Lebanon: Who destroyed it, and what happens next?

According to Reuters news agency, in the past two years Lebanon’s five zoos have found homes abroad for some 250 animals, including lions, whom they cannot afford to feed.

But the Lebanese people? They go hungry. And they have nowhere to flee.

Lebanon is in ruins. Things are so bad that Syrian refugees who fled to Lebanon are now returning to Syria, itself a basket case. Meanwhile, some Lebanese are themselves moving into refugee camps, where the UN supplies meager rations.

GDP per capita was a respectable $20,000 a decade ago. Today, it is a pittance (in dollars), because the Lebanese pound is nearly worthless, at 23,600 pounds per dollar (in the black market).

Inflation is between 100 and 150 per cent, government debt is nearly twice GDP, and the government budget deficit is an alarming 17 per cent of GDP. Ordinary Lebanese are short of food fuel and medicine.

Because of a failed Ponzi scheme run by the Central Bank. In a Ponzi scheme, you pay off old investors with funds you raise from new ones. Inevitably, it collapses. Once, oil sheikhs deposited their dollars in Lebanese commercial banks – $179 billion worth in 2018, three times Lebanon’s GDP. The banks in turn deposited the dollars with the Central Bank. Not unlike Switzerland’s business model.

But here, the Swiss analogy ends. The Central Bank of Lebanon used these dollars to finance massive budget deficits (i.e. print money) for the government– a totally incompetent gang of kleptocrats who for over a decade never bothered even to do a budget. (In Israel, by law, the Bank of Israel is forbidden to finance government deficits). To attract more dollars, ever-higher interest rates had to be offered. Classic Ponzi. This house of cards collapsed, when in March 2020 the government defaulted on paying its debts, and money fled Lebanon.

Lebanon, the “Switzerland of the Mideast,” once made a tidy living from its banks and financial sector. Like Switzerland, Lebanon’s currency, the Lebanese pound, was fixed relative to the dollar and highly stable. People felt safe to deposit money there. In a flash, that evaporated. It will be many years before the money returns, if ever.

Not at all. Lebanon once treated its banks with reverence. During the bloody 1975-1990 civil war between Christians and Muslims, there was a legendary ritual in Beirut. First thing in the morning, shooting halted. The bank clerks trotted safely off to their bank windows. Once there, the shooting resumed. Why? Because all Lebanese had a common interest in the wealth the banks created.

That has now been destroyed, by those who should have known better.

In May 2017, the Lebanese government belatedly began its first round of licensing off-shore gas and oil exploration. Lebanon’s reserves are estimated at 850 million bbl. of oil, worth about $60 billion, and 96 trillion cubic feet of gas, worth about $300 billion. Had Lebanon acted swiftly, like Israel, to develop its hydrocarbons, the Lebanese people would have food and medicine today. So what happened?

Politics. Sunni and Shia Muslims and Christian factions have jostled for power and influence for decades; seats in the Lebanese parliament are distributed along sectarian lines. The oil and gas licensing process needed a government decree, defining the offshore economic zones and establishing how the oil and gas revenues would be shared. But political paralysis delayed that for many years.

Part of the problem is a contested 860-sq.-km. zone offshore, claimed by both Israel and Lebanon. There have been US-brokered indirect negotiations and Israel has proposed a reasonable compromise. But it may be too late anyway. Egypt, Israel and Turkey have made hydrocarbon deals with one another, so even if Lebanon moves ahead, and even if investors do invest despite the hotly disputed region (unlikely), there may be no customers for Lebanese hydrocarbons.

Here is how the business weekly The Economist explains it.

For decades, Lebanon divvied up political power among its religions, as a way for keeping the peace among them. But “the system was captured by an entrenched elite, which hands out government jobs based on sect”. [For an Israeli, this sounds painfully familiar].

What you sow, you reap, the New Testament counsels.

At 6 p.m. on August 4, 2020, Lebanon’s political chaos exploded. Some 2,750 tons of ammonium nitrate stored in Beirut’s port blew up. It had sat there for years, a time bomb, confiscated from a Russian cargo ship headed to Africa.

