What is left of the "Switzerland of the Middle East"?

Lebanon: A country out of control, a difficult analysis

photo_camera Lebanon

Lebanon continues to face a difficult situation

Lebanon, often referred to as the "Switzerland of the Middle East", has been sung from time immemorial by poets, who have celebrated the beauty of its places, the abundance of its fruits, the purity of its atmosphere and the sweetness of living there. Over the centuries, this country has never ceased to exert a disturbing fascination on the imagination and sensitivity of travellers, historians and thinkers.
Lebanon file summary1

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What is left of the "Switzerland of the Middle East"?    

At 9:02 a.m. on Wednesday, April 19, 1995, in the street in front of the Alfred P. Murrah Federal Building, a rented truck from the Ryder firm was detonated with a load of about 2300 kg of homemade explosives. The bomb was composed of ammonium nitrate mixed with fuel and nitromethane (a highly volatile fuel). This mixture is commonly known as ANFO (Ammonium Nitrate and Fuel Oil). The effects of the explosion were felt as far as Creek Bridge, a distance of 48 kilometres, and the explosion weighed three tonnes.

This attack in Oklahoma City was an explosive terrorist attack perpetrated by Timothy McVeigh and Terry Nichols and was considered the most serious terrorist act to have occurred on US soil until the attacks of 11 September 2001. The attack killed 168 people, including 19 children under six, and injured more than 680. 

The bomb in the port of Beirut weighed a thousand times more! A team of specialists from the University of Sheffield (United Kingdom) estimates that it was the equivalent of between 1,000 and 1,500 tonnes of TNT, 10% of the magnitude of the Hiroshima bomb. The US Geological Survey said the explosion was equivalent to a 3.3 magnitude earthquake.
   

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In reality, this explosion in Beirut is the result of many things. Although the "bomb" may have exploded accidentally, what happened was certainly not a "natural" disaster. Chance and bad luck had nothing to do with this tragedy, except to determine that it took place today instead of last year or the years before. "What caused the tragedy was corruption and neglect. The mere presence of this shipment of nitrate in that place, and for years, was only because some local mafia was willing to sell it when the opportunity arose. And if the authorities have not intervened, despite warnings, it is because the country is plagued by lawless areas where the various factions are engaged in their lucrative trade. None of this is fortuitous, natural or due to bad luck"2.  

How is it possible that the country of the Cedars3 a confessional economic promise of freedom has reached this state of poverty and chaos... It is not easy to explain and there are many actors and factors that make it even more complicated. Much has to do with the region and its environment which is certainly dire.  Maalouf tells us that one of the key problems that has led to this situation is denominationalism4.

The problem, in his opinion, "is that the national project, which consisted in transcending the various community affiliations towards a common national belonging, has not been carried out with the necessary energy and lucidity. As a result, the citizens became the enforcers, and sometimes even hostages, of the political and religious leaders of their communities, who in turn became enforcers and hostages of their foreign protectors. There is also an aggravating circumstance: the liberal service-based economy, which undoubtedly ensured the country's prosperity for many years, was unable to cope with a strong state, which tried to impose binding regulations and heavy taxation in order to play its role fully"...

The whole world is a patchwork of communities. Europe is a mosaic, America and Africa and Asia too, and if one submits to the logic of fragmentation, it is the promise of a thousand conflicts to come. The question is not whether people of different colour or creed can live together and call themselves fellow citizens, the question is how to make them live together, how to make them feel that they are part of the same nation. And here the Lebanese experience, although it has not been successful so far, will have to be repeated, in Lebanon and elsewhere, until it is successful.

Lebanon in regional geopolitics

The country is in a region where geopolitical tensions are high (Caesar's law, Syria's conflict, Iran's embargo, etc.).
The scale of Lebanon's internal crises is, as always, accentuated by regional geopolitical crises. The Covid-19 slowed down the Lebanese economy considerably in the same way as it slowed down the economies of the Middle East and the world in general. It also increased the already high rate of unemployment.

Moreover, the policies of maximum pressure, applied by Donald Trump against Teheran, have accentuated the bottleneck. As for the Caesar Law5 against Syria, it has further reinforced Lebanon's isolation. The Gulf countries, such as Saudi Arabia, no longer wish to offer financial assistance to the country, as they consider that Hezbollah plays too important a role in Lebanese political life. Together with the United States, they have decided that such assistance will no longer be possible as long as this side plays such a decisive role. Isolated from its traditional relays, the country is therefore subject to a nameless blockade.

