Lebanon’s path of corruption and destruction

Wednesday, 3 June 2020

Lebanon’s path of corruption and destruction

June 02, 2020

By Intibah Kadi for the Saker Blog

With COVID-19 capturing almost total world attention, eyes are not focused on the numerous alarming events occurring around the world. In Lebanon, a disaster has been unfolding; a place in the long past described as the “Land of milk and honey” and even when one now wanders the hills, it still rings true to an extent. The fact is that now the ordinary people, including much of the middle classes, are facing impending food insecurity and even starvation. Even those who normally write of events in the region, including those “Syria watchers” who enter Syria via Lebanon, seem not to have covered this emerging crisis, notwithstanding the fact that the COVID-19 related restrictions would have played a part in that. For Syria, the flow on effect from this looming crisis is very serious.

Ghassan Kadi, alarmed at the developments in Lebanon in the latter half of 2019, just prior to the financial sector collapse which rapidly plunged the country into an impossible and perilous position, wrote a series of articles on how Lebanon had arrived at such a point.

The last straw was the collapse of the financial services sector. It was the only institution that remained well intact after the long years of the Civil War, admittedly boosted with much war monies.

In the link above, the history of how Lebanon came to be separated from Syria is explained. There was no excessive wealth lying around in those early decades of the new State. However, with its unique stature as the only Arab state with a Western-oriented affiliation , by the 1950’s and 1960’s Lebanon exploded into a vibrant, wealthy hub that provided many service and professionals required by the newly wealthy oil kingdoms in the Gulf and Saudi Arabia, from doctors, teachers to international banking and transport infrastructure and a place to have fun.

Business and wealth also flowed in from Syria from those not wanting to partake in Syria’s move towards socialism. Lebanon inadvertently became a ritzy, sophisticated, must-go-to tourist destination, and not just for those from the new oil-rich states, but also for European and American tourists. Money began to pour into the financial services sector, with the national bank bearing the name at the time as the “Banque de Syrie et Liban” (i.e., Bank of Syria and Lebanon), there was not much in this name to reflect the independence or success of Lebanon at any level. By the time “Banque de Liban”, came to be in the mid-late 1960’s, Lebanon’s financial prowess had already made its international mark.

Despite 15 years of civil war ravaging Lebanon between 1975 to 1990, where the country’s most valuable achievements vanished before one’s eyes, just one sector remarkably remained least devastated; the financial sector. For over 27 years since the war ended, the Central Bank experienced continuity of leadership from just one Governor, regarded highly and talked-up by the world banking community, and such resilience was interpreted as a bank that is a safe haven for investors. [3] Large sums continued to pour into it from the sizeable proportion of Lebanese working as expats, particularly in the Gulf and especially in Saudi Arabia. These expats, tended to send their savings back to these “safe” banks in Lebanon or to their families to manage, not considering Saudi banks as an option for a number of reasons, including lack of trust and fear of policies being suddenly implemented to confiscate their hard-earned savings or restricting its transfer.

With the financial sector of Lebanon’s demise this year, literally hundreds of thousands of Lebanese expats who have worked for decades abroad, with many of them ready to retire, or having recently retired, knowing their future depends of that nest-egg they built up all their lives, the unthinkable happened; their nest-egg is no more.

Who would have thought this possible that the Lebanese financial sector could possibly go under?

The common practice has been that deposits to the numerous banks in Lebanon are then reinvested in the Central Reserve Bank. The situation now is that the Central Reserve Bank is empty because it has been raided. Actual deposits have been siphoned out resulting in the massive devaluation of the Lebanese Lira (LL). We are talking about 800 billion dollars according to this link and several others.

It is a huge figure for any country, let alone a small one like Lebanon. The Prime Minister has squarely put the blame on the Governor of the Central Bank, but there are fingers pointing at many government officials, from all different parties; this one is accused of stealing ten billion, this other one accused of stealing five billion and on it goes. How does one prove who stole what and how can it be recovered?

