The International Aid the Lebanese People Urgently Need Must Not Be Used to Enforce Neoliberal Measures

CADTM international

11 August 2020 by CADTM International

As activists in the international CADTM network we were deeply moved when hearing of the disastrous explosions that hit Beirut on Tuesday 4 August. In this press release we want to convey our solidarity to the Lebanese people who, for too many years, have had to suffer an unfair concatenation of murderous crises. We think that it is also important to expose political responsibilities and those who attempt to profit from the situation; it is even more important to try to find how the country can escape this vicious cycle.

It will take time to establish the truth about the specific causes of the explosion of 2,750 tons of ammonium nitrate in Beirut harbour in the early evening of Tuesday 4 August, if it can ever be determined. However, what is evidenced by this catastrophe – which caused at least 158 deaths and over 6,000 injuries – is the extent to which the Lebanese State had abdicated its responsibilities. The country’s Prime Minister mentioned a case of negligence. That negligence, which was literally a crime, is first and foremost that of the government and its administration, gangrened as it is by cronyism and corruption. The previous governments since the end of the civil war (many have been in positions of power since then), and of course the various parties and militias, are also responsible. That Lebanon is sick and that the local political leaders are heavily responsible is obvious to everyone. But that responsibility is shared with regional and global leaders, international financial institutions (the International Monetary Fund IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
and the World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

) and private banks.

A local situation maintained by the game played by international powers

This catastrophe in early August has to be seen first of all in the context of the intense economic crisis the country has been in for several months. And that crisis itself must be seen in the context of a political situation that has been problematic for several decades. Lebanon is a magnificent country with a centuries-old history at the frontiers between several cultures and religions. This cultural and religious diversity is, as it is everywhere, a source of enormous cultural and social richness. That mixture and diversity of ethnic and religious groups is often exploited and amplified in political competition among the powers in place. The civil war that tore the country apart between 1975 and 1990 is an example. The end of the civil war has not meant an end to the international powers’ habitual attempts to profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. from the inter-religious tensions. It is not oversimplifying to say that, historically, Saudi Arabia and its allies (and the USA behind them) and to a lesser degree Turkey have supported the Sunnite parties, Iran and Syria the Shiite parties (first and foremost the famous Hezbollah) and France (and more discreetly Israel) the Christian parties. Each power supports and uses these political forces to further its interests in a region that is geopolitically and economically strategic.

In Lebanon, this organization on the basis of religion defines the country’s political life. Voters can only vote for candidates who share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. their religion (actual or assumed by birth) – not in the voter’s place of residence but in his or her birthplace. This system has encouraged the development of a system of structural clientelism of enormous proportions. So enormous, in fact, that it is no exaggeration to say that the political class in Lebanon essentially works more or less exclusively and openly in its own interests with barely any regard for the population, which is left to shift for itself in most areas of daily life: the provision of electrical power is chaotic; management of bus services in Beirut is left either to the various militias or to private individuals with mini-buses; waste (non-)management was at the origin of major demonstrations in 2015; communications are unaffordable; projects to build a railway line linking the country’s South and North are postponed endlessly despite permanent congestion of the motorways and the fact that the plans have long been drawn up. As for public contracts and the government administration, the standard is political cronyism and nepotism. It goes without saying that in such a context, “good management of public funds” is a concept that exists only in the pronouncements of politicians. Public monies serve above all to enrich officials and further swell the large private fortunes. The Beirut city centre, around la Place de l’Etoile, with its empty buildings built with State subsidies that serve no purpose but real-estate speculation, is the perfect symbol of this collusion of interests between those who hold public and private power. Between 2005 and 2014. [1]

The popular protest movement in Lebanon began on 17 October 2019 and challenged that entire system of inequalities, demanding the departure of the entire ruling class, the sentencing of corrupt officials and the organization of an economy based on social justice. It has always endeavoured to remain in the streets in spite of repression and the exceptional public-health situation related to CoViD 19. The protest movement denounces confessionalism and the dictatorship of the banks. The movement has resumed after the catastrophe of 4 August 2020.

An ultra-financialized economy based on a shaky financial arrangement

The country that was once known as “the Switzerland of the Middle East” has based its economy on the financial sector to the detriment of the productive sectors. The country has long had a large balance Balance End of year statement of a company’s assets (what the company possesses) and liabilities (what it owes). In other words, the assets provide information about how the funds collected by the company have been used; and the liabilities, about the origins of those funds. -of-trade deficit (which undermines food sovereignty) and the economy depends heavily on the dollars sent by the immense Lebanese diaspora around the world (8 billion dollars in 2018). The banking sector has built a veritable Ponzi pyramid on those funds. With cash sent by the diaspora, the private banks buy national-debt securities denominated in Lebanese pounds at the highly advantageous interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
granted by the Bank of Lebanon (BDL), which used the system to finance public budgets that were essentially squandered by the governments, as described above.

