Economic Research Forum (ERF)

How foreign powers could break Lebanon’s gridlock

695
It is well known that factionalism and corruption have long stood in the way of the kinds of structural reforms that Lebanon needs. But as this Project Syndicate column argues, an overlooked problem is the inaction of foreign powers that could easily compel domestic changes if they had the right incentives.

In a nutshell

The international community must reassess the costs of Lebanon’s perverse political equilibrium, and the country’s main foreign patrons must recognise that they ultimately share an interest in breaking the country’s institutional gridlock.

Without broadly coordinated action to tackle all corrupt elements without fear or favour, and to identify and seize all ill-gotten gains across multiple jurisdictions with varying legal structures, Lebanese elites will not be held accountable under the law.

Punitive measures need to be coordinated, consistent and credible: any foreign action needs to be backed by ample, transparent evidence against the accused, and it needs to adhere to due process under the relevant domestic and international laws.

Lebanon’s political economy is gridlocked. The country’s political leaders will not commit to the kinds of economic reforms that it needs, because doing so would undermine their own power. For good reason, most published analyses of Lebanon include references to problems such as corruption and institutional decadence. But what most commentaries miss is the role played by external stakeholders who see little reason to push for changes to the dysfunctional status quo.

While foreign powers with interests in Lebanon often do voice support for reforms, they lack the proper incentives to back up their rhetoric with concrete action, because doing so would simply undercut their own influence in the country. Meanwhile, the Lebanese people have been left to suffer at the hands of an oppressive economic structure. In 2021, the country’s GDP was just $20.5 billion, down from $55 billion in 2018. With poverty rates soaring and the currency having lost 90% of its value, the economy is teetering on the edge of collapse, and a humanitarian crisis is looming.

It doesn’t have to be this way. If foreign stakeholders wanted to effect positive change within the country, they would have many tools for doing so. They could easily tie the hands of Lebanon’s political elites by applying existing laws in their home countries, and by leveraging their influence over global financial institutions to hold politically exposed persons (PEPs) in Lebanon to account.

While the Lebanese authorities have largely failed to bring corrupt officials to justice, foreign disclosures of stolen wealth could still create the domestic pressure for change. For example, the SWIFT interbank messaging service for cross-border payments can be used to identify potentially corrupt wealth transfers made from Lebanon at any point over the past three decades. And information on property registries could be used to identify Lebanese public officeholders who might have accumulated assets beyond their means.

Moreover, British, US and EU financial agencies can make similar public disclosures using information from the Western banking system. The UK Financial Conduct Authority, US federal banking agencies and the European Commission all require financial-system ‘gatekeepers’ to perform enhanced checks on PEPs, their families and their close associates. Each jurisdiction recognises that there is a risk of PEPs abusing their positions and using the financial system to launder ill-gotten gains. Under existing laws, Lebanese oligarchs and officials can and should face enhanced scrutiny when they try to access these parts of the global financial system.

Lebanon’s foreign stakeholders thus have ample leverage with which to push for domestic reforms. The problem is that punitive measures can succeed only if they target all politicians, officials and bankers who may be involved in corruption, regardless of their political affiliations or foreign-policy positions. But owing to Lebanon’s complicated, factionalised domestic politics and its geo-strategic location, broad-brush enforcement tends to be a non-starter for foreign stakeholders, each of which has its own transactional, patronage relationships with various Lebanese political actors.

The United States, for example, wants to ensure that its allies in Lebanon vote in line with US interests in the ongoing negotiations over Lebanon’s southern maritime border. EU countries want their allies to oppose a ‘Going East’ campaign that envisions Lebanon (which currently gets 38% of its imports from Europe) deepening its economic ties with China, Russia and other countries. And Saudi Arabia and the United Arab Emirates want their allies in Lebanon to remain aligned with their own foreign-policy positions regarding Iran and Palestine.

Taken together, these strategic interests prevent foreign stakeholders from pursuing broad anti-corruption measures, because their own Lebanese allies could be ensnared. Without broadly coordinated action to tackle all corrupt elements without fear or favour, and to identify and seize all ill-gotten gains across multiple jurisdictions with varying legal structures, Lebanese elites will not be held accountable under the law. But no foreign power will implement punitive measures unless it is convinced that competing stakeholders will do the same.

In addition to being coordinated, punitive measures also need to be consistent and credible. Any foreign action needs to be backed by ample, transparent evidence against the accused, and it needs to adhere to due process under the relevant domestic and international laws. Lebanese citizens are more likely to trust actions by foreign powers if they can see that enforcement is not selective, discriminatory, or designed merely to advance narrow strategic objectives.

Equally important, law enforcement action must be used to catch the big fish, not just small-time operators. A good start would be to reckon with those Lebanese central bank officials who have already been credibly accused of corruption and collusion with political actors.

Coordinated action among strategic rivals is a tall order; but it is the only option. Lebanon’s institutional troubles cannot be wished away. The international community must reassess the costs of the country’s perverse political equilibrium, and Lebanon’s main foreign patrons must recognise that they ultimately share an interest in breaking the country’s institutional gridlock.

