On August 16, following a nationwide fuel shortage caused by the economic crisis that has plagued the country for years, Lebanese President Michel Aoun said steps were finally being taken to form a functioning government. in the next few days. As of August 20, no government had yet been formed, indicating a potential continuation of the Lebanese government’s trend of political inaction that has crippled the country in recent years. This trend has kept him from recovering from the economic collapse that plunged more than half the country into poverty.
Lebanon has slowly collapsed economically over the past two decades, with the crisis starting in earnest in the fall of 2019 and intensifying dramatically following the notorious Port of Beirut explosion in August of last year. Since the civil war that took place in the 1990s, Lebanon has experienced widespread corruption in government, with senior officials using public funds and national bank reserves to finance their personal expenses for decades. The central bank was able to support this spending for several years after the economy was restructured to be based on foreign investment and the disincentive to labor productivity in the country. However, according to American University of Beirut economics professor Nisreen Salti in an interview with Democracy Now !, this has concentrated the majority of the country’s money in the hands of a “very small class of commercial interests. , namely import cartels and bank owners. and real estate developers, [people] closely linked to a political class. This resulted in devastating income inequality and a national debt, “and the minute the inflows of dollars ceased, which happened in the fall of 2019 when the crisis began, the whole system collapsed. “.
This collapse devastated the Lebanese economy. According to the Middle East Institute, “GDP is estimated to contract by 25% in 2020, with a further 10-15% decline expected for the remainder of 2021. Measured in USD, the Lebanese economy could eventually shrink. of $ 60 billion. in 2018 to $ 15 billion in 2021. Given the human costs, âan extreme form of wealth destruction is underway, with the Lebanese people de facto losing the majority of their bank savings. Meanwhile, four in ten Lebanese are out of work and half of the population is below the poverty line. Now, with widespread fuel and water shortages, Lebanese citizens are struggling to cope. Confidence in the government has declined dramatically, and if the crisis continues, there is likely to be a mass exodus of young skilled workers leaving Lebanon over the next few years, further depriving a potential government of any economic influence or bargaining power.
Nothing can be done to deal with the crisis in the long term if Lebanon does not soon form a functioning government. However, government officials have a track record of “malicious negligence,” which is an approach that has been taken in an attempt to prevent the political class from taking responsibility for any economic issues for fear of angering the political class. affairs that control them or further polarize the various sects that exist within the government. As a result, the country has not had a cohesive government body since the start of 2020, and this trend does not appear to be stopping anytime soon.
The Middle East Institute has identified probable scenarios of how this crisis could play out in the coming months. Lebanon has long fallen back on the idea that foreign countries will come to save it from its economic crises, as has been the case in recent years. Even now, the United States and Hezbollah are rushing to see who can provide the fuel, and therefore political power, in Lebanon. There isn’t much foreign powers can do to support a collapsing country, however, and that can’t serve as a long-term plan.
The best scenario, according to the Middle East Institute, would be for the country to reach a “political consensus around a comprehensive economic program, on the basis of which a credible and independent government with emergency legislative powers can be formed.” This government could then strike a deal with the International Monetary Fund (IMF) to take out a loan, then form a three-year plan to restructure the debt allocation and corrupt banking sector and put the country on the road to recovery. . However, given the extensive internal struggles within the entrenched political class as well as the long-term economic commitment required to facilitate this, the likelihood of this happening is incredibly low.
The most likely scenario would be a ‘muddle’ approach which, with the resources of Hezbollah, the United States and the IMF, would seek to cripple the economic crisis until the national elections of 2022, where a new government could be put. in place, and more. solid economic plans could be discussed. However, all of this centers on the assumption that a Lebanese government can be formed in the near future, and the economic crisis must remain the main focus as political negotiations unfold in the coming weeks.