and Transportation.

On the Security level, the introduction of potentially explosive chemicals into Lebanon comes under the jurisdiction of the military. Therefore, the chain of command in the Army since 2013, under both General Kahwaggi and General Aoun, should be interrogated and deposed in the process of uncovering the truth about why such a volume of explosive materials was stored in a haphazard way and left to dangerously decompose in an urban area? And as to why they did not transport this hazardous material to a remote location and prevent access to it?

On the leadership level, both Presidents of the Republic since 2013, Michel Sleiman and Michel Aoun are accountable in this matter, including the four Prime Ministers which governed the country since the time that the shipment arrived in 2013 during Najib Makati’s caretaker government and then during the following government of Tammam Salam which came to power in 2014, when two whole year’s passed with nothing done about the presence of the explosive material at the Port of Beirut.

After that, in 2016 following Michel Aoun’s election as President, Saad Hariri became Prime Minister. Three years went by and nothing happened again. As for Hassan Diab’s government, he and the relevant ministers implicated in the probe also need to be interrogated.

At this point, however, it is becoming increasingly clear that the Lebanese authorities have no intention whatsoever of fulfilling their responsibilities to conduct an effective, transparent and impartial investigation that would reach the people who were in charge this whole time. Political interference coupled with the long-standing failings of the judicial system have made this investigation seemingly impossible.

Finally, after the latest much criticized and politically aggressive move by Judge Sawan to selectively only indict former Prime Minister, Hassan Diab, (when there are so many others which should also be made to carry their share of the blame), the investigation has now been halted by two of the deputies indicted who challenged Sawan’s authority. If this challenge is accepted by the families and the court, then the investigation will go back to square one until a new judge is appointed and in Lebanon that can take forever.

This ongoing political/legal battle has now muddied the inquiry into the cause of what was one of the largest non-nuclear explosions in history. But no matter how much those responsible for this crime try to weasel their way out their predicament, ignorance is not innocence, especially when one is in a position of power and has a job to protect people and keep them from harm.

Ultimately, we, the Lebanese people, don’t really need their fake investigation to know who is responsible. Every Lebanese knows in their heart who is responsible for the explosion. They are all responsible and we find them guilty as charged.

What happened in the port of Beirut on that fateful catastrophic day was the ultimate manifestation of the results of years of corruption and indifference by a political class which only sees power as a means to a self-promoting end. The only words that come to mind regarding these negligent and criminal individuals are: “Abject failures”.

In any decent self-respecting country, they would have all resigned for the sake of the people, for the sake of the souls who perished, but in Lebanon they have the indecency to think that they can get away with anything. But can they anymore?

“Ignorantia juris non excusat”.

Tracy Chamoun

December 19, 2020.

MALICIOUS INTENT AND SQUANDERED OPPORTUNITIES – WHAT TO DO…BY TRACY CHAMOUN.

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To keep naming the problems confronting Lebanon falls on deaf ears, and instead it has now become necessary to spell out the ways that this country can be saved. I am not proposing to reinvent the wheel here. Indeed, France and The World Bank have done the bulk of the work for us. I just want to add a few of my own suggestion to their comprehensive proposals.

Last week, two major events happened to Lebanon’s advantage which should have been received with open arms by the Lebanese authorities, who should have put forward immediate solutions and strategies, so as not to waste such efforts.

The first event was the conference that President Macron of France hosted for a large group of international donors and contributors to obtain aid for Lebanon after the massive port explosion.

Beyond emergency assistance, all the nations and world organizations that were present at the conference declared themselves ready to support the economic and financial recovery of Lebanon, but they required, as part of a stabilization strategy, that the Lebanese authorities fully commit themselves to timely measures and the reforms expected by them and the Lebanese people.

However, instead of showing up to the meeting prepared with the list of fulfilled requirements that the French had set two months ago, the President gave a speech reiterating the same baseline nullities that placed nothing on the table except for open hands to receive aid – like beggars waiting for help.

The second event that emerged to Lebanon’s advantage last week, was the publishing of The World Bank’s Monitor Report. It sounded the alarm about where Lebanon is heading in the next year. This was very important to hear as the caretaker government keeps behaving as if there is no urgency at all.

The report frighteningly heralded increased poverty and gave negative indicators all around, but at the same time, it offered a very detailed and even technical road map for how to emerge from this crisis.

