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

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