Timing is everything. And Saad Hariri, Lebanon’s Prime Minister, knows it. Just a couple of weeks ago he was facing the cameras over his $16 million payouts to a bikini model, while his own TV channel collapsed with loyal, but unpaid, staff vexing their anger at him.
Today, he stands before perhaps 100,000 protesters who are calling for him and the ruling government to leave office.
The protests in Lebanon were apparently sparked by an idea from his cabinet to impose a $6 monthly tax on WhatsApp calls. The misjudgment of this decision could be the biggest gaffe in political history for this tiny country, which for decades has been run by greedy, corrupt politicians who brazenly appropriate money and assets which belong to the state.
Lebanon has a financial crisis. It can no longer cope with managing an $85 billion debt, which currently incurs $5 billion a year in interest alone.
The mindset of the elite was to continue stealing from people to solve the problem, and not look instead to the government or the business elite who drive Lamborghinis and pay no taxes. It was the straw that broke the camel’s back.
But the tipping point for the protesters was the misguided WhatsApp tax. It demonstrated that the mindset of the elite was to continue stealing from people to solve the problem, and not look instead to the government or the business elite who drive Lamborghinis and pay no taxes. It was the straw that broke the camel’s back.
Lebanon’s financial problems go way back, and a recent devastating forest fire has also contributed to the meltdown. In recent years, the elite’s embezzlement of the state’s assets had to become more creative because, since 2011, the economy has produced almost nothing. Numerous schemes were formed, but they all had one thing in common: the group of warlords which runs Lebanon always got rich off them.
Although Hariri himself cannot be considered a warlord, he is tarnished with corruption. For just one example, he owns the company that tests vehicles for their road safety, which should normally be a state-controlled car inspection facility. This may seem trivial compared to House Speaker Nabih Berri who has had his job for decades and has almost built a mafia with his family’s business operations in the south of Lebanon. The speaker himself, it is well-known, owns a property portfolio in Beirut alone that runs in the billions of dollars. But it is not trivial.
The problem now for Hariri is that the reforms he proposed on Monday, October 21, while quite sensible, were too little, too late for the protesters who are sick of the breakdown of basic services. Moreover, he himself lacks so much credibility in actually implementing any reform that the public believes in neither him nor the government anymore. Slashing government ministers’ and deputies’ salaries is a good initiative, but the $500,000 golden handshakes which generals get on retirement is still in place, albeit in installments.
His proposal to tax the banks will indeed raise $3 billion, but this loss will be passed onto consumers. Let us not forget that the banks are mostly owned by the same friends and colleagues Hariri is protecting.
His proposal to overhaul the state electricity firm which currently loses $2 billion a year is a good initiative, but it should have been done years ago: the failure to deliver 24-hour electricity to the public has put money in the pockets of many of his friends who run the $1 billion generators’ industry in Lebanon. Initiatives on corruption—aimed supposedly at taking back assets which were looted and grafted in the ministries—will not amount to much, although restoring the anti-corruption agency may well be a source of amusement to many Lebanese. Hariri himself closed down the anti-corruption agency—one minister, three officials, and a fax machine—in his last cabinet reshuffle.
The real corruption is the system itself… However, if nothing is done to prevent any new system being taken over by the rich and corrupt elite, then there is little to be gained.
The real corruption, however, is the system itself. Hariri will not dare touch that, although a house speaker who has had the job so long that generations of Lebanese remember him when he was penniless may well be a sticking point that arises in the weeks to come if the protests persist.
The people are demanding a complete change. There needs to be a debate led by the PM about how to overhaul the system and introduce new laws to break it up—and even install a government made up of technocratic ministers who actually have an idea about how to run a ministry. In Lebanon, ministers are appointed on the exclusive basis of their creative skills to embezzle cash out of their government office into the party coffers—or even into the account of the party boss who put them in the job in the first place.
Perhaps early parliamentary elections might be a way of doing this, although protesters naively believe it is a silver bullet to all the country’s woes. However, if nothing is done to prevent any new system being taken over by the rich and corrupt elite, then there is little to be gained.
Another measure might be to establish a fund for independent MPs, which includes the media. Unfortunately, politics in Lebanon is so corrupt that even participating in the election system itself is hugely expensive.
At bottom, Hariri’s ultimate mistake is his stoic resistance to taxing the rich. His reform plan, which supposedly includes forcing government ministers to declare their bank accounts is just a band aid on an endemic problem of ministers helping themselves to the state coffers. What is required is a “super agency” made up of retired police officers from EU countries to head up an anti-graft ministry, so that double-entry bookkeeping can be traced and routed out.
The real problem with Hariri’s plan is that it would continue to leave the rich alone. Instead, it should be time for them to pay a few cents on the dollar for basic services. The people are fed up with Lebanon being a theme park for the rich to gorge themselves on while many Lebanese, even those with jobs, cannot afford to keep their kids in the country because of its dysfunctional economy.
The worst kept secret in Lebanon is that, due to widespread corruption in the ministry of finance, the rich pay no taxes at all.
The worst kept secret in Lebanon is that, due to widespread corruption in the ministry of finance, the rich pay no taxes at all. Auditors are routinely bribed by companies to accept falsified accounts and reports so that firms pay little or no tax.
This same problem is what brought the Greek economy to its knees in 2009. Greece also had a high government debt. Taxes were just simply not being collected.
The rich are in fact enjoying Hariri’s plan because they still don’t have to pay a dime, while keeping Lebanon backward and penniless. The Lamborghinis and Ferraris passing humble Lebanese every day on the Jounieh highway belong to families, which for generations have profited from the rampant cronyism inherent in a system of kinship. Such ingrained affiliations have bled the economy dry and encouraged an alternative corruption industry with jobs and opportunities as part of its attraction.
So, what is at stake? If Hariri cannot get the support from the protesters, even on a trial basis, then the next inflection point will be the collapse of the present government. This would be a disaster for him and his rich friends, the very reason he needs to think about taxing the rich soon.
If the government resigns, the pressure on the banking system might be too much and the lira—the local currency which has been holding its weight more or less in recent weeks—might, instead of losing only a few percent, collapse altogether. If that were to happen, there would be a state of anarchy and financial ruin in Lebanon, forcing President Aoun to call in the army under the pretext of a state of emergency. At that point, the banks would probably stop all dollar capital flight as a means of protection, and Lebanon would truly be in a crisis with a million Syrian refugees in danger. That would present its own problems to the West, in particular the EU.
Hariri not only needs to tax the rich, to show he is serious, but he also needs to be seen as the main driving force behind genuine change.
Hariri not only needs to tax the rich, to show he is serious, but he also needs to be seen as the main driving force behind genuine change. At the moment, his eyes are only on the economy and the numbers. If he fails, he will depart from office, and, ironically, it will be the impotent President Aoun, under Hezbollah’s instruction, that will make Lebanon a full military dictatorship, rather than the pseudo one it became when his presidency began in 2016.