Unfortunately knowing how things (don’t) work in the Lebanese state, and the conditions of disarray and lack of performance in national governance, it is inevitable that the combined effort of France and the World Bank are both unfortunately set to vanish in the mist of the Lebanese fog of incompetence and inertia.

This leads me to the conclusion that it is not information that is lacking or good will from others, but instead, it is “malicious intent” by those in power to block any change that might endanger their self-serving structure. These leaders keep responding to every initiative to help Lebanon with the same endless diatribes. They continue to proffer pathetic attempts to form a government, while using the old formulas of sectarianism and partisanship that have been unanimously rejected by the Lebanese people and the international community. Thus, they are responsible for blocking any solution to the ongoing and worsening crisis.

Therefore, I want to go on the record and say that there is a way out of our terrible problems. There is more than one road map that we can follow and there are many solutions that we can implement if the “malicious intent” to paralyze change is removed.

I want to state clearly that what the French have offered is of paramount importance and that the initiatives outlined by The Work Bank document must be noted and acted upon with great urgency, otherwise as they have warned, “Lebanon is in the midst of mega-crises, capable of extending the current situation into a long-term catastrophe”.

As far as protecting the population from the financial sector collapse, France is asking for the implementation of capital controls and asking Parliament to finalize and vote on a law for capital control that it is approved by the IMF.

Capital controls are essential to protect the future of the financial sector but most importantly they provide a regulatory backdrop to ensure the protection of the population against the vagaries and sometimes unfair practices of the banks.

France is also asking that Lebanon immediately resume stalled negotiations with the IMF and rapidly approve measures requested by the lender, including a “full audit” of the Central Bank’s accounts, which we have seen has been countered at every turn.

Last week’s charade in Parliament revealed the degree of “malicious intent” and to-date, the crucial law for lifting the Banking Secrecy Act, so that the forensic work can be carried out unhampered, is still being avoided, thereby blocking the entire process from the outset.

France also proposed time limits for sector-specific reforms, specifically, for the electricity sector, in order to rapidly reverse the US$ 1.5 to 2 Billion yearly loss in GDP that it causes. They want the government to appoint officials to the National Electricity Regulatory Authority according to Law 462/2002 without amendments, and to provide the Authority with the resources to carry out its work.

Secondly, they are asking, to launch tenders for gas-fired power plants to fill Lebanon’s massive energy gap and to abandon the controversial Selaata power plant project in its current form (which interestingly the President and his son-in-law have insisted on keeping).

To this end, and to help the growth of the economy through the implementation of national projects, France is also asking that Parliament prepare, adopt and pass a bill for Public Procurement Reform.

Strengthening public procurement is a critical element of economic development. Public procurement is governed by the 1963 Public Accounting Law and is supplemented by several decrees. The main areas of the law that require attention are the lack of an independent regulatory body and an independent mechanism for handling procurement complaints.

Strengthening the public procurement system is a crucial move to improve transparency, accountability, and efficiency in managing public finances and future international investments. The failure to do this will have negative effects on budget transparency, debt and cash management, and public investment management.

In order to develop a well-functioning procurement system that promotes trust and accountability, Lebanon must also strengthen the independence and capacity of the Court of Accounts. Its present system of financial control is tilted in favor of pre-auditing only with little involvement in post-audit control – which is necessary to combat corruption. This must be addressed and changed.

France is pushing for judicial reforms. They want Parliament to approve a law on the independence of the judiciary. They want Lebanon to fight corruption and smuggling by appointing members of the National Anti-Corruption Commission and granting it resources to do its work and to launch the track to accede to a 1997 OECD treaty on combating corruption.

They are also asking to have customs reforms implemented with immediate effect by establishing “control gates” to strengthen the oversight at the Beirut and Tripoli ports and at the Beirut airport, as well as at other border crossings.

Very importantly, the French are calling for the preparation and the voting on a corrective finance bill that explicitly clarifies the status of the country’s budget accounts for 2020, which were passed de facto in January, without due consideration to the dramatic reversal of fortune affecting the nation and, on that basis, they are also calling for a “harmonized” budget for 2021.

According to the constitution ARTICLE 32 (As amended by the Constitutional Law of October 17, 1927, the second session of Parliament which begins in October; is reserved to the discussion and voting on the budget before any other work. However, until now nothing has been done for 2021.

President Macron’s detailed suggestions and demands are an obvious and integral part of any future remedial proposals. But instead of working towards manifesting some of these strategies which would help the Lebanese situation, the leaders have obstructed this initiative by focusing on the appearance of the government rather than its important mission – which is to save the country.

