What Hariri's turn from Mr Reform to intransigent opposition means for Lebanon's rescue plan

Even the worst financial crisis in decades can't stop Lebanon's politicians trying to settle old scores

Saad Hariri, Lebanon's prime minister, announced his resignation to the country in a televised address on Oct. 29, 2019. Bloomberg

When he took the post as Lebanon's prime minister after the 2018 election, Saad Hariri tried to present himself as the man to lead much needed and long-overdue reforms. But now, as his successor is attempting to implement the very same measures, Mr Hariri makes no effort to hide his contempt for the new administration.

Repeated attacks from his successor, Hassan Diab, have pushed Mr Hariri into an open confrontation with the new government as they trade blame for who is responsible for the decades of mismanagement that has bankrupted the country.

“I do not understand why Prime Minister Diab is holding us responsible for the past 30 years? ... When he came to visit me, he did not talk to me like this. He expressed his gratitude for Rafiq Hariri and the Hariri family,” Mr Hariri told reporters in Beirut last week.

This kind of blow-up is typical of Lebanese politics and routinely occurs when reforms are discussed, impeding their implementation as politicians do not want to relinquish the power they have accumulated through years of nepotism and corruption. But this time, its consequences may be disastrous.

A demonstrator is seen next to a burning fire in front of a bank during a protest against growing economic hardship in Sidon, Lebanon. Reuters

A detained demonstrator stands near Lebanese army soldiers during a protest against growing economic hardship in Sidon, Lebanon. Reuters

Interior view of a damaged bank that was set ablaze by protesters in Tripoli, northern Lebanon. EPA

Lebanese people inspect a burnt out car of the Lebanese Internal Security Forces which was set ablaze by protesters in Tripoli, northern Lebanon. EPA

Anti-government protesters shout slogans during a protest against the collapsing Lebanese currency and the price hikes of goods, in front the central bank in Beirut, Lebanon. EPA

Anti-government protesters ride their motorcycles during a protest against the collapsing Lebanese currency and the price hikes of goods, in front the central bank in Beirut, Lebanon. EPA

Lebanese men inspect a burnt out car of the Lebanese Internal Security Forces which was set ablaze by protesters in Tripoli, northern Lebanon. EPA

Workers install metallic barriers on the facade of a bank as a protective measure against vandalism in Tripoli, northern Lebanon. EPA

Exterior view of a damaged bank that was set ablaze by protesters in Tripoli, northern Lebanon. EPA

Workers install metallic barriers along the facade of a bank as a protective measure against vandalism in the Lebanese capital Beirut. AFP

Anti-government protesters shout slogans during a protest against the collapsing Lebanese currency and the price hikes of goods, in front the central bank in Beirut, Lebanon. EPA

Lebanese riot control police watch as annti-government protesters gather during a demonstration against the collapsing Lebanese currency and the price hikes of goods, in Beirut, Lebanon. EPA

Anti-government protesters ride their motorcycles during a protest against the collapsing Lebanese currency and the price hikes of goods, in front the central bank in Beirut, Lebanon. EPA

A demonstrator smashes a window of a bank during a protest against growing economic hardship in Sidon, Lebanon. Reuters

Mr Diab, who took over from Mr Hariri as prime minister earlier this year, has become increasingly vocal in his accusation that the Hariri family has failed the country for decades.

Mr Diab has placed the blame for the freefalling Lebanese economy on a financial model reliant on the ability of an inflated banking sector to attract dollars from abroad to prop up a rentier economy at home. The model, critics like Mr Diab argue, was built by Rafik Hariri after the civil war ended in 1990 and perpetuated by his son Saad Hariri during his two terms in office.

This model was successful at its beginnings, leading to periods of rapid growth. But after the upheaval of the Arab uprisings in 2011, and the start of the Syrian conflict that year, the country's economy flatlined.

Deposits dried up and insecurity scared off investors. While the economy limped along for several years, the country effectively ran out of dollars last year leading to a black-market for the first time since the Lebanese pound was pegged in 1997. The crisis sparked mass protests, layoffs and a rapid rise in poverty rates.

Last week, Mr Diab said he would ask the International Monetary Fund for a bail-out, saying that the country needed over $10 billion in international aid plus the $11 billion in loans tied to reforms that were pledged by international donors at a conference in Paris led by Mr Hariri in 2018.

Mr Hariri has accused Mr Diab of being a puppet of parties that nominated him for office - namely President Michel Aoun's Free Patriotic Movement (FPM) and Iran-backed Hezbollah.

"If the Cabinet fails, it must fail resoundingly," he said on Friday.

Mr Hariri's intense hostility to the new government has been matched by the public feud between Mr Diab and one of the former prime minister's main allies, central bank Governor Riad Salameh.

