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

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