Perspectives - April 23, 2021

Hezbollah Braces for the Worst in Lebanon Collapse

Hezbollah has made preparations for an all-out collapse of the fracturing state by issuing ration cards for food, importing medicine, and readying storage for fuel from its patron Iran, three sources familiar with the plans told Reuters. The moves respond to a grave economic crisis and mark an expansion of services provided by the armed movement to its large Sh'ite support base, with a network that already boasts charities, a construction firm, and a pension system. The steps highlight rising fears of an implosion of the Lebanese state, in which authorities can no longer import food or fuel to keep the lights on. They underline Hezbollah's growing role in tackling the emergency with services that the government would otherwise provide.

In response to a question about Hezbollah's plans, Leila Hatoum, an adviser to the caretaker prime minister, said the country was "in no condition to refuse aid" regardless of politics.

The sources from the pro-Hezbollah camp, who declined to be named, said the plan for a potential worst-case scenario had gathered pace as an end to subsidies looms in the coming months, raising the specter of hunger and unrest.

Hezbollah's plan would help shield its communities - not only members but also mainly Shi'ite residents of districts it dominates - from the worst of the crisis, the sources said. It could also contain any restlessness among core supporters, analysts say.

Lebanese Government Risks Delaying Transfer of $246M World Bank Loan

Lebanon’s caretaker government has yet to meet the required conditions for the World Bank social security $246 million loan, despite the deadline being less than a month away, risking delaying by months desperately needed financial support to poor and vulnerable households.

The World Bank loan, which the organization's Board of Directors first approved on January 12, is a direct cash assistance program for around 150,000 households living in extreme poverty, affected by the country’s economic downturn and fight against COVID-19. In a status update report made public Tuesday, the World Bank said Lebanon has not yet submitted the paperwork required to begin implementing the financial aid, which the group demands a maximum of 120 days after board approval.

The report read: “None of the effectiveness conditions have been met to date and the World Bank is working closely with the government to ensure speedy compliance with these conditions in order to proceed with project implementation.”

EU Preparing Sanctions Mechanism Against Govt Formation Obstructers

The European Union, backed by France, is preparing to set up a mechanism for sanctions as part of stepped up pressure on Lebanese politicians to form a new government badly needed to avert the country’s all-out economic collapse, the French Foreign Ministry said.

The planned EU move comes after a flurry of intensified Arab and foreign political activity in Lebanon failed to make any headway in the Cabinet deadlock, which has entered its eighth month with no solution in sight. It also comes as Lebanon’s rival leaders did not heed repeated Arab and foreign appeals, including those made by the United States, Russia and France, to agree on the speedy formation of a government of nonpartisan specialists to implement essential reforms in line with the French initiative designed to steer Lebanon out of its worst economic and financial crunch since the 1975-90 Civil War and avert a much-feared social implosion.

The failed Arab mediation attempt to resolve the Cabinet formation crisis has raised fears that France and its European partners might impose sanctions on Lebanese politicians blocking the formation of a new government to deliver reforms, rebuild Beirut after last year’s deadly port explosion, and shore up the country’s flagging economy.

The EU foreign ministers met in Brussels Monday, discussing, among other things, the Lebanese Cabinet crisis and possible punitive measures against those obstructing the government formation.

If a government is not formed, sanctions would be put in place in two stages. First, drawing up a sanctions regime for Lebanon, and second, listing the targeted names who are obstructing the cabinet formation on the sanctions list, the statement added.

Moody’s Warns Of Further Economic Decline In Lebanon

American financial services company Moody’s has warned that Lebanon’s economic decline would accelerate if it lost its relationships with correspondent banks. In a memo sent via email, according to Al-Jadeed, Moody’s said that the “encroachment on the obligatory reserves of banks at the Central Bank of Lebanon in light of the continuing government impasse will increase the risks to the banks.” This would, in turn, endanger the remaining correspondent banking relationships of Lebanon and further undermine “the availability of cross-border payment services for transfers, trade, and tourism, which are among the main pillars of the economy.” Losing these relationships would increase Lebanon’s dependence on official external financing, as cross-border payments and clearing services would remain paralyzed, even after a comprehensive debt restructuring, the memo said. Citing data from the central bank and Haver Analytics, Moody’s noted that Lebanon’s available reserves for use had fallen to $1 billion by the end of February 2021.

Diab Urges Qatar to Rescue Nation Facing 'Total Collapse'

Caretaker Prime Minister Hassan Diab called for Qatar's help during a visit to the Gulf country on Monday as Lebanon sinks deeper into economic ruin. Diab met with Qatari Emir Sheikh Tamim bin Hamad Al-Thani in the evening. He also attended an iftar banquet thrown by Qatari PM Sheikh Khaled bin Abdul Aziz Al-Thani. Diab met earlier with several prominent Qatari ministers and officials during the trip, which Lebanese media has suggested has been mired in "secrecy." "Lebanon has reached the brink of total collapse, as a result of decades of corruption and policies that have encouraged a rentier economy at the expense of a productive economy," Diab told local media. "We knock on (Qatar's) door just as we will knock on the doors of other sister Arab countries and wait for it to open its doors for us, as did sister Qatar."