Expecting salvation from Cedre is like hoping to transform water into yogurt

With the third highest public debt, Lebanon’s quest to escape economic collapse is little short of planning policy based on a miracle.
Sunday 01/04/2018
Help needed. Lebanese pound banknotes are displayed at a money exchange shop in Beirut. (Reuters)
Help needed. Lebanese pound banknotes are displayed at a money exchange shop in Beirut. (Reuters)

Two drunkards are on an isolated beach aimlessly staring at the water. Suddenly one of them looks to the other and asks: “Can you turn seawater into yogurt?” The other man replies: “That’s absurd; it is impossible to make yogurt that way.” He pauses before adding: “If we could make yogurt out of seawater, can you imagine how delicious it would taste?”

This comical anecdote perfectly encapsulates how many Lebanese policymakers view the challenges of governance and reform. With the third highest public debt (150% of GDP) — trailing Japan (239%) and Greece (181%) — Lebanon’s quest to escape economic collapse is little short of planning policy based on a miracle.

For evidence, look at successive governments’ harnessing of an absence of vision with a dearth of resolve to produce little but the accumulation of more than $80 billion in debt.

Lebanon has relied on the kindness of the international community, more specifically the kindness of the Gulf counties, which were quick to offer grants and soft loans, most recently at the Paris III conference in January 2007. The meeting was intended to support Lebanon’s reconstruction efforts after the war between Hezbollah and Israel the previous summer.

Currently, the government of Prime Minister Saad Hariri is preparing for a new round of fundraising, not to say begging, as it heads to the much-anticipated Cedre conference April 6 in Paris. Hariri, with his late father’s shadow hanging over him, has confirmed that Lebanon’s aim is to solicit donors with a set of projects and investment opportunities in the hope of realising some $16 billion in funding. It sounds grossly ambitious but it’s essentially attainable.

However, it involves many prerequisites and structural reforms that the Lebanese government must implement before it can get its hands on that much-needed funding.

While Lebanon’s path to financial security might seem to be fully mapped out by Hariri and his overzealous economic team, the signs are pointing to the Cedre conference amounting to little more than one more chance for the ruling establishment to disappoint.

The timing of the conference begs several questions, coming as it does one month before the much anticipated and delayed parliamentary elections, after which the current cabinet will enter a caretaker position. There are no guarantees that Hariri will score especially high in the vote or that he will be tasked with forming a new government. However, his public statements and those of his associates appear to belie that fact.

This Cedre conference, contrary to previous ones, involves more loans than grants. Unlike most of the Lebanese debt, which is owned by the country’s banks, the loans will expose Lebanon to more dangerous external creditors. From a risk perspective, Lebanon would be opening its local assets to foreign entities, if and when Lebanon defaults, will not hesitate to foreclose and collect on the debts.

Compounding the difficulties are constitutional concerns, with any foreign financial obligation subject to approval by parliament, something that will be difficult to achieve before the end of summer. Coincidently, the new parliament would be left with no option but to endorse the obligations, even though they were made by a previous administration, one that used promises of prosperity to salvage its crumbling political and regional status.

Procedural technicalities aside, the approach of the Lebanese ruling establishment to the Cedre conference reveals its essential flippancy to the prospect of reform and economic recovery. Hariri and 16 of his cabinet members are all running for parliament and most of them have been using the conference — a clear breach of the state’s political neutrality — to muster much-needed votes.

Lebanese President Michel Aoun, Hariri’s political partner at the helm of this sinking ship, recently warned that “the country is bankrupt” and urged the incoming parliament to take a tougher stance on economic reform and corruption than its predecessor.

However, as scare tactics go it’s not much. Aoun and Hariri both insist that costly projects be implemented over the objections of their colleagues in the cabinet — the leasing of Turkish power-generating ships being a case in point.

Going further, any serious talk of reform, therefore, must fully tackle the preposterous failure of the Lebanese state to manage the electricity sector, which costs Lebanon $2 billion yearly and $33 billion since 1993, something which Hariri and his government continue to avoid.

Hariri will make the trip to Paris and will put on an appropriately theatrical performance. He will issue economic pledges and commit to economic and structural reforms. However, at the end of the day, looking at the choices the Lebanese have made, hopes for genuine economic salvation coming from Paris is like hoping to transform water into yogurt, little but the whimsical fancies of a drunk at the beach staring out to the sea.