The Lebanese are in trouble. Lebanese leaders have borrowed and spent money for decades without addressing fundamental flaws in their state, economy, and society — operating in an order that, while not the cause of every problem under the sun, aggravates their poor politics, policy, planning, and governance. Struggling with fiscal, financial, monetary, commercial, and macroeconomic crises, all of which are intimately intertwined and aggravate decades-old problems, the Lebanese now confront challenges that are simple to understand, difficult to solve, and — at a philosophical level — impossible to accept after 30 years of peace and 15 years of independence. 

With little to show for all the drama and debt, the Lebanese people have been demanding change — of leadership, of behavior, of conditions — for six months. Lebanese leaders, once again, have offered the false sacrifice of a formal entity or endeavor while preserving their position atop the intercommunal order. After the cabinet collapsed in October 2019, Lebanese leaders then dithered, dallied, and disagreed for three months before finally forming a government. They confront the same acute crises that they were facing when citizens began calling for change and are still grappling with the same fundamental flaws that have existed for 30 years.


Stepping onto the stage today, any Lebanese leaders worth their salt must be wondering whether — and how — to help the Lebanese people cope with crises while also reforming over time. They’ll find it difficult to implement transformational or even reformist policies. Even the least politically problematic options will prove unpopular among the Lebanese, or segments of the Lebanese, accustomed to the subsidized stability of the past 30 years. Meanwhile, the same half-dozen robber barons who made this mess remain perched atop a constitutional-political order, retain control over state institutions, and command the support of hundreds of thousands of Lebanese. 

Lebanese leaders, and friends of Lebanon, must think holistically about fiscal, financial, monetary, and socio-economic challenges. Accepting that they’re beyond miraculous salvation, Lebanese leaders may still sequence short-term and long-range measures properly to help reduce the harm for people who will bear the burdens of action, inaction, or indecision. They must hope and work for change — while, incidentally, trusting and believing in themselves to remain committed and engaged in the longer run — even though they can neither transcend nor transform the conditions created by their predecessors in power. 


Drawing from a “plethora of rescue plans,” Lebanese leaders must accept — as they seem to have accepted — that they’re now just trying to make the best out of a bad situation. To help people cope with the crisis while pursuing change over time, they may try to cut costs, raise revenues, rearrange debt, secure support, and/or otherwise make moves to avoid a complete collapse — even if such moves risk propping up a cast of characters, let alone the system in which they operate, that citizens have been attacking since October 2019.  


  • Cut Costs: Lebanese leaders need to cut the state’s spending. They probably won’t fire bureaucrats, cut staple subsidies, or immediately eliminate overlapping subsidies like those in the state-run power sector — all of which support hundreds of thousands of people who are factional clients and communal constituents in an order that stands on their semblances of social contracts. For two years, Lebanese leaders have been trying to play around with spending — doing, or showing, just enough to unlock donor dollars. They’ve deferred intra-governmental payments, delayed payments to contractors, delayed rebates and adjustments to corporate taxpayers, and (formally) frozen public-sector hiring — meaning that the so-called “primary fiscal deficit” is even worse than reported, with what was reported being bad enough to deter donors. To actually cut costs, Lebanese leaders can fundamentally reshape the state or adjust the costs of doing business as usual. (Note: While the state-owned power company, industrialists, and drivers may benefit from lower costs associated with plummeting oil prices, any cost cuts won’t really reflect efficiency — and in any event the amount saved will be a drop in the ocean of issues the Lebanese face.) They’ll likely do the latter. They’ll maintain employment and nominal salaries and benefits while cutting cost (as they’re doing now, informally and partially). (Note: Although the Lebanese state has spent and borrowed more than it should have over the past few decades, it and the central bank have nonetheless helped stabilized society and support more vulnerable segments for decades — although they had to use such stopgap measures because of Lebanese leaders’ shortcomings in the first place.)

