Diab Cabinet Draft Proposal: Haircut should be the least of the Lebanese’s concerns
Lebanon’s economic reform plan that leaked last week was long awaited. The document caused a gale of criticism across Lebanon, as it proposed, among many things, a restructuring of the Lebanese banks’ debt, and a partial confiscation of the depositors money, or what remains of it.
In 34-pages, the cabinet of Prime Minister Hassan Diab proposes to fix decades of corruption and suicidal government policies, which coupled with Hezbollah hegemony over the Lebanese state, have placed the country in political and economic ruin.
To be fair, some of the proposed reforms of the Diab government are a step in the right direction, especially those under the revenue-enhancing measures clause that will broaden the tax base and impose taxes on the more privileged classes. For years, the upper echelons have benefited from Lebanon’s ridiculous taxation system.
Yet this economic salvation plan as set forth by the Diab cabinet does not fail simply because it proposes to confiscate the hard-earned money of the majority of the Lebanese, but rather because this draft plan lacks a clear economic vision that sets forth a future model to replace the current shattered one.
When the fathers of the Lebanese republic put together this model, they underscored the importance of neutrality and that Lebanon should never allow itself to be isolated from the Arab milieu it occupies. While true that this liberal economic service economy has given the Lebanese a lot, it has equally contributed to their current predicament.
Consequently, any suggestion to make the Lebanese depositors pay for the political elites’ boundless corruption over the years needs to at least give these bullied investors an insight into what the future model would be.
The draft plan suggests that restructuring the banks’ debt through forced bail-in from their depositors in failing financial institutions is not uncommon, as it has been implemented in Cyprus and Greece. However, the Greek and the Cypriots never had an armed militia like Hezbollah that answers to Iran, nor did they allow the same political class that led their countries into ruin to lead their desired economic resurgence. The reform plan does not recognize the political and economic implications of Hezbollah’s hegemony over the Lebanese state, nor does it acknowledge that Hezbollah wishes to punish and control the Lebanese banks for implementing the lethal US sanctions against Iran and its subsidiaries.
More importantly, the plan promises to put the largest burden of the haircut on the large stakeholders and less so on the medium and small dispositors.
While this is theoretically sound, everyone involved fully knows that these so-called large depositors have transferred their money outside the country, with the help of their political patrons, even before the start of the current crisis and the October 17 revolution that ensued. Thus, the real victims of these restructuring mechanisms will be the average Lebanese.
In addition to the absence of a clear vision, the draft plan consciously fails to provide any sort of social protection net, especially to the underprivileged class that will soon multiply as thousands of newly unemployed and victims of the proposed “haircut” join its ranks.
Any responsible and credible plan would simply prepare for this impending poverty typhoon that will transform Lebanon into a starving nation. The government’s shortsighted solution is to give this downtrodden class cash handouts that will not be enough to put food on their tables, and will certainly keep them wretchedly poor.
Fully aware that the international community harbors no trust in the Lebanese establishment, and the fact that the latter will never convince third parties to bankroll them further, the ruling class will use poverty to invite the World Bank and the IMF to contribute to easing the pain of suffering Lebanese.
While the plan does not directly infer privatization, as it is written, eventually what remains of the state’s assets, such as telecommunications and electricity, will be sold off under the façade of public interest.
The issue is not only the sale of these assets, but rather to whom these will be sold. Given the current circumstances, assets will most likely go to shady businessmen who will in turn offer kickbacks to the political parties, including Hezbollah. The Iran-backed group desperately needs funds, as current US sanctions against Iran and Hezbollah have dried up revenue streams, and it no longer receives funds from its Shia counterpart at the same rate as it did before.
While distracting Lebanese from the real problem, the real danger of the Diab economic plan lies in the fact that is has sinisterly opened the way for this same ruling class to oppose this plan and potentially come out as the real heroes and the defenders of the underdogs.
Coming out of Lebanon’s current inferno might require a much harsher and more radical economic plan, one that might be equally as unpopular as the current proposal. But the difference is that for a future plan to succeed, it needs to address the aforementioned challenges. More importantly, it must be spearheaded by independent, competent – and above all – honorable policymakers, ones that will end this crisis, and end the system and the politicians who allowed the current crisis to emerge.
Makram Rabah is a lecturer at the American University of Beirut, Department of History. His forthcoming book Conflict on Mount Lebanon: The Druze, the Maronites and Collective Memory (Edinburgh University Press) covers collective identities and the Lebanese Civil War.