These petty despotic maneuvers have ensured that none of France’s requests or conditions related to channeling vital international aid have transpired. Lebanon as a result finds itself at the edge of a very deep precipice.

As far as, The World Bank is concerned, they also did the bulk of the work for the Lebanese government by outlining a recovery strategy and a timeline of execution in their latest report. They prepared a detailed roadmap for the implementation of many reforms, some of which are the same as those mentioned in the French rescue proposal.

Their focus is a two–pronged approach. The First Strategy includes implementing key outstanding elements of the Taef Accord, such as adopting a decentralization law and creating a lower chamber of parliament to be elected on a non-confessional basis.

Here, I would like to add that I would agree with the Word Bank suggestions that on a macro level, the two most important aspect of the recovery of the nation hinge on both the launch of fully automated “E-government” which will help fight corruption, and the implementation of “Administrative Decentralization” which will become an essential component of any future recovery plan for the nation. Decentralization will allow for the re-energizing of local economies, and thus contribute cumulatively to improving the overall national situation.

The conversion to E-government is a priority in any future rebuilding process. The objective would be to automate the government on two levels. The first is on the “Intergovernmental” level, by developing a comprehensive proprietary software for The Ministry of Finance to synchronize with every ministry for accounting, collection, disbursement and auditing purposes and to improve government efficiency. The second level is for “The Public at Large”, to develop an e-government platform for official transactions to ensure efficacy and transparency.

As far as “Administrative Decentralization” is concerned the government must look at ways of implementing reforms to empower local government through the municipalities, and to provide them with financial autonomy. The municipalities must once again be accorded their own Ministry and be removed from the Ministry of Interior, so that they can manage autonomous budgets and also become more regulated. As part of this empowerment of the municipalities, they should be given the direct ability and therefore the means for handling the Syrian refugee crisis which impacts their localities.

The second basket of proposal which The World Bank is suggesting are remedial in the immediate future. They start by saying that Lebanon needs to arrest high inflation, and stop the rapid currency depreciation, as well as the proliferation of multiple exchange rates. Resume negotiations with the IMFLebanon also needs to put in place a path to public debt sustainability based on debt restructuring and a sustainable fiscal framework through the full realization of resulting losses according to international accounting norms. We also have to restructure the banking sector through consolidations and bail-ins in order to end the disintegration of the sector.

There is an English proverb that exists which says that it is an “ill wind that blows no one any good” which means that loss or misfortune generally benefits someone. In the case of Lebanon, this ill wind is the Covid-19 pandemic which has catapulted the world economy into disarray but is also presenting an opportunity for public debts to be renegotiated and for new loans to be structured.

Therefore, Lebanon should be working on this basis, towards a debt restructuring program to achieve debt sustainability over the medium term. The government should not shirk its responsibilities by avoiding its interest payments, just so that it has enough money left in its reserves to pay for subsidies. This does not provide a lasting solution to the economic crisis, as we are now witnessing.

Many of the suggestions in the report were already mentioned in the Government Recovery Plan which was in issued back in April of this year. It was in fact prepared for them by the World Bank.

We have to ask what of those measures have been implemented 8 month later? None!

In that document, the government promised that the fiscal reform package would be accompanied by social safety net (SSN) measures to protect the most vulnerable groups. They recommended that financing an SSN program could be taken up by donors including the World Bank in the context of a full-fledged adjustment program. They revealed that the Bank and other donors had already provided support to build a poverty targeting system in Lebanon that could be immediately deployed to fund the SSN program. However, nothing has been done, since the government failed to gain the confidence of the donors and the leaders refused to make concessions and push for the reform measure that were being asked of them.

Because of the drastic deteriorating poverty situation in the country especially now that the subsidies will be removed from essential goods, I believe that we need to push for the immediate the creation of a “Poverty Relief Fund” to protect the most disenfranchised sectors of the population.

Because the situation is of extreme urgency and yet we are unable to get external aid due to internal incompetence, I propose that the government invoke special measures to levy a “Poverty Tax Contribution” to supplement the “Poverty Relief Fund”.

Instead of enforcing income tax measure this year, when there is no income tax to be had, It is better to offer tax relief and at the same time enforce this “Poverty Tax Contribution” which would be applicable to all depositors of a certain size and would be based on the value of their capital assets in their frozen bank accounts. It would be a monthly contribution paid to the “Poverty Relief Fund”.