  • Raise Revenues: Lebanese leaders need to raise revenues — without harming the most vulnerable people and, maybe just maybe, without enriching themselves and their cronies again. On the one hand, the Lebanese state already collects certain taxes and fees with almost absurd efficiency: It collects a general value-added tax (VAT) of 11 percent; taxes and fees on goods like fuel, gasoline, automobiles, and phones; and overlapping revenues from state-owned companies or licensed enterprises. During the alleged austerity of the past few years, Lebanese leaders increased certain costs while failing to raise revenues. Moreover, they failed through a series of clumsy, greedy, and asinine initiatives — including the so-called “WhatsApp tax,” issued amid fires, floods, and fuel shortages. Even if they raise regressive taxes, as they’ll likely do as part of an international program (see below), Lebanese leaders could consider instituting and/or enforcing other measures. They could revamp personal and corporate income taxes, which are now designed poorly, collected inadequately, and evaded routinely. They could improve customs, which though relatively effective, remain marred by uncollected, under-collected, or “redirected” revenue through factions and cabals. They could tax or garnish certain types of bank profits, including applying retroactive measures on shareholders who pocketed dividends for themselves while now hesitating to recapitalize or reorganize — although there are legal and policy reasons to not be punitive with institutions, given that their fate remains tied to that of depositors who, in turn, are citizens. They must consider other, special measures for people and enterprises who’ve violated the law and (purported) public policy serially and significantly — often with participants in power, or with complicity of high-level leaders and mid-level officials: builders of megaprojects along the coast, investors in grand ventures built with illicitly-gotten gains, developers who’ve run roughshod over zoning rules, and enterprises that don’t pay fully and on time for state-supported services or abuse and misuse programs. 

Barbed wire blocks the vicinity of Lebanon's central bank building in the capital Beirut on March 6, 2020. - Lebanon's central bank today ordered money changers to cap their exchange rate at no more than 30 percent above the official peg to contain the pound's devaluation on the parallel market. Debt-ridden Lebanon is facing its most serious economic crisis since the end of its 1975-1990 civil war. (Photo by JOSEPH EID / AFP) (Photo by JOSEPH EID/AFP via Getty Images)
Barbed wire blocks the vicinity of Lebanon's central bank building in the capital Beirut on March 6, 2020. (Photo by JOSEPH EID/AFP via Getty Images)



  • Rearrange Debt: If they work together, Lebanese leaders and bankers may rearrange debt due over time. They could conceivably rearrange their debt (1) without defaulting in 2020; (2) while defaulting, on all or some of the debt-related payments due in 2020; and/or (3) otherwise behaving in a way — for instance, restructuring Eurobond debt or swapping domestically-held portions of it — that lenders and other relevant market participants construe as constructive or selective default. Understanding that they don’t face a binary choice between payment and nonpayment, Lebanese leaders would do well to settle debts due in the short run while putting together a plan for the long term. Lebanese leaders would, in doing so, pay the 2020 Eurobonds, restructure the rest of their external debt, and rearrange their domestic debt as part of the plan.

    • Restructure Dollar-Denominated Bonds: Lebanese leaders have defaulted, for the first time in their state’s history, on international, dollar-denominated debt. Lebanese leaders need time to consider the consequences carefully, plan properly, and liaise with relevant parties at home and abroad. Regardless of whether they paid or declined to pay, and regardless of why they ended up in this crisis, the Lebanese must make decisions as part of a plan that accounts for their overall debt burden and the wider challenges confronting their state and society. They don’t have a plan in place and, having already defaulted on the March 2020 Eurobonds, must now manage the consequences of their default while restructuring 27 bonds issued under their program. In addition to planning, they must convince others — not just bondholders, but including international institutions and states with the resources to help the Lebanese with credit facilities, bridge loans, and other support — on whatever purported plan they’d cobble together in a few days.

