Facing Up to Foreign Influence: How Outsiders Helped Create Lebanon’s Current Crisis

December 1, 2021
Beirut

France’s president is shocked, shocked that gambling has been going on in Lebanon. After describing the country’s devastating financial meltdown as the result of an outright “Ponzi scheme,” Emmanuel Macron condemned Lebanon’s ruling class for using their ties to foreign banks to transfer funds abroad while ordinary Lebanese citizens were unable to access deposits.  Of course, he might have asked why exactly French banks, among others, allowed Lebanon’s elite to do so.

During Lebanon’s civil war — a conflict lasting from 1975 to 1990 that killed upward of 150,000 people and displaced more than 1.5 million — pundits and scholars often asked such questions. They regularly attributed the country’s problems to the negative influence of foreign powers which moved money and weapons for their local allies. Recently, however, a great deal of commentary has swung to the opposite extreme, joining Macron in blaming the country’s current economic meltdown on the corruption of its indigenous leadership without mentioning foreign powers at all. As the New York Times Magazine stated simply last month, “Lebanon’s many crises have a shared root: Misrule by a self-dealing elite.”

 

 

Lebanese leaders certainly deserve their share of the blame. But solving the country’s problems requires recognizing the essential role that outside forces play in driving — not just “tacitly supporting” — the corruption and serial mismanagement of the Lebanese establishment. In fact, Western governments, despite being the loudest cheerleaders for good governance in Lebanon, have consistently failed to press for reform at crucial moments, especially when they thought it might hurt their own allies or financial position.

Any foreign actor who is truly serious about addressing the political pathologies in Beirut needs to start by finally matching the lofty rhetoric of reform with action. A first step would be dialing back the failed, century-and-a-half-long practice of playing local favorites off of one another. Only then could political capital be credibly shifted towards strengthening the independence and accountability of national institutions that alone can underpin a just and effective state for all Lebanese.

Building Blocks 

Lebanon’s current sectarian power-sharing system, which so many policymakers and observers now seem to agree only breeds state failure, was actually birthed by foreigners. After World War I, France created the modern Lebanese state with Maronite Christians at the top of a religion-based spoils pyramid. After World War II, when the country finally won its independence from France, Americans, Saudis, Iraqis, Syrians, Iranians, Soviets, French, Palestinians, and Israelis — to name only a few — all regularly corrupted Lebanese elections and leaders in the service of their own narrow interests. 

Lebanese citizens paid a heavy price for sectarian politics and foreign influence during 15 years of civil war. But the end of the war didn’t uproot these deleterious forces. Instead of dismantling the sectarian system, foreign powers and Lebanese politicians met in the Saudi Arabian city of Taif in September 1989 to forge an agreement that ultimately secured its continuation. The Taif Accord managed to stop the internal armed conflict and finally curtailed some of the most blatantly unjust aspects of the previous order, such as the European-imposed hegemony of Maronites and the 6:5 ratio of Christian to Muslim parliamentarians. But it only proposed the abolition of sectarianism at a later, indeterminate date while maintaining the religious allocation of public (and many private) sector positions. Then, in 1991, the new Lebanese government passed a general amnesty law, ratifying what had been politically accepted at Taif: instead of facing accountability, many wartime figures were given positions of power and sectarian patronage for decades to come.

Perhaps most problematically, Taif led to the “Pax Syriana,” Hafez al Assad’s military and political takeover of Lebanon. After the civil war, outside powers like the United States and Israel agreed that letting Syria tighten its grip over tiny, fractious Lebanon would serve as a useful means of preventing further violence. They also hoped it would advance other regional goals, such as securing Assad’s support for the first Gulf War and creating a stable foundation for Arab-Israeli peace talks.

It was in this corrosive context that Lebanon’s post-civil war reconstruction kicked off in the early 1990s. From the outset, an array of outsiders such as the Gulf states provided critical financial support that produced impressive financial gains for a narrow slice of Lebanese elites and geopolitical dividends for their backers. According to a London School of Economics estimate, between 1993 and 2012, Lebanon absorbed $170 billion of foreign capital inflows, mainly from the Gulf but also from international financial institutions and Western financial companies. For perspective, this massive figure was greater than the entire Marshall Plan in inflation-adjusted terms. As the 1990s wore on, the Lebanese economy, and the stability of the country itself, became dependent on this foreign money.

Despite all the cash, though, by the year 2000 Lebanon was nearly bankrupt. Prime Minister Rafik Hariri — whose tenure would be controversially immortalized as an exercise in “effective corrupt leadership” — was struggling to find a way out. And at this crucial moment, France provided one. In February 2001, French President Jacques Chirac “flew to the rescue of his close friend Hariri” and hosted a donors’ conference that, together with the November 2002 follow-on conference known as Paris II, secured more than $3 billion in new funding for Lebanon. As one longtime top offical at the Lebanese Ministry of Finance recently put it, this money would prove to be “the ultimate curse.” In his words, it was “a strong boost to the disastrous policies and the corrupt system, in the sense that when the inflows that were covering the bleeding started to dry up, a deliberate exogenous shock was delivered to allow the system to keep going as is. And it did.”

Of course, Chirac’s intervention wasn’t some kind of personal favor to Lebanon. European, American, and Middle Eastern financial interests all loved the sky-high interest rates on Lebanese debt, which averaged 17.31 percent from 1993 until 2021. At the same time, external state powers benefited from effectively controlling the tap, periodically threatening to strangle (or generously release) Lebanon’s over-leveraged financial system when it suited their own needs.

