Beirut, the capital of Lebanon, was once dubbed the "Paris of the Middle East" and "Middle Eastern Switzerland". From a financial standpoint, Lebanon was flourishing in the 1950s and 1960s, since the capital Beirut drew so much tourism that flattering nicknames were established. However as of late, Lebanon has suffered from one of the most severe financial crashes since the 1800s. Over half of the population lives in poverty, and obtaining food, fuel, and medication is expensive. The question rises, how a country that was once associated with wealth and a rich culture, has down spiraled over the past decades. Let's look at Lebanon's history.
After the civil war in Lebanon ultimately came to an end in 1990, the Lebanese government looked for means to regain the lost capital. The government thus, utilized tourism, and received sizable donations from foreign- and Arab gulf states, to rebuild the nation. Additionally, remittances from the many millions of Lebanese living abroad who send money home, were another significant source of revenue. However, over the last decade, political unrest in the Middle East and the Arab world has substantially lowered the tourism and donations. Furthermore, the money that did reach the ruling elite was consistently mismanaged. Consequentially the country's finances, were driven further and further into debt.
Sunni and Shia represent different sects in Islam, comparable to Catholics, Orthodox and Maronites in Christianity and are thus opposing one another. Consequentially, as Iran's influence over Lebanon through the Lebanese Shia Islamist political party "Hezbollah", continued to grow in the 2000s, the Sunni gulf states simultaneously began to reduce their funding. By 2018, a crucial amount of foreign assistance and investment had been withdrawn due to the government's failure to implement political and economic reforms. This was the last straw, as large-scale protests broke out in 2019, driven by a generation of young adults who were fed up with the political establishment that had repeatedly disappointed them. As if this weren't enough, following the pandemic, the tragic 2020 explosion at the Beirut port occurred, which was the icing on the cake for a nation already headed for financial ruin. The World Bank has rated Lebanon's economic collapse as one of the worst to occur globally since the 1800s and devalued its economy to lower-middle income.
The Word Banks pessimistic perspective is justified, as monetary value of the Lebanese Lira has decreased by more than 90% since 2019. But what does this imply for the Lebanese citizens? Even though the minimum wage in Lebanon has remained unchanged, food prices have risen by 400% due to hyperinflation caused by the collapse of the Lebanese pound, ranking 3rd globally after Venezuela and Sudan. Lebanese citizens are hungry. To make matters worse government-subsidized medications are running out, which means Lebanese citizens are sick. Additionally, there is a severe lack of electricity, and even citizens who use private electricity generators are unable to utilize them, due to a lack of fuel. This has led to countless individuals surviving on mere hours of power each day. Lebanese citizens can't maintain their household.
However, when Lebanese citizens want to work, to purchase overpriced food or the medication and fuel that is left, they are unable to do so, due to hundreds of thousands of bankrupt companies and lost jobs. Mostly small and medium enterprises run by independent business owners are lost, illustrating how severely the middle class has been impacted by the circumstances. According to a report by the World Bank, a catastrophic economic collapse like this one, typically results from a war and has led to the disintegration of key pillars of Lebanon’s post-civil war political economy: Firstly, persistent and debilitating internal political discord and secondly, a mass brain drain.
The effect of the economic and financial crisis in Lebanon isn't limited to Lebanese citizens. With over 1 million Syrian refugees and more than 270 000 Palestinian refugees, Lebanon has the highest proportion of refugees per resident on the entire globe. It's ironic to think that a country, whose incentives are leading in refugee aid, has become subject to an economic- and financial crisis of such catastrophic magnitude. Nevertheless, many countries have expressed their interest in aiding Lebanon. Specifically the role of the US, Iran and France will be explained in the following paragraphs.
The United States has reacted on the economic- and financial crisis in Lebanon by both providing financial aid and imposing sanctions, to steer the Lebanese government into the right directions.In addition to the 560 million dollars in humanitarian aid that the US gave Lebanon over 2019 and 2020, US President Joe Biden made a promise of 100 million dollars in aid for Lebanon in 2021. However as with all foreign aid, this donation came with a warning for Lebanon's political elite. Biden claimed that "no amount of outside assistance will ever be enough if Lebanon's own leaders do not commit to do the hard but necessary work of reforming the economy and combating corruption". Biden thus made a political reform and decrease in corruption, the condition, for Lebanon to receive financial aid.
To further support an inherent political reform, the United States has imposed economic sanctions on certain individuals and entities in Lebanon, including Hezbollah. The Lebanese Shia Islamist political party has been charged with participating in illegal activities like drug trafficking and money laundering and using profits to fund its operations, which include attacking Israel and supporting the Syrian government. As a consequence, Hezbollah has received a terrorist organization classification from the US government, and both the organization and its supporters are subject to sanctions. These sanctions represent the critical and adverse stance the US takes towards the Lebanese government and its beliefs, in hopes that its harm will incentivize the Lebanese government to implement political reforms, free from the tolerance of illegal activities and the high degree of corruption.
