Will Lebanon’s Economy Be Crippled? – OpEd

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As many ten-year old’s in this observers Beirut neighborhood in Dahiyeh, (Hezbollah’s ‘security zone’) can articulate more cogently than me, Lebanon’s economy continues to weaken as foreign investors pull back, internal sectarian turmoil swells, several of Lebanon’s well-known political lords continue to steal a significant chunk of the country’s budget while World Bank and IMF indexes of Lebanon’s economic future increasingly remind one of the 2009 economic shut-down in Greece.

Lebanon is being accused by 5 GCC members and a growing list of allies regionally and globally of declaring war on Saudi Arabia by its corrupt ‘leaders’ essentially deeding the country to Iran. Consequently, the KSA and other countries have joined in demanding that the Lebanese “government” choose between peace or allegiance to Iran and Hezbollah. The new reactive strategy appears to include targeting Lebanon’s already challenged economy.

On 11/16/2017, Saudi’s Foreign Minister Jubeir, emphasized that Hezbollah is the root of Lebanon’s crisis and “that it has hijacked the Lebanese system.” During a joint press conference with his French counterpart Jean-Yves Le Drian, FM Jubeir added that Hezbollah’s continuous interferences in Arab countries’ affairs will worsen the situation in Lebanon, adding that “the Hezbollah militia is a weapon in Iran’s hands” and that Hezbollah’s Hassan Nasrallah himself has acknowledged this fact. The Saudi FM added that Hezbollah threatens the stability of Lebanon and the region and voiced the importance of finding means to deal with the party. He added that there were practical measures in this regard. Many in Lebanon’s financial institutions believe the “practical measures” may result in the collapse of Lebanon’s already deteriorating economy.

In seeking to combat Iranian influence, Riyadh may indeed shake an already tottering Lebanese economy thus threatening the country’s tenuous calm. On November 6, Saudi Arabia’s Minister of Gulf Affairs, Thamer al-Sabhan, announced that henceforth “The Lebanese government, which is dominated by Hezbollah, the Iran-backed political party and militia, will be treated as if it had declared war on Riyadh.” Many in Lebanon, including more than 80% of Sunni, and 65% of Christians, according to recent Pew and other polls, support the new tougher Saudi position despite worries about the policy on Lebanon’s economy.

Mr. Sabhan’s declaration raises the distinct possibility of a GCC “Dahiyeh Doctrine” wherein Saudi Arabia and her allies could take a page from Israel’s 2009 “Dahiyeh Doctrine” wherein the occupiers of Palestine are now committed to targeting all of Lebanon in the next war and not just Hezbollah areas. The justification for both “total wars” is claimed to be that the Lebanese government has failed to effectively control or disarm Iran’s Hezbollah militia but instead has ceded Lebanon’s sovereignty. Some are suggesting that Saudi Arabia, along with her regional and even some global allies may well launch an economic “Dahiyeh Doctrine” wherein all of Lebanon’s economy is fair game for targeting much as Iran’s continues to be.

Saudi initiatives as well as several other recently announced western and regional measures represent an evolving pro-active and protective “brotherly” Arab policy toward Lebanon. Growing resistance to Iran’s absorption of Lebanon may well target Lebanon’s economy following decades of the GCC helping shore it up.

When PM Hariri returned to Lebanon on 11/1/2017 after a visit to Saudi Arabia, he met with the Lebanese Council of Ministers to brief them on his discussions in Riyadh. He told the Ministers that the Saudis would support plans for an international conference in Paris to strengthen the Lebanese economy. In addition, Hariri announced that a Rome meeting was being organized from Riyadh to support the Lebanese army and a joint Saudi-Lebanese Directorate was in the works to promote and assure massive foreign investment to shore up Lebanon’s careening economy. Saad Hariri, like his late father Rafik , is one of the very few genuinely liberal political leaders the Middle East has ever produced by exposing Lebanon’s government for what it truly is—the subject of a hostile takeover by two malevolent foreign powers, one being Iran.