But Lebanon must be able to say "no" when it comes to being dragged, by force or intimidation, into conflicts in which it has no wish to become involved, and in which it clearly has no interest. Lebanon lost its independence years ago, and it is imperative that it regains it. Lebanon has no vocation to be a military outpost in the Arab-Israeli conflict. It has no interest in being instrumentalized, either by Iranian leaders or by those who seek to strangle them. And it had no interest in interfering in the Syrian civil war, either to help Assad's regime or to assist the rebels. All these mistakes are the result of Lebanon's loss of the ability to decide for itself, as an adult country. Unfortunately, this small vestige of the Ottoman Empire has lost its centrality. The country has become peripheral in the global economy.

Would "neutrality" be the remedy for Lebanon's ills? Launched at the beginning of July by Cardinal Bechara Raï, the idea is still fuelling debate, in a bankrupt country in search of the slightest recourse. "Today, Lebanon is isolated from the whole world, it is not our identity. Our identity is a positive and constructive neutrality: not a warlike Lebanon", repeats the patriarch of the Maronites, who would dream of a neutrality "declared", even "guaranteed" by the UN. By ceasing to "get involved in the policy of regional and international axes" as well as suffering "its external interference" Lebanon - he is convinced - would regain control of its destiny and the support of the international community.

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Economy and finance

Lebanon's main wealth was its human capital, which was accumulated thanks to a liberal economic regime that contrasted with the dirigisme widely practised in the rest of the Arab world. At a time when socialism was on the rise, Lebanon offered a flexible exchange rate regime, freedom of capital movements and a liberal environment that was unique in the region.

The country thus became a centre of attraction for investors fleeing the waves of nationalisation in Egypt, Syria and Iraq, and for capital from oil-producing countries whose financial systems were not yet developed.

Its balance of payments had a large surplus. "The Central Bank, whose role was limited to regulating the market, had to buy dollars to prevent the pound from appreciating too much. It was at this point that it began to accumulate foreign exchange reserves. Between 1965 and 1973, the country grew at an average rate of 6.6% per year. This growth was driven by the services sector, particularly trade, which alone accounted for 32% of GDP.

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Financial, transport and other services accounted for 22%. "Between 1968 and 1975, bank deposits tripled, and airport and port traffic doubled. The rapid development of the port of Beirut was due to the closure of the Suez Canal and especially to strong Arab domestic demand for capital and consumer goods following the rise in oil prices.

Lebanon today has one of the largest public debt/GDP ratios in the world, mainly due to the high budget deficits of the last decade. In mid-July, the country adopted an austerity state budget for 2019, after months of deliberations and hesitation, aimed at reducing the deficit to 7.6 per cent of GDP from 11 per cent in 2018. This target is unlikely to be achieved and the deficit is expected to increase this year, especially with the persistence of the crisis. Unless much-needed structural reforms are implemented, the government is expected to run large deficits in the future, which will not help the country to reduce its dependence on external aid and capital. Lack of progress in deficit reduction is expected to limit Lebanon's ability to attract capital inflows, while increasing the cost of debt servicing (over 9 percent of GDP for interest only). In addition, the $12 billion in aid for infrastructure, pledged by foreign donors at the Paris conference in April 2018, has yet to be forthcoming.

Regardless, these are mainly loans (USD 10.2 billion) and not grants (USD 860 million), which means that Lebanon's debt would increase even further. Externally, the high current account deficit resulting from the deficit in trade in goods (25% of GDP in 2018) should persist, with the drop in tourism revenue being offset by the weakness in imports linked to the fall in domestic demand. Its financing has become much more difficult due to the withdrawal of deposits from non-residents coupled with the slowdown in expatriate remittances caused by increased political and security risks. This has led to a currency crisis and a shortage of US dollars, which materialised in a parallel market depreciation of the currency (-25% against its parity with the dollar in December 2019) and formal capital controls. According to the IMF, the country's gross foreign exchange reserves are estimated at around USD 33 billion at the end of 2020, covering 11 months of imports of goods and services, but will be consumed in a short time.

One of the consequences of the increase in debt is that some rating agencies have downgraded the country's rating with potential creditors, making the situation in Lebanon even more difficult. In March 2019, Standard and Poor's, a US financial rating agency, said it would not change Lebanon's "B-" rating, but expects the outlook to be changed from "stable" to "negative". But that's not all. The Banque du Liban , meanwhile, recorded a fall in its reserves, creating great uncertainty about the country's economic future.

