LEBANON'S BANKRUPT SYSTEM

After 76 years of a chaotic history, Lebanon is finally coming to the end of a legal, political and sociological system that was doomed from its onset in 1943.

Over the past few weeks, Lebanon’s economic and financial crisis has deepened to a point where the survival of the country, its currency and its banking system are facing a truly existential threat.

Over the past four years, the political and economic landscape of Lebanon has deteriorated markedly, even if the security situation remained calm.

The economic and political crisis triggered by a flawed legal and political organisation of the country system is reaching its apex and the political paralysis that has been preventing reforms for the past 76 years is now blatantly evident in then inability of the political class and the government to handle the problem.

Citizens have now taken to the streets and civil unrest is blowing up into a major rejection of the system, the political class and the religious leaders that have led the country to the edge of collapse.

Lebanon, as a country, is a failure 

Beyond the fake and superficial image of Beirut’s vibrant nightlife, lavish weddings and wannabe cultural scene, the sad reality of today’s Lebanon is one of a major political, economic and social failure.

Some facts and figures help to put things in perspective.

. Lebanon is today the THIRD MOST INDEBTED COUNTRY IN THE WORLD after Japan and Greece, with a 151 % debt to GDP ratio and an 8 % annual budget deficit. Its public debt will reach US $ 100 Billion in two years time, a whopping US$ 27’000 per inhabitant.

. 35 % OF THE LEBANESE POPULATION LIVES UNDER THE THRESHOLD OF POVERTY while in 1943, Lebanon had the highest ratios of education. literacy and living standards of the entire Middle East and Arab World.

. In 76 years of existence, Lebanon has gone through TWO CIVIL WARS, one in 1958 and one in 1975, and as civil wars are, they are destructive internal wars pitting various segments of the population against each other. 

. With 12 million Lebanese or Foreigners of Lebanese decent coming from emigration against 3.6 Million Lebanese living in Lebanon, the country has the WORLD HIGHEST NUMBER OF EMIGRANTS for a state still in existence. 

. Lebanon has the WORLD HIGHEST RATIO OF FOREIGN REFUGEES ON ITS SOIL when compared to its population in its soil, first having accepted more than 600’000 Palestinian refugees since 1948, a number that has now come down to 270’000 still living in refugee camps since 1948, and then having accepted up to 1.5 million Syrian refugees since the beginning of the Syrian civil War in 2011.

. Lebanon is the ONLY NATION IN THE WORLD WHERE AN ARMED MILITIA FINANCED BY A FOREIGN COUNTRY CO-EXIST WITH THE NATIONAL ARMY AND PLAYS A ROLE IN THE COUNTRY’S POLITICAL SYSTEM apart from countries in civil war or dislocations such as Somalia, Syria, Iraq, or Lybia.

. Lebanon RANKS AMONGST THE MOST CORRUPTED COUNTRIES IN THE WORLD with a CORRUPTION INDEX SCORE OF 16/100 against a score of 88/100 for Denmark at the top of the league. Corruption is widespread and endemic in Lebanon.

. Lebanon still BOASTS BANKING SECRECY LAWS that ALLOWS CORPORATIONS AND WEALTHY CITIZENS TO AVOID TAXES AND CORRUPTED POLITICIANS TO COLLECT THEIR DIME  while having no effect vis a vis the rest of the world

. In 2019, Lebanon is an “advanced ” economy THAT STILL DOES NOT DELIVER 24/24 ELECTRICITY to its citizens,

. In 2019, Lebanon is an “advanced ” economy THAT DOES NOT COLLECT, PROCESSES AND DISPOSE of its waste in a sustainable way, making it THE MOST POLLUTING COUNTRY OF THE Mediterranean Sea.

. In 2019, Lebanon is an “advanced ” economy THAT STILL DOES NOT MANAGE ITS RICH WATER RESOURCES causing water shortages due to a lack of investment in infrastructure, water treatment and reservoirs.

. In 2019, Lebanon is an “advanced ” economy THAT HAS NEITHER PUBLIC TRANSPORTS NOR EFFICIENT ROADS, RAILROADS OR MASS TRANSIT INFRASTRUCTURE  causing massive traffic jams, pollution, transportation hazard and environment.

