Insight and opinion from The National’s editorial leadership
January 18, 2022
The value of the beleaguered Lebanese pound rose slightly on Sunday, after the decision by two of Lebanon's most powerful political parties, Hezbollah and Amal, to end their three-month-long boycott of the government's Cabinet meetings. After weeks of Lebanese depositors enduring unprecedented devaluations in their savings, a bump in the pound is merely the smallest consolation. Many of them would much rather see an end to the political turmoil that underpins the country's economic crisis.
The boycott has held up any progress towards discussions with the International Monetary Fund over much-needed financial assistance to Lebanon's state coffers. The IMF has said that Beirut must present an economic reform plan that includes lowering its deficit, cutting wasteful spending and improving its tax collection, among other things, in order to avail itself of any aid. And the need for aid is dire, to say the least. A majority of Lebanese citizens have slid into poverty over the past two years, as widespread corruption and graft have resulted in their country sliding into economic ruin. Last year, the World Bank warned that Lebanon's situation was among the worst man-made economic crises in human history.
At the centre of the problem is the political gridlock created by Hezbollah and its ally Amal. Hezbollah doubles as a militant group and Iranian proxy. The two parties have effectively held the country hostage to the demands of Tehran, which wants to see Lebanon alienated from the West and the country's allies in the Arab world. In seeking to take control of the country's future, the parties have set up what amounts to a parallel state, complete with a separate, Iranian-supported economy and militia forces that undermine the national government's monopoly on the use of force.
The boycott has held up any progress towards discussions with the International Monetary Fund
The extent to which Hezbollah, in particular, has jeopardised Lebanon's development is clear in the way governance has stalled over the course of its boycott. The boycott was declared to protest an ongoing independent probe by Judge Tarek Bitar into the causes and circumstances surrounding the devastating explosion at Beirut's port in August, 2020. More than a year later, many former and current government officials, including some allied with Hezbollah, have been investigated. None have been convicted. Mr Bitar's investigation has been hampered every step of the way by lawsuits, threats and outright violence from Hezbollah or supporters of its agenda.
On the surface, the probe into the Beirut port explosion ought to have nothing to do with the political process needed to push economic reforms through in Lebanon. But the two manifestly are obstructed by the same corruption that has become endemic in the Lebanese system, at the centre of which is Hezbollah's ruthless sectarian agenda. What for the IMF ought to be a very straightforward prescription of policy measures to get Lebanon back on track and improve the welfare of its citizens has instead become just another political game, with increasingly deadly consequences.
While the real reasons for the end of the boycott remain unclear – many analysts suspect they are motivated more by Lebanon's upcoming elections, or an Iranian desire to gain concessions in Tehran's ongoing nuclear negotiations with the West – an earnest attempt at reconciliation and progress is unlikely to be among them. In rejoining the political process, Hezbollah and Amal have certainly taken a step. But it will be for them to prove whether it is a step forwards or backwards.
UAE currency: the story behind the money in your pockets
Four reasons global stock markets are falling right now
There are many factors worrying investors right now and triggering a rush out of stock markets. Here are four of the biggest:
1. Rising US interest rates
The US Federal Reserve has increased interest rates three times this year in a bid to prevent its buoyant economy from overheating. They now stand at between 2 and 2.25 per cent and markets are pencilling in three more rises next year.
Kim Catechis, manager of the Legg Mason Martin Currie Global Emerging Markets Fund, says US inflation is rising and the Fed will continue to raise rates in 2019. “With inflationary pressures growing, an increasing number of corporates are guiding profitability expectations downwards for 2018 and 2019, citing the negative impact of rising costs.”
At the same time as rates are rising, central bankers in the US and Europe have been ending quantitative easing, bringing the era of cheap money to an end.
2. Stronger dollar
High US rates have driven up the value of the dollar and bond yields, and this is putting pressure on emerging market countries that took advantage of low interest rates to run up trillions in dollar-denominated debt. They have also suffered capital outflows as international investors have switched to the US, driving markets lower. Omar Negyal, portfolio manager of the JP Morgan Global Emerging Markets Income Trust, says this looks like a buying opportunity. “Despite short-term volatility we remain positive about long-term prospects and profitability for emerging markets.”
3. Global trade war
Ritu Vohora, investment director at fund manager M&G, says markets fear that US President Donald Trump’s spat with China will escalate into a full-blown global trade war, with both sides suffering. “The US economy is robust enough to absorb higher input costs now, but this may not be the case as tariffs escalate. However, with a host of factors hitting investor sentiment, this is becoming a stock picker’s market.”
4. Eurozone uncertainty
Europe faces two challenges right now in the shape of Brexit and the new populist government in eurozone member Italy.
Chris Beauchamp, chief market analyst at IG, which has offices in Dubai, says the stand-off between between Rome and Brussels threatens to become much more serious. "As with Brexit, neither side appears willing to step back from the edge, threatening more trouble down the line.”
The European economy may also be slowing, Mr Beauchamp warns. “A four-year low in eurozone manufacturing confidence highlights the fact that producers see a bumpy road ahead, with US-EU trade talks remaining a major question-mark for exporters.”
YEMEN: “The developments we have seen are promising. We really hope that the parties are going to respect the agreed ceasefire. I think that the sense of really having the political will to have a peace process is vital. There is a little bit of hope and the role that the UN has played is very important.”
PALESTINE: “There is no easy fix. We need to find the political will and comply with the resolutions that we have agreed upon.”
OMAN: “It is a very important country in our system. They have a very important role to play in terms of the balance and peace process of that particular part of the world, in that their position is neutral. That is why it is very important to have a dialogue with the Omani authorities.”
REFORM OF THE SECURITY COUNCIL: “This is complicated and it requires time. It is dependent on the effort that members want to put into the process. It is a process that has been going on for 25 years. That process is slow but the issue is huge. I really hope we will see some progress during my tenure.”
