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The moral hazard of supporting Lebanon

In an interview conducted on the sidelines of Davos, Lebanon’s Foreign Minister Gebran Bassil boasted to CNN’s Becky Anderson that, despite his country’s chronic financial and political woes, he and his fellow Lebanese politicians can teach Washington and London “how to run a country without a budget.”

In the same breath, seamlessly transitioning from hubris to humility, Bassil pleaded for “Saudi Arabia and other countries to help Lebanon stay stable” by pledging additional financial aid.

The foreign minister and a resourceful yet deeply corrupt Lebanese political establishment are desperate to forestall an impending financial collapse that is largely of their own making. In a lightly veiled attempt at extortion, primarily targeting European donors who fear that a financial meltdown in Lebanon could send waves of refugees into Europe, Bassil warned that “a collapsed model of Lebanon would result in more terrorism, extremism, and violence.”

The foreign minister also took aim at the deep pockets of Lebanon’s traditional financial saviors, the oil-producing Arab Gulf states. He praised Qatar for a recent pledge to buy $500 million worth of Lebanese government debt, describing the Qataris as “good investors.” He added that Riyadh ought to do the same.

Bassil and his fellow Lebanese politicians have taken advantage of Qatar’s largesse as it tries to undermine the Arab Quartet’s diplomatic and economic boycott against it. He is now pushing further, attempting to secure funds by playing Qatar off against Saudi Arabia and the United Arab Emirates.

It is a bald-faced maneuver by politicians who have perfected the art of exploiting geopolitics to stay in business – but one that may already be bearing fruit. Speaking from Davos, Saudi Arabia’s finance minister pledged to “support Lebanon all the way” when asked whether his country would be willing to help Lebanon in light of the Qatari aid package.

While the impulse to preserve Lebanese and regional stability is understandable in this otherwise turbulent part of the world, continuing to pump money into an increasingly corrupt political order will not solve Lebanon’s structural problems and will, at best, provide only short-term relief.

Furthermore, such unconditional aid only deepens and further entrenches the culture of nepotism and exploitation that is leaving Lebanese citizens to contend with falling incomes and a rising public debt, without the provision of even the most basic public services.

Corruption in Lebanon has reached unprecedented levels. In 2012, Transparency International’s Corruption Perceptions Index ranked Lebanon as the 128th most corrupt nation out of 176; by 2017, Lebanon had dropped another fifteen slots to 143rd.

It is no coincidence that the rise in corruption has been accompanied by increasingly dire warnings from international donors and rating agencies about Lebanon’s financial and economic outlook. The country’s debt is roughly $83 billion, equivalent to 150 percent of Lebanon’s GDP and the third highest in the world. Moody’s now considers Lebanon to be a “very high credit risk.”

So despite the temptation to follow Qatar’s lead and bail out Lebanon’s political class in the name of stability, it is imperative that good money not be thrown after bad. There is an alternative path out of this crisis, however. It is one that could spare Lebanon’s people the hardship of financial collapse but stops short of empowering the deeply flawed and rotten model Lebanon has come to represent.

The more sustainable approach is to insist that politicians deliver on the basic economic and structural reforms they pledged to undertake at the April 2018 Paris IV donor conference. If implemented, these reforms will unlock $11 billion in aid, a much more significant pot of money than the one just offered. They would also help limit the graft that traps Lebanon in the vicious cycle of ballooning financial obligations.

Alas, Lebanon’s path to financial salvation has been blocked by eight months of political paralysis, the result of its politicians’ inability to compromise over the formation of a new cabinet. They are looking for foreign handouts while they continue their wrangling over ministries which provide them with patronage opportunities. Meanwhile, the average Lebanese citizen suffers in silence.

Mr. Bassil, whose parliamentary coalition was dubbed one of “Reform and Change”, should understand that the collapsed model of Lebanon he warns about is entirely of their making, and that only they – Lebanon’s political elites – can truly save it.

 

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