How powerful was the blast? Some 2,750 tons of ammonium nitrate have the explosive power of 1,100 tons of TNT. What sane nation would leave over a thousand one-ton bombs lying around in its port, for years?

Lebanese customs had tried to get rid of the material – but the crooked judiciary did nothing. Nor did the politicians.

The blast was felt as far away as Cyprus, 100 miles away. Damage amounted to nearly $5 billion, 220 people were killed, and 6,500 people were injured. Beirut schools and hospitals were wrecked. The port was destroyed, halting crucial imports of essential goods, ruining grain silos and wiping out $300 million in customs revenue for the government. The result was massive hunger.

Lebanon is reaping the consequences of its rotten-to-the-core politics. Lebanese call the port “the cave of Ali Baba and the 40 thieves,” where theft, bribery and embezzlement at the government-owned facility were rife.

The reason is, Lebanon is now officially a kleptocracy, and it has been for years.

A kleptocracy is different from plutocracy (rule by the richest) and oligarchy (rule by a small elite). In a kleptocracy, corrupt politicians enrich themselves secretly outside the rule of law, through kickbacks, bribes, and special favors, or they simply direct state funds to themselves and their associates. And Lebanon fits the bill.

On the one-year anniversary of the Beirut explosion, French President Emmanuel Macron is convening an on-line meeting to raise financial aid for Lebanon. But who wants to send money to a country where donations are stolen by the politicians and never reach the poor who need it?

A small proof? Key Lebanese politicians were vaccinated first, before the elderly who really needed it. The Lebanese people were irate. The politicians did not care.

A long parade of bad actors.

First, France. After the Ottoman Empire collapsed, after World War I, France took over the five Lebanese provinces. At the time they were primarily Maronite Christian and Druze. France expanded Lebanon’s borders to include more Muslims. Bad move. Lebanon became another crazy-quilt set of borders that sowed dispute, like the insane borders drawn by colonial powers when they left Africa.

Second, after Lebanese independence in 1943, the system divvying up political power among religious groups was implemented. Another bad move. It worked for years – Lebanon flourished in the 1950s and 1960s, through tourism, agriculture, banking and commerce. But power-sharing became paralysis, which in turn became corruption.

Third, powerful neighbors. Iran-sponsored Hezbollah, Shia, entrenched in South Lebanon, has provoked two bitter wars with Israel, which occupied South Lebanon from 1985 through 2000, controlling 850 square kms. (328 sq mi.) of land. Syrian military forces too were strongly present in Lebanon for 15 years, from 1976 through 1991.

Fourth, the Lebanese themselves. Once, Lebanon resembled Costa Rica, a beautiful stable pastoral Central American nation, mountainous, beloved by tourists, with no army. Today it is more like Afghanistan, torn apart and chaotic. Today Lebanon has no Prime Minister, nor is one likely to be appointed any time soon.

In the end, when political leaders line their own pockets rather than work daily for the good of their country, you get chaos, hunger and destruction. History will not be kind to any of them.

Lebanon may disintegrate into Swiss-like cantons, controlled by religious factions. In some ways, it already has. South Lebanon is controlled by Hezbollah and hence Iran, which have been trying to establish strongholds along the Syrian border in the Golan Heights as well. Two terrorist states on Israel’s northern borders are potentially explosive, as two Lebanon Wars have shown.

We Israelis must not be smug. Israel is not a kleptocracy, but political corruption seems rampant and may be on the rise. This is not acceptable. And if Lebanon had no government budget for over a decade, Israel lacked one for two years, for roughly the same reason.

Nations fail when self-interest, rampant like the Delta variant, becomes dominant and spreads viciously. Let us look north and treat Lebanon as a life lesson.

When a country splits into rival tribes, you get Lebanon. It happened to the Jews in 930 B.C.E., when the kingdoms of Judah and Israel split. And it did not end well. ■