This “Poverty Tax Contribution”, which resorts to an internal and sustainable solution would be a way for all Lebanese to pull together and help each other without putting Lebanon under further international obligations.

The World Bank report is full of many detailed technical suggestions that any government would dream of obtaining as a framework of reference to move this country forward and out of starvation and poverty. However, nothing is being done and time is being squandered in relativistic disputes and the splitting hairs over seats of power which are temporary at best.

In addition, to all these practical, important, vital, suggestions and recommendations to lift Lebanon out of its catastrophic collision with destruction, there is a whole economic development plan that the government should be working on immediately and concurrently and which would address every productive sector of the economy. They should be evaluating services, industry and agriculture to see how to avert the present hardships and how to maximize on the new developments. These could include advantages due to relatively cheap labor, affordable real estate prices because of the currency devaluation, as well as cheap raw materials for locally manufactured goods.

I have my own ideas about how to transform Lebanon into a prosperous nation again, but that in itself requires a whole presentation. However, speaking of squandered opportunities, in 2019, the global management firm McKinsey & Company delivered a 1,000-plus page macroeconomic report to the government of Lebanon which is said to have commanded a $1.3 million fee (at almost exactly $1,000 per page). It offered a focus on short-term economic gains to steady a faltering local economy, which included ‘quick wins’ in the areas of wealth management, construction and tourism.

At the time, the government did nothing and remained mired as usual in their political stalemate marked by factional fighting. The report recommendations numbered some 160 core initiatives in total and identified five sectors as carrying the greatest potential to jump-start the economy including Agriculture, Industry, Tourism, Financial Services and the Knowledge Economy. Obviously, it has become outdated, but what I am trying to emphasize is that we have had so many helpful suggestions over the years from professional people that have just gone to waste. This trend is continuing because there is nobody competent at the helm of this country to guide it through its troubles.

Therefore, it is important to keep reiterating that the people in charge, whoever they may be, the Former Prime Ministers, the Speaker of Parliament, and the President and no longer deserve the right to say what is best for Lebanon. They all contributed to its demise and there are no excuses and no exceptions. As a matter of fact, they are the ones who are directly to blame for the worsening situation under their present watch. They should admit failure and work towards providing solution to fix what is left. One of those solutions, is to endorse the formation of a government that is made up of experts and non-partisan ministers, even if it means that they have to take a backseat role in order to save the country. 

I shall briefly now repeat what is wrong with the system that most of us already know: The existence of confessional cartels, the mentality of cheating the law, the zaim culture, the nepotism and the profiteering mentality. These have all been our downfall and for a New Republic to emerge, good people must be allowed and helped to come to the fore.

I could not agree more with The World’s Bank’s conclusion about the root of the problem in Lebanon, which they called a “Deliberate Depression”. This joins my interpretation of “Malicious Intent” as being the main obstacle in lifting this country up from the depth of its despair.

They attribute a reason for the “Deliberate Depression” of Lebanon as being caused by “an “elite capture” behind the veil of confessionalism and confessional governance, which served to block reform and development when it did not benefit all confessional leaders. This led over decades, to a dysfunctional political system with weak institutions and very little effective regulatory framework”.

In conclusion, I would like to say that this does not have to be a prolonged dark period for our country as The World Bank warns. We have the skills to fix the problems, we have the advice and recommendations from friendly nations to guide our efforts and we have the international support to remedy our debt crisis if we can shift the inertia of the threatened leaders into active and positive change.

Regardless however, this change will come about one day, either by the will of God, by constitutional deadlines, or by the will of the people, but it will come. Nothing is insurmountable, we just have to keep the faith and the vision of salvation for this once celebrated and prosperous nation.

 I summary what to do:

Short term:

• Parliament to finalize and vote on a law on capital control that it is approved by the IMF.

• Implement Capital controls.

• Resume negotiations with the IMF

• Restructure the banking system through consolidation and bail-ins.

• Revoke the Banking Secrecy Act to allow for the forensic audits in order to be compliant with international standards.

• Arrest high inflation by fixing an amended legitimate exchange rate for the Dollar, and stop the rapid currency depreciation, as well as the proliferation of multiple exchange rates.

• Put in place a path to public debt sustainability based on debt restructuring and a sustainable fiscal framework through the full realization of resulting losses according to international accounting norms.

• Create a “Poverty Relief Fund” to protect the most disenfranchised sectors of the population.

• Invoke special measures to levy a “Poverty Tax Contribution” to supplement a “Poverty Relief Fund”.