This new GCC approach follows more than a decade of Saudi unsatisfactory efforts to bolster Lebanon’s pro-West Future Movement and its allies against Iran’s Hezbollah. The region may no longer distinguish between weak local confederates and invertebrate hostiles. Frustrated with Lebanon’s Parliament’s acquiescence of Hezbollah’s increasing influence in Beirut, Riyadh and allies may decide to target all of Lebanon’s economy.

LEBANON IS VULNERABLE TO ECONOMIC COLLAPSE

As this observer has noted recently, the Lebanese civil war (1975-90) and postwar reconstruction have had a profound and continuing impact on the state’s economy. Since 1990, accumulated debt, structural imbalances, insufficient revenues, widespread endemic corruption and periodic wars have contributed to an economy that many analysts believe is on the verge of collapse. Today, Lebanon’s debt-to-GDP ratio is 150 percent, among the world’s highest, and the International Monetary Fund predicts that it will increase to 160 percent by 2021. The cost of financing this debt is astronomical. Worse, growth is anemic, about 1 percent, and the regional political situation — even before the current crisis with Saudi Arabia — has undermined investor confidence. Accordingly, foreign deposit inflows have slowed, and Lebanon’s S&P credit rating has declined from a B to a B-.

There are multiple Lebanese vulnerabilities which Saudi Arabia and her allies have in their quiver to encourage Lebanon to resist what many in the region believe is Iran’s more than two decades of executing its hegemonic colonization of Lebanon.

One is pressuring Lebanon’s expatriate work force and two others would likely include targeting Lebanon’s financial sector and its tourism industry.

As seasoned Lebanese journalist and researcher Hanin Ghaddar recently pointed out, according to economists in the region, Lebanon’s economy is currently in danger of collapse. For example, more than 15 million expatriate Lebanese are living and working abroad. The remittances sent back to Lebanon account for approximately 16 percent of Lebanon’s GDP. During 2016, Lebanese abroad sent home more than $ 7.5 billion. The Gulf Cooperation Council (GGC) states, Saudi Arabia, the UAE, Qatar, Bahrain, Kuwait, and Oman create the major employment sources of Lebanese remittances. Approximately two-thirds of the remittances are being generated today in the GCC states, with more than 50% from Saudi Arabia alone.

One KSA measure that has already been taken over the past few months has been the result of the Saudi Vision 2030 initiative which is aimed at diversifying the KSA’s economy and strengthening local employment numbers. One example, is that Riyadh dramatically increased the cost of residency permits for foreign workers. As the fees ascended, remittances necessarily descended, along with the numbers of expatriate laborers. The more immediate concern for Lebanon is that Saudi Arabia — along with the UAE — might expel Lebanese nationals. Iran has suggested that it would welcome such a move because most of Lebanon’s expat workers in the Gulf are Sunni Muslims and Christians not Shia. Plus, such a move would presumably generate criticism of the GCC.

The loss of Gulf remittances would be yet another blow to the reeling Lebanese economy. Not only would it lower state GDP, it potentially could add to the ranks of the nearly ten percent of the country’s unemployed. These suddenly unemployed workers and their families in Lebanon, including Shia, may also channel their anger toward Hezbollah.

With respect to Lebanon’s recently passed Cabinet measures, including PM Hariri’s Government’s decrees regulating offshore oil and gas exploration as well as the new national budget, Lebanon’s first in twelve years, if his resignation is not withdrawn these measures will likely collapse. And if followed up with additional harsh economic measures by Saudi Arabia and other Gulf states, Lebanon will face further destabilizing economic challenges.
With respect to foreign investment, two weeks after Saad Hariri’s resignation, some international investors are already signaling their intentions to pull out of Lebanon. More than 82% of percent of foreign direct investment in Lebanon comes from Gulf Cooperation Council (GCC) countries. 40 percent of which is in the real estate sector.

While Gulf investment in Lebanon has not increased since 2012, despite periodic political problems, investors to date have not sold off most of their investments and avoided harming the economy. Lately, however, Lebanon has witnessed a reported 10-20 percent drop in real estate values. A Gulf selloff would doubtless have major negative consequences for Lebanon’s formerly robust real estate market.

