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As the crowds taking to the streets swell in numbers, the Lebanese people - regardless of their sect - finally appear to be united on one issue: their desire for change

Lebanon unites on the desire for change

Lebanese youth carry a placard as they take part in a demonstration in Beirut’s downtown district last week

A groom twirls his bride who’s clad in a dreamy white gown, a belly dancer shakes her hips to the sound of Arabic tunes and a DJ entertains a crowd of hundreds from overhead, while a group of young men and women stomp their feet to the rhythm of traditional dabke.

These are not scenes from an Arab wedding. These are scenes from anti-government protests in Lebanon. And as joyous as they may seem – a banner even reads “Happiest depressed people you’ll ever meet” – the Lebanese have little reason to celebrate.

What started as a demonstration against a proposed tax on WhatsApp calls on October 17 quickly turned into a nationwide movement calling for economic reforms and an end to government corruption and sectarian-based governance.

“The sectarian government needs to be absolutely and unequivocally abolished”

While the 1989 Taif agreement marked the end of Lebanon’s 15-year civil war by uniting the divided state and apportioning key governmental positions among dominant communities, including Sunni Muslims, Shia Muslims and Maronite Christians, protestors today say the political class has exploited the system for its own benefit.

Salaries of government officials rose more than 7.5 percent year-on-year in the past decade, according to the McKinsey 2018 Lebanon Economic Vision report, while 32 percent of annual government spending goes to interest payments to local banks, owned mainly by individuals with close ties to political officials.

With approximately $86bn in public debt, Lebanon is the world’s fifth most indebted country behind Japan, Greece, Sudan and Venezuela, suffering from one of the highest levels of income inequality around the globe, with the top 1 percent earning nearly one-quarter of GDP, according to the World Inequality Database.

Over a quarter of the country’s 6.3 million population lives below the poverty line, while a staggering 46 percent are unemployed, according to government figures. To make matters worse, a neighbouring war in Syria saw Lebanon’s economic growth drop to a rate of 1.7 percent in 2011-16, thanks to an influx of over one million Syrian refugees.

Prime Minister Saad Hariri announced a number of reforms last week

In a bid to appease protestors, last week Lebanese ministers agreed to an economic reforms package and 2020 draft state budget proposed by Prime minister Saad Hariri. The proposal includes halving salaries for active and former officials, shutting down the Ministry of Information to cut costs, privatising several sectors and public firms including telecommunications, the Port of Beirut and national carrier Middle East Airlines, acting to provide 24-hour electricity, introducing a $13.5m boost to a fund for Lebanon’s poorest, establishing a national anti-corruption body to recover embezzled public funds and reducing the state deficit to 0.63 percent of GDP in 2020, paid for in part by a new tax on bank profits.

Addressing protestors in a televised speech, Hariri told the crowd the reforms are the first step to achieving their ambitions.

“I turn to the youth to tell them that what we have done today is a first step in the process of achieving your ambitions, which are our ambitions, and this happened thanks to you because you broke all the barriers… If protestors want early parliamentary elections, I will support it. The protests across the country restored Lebanon’s national identity and broke sectarian barriers.

“I will not let anyone threaten or scare you away. You decide when to stop demonstrating, not me,” he said.

But protestors across the country continued to rally on Wednesday evening last week, calling for the resignation of Hariri and other officials, and for a new government to be installed.

Too little too late

Sami Atallah, executive director of the Lebanese Centre for Policy Studies (LCPS) in Beirut, says there’s little credibility in the government implementing the reforms.

“Asking for a deposit from the Gulf is a short-term band aid. What you need to do is bring fresh capital into the banks”

“Already, people don’t buy the reforms that Hariri listed. It’s too little too late. There’s a big question mark on credibility to be able to implement these reforms in the first place,” he says.

Thirty two year-old Beirut-based banker Khaled Agha says the country needs a government of technocrats.

“We’re protesting against a corrupt government that has been ruled by many of the same politicians, who, for over 30 years, have utterly failed to provide us with basic rights such as quality education, services such as clean water and electricity, and job opportunities that are not determined by your party affiliation.

