3 QUESTIONS- Lebanon's crisis deepens: Economic collapse and power vacuum

By Ferhat Tutkal

- The author works as a News Reporter in TRT News, Foreign News Department, and holds a master's degree in International Affairs from the Lebanese American University.

ISTANBUL (AA) - In three questions, Ferhat Tutkal explains the sources of the economic collapse in Lebanon and its political deadlock for Anadolu's Analysis Department.

• What was the situation in Lebanon before the port explosion?

The protracted Lebanese civil war of 1975-1990 ended with the Taif Agreement. The neoliberal reforms that gained momentum in the aftermath of the civil war became more pronounced under Rafik al-Hariri, and the economy grew rapidly through urban restructuring and policies aimed at attracting financial inflows. However, with the industrial and agricultural sectors lagging behind the fast-growing financial sector and increasing corruption due to sectarian polarization and vested interests, a major economic crisis erupted in 2019.

In October 2019, the Lebanese government announced they planned to impose additional taxes on tobacco, gasoline, and on WhatsApp. The announcement triggered nationwide protests, and the demonstrations quickly turned into a movement against the infamous "confessional system[1]" of Lebanon. The political atmosphere of Lebanon and the hopes of the youth during the "October Revolution" in 2019 left its place to despair rapidly. Starting from October 2019, the Lebanese lira began to depreciate against the US dollar due to the currency shortage. Since Lebanon has a fixed exchange rate regime, the authorities failed to stabilize the exchange rate during the currency shortage. The devaluation in the lira caused a large-scale black market for currency exchange to emerge for the first time after 22 years. As of November 2019, the cracks in the financial system have been revealed. Lebanese banks froze people's accounts and imposed restrictions on cash withdrawals and outgoing transfers. In April 2020, banks stopped the withdrawals of US dollars.

Restrictions on traveling and continuous curfews caused by the COVID-19 pandemic significantly affected the already fragile Lebanese economy. In 2021, Lebanon became the world's most remittance-depended country, with 53,8% of its GDP coming from remittance inflows[2]. Also, Lebanon's economy depends on tourism incomes and currency inflow to the state. Considering the pandemic's devastating effects, Lebanon's situation has worsened dramatically.

• What has happened since the explosion?

Another major devastation was the Beirut port blast on August 4, 2020. 218 people lost their lives, and over 7 thousand people were injured. The cost of the blast was above $15 billion which held around 65% of Lebanon's GDP in 2021[3]. 6 days after the blast, Lebanon's freshly formed government resigned. The political instability escalated the dire situation. The absence of accountability and the tragic economic situation, including daily blackouts (up to 18 hours per day), were only the early signals of the exacerbating situation.

After the explosion, access to clean water in some parts was limited, and there were humanitarian crises in many fields. Access to the education of the Lebanese people as well as the Syrian and Palestinian refugees was declining, poverty and malnutrition were escalating, and the public services in the country were worsening each day. In 2021 a medicine shortage started and lack of electricity made hospitals struggle to sustain the health devices such as respirators and dialysis machines.

The protracted political deadlock ended after 13 months in September 2021. The new Mikati government raised hopes for the future. However, the hopes fell short soon after. The authorities have decided to leave the people to their fate and cut the government subsidies for medicines and oil. The pharmacy stocks returned to pre-crisis levels, and the unending lines in gas stations ended. However, the situation turned from "all can access some" to "some can access all," which deepened the division between the people.

The new government could not intervene effectively in the country's challenges, and constitutionally inherited structural problems[4] would soon create another political deadlock. On May 15, 2022, Lebanon held its parliamentary elections. The pro-Hezbollah group lost its majority in the parliament, and 13 candidates from the independent, anti-establishment movement broke into the parliament. The non-sectarian movement strengthened its hand. However, the traditional political parties still held the lion's share in seat distribution.

• Which scenarios await Lebanon?

The Lebanese parliament has 128 seats, and there is a sharp division between pro and anti-Hezbollah members. In the new parliament, no bloc is holding the majority of the seats after the decrease of the pro-Hezbollah bloc's seats from 71 to 61. However, the recent seat distribution brought another political crisis to the table.

Lebanon has been ruled by a caretaker government led by Najib Mikati since May 2022. Thus, the current government's authority is limited, and it cannot act decisively against the country's challenges. Under the economic downturn and unstable political environment, electing a new president is a must. The former Lebanese president Michel Aoun left his office after his 6-year term on October 30, 2022. The absence of consensus in the parliament created the following political vacuum. The lawmakers have tried to elect a new president more than 10 times, but all have failed.

Since Hezbollah and its allies lost their power in the last elections, they cannot secure an absolute majority to elect a president. However, the rest of the seats are divided. There are no prospects for a solution because of this division.

Considering the country's main problem is political, the scenarios without achieving political stability would be devastating. Actions toward economic diversification should follow stability to decrease the service sector's share in GDP. Also, building strengthened supervision mechanisms to avoid corruption and establishing a constitutional work group to solve structural problems are required. The apparent truth is that Lebanon has no time to lose. The authorities have to act decisively against the sinking economy. Even with a strong government and political will, an economic recovery may take many years. However, the unending political deadlocks make an effective economic intervention impossible.

[1] https://www.aa.com.tr/en/analysis/analysis-how-sectarianism-affects-lebanons-foreign-policy/2440137

[2]https://reliefweb.int/report/lebanon/thematic-report-understanding-remittances-coping-strategy-amidst-lebanons-crises-opportunities-and-challenges-aid-actors-november-2022

[3] https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=LB

[4] aa.com.tr/en/analysis/analysis-how-sectarianism-affects-lebanons-foreign-policy/2440137

*Opinions expressed in this article are the author's own and do not necessarily reflect the editorial policy of Anadolu.