Abu Dhabi, UAEFriday 3 April 2020

Lebanon’s new premier looks towards the Gulf

Regional players have been mostly wary of rescuing financially failing state whose political scene is dominated by Hezbollah

Lebanon's new Prime Minister Hassan Diab arrives at the presidential palace in Baabda for the inaugural meeting of the newly formed government on January 22, 2020. AFP
Lebanon's new Prime Minister Hassan Diab arrives at the presidential palace in Baabda for the inaugural meeting of the newly formed government on January 22, 2020. AFP

Lebanon's new Hezbollah-backed Prime Minister Hassan Diab said after the Cabinet was named on Tuesday that it would lead a “rescue operation” of the economy and that his first trip abroad would be to the Arabian Gulf.

Lebanon has been in financial crisis since October, hitting incomes, employment, the banking system and the currency, which has since lost 45 per cent of its value.

A non-violent protest movement demanding the removal of the political class began in the same month, leading to the resignation of Saad Hariri as prime minister.

Khaled Kassar, a Lebanese analyst, said the new premier underestimated the regional implications of Hezbollah’s influence on the new Cabinet, and the group’s association with Iran.

“Diab seems to be stuck in KG1 levels of finance and international politics," Mr Kassar said. "This government has Hezbollah’s hallmarks all over it, and very few Arab states are pleased with this."

An alliance Mr Hariri struck with Hezbollah’s allies in Lebanon had undermined his connections with the Gulf, forged by his father, the late Rafik Al Hariri.

His failure to secure finance last year brought Lebanon’s financial pressures to the surface. But after his departure, security forces used more violence against the demonstrators.

Mr Kassar said at this stage Lebanon “needs tens of billions of dollars and a consortium of nations to save it”.

He drew comparison with rescues over the past 20 years, mostly in the form of emergency funds sent to Banque du Liban, Lebanon’s central bank.

The purpose of the transfers had been to defend the Lebanese pound and prevent financial meltdown, which many financiers regard as having started in October.

They say Lebanon has virtually defaulted on its debt payments, after a run on the currency and deposits led to capital controls, which are denying depositors access to their dollar accounts.

In 2018, mostly western donors pledged $11 billion (Dh40.4bn) for an economic rescue package to Lebanon.

But they did not release the money because fundamental reforms they had asked for were not implemented.

Two European political sources said the financial pressure on Lebanon, and on Iran, affects Hezbollah and that Mr Diab, who says he is independent, may have some room to manoeuvre as a result.

Updated: January 24, 2020 09:42 AM

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