    • Rearrange Overall Debt: Lebanese leaders may make distinctions — in some instance, with real differences — between four of sorts of sovereign debt: (1) “domestic debt,” which is issued domestically, held by domestic entities, and denominated in domestic currency; (2) “dollarized domestic debt,” domestically-issued, domestically-held, dollar-denominated debt; (3) “internationalized Lebanese debt,” which would include internationally-issued, dollar-denominated debt held by domestic actors like Beirut-based banks or Lebanese citizens; and (4) “external debt,” held by international entities, denominated in dollars, and governed primarily — if not purely — by the laws of a non-Lebanese jurisdiction. (This isn’t about how others may classify debt; nor is it only about finance. Lebanese leaders have different substantive and formal relations — and retain different legal and coercive tools, just as they have different vulnerabilities — in dealing with different lenders. They, for instance, will be able to deal with Beirut-based banks who’ve lent them money in liras or dollars differently than they deal with London-based funds who hold distressed debt in dollars and governed by the laws of New York. They could conceivably, through legislation or circulars, convert domestic dollar deposits to lira or push future interest payments into lira — as they have done, to an extent — before letting the currency float or gradually de-dollarizing and trimming deposits through skewed controls.) Lebanese leaders may seem able to deal with domestic debt, although the challenges today are more significant than in 2002 — the last time they orchestrated a large-scale swap. They could conceivably arrange a swap as part of a plan, under which the state and Beirut-based banks would agree to convert shorter-term debt into longer-term instruments with reduced interest (with, say, an initial three years of no interest); the central bank itself would cancel, roll over, and exchange significant amounts of state debt; the central bank and Beirut-based banks would adjust their mutual arrangements to, in part, account for their respective schemes with the state; and each relevant institution would adjust adequately, and hopefully transparently, for implementation measures under the plan. For such a swap to mean much in the real world, given that the Lebanese are struggling with a dollar shortage, a prolonged run, and an overall debt problem, Lebanese leaders would need engage in reform, take confidence-building steps, and rehabilitate themselves on the international stage. And therein lies the great challenge: The Lebanese leaders who command the most support politically fail to inspire confidence from those who hold the money at home and abroad — and thus may not be able to attract the billions in grants, soft loans, refinancing, and (in-system) remittances that allowed their predecessors to take advantage of the time bought with such swaps in the past. 

  • Restore the Central Bank and Beirut-based Banks: Even today, the central bank is one of the two most prominent and capable — though not necessarily popular, among technocrats, populists, leftists, and others — state institutions in Lebanon. While the Lebanese and others have lost confidence in the central bank, it will be a pivotal player for the foreseeable future. For starters, the central bank controls resources and owns assets necessary for coping with this crisis: from foreign exchange and gold reserves, to the power to print money, and the ability to absorb — or arrange the absorption of — banks. Beyond that, it is — legally and practically — a steward of the currency, of banking, and of finance and commerce generally in a small, resource-poor state that will continue to rely on trade, services, and remittances regardless of whether leaders try to transform the economy. At the same time, the central bank as a lender remains directly and indirectly vulnerable to the state and dependent on depositors, which means its fortunes are tied to those of leaders who created these crises and to people who’ve been complicit in — and now skeptical of — the system in which it operates. Without trust, which will take time to rebuild, the central bank will find it more difficult to control or capture resources that remain outside the formal system. Meanwhile, Beirut-based banks must consolidate; they’re likely to do soon — by choice, by central bank diktat, or by the now-visible hand of the “market.” They must recapitalize, too. Although the state can’t recapitalize the banks itself and while the central bank is already too ensnared, they must all work together in the short term to formally cap interest, buy out certain depositors, convert larger deposits into bank shares, enterprise shares, and/or bond notes. Certain banks may wish to sell assets or obtain loans. And they must consider carefully — ideally, along with leaders in a broad-based committee including experts, businesspeople, depositors, and citizens — whether to take other steps. Working together, the state, the central bank, and Beirut-based banks may ease some of the internal, overlapping lira-denominated burdens — but can’t simultaneously solve the overall debt burden, liquidity problems, dollar shortage, and confidence crisis. 

