Lebanon Leader Threatens to Abandon Ship During Largest Protests in Years

(Bloomberg) -- Tens of thousands of protesters set fires and cut off roads across Lebanon Friday, demanding the removal of a political class whose mismanagement and corruption they say has brought the economy to the brink of bankruptcy.

In a televised speech, Lebanese Prime Minister Saad Hariri gave his feuding coalition government a 72-hour deadline to get behind his plan for an economic overhaul or he would step aside and let them deal with a deepening crisis that has engulfed Lebanon in the biggest and most violent demonstrations in years.

Hariri accused his rivals inside the government of blocking measures that could unlock some $11 billion in international aid pledges and help restore investor confidence.

“If anyone thinks they have another solution” they are welcome to take power and try to implement it, Hariri said.

The ultimatum did little to ease anger on the streets, where protests were into their second night. Amid chants of “revolution” and “the people want the fall of the regime,” demonstrators burned tires, blocked roads and converged on the government headquarters in the upscale business district of Beirut.

As night fell, relatively peaceful protests in downtown Beirut descended into all out riots, with small groups of masked youths setting fires, smashing windows, overturning skips and throwing rocks at police who fired tear gas to disperse the crowd. With the violence worsening, large numbers of riot police and soldiers chased rioters down streets littered with debris and piles of broken glass. Army units deployed around Beirut to secure the streets.

The economic stakes are high for Lebanon, a tiny country that straddles the geopolitical fault-lines of the Middle East and has struggled to emerge from the shadow of a 15-year civil war that ended in 1990. One of the most indebted countries in the world, it needs to find fresh sources of funding as the foreign inflows on which it has traditionally relied have dried up. With the economy slowing and living standards falling, anger has grown at politicians who protesters say have lined their pockets at the public’s expense.

Fractious Government

The protests have increased pressure on Hariri, who heads a fractious coalition government that has struggled to overcome sectarian and political differences.

A Sunni Muslim, Hariri has been traditionally backed by Saudi Arabia, but the kingdom has withheld support in recent years as the Iranian-backed Hezbollah militia’s political influence in the government has grown. Saudi Arabia urged its citizens not to travel to Lebanon amid the violence, the official Saudi Press Agency said.

At the same time, Hezbollah-allied ministers and lawmakers have steadfastly opposed higher taxes and other difficult measures to spare their supporters further economic pain amid tightening U.S. sanctions on the group’s members and on its patron, Iran.

Lebanon on Edge as WhatsApp Tax Fuels Rage Over Austerity: Photo

The crisis has catapulted Lebanon into a new and unpredictable phase. If Hariri and his allies resign, Lebanon could end up with a government dominated by Hezbollah, making it even harder to attract investment from Gulf Arab countries or the West.

If it survives, few observers see how the government can overcome divisions that have already brought the economy to the precipice. Earlier in the day, Foreign Minister Gebran Bassil, a son-in-law of the president and opponent of Hariri, warned that the resignation of the government would lead to chaos and a collapse in Lebanon’s currency.

The International Monetary Fund projects Lebanon’s current-account deficit will reach almost 30% of gross domestic product by the end of this year. Amid the violence on Thursday, it issued a new report predicting that economic growth, stagnant at 0.3% in 2018, would continue to be weak amid political and economic uncertainty and a severe contraction in the real estate sector. Public debt is projected to increase to 155% of gross domestic product by the end of 2019, it said.

Persistent instability in Lebanon has shaken investor confidence and made it harder to revive an economy already struggling to absorb more than 1.5 million Syrian refugees who have fled the war next door.

The yield on Lebanon’s dollar bonds due in 2021 jumped more than two percentage points to 20.38% as of 10:44 a.m. in London, snapping six days of declines. The cost of insuring Lebanese debt against default climbed, with the nation’s five-year credit-default swaps rising 87 basis points to 1,262 -- the highest level on a closing basis since the start of the month.

WhatsApp Calls

Sporadic demonstrations have erupted for months in Lebanon as the economic crisis has led to shortages of dollars and threatened the pensions of retired soldiers, but the latest unrest is more widespread and violent.

Walls of burning tires and debris effectively severed the main thoroughfares at the northern and southern entrances of Beirut, and crowds also headed toward the presidential palace in Baabda, footage aired on Lebanese television stations showed.

The latest unrest was sparked by plans to impose a fee of 20 U.S. cents on the first WhatsApp call that users make every day. The government also discussed on Thursday a proposal for a gradual increase to value-added tax, currently at 11%, and levies on gasoline.

“The most problematic aspect of the crisis is that only large-scale fiscal reforms would help avoid financial collapse, yet these unpopular measures are incredibly difficult to approve and implement given the current unrest and potential for further backlash,” Ayham Kamel, Middle East Practice Head at Eurasia Group, said in a note.

To contact the reporters on this story: Lin Noueihed in Beirut at lnoueihed@bloomberg.net;Dana Khraiche in Beirut at dkhraiche@bloomberg.net

To contact the editors responsible for this story: Lin Noueihed at lnoueihed@bloomberg.net, Mark Williams

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