Can Lebanon still be reformed? And how?

Can Lebanon still be reformed? And how?

Demonstrators in front of a Finance Ministry building in Beirut in November 2019. (Credit: AFP/File photo)

As Lebanon’s economic crisis endures — and while significant obstacles continue to delay the approval of laws and policies that would help put the country on the path toward economic recovery — some might ask whether it is still possible to implement the necessary reforms within the existing institutions and political system.

This is an admittedly difficult question, given the complexity of Lebanon's political and institutional structure. But in view of my responsibilities in preparing an economic and financial recovery program, and as head of the negotiating team with the International Monetary Fund, this question seems to me pertinent and legitimate.

Before attempting to answer this question, one could ask: what are the means available to bring about radical change in a country gripped by profound crises, be they economic, political or social? And, what is the best way to undertake economic reform in such an environment?

This question has been the subject of considerable debate, particularly in countries that needed to undergo a fundamental economic transformation — especially in countries following the collapse of the Soviet Union. Much of this debate focused on which path to follow: "shock therapy" or a gradual approach. There is no definitive answer to this question, as experience has not conclusively proven the superiority of one path over the other.

Shock therapy?

The choice depends on a number of factors, including the extent of existing economic imbalances, the nature of the political system, the ease of decision-making, the quality of the institutions and their ability to implement reforms within the framework of the established plan.

The gradual approach generally leads to a prolonged period of economic stagnation in a divided country. It can delay the implementation of reforms, as they will run into major difficulties restarting difficult negotiations each time a new set of policies need to be implemented. In this case, the possibility of economic policy reversal becomes more likely.

In addition, if the economy is suffering from major macroeconomic imbalances — in terms of fiscal, monetary, exchange rate or balance-of-payments policies — swift action may be preferable in order to provoke a shock and convince various economic agents of the authorities’ credibility.

Given Lebanon's current multi-faceted crisis and the need for a comprehensive reform program, the change required would seem to call for a “shock therapy” solution: the imbalances are very large while the decision-making process is complex and lengthy due to the country's diverse and mosaic nature in addition to the lack of trust between the citizen and the state. Hence the need for a positive shock to change expectations and mindsets and pave the way for reform.

A longer-term solution

But in the current system, a rapid rescue through "shock therapy" can only be achieved through a popular uprising around which various political and sectarian communities would rally to help the country avoid recurring crises.

In Lebanon, however, and given the difficulties in garnering a wide range of support for rapid change, the environment is not conducive to a revolution that would deal a blow to the existing establishment. Rather, the possibility of ensuing social chaos is real as political and community leaders can block any radical change that is perceived to threaten their interests or the interest of their communities. This and the state of the institutions make it difficult to challenge the political system and break the cycle of corruption and nepotism.

Should we then give up and accept the status quo? Certainly not. The disastrous economic and social situation we are in implies that we must work to bring about reforms within existing institutions, even if this takes a longer time. This does not rule out the possibility that in the meantime a political movement may arise that will lead to a fundamental change in the political system. But to stand idle until this happens is totally unacceptable.

However, as experiences from recent years have shown, even a gradual approach to reforms is not easy to come by given the reliance of many Lebanese on their community leaders to provide services and all types of favors, and hence it would be difficult to generate sufficient popular support for the reform process.

It is therefore essential to take these difficulties into consideration when working from within the current system but without necessarily resigning ourselves to them. In other words, objectives must be well-defined within well-articulated priorities and subject to existing constraints. These goals must be realistic, yet ambitious enough to motivate reformists. If these objectives are very ambitious and unrealistic within the existing constraints, it will discourage reforms and take us back to square one. Reform is a long-term and cumulative undertaking, not a one-off process after which we declare victory.

Three priorities

In this context, we need to draw up a list of priorities around which the Lebanese people can unite as much as possible. Improving living standards through a program of economic and financial reform is one such objective. This requires serious work, given the lack of trust between citizens and public officials. The reluctance of the Lebanese people, parliamentary and political blocs, some economists and private lobby groups to support the reform program we have been working on is proof of this mistrust that it will take serious work to reverse.

The road ahead will be long and arduous, but confidence can be restored if good policies are adopted and good results achieved. If political reforms are necessary to stimulate economic reforms, economic reforms can in turn induce political change. When conditions improve and everyone is able to access, on a meritocratic basis, their fundamental rights, then unconditional loyalty to a leader, a group or a community will fade.

From a practical point of view, it makes sense to start with the institutions directly concerned with the recovery process. Realistically, it is easier to start with a relatively independent institution such as the central bank (BDL), given its important role in monetary and exchange rate policy, as well as its links with international financial institutions that can contribute to the reform process. Indeed, the impending change in leadership due to take place this month may pave the way for a different kind of governance of BDL, granting the new governor and his team full authority and independence over monetary policy, away from political interference including in hiring, which must be based on merit. At the same time, the new management should be subject to oversight by parliament and the role of the Central Board should be enhanced. Finally, procedures must be established to reduce conflict of interests and avoid any BDL activities that fall outside the scope of monetary policy and financial sector stability.

Some may say that accomplishing such an objective is not possible in the current situation. But a way must be found to align the interests of political leaders to make them agree on the reform of a few public institutions. If it is not possible for political leaders to agree on such an objective, then all efforts will go in vain. But if this task succeeds, then we will move on to other key institutions such as the Finance Ministry or the Civil Service Council and the Central Inspection, among others.

The second priority is to strengthen and empower the institutions that uphold the rule of law, be they the judiciary or law enforcement agencies. An independent judiciary is a prerequisite for the establishment of a system of checks and balances, without which there can be no accountability, transparency or fairness. This is a very important point for the entire population and one on which everyone agrees in principle. Every effort must be made to enable the judiciary to fulfill its mission more effectively.

The third priority is to strengthen governance and fight corruption through appropriate policies and strategies that are currently being prepared, including for example the implementation of the digital transformation strategy that can improve transparency and efficiency in the public sector and reduce corruption as it minimizes direct contacts between citizens and public sector officials.

It remains to be seen which party will be able to secure an agreement between the various political components around these priorities. Nothing is clear now, and even the new faces “the Forces of Change” have so far failed to define a clear way forward for this purpose. However, this doesn't necessarily mean that this possibility has fallen by the wayside. There is a need to reach an agreement with other reformists and civil society organizations and communicate with all parties without exception, whatever their differences. However, this requires the presence of pressure groups from civil society at large — trade unions, NGOs, the media etc. — to push the reform process forward. If we start with these achievable reforms, we can create a kind of momentum for further reforms in different institutions. It is not an easy task, but certainly not impossible if the will exists to pull the country out of its crisis.

Lebanon still has a large pool of human potential, despite the massive emigration of skilled professionals, and Lebanese still have a formidable capacity to defy difficulties and raise up to the challenges. But it is crucial that individual talents are deployed within good institutions in a serious and sustainable manner.

Saade Chami is Lebanon's Caretaker Deputy Prime Minister.

As Lebanon’s economic crisis endures — and while significant obstacles continue to delay the approval of laws and policies that would help put the country on the path toward economic recovery — some might ask whether it is still possible to implement the necessary reforms within the existing institutions and political system. This is an admittedly difficult question, given the complexity of...