US Sanctions Are Strangling a Lebanon in Crisis

By Bilal El-Amine, In These Times

14 August 20

As Lebanon faces multiple, overlapping catastrophes, U.S. policies are making them worse.

he Lebanese econ­o­my crashed into the equiv­a­lent of a brick wall some­time in the last few months of 2019. The Lebanese pound (or lira), which was pegged to the dol­lar and appeared to be sta­ble for well over two decades, start­ed to decline at a rate that threat­ened the com­plete col­lapse of the econ­o­my. In the mean­time, the Trump admin­is­tra­tion had been busy build­ing a “Great Wall” of sanc­tions around Lebanon, even as the coun­try as a whole was drown­ing in a moun­tain of debt.

The first to be impact­ed was the pow­er­ful finan­cial sec­tor — the crown jew­el of the Lebanese econ­o­my — which effec­tive­ly shut down, fear­ing a run on the banks by pan­icked depos­i­tors seek­ing to with­draw their life sav­ings, a large bulk of which was in U.S. dol­lars. Thou­sands of busi­ness­es closed down, lay­ing off hun­dreds of thou­sands of work­ers. Short­ages of essen­tial items like fuel and wheat led to long lines at bak­eries and gas sta­tions, as the major­i­ty of house­holds (around 60%, by some esti­mates) fell below the pover­ty line. 

The dys­func­tion­al and cri­sis-rid­den Lebanese state was com­plete­ly inca­pable of cop­ing with the cri­sis. By that time, Lebanon was deeply indebt­ed to inter­na­tion­al lenders and local banks to the tune of $80-plus bil­lion (one of the high­est debt-to-GDP ratios in the world), most of which was sup­pos­ed­ly spent on recon­struc­tion after a 15-year civ­il war that com­plete­ly dev­as­tat­ed the country’s infra­struc­ture and econ­o­my. In fact, much of that mon­ey was either out­right stolen by politi­cians or ter­ri­bly mismanaged.

Lebanon’s elec­tri­cal pow­er sec­tor is per­haps the most obvi­ous exam­ple of the lev­el of cor­rup­tion and neg­li­gence that marked the post-war recon­struc­tion peri­od. A full 30 years after the civ­il war end­ed in 1990, Lebanon still suf­fers from dai­ly black­outs of up to 16 hours in most areas. Even with this extreme rationing of elec­tric­i­ty, it still costs the gov­ern­ment near­ly $2 bil­lion every year to cov­er a short­fall in the pow­er bill.

The most imme­di­ate caus­es of the cur­rent cri­sis began to appear around 2016, when peren­ni­al head of the Lebanese cen­tral bank, Riad Salameh, a pow­er­ful fig­ure backed by Wash­ing­ton, began what he called “finan­cial engi­neer­ing” mea­sures to increase the cen­tral bank’s hard cur­ren­cy reserves. Since his appoint­ment in 1993, after hav­ing worked for Mer­rill Lynch, Salameh’s prime direc­tive has been to main­tain the lira peg to the dol­lar at all costs.

But by the late 2010s, Lebanon was already a coun­try of run­away con­sump­tion, import­ing rough­ly $20 bil­lion and export­ing approx­i­mate­ly $3 bil­lion. To cov­er such a huge trade deficit and pay off the bal­loon­ing for­eign debt, while also main­tain­ing a sta­ble lira, Salameh offered high inter­est rates to attract bil­lions of dol­lars to Lebanon’s banks.

Already, Lebanon enjoyed sev­er­al sig­nif­i­cant streams of hard cur­ren­cy that helped Salameh in his her­culean task. The largest of these was remit­tances from Lebanese work­ing abroad, main­ly in the Gulf and West Africa, who sent home around $8 bil­lion annu­al­ly (not count­ing what is esti­mat­ed to be an equiv­a­lent amount that came into the coun­try by oth­er means). Bil­lions more came from exports, tourism, inter­na­tion­al aid and loans, and Arab — par­tic­u­lar­ly Syr­i­an — cap­i­tal deposit­ed in Lebanese banks.

In 2016, due to a vari­ety of rea­sons, the flow of hard cur­ren­cy start­ed to dry up at a fright­en­ing pace, prompt­ing the cen­tral bank’s “finan­cial engi­neer­ing” mea­sures. This only had the effect of kick­ing the prob­lem down the road in the hope that the com­ing years will bring about some sort of reprieve. Instead, the country’s econ­o­my con­tin­ued to dete­ri­o­rate, and pres­sure on the lira inten­si­fied, until the inevitable reck­on­ing arrived in the final months of 2019.

U.S. pres­sure, in the form of a wide array of sanc­tions and increased scruti­ny of Lebanon’s finan­cial sys­tem, was one deci­sive fac­tor that made many Lebanese abroad — and any for­eign investor, for that mat­ter — think twice about send­ing mon­ey home or deposit­ing it in Lebanese banks. Wash­ing­ton claimed that the Lebanese resis­tance par­ty Hezbol­lah and the Syr­i­an régime, both under U.S. sanc­tions, were using Lebanese banks to laun­der mon­ey or fun­nel dol­lars from abroad to fund their activities.

