Lebanon’s October Revolution should lead to structural reforms
Atie J El Mouallem
The last two months were tough. Lebanon’s October Revolution (which was triggered by WhatsApp tax) saw over two million Lebanese protesting on the streets. The Zeitgeist is clear; the Lebanese are tired of the current elitist political class and want a complete overall of the political class. “ALL means ALL” is the resounding slogan. I love my country and seeing the anger of the people protesting on the streets and the inability of the current leadership to bring relief has taken a heavy toll on the country’s economy. The time has come for Lebanon to make a historical transformation in its traditional policies on economic management. There can be no further development for Lebanon without this transformation.
1. Lebanon’s October Revolution should lead to a Technocratic Government
Lebanese youth move outside the country due to a lack of jobs and opportunities in the country. Our people are well educated and have diverse experience in all spheres of economics and finance. Our human capital is our most resourceful asset. From this human capital, we can get people for the technocratic government. This technocratic government will work on its goals and objectives and produce the results we as citizens of this country deserve. Isn’t it time we end the last 30 years of endemic corruption which has reduced us to a joke to the world. All our systems are on the verge of collapsing it's time we clean the garbage.
1.1. Post-Lebanon’s October Revolution – The country should not be run by the industrialists or contractors but by Technocrats
An industrialist or a contractor is competent to run his business, but shouldn’t be given the dual job of running a country. In case he has to run a country, he has to resign from all boards, so there is no conflict of interest. Saad Hariri has a great international image, but there should be no conflict of interest between the business and the government. Once the industrialists are not in plum positions of power in the government, this would counteract the devastating effect of conflict of interests.
1.2. Values, Vision, Mission, Goals and Plans
We as a country need a vision of what kind of country we need to live in. What is the fate of our Constitution given that most citizens prefer to identify themselves with their religious and sectarian identities? The time is ripe to redefine our values or rediscover our values in our Constitution written by Michel Chiha in 1926. Once we have defined our values as a nation, we can set out and plan our road map to achieve our vision with the help of the technocratic government.
1.3. People want an end to sectarian politics and endemic corruption.
The sectarian and Political economy of wasta has only resulted in more and more corruption. Sectarian politics did manage to give us peace after the civil war but we need to rise above the sectarian politics and create an inclusive nation. The sectarian political tool is defunct. In this leaderless revolution, I could hear one message that people think the root of the problem is in the endemic corruption caused by sectarian politics. Only when we dismantle the political system and replace a different set of people who represent different values than the current, we will achieve our vision as a country.
2. Reforms to reduce public debt levels and fiscal deficit
As per IMF calculations, if Lebanon wants to grow its way out of its current debt situation, this would require a primary fiscal surplus of 5% a year for 20 consecutive years.
2.1. Emergency Rescue plan laid down by Hariri during Lebanon’s October Revolution
The 17 points in the emergency rescue plan presented by Hariri government on 22nd October is nothing more than an agreed-upon document by all sectarian parties in the government, we cannot call this reform, but an agreement. True reform is only where all the stakeholder’s interest is accounted and we leave no one out. We need to take care that the reforms serve the interest of the most under-represented and weaker class. Unless we run the government like an efficient startup, we cannot save ourselves and others out from this doomsday scenario. A sectarian government where politics always comes in the way of reforms has been a huge problem for Lebanon. The simple act of government formation took us nine months. All fiscal and monetary solutions to save the country is futile unless our objectives result in the betterment of most of the impoverished and disadvantaged citizens.
Prime Minister Saad Hariri admitted that he has been obstructed for the last 3 years from reforming EDL. This is way too much time lost. A country the size of Lebanon should be nimble to react and adapt to the global economic scene. We need to work on EDL related deficit, expenses related to our institutions and the big elephant in the room which is the trade deficit.
3. Trade Deficit
How do we reduce the trade deficit with our underdeveloped industrial productivity, lack of international competitiveness, weak capital markets? The reforms need to reduce public debts and fiscal deficit. Lebanon also has a huge current account deficit because it imports far more than it exports. The IMF has forecast a fiscal deficit of 9.8% of GDP this year and 11.5% next year.
3.1 The Important Role of Banks
The banks play an important role in capital inflows. Lebanon needs the capital inflows to maintain its dollar peg. We need the capital inflows to finance the current account and fiscal deficits. Despite the sanctions since 2012 and the recent one, (which the banking sector has been applying the measures) banks are working hard to increase the cash inflows. Banking sector leadership have expressed confidence in the bank’s ability to finance private and public sectors by not being unfairly taxed.
3.2. Central Bank
The Central bank governor Riad Salame has expressed confidence and said that the banking sector is capable of financing the state’s foreign and domestic debt in 2019. The Central Bank has maintained stability so far by using stimulus packages and unorthodox financial operations. Since 2016 it had to embark on financial engineering to drawn more dollars. The BDL has also managed to maintain the currency peg stable. Lebanon’s central bank plans to slash interest rates and is considering formalising temporary capital controls set individually by local lenders.
3.3. Privatization and Public-Private Partnerships.
A sectarian political system is a tool which is dated and has to replace some better tool of the political system. The power elites need to understand that they are now shooting themselves in the foot by not relinquishing their power. The economic rescue plan talks about reducing deficits from 7.6 to 0.6 percent is ludicrous and nowhere has any government resorted to such austerity measures ever worked. Only a stable technocratic government will set realistic goals which will lead to more investor confidence. The diaspora confidence will again rise and with increased confidence, we could speed up privatization and Public-Private Partnerships in sectors where industry expertise could be leveraged to reduce expenditure. Privatization, Public-Private Partnerships, and activation of capital markets will invigorate state-owned and affiliate enterprises like Middle East airlines and the telecommunications sector.
My hopes lie in the formation of new technocratic political government which make structural changes in the Economic Policies of Lebanon.
[October revolution in Lebanon]
Image Credits – The NewYorker
About the author
Atie J El Mouallem
Financial advisor to UHNWI, private entities, family offices, and companies. Certified Anti-Corruption Manager from The American Anti-Corruption Institute