Lebanon's IMF gamble may prove too costly

With over $85 billion in debt and with no friends or allies left to come to its aid, Lebanon’s chances of escaping its current economic and political meltdown look slim to none. At one time, Lebanon was fortunate to secure the political, but more crucially, the financial support of the international community and its Gulf Arab neighbors who intrinsically believed that this small republic was politically worth investing in.

Left with few options, the ruling elite were forced to appeal to the International Monetary Fund (IMF) and the World Bank to inject the much-needed capital to slow down and ultimately recover its ailing economy. Consequently, the Lebanese state has engaged with the IMF in a series of meetings to negotiate, but over the course of more than 16 meetings, Lebanon has further proved itself to not be worth saving.

The government of Prime Minister Hassan Diab, and the political elite that control it, have proven immune to all local and international calls for reform and to honor their many pledges to carry out key structural reforms – changes that would help them secure the desired funds.

To add insult to injury, rather than present a solid rescue plan and accurate numbers that reflect the reality of its crisis, the Lebanese state presented two sets of numbers, one from the Diab government and another from the governor of the central bank that varied greatly and comprised the integrity of the negotiations with the IMF. Furthermore, the resignation of two members of the Lebanese delegation, the director general of the Finance Ministry and another financial adviser, is a sober reminder why the IMF option is laced with many challenges and conditions, both political and economic, that might make a bad situation even worse.

Perhaps the most dangerous and challenging obstacles for the success of this IMF bailout remains Iran’s proxy in the Mediterranean, Hezbollah, whose ironclad grip over Lebanon makes the simplest matters overly complicated.

Lebanon’s current predicament can be partially credited to Hezbollah’s hijacking of the Lebanese state and its spearheading of Iran’s expansionist project in the region. But the crux of the problem lies in Lebanon’s archaic political class that uses Hezbollah’s weapons as a pretext to prevent and delay reforms that if implemented would strip the group of power.

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The IMF thus poses a serious challenge to the existing status quo and more importantly Hezbollah and their cooperating hostages who simply cannot afford to allow any outside entity to dissect and forensically audit their Ponzi scheme.

Hezbollah primarily cares about keeping its military infrastructure in running order, something which has been extremely difficult with the increasing US sanctions on Iran and with the Israeli air force striking deep into their positions. Coincidently, Hezbollah’s network relies heavily on their illegal border crossings with Syria and the Beirut port which they are accused of using to run contraband and merchandize and to supply their shadow economy.

One of the first items the IMF plans to tackle is the lost revenues from smuggling that account to around $600 million annually, much of which goes straight into Hezbollah’s coffers. The smuggled petroleum and other smuggled products into Syria puts more pressure on the Lebanese government’s ability to peg the dollar.

While the IMF might be a professional entity, it is still part of the international world order that brands Hezbollah and all of Iran’s proxies as a terrorist organization and thus will make sure the money that the bail in will inject will not reach Hezbollah or its allies, which doesn’t sit well with Hezbollah.

More importantly the IMF claims to aim to “foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.” These goals cannot be achieved with a non-state armed militia represented in government and subsequently are one of the leading factors impeding the rise of a sovereign state.

Be that as it may, if the herculean task of containing Hezbollah is achieved, the IMF and the Lebanese at large still have to face the Lebanese political class and the many interest groups that orbit them who might prove to be a more dangerous and stubborn opponent of reform.

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While some elements of the Lebanese political elite might come across as anti-Hezbollah, in reality they use this rhetoric to justify their shady dealings and at times benefit from Hezbollah’s weapons, using them to silence dissenting voices. This was visible in the nationwide revolution that broke out on October 17.

Moreover, the banking consortium operated by the oligarchs will never allow the IMF to review and audit the financial records of the state, which would land the absolute majority of the political class in jail.

The IMF bailout might be a life raft that Hezbollah and the political class, as well as Lebanese, need to grab onto to escape drowning, with the hope being that the future will bring a war or pandemic, or perhaps both, giving them the pretext to weasel out of their obligations.

Yet just like compulsive gamblers, the Lebanese oligarchs and Hezbollah will find it hard to convince themselves – and most importantly the IMF – that Lebanon in its current state is worth their time, let alone rescuing.