The Middle East traditionally has a reputation as a problematic and even dangerous region. Religious conflicts and territorial claims are combined with the struggle for control over rich natural resources and access to trade routes. Israel, Palestine, Iraq, Saudi Arabia, Iran, USA, USSR, and now Russia are just an incomplete list of those who are trying to dominate. But in the center of the region, despite the endless conflicts, a small country remained, which for a long time was perceived as an island of stability and security. Lebanon, which has earned the status of “eastern Switzerland”, no longer resembles its former self – the country has plunged into the abyss of the most difficult crisis in the last century and a half, and no way out of it is expected. Inflation, calculated in tens of percent a year, a black foreign exchange market and impoverishment of the population – these are the new companions of the once successful country. Free fall – in the material “Lenta.ru”.
At the bottom
The current crisis in Lebanon is one of the three worst in the last 170 years of world history. This is the conclusion made by the experts of the World Bank in the June report. By the end of 2021, they forecast a 21 percent decline in GDP, after falling 20.3 percent in 2020 and 6.7 percent in 2019. In absolute terms, the Lebanese economy shrank from $ 55 billion in 2018 to $ 33 billion in 2020, while GDP per capita fell 40 percent over the same period. Last year’s inflation was 84.3 percent, second only to the indicators of Venezuela and Zimbabwe, 155 thousand families fell below the poverty line, and the exchange rate of the national currency on the black market depreciated by 129 percent. Such depressing results are usually characteristic of military conflicts or even full-fledged wars and come as a surprise in peacetime.
According to the authors, with whom most observers agree, the acute phase of the problems began in the fall of 2019, when the government adopted austerity measures designed to save the country and its budget from bankruptcy. New taxes were announced, in particular, an unprecedented levy on WhatsApp – six dollars a month for the ability to make calls in the popular messenger. The authorities soon canceled this decision, but introduced other taxes, at the same time cutting pensions and salaries of civil servants.
This extremely unpopular move led to mass protests: tens of thousands of people took to the central streets and squares of Lebanon’s largest cities – Beirut, Byblos, Saida. Fresh measures became just a formal reason for protests – citizens’ dissatisfaction had been accumulating for years and was associated with corruption that penetrated all spheres of the economy, interruptions in the supply of gasoline, as well as in electricity and water supply. Almost in all establishments and in the courtyard of every residential building there have been autonomous electric generators for a long time, with the help of which people wait out long hours without light.
The Lebanese are also tired of the high level of socio-economic inequality. According to statistics from international organizations, one percent of the richest residents of the country own a quarter of GDP, 10 percent of the wealthiest – 55 percent of the total national income. This state of affairs was a side effect of the “Lebanese economic miracle”, which experts talked about until the beginning of the “Arab Spring” in 2011 – a series of revolutions in North Africa and the Middle East.
Glorious days
After gaining independence from France in 1943, Lebanon began to actively develop. The country was called “Middle Eastern Switzerland” (because of the large number of banks), and its capital, Beirut, was called “Eastern Paris” (for its colonial architectural heritage that attracted foreigners). Since then, foreign capital has been actively flowing to Lebanon, large companies have opened representative offices, and the convenient location has made the port of Beirut one of the main in the region. The income from it, together with the earnings of the tourism industry and the banking sector (the two main branches of the Lebanese economy), counterbalanced the apparent imbalance in the trade balance: the needs of importers in foreign exchange were five to six times higher than the earnings of exporters.
Lebanon was also famous for its high-quality education, which regularly supplied qualified specialists to the labor market. Thanks to them, industry gradually developed, labor productivity grew and the exchange rate of the national currency – the Lebanese pound – was strengthened. All the same advantageous geographical location provided solvent markets in Syria, Israel, Egypt and the Arab states of the Persian Gulf. Over the seven years from 1966 to 1973, Lebanon’s GDP doubled to $ 2.7 billion at current prices, per capita to $ 1,023.
In 1973, Arab oil exporters declared an embargo on supplies to the United States and other Western countries that supported Israel in the Yom Kippur War against Syria and Egypt. In the face of limited supply, oil prices rose sharply, which played into the hands of Lebanon. The companies of the exporting countries kept their proceeds in the deposits of local banks, providing them with foreign currency and receiving additional income. In addition, Saudi Arabia and Iran considered Lebanon as an offshore place for storing assets: for Riyadh – another one, for Tehran – the only one in conditions of forced isolation. Lebanon’s economy was considered relatively stable and healthy, the country had high credit ratings, which made it possible to attract funds for development through the placement of public debt on acceptable terms.
