Haneen Sayed: Lebanon's Economic Crisis

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Dr. Jon Alterman: Haneen Sayed is a human development specialist living in Lebanon. Previously, she was the lead specialist at the World Bank working on human development and social protection in the Middle East and North Africa. Haneen, welcome to Babel.
Shirin Hakim: Thank you. Thank you for having me.
Jon Alterman: The World Bank recently said that the economic crisis in Lebanon may be one of the three worst economic crises in the world in the last 150 years. Can you just help us capture what life in Lebanon was like in 2019 before the crisis started, and what it's like now?
Haneen Sayed: It's erroneous to say that everything was rosy in 2019. While there was economic growth, the eruption of the Syrian conflict in 2011 placed a significant burden on the economy, especially as almost a million and a half Syrians sought refuge in Lebanon, which has a population of only 4 million.
The Syrian conflict also disrupted trade and foreign direct investment into Lebanon, so growth actually plummeted. So even in 2019, the country was experiencing negative growth and people were feeling it as inflation rose. This rise in inflation triggered protests not only about the economic situation but also the overall political situation.
Now, Lebanon has experienced three or four years of deep economic crises. Lebanon does not have a president or a governor of its central bank. Instead, there is a caretaker government with a vague internal security position and a head of the army whose tenure will be over.
These issues cannot be resolved until the presidential elections take place, which would help fill many key positions and implement reforms. In the meantime, the population is being impoverished. Basic services, such as education, healthcare, and electricity, are not being provided. The public sector has collapsed—entirely collapsed.
Today, GDP has been cut by probably 40 percent. The Lebanese pound has lost almost 90 percent of its value. Inflation is extremely high. Europe talks about 5 or 6 or 10 percent inflation as being very alarming. Well, Lebanon’s food inflation was over 300 percent last year. According to the UN, poverty has gone up to 50 or 60 percent, where it used to be 20 percent.
Jon Alterman: You mentioned that there's a political aspect to it. The way I studied political science in college, there was a sense that in a system where you have elections, when things get bad, people throw out the current political leadership and bring in new political leadership.
Yet, it seems that not only have elections not changed the political or economic situation in Lebanon, but there also hasn't been pressure outside of the electoral process. People haven't taken to the streets in large numbers or disrupted life, because life now is intolerable. People seem to be hunkering down. It’s puzzling that a system where there’s free expression and a lot of political freedoms hasn’t seen accompanying political change to this really dislocating economic environment.
Haneen Sayed: Now, that's a very important observation. Even for us living through it—and I have been living here for more than 15 years and have lived through multiple crises—it is hard to understand why there isn’t this real revolution out on the street.
There were mass protests in 2019, and to some extent in 2020, but they were essentially crushed by force. While Lebanon has some elements of a democratic state, including free speech, there is a really fractured political situation. There is no one leader people can go after, like what happened in the rest of the Arab world during the Arab Spring. There are multiple political heads and warlords from the relic of the civil war who continue to be in power, so it is not easy to make change.
There is also a question of why people vote everybody back into office. By the time parliamentary elections rolled around, people were really tired. There was also a failure of political parties and alternatives to come up with a new vision, with new leadership that could lead the country out of where it was. Additionally, there was a lot of fragmentation in the political system. This was only worsened by the highly confessional setup also in Lebanon, which makes it harder to achieve change.
In my opinion, people react out of fear, thinking that what they know now is better than the unknown, and maybe fearing that the whole place will collapse since there was not a credible alternative.
Jon Alterman: Lebanon also had a long and grueling civil war for about 15 years. To what extent are memories of the war and its lingering effects leading Lebanese to say that change does not work? Is there a fear in Lebanon that if you push it too far, it could tip into war again?
Haneen Sayed: Yes, that fear is always there. It's not even a long-ago memory; it's very recent. Right now, there are problems arising on the border in the South and North. Lebanese are always wary of the stability and the security situation in the country.
