(Bloomberg Opinion) -- Even the worst periods of its 1975-90 civil war, Lebanon never failed to meet its basic obligations to creditors. Now, for the first time in its history, it has defaulted on a $1.2 billion Eurobond. Lebanon is in a perfect storm of crises – an inability to pay its debts, as exemplified by the default, and a chronic incapacity for political reform, which has fueled months of angry street protests.
The only reasonable way out for Prime Minister Hassan Diab’s government is to negotiate a restructuring of the country’s debt. Consultations with the International Monetary Fund are ongoing, and discussions with bondholders are to begin soon.
But a rescue package would likely involve a painful and politically damaging austerity program, and require serious economic and political reform. The Lebanese political elite would stand to lose not only a lot of its money, but also much of its power.
This is an unprecedented opportunity to impose change on this ossified, incompetent and self-serving class. But dislodging the privileges accrued over the decades will require political strength and a high order of fortitude. These qualities are lacking in Diab, who is beholden to the group that will most ferociously resist change: Hezbollah.
The Iranian-backed organization is determined to maintain its political and economic power, including its militia and network of businesses. The other prominent groups resistant to reform are Hezbollah’s Maronite allies, which are keen to preserve their community’s long-standing political privileges, including guaranteed sectarian overrepresentation in parliament and a lock on the presidency and other key government positions.
Standing against these special interests is Lebanon’s protest moment. This began last October as a revolt against corruption and economic inequity unfairness and corruption. The protesters soon realized that the economic mess was inextricably tied to a political system resistant to meaningful change. They have kept up the pressure, braving intimidation and outright violence by Hezbollah and security forces.
It is just conceivable that top-down pressure from financial institutions and bottom-up pressure from the street will create the perfect conditions for genuine, thoroughgoing economic and political reform. The mechanisms for change already exist in unfulfilled laws and agreements. Now the international community, working in tandem with Lebanese civil society and the protest movement, should insist that these neglected commitments be met.
Reforms can only happen under a strong, representative and trusted government. Such a government can only emerge from a new election. Lenders cannot insist on that directly. But they might be able to stipulate that, until such elections occur, any aid to Lebanon must be managed by a multilateral fund, and targeted at helping ordinary citizens meet their daily needs, rather than salvaging national institutions, the pressure for a vote could become overwhelming.
The protest movement has consistently demanded new elections to create a more representative and truly national government. In 2018, Lebanon held elections for the first time based on proportional representation, but gerrymandering, tiny districts and other mechanisms ensured that the old sectarian order was not disturbed. A crucial first step would be a shift towards real proportional representation with large districts, which would make parliament more accountable to voters.
Another step to break the stranglehold of the old order would be implementing the long-ignored Article 22 of the Constitution. It mandates the creation of a bicameral legislature, with a non-sectarian lower house that deals with social and economic issues and a confessional upper house responsible for military and foreign policy. There’s also Article 95, which calls for a national transition plan to end sectarian governance.
Elections with real proportional representation for a parliament with a mandate to begin implementing articles 22 and 95 would radically alter political calculations in the country and greatly empower the public.
Immediate structural changes should include strengthening judicial independence and, especially, the autonomy of the regulatory agencies whose negligence, corruption and dysfunction directly produced the debt crisis. These agencies should be accountable to the judiciary, not the ministries and industries they supposedly oversee.
Any government undertaking the kind of radical economic measures required to save the Lebanese economy must be honest and transparent with the public, as well providing basic services. Otherwise, most Lebanese will conclude that the government and elite are simply bailing themselves out at their expense.
Hezbollah will be loath to consider reforms that could challenge to its independent militias and state-like authority in much of the country. It has ignored the stipulations against militias in the 1989 Taif Agreement, and has made a mockery of the 2012 Baabda Declaration, which requires all Lebanese groups to avoid entanglement in regional conflicts.
But as the economic crisis deepens, some of Hezbollah’s constituencies are urging it to allow economic reforms and good-faith negotiations with lenders. Remarkably, it has been criticized for opposing an IMF bailout in the pages of one of its most supportive newspapers, Al Akhbar. Add to this the pressure from lenders and protesters, and even Hezbollah may find it has no choice but to put the national interest ahead of its privileges.
To contact the editor responsible for this story: Bobby Ghosh at aghosh73@bloomberg.net
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Hussein Ibish is a senior resident scholar at the Arab Gulf States Institute in Washington.
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