Lebanon's Stagnant ... for Now

By David Schenker

In recent months, violence in Syria has been spilling over into Lebanon, culminating in the assassination of a senior security official and ongoing fighting in Tripoli between Sunnis and Alawite supporters of the Bashar al-Assad regime. Although these developments pose a threat to Lebanon's tenuous stability, the country already faced a series of independent social, economic, and political challenges that the Hizballah-led government in Beirut has not handled with distinction.


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Since the 2005 assassination of former premier Rafiq Hariri -- a crime for which Hizballah members were indicted by a UN-founded international tribunal -- Lebanon has been divided into roughly two camps. On one side is a coalition of anti-Assad Sunnis and Christians (and sometimes Druze) known as "March 14"; on the other is the Iranian-backed pro-Assad bloc called "March 8," led by Shiite Hizballah and its Christian partner, the Free Patriotic Movement (FPM). This divide reflects not only political differences, but also divergent economic approaches.

Despite not winning a majority in parliament, March 8 has controlled the government since 2009. Hizballah's weapons helped intimidate its domestic opponents, but persistent political divisions, widespread corruption, and fallout from Syria ensured that the government accomplished little over the past three years.


The war next door has hurt Lebanon's trade and tourism, curtailing overland exports and -- after a spate of kidnappings -- drying up the steady stream of vacation pilgrims from Persian Gulf states. The prospect of spillover has also led to a decline in foreign direct investment and a 20 percent drop in building permits requested since last year. At the same time, foreign remittances, long a staple of Lebanon's economy, have fallen off. The state's banks have also taken significant losses in Syria, contributing to flat earnings even for Bank Audi, which recorded its best year ever in 2011.

Yet these factors have only exacerbated existing problems, including continued repercussions from the costly Hizballah-provoked war against Israel six years ago. Taken together, these issues have contributed to a budget deficit increase from $40 billion in 2006 to nearly $56 billion today.

Meanwhile, rising unemployment, stagnant incomes, and hikes in commodity prices are increasing economic pressure on lower-income Lebanese, so much so that last month, teachers and other civil service employees went on strike demanding that the moribund parliament pass legislation to raise public salaries retroactively to August. Central Bank governor Riad Salameh opposed the raise, arguing that it would lead to inflation and add $2 billion to the state's already high 2012 deficit of $3 billion. To help narrow the gap, he instead recommended additional taxes on interest generated from bank deposits, as well as on cellphones and other luxury items -- a decision sure to generate grumbling among Beirut's jet set.

Lebanon's financial problems coincide with an acute electricity shortage exacerbated by the closing of the Deir Ammar power station, one of the state's largest facilities. Although Beirut has allocated some $500 million for a new plant, the tender process -- overseen by March 8-aligned energy minister Gebran Bassil of the FPM -- has been mired in scandal and interminably delayed. Basil's effort to secure temporary energy by leasing two Turkish electricity-generating barges has been years in process and tainted by corruption, and it is unclear when, if ever, the boats will arrive. Meanwhile, blackouts have become ubiquitous in the capital -- particularly in the Hizballah-dominated southern suburb of Dahiya -- and elsewhere.

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David Schenker is the Aufzien fellow and director of the Program on Arab Politics at The Washington Institute.

This article was originally published as Policy Watch 2007 and is republished with permission.

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