This system of financing the State through and for private finance has led to the accumulation of an unsustainable public debt that in 2019 amounted to 170% of GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
(with nearly 40% of the debt denominated in dollars). This pyramid had begun to crumble little by little due to the slowdown in the flow of dollars caused by the war in Syria and the fracture of the financial system worldwide, as well as capital flight organized by the country’s wealthiest citizens. It ultimately collapsed totally with the economic and financial crisis that accompanied the Coronavirus, although the socio-economic consequences were already considerable (a few months ago it was estimated that approximately a third of the population was living on less than $4 per day and that unemployment was at around 25%, and as high as 37% if the population under age 25 is counted). The Lebanese people have now been stripped of their savings and their pensions and the State is incapable of financing anything, not even repayment of its debt (the country is in payment default for the Eurobonds that reached maturity in March 2020, which has only accentuated the suffocation of the banking system).

With the economic and humanitarian crisis reaching levels never before experienced in the country, even during the civil war and the Israeli bombardments, once again it is international politics that has impeded the arrival of aid from abroad. Most political parties have been weakened as a result of the popular protests and only Hezbollah, using its dominant position as the country’s most heavily armed militia to harass the demonstrators, had managed to maintain power. That being the case, it was out of the question for the USA, Saudi Arabia, Turkey and Israel, but also France and the rest of the EU, to provide aid for the country in that context. On the contrary, the USA has attempted to take advantage of the crisis to apply maximum pressure on Hezbollah by depriving it (along with the rest of the country) of cash with the goal of handicapping Iran’s strategy in the region. As for Iran, it was in a difficult position itself because of the economic repercussions of the tightened US blockade and the Coronavirus disease, which has hit the country hard, and was not in a position to provide adequate aid. After decades during which the world powers used Lebanon for their own interests, they are now abandoning the country at the worst possible time.

It is in this context that the World Bank granted an initial loan of 120 million dollars in April to the Lebanese State for financing its health expenditures. The IMF, always quick to react in this type of situation, has also posed as the saviour of the Lebanese by offering the government a loan of 10 billion dollars. Of course, as is traditional for the Bretton Woods institution, that offer of cash was accompanied by a Structural Adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

Plan (SAP) – in other words, a package of “reforms” to even further liberalize an economy that is already extremely financialized.

For a genuine international aid and reforms that really serve the Lebanese people

Since 4 August, facing the real cataclysm that struck the people of Beirut and quite logically moved the peoples of the rest of the world, governments around the world have been promising humanitarian aid. The French president even went to the city to make an openly neo-colonialist pronouncement to the population of the former French protectorate, who demanded that he withdraw support for the political elites supported by France. While the explosion of 4 August of course affected the inhabitants of Beirut first, all Lebanon’s people will also suffer its consequences. The city’s port – the country’s main trading Market activities
Buying and selling of financial instruments such as shares, futures, derivatives, options, and warrants conducted in the hope of making a short-term profit.
port (60% of all imports, including 85% of all imported grain) in a country whose land borders have been cut off by the war in Syria and the conflict with Israel – was destroyed, along with a large part of the financial district. As a result Lebanon’s entire economy is prostrate. At a time when the people had already lost their savings and their pensions in the face of a skyrocketing cost of living, 250,000 persons are now homeless and millions will be deprived of income.

And we must not forget that Lebanon is a country where 1 in 4 inhabitants is a refugee. Although the data are not exact, it is estimated that along with 4.5 million Lebanese people there are more than 1.5 million Syrian and more than 500,000 Palestinian refugees, to speak only of the most important groups. We must also consider the huge number of migrants living in the country, working in appalling conditions, particularly domestic workers. All these people will be hit even harder by the current crisis.

It is therefore clear that international aid is indispensable, both to deal with the humanitarian emergency and to reconstruct in the middle and long term. It is also abundantly clear that local power can no longer be held by those who are responsible for this disaster but must be returned to the population, which must be able to manage the country’s institutions in the common interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. . The aid must be genuine, and for that to happen it must take the form of donations, medical and food support and provision of logistics expertise (in particular for rebuilding the port, the hospitals and essential infrastructures) and not loans. And the major reforms (demanded by the popular movements) that are indispensable for the country must be of a nature to enable democratic, efficient management of the country, and not the kind proposed (with renewed insistence) by the IMF, which will lead to an even greater increase in economic inequalities and an economy that will remain dependent on finance, as systematically happens in all countries that are subjected to SAPs.

We therefore call for a genuine international aid in the form of grants and a complete cancellation of Lebanon’s debt, and not new loans that will further prevent the country’s reconstruction in the long term.

Translated by Snake Arbusto and Christine Pagnoulle

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