In a scathing speech on April 24, Mr Diab accused the monetary policies of the Banque du Liban (BDL) of causing the current crisis.

Mr Salameh, who has held the job since 1993, pushed back saying his job is to finance the projects of government as directed by politicians who are ultimately accountable for fiscal responsibility.

The government included criticism of the central bank in its financial recovery plan last week, calling past transactions "unsustainable and very risky" and pinpointing "uncontrolled accumulation of losses [that] threatens the viability of the BDL".

"What's unfolding now is the uprooting of what remains of Hariri's influence inside the administrations. In a way, it's what Trump is doing with Obama's heritage [in the US]," said Sami Nader, director of the Levant Institute for Strategic Affairs in Lebanon. "The simple fact of saying that past monetary and economic policies were wrong is a direct blow to Hariri. It is well established that for the past three decades, Hariri father and son would take care of the economic [aspects of the country] while pro-Syrian parties or the Syrian regime would take care of all the rest, meaning security and foreign policy."

Syrian troops left Lebanon after a 29-year occupation in 2005 following Rafiq Hariri's assassination, but Damascus maintains close ties with several influential Lebanese political parties, including Hezbollah and the FPM.

In defence of Mr Hariri's legacy, his supporters point out that other political parties never questioned the country's economic model before it came crashing down.

Additionally, they argue that over half of the country's staggering public debt of $86 billion is the result of government bailouts to the national electricity company, Electricite du Liban. As well as running a loss, EDL does not provide 24-hour power leading to a billion-dollar a year parallel private generator market.

Mr Hariri's supporters blame the FPM and its allies for failing to reform the power sector as they have held the Energy Ministry since 2005.

"Saad Hariri asked for reforms several times but the sponsors of the current government – Hezbollah and the FPM – refused," said Mohammad Hajjar, a Future Movement MP of two decades.

When Mr Diab was nominated, the Future Movement's position was "positive neutrality", said Moustapha Allouche, member of the party's Political Bureau.

But this changed, he said, because "they never stop blaming Saad and Rafiq Hariri when the FPM, Hezbollah and [its Shiite ally] Amal were part of the issue for years and years."

Both men pointed out, however, that the Future Movement would not oppose government reforms that they believe to be valid.

I think the IMF will ask for real reforms

Ultimately, the current blame game is to be expected, observed Mr Nader. Lebanon's sectarian power-sharing agreement had long encouraged nepotism, pushing politicians to care more about constituents from their religious groups than the good of the country as a whole.

"The Shiite Muslims do not want to touch public sector salaries, pension schemes and the value of the currency because it would be a major hit for them politically. The FPM doesn't want to touch the electricity sector because it's a major source of revenue. The same goes for rich Christians and the Sunni Muslims, who defend the banking sector," said Mr Nader.

These clashes between Mr Hariri and the government will probably continue as negotiations with the IMF begin in the coming weeks, Mr Nader said.

"I think the IMF will ask for real reforms on the fiscal side, especially in the electricity sector, and this will give Mr Hariri more arguments," he said.

For the situation to change for the better, Lebanon needs political reform and not just an economic plan, said Jean Tawile, economic advisor to the Christian majority Kataeb party, which has been in the opposition since 2016.

"Reforms in the government's recovery plan are more or less the same as those promised in previous international rescue plans for Lebanon," he said. "We know very well that they were blocked because they jeopardized the system of corruption and clientelism that the political class had put in place."

He added that these clashes will not only take place between Mr Hariri and Mr Diab but between other factions intent on settling scores – including between FPM head Gebran Bassil and Amal led by Speaker Nabih Berri, Druze leader Walid Joumblatt and his rival Talal Arslan.

"Any plan is doomed to fail without political accountability," he said.

Meanwhile, social discontent keeps growing as the crisis has pushed nearly half the Lebanese into poverty. Protests turned violent last week, with crowds vandalised banks and clashing with the army. In the riots, a 26-year old mechanic was killed in the north of the country.

This anger can now express itself in two ways, said Mr Tawile, echoing his party's line: early elections – which the government refuses – or more violence in the streets. But, he predicts, politicians will eventually agree on a new rebalancing of power in a grand bargain.

"As the Lebanese often do after major security crises, we'll probably end up by all sitting down together and signing a new deal, like we did with the Taef agreement [that ended the civil war] or the Doha agreement [that ended street clashes in 2008]. It's a matter of a few months," he said.

FPM MP Alain Aoun, who said that he has several reservations about the government's rescue plan, hopes that it will succeed despite political tensions.

These battles will not stop the implementation of reforms, "but they obviously contribute to a climate of political tensions that does not really help," he said.

"There is more [political] will [than before]. Everybody feels the heat and has resigned themselves to the idea that we must make sacrifices," said Mr Aoun.