On the ground the situation is dire. When the Central Bank could no longer hide the facts, the bank commenced limiting withdrawals. No individual, no business, no government department; no one, could withdraw more than a small unsustainable monthly amount of US dollars. The USD in Lebanon is the commercial currency, if not the actual every day currency. Eventually, no US dollars were allowed to be withdrawn and, even if one were to have a USD account, one only is given LL. The current currency exchange situation of USD to the LL is anywhere between 30 to 40% less than its market rate. There is no limit to taking LL out, but they are worth so little. The population is unable to sustain itself, businesses are no longer viable, no one can pay bills, let alone possess the ability to pay staff and workers, or buy materials for continuing the business or for manufacturing, and trying to send money to Lebanon, of course not through banks, is a trial with the recipient being paid out in LL. Vendors trying to operate in this fast, typically downwards moving spiral, try to protect themselves from the falling LL and inflate their prices. Desperation has set in en-masse, even among formerly highly successful, educated Lebanese. Daily painful situations arise, leaving one at a loss as to how to provide assistance.

Can anyone imagine the domino effect of something like this when vendors resort to such tactics of self-preservation and its impact on the wage earner who is lucky to even receive a partial wage now?

As for long-suffering Syria, money destined for ordinary Syrians since the sanctions, usually came in via Lebanon. Apart from the long years of the war, the people’s suffering has been exacerbated by ongoing, crippling sanctions, the situation of COVID-19 with its restrictions and associated financial fall-out, Lebanon’s financial sector collapse, a dramatic increase in poverty in both countries, an end to employment opportunities in Lebanon and, the final straw of not being able to access funds sent to Lebanon, all leaving Syria in a disastrous and vulnerable situation.

Thanks to the crippling, illegal, immoral and inhumane sanctions placed on Syria by the West, one cannot transfer money to Syrian banks. Services like Western Union in Syria are rendered untenable, due to the massive difference in the formal price and the market price of the US dollar, where two-thirds of the money is lost. In Syria, the official rate is 600 liras for one 1 USD. But the market rate is approx. 1600 liras to 1 USD. Seeing the forced smiles on the faces of beloved ones, trying to hide the demise of their enthusiastic, ever hopeful youthful approach to life, and a sense that they have given up before their lives really began to take off, is painfully etched in the heart and psyche of this writer.

Re-visiting the subject of a lack of focus or perhaps even concern on the part of some“Syria watchers” who rely on Lebanon and kind people there for their transit to and from Syria, it is probable that they don’t appreciate the depth of the intricate relationship between Lebanon and Syria. Despite the fact that Syria was partitioned into these two separate state entities, they kept relying on each other for many reasons. Lebanon always relied on Syria for the supply of many agricultural goods, fresh produce, meat, an array of manufactured goods as well as services and cheap labour. Syria proudly has preserved ancient crafts and skills and their artisans have been employed in Lebanon in the furniture, jewellery making businesses and other industries.

Syria relied on the Lebanese banking system and especially in times of sanctions. If there are indeed “silent” and ”covert” sanctions on Lebanon as Ghassan Kadi suggests below, then it means there are additional sanctions on Syria. With the situation of the banking crisis in Lebanon currently, Syria’s financial lifeline has been cut off.. A route to Cyprus exists for banking, but it is expensive, and besides, particularly if one is running a business and have staff, how would one physically bring that money (USD) back into Lebanon and also Syria? There are clearly different tiers to this alleged “covert” and “unspoken” American sanctions on Lebanon. Their double effect, that being also on Syria, no doubt brings delight to Israel and the US.