• Provide tax relief by not enforcing income tax measure this year, when there is no income tax to be had with the economy at a standstill.

• Have Parliament prepare, adopt and pass a bill for Public Procurement Reform.

• Create an independent regulatory body and independent mechanism for handling procurement complaints.

• Prepare and vote on a corrective finance bill that explicitly clarifies the status of the country’s accounts for 2020,

• Create a “harmonized” budget for 2021.

Medium Term:

• Strengthen the independence and capacity of the Court of Accounts.

• Amend its powers of financial control to be more involved in post-audit control to help combat corruption.

• Appointing members of the National Anti-Corruption Commission.

• Granting the National Anti-Corruption Commission, the resources to launch its work and to launch the track to accede to a 1997 OECD treaty on combating corruption.

• Implement customs reforms with immediate effect by establishing “control gates” to strengthen the oversight at the Beirut and Tripoli ports and at the Beirut airport, as well as at other border crossings.

• Appoint officials to the National Electricity Regulatory Authority according to Law 462/2002 without amendments.

• Provide The Authority with the resources to carry out its work.

• Launch tenders for gas-fired power plants to fill Lebanon’s massive energy gap.

• Launch a fully automated “E-government” to increase productivity and help fight corruption.

• Implement “Administrative Decentralization” to re-energize local economies.

This is what to do.

Thank you

Tracy

CRITICAL MASS DESTRUCTION – An Economy in Disarray, by Tracy Chamoun.

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In these times of great confusion and bewilderment, I felt compelled after much reflection to get clarity over the financial conundrum we are facing, which is characterized by deliberate obscurantism to say the least. I also wanted to reflect on some constructive ideas about this very difficult subject.

By nature, I am compelled to seek the crux of a problem and think only in terms of solutions. I also wanted to understand how this affliction came about.

I tend to look at situations in a holistic manner beyond the outward manifestations of symptoms, which in this case are the bankruptcy of the financial institutions and the failed state of Lebanon.

The deeper underlying cause can be summed up by saying that extreme negligence, recklessness and self-serving narrow public policies driven by private big money agendas have contaminated our country for decades, and that the current crisis conditions are the product of policy and not of circumstance.

They are the joint product of long-standing monetary policies by The Central Bank, and fiscal policies by successive Lebanese Governments who were responsible for budgets and government expenditures in particular.

The reality that we must now face is that the Lebanese government, the commercial banks and The Central Bank are all insolvent and worse still, The Central Bank has negative net reserves, i.e. more foreign exchange liabilities than foreign exchange reserve assets, even after accounting for the gold assets.

Today The Central Bank’s debt is the money that it needs to pay back to depositor’s and to the local banks. The Central Bank governor claims that the reserves are now down to less than 30 billion dollars, (though this number is anyone’s guess, since it is shrouded in (unlawful) secrecy and it is estimated more realistically, that it is in the region of 5 billion dollars), which is set against the more-than 110 billion in dollar deposits.

All the stakeholders, the depositors, the banks, and the government, need to be paid out of that unknown small amount remaining, including the servicing of the debt. There is a large 1.2 billion dollar bond interest payment due also by the government, (which it has decided not to pay), followed by another payment to service the debt in June of this year.

These bonds have tumbled below $17.5 cents on the dollar as worries about a protracted dispute with the creditors is feared. The Central Bank, owns about $5.5 billion of this debt. The local banks, hold almost $14 billion of the notes, and this decision to default, if not countered by an alternative proposal and the willingness to negotiate on the part of the creditors, could put Lebanon on course for a sovereign default. This will inevitably place all the national assets at risk, force hefty losses on the banks, and even risk rendering some of them insolvent. As it is, irreparable damage has been done to the reputation of the once lauded Lebanon banking sector, that may last for decades.

Nevertheless, with not enough dollars to pay all those obligations, whatever policy is adopted to handle this situation, it must take into account the need to set aside a portion of the few dollars reserves that are left for critical imports, like wheat, fuel, and urgent medical supplies.

A priority, looking into the near and long term, should be to set up an “Emergency Fund” for these basic needs and to work urgently on getting international support and aid for this fund, so that Lebanon does not plunge into chaos as the country heads towards extreme poverty, dangerous food shortages and even hunger.

Based on my analysis of the situation, and for people like me who are not financial experts I am offering a general history of how Lebanon arrived at this situation after the civil war.