Lebanon is today a fourth-world country plagued with poverty, corruption, lack of infrastructure and total political paralysis.

Over its 76 years of existence, the successive leaders of the country have failed to improve the life of the Lebanese, they took the country to two civil wars, they caused the largest emigration seen in modern times and have taken the country down to bankruptcy.

Lebanon is on the verge of social implosion

In the past few weeks, the Lebanese have taken to the streets to protest against the economic crisis and the recent restrictions on withdrawing and changing money from the official Lebanese Pound to the almost quasi-official US dollar. 

In the past few days, popular discontent has gained momentum with road blocks across the country, burning tyres and daily demonstrations demanding the resignation of Prime Minister Hariri’s Government and of President Michel Aoun.

On Sunday, protesters burned tires and blocked roads in downtown Beirut as a public backlash

builds against worsening living standards. Gas stations have been closing in protest and wheat mills are warning of shortages if they can’t get enough dollars at the official rate, because paying the parallel rate squeezes their margins.

A wave of devastating forest fires due to a sudden elevation off temperature illustrated the total paralysis of the Government and the derelict state of public services, including firefighting services due to corruption and negligence, making the Lebanese furious and angry against their political class. 

These protest are the result of years of economic hardship and the realisation that the religious and political classes are inept and incapable of solving even the simplest and most pressing issues such as waste management, electricity or water supplies.

After years of political and institutional paralysis imposed by Hezbollah’s illegal weapons and the Christians’ inability to consider that all the Lebanese are equals, Lebanon’s economy has come to a standstill with almost no growth in 2019.

Unemployment is high, particularly with the younger generations, the cost of living has increased drastically, pensions and salaries have decreased in purchasing power terms and wealth disparities are becoming unbearable with a wealthy class that has a natural tendency to flash out its riches while extremely poor Lebanese lie less well than the Syrian refugees that benefit from the subsidies of the International community.

The Lebanese have two or three jobs to make ends meet and live in a state of psychological survival as nothing is stable, predictable or even improving. 

Traffic jams, anxiety, aggressiveness, lawlessness are all the hallmarks of a society that has lost the community compass and become an ultra-individualistic society where people do not care about others and where there is no future. 

The prevailing philosophy is ” I should take whatI can take NOW ! even at the expense of others. the community or even my own long term well being”

Anyone who has spent time in Lebanon must have been amazed at the way people drive and the notion that the Lebanese do not consider that the laws are made for them. They are made for others but if they can avoid them they will, even in the highest positions or responsibilities as illustrated by the case of Carlos Ghosn.

Breaking, tweaking, not abiding by the Laws or even the community codes of conduct is part of the culture and there are two letters missing in the Lebanese Alphabet : R & R : Respect and Rigor.

In sociological terms, Lebanon has gone back to SURVIVAL as is the case in nature where you kill or you get killed. People are in a permanent “rapport de force” instead of being in a notion of equality and respect and money and power – or beauty and seduction for the female gender – are the day to day tools of survival.

Short term-ism and adaptability are the other side of the survival kit.

After years of waiting for Parliaments, Governments, elections, and economic improvements, and putting up with politicians and ministers that move in armed motorcades and fly their private jets, the Lebanese are reaching a state of hopelessness that will be difficult to overcome…

Until now, the religious divide enabled the politicians to avoid mass unification of the people – apart from the Cedar revolution in 2005 which ousted the Syrian army form Lebanon following the assassination of prime minister Hariri – by pitting them against each other.

An economic and financial crisis will make them 

Lebanon is bankrupt

The State is bankrupt and unable to pay Government employees and service the public debt.

The Third most indebted country in the world

High indebtedness has been plaguing the Lebanese economy over the past decades, as the government has been caught in a vicious cycle of a hefty public debt burden and recurrent budget deficits. 

Since the end of the 1975 – 1989 civil war and the Ta?f agreement, Lebanon has been unable to recover a stable footing. Its debt has ballooned and its successive Governments – or lack of- have been unable to engineer the reforms needed to sustain economic growth and sound public finances.

With US $ 86 Billion of pubic debt for US$ 57 Billion of GDP, Lebanon has a debt to GDP ratio of 151 %.

It stock of debt is growing by USD 8 Billion per annum and the interest paid every year on the debt represents US$ 6 Billion or 10.75 % of GDP an unsustainable level. 

