Economic crisis and financial default in Lebanon

Lebanon is facing a domestic political and economic crisis which is bringing the country in the hands of foreign powers (Source: Al Jazeera)

by Guido Keller

The Lebanese Prime Minister Hassan Diab announced the country’s inability to pay the foreign debt as a consequence of the domestic political crisis and the national financial default.  Lebanon is becoming an unstable country where foreign powers and actors can exploit people’s hunger and domestic chaos to promote their agenda.

On January 21st, 2020, Hassan Diab became the new Prime Minister after the serious political crisis which has been affecting Lebanon with demonstrations against corruption and the rise of prices. As reported by Hassan Diab during the press conference held two days ago, the country is suspending the debt’s payment on March 9th, 2020, to protect public interests, citizens’ needs, and support the launch of the national reform plan.

It is not a surprise that the Lebanese government decided to interrupt debts’ payment in favour of the national reform. In fact, on March 2nd, 2020, the president of the Lebanese Banking Association, Salim Sfeir, met with the directors of several banks to analyze the current domestic financial and economic situations after many investors and clients decided to move their money abroad (around 2 billion dollars) due to the government’s restrictions imposed to contrast the social inequality and end the demonstrations.

As a result of the meeting held on March 2nd, the financial attorney Ali Ibrahim froze the assets of several banks in Lebanon: Bank Audi; Bloom; Fransbank; Byblos; Societe Generale; Bank of Beirut; BankMed; Banque Lebanon-Francaise; Credit Libanais; Al Mawarid Bank; Intercontinental Bank of Lebanon; Fnb; Lebanon and Gulf Bank; Bbac; Meab; Federal Bank of Lebanon; Bsl Bank; Lebanese Swiss Bank; Bml; Saradar Bank and Cedrus Bank.

On March 9th, 2020, Lebanon has to respect the first of three deadlines for this year to pay the external debts. Every payment tranche consists of 2.7 billion dollars plus 2 billion of interests. The impossibility to respect these payments forced the current Lebanese Prime Minister Diab to discuss with the international institutions and creditors the chance of restructuring and remodelling the payment model.

Why this matters? Although Lebanon is a tiny country in the Middle East with only 4.3 million citizens, the country has been involved in regional and international geopolitics. Actually, both Saudi Arabia and Iran have a strong influence and presence in Lebanon and they are fighting each other to completely control the local dynamics. Currently, it appears that Iran is the most powerful and influential actor in Lebanon because Tehran is supporting Hezbollah and controlling strategic political and military sectors. Therefore, the financial crisis might make Lebanon weaker and more penetrable by the influence of foreign powers and aggravate the confrontation between Iran and Saudi Arabia or allow the intervention of Israel threatened by Hezbollah’s activities.