Lebanon Seeks Economic Aid in Paris for the Fourth Time
On Friday, Lebanon will head to Paris for yet another international donor conference, seeking $6-7 billion in credit facilities and funds. Dubbed CEDRE – a French acronym for “Economic Conference for Development through Reforms and with Enterprise” – it is the fourth such conference to be held in the French capital and will aim to address one of three main issues dominating Lebanon today: strengthening its flagging economy and improving its infrastructure. It is sandwiched between two other conferences tackling the other two issues, Rome II, held in mid-March, to strengthen the Lebanese state’s authority and security forces, and a conference scheduled for late April in Brussels to help Lebanon cope with the burden of its Syrian refugees.
Paris has already hosted three prior international aid conferences for Lebanon, the last occurring in 2007. Each ended in long-term failure, because Lebanon failed to implement its promised economic reforms and, as a result, the conferences didn’t yield all of the pledged assistance. Whether Lebanon will – or can – follow through this time remains to be seen.
Rome II – A Partial Success
Lebanon heads to CEDRE on the heels of the fairly successful Rome II, which was held in the Italian capital in mid-March. The Lebanese governmental delegation presented international donors with an updated version of its plan to strengthen the Lebanese Armed Forces (LAF) and improve its fighting capabilities, as well as a first-ever strategic plan for its Internal Security Forces (ISF), Lebanon’s national police and counterterrorism force. The plans laid down a five-year framework for strengthening the country’s security, consolidating the use of force under the state’s authority, and positioning the LAF as the country’s sole national defense force and guardian of its borders. As part of this plan, the ISF would act as a key instrument in enforcing the state’s monopoly on violence.
The international community was receptive and countries like the U.S., France, and the UK pledged continued financial support for Beirut’s security forces. However, they demanded that Lebanon adhere to its “dissociation policy” in deed, and not only in word, by reining in Hezbollah and curbing its regional adventurism. Naturally, Lebanon’s pro-Western politicians agreed, and hoped the international community’s support would be the first step to strengthening the State’s authority.
However, that may be easier said than done. Three days prior to the conference, Lebanon’s
Hezbollah-allied president Michel Aoun announced plans to discuss a national defense strategy after the country’s May 6 parliamentary elections. Prime Minister Hariri and Western donors alike hailed the announcement, but there is reason for caution.
Aoun has long championed Hezbollah’s role in Lebanon’s national defense, granting it a central place in his 2008 proposed national defense strategy, and even at time shifting the LAF to an auxiliary role. His Free Patriotic Movement’s 2018 Elections Platform seemingly reverses this allocation of responsibility, but still envisions Hezbollah assuming an important auxiliary role. Nasrallah, for his part, and other Hezbollah officials sounded optimistic about Aoun’s announcement. There’s always a possibility that the Lebanese president – who is allied with Hezbollah out of self-interest – could pull an about-face on the group, but it’s an unlikely one. His alliance with the group is still too beneficial, and neither Hezbollah’s opponents nor their sponsors can match it.
CEDRE/ Paris IV
At CEDRE – also dubbed Paris IV – Lebanon will be seeking to attract foreign investment to prop up its flagging economy. The conference is drawing on mainly European states and international financial institutions as potential donors, and the French have also suggested that Saudi Arabia and the Emirates will participate and make sizeable contributions.
But this time, the international community wants results, having become weary of freely funding Lebanon for decades. CEDRE’s aid will therefore target specific investments and programs, rather than fund the Lebanese state budget. Aid will also no longer be granted, but take the form of concessional financing, with Lebanon borrowing funds at lower interest rates with longer maturities.
Lebanon has undertaken some positively-received confidence-building measures ahead of the conference. It passed a Public Private Partnership (PPP) law, and prepared a three-phase, 250-project National Infrastructure Investment Program (NIIP) worth $23 Billion that has gained the support of the World Bank. It will aim to revitalize the country’s electricity, water, sanitation, transportation, and tourism sectors over the next 12 years. Last week, Beirut even managed to pass a budget – its second-only since 2005 – that slightly reduced the country’s deficit from $5 billion last year to $4.8 billion.
But, as French ambassador to Beirut Bruno Foucher has said, more will be required – including Beirut’s adherence to its so-called dissociation policy – and the international community will be closely monitoring Lebanon’s economic reform and progress beyond April 6. The problem is that Lebanon may be setting itself up for failure. Firstly, the NIIP itself suffers from serious shortcomings, including analyses and plans based on bad or incomplete data, lack of plans to immediately execute certain projects even after they are funded, and a lack of a credible alternative to ill-equipped or incompetent local authorities to handle the projects.
Some of the shortcomings may be remedied by the planned involvement of the private sector in the projects. However, the Lebanese state will retain ultimate ownership, and – as Foucher noted – it is the source of the hold-up of much of the process of economic reform.
According to the International Monetary Fund (IMF), Lebanon is in need of serious and urgent reforms, including halting the climb of its public debt, because its economy is on an unsustainable path. Lebanon’s Central Bank has accepted the criticism as valid, but rebutted that Beirut’s budget off to a good start. However, considering that Lebanon’s officials may not be willing to incur the high political costs required for such changes, the IMF is not optimistic about Lebanon’s prospects. And the economic reform envisioned by the CEDRE donors requires much deeper governmental reform. But rather than include the relevant municipalities, implementation of the NIIP is centralized in the hands of the national governmental bureaucracy, notorious for its corruption and inefficiency. According to the IMF, Lebanon’s current anti-corruption mechanisms are ineffective and need to be “significantly enhanced,” to be “made operational.” Lebanon has also continued its downward slide on Transparency International’s corruption rankings, coming in at 143 out of 180 last year, down from 136 in 2016, and 123 in 2015.
Central government control also gives Hezbollah an opportunity to obstruct implementation. The group has long been opposed to such donor conferences, and has already expressed reservations over CEDRE. In a recent speech, its leader Hassan Nasrallah raised concerns over the conference. Nasrallah rightly noted that Lebanon’s public debt was already high. Lebanon is the world’s third-most indebted country – with public debt at 151% of GDP, that the IMF is expecting to jump to 180% by 2023 – and with a growth rate that plummeted from 9% in 2010 to 1.1% over the past three years. He also questioned whether the money would be earmarked for realistic projects, and how much would end up going to those projects after corrupt Lebanese officials skimmed their share. In the end, he complained, that debt would fall on the taxpayer.
Nasrallah seemingly raises legitimate points. However, his call for “discussion” over the conference and the use of its funds could simply be a prelude to Hezbollah – along with its allies who are fearful of CEDRE portending the naturalization of Syrian refugees – obstructing the implementation of the NIIP. A functioning Lebanese economy, after all, would only serve to challenge Hezbollah.
In the end, Lebanon will be worse off if its NIIP doesn’t succeed, and it fails to properly use the funds raised at CEDRE. The international community’s conditions on Paris IV reflect exasperation with Beirut. After all, they’ve been funding the country and its infrastructure for 25 years, with no results. If funds are either squandered again – either through graft, waste, or allocation to failed projects – or political paralysis obstructs or delays economic reforms, the Lebanese will default and be saddled with more public debt, and have further eroded international confidence in their country.
David Daoud is a research analyst at United Against Nuclear Iran (UANI) focused on Hezbollah and Lebanon