Slowly, but surely, Lebanon is heading toward inevitable economic collapse. Prime Minister Hassan Diab’s newly minted government has asked the International Monetary Fund (IMF) to help avert or forestall this crisis. Yet Diab’s ally Hezbollah has distanced itself from the prime minister. Though the group has deemed mere IMF advice acceptable, it is objecting to any “IMF guardianship” over Lebanon’s economy. One of Hezbollah‘s fears – even if not explicitly stated as such – is that IMF-imposed austerity measures would reignite the protest movement which it worked so hard to break, and plunge the country into chaos that would threaten the group’s growth. The Party of God thus wants Lebanon to achieve the bare minimum of stability, walking a careful balance between state paralysis and state prosperity.
Lebanon’s Economic Vulnerability
Hezbollah‘s fears aren’t entirely unfounded. Lebanon’s debt-to-GDP ratio has surpassed 150 percent, and is one of the world’s highest. The value of its national currency – the lira – has plunged from 1500 Lebanese lira to 2600 Lebanese lira against the US dollar. Banks are rationing dollars, setting increasingly stringent capital controls on withdrawals of the US currency. Lebanon’s international credit rating is on a downward trajectory, with its recent – and unprecedented – default on its $1.2 billion Eurobond payment moving the country’s credit ratings closer to junk bond status.
Judging from past experiences, like Greece and Egypt, in such conditions the IMF is likely to impose painful measures that would impact Lebanon’s populace – particularly the lower socio-economic classes – to steer the economy toward recovery. A likely scenario would include a mandatory budgetary deficit reduction, resulting in an increase in taxes, including hiking the value-added tax, cuts to public sector salaries, as well as pensions and welfare funds.
This would heighten Lebanon’s already-deteriorating employment rates and poverty levels, compounding its critical economic situation.
During the last week of November 2019, ten percent of companies had temporarily or permanently ceased operations, a third had reduced employee salaries by 40 percent, and more than 160,000 have lost their jobs, putting unemployment at 35 percent. According to Prime Minister Diab, 40 percent of Lebanese citizens would soon find themselves below the poverty line. Basic costs of living, like essential foodstuffs, have risen sharply due to the lira’s worsening exchange rate – a problem which would only be exacerbated if the IMF decides to float the Lebanese currency.
Under normal circumstances, the Lebanese might be willing to endure further hardship on the path to economic recovery. But the country is already beset by a public crisis of confidence in government, and Diab lacks the legitimacy to impose the necessary austerity conditions on the population.
There’s also no guarantee that these measures would even work. Lebanon has few avenues for recovery. Lacking a production sector, Lebanon has long been dependent on tourism and banking for revenue. But tourism – largely from Gulf states and Lebanese expatriates – has dried up, owing to a lack of real tourism infrastructure, chronic political instability, tensions with the Gulf, and the coronavirus pandemic. Lebanon’s banking sector has also lost its appeal, in light of US sanctions on Lebanese financial institutions cooperating with Hezbollah.
Hezbollah is acutely aware of these factors, including Diab’s unpopularity, having foisted him – along with its allies Amal and the Free Patriotic Movement – as prime minister upon an unwilling Lebanese public in January. Such a government imposing restrictive measures, particularly impacting society’s poorer rungs, could replicate the conditions that caused Lebanon’s October 17 protests and reignite the waning uprising on a massive scale. This would bring about renewed paralysis, which could plausibly devolve into chaos and violence.
Hezbollah, meanwhile, is desperate for stability, and the last thing it needs is chaos or paralysis at home. The group is currently facing a very delicate situation, due to several regional and international factors. US sanctions on Hezbollah and its patron Iran have limited some of the group’s funding, and the strike that killed former Quds Force Commander Qassem Soleimani earlier this year put Tehran further on the defensive. Additional countries – including Latin American nations and the United Kingdom – are following the American lead on Hezbollah and restricting its activities. The group remains deeply entrenched in Syria – a situation that won’t change anytime soon, as evidenced by recent Turkish strikes in Idlib – and is spread thin across the region, particularly in Yemen and Iraq.
In fact, this fear that the paralysis brought on by the October 17 uprising would catalyze economic collapse and sow chaos is what motivated Hezbollah’s vociferous opposition to the protest movement. That’s why, despite claiming to be the party of the downtrodden, its Secretary General Hassan Nasrallah refused to support the protests and banned his followers from joining them. “If our supporters go into the streets, they won’t leave, and this will last for months and years,” he said.
That’s also why, when the protests wouldn’t fade away, Hezbollah refused to join the uprising because it wanted the protests to quickly fade away. When the protesters stubbornly wouldn’t, the group began treating them as a threat to their own position in the Lebanese political system. Hezbollah alternated between propaganda, harassment, and even violence – even though, as a whole, they didn’t target the group, posed little risk of siphoning away its support base, or call for its disarmament.
When that failed, the group simply opted for pushing through the formation of a government, dropping several critical demands – including the return of Saad Hariri to the premiership, and its refusal of a purely technocratic government. After this hard-won struggle to install a government, the group is simply unwilling to run the risk of taking any action that could derail the cabinet’s activities or lead to its forced resignation.
Hezbollah doesn’t wish to see a prosperous Lebanon emerge. Such an outcome could create credible competitors to its state-within-a-state and the patronage system through which it attracts many Lebanese Shia. At the same time, it wants to avoid total paralysis, realizing this could precipitate the country’s economic collapse and widespread instability, which would stymie or reverse the group’s growth. Thus, the Party of God continues to walk a political tightrope to preserve stability at all costs.
David Daoud is a research analyst on Lebanon and Hezbollah at United Against Nuclear Iran (UANI). Follow him at @Davidadaoud