Preventing State Collapse in Lebanon

This commentary is part of our Watch List 2020 - Autumn Update.

Lebanon’s socio-economic and financial crisis accelerated greatly in the first half of 2020, pushed along by the COVID-19 pandemic, dramatised by the catastrophic explosion in the Beirut port on 4 August, and marked throughout by massive job and income losses. The government resigned six days after the port blast, compounding the disarray, though it had hardly been effective in addressing the country’s problems previously. At the end of August, President Michel Aoun, acting with broad parliamentary support, appointed Mustapha Adib as prime minister, but disagreement over cabinet posts has stymied efforts to form a new government. On 26 September, Adib withdrew amid apparently irreconcilable differences among political blocs, making it highly improbable that a new government can be formed soon.

The likely consequences will be three-fold. First, the enduring vacuum of political leadership will delay urgently needed reforms and external assistance, such as an agreement with the International Monetary Fund (IMF). Secondly, in the absence of an IMF bailout, large numbers of Lebanese as well as substantial portions of the Syrian refugee population (more than one million people) will slip into food insecurity and poverty. Thirdly, the state’s capacity will erode, not least in the security sector. As state control recedes and ungoverned spaces expand, turf wars may break out between political groups in some areas and between criminal networks in others, and illegal migration will increase.

To meet urgent humanitarian needs, and to fend off yet another state failure in the eastern Mediterranean basin, the EU and its member states should:

• Continue providing emergency assistance that directly reaches people in need through the EU Civil Protection Mechanism and the EU Humanitarian Air Bridge. Programs could include disaster relief for victims of the port explosion (eg, “cash for work” to repair dwellings before winter).
   
• Prepare to extend and expand support to prevent a serious humanitarian crisis, particularly if a solution to the political stalemate remains elusive; plan for long-term assistance directed at poor communities (Lebanese and refugees) that aims to create jobs and improve infrastructure; provide equipment to upgrade public hospitals and support for Lebanese entrepreneurs to boost exports and substitute imports.
   
• Offer substantial assistance for revitalisation of key national infrastructure (in particular electricity generation) on the condition that the Lebanese government, once formed, establishes proper legal and regulatory frameworks for the sectors involved and transparent procurement, recruitment and planning procedures.
   
• Draw up a roadmap of concrete reforms that a new Lebanese government should undertake to receive EU assistance, such as reaching preliminary agreement with the IMF, legislating to safeguard the independence of the judiciary, and passing anti-corruption and public procurement laws together with necessary implementation decrees.
   
• Boost the capacity of Lebanese civil society organisations to participate in public policymaking and to increase government accountability. 


• Distance itself from any U.S. attempt to influence Lebanon’s political processes for the sake of regional politics (eg, the U.S.’s “maximum pressure” policy aimed at squeezing Iran) and pursue an inclusive approach that enlists all major political actors in Lebanon, including Hizbollah, in the reform process.

In the port explosion’s aftermath, French President Emmanuel Macron stepped in to urge that Lebanon fast-track the substantial reforms necessary to unlock external assistance, in particular an IMF package and some of the funds pledged by donors at the 2018 CEDRE conference. After the government resigned on 10 August, he also pushed for the quick formation of a new government backed by all political forces. On 31 August, on the eve of Macron’s second visit to Beirut, a broad majority of the Lebanese parliament nominated Lebanon’s ambassador to Germany, Mustapha Adib, as prime minister. Macron’s initiative stalled due to a combination of domestic competition and external pressure. As distrust runs deep, Lebanese actors, in particular Hizbollah and former Prime Minister Saad Hariri, battled over nominations of ministers to secure influence in the new cabinet, making Adib miss the two-week deadline proposed by the French president. Ten days later, he resigned. In reaction, Macron blamed all sides, adding he was “ashamed of Lebanon’s political leaders”, said he would give them a few more weeks to get their act together, but also pointedly criticised Hizbollah, asserting it “can’t be at the same time an army at war with Israel, an unrestrained militia against civilians in Syria and a respectable party in Lebanon”.

Uncertainty about the U.S. attitude toward Macron’s initiative – coupled with Saudi pressure on Hariri to adopt a tough stance toward Hizbollah – almost certainly further complicated the bargaining. Washington had expressed qualified support for the effort as a whole, but took exception to the French president’s explicit recognition of Hizbollah as a central and legitimate part of the Lebanese political system. The U.S. considers Hizbollah a terrorist organisation and aims to clip its wings as part of the “maximum pressure” policy against Iran and its allies. On 8 September, the U.S. Treasury imposed new sanctions on Lebanese politicians allied with the Shiite Islamist party, and seven days later Secretary of State Michael Pompeo warned France, while visiting Paris, that “efforts to resolve the crisis in Lebanon would be in vain without immediately tackling the issue of Iran-backed Hezbollah’s weaponry”. On the other hand, U.S. officials have indicated that their position vis-à-vis a new government may hinge on a distinction between Hizbollah having a “presence” in it or exercising “dominance” over it. 

