by Ghassan Kadi for The Saker Blog

The new Lebanese Government has been pre-destined to fail; and for no wrong doing on its part. Actually, PM Diab formed the cabinet on the 22nd of January 2020, and as I sit down to write this on the 26th of February, I would have to say that, irrespective of the conditions upon which Diab was chosen to be the new PM, he has not yet had the chance to prove his worth or otherwise.

The popular street anger that emerged in Lebanon on the 18th of October 2019 has forced former PM Hariri to resign. Among other reform requests, the protesters demanded a cabinet comprised of new non-political faces, and Diab’s cabinet as well as Diab himself, are technically-speaking indeed new on the Lebanese political arena. But even before Diab formed the new cabinet, he himself was touted to be a Hezbollah supporter, and this made him unacceptable by the protestors. And after he named his cabinet members, more such claims were made; and I am not in a position to assert them or otherwise.

In a series of articles that were published on my blog, https://intibahwakeup.blogspot.com/2020/02/lebanons-dilemma-revolving-identity_27.html, I focused on the on-going Lebanese unrest from an identity-based perspective and the conflict of loyalties. But money, as some say, makes the world go round.

This article is not intended to address history as such and/or Diab’s alleged loyalties. It is rather about what is behind the money trail that has been part-and-parcel of all political developments in Lebanon ever since 1975 and before.

When the Lebanese Civil War broke out in 1975, the exchange rate of the Lebanese Lira (LL) to the US Dollar (USD) was in the vicinity of 3 LL to 1 USD . And, even though the war devastated the country whose economy was primarily underpinned mainly by tourism and banking services, the Lebanese economy did not seem to suffer, at least significantly. There were times when certain commodities were hard to find, but that was mainly due to transport-related problems caused by road closures, and not due to economic conditions that stood in the way of their availability.

The LL remained strong, but eventually slipped and took a minor dive towards the end of 1984. By September 1984, the exchange rate was 5 LL to 1 USD. Even though that 5:1 mark generated panic, in hindsight, it reflected further fiscal strength of the LL given that this landmark happened more than nine whole years into the war. And, between 1984 and 1990 or so, it slipped to 1500 LL to 1 USD.

There was much turmoil during this period and many retirees and ex-pats lost their life-long savings. As for those still at a working age, they suffered severely until their wages were eventually indexed and the LL maintained its 1500-1 ratio to the USD for a very long time; actually till the time the recent uprisings commenced just 3 months ago.

In hindsight, there is no mystery or divine intervention behind the rather strong Lebanese economy during the first 9 years of the Civil War and which kept the exchange rate steady.

The buck stops with war money and the war money trail.

Seven years into the Lebanese Civil War, Israel invaded Lebanon and the PLO was forced out. Two years later, the LL began to slump.

Coincidence? Perhaps not.

During the first few years of the Civil War, Lebanon lost its traditional “golden age” sources of income, but it was inundated with war money.

The main donors were Gaddafi, Saddam and Saudi Arabia.

Some would argue that the CIA made heavy investments, and this is quite possible. But the CIA and similar agencies, including the Mossad, had their individual operatives. On the other hand, Gaddafi, Saddam and Saudi Arabia were sponsoring whole armies; so to speak.

Virtually all Left wing Lebanese political parties sent delegations to Libya seeking financial support. This includes what was referred to in Lebanese political terms as political “shops”. Some of those “shops” were comprised of small groups with a dozen fighters. They all came back with millions of USD, some with tens of millions.

The Saudis were very keen to finance the emerging Salafist militia (even though they were not referred to as such back then) because those militia were fighting the Right wing “Christian infidels”. At the same time, they were happy to finance those same “Christian infidels” because they were fighting the Communists (who were party to the Lebanese political Left).

Saddam, the Iraqi Baathist, on the other hand was very keen to sponsor any group that stood up against the rival Syrian Government of the other Baath Party faction.

The Kuwaitis, Gulfies and Qataris played more or less the same game as that of the Saudis.

