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Beirut blast: How Lebanon is facing crisis after crisis

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A bikes mechanic counts money on his shop, in the southern suburb of Beirut, Lebanon in May 2020.
A bikes mechanic counts money on his shop, in the southern suburb of Beirut, Lebanon in May 2020.   -   Copyright  AP Photo/Hassan Ammar
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Lebanon's capital was this week ravaged by a deadly explosion and now needs massive investments to repair — a difficult feat in a country currently suffering from its worst recession on record.

Nearly 150 deaths had been recorded at the time of publication following Tuesday's blast at the city's main port. More than 5,000 were had been injured and a further 300,000 were left homeless.

For Lebanon, the devastation from the explosion — likely caused by the ignition of 2,750 tonnes of ammonium nitrate — came as the country is wrestling with a dire economic situation and a global pandemic.

An economic crisis

The World Bank raised the alarm last November, warning that about a third of Lebanon's 6.1 million population were living under the poverty line in 2019 and that the percentage could rise to 50 per cent this year.

The Lebanese currency had, by then, already started its freefall and has since lost 80 per cent of its value against the US dollar.

The currency shock was precipitated by what has been described as a state-sponsored Ponzi scheme.

To keep the economy afloat, for years the central bank borrowed money from private banks. To attract more and more money and thus offer loans to the central bank, these financial institutions offered increasingly high interest rates to account holders — Lebanese citizens and diaspora.

But concerns over this system, political corruption and shrinking remittances from the diaspora eventually saw the money tap to the central bank run dry, crashing the whole system.

"The Lebanese lira had previously been used interchangeably with the US dollar at a fixed exchange rate. Lebanon imports most of its needs, including food," Hannes Baumann, Senior Lecturer at the University of Liverpool and visiting fellow at the LSE Middle East Centre, told Euronews.

"The declining value of the currency means that imports become unaffordable. Inflation has skyrocketed and many families are pushed below the poverty line. Many businesses had to close down. Many Lebanese will emigrate, with the most highly-educated and those with dual citizenship likely to leave first," he added.

What had not yet reared its head at the time, however, was the COVID-19 pandemic, which has since killed more than 715,000 people globally and devastated economies worldwide.

The International Monetary Fund (IMF) predicted in April — when most of humanity was under lockdown — that Lebanon's Gross Domestic Product (GDP) would shrink 12 per cent this year, following a 6.5 per cent drop in 2019. Inflation, meanwhile, was expected to skyrocket from 2.9 per cent last year to 17 per cent in 2020.

A political crisis

Following a traumatic 15-year civil war, Lebanon's political system was rebuilt in 1990 to give representation to various religious groups, the largest of which being Christian Maronites, Sunni Muslims, and Shiite Muslims.

The number of seats in parliament is split between Christians and Muslims and proportionally divided among the different denominations within each religion. Government posts and public-sector positions are also divided among the majority sects.

The president must always be a Maronite Christian, the prime minister a Sunni and the speaker of parliament a Shia, a rule which has mostly entrenched divisions.

The recent successive currency shocks have driven people into the streets in protest, which have at times turned violent. Protesters rail against widespread corruption and have repeatedly called on the government to step down.

According to the latest report from Transparency International, an anti-corruption NGO, 87 per cent of citizens in Lebanon think their government is not doing enough to tackle corruption. The country also has the highest bribery rate — 41 per cent — in the region.

The IMF, whose mission is to provide assistance to economies in distress, has been in negotiations with the country for months and progress has been slow.

Kristalina Georgieva told a Reuters webcast in late June that "the core of the issue is whether there can be unity of purpose in the country that can the carry forward a set of very tough but necessary measures" — the organisation is unsure if there's adequate political willpower to carry out crucially-needed reforms.

"Lebanon's political elites have been using reconstruction since the end of the civil war in 1990 to enrich themselves. Public services such as electricity, waste collection, or provision of clean water are woefully inadequate," Baumann said.

"The explosion fits this pattern: public agencies had been closing their eyes to the dangerous cargo stored in the port since 2013. The ultimate responsibility for the woeful state of public services lies with the governments since 2013, who have neglected to provide transparent and accountable administration," he added.

"An important point is also that foreign powers, from the US to Europe, from Saudi Arabia to Iran, indulged Lebanon's political class for years. A big chunk of the foreign aid to the country was used to bankroll politicians' patronage networks," he went on.

'No blank cheque'

Despite the sheer scale of the destruction and the threat of COVID-19, anger against the government over the explosion once more sent people out in the street in their droves on Thursday.

Earlier in the day, French President Emmanuel Macron had promised locals a "new political pact" following meetings with the country's president, prime minister and other political leaders.

Macron gave the government until September 1 to impose this pact, warning that there would be "no blank cheque to a system that doesn't have the confidence of the people".

He also pledged to help organise European and international aid to the country and promised that the funds would be channelled "directly towards NGOs".

For Baumann, "the government seems untenable, although what kind of cabinet would replace it is unclear".

"More concrete demands include an independent inquiry into the causes of the explosion, possibly an international one as state institutions are not trusted," he said.