How did the country reach this point? One of the causes identified for this economic "collapse" is the crisis in the financial sector, "the historical engine of the country". Without a strong industry or its own resources, Lebanon has been trying for years to attract foreign capital, even offering a 20 per cent interest in dollar investments. This has earned it the nickname "Switzerland of the Middle East".

"These flows have gradually dried up, mainly due to geopolitical tensions in the region". Iran, which used to help the Shia community, has been weakened by the United States' economic sanctions. The Gulf countries, affected by the fall in oil prices, have also reduced their investments. The conflicts in Iraq and Syria have destabilised the whole region. As a result, the financial sector is experiencing a crisis of confidence that no longer enables it to perform its role, which was to finance the economy and especially the public institutions, which have accumulated deficits for decades. 

The Covid-19 pandemic, which shook the world economy, has further aggravated the situation. "Public debt has become unsustainable", forcing Lebanon to declare a suspension of payments in March. "Many private sector companies have had to close down, either 

A little bit of history

Lebanon and France a relationship of centuries.  The history between France and the territory that will become Lebanon is first and foremost a history of religion. At the time of the First Crusade, at the end of the 11th century, "Mount Lebanon" (the mountain range that gave the country its name) was inhabited by the Maronites, one of the most important Christian communities in the Near East. At the beginning of the 12th century, the territory was integrated into the Latin states of the East, which were divided among the Crusader chiefs.

This Christian breeding ground would forge links with France in the middle of the following century. During the 7th Crusade, Louis IX, Saint Louis, made a commitment to the Maronites to ensure their protection. "We are convinced that this nation, which we find established under the name of Saint Maron, is part of the French nation. [...] It is therefore right that all Maronites should enjoy the protection enjoyed by the French near us," wrote the king in a letter delivered to the "Emir of the Maronites".

Almost three centuries later, Francis I allied himself with Suleiman the Magnificent. If the King of France was primarily seeking support against the Holy Empire of Charles V and privileges within the Ottoman Empire, this approach made the Crown of France once again the protector of Eastern Christians. This status was maintained and reinforced by his successors on the throne until the 18th century.

France played an important role in the birth of Lebanon as it exists today. The first act took place in 1860. Playing his role as protector after the massacres carried out by the Muslim Druze against the Maronite Christians on Mount Lebanon and in Syria, Napoleon III sent an expeditionary force along with the other European military powers to help the Ottoman Empire restore order. The following year, the operation led to the signing of an agreement with Constantinople establishing partial autonomy for Mount Lebanon, which would last until 1915.

The second act took place after the First World War. The territory of the Ottoman Empire, which was allied with Germany during the conflict, is shared between France and Britain, according to a secret agreement signed even before the capitulation of Berlin. Mount Lebanon is in the area under direct French administration, headed by an army general, Henri Gouraud.

In September 1920, he proclaimed the creation of "Greater Lebanon", whose borders are similar to those known today. In 1926, French local authorities gave the country a constitution, creating the posts of president and prime minister. French became the official language, along with Arabic.

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The links between France and Lebanon are mainly linguistic. If French lost its official status with Lebanese independence at the end of 1943, it remained very present in the country and is still used in the administration. Lebanon is a member of the International Organisation of the Francophonie. By 2014, almost 40% of the population spoke French, according to this organisation.

On its website, the French Ministry of Foreign Affairs considers that "the promotion of the French language in Lebanon is a strategic imperative". France has an important network of schools in the country. The Quai d'Orsay has 50, including six French secondary schools. Since 2011, Beirut also hosts the Institut français du Proche-Orient, responsible for "strengthening [...] scientific and intellectual relations with the countries of the region".

This proximity is reflected in the exchanges between the two countries. According to the French Ministry of Foreign Affairs, 210,000 Lebanese live in France, while 25,000 French citizens are in Lebanon. It is the fifteenth largest French host country and the fourth largest outside Europe, North America and China.

Since 1982, the French army has been present there under the auspices of the United Nations as part of a peacekeeping force. Some 700 soldiers are there today, according to the Quai d'Orsay, as part of Operation Daman. They are carrying out joint patrols with Lebanese forces on the border with Israel.

The visit of Emmanuel Macron, the first foreign head of state to Beirut following the tragedy of 4 August, once again reveals the importance to French presidents of maintaining ties with Lebanon. Since François Mitterrand, they have all been in the country at least once.

