North Africa, West Asia

Grappling between past and future: will Lebanon’s political economy reproduce itself?

Will Harirism resuscitate yet again, perhaps under a different face, or will the Lebanese people successfully bury it?

Nadim El Kak Sami Zoughaib
10 January 2020
Protest in front of the Lebanese Central Bank - December 30th, 2019.
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From Akhbar Al Saha Facebook page.

For the first time in the three decades since the end of the civil war in 1990, mass decentralized protests have swept across Lebanon since October 17, 2019 with citizens tolling the bells for a political and economic system that placed neoliberalism and sectarianism as its linchpins.

The long-existing model is collapsing, as a precarious financial situation threatens the country’s dollar peg. In fact, the official rate of the Lebanese Lira, fixed at 1507.5/USD, has devalued by north of 60% in parallel exchange markets. Moreover, a deep crisis in liquidities saw the banks set illegal and discretionary capital controls that granted connected clients preferential treatment. This culminated in a rapid economic contraction, with businesses closing their doors, workers getting laid off, salaries being cut, chronic sectoral strikes, and mounting inflation.

After protesters succeeded in pressuring Saad Hariri to resign as PM on October 29, a long deadlock ensued with parties struggling to find a figure that could satisfy all political sides as well as the protesters on the streets. After numerous candidates got rejected even before Parliament got a chance to vote on them, Hariri seemed set to be reappointed as PM on December 16.

However, a surprising failure to broker an understanding with his main ally, the Lebanese Forces, saw Hariri sidelined, as a new name proposed by the Amal-Hezbollah-Free Patriotic Movement (FPM) camp emerged: Hassan Diab, a university professor and former minister of education, was appointed by a small parliamentary majority to head and form a new cabinet tasked with managing the crisis. Shock followed among Hariri’s supporters, as many perceived him as the sole figure capable of rescuing the country from economic collapse through his various connections with western donors.

Roots of Harirism

The foundations of the Lebanese postwar economy can be traced back to the early 1990s, when Saad’s father former PM Rafic Hariri was tasked with leading Lebanon’s postwar reconstruction. The neoliberal order he spearheaded – also known as Harirism – empowered a new class of business elites who became increasingly connected to the sectarian political establishment as wealth and income inequality skyrocketed.

Hariri’s model was highlighted by its support for deregulation, financialization, privatization, wage repression, and other rent-creation mechanisms. These measures, alongside expanding patronage networks, also helped reproduce sectarian dynamics by repressing class-based organizing and entrenching clientelistic dependencies. By blurring the lines between political and business elites, this model further entrenched and normalized the recurrent exploitation of public funds and institutions.

Harirism empowered a new class of business elites who became increasingly connected to the sectarian political establishment as wealth and income inequality skyrocketed.

The nature of the model and the corruption it bred made its survival hinge on capital inflows, remittances from the diaspora, and loans from western governments and international organizations. Through their affluent connections, the two Hariris were the guarantors of this unsustainable rentier economic structure. However, systemic cracks resulting from nefarious practices remained pervasive, regardless of multiple temporary bailouts – namely Paris 1, 2, 3, and 4 (CEDRE).

The collapse

Aid conferences and exceptional hikes in foreign investment, particularly between 2007 and 2010, delayed recurrent threats of collapse. In parallel, this capital inflow was inflating the banking sector (worth around 4 times the size of the national economy), allowing it to finance the government’s massive fiscal deficit and invest in unproductive yet highly profitable sectors, particularly real estate.

As a result of failed investments, regional instability, and loss of trust in the economy, Lebanon’s balance of payments started exhibiting a persistent annual deficit as of 2011. This progressively depleted the Central Bank’s foreign reserves, which are needed to guarantee the Lira’s peg to the dollar and finance the import-dependent economy.

The Central Bank hence resorted to unorthodox “financial engineering” measures by offering commercial banks egregiously high interests on the dollars they deposited in its coffers. While this Ponzi-like scheme led to oddly high interest rates for depositors and record-high profits for banks, it paved the way for the current crisis in liquidities that essentially converted people’s savings into mere accounting entries.

Opposition to neoliberal policies

While the 2019 October Revolution was triggered by an increasingly precarious socio-economic reality, opposition to Harirism actually has an often forgotten history. In fact, contestation began in the 1990s with campaigns against privatized reconstruction projects that stole public funds and appropriated people’s lands. The rise of Solidere, a Hariri-owned development company tasked with rebuilding downtown Beirut, captures that growing trend of prioritizing rent-creation at the expense of citizens’ social and economic rights.

Trade unions also strongly opposed regressive neoliberal policies during the mid-90s, until they got repressed and co-opted by the political establishment. Similarly, the agriculturalist movement in 1997, known as the “Revolt of the Hungry”, was also directly tied to policies that marginalized local productive sectors while deepening reliance on imports.

Ensuing years saw such infringements on social and economic justice continue, leading up to the 2015 “garbage protests”, which directly resulted from an inability to manage a reemerging waste crisis due to private economic interests inhibiting the overhaul of the sector.

While this reactionary movement did not lead to tangible changes, the 2019 October Revolution forced Harirism to face a grim reality – one asking it to deal with its past decisions and compelling it to confront its potential downfall. With that in mind, what type of future awaits Lebanon’s political economy?

Clashing alternate futures

While going with Diab may seem like a move away from the longstanding economic norm embodied by Hariri, reality today is in fact more complicated. The Hezbollah-led camp, which brought Diab to power, may brandish populist slogans and a socialist rhetoric, but its track record and complicity in preserving Harirism suggests otherwise. Indeed, Hezbollah made its support for Hariri’s return as PM abundantly clear, yet his attachment to conditions opposed to their interests forced the Iranian-backed party to resort to an alternative strategy.

The Hezbollah-led camp, which brought Diab to power, may brandish populist slogans and a socialist rhetoric, but its track record and complicity in preserving Harirism suggests otherwise.

Hezbollah’s camp sees an opportunity in Diab to produce the same economic model without being as dependent on Hariri as its figurehead, while still upholding the principles that made it so profitable for the sectarian establishment. It’s also an opportunity to reshape their public image as a camp capable of outdoing Hariri at his own game and develop a larger constituency.

However, embarking on such a course is easier said than done. First, Hezbollah’s camp lacks a network that can grant it international legitimacy and financial backing to reproduce a broken economic structure. It also risks attracting sanctions if the new cabinet fails to include the traditionally western-backed parties.

Furthermore, the program it produces is bound to be rejected by the streets, especially if it adopts a neoliberal vision eerily similar to a Hariri-like plan characterized by non-equitable restructuring, austerity, and lack of accountability for those who led to and profited off of the crisis.

A third alternative is one that is devised locally, with social and economic justice as its guiding principles. The largest share of the burden would be incurred by the banks as well as large depositors who benefitted from the egregiously high interest rates. Serious fiscal reform would follow, as to allow the financing of social programs that can guarantee access to basic services and protect those most vulnerable. Reforms to the judiciary are also key to guarantee transparency and accountability for past mistakes and future sustainability.

A third alternative is one that is devised locally, with social and economic justice as its guiding principles.

The political class, across its camps, is unlikely to embark on that path because it would force it to give up on the profits it’s made, public funds it has stolen, and patronage networks it has built. If Diab does succeed in forming a cabinet, the most important thing to keep an eye on is the ideological leaning of the ministerial statement. Protesters are the only ones capable of exerting the pressure needed to move the country away from neoliberalism towards a new framework. Will Harirism resuscitate yet again, perhaps under a different face, or will the Lebanese people successfully bury it?

This article does not necessarily reflect the views of the Lebanese Center for Policy Studies.

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