My conclusion is that the present crisis conditions are essentially due to mismanagement by the present governor of The Central Bank and the political directives which protected, covered up and sanctioned his activities and which led to the collapse that characterizes Lebanon’s economy today.

The problems stemming from the policies of The Central bank are:

  • The mismanagement of The Governor of the Central Bank and his political immunity form accountability by the ruling class.
  • No oversight by the government of his monetary policies.
  • The practice of unregulated renegade governance.
  • No accountability of the actions of the governor of The Central Bank and no checks and balances.
  • Lack of transparency as The Central Bank does not publish any data on $-deposits it receives from banks, which take the form of $-CDs or various short and long-term deposits, nor on the interest rates it offers on these deposits.
  • Extreme secrecy of the governor’s operations with local banks, particularly $-operations. The pricing of these operations, and losses, are handled in secrecy and are not available to the public.
  • The Governor has engineered dangerous and unregulated interest rate policies and hikes – The Central Bank’s high interest rates paid to banks for their $-deposits, significantly exceeded the international interest rates it received when placing the $-funds received from banks and this resulted in mounting losses incurred by The Central Bank.
  • Non-disclosure of the Central Bank’s losses. These continuous losses are the reason for the Central banks discontinuing the publication of its Annual Report since 2003.
  • The lack of publication of the mandatory Annual Report, since its first publication in 1964, and which includes The Central Bank’s Profit & Loss statement leading to a total lack of disclosure of full balance sheet by the central Bank.
  • Lack of transparency about The Central Bank activities and “financial engineering” strategies.
  • Conducting “financial engineering” motivated by political cronyism. In 2016 The Central Bank opted to bail out two banks which were struggling with bad investments, namely Bank Med and Audi. The Central Bank injected more than $5 billion into their capital not through loans, nor against a share in the banks’ capital as standard practice requires, but just as pure profits given to select banks. This $5 billion corresponds to about 10% of GDP or 30% of all the banks’ combined capital.

The problems stemming from the policies of the government are:

  • The lack of regulation of The Central Bank even though the technical and legal structure is in place to do so.
  • The mismanagement by the government of its fiscal and monetary responsibilities. There is no adequate fiscal policy and no enforcement thereof.
  • Rising fiscal deficits and government debt resulting from unrestrained spending by government on current items (interest on debt, wages and various transfers) rather than on capital projects.
  • The lack of an operational national budget for 15 years and the irresponsible re-approving of last years’ budget without the necessary adjustments in the light of the present financial crisis.
  • The politicization of the public sector and the over inflation of the size its employees, including the 5000 employees that were injected for political reasons after the 2018 elections.
  • The mismanagement of the electricity sector and the cost of servicing that deficit.
  • The lack of policies regarding trade and the balance of trade.
  • The lack of control over the collection of taxes and duty from the ports of entry and the loss of that large national income due to illegal trade.
  • The lack of policies regarding the development of productive sectors such as Industry, agriculture and Services.

In the light of these grave difficulties I have ventured to put some ideas forward, as this should be a time of swift action and not delays, and of radical solutions and not the deferment of problems, which is the standard practice to-date.

These are my recommendations and a few action points:

For The Central Bank and its Governor:

  • The Central Bank policy should be closely investigated and not eschewed under the outrageous pretext that the governor is “protected by a foreign nation”.
  • Place The Central Bank under a separate auditing jurisdiction.
  • Do a forensic audit of The Central Bank to establish exactly the reserves available
  • The standard regulatory processes of the government and parliament should be activated to restrain The Central Bank’s unaccountable behavior.
  • Calling to account The Central Bank’s policy, as required by law concerning its interest rate policy, because presently The Central Bank does not publish data on the amounts of its deposits or on the interest rates it pays
  • Holding the governor accountable for the mismanagement and endangerment of national funds.

For The Government:

  • Find a way to appease the creditors and restructure the interest payment debt, as soon as possible, while deferring these payments with a realistic and realizable schedule.
  • Revising the national budget completely based on the present economic situation.
  • Defining the emergency requirements of the country over the next three years and setting aside an emergency fund for fuel, wheat, gasoline, and medical needs.
  • Providing an announcement by the Council of Ministers of a revised fiscal plan over a number of years to give the IMF and local and international markets confidence in the future financial situation in Lebanon.
  • Re-incentivizing growth in the sectors of industry agriculture and services.
  • Offering immediate tax benefits to foreign private sector investors to enter the present economy.
  • Opening up tenders for development projects including waste management and a variety of national projects.
  • Revising a national agricultural strategy geared towards self-sufficiency and sustainability to combat food shortages.
  • Stop the volume of illegal trade, and the tax and duty fraud at the points of entry into the country.

