Open Letter to Prime Minister Saad Hariri: Lebanon Needs Less Debt Not More

In your recent visit to Washington DC, Prime Minister, you announced that the Lebanese government wanted to get the country back into strong economic growth, in order to create jobs. For this to happen, you declared that your government’s plan requires the world to pitch-in to the tune of about $14 Billion in grants and soft loans over a seven-year period. I hate to break it to you Prime Minister, but the sort of economic help you are passing the hat around for will not likely be forthcoming—not in the short, medium, or long term. The reasons for this rather austere assessment are several:

First, the world is currently not placing Lebanon in the priority column. It has been a quarter of a century since Lebanon’s civil war ended, and the country has received its fair share of financial support through multiple international donor conferences. At a time when places such a Yemen, Syria, and Libya are being torn apart with massive destruction, social displacement, and economic calamity, the international community has much more pressing regional matters. That is not to say that Lebanon may not be supported (militarily or for hosting Syrian refugees), but expectations will need to be more grounded.

Second, the international community has quite serious concerns on the merit of guardianship of large sums of grants and soft loans by a government, which has done little to tackle reform and corruption. Lebanon ranks quite dismally when it comes to Transparency International’s Corruption Perceptions (as of this writing, it is ranked 136 out of 176, with a very low score of 25 out of 100). Lebanon’s fiscal mismanagement is well known in international circles. At the end of the civil war, the nation’s debt was a mere $3 Billion, which was 30% of GDP. Now it is a whopping $71 Billion, which is more than 146% of Lebanon’s GDP (Credit Libanais, 2016), with very little to show for in terms of infrastructure and public services. Debt servicing now takes up more than 50% of the government’s budget with little room left for any fiscal stimulus programs. Ironically, almost all this debt occurred under governments led by your party. Is it a wonder then, that the little (non-military) aid that Lebanon recently received has rarely ever gone through the Lebanese government, but rather through International NGOs?

Third, Lebanon’s Central Bank (BDL) currently has more than $53 Billion in International Reserves, which is almost 120% of GDP. Lebanon’s reserves are higher than Kuwait’s, Denmark’s, Sweden’s, Colombia’s—and even Egypt’s—a country with 20 times the population and almost 10 times the GDP. Furthermore, Lebanon has advertised quite heavily its reserves of oil, and has even invited global oil companies to participate. It is estimated that the reserves could sum to somewhere between $200 Billion and $600 Billion. This begs the question: Why would any other nation support a country that sits on this type of wealth?

Fourth, assuming all the above concerns are somehow miraculously overcome, there is no reason to believe the Lebanese themselves want their nation to be burdened with more debt. What they seem to prefer is a sustainable economic model that provides opportunity and shares in the wealth. Unfortunately, Lebanon’s economy has become an oligopoly of sorts with a vast and growing chasm between the few rich and the growing poor. Lebanon’s Gini coefficient according to the World Bank, is among the world’s highest with 0.3% of the population owning 50% of the country’s wealth—a powder keg waiting to explode. Barring the Lebanese banking sector and some limited (albeit encouraging) recent activity in a nascent tech sector (also funded by the Central Bank), there does not seem to be much emphasis on other sectors such as agriculture, industry, or transportation—all decimated after years of abandon. Tourism is also suffering due to the country’s embarrassingly short-sighted abuse of its environment and beaches. Beirut’s sewage spewing into the Mediterranean can literally be seen by anyone flying overhead. The ill-named, sadly-positioned, and terribly malodorous garbage dumps north and south of the capital are a daily reminder of mismanagement; ironically while Lebanon’s infamous Costa Brava dump on the Mediterranean turns tourists away, Spain’s famous Costa Brava attracts them in hordes with 75 million expected this year alone. Is this the sustainable economic model that will induce increasingly thrifty European or American policy-makers to believe in investing in Lebanon’s future?

Prime Minister, with all the above in mind, the last thing the country needs right now is more international loans (soft or otherwise). It first needs to plug the holes of wasteful infrastructure such as energy and water. It should then launch small business job-inducing projects (industry, environment, and agriculture). Most importantly, the government should seriously consider having the Lebanese Central Bank pay down part of the national debt from its $53 Billion foreign reserves. This would give the government the ability to fund more growth-inducing fiscal policies from the resulting savings on interest. If, for instance, we calculate that $13 Billion of the national debt can be paid off at an average interest rate of 8%, this would save the government over the next 7 years close to $7 Billion, which could be deployed to reduce national unemployment, improve national infrastructure, and boost industry and growth. Lower debt-to-GDP will also work to improve confidence, debt ratings, and in the process lower interest rates. BDL would still have a safety net of $40 Billion in reserves, almost equaling the nation’s GDP.

