In late 2024, as relentless Israeli assaults reduced swathes of Lebanon to rubble and killed thousands, many wondered: would the Hezbollah-Israel conflict finally push long-suffering Lebanon into the abyss?
The answer might still be yes, even as a fragile ceasefire largely holds. Hezbollah insists it will not fully disarm, as the truce requires. That obstinance could spark trouble, with the group’s domestic and foreign opponents demanding that it surrender its weapons entirely, once and for all.
Yet, in recent weeks, another potential spoiler has re-emerged: financial and political elites, who threaten to keep obstructing much-needed economic reforms in defence of their own, vested interests. Already, critics accuse this hidden coalition of pushing for last week’s appointment of the new central bank governor, Karim Souaid, as the latest instalment in their long-running recalcitrance.
While key foreign donors have declared their willingness to support Lebanon’s recovery, significant aid remains contingent on tangible reform progress. Since late 2019, when Lebanon’s unprecedented economic crisis first emerged, the country’s elites have resisted that process with determination. Unfortunately, they appear set to maintain this damaging course.
During the crisis, a broad, informal coalition of these actors – which cuts across political party lines – has delayed and sabotaged the comprehensive reforms required for an International Monetary Fund rescue package.
In March 2020, former prime minister Hassan Diab’s government proposed a crisis response plan, which the IMF greeted positively. But the powerful Association of Banks in Lebanon objected to the sector bearing a significant share of the debt burden, after years of reaping handsome profits from the fiscal practices that generated it. With the help of aligned politicians (among them, ostensible backers of the Diab government), the bankers managed to stop the plan from going forward.
In April 2022, two years and billions in wasted foreign currency reserves later, Lebanon and the IMF reached a provisional agreement largely along the same lines. It stipulated several preconditions for Lebanon to meet before the IMF would consider a full request for stabilisation assistance. Another three years later, during which Lebanon made no real headway on these deliverables, the parties must now draw up a new agreement, as the previous one is outdated.
From October 2023 until November 2024, the disastrous Hezbollah-Israel conflict pushed economic reform out of the national spotlight. After the war, Lebanon’s parliament installed a new president and prime minister, Joseph Aoun and Nawaf Salam respectively. Both men, who hail from outside Lebanon’s traditional political class, pledged to push through reforms. But they are liable to run up against the stubborn resistance of powerful forces who consider that their individual interests are on the line.
Already, some of the previous disputes have resurfaced. In early March, a Lebanese parliamentarian proposed a draft law on returning depositors’ savings, which have been largely trapped inside Lebanese banks during the crisis. Critics allege that the bill reflects the banking sector's preference for the state to assume the lion’s share of the financial losses. If adopted, this approach may rely on selling off state assets and purporting to divert proceeds from Lebanon’s (unconfirmed) natural gas reserves.
The battle has also played out in Lebanese media. Several outlets have accused Mr Salam of being under the influence of Kulluna Irada, a prominent Lebanese advocacy group. Kulluna Irada participated in the 2018 CEDRE donor conference and advocates for a banking restructuring strategy that imposes significant costs on bank shareholders. The group now faces a lawsuit, which reportedly accuses it of “using covert funding … to fuel a smear campaign against the banking system”.
Mr Salam’s government will hope that, backed by the crushing need for external assistance, it can overcome stubborn opposition and finally usher in the economic reforms. Both Mr Aoun and Mr Salam received resounding mandates from parliamentarians, and the new cabinet is largely technocratic rather than politically aligned.
Yet powerful interest groups retain sway over many MPs, who can block reform legislation. The nation’s bankers reportedly feel that they can also rely on key members of Mr Salam’s government to defend their corner. Mr Souaid, the new central bank chief and reportedly the banking sector’s preferred candidate, won 17 out of 24 cabinet votes. Mr Salam expressed “reservations” about Mr Souaid’s appointment and stressed the need to preserve Lebanese state assets in tackling the economic crisis.
The IMF reform agenda does not only raise alarm bells for bankers. Several proposed changes, such as lifting banking secrecy laws and introducing capital controls, would bring transparency to Lebanon’s frequently opaque economic order. Those changes would likely expose illicit schemes that many powerful players would prefer to remain shrouded in darkness. Interestingly, Mr Souaid’s candidacy received support from all 12 ministers selected by traditional political parties, ranging from Hezbollah to the group’s most ardent domestic foe, the Lebanese Forces.
A comprehensive reform agenda also threatens the rampant clientelism that has entrenched Lebanese elites’ power for decades. For example, implementing more transparent public procurement laws would undercut politicians’ ability to dole out state contracts to supporters. Potential donors may also demand that Lebanon make sweeping cuts to public sector jobs, another key source of electoral appeal. This change alone could lead disgruntled civil servants to withdraw votes in their thousands. Faced with these threats, many powerbrokers would prefer to avoid reform and cling to Lebanon’s broken economic model.
The bill for this short-sighted self-preservation will come down on the most vulnerable Lebanese. On top of the economic crisis, the war exacted a heavy toll on Lebanon: total damages will likely reach $11 billion, if not more. Key potential donors, chief among them Saudi Arabia, want to see progress on reforms before delivering large-scale financial assistance.
Hezbollah can still frustrate Lebanon’s economic recovery. If the group refuses to disarm, it could spook potential investors by creating ongoing instability in Lebanon and deter its foreign opponents from contributing financial support. During the economic crisis, Hezbollah has also faced allegations that it tacitly co-operated with Lebanon’s other traditional parties in obstructing serious reform action.
At least on the question of reforms, Hezbollah should have a compelling incentive to adopt a different course in the post-war era. Israel’s brutal military campaign mainly targeted areas home to a large population from Lebanon’s Shiite community, including Hezbollah fighters and their families. The party has overseen a faltering post-war reconstruction campaign and seeks to put the cash-strapped Lebanese state in charge of rebuilding.
The same concerns do not apply to many Lebanese elites. The majority shielded themselves against the country’s economic implosion. Their homes went untouched by the war. They may stonewall reforms yet again, even at the expense of their neediest compatriots. After all, they have done exactly that since the economic crisis started.
Although its future plans remain unclear, Hezbollah currently has a clear motive to support economic reform. Many of the country’s other powerbrokers do not.
