Abu Dhabi, UAEFriday 23 October 2020

How Hezbollah is pushing Lebanon to the brink of economic collapse

Lebanese protesters rallied outside the country's Central Bank on May Day. AP Photo
Lebanese protesters rallied outside the country's Central Bank on May Day. AP Photo

The government led by Hassan Diab will not succeed in rescuing the Lebanese economy as long as its touted reforms are tailored to suit the needs of Hezbollah and its regional allies – and as long as the Prime Minister's No 1 priority is to remain in power at any cost. This government is essentially a fig leaf for a coalition of political parties led by Hezbollah, an entity that is loyal to the Iranian regime in Tehran.

The assessment in the Iranian capital today, as I have been told, is that the country's economic problems are continuing to pose a grave threat to the regime's hold over power. It has therefore opted to direct public attention away from its internal challenges in two ways: engage in high-stakes military operations in the region that would compel the US to respond in ways that could potentially cost President Donald Trump his re-election chances this year; and mobilise a regional front in Iraq and Lebanon that is opposed to America.

Lebanon's Prime Minister Hassan Diab may be unpopular but he has the backing of Hezbollah. AFP
Lebanon's Prime Minister Hassan Diab may be unpopular but he has the backing of Hezbollah. AFP

With Hezbollah being an important weapon in its arsenal, Tehran has two objectives that it is determined to achieve in Lebanon. First, it intends to help consolidate Hezbollah’s dominance over the country by overturning its banking system, market economy, political system and the constitution. Second, it hopes to eliminate all possibilities of a popular uprising demanding reform and accountability, as this could not only topple the corrupt ruling class in Beirut but also expose Hezbollah’s power structure to major risks – a red line for Tehran.

It is therefore important for European powers to stop advocating, as they have, for the Diab government to be given time and a chance to prove that it is serious about reforms. This is not a technocratic government, as it claims to be, but a single-shade establishment powered by Hezbollah and its ally the Free Patriotic Movement, which is represented by President Michel Aoun and his son-in-law Gebran Bassil.

It is clear to all sides that there is no way to rescue Lebanon from collapse except through serious negotiations with the IMF, which would unlock external funds conditioned on serious reforms.

Hezbollah has rejected Beirut’s co-operation with the organisation except on its own terms, endorsed by President Aoun and Mr Bassil; the latter is known to hold the keys to Lebanon’s energy sector. In other words, this axis is bent on cherry-picking only that part of the IMF’s advice which suits it, while preventing any scrutiny of the government’s books, especially in the energy sector that has bankrupted the state.

The IMF has so far resisted the government’s pleas, including one for assistance to cope with the coronavirus pandemic; Beirut had hoped that this could pave the way towards securing loans without having to meet previously set conditions. But I have been reliably informed that the IMF’s response was to point to Lebanon’s default on its eurobonds as a reason for it to reject its request.

The key to foreign aid is clear: serious negotiations must be held with the IMF with a proven commitment to comprehensive reforms – not selective adjustments that overlook certain sectors for political reasons.

Meanwhile, even as public anger continues to evidently grow on the streets, most of that focus seems to be directed at the banking sector. It should be stated that banks are not immune from the kind of political deal-making that has brought Lebanon to the brink of economic collapse. It is therefore the right of the citizens to hold accountable the Central Bank and its governor as is currently the case but this suits the Diab government.

First, it helps to deflect public fury away from itself. Second, it feeds into the narrative that Lebanon’s system that is based on constitutional and economic freedoms needs to be overturned. By trying to force a break away from existing financial and banking regulations, Hezbollah hopes to seize dollars from these banks and build for itself a foreign currency war chest that it can use to sponsor its regional battles. This puts the country in a dangerous situation.

Making this crisis worse is the spread of the coronavirus, which has not only claimed lives and livelihoods and destroyed the economy, but also left global powers preoccupied with more pressing priorities in their backyards. Of course, even as Lebanon is left to its own devices, one positive development has come in the form of Germany’s decision last week to put a stop on all Hezbollah activities on its soil and designate it a terrorist organisation.

The Trump administration, while seemingly less focused on Hezbollah than it is on its patrons in Tehran, is planning additional sanctions on Iran in the coming weeks. This move, as I have been told, could prompt Tehran to launch some form of military action as a show of force.

In the coming days and weeks, therefore, the difficulties for both Iran and Lebanon are set to increase. And as we expect an escalation in tensions, the dollar will become an ever more important weapon.

Raghida Dergham is the founder and executive chairwoman of the Beirut Institute

Updated: May 25, 2020 06:22 PM

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