How the Beirut Explosion Will Worsen Lebanon’s Crises

(Bloomberg) --

Lebanon is no stranger to turmoil and devastation. The small country straddles the geopolitical fault lines of the Middle East and endured a 15-year civil war that ended in 1990. It’s also notorious for graft and mismanagement. In the latest blow, a massive blast ripped through the port in its capital, Beirut, on Aug. 4, killing more than 170 people, injuring thousands more and damaging buildings across the city. Officials have said it was caused by the detonation of a 2,750-ton stockpile of ammonium nitrate stored there, equal to 1,800 tons of TNT. The tragedy piled yet another layer of hardship on a country already reeling from its worst financial crisis in decades and struggling to contain a burgeoning coronavirus outbreak.

1. How will this affect the economy?

The badly damaged port facility, which was slowly resuming operations by Aug. 12, is Lebanon’s largest maritime gateway, and while the second-biggest port Tripoli has been designated as the alternative, authorities are worried how the import-dependent country will bring in badly needed food, medical supplies and other goods. Lebanon has already been struggling under the weight of its economic meltdown, with the rapid devaluation of the local currency and a volatile exchange rate on the black market fueling inflation, shuttering businesses and plunging many people into unemployment and poverty. Fuel shortages and bread lines have become common.

2. What’s happened to the government?

Prime Minister Hassan Diab’s government resigned on Aug. 10 as an outraged public demanded accountability for the nation’s biggest peacetime catastrophe. He blamed a corrupt political elite for sabotaging his administration and pledged punishment for those responsible. Diab’s predecessor, Saad Hariri, who governed for three years until January 2020, has said he doesn’t want to be prime minister again at this point. At least 20 people were in custody as of Aug. 13, including the current and former general managers of the Lebanese Customs and port officials. State prosecutors have questioned ranking security personnel, and finance and public-works ministers in office since the ammonium nitrate was unloaded at the port in late 2013 were also to be quizzed.

3. How serious is the social unrest?

Citizens already fed up with government mismanagement were furious that the blast originated from a stockpile of explosive materials left for six years at the port despite repeated safety warnings. On the weekend following the disaster, thousands gathered outside parliament calling for the removal of the ruling elite, in one instance briefly occupying several government buildings. Since then, dozens have been gathering daily, rioting and throwing rocks.

4. What help is Lebanon getting?

President Michel Aoun has estimated damage from the explosion at $15 billion, money the bankrupt government can’t afford. World leaders pledged almost $300 million in emergency support for the Lebanese people at a virtual donors’ conference on Aug. 9, and pledged to bring together “major resources” within weeks to address Beirut’s needs. They also urged Lebanon’s government to enact deep reforms to unlock broader financial support for the country’s battered economy. The United Nations World Food Program has promised 50,000 tons of wheat flour, enough to supply Lebanon for three months.

5. What needs to be done about the debt?

After defaulting on a Eurobond repayment in March 2020, Lebanon embarked on talks with the International Monetary Fund for a loan of some $10 billion to help rescue its economy. It is also trying to overhaul its debt stock of $90 billion, which, at 170% of gross domestic product, makes Lebanon one of the most indebted countries in the world. In a strongly worded statement at the end of the donors’ conference, IMF director Kristalina Georgieva said months of talks had “yet to yield results” as politicians and bankers remained divided over what needed to be done. She set out four conditions including restoring the financial solvency of the state, cutting losses at state-owned companies, passing a law to regulate capital outflows and setting up a social safety net, as requirements for talks to move forward.

6. How has the coronavirus complicated matters?

Apart from the huge political and economic challenges, Beirut also faces a public health crisis. The explosion put three major hospitals out of action and incapacitated more than two dozen clinics, hindering the health system’s ability to respond to a spike in Covid-19 cases. Lebanon had successfully prevented its spread through a mix of travel restrictions, school closures and lockdowns but cases had begun to rise rapidly in the weeks before the blast. As casualties from the explosion surged into hospitals, social distancing became impossible and masks and gloves were often forgotten. Public hospitals have limited intensive care capacity and have at times been forced to turn off air conditioning and delay surgeries due to fuel shortages.

The Reference Shelf

• A Human Rights Watch report on how the Lebanese economic crisis is affecting hospitals.
• A World Bank report on reducing poverty in Lebanon.
• An IMF report on Lebanon’s economy.
• Council on Foreign Relations studies on Lebanese protests and Hezbollah.
• A Chatham House analysis of Lebanon’s “dysfunctional politics.”
• A Bloomberg Opinion article on “Reform or Ruin for Lebanon,” by Hussein Ibish.
• A Bloomberg Opinion article on Beirut posing a “Dilemma for the World”, by Bobby Ghosh.

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