Beirut Port Explosion Fuels Lebanon's Collapse: 'May God Save the Country'
BEIRUT—In recent decades Lebanon has been a place of relative calm in a turbulent region. Now it is living through a once-in-a-century economic meltdown. The collapse, rippling through all levels of society, has been accelerated by the lasting effects of the explosion in the Port of Beirut one year ago today. Power outages have become so frequent that restaurants time their hours to the schedule of electricity from private generators. Brawls have erupted in supermarkets as shoppers rush to buy bread, sugar, and cooking oil before they run out or hyperinflation topping 400% for food puts the prices out of reach. Medical professionals have fled just as the pandemic hammers the country with a new wave of infections. Thefts are up 62% and murder rates are rising fast.
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While many economic crises stem from wars and natural disasters, or more recently the pandemic, Lebanon’s collapse reveals the government’s nearly bottomless capacity for self-inflicted harm. The fallout risks destabilizing an already-volatile area of the Middle East that is still reeling from the war in neighboring Syria and tensions on the Israeli border. Lebanon has suffered through years of government mismanagement and corruption that caused a financial crisis in 2019, which resulted in the country defaulting on its bonds for the first time since it won its independence from the French mandate in 1943. Not even its own yearslong civil war, the absorption of millions of refugees from neighboring countries, repeated conflicts with Israel, and political assassinations managed to break the country in this way.
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The origin of Lebanon’s crisis can be traced to its banking system, which tipped into insolvency in 2019 when the country’s policy of pegging its currency to the U.S. dollar unraveled. After years of losing sources of dollars that Lebanon used to prop up its own currency, the banks closed their doors for two weeks during a wave of protests. The closure backfired, prompting a run on the banks, which then locked depositors out of their accounts.
The massive explosion at a Beirut port a year ago sped Lebanon’s free fall. The blast killed more than 200 people and caused as much as $15 billion in damage, according to an estimate from Beirut’s governor. The blast toppled Lebanon’s government, which resigned under pressure from protesters and the political elite. Following nine months of failed attempts to form a new one, Saad Hariri, the scion of a prominent Lebanese family, resigned as prime-minister designate after clashing with the country’s president, Michel Aoun, over cabinet appointments. “May God save the country,” said Mr. Hariri as he announced his resignation on live TV. The deadlock among Lebanon’s political power brokers has disrupted talks with the country’s potential creditors and upended plans to contain the fallout from the crisis. In Lebanon’s political system, the top leadership roles are divided by sect, with the prime minister’s office going to a Sunni Muslim, the president a Maronite Christian and the speaker of Parliament a Shiite. Many in the Lebanese public blame the country’s political factions for rejecting reform and leading the country into financial ruin.
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A chance for Lebanon to arrest its fall came last year when the government devised a plan for deep economic reforms, cuts to public spending, including on wages, and a restructuring of the banks that would have required a temporary contribution from depositors to help offset the system’s losses, estimated at $83 billion. The International Monetary Fund praised the plan, saying it provided a basis for talks on a bailout. Lebanese politicians and the country’s banks rejected the plan, with the Lebanese Banking Association warning it would damage business confidence and infringe on private property rights. The country’s bailout negotiators quit in frustration... The Biden administration is seeking to double the U.S. Agency for International Development economic support budget for Lebanon to $112 million for the coming fiscal year, according to an official familiar with the budget. Meanwhile, France, Qatar, and the U.S. have supplied food and funds to keep the Lebanese army from splintering.
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https://www.wsj.com/articles/lebanons-economy-still-reeling-from-beirut-port-explosion-falls-off-a-cliff-11628089525 (subscription)