All up, there were huge sums of war money pouring into Lebanon. Adding to that was what the Lebanese ex-pats sent their families and what they invested into their savings. The Lebanese banking system found alternatives to tourism and foreign investment, and the economy remained prosperous despite the devastating civil war that was destroying much of what the eye could see.

But the Lebanese political parties and “shops” were not the only recipients of “brotherly” aid and not the largest ones either. By far, the biggest recipient was the PLO in all of its branches and subdivisions.

Whilst most of the monies “invested” in the Lebanese Civil War were spent on munitions, operatives on the ground were canvassed, employed as mercenary fighters with most generous pay. One would not zero out the possibility that the Lebanese banking system benefited from those transactions.

Throughout the first decade of the Civil War years of Lebanon, there was no shortage of money or jobs for those prepared to literally cut throats for a living. Pragmatically-morbid as this may sound, war money and its willful recipients kept unemployment levels low and the economy buoyant.

Now, was the initial slump of the LL exchange rate in 1984 a direct result of the expulsion of the PLO and its associated funds from Lebanon? No one can answer this question with reliable economic accuracy. That said, the timing of the events begs the question.

What we do know is that between 1984 and the year the war ended in 1989, the LL slumped from 5:1 USD, to 1500:1 USD.

As the Civil War eventually came to an end in 1989, Rafiq Hariri emerged on the scene as a savior. He made huge investments in rebuilding certain aspects of the Lebanese infrastructure. The self-made billionaire, Lebanese by birth, but a dual national of Saudi Arabia, who eventually became Lebanon’s PM, bolstered the economy not only by bringing in his own investments, but also by presenting and ensuring a strong Saudi regional backup to his ventures.

Hariri also established the philanthropic “Hariri Foundation” which sponsored tens of thousands of Lebanese youth to receive tertiary education at home and abroad.

Hariri also created jobs as he rebuilt downtown Beirut, and certainly his American style election campaigns injected millions of dollars into the streets.

Hariri resurrected the confidence in the Lebanese economy and the LL. As a result, the LL maintained its exchange rate of LL 1500 to 1 USD and the Gaddafi/Saddam war funds were superseded and made redundant by the “peace” Hariri/Saudi funds. In any event, by then, the demise of Saddam was just around the corner.

The Rafiq Hariri money injections replaced the lost PLO war money, which in turn replaced the original Lebanese golden age economy pillars of banking and tourism that supported the Lebanese economy during its “golden age”.

When Rafiq Hariri was assassinated in 2005, change was on the horizon.

His son, Saad, carried his legacy and continued to fund his father’s initiatives at all levels.

When the war on Syria began, with the help and facilitation of Saad Hariri, the Saudis and Qataris injected huge sums of money into Lebanon in order to lure jihadi recruits, arm them and send them into Syria. The northern city of Tripoli was the main hub for this influx. And, because Tripoli had its own internal conflict between Bab el Tabbana fighters who were loyal to the then Hariri/Saudi/Qatari camp in their fight with the Alawite fighters of Jabal Mohsen, money kept flowing in.

In the most dire of situations therefore, in peace and in war, the Lebanese economy has always had a lifebuoy.

Furthermore, the Lebanese Government was able to receive international aide and grants, especially after major escalations. All up, in the so-called Paris 1, 2 and 3, together with the so-called Cedar 1 fundraisers, the plan was to provide Lebanon with USD 17 Bn to be provided according to a schedule that terminates in 2025. The fund providers were the EU, the USA and the Arab oil states. It is not clear how much has already been received.

The Lebanese people cannot see where these funds have gone to, and now the government has repayment commitments to make and which it cannot meet and this is public knowledge.

What is pertinent here, is that all war funds have now run dry, with the exception of the Iranian aid to Hezbollah. That aid however, never really had a significant effect on the economy in the past, and it is not expected to have one now either.