The following is a simple historical analysis of the financial sector collapse for people like me who are not financial experts:

Since the beginning of independence, Lebanon had a very long tradition of having a floating exchange rate, but then in the early 1990’s, when the civil war ended after 15 years of struggle, and Prime Minister Rafic Hariri, who had made his fortune in construction in the Gulf came to power, he implemented an economic plan that was essentially centered on brick and mortar and less on creating solid infrastructure and economic development.

The jewel in the crown of Hariri’s plan, was to seize land in the center of Beirut and rebuild the city center by giving it a new development corporation named Solidère. It was a complicated public/private entity that became dependent on huge infusions of state capital and public revenues, which might have otherwise serviced other sectors of the economy.

In 1993, Prime Minister Hariri appointed Riad Salameh as the Governor of Lebanon’s Central Bank, where for the last 27 years he has concocted single-handedly all the monetary policies of the country. Together, their primary objective was to attract big foreign investment to Lebanon, and in the process, they landed the country with debts of around 38$ billion which was 184% of GDP making Lebanon one of the most indebted countries in the world.

In this climate of rampant capitalism, it became necessary to reduce the risk to foreign investors. Hariri and his newly appointed governor of The Central Bank decided to peg the lira to the dollar and to fix the exchange rate against the US dollar at about 1500, where it has remained until the recent collapse. This policy is where the current crisis finds its origin.

From that point on there was a lot of foreign investment in Lebanon and the US dollar became the coveted currency for a Central Bank that built its entire monetary policy on an insatiable hunger for attracting US dollars by any means.

While Rafic Hariri was still alive, Lebanon received a lot of help from the Gulf Arab countries who would make big deposits into the Lebanese banking system, in addition to which, many wealthy donor nations would bail Lebanon out with development projects loans. These unfortunately did not help the economy since no reforms were adopted by the Lebanese government which was also characterized by excessive corruption and greed.

Having pegged the currency to the US dollar, Lebanon was therefor always in need of dollars. The local currency and the dollar became interchangeable and because Lebanon is a big importing country with very little domestic product to export – 80% of goods are imported, the main currency needed for importing goods was the dollar, so the central bank was always on a mission to expand its dollar reserves to be able to meet that demand. In addition, most big investments which relied on imported raw materials were also transacted in dollars.

Luckily for Lebanon a few things played into its favor until recently. Lebanon has a very large and successful diaspora living abroad including in the Gulf, the Americas, Canada, Australia and Europe and they tend to be very successful and very attached to their country. They send money to Lebanon to support their families and opened accounts in Lebanese banks which were offering relatively high interest rates of between 5 and 7 % on savings in Lebanon versus in the last few years the less than 1% that the US and Europe were offering.

These dollars filled the coffers of The Central Bank and helped it maintain the fixed exchange rate. Then importantly, in 2008 after the global financial crisis caused by the overexposure of banks to derivatives – From which Lebanon was insulated because its banks were not exposed to investments outside the country – people lost their trust in western banks and many ended up taking their money out of foreign banks and sending it to Lebanese banks, which they thought were safe.

In 2008, millions of dollars flowed into the country and this artificially inflated the economy. However, this did not benefit Lebanon fundamentally because the abundance of dollars induced inertia in the government which did not implement any economic reforms. Equally, the pegging of the Lebanese pound to the dollar caused the currency to be artificially strong. This made local goods less competitive compared to foreign goods. It also made our exports less competitive with cheaper foreign goods.

As a result, after 2008, imports increased exponentially and so did our current account deficit which is around 25% of GDP. (Countries which have a 6 to 10% current account deficit are considered to be in crisis territory, and Lebanon was already at 25%).

Lebanon was only able to sustain this level of deficit because there were so many dollars flowing into the country from the Lebanese diaspora, which ultimately served to sustain the import habit.

A few years later, the tide began to turn for Lebanon and by 2010. The global economy recovered and interest rates in the US started going back up and oil prices came down. Oil prices collapsed from the July 2008 high of $147 to a December 2008 low of $32. (They still never recovered their highs).

In parallel, the political landscape of the region became compromised with the rise of the so-called “Arab Spring”, the civil war in Syria began, Isis took hold, and the war in Yemen was launched and as a result the economies of the Gulf became much weaker and they stopped being able to support Lebanon.

