A MESSAGE FROM THE PRESIDENT
We are committed to keeping our members and communities informed. This is a tough climate for all of us and it changes every day. We commit to dedicating our efforts towards ensuring our partners and their teams feel supported no matter how uncertain this current journey may seem.
– Pierre Achkar
President
Lebanese Hotel Association
president@lebhoa.com
Economy in Free Fall & Poverty on Increase
It’s an economic crisis, a financial crisis, a political crisis, a health crisis and the explosion in Beirut, which has been declared a “disaster city,” will only pile more pressure on the economy.
The country is steeped in an economic, financial and social crisis, which very weak institutions appear unable to address. The currency’s collapse and the related surge in inflation create a “highly unstable environment”.
Already in November 2019, the World Bank warned that the poverty rate may rise to 50 per cent and that the poor and the middle class may be hurt especially. By January 2020, a social affairs ministry spokesperson said the rate may even reach 70 per cent and reported that many public-school students in peripheral areas such as the Beqaa valley were showing signs of malnutrition. Knock-on effects may include the closure of many private schools, which serve more than half of Lebanese students, by the academic year’s end, as parents who lose their jobs or are on reduced salaries amid the inflation will no longer be able to afford fees, forcing students into the overloaded public school system. In early December, several suicides apparently triggered by economic hardship highlighted the pressure that many people face.
In the past year, a breakdown in the country’s banking system and skyrocketing inflation had triggered mass protests. Even before the Covid-19 pandemic hit, the World Bank projected that 45% of people in Lebanon would be below the poverty line in 2020.
The International Monetary Fund last forecast that Lebanon’s economy — beset by soaring food prices, a collapsing currency and Covid-19 — would
contract by 12% this year. That’s far worse than the 4.7% average drop in output forecast for the Middle East and central Asia.
The fiscal crisis that the COVID-19 pandemic magnified pushed the Lebanese economy into a downward spiral toward recession, soaring inflation, mass unemployment, shortages of imported goods and state insolvency. While the social impact of the crisis is still emerging, it will doubtless be severe.
The country defaulted on some of its debt in March. And Moody’s cut Lebanon’s credit rating to its lowest rank. It’s now on par with Venezuela.
The cataclysmic blast in Beirut is poised to send an economy already deep in crisis hurtling toward a dangerous unknown, whereas the economic situation in Lebanon was grim before the explosion.
The people who were in the streets since mid-November, were protesting because they want a better country but today, they will come out because they can’t feed their children. This will look very different from what we have seen before.
The danger that such events could spin out of control is difficult to assess, as is security forces’ capacity to control the situation. Since the beginning of the protests in October, soldiers and policemen have served under challenging circumstances. Like others, they have seen the value of their already modest salaries depreciate and their savings frozen. How they will hold up if new protests erupt and turn violent is difficult to predict.
Lebanon is a New Focal Point
More than the tangible destruction, the explosion in the port of Beirut meant the ultimate destruction of hope for many civilians. For weeks, residents of the Lebanese capital demonstrated against mismanagement and economic uncertainty. The explosion, which originated in a government depot, confirmed the catastrophic condition of the country.
However, the impact continues. Beirut was long the last piece of Europe in the Middle East, a free-spirited metropolis on the Eastern Mediterranean coast. That position also takes a hit. We will not solve that with some European emergency aid. For decades Lebanon has been balancing between East and West. The bourgeoisie in the coastal cities had an orientation towards Europe and the United States. The Lebanese gastronomy and the wine châteaux conquered the European market in the best style.
The country’s economic and political challenges have been building up for a long time, sparking massive demonstrations against corruption and for democracy preservation and culminating in the unstable government’s request for international financial assistance. Lebanon has been a failing state for years, but little had been done to turn the tide.
European development aid fluctuated around €160m per year. And in fact, almost everyone knew that this was not a solution. The impact of the crisis is catastrophic, especially in the cities. City dwellers try to leave or survive thanks to money from relatives abroad.
The main short-term consequence is fragmentation and criminalisation. In the long term, it remains to be seen in which sphere of influence Lebanon ends up. Lebanon, still an important transit zone between the Mediterranean and the Middle East, thus becomes a new focal point in superpower politics.
European emergency aid is important now. But more is needed in the long term. Above all, Europe must decide for itself whether it wants to give up more ground, see another country collapse from instability, see a last free port in the Middle East disappear, give competitors a new base to the Mediterranean – its mythological cradle wants to give up.
After all, according to tradition, Europe was a Lebanese princess, chased by the Greek supreme god.
CONCLUSION
Lebanon has entered a dark tunnel that may run deep and take several more turns. In the end, the crisis of the post-civil war political model and a rekindled urge to engage in public affairs could help move discussions away from bickering over shares in clientelist schemes. Of course, there still will be fuel for debate: on whether Lebanon should stick to a free-market economy or adopt aspects of a developmental state, on how and at what pace sectarian representation in politics should be abolished (as stipulated by the 1990 constitution), and on whether the country should take sides (and which side) in regional conflicts.