Gaddafi and Saddam are long gone, the Saudis are no longer in partnership with the Qataris, but neither party is sponsoring any warring entity in Lebanon at the moment. Hariri’s Saudi Oger giant construction company has gone bankrupt, and even though Saad Hariri is believed to have quarantined at least a billion dollars for himself, he has closed all charity organizations, electoral offices and payments to his loyal troops.

But this is not all, even the scheduled “legitimate” foreign aid has stopped, and that was before the recent street uprising. https://www.haaretz.com/middle-east-news/lebanon-to-receive-no-foreign-aid-before-government-is-formed-say-diplomats-1.8260216

The situation now is much more untenable for current PM Diab, because he knows that it would be pointless of him to even try to approach the well-financed Arab states seeking help, so he is not even trying. https://www.mtv.com.lb/news/مــحــلــيــات/1022176/لماذا_يتريّث_دياب_في_طَرق_الأبواب_الخارجية؟

There is no doubt at all that all benefactors that have traditionally been assisting Lebanon are quite aware of the corruption and theft, and they must be growing sick and tired of being constantly asked to give more; especially that they know beforehand that their funds will be squandered. Ironically however, many of them did not worry about the fate of their funds when they were financing warring factions. Nonetheless, they are employing the issue of corruption to hold back on providing loans and finance to Lebanon.

For the first time in its history, neither the Lebanese people nor the political parties or government are receiving any lifeline funds.

To add insult to injury, Lebanese banks have implemented draconian measures to limit withdrawals. The figures have improved slightly, but the withdrawal limit is still around USD 200 a month. Even if one has millions invested, he/she has to stop at this limit. This includes businesses and as a result many employers have had to dismiss their workforce. As if this alone is not bad enough, it is preventing hundreds of thousands of Lebanese expats from sending money to their savings accounts and relatives at home. Expat money had always been one of the corner stones of Lebanese economy.

Any of the above factors can alone cripple the back of a country’s economy; let alone all combined. And even if Diab was clean as a whistle and willing and able to stamp out corruption and move forward, to say that he is not allowed to succeed is not a far-fetched statement to make. One does not have to be a conspiracy theorist to see that the different economic strangleholds imposed currently on Lebanon did not line up accidently.

What does not meet the eye here is that Lebanese people are deliberately being squeezed into the corner of poverty, even starvation, so that they revolt. But the main target of inducing this anger is not to affect reform against corruption, but rather to inflame the anti-Hezbollah passion in order to disarm it and keep Israel safe from its rockets.

Because the Axis of Resistance has been victorious, corruption is now used by its enemies to cripple Lebanon economically in order to bring Hezbollah to its knees and provide Israel with it has not been able to achieve by force.

The big irony here, is that none of the politicians who are corrupt and have been named to have thieved from the public purse is a Hezbollah official. Admittedly though, Nabih Berri (leader of Amal) and Gibran Basil (son-in-law of President Aoun) have been named as highly corrupt, but they are allies of Hezbollah, not members; and there is a big difference. The list of corrupt officials however, includes virtually all officials from all traditional Lebanese parties and dynasties; not Hezbollah.

And even though protestors in the streets are demanding reform and the return of stolen funds and chanting out “Killon Yani Killon” (ie “all of them means all of them”), the anti-Hezbollah/Syria/Iran fervor is very specifically high on their agenda.

They have been playing videos showing thugs carrying Hezbollah flags and chanting Shiite slogans, attacking the peaceful demonstrators. If Hezbollah wanted to attack the demonstrators, would it be so unsavvy to carry flags? But ironically, no one questions the identity of those thugs and who is really behind them. Such videos are further inflaming the sentiments and the calls for disarming Hezbollah. This is exactly what Israel wants. This is social engineering 101, but some even moderate-thinking Lebanese are now reiterating that disarming Hezbollah is part-and-parcel of the reform needed.

Lebanon is not under any Western sanctions as such. It is under siege, a covert siege, a covert financial war against Hezbollah and the way out of it requires wisdom and diligence.