Giv­en that Lebanon’s finan­cial sys­tem is heav­i­ly dol­lar­ized (75% of bank deposits are in U.S. dol­lars), Washington’s influ­ence over the sec­tor is near total. In just one exam­ple, two well-estab­lished finan­cial insti­tu­tions sanc­tioned by the U.S. Trea­sury Depart­ment — the Lebanese Cana­di­an Bank (accused of laun­der­ing drug mon­ey for Hezbol­lah in 2011) and Jam­mal Trust Bank (alleged to have facil­i­tat­ed the financ­ing of Hezbol­lah in 2019) — were liq­ui­dat­ed with­out hes­i­ta­tion by the cen­tral bank, and with­out the slight­est protest from Lebanese officials.

Sanc­tions against Hezbol­lah and Syr­ia have been around in one form or anoth­er for decades, but the Trump admin­is­tra­tion has tak­en them to new heights. Since launch­ing its “max­i­mum pres­sure” cam­paign against Iran in 2018, the admin­is­tra­tion has unleashed a relent­less bar­rage of wide-rang­ing and crip­pling sanc­tions against Tehran’s allies in Iraq, Syr­ia and Lebanon. Iran and Syr­ia, with their rel­a­tive­ly closed and large­ly state-run economies, are bet­ter able to cope with sanc­tions than a lais­sez-faire coun­try like Lebanon that is inte­gral­ly tied to West­ern capital.

When Salameh’s sacred peg final­ly fell and the lira began its descent, pop­u­lar protests against cor­rup­tion and mis­man­age­ment broke out across the coun­try on Octo­ber 17 of last year. Wash­ing­ton and its local allies could smell blood in the water, and imme­di­ate­ly set about to direct people’s anger against Hezbol­lah by por­tray­ing the group as being respon­si­ble for the dis­mal state of the economy.

Along­side this strat­e­gy, the Trump admin­is­tra­tion sought to tight­en the eco­nom­ic noose fur­ther by mak­ing nego­ti­a­tions with the Inter­na­tion­al Mon­e­tary Fund (IMF) the only option for the gov­ern­ment to receive any kind of relief, on the con­di­tion of course that “reforms” must first be imple­ment­ed. No one ques­tions the need for deep and struc­tur­al change in the Lebanese econ­o­my, but the IMF’s usu­al fare of aus­ter­i­ty and pri­va­ti­za­tion has often result­ed in coun­tries falling deep­er into a cycle of debt and depen­den­cy, while increas­ing the risk of fur­ther social discontent.

Iron­i­cal­ly, it took the “nuclear” explo­sion in Beirut’s port on August 4 to open up some cracks in the siege that Wash­ing­ton has been busy weav­ing over the last few years. The blast explod­ed over 2,000 tons of ammo­ni­um nitrate stored in Beirut’s busy port for sev­er­al years, killing and injur­ing thou­sands and lay­ing waste to sev­er­al near­by neigh­bor­hoods. The sanc­tions régime was already begin­ning to bite, not in bring­ing Hezbol­lah or the Syr­i­an régime to their knees, nor in incit­ing revolts against them, but in dri­ving ordi­nary Lebanese to eco­nom­ic destitution.

U.S. eco­nom­ic sanc­tions, no mat­ter how “smart” Wash­ing­ton claims them to be, have rarely — if ever — brought down the tar­get­ed régime or group. In most recent cas­es, they have had the oppo­site effect of strength­en­ing the hand of the state by impov­er­ish­ing the pop­u­la­tion and mak­ing it more depen­dent on gov­ern­ment sup­port and assistance.

One only has to look at the 13-year inter­na­tion­al eco­nom­ic block­ade against Iraq after Sad­dam Hus­sein invad­ed Kuwait in 1990. All stud­ies of its impact on the Iraqi pop­u­la­tion show a dete­ri­o­ra­tion in just about every qual­i­ty-of-life indi­ca­tor, includ­ing increas­ing rates of mal­nu­tri­tion. In the end, it took a cost­ly and dev­as­tat­ing U.S. mil­i­tary inva­sion and occu­pa­tion of Iraq to final­ly top­ple Sad­dam Hussein.

The U.S. stands at a cross­roads on how it wants to deal with Lebanon. The com­ing days will reveal how far Wash­ing­ton wants to take the con­fronta­tion with Hezbol­lah, and at what cost to the rest of Lebanese soci­ety. To date, the sanc­tions have done lit­tle to weak­en the Lebanese resis­tance — polit­i­cal­ly as well as mil­i­tar­i­ly. The ques­tion is, espe­cial­ly after the near-apoc­a­lyp­tic scene around Beirut’s port: Can the rest of the coun­try with­stand America’s siege?