This fear of reaching the brink and needing to pull back, however, makes fundamental change very hard to come by. Many people in Lebanon believe that the system has to entirely collapse to be able to rebuild something new.
Jon Alterman: The international donor community—which includes the World Bank, the IMF, United States, France, and potentially the Gulf countries—is fairly united on trying to extract a certain number of changes from Lebanon in exchange for financial assistance. Lebanon has not made the changes. The financial assistance has not yet come. Do you expect that this is going to reach a breaking point that the Lebanese system will feel it has to change to secure this aid? Or do you think this is just able to stumble along?
Haneen Sayed: The political system is sort of using the word resilience here in a negative way. It has this capacity to just keep going as the political parties and the political heads make deals.
In the past, Lebanon has gone to several international conferences, like Paris I, Paris II, and Paris III, asking for financial aid from the international community conditioned on reform. They have gotten the money but have not implemented the reforms. Now, the international community is tired and saying, "Well, you know, you really have to show the reform before we give you the money."
Unfortunately, the deterioration and stubbornness of the system won’t let it yield to international pressure. They can still hold on for a little bit.
Right now, there is a seasonal influx of tourists and especially diaspora Lebanese coming for the summer. As a result, social media content shows a Lebanon where people are partying and dancing, and restaurants are full, and the beaches are among the most beautiful in the world. However, that's obviously one side, and this is temporary. As the diaspora comes back to Lebanon, there is a boost in economic activity, but come end of this month, in a couple of weeks, this all goes away, and everything goes back to the misery that it fundamentally is.
The politicians think that they can buy time this way. Soon, Christmas will be another season—not like summer but—where some Lebanese will come back and so on. They've always been living by trying to buy time, kicking the can down as far as they can and buying some time.
This strategy was implemented when the war in Ukraine broke out, which impacted fuel and food prices and fertilizer. Lebanon is a large importer of wheat from Ukraine, so it ran to international community to help. Sometimes, I think the Lebanese wish such big external events would happen so that they can say, "Oh, help us." Fundamentally, however, no reforms have been taking place for years.
Jon Alterman: Do you think the international financial institutions have to act differently to unstick the economic and political process in Lebanon?
Haneen Sayed: I do. In fact, I have been working with Ishac Diwan on what a renewed approach to the international community would look like. There needs to be this continued push by the international community on the reforms. At the same time, there should be considerations for how to help people directly, perhaps through routes outside the government. We want to help the people so that in three to five years, when these reforms happen and the economy really starts to pick up, we will have a population that is well-fed, educated, and has basic healthcare.
This second component of support is what we are discussing with the international community. For example, the education sector is really struggling at the moment. Rather than waiting until an official agreement with the government can be determined, the international community should consider how to directly help schools through, for example, a block grant or aid directly to teachers. We will help families make sure that their kids go to school and even to university. Similarly, in the healthcare sector, direct aid can be provided to hospitals, primary care facilities, or even families.
Of course, some conditions will be placed on the government, because they still need to implement reforms, and the international community cannot do the government’s job. The point is to help people directly and get civil society more involved to improve oversight.
Direct aid would not be a whole lot of money—maybe less than a billion dollars a year—to be able to provide the needy Lebanese population sufficient health, education, maybe even jobs.
This way people are protected for a while. This might sound like a pure humanitarian approach, but it's actually not. Lebanon gets a lot of humanitarian assistance, but this focuses on providing aid through non-state actors.
There is a lot of fragmentation amongst humanitarian organizations as well, so a coherent approach must be determined.
Jon Alterman: It seems to me that one of the things that this approach would do is take money away from the government that uses it for patronage. A lot of the NGOs could be affiliated with those that currently benefit from the patronage systems, so providing aid directly could only deepen the sectarian political divisions in the country. How do you think about the problem that, in many ways, the non-governmental sector in Lebanon is as fragmented as the political sector?
