The resignation last week of Henri Chaoul from his advisory position at the Lebanese Finance Ministry helped to bolster the sense of gloom that many Lebanese are feeling about their government’s negotiations with the International Monetary Fund. Chaoul’s stated reason for resigning was that he had concluded there is “no genuine will to implement either reforms or a restructuring of the banking sector.”
Chaoul may be correct, but chances are that the picture is more complicated. The intention of the political class to pursue reform was never sincere, and will never be. But what is at play here is not intentions; it is existence. Lebanon’s politicians and parties are perfectly aware of what no agreement with the IMF would mean. If we had any doubts, Gebran Bassil dispelled them last week when he declared in a press conference, “If we lose the IMF option, we will lose all possibility of Western financing and any possibility of investment and projects such as electricity and infrastructure and any possibility of reviving the banking sector and the economy.” The consequences of such a failure would lead to a scenario “like the Venezuelan example.”
Without an IMF deal, Lebanon will face hyperinflation, widespread poverty, state breakdown, and fragmentation. As the pound loses its value, the institutions of the state will fail, particularly the military and security forces. This need not imply civil war, but political parties will take over the security of their sects, leading to a reemergence of sectarian enclaves reminiscent of the war years. While this might seem as if it would reinforce the sectarian parties, caring for entire communities would have major downsides in a time of grave economic crisis. It would represent a monumental burden that would ultimately overwhelm the parties, with no prospect of a solution. The situation could bring the entire edifice that the politicians and parties have sought to preserve crashing down.
Nor is such an outcome apparently what Hezbollah wants. The party has not taken over the commanding heights of the Lebanese state, an advantage it has gifted to Iran, to give all that up just so the political class can continue stealing. And anyway, without an IMF deal, as Bassil unintentionally implied, there is little prospect that most of the corruption channels the politicians have spent years putting in place would survive. A crumbling state has already made it infinitely more difficult for Hezbollah to contemplate a military confrontation with Israel, if Iran were to require it. A state in advanced disintegration would invite Israel to attack the party with devastating intensity.
In other words, sincere or not, the politicians and parties need an IMF deal in the same way that a body needs blood. Then how do we explain the lack of momentum in negotiations between the government and the IMF? Quite simply by the fact that no one in Lebanon ever gives something up without trying to secure something in exchange. It’s obvious that for Lebanon to progress in negotiations with the IMF, the members of the political class will have to surrender a significant share of their networks of patronage and theft. They don’t want to do that without gaining politically in the process.
For example, Bassil holds a ministry whose reform is a priority for the IMF. He also aspires to be president, his serial denials notwithstanding. Does it make sense for him to offer concessions on the electricity front and not try to secure guarantees of a sort on the presidency? The same goes for all the other politicians, and for Hezbollah. We are in an initial phase today not of negotiations between Lebanon and the IMF, but between the Lebanese politicians and parties themselves as preparation for a deal with the IMF.
How can this knot of clashing ambitions be untied, and does the IMF have the patience to wait until the Lebanese get their house in order? The answers are unknown. The politicians may be so dismal that they will bicker until Lebanon is in the grave. But their understanding of the terrible outcome of this may actually contain their worst instincts.
The IMF, in turn, has the option of imposing a deadline on the Lebanese to reach an internal consensus, otherwise it will turn elsewhere. At that point its leverage would rise immensely, since the Lebanese would have no alternative but to come back to the organization in a state of greater need and tractability. Moreover, the relatively limited amounts of aid the IMF are likely provide to Lebanon give it the latitude to play the long game. Lebanon is not an IMF priority, which means the organization can put the country on hold, coercing the distressed Lebanese into coming around.
Then there is the question of whether the United States would veto an IMF package. While this cannot be ruled out, particularly when the attitude in Washington is hardening toward Lebanon, it will not be easy to block a limited bailout and condemn millions of people to unrelenting poverty. The European allies will probably advise against such a path, while there will even be voices in the United States warning of the risks that would come from creating another failed state in the Middle East. If Lebanon and the IMF were to reach an accord, meaning the Lebanese had taken steps that persuaded the IMF, it would make a U.S. veto far more complicated.
So what is the way out of the current impasse? It’s unfortunate but only the political class, whatever its depravity and incompetence, can answer that question. The Diab government has served its purpose in neutralizing the momentum of protests that began in October 2019. It was an invention of the politicians that was never destined to last long. Diab has proven himself to be out of his depth, thinking that because he was backed by most political forces, he could operate independently. The reality is that he has been hindered by a political class that wants to see him fail. His recent comments on his government’s stellar achievements, as well as how he had weathered a “coup,” were ridiculous in their self-puffery and discredited him.
It’s sad to have to admit it, but probably the only way out of this situation is that the parties and politicians reach a package deal that defines the conditions of their endorsement of an IMF bailout. It won’t be easy, but everyone sees there is no other possibility. Even Hezbollah Secretary General Hassan Nasrallah’s advice to “look east” and embrace Iran, Syria, and China cannot be taken seriously, unless his true aim was to present an alternative so unpalatable that it would push the politicians to compromise on their maximalist demands and conclude with the IMF. Of those countries, Iran and Syria are in dire economic straits, while China has expressed no interest whatsoever in reviving the Lebanese economy. Nor is Nasrallah’s vision shared by a majority of Lebanese. Bassil made that very clear in his remarks last week, and the country’s Sunnis are profoundly hostile to giving up on the Arab world in favor of Iran.
President Michel Aoun’ has called for a national dialogue at the presidential palace in Ba‘bda, which can, potentially, provide a forum for exchange among the country’s political forces. The contours of such a forum are still being discussed, however something like it could be necessary to move things forward. There will be many obstacles to an IMF deal in the months ahead, but Lebanon simply has no other choice but to agree to one. Therefore, as tempting as it may be to assume failure today, reality points in a different direction.