Lebanon’s GDP ( In US$ )

Lebanon’s Public Debt ( in LBP ) 1 US$ = 1507 LBP

Lebanon’s Debt to GDP ratio 

Today Lebanon is the third most indebted country of the world in terms of debt to GDP, after Japan and Greece.

The Government is today unable to balance its accounts and pay its civil servants or the pensions.

The country planned to tap international debt markets this month for $2 billion to finance its needs for the rest of the year after the central bank paid off over $3.2 billion in maturing debt in 2019. It is due to pay another $1.5 billion this year but is totally unable to do so.

Under a definition of usable reserves that excludes assets not readily available for balance-of-payments purposes, Lebanon only has enough to cover about 42% of short-term debt, according to S&P Global Ratings, far short of the 100% threshold that is the generally accepted minimum adequacy requirement.

Fitch Ratings, which ranks Lebanon at the same level as Zambia and the Democratic Republic of Congo, is warning the country’s large external financing needs will further erode the

central bank’s gross reserves.

The International Monetary Fund projects Lebanon’s current-account deficit will reach almost 30% of gross domestic product by the end of this year. Only Mozambique is in worse straits.

But how did we get there ?

Following the 1975-1990 civil war, the Lebanese government and the the prime minister Rafic Hariri embarked on an expansionary fiscal policy and a costly reconstruction plan, aimed primarily at rehabilitating the severely destroyed infrastructure of the country in the hope of fostering economic growth and doubling the GDP per capita. 

Lebanon’s total capital expenditures stood at $12.49 billion between end of 1992 and 2014 out of which circa $5.02 billion were externally funded and $7.47 billion were financed by the government. 

The sizeable borrowings to restore the damaged public infrastructure, the high interest payments on said debt, along with the resulting budget deficits from debt servicing and transfers to EDL – the Lebanese National electricity company – were the main culprits behind the ballooning public debt. 

The public debt grew at its fastest pace during the early post-civil war period, with growth decelerating at later stages. 

Lebanon’s debt grew at a CAGR of around 40% during the 1993-1998 era, increasing from $3.39 billion to $18.56 billion as the capital expenditures to GDP ratio hovered between 8% and 9% during the 1994-1998 period before slowing markedly to around 1% to 2% of GDP in the early 2000s. 

Similarly, government borrowings fell sharply between the years 1998 and 2015 due to the government’s efforts to refinance its existing debt by rolling it over on several occasions and at a cheaper cost, aided by the Paris conventions and other donors’ agreements. 

Transfers to ELECTRICITY OF LEBANON have been a major drain on public finances, aggregating to $16.85 billion over the 1992-2015 period, accounting for 23.96% of gross public debt at end of year 2015.

It should be said here that over the past 30 years, almost 30 % of the Lebanese population – mainly the Shia community that has been displaced form the south of Lebanon following the 1982 invasion of Lebanon by Israel do NOT pay their electricity, causing the country 2 Billion per annum of undue charges and preventing investments in infrastructure and electricity generation.

If you put together just the US $ 2 Billion of EDL and the US$ 6 Billion annual interest on the Public debt, Lebanon’s financial obligations amount to US$ 8 Billion, or 14.3 % of GDP, EVEN BEFORE THE PRIMARY DEFICIT OF US$1.5 Billion.

At present, gross public debt stands at $86 billion (August 2019) with Lebanon’s debt to GDP ratio reaching an alarming 151% level. 

This debt figure excludes some sizeable amounts owed by the government to the National Social Security Fund, hospitals, and private sector contractors, among others which, if embedded in the calculation, would undoubtedly raise gross public debt by another 3 to 4 Billion.

These trend are unsustainable and call for immediate action from the government in the form of reform measures which can take several forms such as privatization, Public-Private Partnerships, expenditure rationalization, fiscal reforms, and many rounds of debt softening and financial engineering schemes.

Unfortunately, as testified by the ongoing ELETRICITY OF LEBANON’s problem, Lebanon’s political organization and the deeply engrained religious divisions inscribed in law makes it impossible for any Government to make the required reforms and take drastic actions.

