Without president, reforms, bankrupt Lebanon somehow holds on

BEIRUT, Lebanon, Jan. 24 (UPI) -- More than three years into its most devastating financial crisis, bankrupt Lebanon has done little to resolve its multiple problems, with deep political divisions preventing the election of a new president and the implementation of comprehensive reforms.

The country has been without a president since Michel Aoun's six-year term ended Oct. 31. The parliament has convened 11 times, but failed to elect a successor to Aoun, an ally of Iran-backed Hezbollah.

It's not the first time Lebanon has faced a presidential vacuum.

Aoun came to power in 2016 after 2 ½-year vacancy imposed by Hezbollah to force his election. Again the powerful Shiite party has been preventing the election of a new president, with its legislators and allies casting a white ballot, either to impose its new candidate, Suleiman Franjieh, or waiting for a regional settlement to reach a compromise.

Left with only a caretaker government with limited authority and a parliament paralyzed by endless disputes, Lebanon is plunging again into political paralysis, further aggravating its compounded crises, delaying a recovery plan and prolonging people's struggles.

"The government has not done anything to resolve the crisis. I don't think they have the intention to do so because they don't want to hold the culprits accountable," Hilal Khashan, a professor of political science at the American University of Beirut, told UPI. "They don't care."

Daily struggles

The Lebanese pound continues to depreciate sharply, losing more than 97% of its value since the crisis broke out in 2019. It hit a record low of 54,000 LL per U.S. dollar on Tuesday, compared to 1,500 LL before the crisis.

Subsidies on fuel, wheat, medicine and other basic goods have been drastically reduced by the government, leaving more than 80% of the population living below the poverty line and with no social safety net. The electricity crisis is getting worse, with only occasional one-hour periods of power provided by the state-run utility.

Civil servants, teachers, judges and others have been striking for better wages, crippling everyday life.

According to the World Bank, inflation is expected to average 186% in 2022, among the highest globally. Calling Lebanon's financial crisis as a "deliberate depression" and the world's worst since 1850, the bank blamed the government for "inadequate policy responses," misusing and misspending a significant portion of people's bank savings, estimated at $107.2 billion, and increasing social pain unnecessarily.

To U.N. Secretary-General Antonio Guterres, the country's collapse was caused by "something similar to a Ponzi scheme."

Harsh criticism and international calls to pull back the country from catastrophe have fallen on deaf ears.

Khashan dubbed Lebanon "a failed state," citing a failed political system, a cartel of sectarian and corrupt political elites who are detached from the people and a rotten bureaucracy that reflects the country's divisions.

He said Lebanon, created by France as a confessional political system in 1943, was structured so that "the resources of the system are not distributed by the state but rather by the sectarian leaders," creating a client-based relationship whereby the people "feel lost without their sectarian leader."

"This sectarian system simply doesn't work and has to change," Khashan said. "Unfortunately, I don't see it changing but getting worse with poverty and people becoming closer to their sectarian leaders."

Entrenched politicians

The first post-collapse parliamentary elections that took place last May resulted in the re-election of most representatives of the well-entrenched political class.

Talks with the International Monetary Fund remain deadlocked despite a staff-level agreement reached last April for a $3 billion bailout. This agreement is subject to approval by the IMF Executive Board. Moreover, reaching an agreement on a comprehensive reform agenda means that Lebanon's key parties have to agree on how to distribute the financial losses, estimated at $72 billion.

"This is $3 billion over a period of three to four years. It is very small compared to what Lebanon needs," Sami Geadah, an associate fellow at the Issam Fares Institute for Public Policy and International Affairs and former alternate executive director at the IMF, told UPI.

However, an agreement with the IMF is needed to restore Lebanon's credibility and open the way for more international financial support, Geadah said.

"If we have a program with the IMF, then there will be more support by other donors and creditors, perhaps for about $10 billion ... Investors will also be encouraged," Geadah said.

It all depends on the Lebanese politicians and their will to agree on a recovery plan and finalize the deal with the IMF, according to observers. They haven't yet agreed on the distribution of losses and are still discussing a capital control law that should have been in place at the onset of the crisis.

"So far, the track record has not been good, honestly," Geadah said. "Tackling the crisis at the very, very beginning of the crisis did not happen. That's why things have gotten so bad."

He, however, pointed out that "there are lots of things that can be done and should be done regardless of the IMF."

Referring to the electricity crisis, he asked why it should be linked to the IMF while, if solved, it could "help achieve some of the aims of the IMF program for the balance of payments and competitiveness."

Traumatized populace

Puzzling enough is how Lebanon is still functioning and moving on. The population, traumatized by the events and showing little resistance, have been adapting to their new life, counting on international humanitarian assistance and support from Lebanese in the diaspora.

"The worst may be over in terms of the economic contraction. ... The World Bank is estimating that the decline in GDP last year was not as severe as the previous ones," Geadah said.

The economy, according to caretaker Prime Minster Najib Mikati, had grown by nearly 2% in 2022 after two years of severe recession, mainly due to increased revenues from tourism and a rise in remittances, estimated at $7 billion this year, from Lebanese living abroad.

But there are also "very big unseen or invisible revenues," said Riad Tabbarah, Lebanon's former ambassador in Washington, citing around $20 billion from Syria's Captagon trade, in which the drug is being smuggled to Gulf countries and Europe.

There is also money laundering, suspected to be behind emerging businesses in the country.

Technically, Lebanon should have reached starvation, but in fact no one is dying of hunger, said Tabbarah, maintaining that there is an international interest to avoid total collapse and chaos.

"Wherever there is danger, they come and support Lebanon... They also don't want to see that institutions are not functioning anymore or the Army disintegrating," he said.

Outside powers, tired of interfering every time, are apparently changing their strategy and tactics, realizing the need to help Lebanon "stand on its feet."

"Meaning moving from humanitarian assistance to a new phase, where assistance shifts to developing the country's institutions," Tabbarah said. "That kind of a change is a major change."