Hizbollah will have final say on an IMF-government deal in Lebanon

Lebanon is on the brink of economic collapse and is now being forced to ask the International Monetary Fund (IMF) for help as the only resort. Last week, the government of Hassan Diab approved an economic reform plan; one that created more divisions. The plan was adopted two days after the long-serving governor of Lebanon’s Central Bank, Riad Salameh, defended his policies over the years and accused successive governments of squandering tens of billions while avoiding any checks and balances. His defense was in response to Diab’s accusations that Salameh had mishandled the latest financial crisis where the Lebanese lira lost almost 50 per cent of its value against the dollar since last December.

The public squabbling came against a backdrop of renewed protests by angry Lebanese, especially in the northern city of Tripoli, who saw their living standard drop as prices of essential goods skyrocketed. This time protesters clashed with the army and torched banks resulting in one civilian death and injuries on both sides.

Diab, who took over after an impasse that followed Sa’ad Hariri’s resignation last December, is a Sunni technocrat who is backed by Hizbollah and the Free Patriotic Movement, which is represented by President Michel Aoun and his son-in-law Gebran Bassil. He came to power following mass public protests that gripped the entire country calling for the toppling of Lebanon’s political elite, which they accused of mass corruption and of bankrupting the country. The once-solid Lebanese banks were overrun by mass cash withdrawals and found themselves unable to pay their clients especially in dollars. Last March, the country defaulted on $31 billion in Eurobonds and now finds itself on the verge of financial disarray. Under the plan the government hopes that foreign donors will release $11 billion pledged at a Paris conference in 2018, conditional to economic reforms.

But Lebanon’s real crisis is not economic. It is a victim of a sectarian system that had, over the past three decades, enriched former warlords, who are now in control of the country’s major industries and services. It is a dysfunctional system that benefitted the few and resisted all attempts at reform.

Over the years, Hizbollah used the political stalemate to build a state within a state with the direct financial and military assistance of Iran. Regardless of its declared agenda, under the mantra of “resistance” and confronting Israel, Hizbollah had become an extension of Iran’s regional presence and a critical proxy of the Islamic Republic.

A combination of factors had in recent months degraded Iran’s financial support of Hizbollah. Today, the militia finds itself in dire straits; unable to meet its obligations towards thousands of fighters under its umbrella and by extension hundreds of thousands of Shia loyalists who rely on the party for subsistence.

Heading to the IMF is anathema for Hizbollah and its Iranian backers. But Diab’s government has no choice. The risk is high not only because the IMF will impose difficult and unpopular economic measures on the Lebanese government, but it could also be used by Hizbollah’s nemesis, the United States, to besiege and isolate the party.

Enforcing serious economic reforms requires consensus by major players and a political will. Both are lacking in Lebanon today. Diab’s economic plan, which includes overhauling the deep-rooted banking sector, was rejected by the powerful Banking Association for failing to consult them when they are a key part of the solution. According to Reuters, the plan rests on covering financial sector losses of roughly $70 billion. It would wipe out the sector’s capital and cash from large depositors that would be restored later.

The IMF is unlikely to step in unless the government, the Central Bank and the financial sector are on the same page. Without a key role for the Central Bank people’s confidence in economic reforms will not be restored.

But time is running out fast for Diab. The economy has stalled further as a result of the coronavirus crisis, the IMF expects the national GDP to shrink by 12 percent in 2020, and people are becoming restless as they see their life-savings evaporate while the value of the national currency continues to slide.

Hizbollah will have a key say on a possible IMF-government deal. Reforms that will end subsidies, downsize the public sector, bring about financial transparency as well regulate how the banks finance the government will erode the party’s sway over public life in Lebanon. Protesters are likely to return to the streets as soon as the country relaxes the coronavirus lockdown.

The question now is how far will Hizbollah go in allowing a deal with the IMF? It may accept some harsh economic reforms and austerity measures, but will certainly resist genuine political changes to a system that had benefited it for years. The irony is that while more than 70 per cent of Lebanese are now in need of direct government help, Hizbollah and the political elite, despite their open hostility for each other, share a common agenda that seeks to protect their own narrow interests.

Osama Al Sharif is a journalist and political commentator based in Amman