Considering that some of the entities and people targeted by these sanctions are also key players in the Lebanese financial system, they have had a substantial negative impact on the economy of the country. In particular, because of their alleged connections to Hezbollah, the U.S. Treasury Department has blacklisted a number of Lebanese banks, including Jammal Trust Bank and Lebanese Canadian Bank. Due to the US dollar being one of the primary currencies in Lebanon, this has made it challenging for these banks to transact with US banks or access US dollars. The sanctions additionally impacted Lebanon's economy in a broader sense, as they have contributed to a decline in investor confidence and a tightening of credit conditions. The Lebanese government is now finding it more challenging to secure the foreign financing it requires to balance its budget and pay off its debt. On top of that, because some importers have found it difficult to access the foreign Lebanese currency required to make purchases, the sanctions have contributed to a shortage of basic commodities such as fuel and medicine. The sanctions are once again only striking and thus harming the middle class and are having the opposite effect from intended.
Opposing to the US, Iran is considered to be primarily liable for Lebanon's economic crisis by its support of Hezbollah. Due to Iran's substantial financial and military support to Hezbollah over the past decades, the party has been able to establish its own infrastructure and social services in Lebanon. Hezbollah is being considered the fuel of the Lebanese turmoil, as the militant party has been accused of undermining Lebanese sovereignty and has played a dominant role in the country's government. Therefore, Iran has further added to the instability in Lebanon, by directly supporting the militant party. As a result of Hezbollah's political dominance, politicians who mean well are having difficulties in implementing the crucial economic changes and luring foreign investments, which illustrates how Iran's involvement has backfired on the incentive to implement a political reform.
In addition to its support for Hezbollah, Iran has been charged with participating in illegal activities in Lebanon, including the smuggling of goods into the country and using Lebanese banks to launder money. These actions haven't been particularity helpful to the Lebanese government either and instead have undermined the stability of the Lebanese economy and contributed to the corruption. In general Iran's role in the Lebanese economic crisis is complex and multifaceted, yet Iran's influence is mainly characterized by its political influence through the support for Hezbollah. Whether Iran has a positive or negative impact on the Lebanese economy is heavily debated, yet from a western perspective, most agree that Iran has contributed to the economic- and financial dismantlement in Lebanon.
France and Lebanon have multiple ties, which have been characterized by their history. After the partition of the Ottoman Empire after WW1, the League of Nations mandated that Lebanon would be administered by France. Lebanon thus officially became part of the French Colonial Empire, which was a part of the French Mandate for Syria and Lebanon and administered from Damascus.
It is because of this historical connection that there are multiple ties, between Lebanon and the French government, regarding the economic crisis today. Like the US, one of the crucial ways that illustrate France's involvement, is its role as a significant financial donor to Lebanon. In 2020, France's support led an international aid conference that raised over $300 million in emergency aid for Lebanon. The idea of the French is to provide financial support, which will embed the diplomatic effort that help resolve the crisis. Financial aid is thus the primary mean, by which France has contributed to helping Lebanon to recover from the crisis, with the intention of fueling economic reforms.
The attempt to implement economic reforms can be observed when following the devastating explosion in Beirut in September 2020. French President Emmanuel Macron visited Lebanon and pledged to work with the Lebanese government, to carry out reforms that would help stabilize the nation's economy. The implementation of reforms to combat corruption and enhance the quality of governance in Lebanon are the main challenges that France has been advocating.
However, as the Lebanese economic situation is worsening France is urging more radical demands, including the establishment of an entirely new government in Lebanon. This new government should be characterized by its capability to implement the required reforms and should overall be more representative of its respective Lebanese citizens.
France's participation in the Lebanese economic crisis has been similar to the US, by generally being concentrated on providing financial assistance and diplomatic support. The aim hereby is to help stabilize the nation's economy and advocate for the implementation of necessary reforms. Iran on the other hand has been expressing its continual support for Hezbollah, whilst knowing that no reforms will occur, while Hezbollah is at power. It may seem like Lebanon has reached the deep end; however, the frightening part is that this is not the worst scenario. A further deterioration of the economy, depreciation of the lira, and a serious social mayhem are on the horizon. Preventing a worse collapse and embarking on the thorny road to restore the Lebanese state requires more than reforms, however at this point there is no perspective indicating that this will be possible in the close future.
This article was written for the MD x EuroMUN Printed Edition.