Enter America

It was America, however, that added a decisive layer of protection to the Lebanese racket. In 2005, a combination of pressure from Paris and Washington helped to secure the withdrawal of Syrian troops from Lebanon following the assassination of Hariri. The Bush administration suddenly saw Hizballah as vulnerable at home. To further weaken the group, Washington threw its support behind an array of former warlords and sectarian chieftains, hailing them as independence heroes simultaneously battling terrorism and totalitarianism. With European backing, America invested substantially in a range of leaders such as Walid Jumblatt, Amine Gemayel, and members of the Hariri family. These individuals were embraced for being “pro-Western,” but they were also deeply invested in the very structures which would later be condemned by both the Trump and Biden administrations as unjust and terminally dysfunctional.

In the meantime, Washington’s campaign against Hizballah failed spectacularly. An American-encouraged Israeli assault in 2006 led to 33 days of fighting and more than 1,500 deaths but did not weaken the group. Similarly, an American-encouraged domestic challenge in May 2008 saw running street battles across Lebanon but left Hizballah’s military power intact and its political position strengthened. The next year, Saudi sources bragged to the New York Times that they were spending hundreds of millions of dollars in order to purchase what would turn out to be the narrowest of victories in Lebanon’s May 2009 parliamentary elections. But their boasting proved pre-mature. In the years that followed, Hizballah and its allies — buoyed by their own external support — secured a parliamentary majority (which still stands) and successfully brought down the premiership of Rafik Hariri’s pro-American son Saad in 2011.

With these defeats in mind, the Obama administration steadily shifted its focus in Lebanon towards containing its opponents by weaponizing America’s unrivaled role at the center of global finance. This involved strong American backing for the longstanding central bank governor, Riad Salameh. For Washington, Salameh was viewed as the cornerstone of a regional strategy to starve Hizballah and its allies of cash by progressively locking them out of banks on their own home turf. As such, he became widely perceived as untouchable in Beirut, and felt assured that he could continue in perpetuity as the longest-serving central bank governor in the world.

The timing of all this couldn’t have been worse. Despite the Americans knowing full well that Salameh had “whiffs” of corruption all around him, the Obama and Trump administrations stood fast behind their man just as he pushed Lebanon’s Ponzi scheme into overdrive — with the backing of almost all local sides and in full view of the United States, Europe, and international financial institutions. As we now know thanks to a recent investigation by Reuters, the International Monetary Fund itself reported in 2016 that Lebanon’s central bank had a massive $4.7 billion hole in its reserves by the end of 2015 — a hole that Salameh was just then plugging with ever more lucrative “financial engineering” products. The report was not made public though because “Salameh himself had insisted to [International Monetary Fund] officials that the figure not be published.”

U.S. backing for Salameh continued even after widespread protests hit Lebanon in October 2019 and Lebanon’s financial rot was obvious for all to see. In the spring of 2020, the U.S. ambassador publicly resisted staff changes at the central bank and chastised Lebanese protesters, saying that  “scapegoating” any one person or institution for Lebanon’s economic collapse was unfair. “Riad Salameh,” the ambassador added, “enjoys great confidence in the international financial community.”

Toward a Less Corrupt Lebanon

For Western policymakers who claim they want to help the Lebanese people fix their country, acknowledging the failure of previous approaches is the first step toward implementing better ones. A good place to start might be looking back at earlier U.S. wisdom on Lebanon. In the wake of the Eisenhower administration’s 1958 military intervention, the National Security Council recommended that America “support the continued independence and integrity of Lebanon” without becoming too closely identified with individual factions in Lebanese politics. In other words, Washington should “provide Lebanon with political support and with military assistance for internal security purposes, stressing our support for the country as a whole rather than for a specific regime or faction.”

There is some evidence that President Joe Biden has started moving in this direction. The administration hasn’t opposed multiple European corruption probes into Salameh or the local case against another longstanding pillar of U.S. policy in Lebanon, former army commander Gen. Jean Kahwaji. Moreover, as of last month, the Biden administration saw fit to sanction businessman and key Saad Hariri backer Jihad al Arab for “endemic” cronyism, the first time Washington has ever taken such a step against a perceived ally in Lebanon.

With the first local and national elections since the October 2019 protests set to take place in only a few months, Western states should go further and refrain from supporting a side — even if it appears “reformist” or “pro-Western.” Instead, they should work with both allies and adversaries to negotiate a multilateral “ceasefire” whereby all external actors would refrain from interfering in the country’s polls. The goal should be to avoid a repeat of the 2009 elections, where both U.S. allies and their rivals in Damascus to Tehran spent hundreds of millions of dollars to influence the outcome. While this noninterference might reduce the number of seats for some more overt Western allies — a potentially attractive result for Iran and Syria — more nationally committed, independent candidates, even within some of the established parties, might actually achieve more success and leverage over time. Moreover, the long-term gains from fostering the independence, accountability, and transparency of Lebanese institutions would be significant. At the very least, the choice for Lebanese citizens would be clear, as would the limits and the possibilities of their own agency in the battles to come.

 

 

Nicholas Noe is the co-founder of The Exchange Foundation as well as the Beirut-based news translation service Mideastwire.com.

Image: Xinhua (Photo by Bilal Jawich)