In conclusion, the Lebanese government needs to start thinking in terms of self-sufficiency at dimensions that the Lebanese are willing to accept and the international community to digest. The government should abandon the quest for more loans; Lebanon needs less debt not more.

LDE's Expat Citizenship Decree Misses the Point: Citizenship without Rights Is Worthless

Recently the Lebanese Diaspora Energy event was held in Lebanon under the auspices of the President of the Republic. During the event, Lebanon’s President and Prime Minister signed a decree allowing Expats to “retain” their Lebanese citizenship.

While initiatives to engage Lebanese expats are generally welcome and in some circles seen as badly needed, considering the state of the nation, the likely results are not clear. In the very least, this decree raises some key questions:

First, it is unclear what the purpose of the decree really is. After all, there has been a law on the books since 1925 (Decree #15) to allow Lebanese descendants born outside of Lebanese territories to get their citizenship, if they could prove paternal linkage (not maternal unfortunately). So how is this decree any different, except for some slightly added expediency?

Second, how would such a law serve the expats if they do not plan on living, working, or retiring in Lebanon? After all, the vast majority of Lebanese expats worldwide will unlikely return, nor can the nation really afford them to—since according to the World Bank, on a per capita basis they make six folds what their homeland compatriots make, repatriating more than 20% of the country’s GDP.

Third, in certain countries, including some significant ones in Europe, dual citizenship is not allowed. What incentive would Lebanese expats, let alone their descendants, have in acquiring the Lebanese citizenship at the expense of a much more valuable citizenship that costs them much less. For instance, the German passport allows its holders to travel visa-free to more than 176 countries worldwide and barely costs 80 Euros for 10 years. The Lebanese passport gives access to 32 countries and costs 200 Euros for 5 years. Meaning, the privilege of having a Lebanese passport costs its holder a whopping TWENTY-FIVE times the German passport not counting the cost of visas!

Fourth, if voting is the purpose of retaining the Lebanese citizenship, how many Lebanese are likely to be interested in Lebanese sectarian politics, given the very little change that it causes and the highly fractious state of the nation. Personally, I left Lebanon in the late 1980’s, and the same exact political leaders--to the man—are still in power even though the country has gone through crisis after another. Is it a wonder that of the millions of Lebanese expats less than 10,000 actually registered overseas to vote in the last parliamentary elections held in 2008?

And last but certainly not least, why would any Lebanese expat who has acquired full rights in his adopted land ask for a citizenship that may take it away from them and their families? My Lebanese sister’s children could have become American citizens, but never Lebanese, because she had a non-Lebanese husband. My friend’s children cannot inherit in Lebanon, nor can their mother because the mother is non-Lebanese and from a different religion; but they would inherit in Europe without a problem. My own son can run for any public sector job in the United States or Colombia, including for President if he wishes to, but not in Lebanon because of the sectarian constitution. Most of us expats across the world have rights to clean air, pure water, and electricity—none of which Lebanon assures. We have a right to peace and quiet in green parks, public beaches, and a clean environment. Can Lebanon offer any of this? By law, we have access to public libraries to assure fair knowledge transfer. Lebanon has yet to open its doors to the public to its national library in Sanayeh since 2014, even though its built and ready. Instead its entrance is shamefully sealed with 10 foot concrete walls. Where expats immigrated generally provides a fair economic safety net and healthcare in case things go wrong. Can a retained Lebanese citizenship provide this, knowing the state of the bankrupt Social Security fund? And finally, we have equal rights in front of the law with any other citizen from any other background, regardless of creed, color, or economic background. Can Lebanon guarantee this?

The government’s attempt to engage with Lebanese expats through LDE, its foreign delegations, and this citizenship decree while perhaps well-intentioned appears to miss the point. We expats all left Lebanon because Lebanon did not offer us the rights and opportunities we aspire. In this day and age of globalization and border-less connectivity, brandishing the right of citizenship that offers no rights is worthless. Unfortunately, signing decrees that give Expats rights they have had for a century but walked away from is the wrong way of looking at the problem. Rather, giving ALL the Lebanese (including Expats) ALL the rights that we Expats enjoy may be a smarter way.

