Thousands have taken to the streets in Lebanon in recent weeks, to protest against tax increases and public sector corruption. Credit: Belga
As Lebanon’s biggest trade partner, the EU has harbored concerns for decades over the country’s failure to crack down on widespread corruption and stabilize its economy. Endemic malfeasance has pervaded all levels of Lebanon’s politics and commerce, exacerbating inequality and making it impossible for the stuttering Lebanese economy to gain any kind of foothold.
With frustrations over the ineptitude and egomania of those in power boiling over into widespread demonstrations in Beirut and elsewhere over recent weeks, it seems that the Lebanese people have finally had enough. Peculiarly, it’s at this crucial juncture that European leaders appear to have fallen silent, precisely when the country needs EU support the most. In order to prove the worth of its much-touted Neighborhood Policy and prevent the unrest in Lebanese streets from spilling over into outright civil war, Brussels must back up years of political pressure with precise and decisive measures aimed at lifting Beirut out of its current quagmire.
A country on the brink
The demonstrations which have been racking Lebanon for weeks were sparked by a clumsily implemented government tax on voice calls made over internet services like WhatsApp, which many Lebanese citizens use to keep in touch with overseas family members. The controversial legislation, however, was merely the touch paper which ignited concerns that had been festering for years.
The Lebanese people’s main complaints are focused on the precarious economic situation in the country and the knock-on effect this has had on the lives of everyday citizens. The government recently dug deep into its dollar reserves to make good on a $1.5 billion Eurobond due to mature last week, narrowly avoiding a first-ever default which would have crippled the country’s already abysmal credit rating. However, industry experts predict there is a 58% probability Lebanon will default on the $2.5 billion of Eurobonds that are due in the first six months of 2020, with a 78% chance it will renege on its obligations within the next five years.
The catastrophic effects of all this financial mismanagement has not gone unnoticed by the Lebanese people. Over a quarter of the population subsist beneath the poverty line, while the distribution of wealth in the country is staggeringly unequal; the top 0.1% of the populace earn almost as much as the bottom 50%. Meanwhile, electricity is unreliable, despite the fact that the government diverts 13% of its budget towards subsidising the national electricity company and waste goes uncollected, despite the generous funds gifted to politically-connected clean-up company Sukleen for the task.
The root cause of this dire state of affairs? Malpractice and graft at the highest levels. With the economy so dependent on its national currency being pegged to the US dollar, the Banque du Liban (BDL) has sought to attract sizable dollar deposits from private banks via the use of a Ponzi-like scheme. The pyramid remained superficially stable while money was rolling in from the Lebanese diaspora, but now the BDL is unable to keep up the annual $4 billion interest payments and the whole house of cards is in serious danger of tumbling down. Unofficial capital controls have already entered into place as Lebanese banks have capped weekly withdrawals at $500 or $300 (down from their usual $2,500), concerning many ordinary citizens that their life savings may be in jeopardy.
As well as this unsustainable financial infrastructure, the top of the fiscal food chain is populated by dubious characters such as Raymond Raymeh Zayna, a Lebanese businessman with interests in an array of different industries. Zayna has been allowed to take the reins at a number of Lebanon’s largest banks, despite having been implicated in the 2004 murder of two prominent US contractors tasked with refurbishing Iraq’s outdated military mechanisms. He was hired as a middleman between the Iraqi Ministry of Defense and the American contractors, but after delaying a $25 million payment for months, Zayna finally agreed to meet the two contractors in question, Dale Stoffel and Joe Wemple, only for both to be brutally murdered en route. According to documents produced by the Iraqi government, the $25 million mysteriously ended up in Rahmeh Zayna’s Lebanese bank account.
Raymond Rahmeh Zayna has also apparently involved Lebanese banks in other shady dealings regarding the Iraqi telecoms carrier Korek. Iraq Telecom, a joint venture which had invested in Korek, has claimed that Rahmeh Zayna worked with prominent Kurdish businessman Sirwan Barzani to deliberately misrepresent $150 million in loans which he had obtained from Lebanese bank IBL on Korek’s behalf.
The Iraq Telecom venture, which included French telecoms giant Orange and Kuwaiti logistics firm Agility, had its $800 million investment in Korek effectively expropriated by Iraq’s controversial Communications and Media Commission (CMC) in 2014. Last year, the Financial Times discovered CMC members had been residing at expensive London properties purchased by Pierre Youssed, a business partner of Zayna’s. Arbitration surrounding the case remains ongoing.
While men like Raymond Rahmeh Zayna are allowed to continue steering Beirut’s pecuniary ship, there’s little hope it can pull itself out of its mounting difficulties. The most recent “financial engineering” measures employed to circumnavigate its Eurobonds obligations are testament to that, while the fact that Lebanon’s debt is higher than any country other than Japan and Greece highlight just how serious its economic situation currently is.
The toughest test to date
Against this backdrop of economic chaos, political corruption and civil unrest, the EU is facing perhaps the toughest test of its Neighborhood Policy to date. On the one hand, it must show solidarity with the protestors (who have already suffered human rights violations, according to Amnesty International) and provide support mechanisms for the 1.5 million Syrian refugees who find themselves stranded in this sea of disorder. On the other, Brussels must encourage those in power to pave the way for a prosperous future by rooting out immoral actors, acceding to public demands and implementing reforms geared towards turning the country around.
The $11 billion in aid raised at the CEDRE Conference in France last year could be the carrot needed to entice the Lebanese government into responsible action. Given that Lebanon houses the largest number of Syrian refugees per capita, the fate of this diminutive country could have repercussions far beyond its borders. The time for prudent but purposeful EU intervention is now.