These divisions led to the weakest country in the region and far from having been being corrected by the Ta?f Agreement, the systemic flaws of Lebanon’s legal, constitutional, political, and social organization prevalent since its creation in 1943 have been amplified by it.

For decades, Lebanon has been helped by international donors be they Saudi Arabia or the oil-rich countries of the Gulf or the International community through various plans called Paris 1, 2 and 3.

A fourth pledge – Paris 4 – conducted by a conference called by newly-elected Emmanuel Macron in 2017 committed 11 Billion in aid for Lebanon, but was made conditional to structural reforms such as cutting spending, raising taxes and fighting corruption.

Unfortunately, after the failure of the previous three plans and the inability of the Lebanese Government and political forces to overcome their divisions, the foreign aid has now dried up and there is little in the way of a Government default very soon.

Expenditure rationalization is essential to contain the structural deficit in public finances, yet is proving impossible to implement considering the stage of discontent of the population Lebanon has reached.

In the latest budget law, the first passed by the Parliament in more than 13 years, VAT rates were timidly raised form 10 to 11 %v instead of the 20 % that would have been needed to re-balance somewhat the pubic finances. 

None of the structural issues such as Electricité du Liban were addresses and the Government refused to reduce the number of civil servants as they are mostly politically motivated.

Fiscal reforms such as combating tax evasion and improving tax collections is another avenue that needs to be implemented but there again political paralysis prevented it.

Once again, the Government refused to lift the bank secrecy laws that have no raison d’être a part from allowing the rich not to pay taxes and corruption to be prevalent, and it refused to revoke the tax-free status of the Lebanese offshore companies that are used by almost every industrial group to avoid paying corporate taxes.

Unfortunately, a Government debt default is unavoidable…

The question is no longer IF but just WHEN …

A devaluation of the Lebanese Pound is a strong possibility

For years, if not decade, the whole equation of Lebanon’s public finances was that the Government could keep on spending and let the debt ballon endlessly as long as two conditions were met :

1. The Lebanese from abroad kept sending US$ 6 to 8 billion dollars every year as they invested in their home country

and

1. The wealthy Lebanese would keep on buying Government debt as the interest paid on the Lebanese debt was higher than any other debt in their eyes.

Lebanese expatriates, a mainstay of the economy for as long as anyone can remember, have been sending money home for decades but have now lost confidence in the Government, the institutions and the ability of the country to manage its debt. 

Goldman Sachs Group Inc. estimates that deposit growth turned negative in May 2019 for the first time in decades, withdrawing the primary source of hard currency inflows into the country.

The perverse effects of currency pegs

Lebanon is a poor country when looking at its public finances, but the Lebanese are globally wealthy. 

The balance sheet of Lebanon’s banking system showed total assets at $220 in 2018, almost 4 times the size of GDP, testifying of the oversized nature of the baking system in Lebanon.

It is estimated that 90 % of the deposits of the banking system come from Lebanese individuals and corporations and only 10 % form foreigners, meaning that the Lebanese – or at least some of them – are truly wealthy.

For the past 20 years, the Central bank pegged the Lebanese pound to the US dollar at a fixed rate of 1507 LBP to 1 USD, creating a false sense of security for the Lebanese savers who were content to deposit their money in the banking system and gobble up Lebanese Government bonds paying 7 to 8 % returns per annum.

Blindsided by a the artificial peg of the currency, the Lebanese have developed a false sense of safety lending to the Lebanese Government and lost the perception of risks. As rightly described by FITCH’s socialist analyst on Lebanon, the currency peg engineered by the Central Bank for two decades created a unique situation of “Stickiness of Deposits ” whereby savers would continue to lend to the Government regardless of the massive deterioration in the public finances. 

By supressing the notion of risk, the Central Bank condoned the inefficiency of the Lebanese Governance system and political forces, helping them to spend even more and abloom the public debt at lower rates and fro much longer than would have otherwise been the case.

Unfortunately this is coming to an end.  

Lebanon has now reached the stage of a major crisis of confidence in the Lebanese currency.

Over the past, few months, The Lebanese have started sending their money abroad and the Lebanese from abroad stopped sending fresh currency into Lebanon as they used to do in the past, banks have started restricting the conversion of Lebanese pounds into foreign currencies and started limiting the amount of money clients could withdrawn from ATMs.