Lebanon has to learn to compete harder on a global level if it sincerely wants to get its Expats back. For only then could Lebanon ever hope to rise to a level beyond the tenuous emotional attachment and get its Expats around the globe to be truly interested. Harsh reality perhaps, but unfortunately anything less will prove to be little more than a photo op and yet another wasted opportunity for Lebanon to benefit from the Lebanese Diaspora’s true Energy potential.

The Irrelevance of Election Law to Lebanese Expats

Recently, there has been much discussion in Lebanon about the upcoming parliamentary elections in terms of what law would be adopted and its effects? Expats themselves are asking what are the true implications and will election results truly make a difference one way or the other?

The debate centers around the ideal formula to be utilized for the next parliamentary elections. The existing election law was fundamentally passed in 1960 under the Administration of President Chehab; and yet from recent declarations made, no parliamentarian seems to like it—even though ironically it brought them into parliament. The 1960 law has mid-sized districts, and is based on a winner-take-all model within each district, which, it is often argued, may not give much voice to minorities. So, one group is demanding that the 1960 law be replaced with one with smaller districts gerrymandered around religious community clusters—basically each community is segregated and votes for its own sect, assuring itself of parliamentary representation. The opposing group prefers larger districting, which while merging different communities within one voting district, aims to assure proportional representation to everyone, large or small. Seeing that none of the options are likely to pass, a third group has been seeking compromise by introducing a law that mixes both with some regions doing it one way and others another way. Adding a pinch of intrigue into the boiling pot has been the possible introduction of a senate, which aims to allow the vote to be one way in a newly created Senate (presumably to keep a sectarian balance locked) while the house would be transformed to a more proportional vote.

Of course, the backdrop to all this debate is that the Lebanese parliament has been unable to find an “acceptable” alternative election law for almost a decade, renewing its own term twice already since 2009. With the current discussion having reached yet another deadlock, it seems increasingly likely that a third extension might be called for. This has both infuriated and mobilized civil society, who claim that at this point a vote under any law, would be better than none at all. While there may not be much of a consensus in the country, there does appear to be a sense that parliament extending its own term a third time borders on abuse.

Where do the Expats figure in all this and what are their thoughts on it? As of 2008 and for the very first time, Expats obtained the right to vote in their foreign place of residence. Not many registered or voted back then. The question now is would more of them even bother? For one, most Expats are not fans of this parliament. They have not forgotten that this was the same parliament, which shirked in its basic duties to elect a President or a Prime Minister on time. Expats have not forgotten the eternal postponement of very critical pieces of legislation, which had to do with transcendental issues such as the budget, the environment, and the exploitation of natural resources—all of which have had dire economic consequences. They have not forgotten that this was the very same parliament, which while repeatedly shelving pay raises for public employees, found it quite convenient to give its own members pay-raises and then impose controversial new taxes on the people. And lastly, they have not forgotten that this parliament has yet to pass a 2012 draft law giving Expats their very own representatives within parliament.

While they would like to see change happen, Expats approach the current election law debate with a healthy dose of skepticism. They see it as futile tweaking, which generates little more than a tug war between the controlling parties, to gerrymander and choose their own electors as opposed to having the electors chose them. Expats also scoff at the thought of creating a Senate, which under the existing system not only would add an unnecessary extra layer of complexity, but would increasingly tighten the noose on an already suffocating political system. If over the past decade, the Lebanese parliament was barely able to pass any meaningful legislation, Expats ask, how likely is it to do any better with the extra approval step of an even more sectarian Senate? To truly begin making a difference, Expats believe that the Lebanese political system must first and foremost be driven towards more open election choices, which reduce sectarian gerrymandering not increase it-in line with what is stated in the Lebanese Constitution.

