Abu Dhabi, UAEFriday 22 November 2019

Reform or resign: the path ahead for Lebanon

Prime minister's proposed economic reforms unlikely to dampen mood on streets

Lebanon’s Cabinet has backed Prime Minister Saad Hariri’s economic reform package to try to ease anger on the streets as protests continued for a fifth day, but the proposal is unlikely to convince people to go home.

When he first responded to the protesters on Thursday night, Mr Hariri set a 72-hour deadline to pass proposed reforms that he said would address many of their demands.

With hours to go before the Monday evening deadline, Cabinet passed the blueprint, the main points of which seem ambitious.

By next year, it promised, the country would have 24-hour electricity, something not achieved under any government in the nearly three decades since the end of the country's 15-year civil war.

Non-essential ministries and government bodies would be axed and bank profits taxed.

A new transparency authority would be set up “soon” to investigate corruption. There was a minister for battling corruption in the last government but he failed to make any major discoveries in two years.

Mr Hariri is looking at how to privatise the telecoms sectors to increase competition, improve quality and reduce prices for consumers.

Reports compiled by management consultancy McKinsey say Lebanon has some of the highest mobile calling and data plans in the region.

Current and former ministers and MPs will also have their salaries halved.

But Mr Hariri's proposal has left protesters asking why, if a comprehensive fix for Lebanon’s woes can be agreed to in less than 72 hours, has it taken the government so long to take action?

Wassim Mroue, former national editor of Lebanon’s Daily Star newspaper, said people no longer believe the government's promises.

The proposed reforms were therefore unlikely to ease frustration, with protesters still out in force on Monday night after decades of mismanagement and infighting from the government.

Lebanon’s debt-to-GDP ratio, at about 150 per cent, is the third highest in the world, and its currency, which is pegged to the US dollar, is dangerously close to a devaluation.

The markets also seemed to be unconvinced by Mr Hariri’s proposals.

“The protests in Lebanon underline that pushing through with austerity, which is needed to stabilise the public finances, is politically impossible,” said Jason Tuvey of Capital Economics, an independent financial analysis consultancy.

“Some form of debt restructuring appears inevitable and the chances of a messy devaluation and default are rising."

Lebanese government bonds tumbled as markets opened on Monday, in response to a weekend of protests.

Mr Tuvey also said proposals to fix Electricite du Liban, the state power company, would not sufficiently improve public finances.

Electricity prices did not cover the cost of provision, leading to about $1 billion in annual shortfall that the government has to make up.

Politicians have avoided increasing prices but many people are forced to have generators because of lack of supply.

For years, the Lebanese government has supported its public finances by relying on local banks, which are often owned by politicians and rely on the diaspora and remittances.

When there is a more acute need, Lebanon has often turned to the West or to the Gulf for assistance.

But the government’s inability to pass the reforms needed to tap into $11bn of western aid promised at a donor conference in 2018 shows the political paralysis Mr Hariri, who vowed to fix the economy, is facing from his own Cabinet.

Are four days of protests enough to focus the minds of intransient ministers in a political system that requires near-complete consensus to get things done?

That relies on the level of concern with which ministers and parties see the current eruption of anger.

So far, ministers and MPs have pointed the finger at colleagues or tried to burnish their own image by reminding people of previous anti-corruption stances.

Even the resignation of the four ministers from the Lebanese Forces party has been read as political positioning by leader Samir Geagea.

But the protesters have made one thing clear. They blame the entire political class for the current state of affairs and insist they all must go.

Mr Hariri said that if the protesters want an early election, he would back the call. It would then be up to the protesters to select new candidates.

But even then they would face an electoral law written by the parties they seek to depose and a government selection process that requires consensus.

In the meantime, the path ahead is likely to be economically painful, mostly for those who have already been driven to the streets in exasperation.

Updated: October 22, 2019 01:50 AM

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