The central bank is finding it more and more difficult to guarantee the supply of dollars at the official rate of 1,507.5 pounds and had to guarantee it to importers of wheat, gasoline and pharmaceuticals, who are obliged to sell their goods at government-regulated prices. 

A black market in foreign exchange has developed leading the Government to prosecute money changers. The financial prosecutor last week detained six money changers, later releasing them on bail, for trading outside the central bank’s band — a criminal offense in Lebanon.

The central bank’s reserves have fallen some $4 billion in the last two years to reach about $37 billion in July 2019. In the past two months, it is estimated that the Central Bank had to use another 5 to 6 Billion to face the banking system’s obligations.

As confidence has plummeted, even ordinary people have begun to transfer their dollar savings abroad or hide notes under their mattresses.

For this tiny, import-dependent country that straddles the geopolitical fault-lines of the Middle East, the stakes have rarely been higher since the 15-year civil war that ended in 1990. 

The slow bleed of bank deposits, a key source of funding for the government, has exposed glaring vulnerabilities. 

A policy of putting their head in the sand has led the Government and the Central Bank to keep an artificial peg of the currency at 1507 to create economic stability, but without addressing the structural governance problems of the country.

The end-result of the currency peg has in fact been the opposite of what would have been expected :

It has allowed the non-efficient – or even lack of government – to constantly spend more, borrow more from the Lebanese at artificially low rates and balloon the public debt to unsustainable levels.

The central bank has repeatedly urged calm. Governor Riad Salameh told Bloomberg last month that reserves were “ample” and Lebanon has no intention of abandoning the peg. 

But what else can he say ?

The peg policy is not sustainable because of a growing deficit of the balance of payment and a growing external financing gap makes it impossible to keep on going that way.

In an article published as early as 1998, we already warned about the un-sustainability of the currency peg.

Unfortunately, Lebanon has now reached the breaking point, and the people are now demanding authorities to take action to avert a crisis. 

Unfortunately, apart from imposing capital controls – as is the case in Argentina – and limiting withdrawals from the banking system, there is very little the Government can do at this stage.

The central bank’s international reserves stood at $38.7 billion as of mid-September, equivalent to 75% of Lebanese pound money supply, and banks’ overall foreign-exchange liquidity covers 40% of their customer deposits.

This means that the Central Bank can hold on for a little bit more time, but it is difficult to see how it will reverse the psychological trend and confidence crisis. 

History shows that when financial crises reach that stage, there is very little to reverse the trend.

The social consequences of a devaluation of the Lebanese Pound will be devastating…

In fact, the economic consequences of a devaluation of the Lebanese pound could be limited form a pure economic standpoint as a large part of the economy is “Dollarized” and most prices are already specified in US dollars.

The impact on inflation will be therefore limited…

However, the real issue is social as the vast majority of salaries and pensions are denominated in Lebanese pounds and a devaluation of the Lebanese pound would amount to a major depredation of wealth and living standards for the majority of the Lebanese people.

After the deadly 1975 – 1990 civil war that has laminated Lebanon’s middle class and changed its social and ethnic fabric, a major financial crisis in 2019 would have the same effect, making the Lebanese poorer and triggering massive emigration, once again.

How did Lebanon get there ?

Contrary to what the Lebanese like to say, their problems are rooted much deeper in history than the recent times and far from coming form the regional or international situation, the problems of Lebanon come from the flawed legal, political and cultural organisation Lebanon’s traditional leaders adopted at the time of its independence in 1943.

A little bit of history

Lebanon is the oldest known nation in the history of Humanity. Its name is mentioned 73 times in the Bible and no other existing Nation today has the same privilege. 

Lebanon is home to two of the oldest continuously inhabited cities in the world, Tyre and Byblos, where the same people from all religions have been watching the sun plunge in the Mediterranean Sea for more than 10’000 years.

The wood of the Cedars of Lebanon was used to build Ancient Egypts sacred boats and pharaonic temples and the snow of its mountain used to enlighten the visitors of the Ottoman Sultans through sweet and perfumed sorbets. 

The Pheoenician colonised the Mediterranean Sea, founded Carthagena, Marseilles , most of the Islands of the Mediterranean Seas, gave the alphabet to the world and the first Law University in Jubail.