Lebanon’s foreign patrons are members of the G-20, which recognises the negative effect of corruption on economies. The G-20 Anti-Corruption Working Group can lead anti-corruption efforts in Lebanon, especially as it works with the International Monetary Fund, which is currently negotiating with Lebanon regarding conditional financial support, and the World Bank, whose Stolen Asset Recovery Initiative plays an advisory role on related issues, including asset recovery and anti-money laundering policies. In short, such existing initiatives of global governance could be harnessed to improve Lebanon’s governance.

In the absence of such coordinated global action, tensions in the country will escalate, resulting in a growing number of asylum-seekers, which will affect Europe in particular. Cyprus is already the EU member state with the highest number of asylum-seekers per capita, and the United Nations Refugee Agency, UNHCR, has reported a 160% rise in irregular migration attempts on the Lebanon-Cyprus route since 2019.

Greater emphasis should be placed on preventing displacement, rather than mitigating the refugee crisis through foreign aid. The diagnosis and the cure have been identified, but the physician still seems to have an incentive to keep the patient sick.

 

This article was originally published by Project Syndicate. Read the original article.

Most read

Green hydrogen production and exports: could MENA countries lead the way?

The Arab region stands at the threshold of a transformative opportunity to become a global leader in green hydrogen production and exports. But as this column explains, achieving this potential will require substantial investments, robust policy frameworks and a commitment to technological innovation.

Freedom: the missing piece in analysis of multidimensional wellbeing

Political philosophy has long emphasised the importance of freedom in shaping a meaningful life, yet it is consistently overlooked in assessments of human wellbeing across multiple dimensions. This column focuses on the freedom to express opinions, noting that it is shaped by both formal laws and informal social dynamics, fluctuating with the changing cultural context, particularly in the age of social media. Data on public opinion in Arab countries over the past decade are revealing about how this key freedom is perceived.

Climate change threats and how the Arab countries should respond

The Arab region is highly vulnerable to extreme events caused by climate change. This column outlines the threats and explores what can be done to ward off disaster, not least moving away from the extraction of fossil fuels and taking advantage of the opportunities in renewable energy generation. This would both mitigate the potential for further environmental damage and act as a catalyst for more and better jobs, higher incomes and improved social outcomes.

Child stunting in Tunisia: an alarming rise

Child stunting in Tunisia seemed to have fallen significantly over the past two decades. But as this column reports, new analysis indicates that the positive trend has now gone dramatically into reverse. Indeed, the evidence is unequivocal: the nutritional health of the country’s youngest citizens is rapidly deteriorating and requires immediate and decisive action.

Exchange rate undervaluation: the impact on participation in world trade

Can currency undervaluation influence participation in world trade through global value chains (GVC)? This column reports new evidence on the positive impact of an undervalued real exchange rate on the involvement of a country’s firms in GVCs. Undervaluation acts as an economy-wide industrial policy, supporting the competitiveness of national exports in foreign markets vis-à-vis those of other countries.

New horizons for economic transformation in the GCC countries

The countries of the Gulf Cooperation Council (GCC) have historically relied on hydrocarbons for economic growth. As this column explains ahead of a high-level ERF policy seminar in Dubai, emerging technologies like artificial intelligence, blockchain and robotics – what some call the fourth industrial revolution – present a unique opportunity for the region to reduce its dependence on oil and make the transition to a knowledge-based economy.

Egypt’s labour market: new survey data for evidence-based decision-making

As Egypt faces substantial social and economic shifts, understanding the labour market is crucial for designing policies that promote employment and inclusive economic growth. This column introduces the latest wave of the Egypt Labor Market Panel Survey, which provides fresh, nationally representative data that are vital for examining these dynamics.

Shifting public trust in governments across the Arab world

The Arab Spring, which began over a decade ago, was driven by popular distrust in governments of the region. The column reports on how public trust has shifted since then, drawing on survey data collected soon after the uprising and ten years later. The findings reveal a dynamic and often fragile landscape of trust in Arab governments from the early 2010s to the early 2020s. Growing distrust across many countries should raise concerns about future political and social instability.

Corruption in Iran: the role of oil rents

How do fluctuations in oil rents influence levels of corruption in Iran? This column reports the findings of new research, which examines the impact of increases in the country’s oil revenues on corruption, including the mechanisms through which the effects occur – higher inflation, greater public spending on the military and the weakness of democratic institutions.

More jobs, better jobs and inclusive jobs: the promise of renewable energy

Among the many economic and environmental challenges facing the countries of the Middle East and North Africa (MENA), two stand out: the need for jobs and the need to combat the threat of climate change by moving away from reliance on fossil fuels. As this column explains, embracing renewable energy technologies presents an opportunity for the region to diversify its economy, mitigate the possible negative impacts of digital technologies on existing jobs, reduce its carbon footprint and create significant levels of employment, particularly for women and the youth, across a variety of sectors.




LinkedIn