Legislative elections will take place on May 15 in Lebanon. They occur three years after the start of a major economic and financial crisis still hitting the country, and less than two years after the devastating explosion in the port of Beirut, which killed 215 people and injured more than 6 others, with damage estimated at nearly four billion euros by the World Bank.
According to the World Bank, this intentional crisis, one of the worst the world has seen since the 1850s, is the result decisions made by the country's political elite. Its willfulness was the subject of a documentary by Lebanese-Australian journalist Daizy Gedeon, “Enough! Lebanon’s Darkest Hour ».
We are a group of professors in economics, all of Lebanese origin. In addition to our academic positions at the University of Ottawa, the University of Sydney, Australia and the Lebanese American University, Lebanon, we have acted as consultants to various national ministries and organizations and to 'International organisations.
We would like to share with you our thinking based on our research results as well as results produced by other economists.
The origins of a nepotic system
Since the time of the civil war of 1975-1990, Lebanese political life is controlled by extremely corrupt militia leaders and politicians. In 1990, the end-of-war agreements (Taif Accords), confirmed the hold of this political elite over the country.
These militia leaders and their political allies, drawn from the main religious groups in Lebanon, established an economic and political system of redistributive kleptocracy. The nature of this nepotic system is extreme. The members of this political elite extract and share as much as possible from the Lebanese state. They redistribute a small part of it to their political base, often in the form of public sector jobs.
Thus, this system has brought the country into a bad balance. No individual member of this political base has an interest in stopping supporting his clan leader if the other individuals continue to support the system in place. By deviating alone, an individual risks losing his share of the little that is redistributed and sinking into poverty.
A national Ponzi scheme
Towards the end of 2015, the Lebanese state having been ransacked by this political elite for decades, the Banque du Liban (BDL), already had a deficit of 4,8 billion USD in its net reserves.
In April 2016, this worrying problem was reported by the International Monetary Fund (IMF) in a memo addressed to the Lebanese authorities. However, this memo was never released publicly at the request of the Lebanese government, which was then facing a sharp decline in public confidence.
In one of our studies, we analyzed the fluctuations in the level of trust of the Lebanese population towards its public institutions. The results of our analysis indeed indicated a substantial drop in public confidence in all public institutions. The Lebanese authorities managed to convince the IMF to remove this information from their official January 2017 report given their precarious political situation and the fact that the parliament was due for re-election in 2018.
In this political context, lawmakers accelerated a nationwide Ponzi scheme they had already put in place. They therefore voted to new public salary scales with massive increases in state spending. They were financed by this system which consisted in attracting bank deposits in American dollars in Lebanese private banks, which offered abnormally high interest rates. These deposits were then used to finance public debt. This coordination between the banks and the ruling class was made possible because of the strong connections between the banking sector and the political elite.
Some anecdotal evidence suggest that the purpose of this increase in the pay scale was to buy public approval and prepare the ground for their re-election in 2018. The public sector employs 14% of workers, and this sizable proportion of civil servants forms a significant part of the electoral base of political parties through an elaborate system of political patronage.
This electoral base is all the more important in the Lebanese electoral context where the voter turnout is less than 50%. According to our study, these massive wage increases allowed the political elite to slow the fall in the level of trust in public institutions between 2016 and 2018.
How to analyze the impact of all these political maneuvers on the well-being and poverty of the population? Unfortunately, Lebanon, like most Arab countries, produces very few household income surveys and when it does, it severely restricts access.
The objective of this statistical opacity is to prevent the evaluation of the performance of leaders. However, this also makes it impossible to develop public policies based on evidence. According to a recent World Bank study, this statistical opacity imposes a loss of 7% to 14% of gross domestic product (GDP) per capita in the Arab world.
In order to reduce this statistical opacity, we recently produced a other study in which we use alternative data sources to study changes in income distribution in Lebanon between 2016 and 2021.
We see an artificial decline in poverty in Lebanon between 2016 and 2018, consistent with Ponzi-like financing. This artificial drop occurred just before the elections, thus allowing the re-election of the same political class.
Unfortunately, with the level of public spending being unsustainable, this system collapsed shortly after the elections. This resulted in a major banking crisis imposing major difficulties on accessing depositors without political connections. to their bank accounts.
In addition to having difficulty accessing their savings, the Lebanese have had to face inflation rate of 84,9% in 2020 and 154,8% in 2021 while inflation averaged 3.1% during the previous ten years.
The price of foodstuffs was even more affected, since according to the United Nations World Food Programme, they increased by 1000% (i.e., multiplied by eleven). Our study indicates that the costly vote-buying strategy thus contributed to a increase in poverty between 2018 and 2021 training him to higher levels than in 2016.
Faced with this enormous cost imposed, will the Lebanese have the courage to oppose this traditional political elite in the elections of May 15? Or will they remain prisoners of this bad social balance which puts the whole country on the artificial respirator? Let's hope that this election will be at least a first step towards the organization of the opposition forces, which can face this kleptocratic regime.
Paul Makdissi, Professor of Economics, University of Ottawa / University of Ottawa; Ali Fakih, Associate Professor, Lebanese American University; Myra Yazbeck, Associate Professor, University of Ottawa / University of Ottawa; Rami Tabri, Senior Lecturer, University of Sydney et Walid Marrouch, Associate Professor, Lebanese American University
Image credit: Shutterstock.com/kameelRayes
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