Lebanon is a very old historical, cultural and human reality.

But Lebanon is a very young political reality as a country and a Nation.

For centuries and millenniums, what today makes Lebanon was independent cities, fiefdoms, and territories that were always occupied by the then empires, from the old Egyptians, to Alexander the Greats’ empire, to the Romans, the Byzantines, the Christian Kingdoms of the Orient, Saladin and the Seljoukides, the Abbassides, the Mamaliks and the Ottomans who ruled the region for 620 years.

For centuries, the territory that is today’s Lebanon housed two completely different geographical and political realities that were totally disconnected. 

On one hand you had five coastal cities known in the antique world as”The Ports of the Levant”, Tyre, Sidon, Berytus, Jubail and Tripoli that were merchant cities only accessible by seas and were trading with each other and the rest of the world through their maritime fleets, and

On the other hand, you had the impenetrable chain of mountains known as “Mount Lebanon”, the land of snow, milk and Honey that gave its bible name, Laban, to the region, an area that was so difficult to access that it served as refuge for the persecuted religious minorities of the region, the Christian Maronites who fled the south of Turkey to escape the wrath of the Byzantine Christian Empire because they made allegiance to the Catholic Roman Empire in 700 AD, and the Muslim Druze, a schismatic sect of Islam, closer to Zoaroastrism, that took refuge in Jabal Houran and the Lebanese Shouf region around 1000 AD coming from what is today Iran and southern Iraq.

Over the past 10’000 years, the region was the melting pot of all nationalities, cultures, religions and languages fed by sea and by land with ethnies that were all semites, but coming from extremely different horizons.

From 1299 onwards, these regions were under the domination of the Ottoman Empire, the most powerful empire of the 15th and 16th century covering 1.8 million SQKm from the Caspian Sea to Hungary and from Mecca to Algiers in the South. 

The Sultans of Constantinople’s attitude to the region was to let the various communities run their own affairs under the supervision of a Moutassarif – Governor – who’s role was to maintain order, render justice and collect taxes.

Ethic and religious communities were used to co-exist with different neighbourhood in cities and different villages in the country side, with their own customs, religions and social organisation, sometimes even using different idioms.

The first appearance of Lebanon as a nation and political entity was the Emirate of Mount Lebanon established in 1516 as a sub-division of the Ottoman empire with an Emir who made allegiance to the Ottoman Sultan but ruled his territory independently.

Initially covering the Druze region of the Shuf and ruled by Druze Emirs, it expanded north and incorporated Maronite Christians under Fakhr al-Din who established a subtle symbiosis between the Maronites of Kisrawan and the Druzes of the Shuf mountains. 

In response to a massacre of Maronites by Druze during the 1860 civil war, 6000 French troops landed near Beirut to ostensibly protect the Maronite communities. The Ottoman sultan had no choice but to approve the French military intervention and review the status of Mount Lebanon. 

In 1861, the Ottomans and five European powers (Britain, France, Russia, Austria, and Prussia) negotiated a new political system for Mount Lebanon in a commission chaired by Mehmed Fuad Pasha, the Ottoman Foreign Minister. 

The international commission established a tribunal to punish the Druze lords for war crimes and the commission further agreed on an autonomous province of Mount Lebanon. In September 1864, the Ottomans and Europeans signed the règlement organique defining the new entity, including the French recommendation of an elected multi-communal council to advise the governorate.

The independent Emirate ended in 1861 with an independent organization while still part of the Syrian province of the Ottoman empire.

With the onset of World War I, the Ottoman Sultanate began to disintegrate. The Ottomans feared Arab independence. In response, the Ottomans abolished the autonomous province of Mount Lebanon in 1915, putting the mountain communities under emergency military rule. The repression culminated on May 6, 1916, with the hanging of 14 activists and journalists, including proponents of both Arab and Lebanese independence, Christians and Muslims, clerics and secularists. The location of the hangings in central Beirut became known as Martyrs’ Square, today the focal point of public Lebanese political expression.

It is only after the demise of the Ottoman Empire in 1920 that France was given a mandate on the region by the League of Nations and created a new country, THE REPUBLIC OF LEBANON, with a territory comprising of the five coastal cities, Mount Lebanon and the plain of the Beq’aa that was separated from the Syrian province of the Ottoman Empire.