What will Expats do? First, they are fully aware that they do not currently have much political power nor will they likely have any meaningful representation any time soon. But they also realize that they can vote with their feet and with their wallets. In 2009, for instance, out of the millions of Lebanese Expats globally, less than 10,000 actually registered to vote, and only a portion voted—meaning they voted with their feet to stay away from a system, which is alien and irrelevant to them and the lives they lead abroad. This trend will not likely change as Expats will continue to feel disenfranchised and won’t feel compelled to waste their time voting for the same faces, by using tweaked laws. As importantly, Expats will continue to vote with their wallets; and at this point it is safe to say they are not scurrying to invest in Lebanon or change their touristic support, especially not after the serious environmental degradation, sea-side garbage dump debacles, and illegal beach grabs.

Instead, Expats are likely to take a wait and see course of action, entertaining the incumbent political class’ oligarchic hold on the Lebanese political system and all the futile attempts at mask-taping what is clearly broken. Like most Lebanese, they see major economic and political storms on the horizon; and they wonder if it would not be wiser to let it all fall on those who created the mess in the first place and those continuing to refuse serious reform. As such, they ask: What is the point of fiddling with the election law to begin with?

Mandating the Fate of Lebanon's New Tax Law

The current government in Lebanon hit a brick wall this week when it tried to pass a tax bill aimed at funding long overdue pay raises to public sector employees and teachers. To fund the estimated $1 Billion needed to cover this expenditure, the government proposed no less than a whopping 27-tax increases across the board. No sooner had the laws been passed by parliament, with few objections, then dissent rose all over the nation.

Of course, proponents of the taxes tried to argue that anyone who opposes them is actually opposed to the pay raises themselves. They added that the pay increases will generate positive economic activity, far outweighing the potential cost of the tax. Prime Minister Saad Hariri, whose cabinet is behind the tax law, somewhat disingenuously invited anyone with a better solution to come to the seat of government and propose it. Those protesting the tax, appear to have taken up his offer, heading straight to the Saray to demand that the tax increases be abolished. They retorted that the state of the economy is in such shambles, any new taxes will hurt businesses, working classes, and the poor. “Go get your taxes from the multi-millionaires, not from those working two or three jobs to make ends meet,” they cried.

Somewhat lost in the ensuing mayhem are the following questions:

First, who gave this Lebanese parliament the popular mandate to raise taxes to begin with? After all, this parliament has postponed elections twice self-extending its term, and many are expecting them to do it a third time. And while some may dispute legitimacy, even if one were to assume it, at this point does anyone in the Lebanese parliament truly believe that they have any extra-ordinary popular mandate to carry out sweeping tax changes of such magnitude?

Second, where is the cabinet itself drawing its mandate from? In reality, it was voted in by the same parliament in question, casting doubt on its own mandate. But again, even if it’s given the benefit of the doubt, wasn’t the primary job of this cabinet simply to ensure proper parliamentary elections, paving the way for a new cabinet? Or is this Prime Minister under some illusion that his government has a popular mandate to pass any and all taxes necessary? If so, and judging by the immediate popular outcry, it seems the Prime Minister has miscalculated.

While constitutionally, some may argue that it is within the prerogative of both of these branches of government to pass tax laws, political savvy suggests carrying it through without holding a clear mandate would be unwise. Why? Primarily to avoid suffering the consequences of a popular backlash and the subsequent voter punishment at the ballot box. Unfortunately, at this juncture it seems the cabinet had not fully thought through the consequences of legislating without a clear popular mandate nor one strong enough to allow it to pass any substantial piece of legislation, least of all sweeping tax change.

This begs the third and final question: How can a mandate be retained? Quite simply through elections. In other words, the strength of a mandate is directly proportional to the proximity of the latest elections. The more distant the elections, the weaker the mandate. It is no wonder that Presidents and cabinets all over the democratic world usually begin with very strong mandates and end in what is typically referred to as “lame duck” rule. The same has been the case in Lebanon where Presidents and cabinets who begin with strong mandates, when controversially over-extended, typically face substantial erosion. And when this occurs, only immediately called-for elections renew the mandate.

As it stands in Lebanon, the repeated extensions of parliament’s terms have served to weaken its mandate as well as that of the cabinet. Under such circumstances, it is quite difficult to discern any sustainable scenario in which fiscally painful reform or new tax laws of any kind could withstand the inevitable popular backlash. As such, both the cabinet and parliament would be well advised to either change the tax base or shelf their tax plan altogether and call for fresh parliamentary elections as soon as possible. Nothing less will re-establish the pre-requisite mandate needed for real change.