The Saudi-led Gulf countries also have major leverage on Lebanese trade, accounting for 25 percent of Lebanon’s total exports. Should the GCC countries decide to do so, they would have many other suppliers to choose from thus further tumbling Lebanon’s balance of trade, which in 2016 ran a deficit of 30 percent, or approximately $16 billion. Lebanon’s economy cannot any longer absorb these deficits regardless that the Lebanese Lira is linked to the US Dollar.

Saudi Arabia until after the civil war erupted in Syria in 2011 and the first Gulf tourism boycott of Lebanon in 2012, in response to Hezbollah’s military activities in Syria in support of the Assad regime, Saudi tourists constituted a quarter of all visitors to Lebanon. Although Gulf tourists started returning gradually over the years, today they constitute fewer than 8 percent of tourists to Lebanon. The decrease in GCC tourism has collapsed the hotel overnight guests rates percentage of 2010 levels to half while causing skyrocketing unemployment rates in the hospitality sector, dramatically reducing business for restaurants, resorts, and other entertainment venues. On November 9, 2017 Riyadh advised Saudi citizens not to travel to Lebanon and for its citizens in Lebanon to leave. Kuwait and Bahrain immediately did the same. The current Saudi offensive threatens to erode even further Lebanon’s tourism industry.

In addition, Saudi Arabia’s and her allies could negatively impact the Lebanese banking sector. Saudi deposits at Lebanon’s Central Bank (Banque du Liban), are close to one billion dollars. To support Rafik Hariri’s 1992 economic plans for Lebanon, Saudi Arabia until today has kept these deposits in the Central Bank. But given the Saudi view of Lebanon’s “Declaration of War” and that Saad Hariri has resigned, Riyadh is being counseled to withdraw these deposits. It’s true that the Saudi Central Bank deposits amount to only about 3 percent of Lebanon’s foreign reserves, but pulling them out would shatter confidence in and destabilize the Lebanese Lira with resulting panic in Lebanon, the region and global markets.

Last year, rumors were rampant that the KSA was preparing to pull their Lebanon deposits after its government refused to condemn Iran for organizing the sacking of the Saudi embassy in Tehran as well as its consulate in Mashhad. Saad Hariri reportedly convinced the KSA to demure and the withdrawal was frozen, but Riyadh did cancel $4 billion in grants to the Lebanese Armed Forces and Internal Security Forces because according to recent boasts from Iranian officials, that “Supreme Leader” Ali Khamenei claims to control both the Lebanese Armed Forces (LAF) and Lebanon’s Internal Security Force (ISF).

Meanwhile, on 11/16/2017, with a sort of straight face, Hezbollah’s Michel Aoun’s son in law Gebran Bassil lectured Germany’s Vice-Chancellor that there was not any foreign interference in Lebanon while adding that the Lebanese government maintains its respect for the policy of dissociation in any regional conflicts. Including in Syria.

It is very difficult to predict anything politically in the Middle East these days. But by targeting expatriate labor, the financial sector, and tourism, Saudi Arabia, if it launched an economic campaign against Lebanon would certainly have a major impact.

To be sure, this approach would severely assault not only Iran’s proxies like Hezbollah and its constituents in Lebanon’s government, including Christian allies such as Michel Aoun and the Free Patriotic Movement; it will equally affect Lebanon’s Western-oriented Sunnis and Christians, who until now have been on good terms with Riyadh.

Franklin Lamb

Franklin Lamb, a former Assistant Counsel of the US House Judiciary Committee at the US Congress and Professor of International Law at Northwestern College of Law in Oregon, earned his Law Degree at Boston University and his LLM, M.Phil, and PhD degrees at the London School of Economics. Following three summers at the International Court of Justice in The Hague, Lamb was a visiting fellow at the Harvard Law School’s East Asian Legal Studies Center where he specialized in Chinese Law. He was the first westerner allowed by the government of China to visit the notorious “Ward Street” Prison in Shanghai. Lamb is doing research in Lebanon and works with the Palestine Civil Rights Campaign-Lebanon and the Sabra-Shatila Foundation. His new book, The Case for Palestinian Civil Rights in Lebanon, is due out shortly.

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