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Conclusions

"At a time when Lebanon is going through an unprecedented crisis, France regrets that Lebanese political leaders have not yet managed to meet the commitments they made on 1 September 2020 according to the announced timetable. We urge all Lebanese political forces to assume their responsibilities and to agree without delay to the formation by Mr. Mustapha Adib of a government of mission capable of implementing the reforms needed to meet the aspirations of the Lebanese people. As we constantly remind the Lebanese political forces, they must translate their commitments into action. It is their responsibility that is at stake. France, for its part, supports the Lebanese, as it has always done" 

The link between economics and politics is close. To succeed, Beirut must release new money from its international donors, such as France, for example, but also from the IMF, with which ongoing negotiations have been interrupted. However, the latter will only agree to put their hand in their wallets if the country undertakes far-reaching reforms so as not to fall back into their own trap. The fight against corruption, transparency, cuts in public expenditure, modernisation of the infrastructure: for two years the international community has been waiting for deep changes that will not come.

"The Lebanese have also been waiting for these reforms for over a decade and they have never come about, because those who are asked to implement them are blocking them". The arrival of a new government in January, in fact, has not changed anything.  The political parties involved are financed by the state, another waste of public money. And the Lebanese banks, included in the negotiations, refuse to absorb the losses and therefore block much of the process. 

For all these reasons and much more, there is a need for a global and comprehensive initiative involving the five permanent members of the UN Security Council: France, the United States, Russia, China and the United Kingdom. The five together and, initially, no one else except perhaps the European Union. 

Together they would set up an interim administration, responsible for rebuilding the country affected by the disaster in all the sectors that no longer function. Starting with repairing the infrastructure - the electricity grid, waste management, roads, ports and airports; reviving the once flourishing economy, which is now stagnant; restoring the social, medical and educational infrastructure; modernising the country's political institutions and, when the time comes, holding free elections. Each of the five would send a contingent of high-level technicians and managers to the area, as well as a military contingent to preserve civil peace. And this interim international administration would be provided with substantial funding, which would continue for years, and would initially be entirely under the responsibility of the international authorities.

The United Nations is there to help countries in need. Lebanon, which is a founding member, was one of the architects of the Universal Declaration of Human Rights in 1948, and is now in a difficult situation, is entitled to all the help it needs to get back on its feet. And France, which has shown great empathy with Lebanon after this latest ordeal, particularly with the visit of President Macron, could indeed be the focus of such a consensual global initiative.

Sources

•    Jeune Afrique
•    Le monde diplomatique
•    Le naufrage des civilisations (Amin Maalouf)
•    El desajuste del mundo (Amin Maalouf)
•    Coface
•    FMI y Banco Mundial estadísticas
•    Ministère de l’Europe et d’Affaires Etrangères/ France Diplomatie
•    https://www.bfmtv.com/economie/le-liban-un-pays-en-crise-depuis-des-mois_AV-202008050078.html
•    https://www.francetvinfo.fr/monde/proche-orient/liban/l-article-a-lire-pour-comprendre-la-crise-economique-et-humanitaire-qui-ebranle-le-liban_4046953.html
•    https://www.lemonde.fr/liban/
•    https://lb.ambafrance.org/-Francais-
•    https://theconversation.com/geopolitique-dun-liban-au-bord-du-gouffre-144216
•    TV5 
•    France Diplomatie Ministère de L’Europe et des affaires etrangeres


Notes

1Lebanon: 
GDP 56 372 million $ surface 10 450Km2
Republic with 8 governorates (mohafazat) Population 6 848 925 (+ 0.54%)
Head of state: Michel Aoun Capital: Beyrouth
President of the Government: Hassane Diab International organisations: UN, IMF, ICO, Unesco, Arab League
Next national elections: 2022 (legislative and presidential)

2Amin Maalouf

3The Cedar is the tree that is the emblem of Lebanon and adorns its flag.

4Intimate adherence to a religious denomination, or as defined by other authors, is a system of government that divides the population proportionally among communities (whether religious or ethnic) in relation to the percentage of the population. It is based on four fundamental elements: proportional distribution of political posts between communities according to their numerical representation; a large coalition between the leaders of the different communities in relation to common policies whose aim is to serve everyone; autonomy of the communities where each one is free to decide on matters relating to its community in matters such as personal status; and finally, mutual power of veto if there are decisions to the detriment of any community.

5 The US "Caesar Law" is aimed at individuals or companies that support Bashar al-Assad's Syrian regime. Mainly affected: the oil and construction sectors. A hard blow for neighbouring Lebanon and in particular the port city of Tripoli, where construction work is at a standstill.

6France Diplomatie (September 2020)

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