The cost of all these wars, as well as, the US imposition of sanctions on some Lebanese banks, and the legal entanglements of a large number of the banks in the court system in the USA, as well as, the physical closure of Syria’s border with its neighboring countries which blocked traditional trade routes, followed by the ban on working with Syria, all began to extract a huge toll on the state of the Lebanese economy and the flow of dollars to and from Lebanon.

In addition, the conflict between Iran and Saudi Arabia also exacerbated the economic conditions in Lebanon and for political reasons related to Hezbollah, Saudi and Emirati dollars stopped flowing into The Central Bank. This was accompanied by travel bans imposed on their nationals leading to an overall drop in tourism.

At that time, Lebanon also witnessed unprecedented hostility towards the Lebanese government with the attempted forced resignation of the Lebanese Prime Minister which, shook the stability of the currency and the banking system.

All these factors combined to create the perfect storm, and the flight of the dollar began out of the country, with no indication for any possible remedy in sight. The final blow was dealt when the house of cards came tumbling down after the October 2019 revolt when people scrambled to recover their deposits, only to find that the banks had closed their doors in their faces and their money was no longer their own.

Instead of launching a broad economic reform plan for Lebanon to reduce its reliance on imports and tourism by increasing exports and building an infrastructure with power and connectivity which could encourage foreign investment and get the economy into a sustainable position, the government did nothing.

With this sudden reversal of fortune over the last 4 years which caused the access to dollars to cease, and with no alternative policies, the governor of The Central Bank was forced to adopt drastic measures to get more depositors to send their money to Lebanon.

Aiming to secure this dollar inflow, The Central Bank and the state (through the Ministry of Finance) offered interest rates well above international market rates to local banks in return for the banks’ investment in government debt and to cover interest payments on the public debt.

These high interests rate had a very adverse effect on the economy and instead of providing a stimulus they increased the inertia. Local banks who would get dollars from abroad would deposit these with The Central Bank to benefit from the high interest rate, and to effortlessly improve their bottom line, instead of using that money to invest in the country, in the private sector and to extend loans.

In addition, the final blow to the stability of the reserves was in 2016 when the governor of The Central Bank conducted a “financial engineering” operation which was initially motivated by political cronyism, in order to bail out two banks, namely Bank Med and Audi who had made bad investments abroad. They received an infusion of 5 Billion dollars. This operation vastly increased the country’s exposure to debt and was not meant to become public. After this daring operation, interest rates were out of control and were determined on a random case by case basis by the governor, and they climbed higher and higher sometimes reaching 25%.

To top it all off, the country also faced “terrible” mismanagement in the public sector because of the easy, unregulated spending and financing of The Central Bank.

The government had been functioning for 15 years without a budget or a record of government spending. The state spends considerably more than it receives in revenues from taxes and other income. In 2018, the state revenue amounted to the Lira equivalent of $11.5 billion—around two thirds of its total expenditures ($17.73 billion equivalent). Apart from the debt, the state’s main expenditure includes personnel costs of $6.44 billion equivalent, and the state-run Electricite du Liban which cost the government $1.76 billion equal to 11% of its budget.

Even in 2017, the state budget had ordered a hiring freeze in public institutions, yet it was revealed that around 5,000 people were hired in the run-up to the 2018 elections. An estimated 35 percent of the budget goes toward public sector salaries which at that level had become a liability for the economy.

Coupled with this situation was very little to no economic growth, no job creation, and a huge twin deficit (fiscal and current account) due to tax evasion, which is estimated to cost Lebanon about $4.8 billion per year.

There has also been a balance of payments problem and The Central Bank had to hold dollars in reserve to pay for the import of vital goods such as fuel, medication, and wheat, and to maintain the peg, all of which had to be purchased in foreign currency.

The Central Bank also has to pay high interest rates on those billions of dollar deposits for the local banks. The only viable way it could do this without other income was by obtaining more dollar deposits to pay the interest on the old dollar deposits.

This, along with all the other factors is how the Lebanese banking system became a very clear Ponzi scheme, especially once the dollars stopped flowing into the country and the massive dollar interest costs on the deposits were being paid from the reserves until these became depleted. They say that the governor had been banking on the yield of the oil and gas sector to supplement the reserves, but also for political reasons and corrupt motives, this took much longer to manifest and the Ponzi scheme ran out of money leading to the present desperate insolvency of the country.

Tracy Chamoun

March 7, 2020