A teller counts US dollars at a currency exchange company in the Lebanese capital Beirut on October 1, 2019. - Lebanon's central bank announced Monday adopting a measure to facilitate access to dollars for importers of petroleum products, wheat, and medicine, state media said Tuesday, following fears of a dollar shortage and possible currency devaluation, in a country which has had a fixed exchange rate of around 1,500 Lebanese pounds to the dollar in place since 1997. (Photo by JOSEPH EID / AFP) (Photo by JOSEPH EID/AFP via Getty Images)
A teller counts US dollars at a currency exchange company in the Lebanese capital Beirut on October 1, 2019. (Photo by JOSEPH EID/AFP via Getty Images)



  • Maintain Peg and Guarantees Until Plan in Place: The central bank may maintain the official peg, alongside the rates in parallel markets, in the short run. In practice, the central bank is only maintaining the peg partially; capping a second, semi-sanctioned parallel market run by exchange houses, even as a third unregulated market has emerged; and, somewhat separately, “guaranteeing” dollars for importers of certain goods — fuel, staples, medicine — at the official rate. Having propped up a peg and free conversion for decades, Lebanese leaders and bankers have now created a system with significant currency conversion restrictions, imbalanced capital controls, and at least three exchange markets. In a sense, the state, central bank, and Beirut-based banks have eased their own burdens and mitigated backlash by doing slowly and irregularly what others might’ve done rapidly and clearly. Lebanese leaders have shifted the burden to people — especially middle class and poor people — who don’t have the means to insulate themselves from consequences that, as it happens, will affect them more negatively than they’ll affect people who are able to minimize them anyway. Sandwiched by skewed capital controls and parallel exchanges, most Lebanese must withdraw cash in liras or use electronic means — such as transfers, debit cards, or credit cards — at the official rate. They thus lose value: at least a third, often 40 percent, and sometimes more of used money.  

  • Reconsider the Lira: The Lebanese state spends on salaries and benefits for public-sector employees in Lebanese liras. And most of its debt is held by Beirut-based banks and denominated in liras. Lebanese leaders will probably collapse the currency, as they’ve done at least twice in living memory, once they’re done driving enough people and enterprises toward the lira. They will eventually engineer or acquiesce to such a collapse, because (1) it is impossible to maintain even the illusory peg for long in the current climate; (2) it is still costly to maintain the existing partial peg and connected guarantees and subsidies; and (3) the state, constrained by politics and patronage, can cut costs of all lira-denominated spending (including salaries and benefits for employees, and principal and interest owed to banks). (While the state would also lose on lira-denominated income, it may adjust rules related to receivables — thereby trying to protect income to a point while cutting costs after devaluation. That said, the state would need to carefully consider the political cost of those moves.) Moving away from the peg, Lebanese leaders could float the currency, allowing people to trade the lira freely; ease toward a new peg or broader band, meaning they’d defend the currency but not at the same value and within the same range as before; or even actively devalue the currency, which is theoretically possible but might have costs outweighing the benefits in a place with Lebanon’s fundamentals. While abandoning the peg would in theory make it much more expensive to import everything that Lebanon imports, much of that damage has been done — and will be done — for goods and services not supported by state subsidies or central bank guarantees.


