How Lebanon’s Unrest Is Both New and More of the Same

(Bloomberg) -- Lebanon is no stranger to conflict. The tiny country straddles the geopolitical fault lines of the Middle East and endured a 15-year civil war that ended in 1990. The latest unrest, which has forced the resignation of Prime Minister Saad Hariri, was triggered by pocketbook issues rather than sectarian violence or regional conflict. What remains to be seen is whether weeks of protests will secure a genuine change in the ruling system or breed further instability.

1. Will Hariri’s resignation end the protests?

Impromptu celebrations erupted in the capital after Hariri said he’d stand down, but protesters who remained on the streets insisted they’d press on until other top officials followed suit -- reflecting their demands that a political elite widely seen as corrupt and self-serving must go.

2. What started the protests?

The immediate trigger was a plan to impose a levy of 20 U.S. cents on the first call a user makes each day on WhatsApp, the otherwise free text-messaging and voice-calling app that has become an essential communication tool throughout the Middle East. But the new fee was really just the tipping point to months of public frustration over the government’s inability to navigate the country out of a looming debt crisis. Mobile-phone charges in Lebanon are among the most expensive in the region. To save money, many Lebanese rely heavily on WhatsApp, which is owned by Facebook Inc. In response to the protests, Hariri’s government quickly said it would scrap the levy, but the reversal came too late to calm public anger.

3. Why was the government ineffective on the economy?

Hariri’s administration was a fragile cohabitation of most of Lebanon’s political groupings, which made it difficult to get much done. Opposition to austerity measures, for instance, was led by ministers allied with Hezbollah, an Iranian-backed movement that belongs to the biggest coalition in parliament but is considered a terrorist group by the U.S. and some other nations. Some members of Hezbollah are under U.S. sanctions, as is its Iranian sponsor, making it harder for the group to rule Lebanon without partners. Hezbollah has rejected the idea of a government of technocrats, saying political factions would ultimately hold sway.

4. Who will lead Lebanon next?

President Michel Aoun will consult with parliamentary blocs to name a new prime minister who will be tasked with forming a government. In the meantime, the government continues in a caretaker capacity, unable to take the urgent steps needed to avoid an economic crisis. Demonstrators have called for a small cabinet of technocrats who can make reforms, hold corrupt officials to account and lead the country to early elections under a different voting law. It’s not clear if the country’s fractious politicians will be able to come up with a lineup that would satisfy protesters, and many are expecting Hariri to be tapped for the job again.

5. How bad is Lebanon’s economic plight?

One of the most indebted countries in the world, Lebanon is struggling to find fresh sources of funding as the foreign inflows on which it has traditionally relied have dried up. Promises of assistance from Saudi Arabia and Qatar, Lebanon’s former benefactors, have largely failed to arrive. The government needs to cut spending, raise tax revenue and fight corruption to unlock some $11 billion in international aid pledges made at a Paris donor conference in 2018. The WhatsApp levy was going to be part of that effort. The government had also discussed gradually increasing value-added tax, currently at 11%, and levies on gasoline as part of a planned austerity budget. Many Lebanese blame decades of cronyism, corruption and profiteering among the political class for the nation’s economic plight and have resisted efforts to make them pay the price for the country’s economic plight.

6. What solutions did Hariri suggest?

The government presented an emergency package that sought to address some of the protesters’ grievances by laying out plans to rescue the country’s finances, eliminate the budget deficit and fight corruption. The plan included a 50% reduction in the salaries of elected officials, a one-off tax on banks, no new taxes on ordinary people and a pledge to end electricity blackouts. It also envisaged easing the debt-servicing burden by asking the central bank to waive payments on high-yielding government debt that it holds. It wasn’t enough. The measures were rejected by protesters and criticized by economists as unrealistic, with Moody’s Investors Service warning that the reliance on central bank financing could undermine Lebanon’s currency peg.

7. What could this mean for the Middle East?

A power vacuum or other government failure in Lebanon could have ramifications for other conflicts that keep the region on edge, including the broader struggle for power between Iran and Saudi Arabia, and the conflict with neighboring Israel. Along with Russia and Iran, Hezbollah intervened in the Syrian civil war to help prop up President Bashar al-Assad. Hariri, on the other hand, is a Sunni Muslim traditionally backed by Saudi Arabia, and the region’s wider divisions often play out in this tiny country, with sometimes bloody results. Israeli officials have repeatedly said they consider Hezbollah, with an arsenal Israel estimates at more than 100,000 missiles, to be a major threat.

The Reference Shelf

• The IMF’s latest assessment on Lebanon.
• An explanation of WhatsApp’s popularity.
• Lebanon’s prime minister has a host of problems at the moment.
• In Bloomberg Opinion, Hussein Ibish from the Arab Gulf States Institute in Washington warned against abandoning Lebanon to Hezbollah domination.

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

To contact the editors responsible for this story: Mark Williams at mwilliams108@bloomberg.net, Laurence Arnold

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