THE LITTLE REMEMBERED FLAG OF THE REPUBLIC OF LEBANON UNDER THE FRENCH MANDATE 1926 – 1943

The REPUBLIC OF LEBANON was born in 1926. 

It was given a democratic constitution modelled on the French 3rd republic constitution with the full French legal and administrative organisation, including courts of justice, administrations, institutions and police forces.

At the origin of the creation of the Republic of Lebanon as an independent state from Syria, was the relentless quest of a Christian Maronite patriarch named AL HUWAYYEK who pleaded the cause of a separate nation for the Christians and the minorities of the region at the Versailles conference in 1920.

HUWAYYEK’s quest echoed a similar quest by the Jewish and Zionist movements with the British which resulted in The Balfour Declaration of 1917, s a public statement issued by the British government announcing support for the establishment of a “national home for the Jewish people” in neighbouring Palestine.

In 1926, when the Republic of Lebanon was founded, the majority of the population was indeed Christian.

Greater Lebanon from Ra’s Naqura in the south to Nahr al-Kabir north of Tripoli, and from the coast to the Anti-Lebanon mountains was established under the French provisional mandate in April 1920. 

Patriarch al-Huwayyek, with the Ottoman imposed famine in recent memory, insisted on the acquisition of the Beq’aa valley, a principal food producing area. The French were supposed to guide the population to self-determination with regular progress reports to the League of Nations. 

France confirmed the electoral system of the former Ottoman Mount Lebanon province in setting up a Representative Council for Greater Lebanon in 1922. Two stage elections, universal adult male suffrage, and multimember multi-communal constituencies continued the situation that prevailed in Mount Lebanon up to 1914.

A newly elected Representative Council became the clearinghouse for Lebanese input, and de Jouvenel endorsed it as the de facto constituent assembly. The Representative Council delegated drafting of a constitution to a twelve-member committee. 

The concept of Greater Lebanon as a Christian/Muslim partnership distinct from its Arab hinterland underpinned the project. 

They adapted the 1875 French constitution, and the French commissionerl hastened the Representative Council to enact the draft in May 1926.

It included a republic, executive power shared between the President and Prime Minister, a two-chamber legislature, equittable multi-communal representation, and Greater Lebanon as the final homeland of its inhabitants.

The Franco-Lebanese Treaty of 1936 promised complete independence and membership within the League of Nations within three years. The conservative French National Assembly refused to ratify the Treaty.

Too Young to be independent

By all accounts, Lebanon was granted its independence in 1943, in the middle of the second world war, way too early. 

Contrary to the other nations under French protectorate or colonies which stayed under their rule until the 1960s, the Middle East and Lebanon were under the conflicting influences of the British and the French Petainists who had signed the French armistice with Germany in June 1940.

De Gaulle fled to London and organised the French “resistance” to the Nazi occupation of France which ultimately saw the victory of the British Army against the Nazis in the North Africa Campaign on May 13th 1943.

The whole balance of power changed in the Middle East where the British were predominant and the French troops finally accepted, under international pressure to grant Lebanon its independence on November 22nd 1943.

THE ORIGINAL LEBANESE FLAG OF NOV 22ND 1943 SIGNED BY THE FOUNDERS OF THE REPUBLIC OF LEBANON

But was Lebanon ready for independance ?

The Two Original Sins

Lebanon’s problem from the onset was to create a completely NEW POLITICAL ENTITY on a very old and complex ethic, religious and social reality.

BUILDING A NATION and

BUILDING A NEW LEBANESE NATIONAL IDENTITY

should have been the UTMOST PRIORITY considering the ethnic, religious and cultural diversity of the populations that were united in a new political entity.

UNITING THE LEBANESE IN A NEW NATIONAL IDENTITY was paramount to the success of building this newly created Nation

Unfortunately, the first leaders of Lebanon that represented the main religious communities committed TWO ORIGINAL SINS that are at the heart of today’s problems and explain the chaotic and violent evolution of the Republic of Lebanon over its 76 years of history.

They divided the Lebanese People

To build a Nation you need to unite the citizens in the equality of rights and the Lebanese democratic constitution did provide in Art 7 that the Lebanese were equal in rights.

