Lebanese protesters relieved and anxious after the government’s decision to default on debt

Country’s future increasingly uncertain as political parties fail to agree on next steps

A man walks in front of a bank in the capital Beirut on March 6, 2020. Lebanon's central bank today ordered money changers to cap their exchange rate at no more than 30 percent above the official peg to contain the pound's devaluation on the parallel market.
Debt-ridden Lebanon is facing its most serious economic crisis since the end of its 1975-1990 civil war.

Lebanese protesters expressed wary relief after the government announced on Saturday that it would default on its debt for the first time in the country’s history.

The government said it needed to “secure the basic needs for people” before paying back creditors.

“This is the correct decision, because the people should come first,” activist Mohammad Herz said.

Since last summer, Lebanese importers have been struggling to secure the dollars to settle their debts because of a liquidity shortage.

“Default should have happened a long time ago as our system has failed,” lawyer and activist Hussein El Achi said.

“We have been living in a fictional economy solely based on attracting non-productive foreign funds.”

We have been living in a fictional economy solely based on attracting non-productive foreign funds

Since the end of its 15-year civil war in 1990, the Lebanese economy has relied on its banks to attract high-yield deposits from the diaspora while its industry and agriculture declined steadily.

Despite crises over the past decades, Lebanon was always bailed out by international donors and foreign countries.

But after consistently failing to implement reforms to increase transparency and fight corruption, few are willing to help today, and the latest economic crisis pushed hundreds of thousands of Lebanese into the streets in mid-October.

In a much-anticipated speech on Saturday, Prime Minister Hassan Diab halted a March 9 bond payment of $1.2 billion (Dh4.41bn), setting Lebanon on course for a default and heightening fear among citizens of social and economic collapse.

Mr Diab said Lebanon would enter negotiations with creditors, but protesters have little trust in their leaders, who they consider to be corrupt and reliant on distributing public money to their followers to cement loyalty.

“Will the government actually do something to help the people or will they continue stealing money?" Mr Herz asked.

"We must remain on the street and keep fighting corruption."

Mr Diab promised to restructure Lebanon’s banking sector and protect the savings of small depositors, but protesters bemoaned the lack of transparency.

"The choice to default on its debt with all its consequences was mandatory since we need the remaining currency reserves to order basic needs from gas, to wheat, to medical equipment and so on," protester Ali Noureddine said.

"However, it did not come simultaneously with an economic vision or plans for reform that the government can work with.

Mr El Achi said: “If political parties reform, they lose power. If they don’t, we lose the country."

Like some Lebanese economists, he believes that Beirut should request a bail-out from the International Monetary Fund as the international community is reluctant to help the country again.

Last summer, then prime minister Saad Hariri expressed reservations over IMF proposals such as an increase in fuel taxes and VAT, which are expected to be extremely unpopular.

Already, one third of the country lives in poverty, a number that is expected to rise in the coming months.

The idea of turning to the IMF still faces stiff resistance from political parties, including Lebanon’s influential, Iran-backed Hezbollah, which described the institution as a US tool.

“We are in an impossible situation,” said Mr El Achi, warning that Lebanon could end up resembling Venezuela, which has had hyperinflation and severe shortages of consumer goods and medicine.

“The Lebanese will eventually have to pay for the mistakes of the political class. We will suffer.”