“This is a government that includes some of the same men who brought us to ruins in the 1975 civil war. How can we expect a government run by ex-warlords and militiamen to come clean? I want a government of technocrats and an independent investigation into the billions of dollars of public funds that have been illegally siphoned off for personal interests.”

Marketing manager Ghida Arnaout, who is based in Dubai but has joined the protests in Lebanon says: “We’ve been ruled by the same people and their families for 30 years, most of whom were active participants in the Lebanese civil war. They divided the country for their own benefits. And they stole from the people with impunity and became billionaires. We’re protesting to bring them down.

Lebanon plans to privatise a number of government assets, which include national carrier Middle East Airlines

“The sectarian government needs to be absolutely and unequivocally abolished. I want to see Lebanon as a country I can one day come back and live in especially that I have been out of for nine years because of no opportunities there. I would like to see rules and regulations actually implemented,” she adds.

While banker Agha says Lebanese people have often protested against dire living conditions, the demonstrations were controlled by political parties. He says this time it is different.

“The scene in Beirut has been euphoric and has fostered so much empathy among the people; translators helping the deaf speak to journalists, medic teams taking care of the injured, and women protecting protestors by staging a sit down in front of the security forces,” he says.

Power of the people

But analysts like Firas Maksad are worried the protests could plunge Lebanon into a deeper economic decline, as schools, banks and businesses shut down in line with nationwide demonstrations.

“What concerns me is yes we will end up with some sort of sectarian upgrading or a faithless government of national salvation or a democratic government, but the current euphoria we’re seeing in the streets – people dancing, celebrating, enjoying their moment in the sun – that is going to be followed by a very hard landing,” the adjunct professor at George Washington University’s Elliot School for International Affairs tells Arabian Business.

“People dancing, celebrating, enjoying their moment in the sun – that is going to be followed by a very hard landing”

“There’s a real good chance that they’re worried about a rush on the banks. And what might follow in terms of a financial collapse. In many ways, we’ve already begun to see the beginning of that collapse; fuel shortages, dollar shortages over the last couple of months. Lebanon is headed in that negative direction in the short-term and those are the things that I’m concerned about,” Maksad says.

Lebanon’s already distressed dollar notes have fallen further since the start of the protests, with yields on $2.1bn of sovereign bonds maturing in April 2021 having climbed more than 600 basis points since October 17 to 24.5 percent, according to Bloomberg.

Maksad believes banks will be on the receiving end of the coming haircut.

“Is it going to be the depositors that are going to lose their money and perhaps be promised equity in return for what used to be in their bank account? They’re the coming haircut and the banks are going to be a part of that, one way or the other. And it will cause a lot of unrest whether amongst the general public or those who are well to do or have a stake in these banks,” he says.

Elisa Parisi-Capone, vice president of credit rating agency Moody’s, says the Lebanese government’s approval of fiscal reforms underscores the challenge it faces, along with the Banque du Liban (BdL), the Central Bank of Lebanon, to achieve fiscal consolidation, preserve government debt sustainability, maintain the currency peg with the US-dollar and simultaneously appease the demands of a restless population. She adds: “While the mooted interest rate cancellation on BdL local-currency debt holdings would provide liquidity relief in the short-term, the effective debt monetisation invariably undermines confidence in government debt service capacity, compounding pressures on the currency peg and debt sustainability over the medium term.”

Lebanon’s central bank has been making steps to strengthen the pound

Moody’s vice president and senior analyst Alexis Philippides says additional financial sector taxes would be credit negative for banks, further pressuring the poor returns that Lebanese banks are seeing in light of previous rounds of tax increases, and therefore their ability to absorb shocks, while further reducing shareholders’ incentives to invest in Lebanon and incentives for banks to attract deposits and invest in government paper”.

Ali Shihabi, an independent Middle East political and economic analyst, believes the Lebanese banking system has to be recapitalised.

“It’s completely broke… The banking system is bankrupt and it’s waiting to collapse. What has to happen is the capital of the bank has to be wiped out.