The new Lebanese Republic incorporated the French Civil Code, the French Criminal Code the French Administrative Laws and the French institutions, but when it came to the essence of the Law and individual rights, the Personal Status of individuals , their birth, their marriage. their divorce and their succession, the Lebanese leaders of the time decided to continue the logic that prevailed under the Ottoman Empire and that was based on religions.

Instead of applying the SAME democratic Civil Laws to ALL the citizens, they delegated the administration of the personal status to 18 different religious courts applying 18 different religious Laws.

In doing so, they forced the Lebanese to belong to religious communities by Law, they submitted them to the power of clerics that have never been elected democratically and 

THEY DIVIDED THE LEBANESE BY LAW FORCING THEM TO BELONG TO RELIGIOUS COMMUNITIES BEFORE BELONGING TO THE NATIONAL IDENTITY.

BY DIVIDING THE LEBANESE PEOPLE THEY WEAKENED THE NATION, INSTEAD OF BUILDING THE NATIONAL IDENTITY.

This has led Lebanon to be a divided Nation from the very beginning of its existence in 1943, enabling every regional powers to play the Lebanese communities against each other and preventing any kind of trans-community national programs.

They created a Dysfunctional Governance

The Lebanese leader of the time inherited a truly democratic constitution organising the country’s governance.

Unfortunately, they decided to twist it by adding the Nation Pact, an agreement whereby the various functions of the Governance were distributed t the various communities by order of importance, the President having to be Maronite, the Prime Minister Sunni, the President of the Parliament Shia, etc etc.

In doing so, they weakened the Governance of the country, instilled conflicts of interests, and encouraged nepotism and clientelism.

To come to power, politicians had to have the backing of there community, not of a political party, 

Once in power, their main mission was to preserve the rights and advantages of their community rather than act for the good of the whole Nation.

These two original sins made Lebanon the WEAKEST country of the region with a Divided people and weak institutions and explain how Lebanon could have gone down the drain over the first 76 years of its existence.

These flaws of the Governance of Lebanon explain how Lebanon was the only country in the region to accept that the Palestine Liberation Organisation could arm itself and fight Israel form the Lebanese territory, creating a State within the State, a foreign army in a sovereign country and that situation led to the bloody 1975 civil war which started as a fight between Lebanese Christian Militias and the Palestinians.

The sectarian division of the Lebanese turned that militia war into a religious war between Christians and Muslims and led to the intervention of the neighbouring Syrian army and the of the Israeli invasion of Lebanon in 1982 to kick the PLO and its armed militia out of Lebanon.

The weak sectarian system of Lebanon also led to another major mistake in 1989 with the TAEF accord that allowed, once again, an armed militia to develop outside of the control of the State, HEZBOLLAH, armed and financed by a foreign country; IRAN.

The 1989 Ta?f accord was destined to end the civil war. 

But instead of putting the foundations of a new nation where the citizens would be united, it actually increased the divide of the communities and allowed yet another state in the sate, weakening even further the Nation.

Since Taef, Lebanon has been under the growing threat of Hezbollah’s weapon and their ability to paralyze the institutions of the country, preventing legislative elections for more than nine years, and preventing the election of a President for more than 2,5 years.

During that time, public services were left unattended, the country had no budget voted, the public debt ballooned, and the economic situation deteriorated to the breaking point where we are today.

In a nutshell, Lebanon is a textbook example of how a young nation that had EVERY POSITIVE STRUCTURAL FACTOR OF DEVELOPMENT at the time of its independence in 1943 could decline endlessly and become a fourth-world country in the matter of 76 years.

The success or failure of countries and economies comes primarily from the efficiency of their public Governance and their capacity to unite there people towards a common goal and a better future

The Sectarian system invented by the Lebanese is a blatant failure because it has divided its people on the basis of religion and failed to put in place an efficient Governance system.

Lebanon today is going through a new revolution, a revolution against its political class but above all a revolution against its broken system.

Lebanon 1.0 was Sectarian and it is probably dead.

Lebanon 2.0 based on secularism and equality of rights is probably emerging, but the process will be painful.

However, getting the Lebanese to overcome their fears may take time and the emergence of a new political force will be difficult.

In the mean time, it is difficult to see how Lebanon is going to avoid a major financial crisis.