The uncertainty created by signals from Washington has been compounded by the approaching U.S. elections. Lebanese politicians may prefer to wait to see if President Donald Trump wins or whether Washington moves closer to the French position under a Biden presidency. 

What is clear is that greater polarisation and renewed confrontation risks – as it has done repeatedly over the past fifteen years –provoking a breakdown in the political process and violence. Government formation, IMF negotiations and urgent reforms – all pre-conditions for badly needed external assistance – would become impossible. The social crisis would get still worse and state capacity dwindle faster.

The collapse of the Lebanese currency and economy sped up in the first half of 2020. The loss of summer tourism revenue due to the COVID-19 lockdown was a further blow, followed by the 4 August port explosion, whose resulting damage cost between $3 and $5 billion, according to the World Bank. Lebanese citizens had already lost access to their savings as a result of informal controls local banks have enacted since late 2019 in response to capital outflows and their own severe lack of liquidity. Now citizens have also lost a significant part of their income to runaway inflation (110 per cent annually as of July). Since early 2019, some 350,000 private-sector employees (out of a total work force of 1.8 million) have been laid off and many more have been furloughed or suffered pay cuts as businesses, facing declining purchasing power and evaporating credit, scaled down or suspended operations. 

The situation is bound to deteriorate further: the Lebanese Central Bank is burning through its remaining foreign exchange reserves and its governor has warned that by year’s end, he will have to stop the policy of subsidising fuel, food and medicine imports by providing foreign exchange at a highly preferential rate. Scrapping the subsidies would cause yet another huge spike in inflation. Already, 55 per cent of Lebanese live below the poverty line and 23 per cent in extreme poverty; Save the Children estimates that in Beirut alone, more than 500,000 children “struggle to survive”. Among Syrian refugees, some 90 per cent of households are food-insecure, and negative coping mechanisms, such as child marriage and child labour, are common. Without substantial external assistance, the threat of widespread food insecurity is real. As a result of the misery, migration pressure is increasing. Thousands who have legal residency elsewhere or hold foreign passports have begun to leave. A Western diplomat in Beirut told Crisis Group: “Everybody I know is leaving”. Illegal migration by sea to Cyprus is on the rise.

With revenue collapsing and access to financial markets cut off, the Lebanese state will soon be unable to fund ministry budgets or increase salaries to make up for state employees’ lost income caused by runaway inflation. Crucial state services would accordingly erode, particularly in the health sector. As public resources dry up, the capacity of some political actors to keep their constituents loyal by offering access to such resources (eg, by securing public employment) and their related ability to enforce social control will recede. Predatory and criminal networks could fill the gaps. 

Overstretched and underpaid security forces might be able to prevent some such developments, but not necessarily for long, and some of their personnel might have no choice but to find additional sources of income. Their professionalism would suffer further, as would the functioning of security institutions. Turf wars among local armed groups may become a daily occurrence and could scale up once groups driven by sectarian and political motivations become involved. Some parts of the country could turn into de facto ungoverned spaces, and some may even become safe havens for jihadists or organised crime. Security forces might also no longer be able to patrol the coastline and curb migration to Cyprus, which is less than 200km away.

European capitals have a strong interest – and a major role to play – in preventing the Lebanese state’s collapse. After the port explosion, France took the lead in mobilising support for Lebanon through two donor conferences (one held on 9 August, the second planned for October) and pushing the Lebanese leadership to adopt a reform roadmap. France is uniquely positioned to spearhead this effort, as it enjoys credibility with actors across the Lebanese political spectrum. Failure to form a government represents a serious setback for the French initiative; at this point, however, there is no viable alternative to Macron’s approach and, as he recognised, any solution will need to include Hizbollah – together with its Shiite ally, Amal.

Whatever happens with the French initiative, countries like Germany, Italy and Sweden should scale up their humanitarian assistance. Lebanon needs funding and technical capacity for major infrastructure projects (such as in energy, water and garbage disposal) and reconstruction in areas affected by the port blast. Through such projects, donor countries could insist on the establishment of new governance standards (eg, transparency in planning, procurement and disbursement of funds). Donors could also expand existing programs that seek to create jobs for Lebanese and refugees alike by improving local infrastructure and agricultural production, as these places will likely be the first to experience food insecurity and the failure of already feeble state services and control. They could also boost the capacity of Lebanon’s already well-developed civil society by facilitating its inclusion in planning procedures and access to information related to projects implemented with EU participation, so as to create new mechanisms of participation and public accountability. The private sector could be another avenue to explore, as increasing domestic production would reduce unemployment and the balance of payments deficit, substituting for imports that drain foreign currency reserves and creating a source of foreign currency through exports. 

Donors could better coordinate their assistance by pooling resources under a common instrument such as a dedicated EU Trust Fund. Europe should also assume a unified position vis-à-vis the U.S. and the Gulf Cooperation Council and urge that international assistance (in particular, an IMF package) be conditioned on progress on reform, and not tied to U.S. and Gulf Arab strategic considerations, such as disarming Hizbollah, diminishing the group’s influence in Lebanon and ending its activities in the region. The objective should be to prevent another failed state in the eastern Mediterranean, not to score points in a geostrategic competition.