Report Launch: Building a Better Lebanon

David Hale, Distinguished Diplomatic Fellow at the Wilson Center and former Ambassador to Lebanon, opened the conference arguing that economic reform is unattainable in Lebanon until its leaders recognize the urgency of the political and economic crises. The United States is unable to help the country unless its politicians do their part. In addressing Hezbollah’s stronghold in Lebanon, Hale noted “No state can live up to that name of being a state so long as one faction answering only to a foreign capital can make life and death decisions for all the state’s citizens.”

Following Hale’s remarks, Rand Ghayad, Adjunct Professor at Harvard University and Former Economist at the International Monetary Fund, contended that the problem in Lebanon is no longer an economic crisis, but a humanitarian one given its magnitude and impact on the people. Ghayad proposed that while Lebanon’s government must undergo significant reform, the first step should be, “a very simple, transparent program focused in the immediate term, on what (he) calls the low hanging fruit… that delivers just very quick, tangible, and wide ranging benefits for everybody in the economy.”

In addition to supporting people and incomes, Hung Tran, Atlantic Council Senior Fellow and Former Executive Managing Director at the Institute of International Finance, raised the issue of Lebanon’s spiraling fiscal crisis. He argued that Lebanon must undergo a comprehensive audit of the central bank and banking system to encourage capital inflows from abroad. “They will need to demonstrate that they are willing, happy, and able to undertake at least the minimum reform in the banking system to get that support.”

Merissa Khurma,  Director of the Wilson Center’s Middle East Program, posed that international development programs in Lebanon should focus on increasing women’s capacity to do business and on skilling the labor force in all its forms. Despite a high education rate amongst Lebanese women, they only own 10 percent of the country’s businesses. Khurma proposes at least 50 percent of development assistance should be allocated to women. Further, to improve labor market opportunities and outcomes, programs should aim to “invest in skills that the market needs [which] requires, of course, ongoing dialogue between the private sector and civil society, as well as higher education.”

Internal Reform

The Lebanese people have lost faith in their leaders. Elite interests have enriched the well-connected and squandered wealth invested by the diaspora. With 50 percent of the population living below the poverty line, the general population can barely feed their family or access basic healthcare. The public’s discontent with the status quo was on vast display in October 2019 as protests erupted across the country. Ambassador Hale acknowledged the public sentiment at the time, “that those winning do so by virtue of corruption [and] access to public funds.”

Only when comprehensive reform is enacted can Lebanese leaders regain the trust of their people and confidence of the international community, both of which are critical to achieving economic stability. International financial institutions, such as the International Monetary Fund and World Bank, can provide technical assistance for long-term institutional reform. However, “Any stabilization plan needs to be very well tailored to the Lebanese situation… If you bring all the financial resources today and you dump them into Lebanon, we have a lot of capacity constraints. We won’t be able to solve the problem,” argued Ghayad. In this way, realistic, short-term steps towards augmenting transparency are a critical first step.

The challenge of total economic overhaul

The depth of the financial and economic crisis in Lebanon is staggering. “There’s an immediate catastrophe upon us, which is the financial situation… it’s reached a point where collapse is imminent,” noted Ambassador Hale. However, the reform process will not bring immediate prosperity. The banking sector is the primary source of Lebanon’s fiscal crisis, but Tran warned that reform will be extremely painful for all segments of society. “We talk about bank restructuring as if it is something technical that can happen aloof from the day-to-day life of the people. No, the opposite is true. If you restructure the banking system in Lebanon, that will inflict huge losses in savings and wealth of most of the population in the country.”

Mohsin Khan,  Atlantic Council Senior Fellow and Former Middle East and Central Asia Director at the International Monetary Fund, made the same argument earlier in the discussion. Though rehabilitation of the banking system in Lebanon is essential, it will require a tremendous amount of financing. Yet, the cost of reform will not be solely, “borne by the wealthy… everyone is going to share those costs. Even the people who suffered the most will be asked to suffer some more.”

Engaging the diaspora and civil society

The panelists stressed the importance of the diaspora in stabilizing the Lebanese economy. Khurma noted, “the Lebanese diaspora was so successful in coming together and providing their families and friends with funds after the [Beirut] explosion.” Tapping into the fiscal and entrepreneurial resources of the diaspora will translate into tangible progress in Lebanon. For example, the issuance of diaspora bonds is one channel through which Lebanon’s vibrant expatriate community can invest in their country of origin.

With a rescue plan in place, many long-term steps are necessary to achieve sustainable change in Lebanon. The process must include all sectors of society and the economy, as Dr. Khan put it: “The new economic model has to emphasize other sectors of the economy, whether it’s agriculture, or manufacturing, certainly technology, these are the sectors that future Lebanon must have.” This robust approach that engages the entire country can ignite the necessary political changes from the grassroots level. Khurma believes a consultative process, “should include members of civil society, of the private sector, and those activists who are protesting, demanding change,” adding, “that’s also one way to ensure that you have new emerging leaders in Lebanon.”