Haneen Sayed: I published a recent article with Carnegie that tries to look at how Lebanon is almost special from other Arab countries in its social contract. The typical social contract that we read about for the other Arab countries is that the government provides jobs, education, and healthcare, and the people just give their political allegiance to the government. This is the traditional social contract that exists in Tunisia, Jordan, or Egypt.
Lebanon never had that exact situation because government wasn't big on providing services. If anything, that social contract was between the people and many of these non-state actors. In fact, what needs to happen is a strengthening of the government and its role in the provision of basic services.
It is almost impossible to eliminate or get rid of the non-state actors, and many of the NGOs that work in Lebanon do fantastic work. However, there needs to be more coherence or regulation. This is the long-term strategy. So, while in the short-term, support should be provided to the people through non-state actors, in the long-term, there needs to be institutions of the government built to ensure the provision of basic services.
For example, we tried to establish a social safety net in Lebanon for years. There were many reasons why consecutive Lebanese governments just didn't take it very seriously, although there was a very obvious need for that. When the financial economic crisis happened in 2019, the government became convinced that it needed to have a big safety net program that could provide at least a quarter the of population with a direct cash transfer.
Eventually, a successful process was put in place that gave people money directly, but then we automated the entire process, requiring people to use a device to input their information. Then, the payment process was also digitized. The automation and digitization of the process meant that third-party actors were involved. While the process remains under the Ministry of Social Affairs, other actors oversee the majority of the process.
Similarly, in the education sector, block grants are already being provided to teachers. This doesn't mean that the Ministry of Education doesn't have a role, but this is a process and mechanism that will reduce the amount of leverage they have and the potential for corruption.
Jon Alterman: One group that has been especially effective and aggressive providing social support is Hezbollah, providing support to the Shi`a community in parts of Beirut, and especially in the South of Lebanon. Are there ways to implement the kinds of changes you're talking about with Hezbollah's agreement?
Or does it have to be over Hezbollah's objection, because they see part of their business model being disrupted by precisely the kind of technocratic system that you're describing?
Haneen Sayed: In this cash transfer program that we implemented, there was full cooperation from all other groups — including Hezbollah. We actually didn’t feel any resistance. If you're talking about the temporary model, I don't think they would have any objection to it—one which engages civil society in any case.
Ultimately, the objective is to build institutions, of course, and to bring in those that are outside into the system. Lebanon is quite peculiar in this. With the economic situation also affecting the areas influenced by Hezbollah, there is more openness to different approaches, because they can't do it alone either. Their main source of funding is coming from Iran, which is also impacted by the economic crisis.
Hezbollah sees that the pie needs to be bigger, and they need to be a part of it. If they feel that their populace is benefiting, there could be the potential for agreeing to be part of this.
Jon Alterman: I want to end on a more positive note. I was wondering if you could tell me something really exciting and creative that a local NGO is doing to help address the economic crisis. I've been struck by just how vigorous the voluntary sector is in Lebanon. What’s the most exciting thing you've seen going on there?
Haneen Sayed: There's so many. Let me tell you one that I'm also involved in. It's called Nafda, and it is a collective movement, not really a classic NGO. Nafda in Arabic means to clean up, to dust off, rejuvenate, or shake it off.
The idea is to do that to the education system. As I mentioned earlier, it's a really important issue as Lebanon loses its competitive advantage. So, the idea is to mobilize the school principals. Eventually, all the school principals of the country. We have about a little over 2000 schools. If you mobilize even half of those, or a quarter of those, you already created a movement. We're mobilizing them with the principles of good governance, citizenship, and community engagement.
Each principal in her or his school is making changes, which we are already seeing. This has been in the making for two years. There are 60 schools already, and it’s catching like wildfire around the country. We're improving the schools by giving them financial support.
It's a grassroot effort that can be scaled up, which is important, because a lot of grassroots initiatives just stay at that level. Through this, we want to save the education system from the bottom-up.
Jon Alterman: Haneen Sayed, thank you so much for joining us on Babel.
Haneen Sayed: Thank you. Thank you for the opportunity.
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