There is more to this all than corrupt officials raiding the bank, allowing this one remaining major institution to collapse so monumentally. According to Ghassan Kadi, a number of issues are at play and one of them is “… the silent, covert American sanctions against Lebanon, in an attempt to push Hezbollah out of participating in the government.” The US delivered numerous subtle messages to Lebanon about consequences if they fail to curb Hezbollah’s influence in the political process. One startling red flag for Kadi was the financial demise of the American University of Beirut (AUB), and the symbolism of this was not lost on him; that is of the US pulling back and “letting the ship sink”

At the heart of all these problems, lie the ongoing issues of in-bred, endemic and crippling corruption. Reason stipulates that any kind of reforms employed to get the country back up on its feet first needs to tackle the scourge of corruption. Ghassan Kadi explains that “… if you understand how a parabolic curve goes, it moves with a low intensity and then steeply rises and accelerates with increasing speed. Lebanon has experienced corruption ever since day one and recently, it has been escalating in unprecedented intensity. Everyone is blaming everyone else, but it is everyone’s fault. You cannot put the blame just on the current government. Corruption has been around ever since Lebanon existed, and that’s the truth.”

Just as the Civil War in Lebanon spelled an end to important industries; the fact is that the country never really recovered. To this day, throughout the country, shells of factories and other structures stand as a reminder of what once was, and now more ghosts appear as the financial crisis finishes off much of what is left, and the implications of the COVID-19 issue have not even been analysed herein. Recovery has been impossible not only due to the major factor of corruption, but also because Lebanon lost its stature. No longer was it a bustling and prosperous place, a commerce and tourism hub for the neighbouring countries, but in particular, for Saudi Arabia and the Gulf, they had no reason to return to Lebanon as the Civil War had prompted them to build their own infrastructure and economy which no doubt would have eventually happened.

The irony stings like a wasp when one considers that the nation that prospered from providing important infrastructure, commercial and other services to the newly oil-rich states, a nation that had had an estimated USD800 billion in its Central Bank, and now has fallen into a hole, cannot tap its gas deposits out from its shores due to corruption and the fact that prospective stakeholders have identified the corruption issues as likely rendering the partnership unviable.

If the estimates of gas reserves in Lebanese waters are accurate, here is an opportunity to transform Lebanon, easing poverty, paying off debt, re-building the country, right? The corrupt officials who keep Lebanon running the way things have been done for so long are unable to agree on how to split the spoils as this potentially is such a huge spoil that the kick-backs cannot all go to the one group.

Trying to understand how things work in regard to the wealth of Lebanon, the writer found out the following also silent “protocols” involving the many officials and unofficial officials who have their hand in the nation’s coffers. This provided some insight into the saga of the unexploited gas out at sea. Was there a lack of progress in tapping this potential bonanza due to the years of chaos and lack of leadership at the close of elections when all interested parties attempt to reach consensus on who should rule the country and take the various ministerial positions? Apparently not! That aspect is more about power than individuals splitting the spoils. According to Ghassan Kadi, whoever is or is not in office has no bearing on the “mafia nature” of how spoils are split in Lebanon. So, for example if a particular political leader is a leader of a certain area but not in government or whether it is someone in government, he will still get his share of the spoils via kick-backs. This applies to every sector of the economy.

Where things have become sticky is the fact that no particular official or leader has any “entitlement” of jurisdiction over the territory out at sea. This is not within the “working agreement” on how to split the kickbacks and under-table deals. The port, the airport, fuel, water, generators, rubbish collection contracts, every conceivable asset or service has interested parties that receive kick-backs. One cannot get a contract with the Lebanese government, one cannot get one’s shipment unloaded, or supplies sent or received without bribing an official. The status-quo was running along quite smoothly until a totally new element (the gas) appeared and now the negotiating of who gets what kick-back among these mafia cannot be resolved.

When a State was carved out of greater Syria by the Western powers, it’s economic and political viability was the least of their concerns. How Lebanon can climb back to the days of wealth and dynamism is the question because, those heady days of the 1950’s and 1960’s were not based on a solid foundation for the future. The State of Lebanon is merely one hundred years old. How can it be rejuvenated and made viable? Everyone in Lebanon it seems, only discusses the problems and no one speaks of solutions. What kind of resolution to the problems do the Lebanese people want?