“Asking for a deposit from the Gulf is a short-term band aid. What you need to do is bring fresh capital into the banks. The government will have to write off a certain amount of its debt, that is the surgery and you’ll have to fire people, of course. You have to kill this whole patronage system,” he says.

Here to stay?

While the banking system may be changing, the government is here to stay, according to Washington-based Maksad.

“The government will do everything to stay in power. That’s why I don’t see this as an easy fight”

“Those in government, and those supporting them, including Hezbollah after the speech of (Sayyed) Hassan Nasrallah, have made it clear that he used the collapse of the current government as a red line that he would not allow, so he’s very strongly in support of the continuation of the government. So is (Minister of Foreign Affairs) Gebran Bassil and Saad Hariri thus far…

“All these political forces in Lebanon are betting on fatigue in the streets, people accepting the promise of reforms and having that be enough, together with fatigue, to clear the streets. I don’t think that’s going to happen. I think the people have the will, if only because of the pain they are feeling in their pockets and the indignity that comes with that, and I think that pain is only going to get worse and intensify in the coming period.”

Atallah of the LCPS says it’s unclear whether the government will allow the protests to continue, but says demonstrators have already had a massive impact in pressuring politicians to respond to demands.

“There were at least two occasions where the government and party thugs tried to harass protestors. They’re not doing much, they’re just intimidating people. But they were actually stopped by the army, surprisingly. So there’s clearly a message: don’t get involved and touch these people. How long will this last? I don’t know but we know that some of the supporters in the south were harassed by political party thugs chasing and beating them.

The dollar peg is a central part of Lebanon’s macro-financial structure

“But it has already created a momentum and pushed the government to respond. They obviously withdrew all the tax proposals on Thursday, October 17, the prime minister gave a speech about the reforms. Clearly there’s a before and after in the sense of the impact these protests have had on public policy and the clearest is that there will be no new taxes on the people. The power of the streets and its ability to organise will show how powerful the street is. It doesn’t look like it is budging.”

A unified front

Perhaps the most significant outcome of the protests is the unity of Lebanon’s often-divided sects.

Atallah says: “What I think is very symbolic and significant is that it’s all over the country, not in Beirut only. That really is very significant because even in areas that are considered to be strongholds of certain parties, they have shown to not have as much of a stronghold because people want to protest and express their opinion, [despite] some getting beaten up in certain areas by political party thugs.”

Sami Atallah, director of the Lebanese Centre for Policy Studies

Maksad of Washington agrees. “Now in the longer term, I do see signs of optimism. We’re all encouraged by the fact that the people have demonstrated a level of maturity not to fall into the old craft of communities and groups turning on each other, allowing the politicians and foreign powers to play them off on one another.

“I use the term, each take on your own. I’m encouraged by the fact that it’s the Sunnis of Tripoli that are burning and taking down the visages of Saad Hariri, and it is the Christians that are taking on the photos of Michael Aoun and Gebran Bassil and it is Shias that are marching in the streets of Tyron and Nabatieh and destroying and tackling the officials of Hezbollah like Mohammad Raad. That’s the only way that that kind of people power can continue to manifest itself in a peaceful way that doesn’t endanger civil peace,” he says.

Dubai resident Arnaout says there is some resistance on the ground from supporters of sectarian parties, but the majority of protestors are unified in their objective for a secular Lebanon.

“I have never in my life seen people as united as I have seen it this week. People are only carrying the Lebanese flags and chanting the Lebanese anthem. You see some people still defending their leaders, unfortunately, but you need to understand that this is the result of years and years of brainwashing and leaders starving their people so that they can pay their way to them. So just the fact that people, even if not everyone, actually let go of their political parties in these times is a huge progress to Lebanon,” she says.

Dubai-based Lebanese marketing manager Ghida Arnaout

Does she predict the crowds of protestors will eventually fade?

“On the day that I wake up scared that people might give up and go home, I get surprised that they are protesting more than the day before. The government will do everything to stay in power. That’s why I don’t see this as an easy fight… [But protestors] are not [decreasing in numbers] at all. Every day, it’s more than the day before it. And even when they try to remove the protestors, the protestors are coming back multiplied. For the first time ever, the Lebanese people are not scared of anyone.”

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