Didn’t get along
But in 1975, national and religious conflicts that had accumulated over the years led to a civil war that dragged on for 15 years. The refugees from Palestine who moved to Lebanese territory, among whom were many armed rebels (and in fact militants) who fought with Israel, created their own “state within a state” and refused to obey Lebanese laws. Traditionally close in size, Islamic and Christian communities tried to take advantage of the situation in their own interests and reduce the influence of opponents, but in the end they provoked clashes.
Subsequently, Syria and Israel intervened in the conflict, at first acting as mediators, but then becoming full-fledged participants. Even after the end of the acute phase and the achievement of an armistice, the Syrian army remained in Lebanon for 15 years, which allowed some to consider this period an occupation. The war greatly reduced the attractiveness of the Lebanese economy for foreign investors and hit banks, many were forced to close. I had to forget about tourism altogether for several years. Factories and enterprises were destroyed, infrastructure was damaged. In Beirut, about a quarter of the inhabitants were left homeless.
Nevertheless, the country managed to recover quickly enough, and Prime Minister Rafik Hariri played a decisive role in this. Taking office in 1992, he immediately approved the large-scale Horizon-2000 program, which included several directions at once. The main one is construction. Solidere, a company specially created by the state, received the right to forcibly buy land and real estate from owners (mainly in Beirut) in exchange for its own shares and to redevelop territories. At the same time, the company was often accused of deliberately understating the value of the properties being purchased (usually it was only 15 percent of the fair value), pressure on owners, and even harassment. However, for the sake of implementing an ambitious plan, Hariri was prepared for reputational risks.
Over the past year, Lebanon has experienced many more upheavals. Mass blackouts of electricity and water, interruptions in gas supply became more frequent and became the norm. A shortage of gasoline supplied from abroad has led to many kilometers of queues at gas stations and forced many to refuse to travel by private cars. Foreign suppliers are ready to ship fuel only on a full prepayment basis. In the absence of fuel, the Lebanese cannot use electric generators, which is especially critical in summer, when it is very hot outside and people are used to turning on air conditioners. Hospitals record acute shortages of medical supplies, while many Beirut residents have not recovered from the aftermath of the blast. Sewer manholes made of precious metals disappear en masse on city streets, and the police record a record number of suicides.
The banking system is undergoing a collapse, as a result of which the citizens of the country have lost access to their foreign exchange savings, and the withdrawal of funds in pounds is strictly limited. The exchange rate of the national currency dropped to ten thousand per dollar (ten times lower than the current official one), and the average salary over the past two years fell from 670 to 67 dollars. A deep crisis has befallen the army as well: servicemen cannot provide food for their families and are deserting en masse, despite the threat of criminal prosecution. The Defense Ministry leadership is afraid of losing control of the country to Hezbollah militants and is asking international organizations for help – not in money, but in food and ammunition.
The situation could be improved by support from abroad, and many countries, responding to the call of France, which feels responsible for the fate of the former colony, are ready to provide a targeted loan of $ 11 billion. But the condition, again, is the implementation of reforms or at least the formation of a government, which the country has not seen for more than a year and a half. Back in 2017, after the sudden announcement of Saad Hariri’s resignation, the Conference for Economic Development and Reforms (CEDRE) was formed in Paris to organize aid to Lebanon. A “trust agreement” was concluded with the government, which was supposed to open access to the credit tranches for Beirut, but the terms of the agreement were never fulfilled.
Experts say that only the resumption of cooperation in the CEDRE format can move the Lebanese economy off the ground. However, another opinion is expressed, according to which economic and political upheavals are the constant companions of Lebanon, after which there always comes a period of development and relative prosperity. Despite all the hardships, the country still receives tourists, and specialized portals claim that it is safe to be on the streets of the country’s largest cities. The coming months should show whether Lebanon will be able to recover from the crisis, recognized as one of the worst in 170 years, or will turn into what political scientists are used to calling the term “failed state.”