  • Prudence with Programs: The International Monetary Fund (IMF) is, as ever, the lender of last resort. In its annual Article IV consultations with Lebanon — released on Oct. 17, 2019, the day the Lebanese began their revolt — the IMF went back to the playbook in place after decades of crawling consensuses. It recommended what others, including states connected to the CEDRE conference, have been recommending and what the Lebanese themselves have been implementing erratically without a vision or strategy. The IMF, for instance, recommended that the state engage in “fiscal measures” including “raising the VAT rate, broadening the tax base and removing exemptions, as well as increasing fuel excises and eliminating electricity subsidies;” the central bank “step back” from financial engineering to “strengthen its balance sheet and require banks to build up their own buffers further;” and essentially everyone engage in “fundamental structural reforms to raise growth and improve Lebanon’s fiscal and external position.” Hezbollah and others, who in turn created the current cabinet, have been objecting to an IMF program — only to then qualify their objections, then qualify their cautiously-communicated non-objection and non-acceptance. Other Lebanese leaders, also in the established elite, have been eager to internationalize the crisis just as they’ve internationalized conflicts in the past. All of them want as much money and advice, with as little control and constraint, as possible. While they may still have personal, political, and even prudential policy concerns with the IMF, Lebanese leaders will discover that no state or collection of states is about to save their strained society without it. The United States, European states, and Arab states have had the chance to step in and provide money. But while they’ve expressed support and provided regular assistance in the security sector, through specific development projects, and as part of a humanitarian response for Syrians registered as refugees in Lebanon, they haven’t provided assistance in the context of this crisis. Nor have they unlocked funds connected to the CEDRE conference of 2018. The Lebanese need, and want, money: at least $20 billion, according to experts in different circles and with different dispositions, but probably somewhere near $30 billion. And they may get it, given that crisis has a way of compelling action abroad: The IMF has money, is willing to provide it with certain conditions and based on certain timetables, and has — per its mandate — operated in such environments around the world. But no program is a panacea. Indeed, an IMF program could be particularly problematic in a state like Lebanon. Not only does Lebanon resemble other states in being ill-suited for the current consensus regarding policies, but its leaders have spent decades as intermediaries between their people and the world — and are still prepositioned to control institutions and the political economy. Not only do these leaders make privatization and certain modes of partnership problematic with their presence and power, but they may — eventually, after this experiment — turn Lebanon into a serial recipient of international institutional programs that unlock maximum money with minimal reform. Leaders in other states have done so; the Lebanese have done so in other contexts, too. Thus, while international institutional assistance is necessary, it isn’t sufficient. The IMF can help and/or advise the Lebanese, but it can’t do for them what they don’t do for themselves. 

  • Rebalance the Economy: Lebanese leaders must work to broaden and balance economic output. While they won’t be able to transform their economy or transcend the fundamentals — not easily, not rapidly, and not without investments they can’t afford or access for the foreseeable future — Lebanese leaders can and must improve frameworks for banking, investment, trade, and business. They can and must rebalance the economy. They’ll need to reorganize the banking sector and support high-value services, certain agriculture, and industry tied to ingenuity instead of scale or cost. They’ll need to reduce regulations for certain business in Lebanon — a place that, despite its reputation as a freewheeling merchant republic, has a cumbersome and oppressive framework for those who operate in good faith. Moreover, Lebanese leaders may wish to create exceptions and incentives for businesspeople that may add value and bring in real dollars (accepting, reluctantly, that such policies may also favor cronies and may be abused by large-scale companies and average citizens as in the past). 

  • Struggle for Self-Improvement: Evolution is as important, or more important than, revolution. Lebanese people — in every community and area, in all walks of life and segments of society — are right to demand reform, but they must also demand from themselves changes in political practice and political culture. Lebanese leaders aren’t from Mars. Nor are the anonymous, faceless bureaucrats who form cabals beneath the ministerial level or the businesspeople who in their self-styled individual ingenuity make and take money at the expense of others. Change is possible. It takes time and effort, with real reform requiring organized and diligent work regardless of revolts, revolution, or crises. Many Lebanese have already been putting in their time over the past few months, and indeed years and decades, even as others deride them as dangerous, naïve, and counterproductive. They must persist; others must assist. They may begin with the hard and seemingly mundane work needed for self-improvement personally or politically, privately or publicly, institutionally or socially. 


Lebanese leaders must act to obtain immediate relief, begin interim realignment, and sow the seeds of longer-term change. And the Lebanese people, from serial activists and civil society leaders to common citizens, must find the sweet spot between chasing change and coping with crisis. 

The Lebanese face an ironic, impossible truth: after 50 years of war, occupation, and feuding, their merchant republic’s coming crisis — and real reckoning — may be about money. They must first help each other cope with crisis, before they — with all their hope, anger, and fear — take on the next great task in their lives. 


Anthony Elghossain is a lawyer, writer, and non-resident scholar at the Middle East Institute. His first book, They Came in Peace: American Adventures in the Levant, is due out in 2021.

Photo by Marwan Naamani/picture alliance via Getty Images

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