Lebanon comes full circle as Hariri returns

Lebanon comes full circle as Hariri returns

Exactly 51 weeks after anti-government protests forced his resignation as Primate Minister, Saad Hariri has returned. Hariri received 65 out of 118 votes in parliament, giving him the mandate to form his fourth government.

Hariri has vowed to form a technocratic cabinet capable of launching reforms and unlocking bilateral and IMF support, saying, “I am determined to deliver on my promise to end the collapse in our economy, society and security, to rebuild what the blast at the port destroyed and to form a government quickly. Time is running out and this is our beloved country’s last chance.”

However, Hariri’s return is sure to dismay protesters who gathered in the streets by the thousands last October to dismantle Lebanon’s broken political system. Hariri, who is the son of former PM Rafic Hariri and served as PM himself from 2009-11 and 2016-20, is seen by many as the very embodiment of a political establishment characterised by widespread corruption, inefficiency and patronage politics that has placed the interests of the political and financial elites ahead of those of the population.

Despite his lofty promises, he comes to power already hamstrung by the sectarian divisions that have continued to prevent meaningful reforms. Hariri’s 65 votes are less than the 69 and 90 garnered by his successors, Hassan Diab and Mustapha Adib, who were forced to resign after the Beirut port explosion and failing to form a government, respectively.

The 53 abstentions to Hariri’s candidacy came from the Lebanese Forces and the Free Patriotic Movement (FPM), Christian parties that are closely allied to President Aoun and Hezbollah and are former coalition partners of Hariri. Meanwhile, Hezbollah refrained from directly supporting Hariri out of respect for its alliance with the FPM, but has tacitly endorsed his return.

However, Hezbollah’s implicit support comes at a cost, with Hariri reportedly promising control of the finance ministry to Hezbollah and its Shiite ally, the Amal Movement, in line with the traditional sectarian allocation of posts. Hariri is also reportedly under pressure to appoint an energy minister backed by the FPM. Hariri’s appointment thus cements Lebanon’s broken confessional system and proves that Lebanon’s elites are still more concerned with maintaining the status quo than tackling the crisis (see here for a sobering take on the issue from Foreign Policy).

That said, Hariri could legitimately be Lebanon’s best chance at unlocking international and IMF funding for its reform programme, which has remained out of reach without a government in place. Hariri has the tacit support of both the US and France, and has emphasised the need to quickly implement the moribund French reform roadmap and agree on an IMF programme.

Where purportedly technocratic outsiders like Diab and Adib failed to manoeuvre around political roadblocks, Hariri’s political experience could catalyse the initial reforms needed to push Lebanon’s reform process past the starting line and unlock much-needed funding. However, over the longer-term reforms under a Hariri-led government are likely to be minimal, falling short of the total political and economic reboot needed to turn Lebanon into a functioning state and economy.

Urgent action is required, with inflation continuing to spiral out of control (official estimates put it at 120% yoy in August, but estimates from Johns Hopkins Professor Steve Hanke put it north of 400% as of 7 October ) amid FX shortages that have pushed the LBP to 7,200/US$ on the parallel market (vs the official rate of 1,500/US$). Meanwhile, a spike in Covid cases, from c5,000 at the beginning of August to over 65,000 today, threatens to overwhelm the public health system and the poverty rate has doubled to an estimated 55%.

The central bank (BdL) has limited the impact on residents by subsidising imports of fuel, wheat, medicine and essential food items at a rate of 3,900/US$, spending over US$4bn this year. However, with reserves dipping to cUS$19bn, of which US$17.5bn are mandatory bank reserves, Governor Salameh has warned that the BdL only has enough money to continue subsidies for another 3 months. While the reaction to Hariri’s return has so far been muted, indicating a loss of momentum for protestors ravaged by the crisis, this could trigger further social upheaval.

On one hand, the short-term prognosis for Lebanon has improved, with reform and restructuring talks previously on pause without a government to implement reforms and to negotiate with creditors and the IMF. However, this has come at the cost of further cementing the broken political system that led to the current crisis in the first place, dealing another blow to Lebanon’s long-term prospects for reform and renewal.

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