IT IS almost like starting a government from scratch. When the president of Cyprus came to visit his Lebanese counterpart in January, there was no one in the palace to serve coffee. Some ministers are discovering that key civil servants are still on the payroll but living outside the country: with little work and even less pay, they took jobs abroad. When your correspondent congratulated Yassine Jaber on his new position, the finance minister corrected him: “You should say, ‘God help you’.”
For more than two years, Lebanon has been paralysed. The previous president, Michel Aoun, left office in October 2022. Parliament could not agree on a replacement. With no head of state, no one could appoint a prime minister. A caretaker cabinet was left to manage the country during a financial crisis and a war with Israel.
The impasse has ended at last. Joseph Aoun, the army chief (no relation to his predecessor), was sworn in as president on January 9th. He made Nawaf Salam (pictured), head of the International Court of Justice, prime minister. On February 26th parliament approved Mr Salam’s cabinet.
The government faces three big challenges. First, to rebuild hollowed-out institutions and war-ravaged parts of the country. Second, to restructure the bankrupt banks. Third, to fully implement a ceasefire with Israel and UN resolution 1701, which calls for disarming Hizbullah, a Shia militia. The problem is where to begin: it is hard to do any one of those things without having done the others first.
Consider the state. More than 600 high-level positions are vacant, among them the heads of the central bank, the army and the security services. Mr Aoun wants to fill the vacancies quickly. He hopes to name a new central-bank governor this month (among the candidates are an IMF official and a former executive at HSBC, a bank).
From there, ministers vow to fix parlous basic services. An obvious place to start is the state-run electricity company. It has accrued $40bn in debts since 1992 yet provides as little as two hours of power a day. Mr Salam says post-war reconstruction is another priority. In February the World Bank put the war’s toll at $10bn in physical damage and reconstruction costs at $18bn.
Such tasks are beyond the reach of a state with a $3bn budget. The World Bank has proposed an initial $1bn programme to clear rubble and rebuild infrastructure. It would provide $250m; donors would have to supply the rest. “Without meaningful economic and financial reforms, it will not be forthcoming,” says Hazar Caracalla, an economist. “The sizeable needs of Syria and Gaza might also crowd out Lebanon.”
Lebanon reached a $3bn agreement with the IMF in 2022, but it was never implemented, largely because the caretaker cabinet failed to restructure the banks. They have been insolvent since 2019, when a state-run Ponzi scheme imploded. More than $86bn in deposits, four times the country’s GDP, remain largely inaccessible.
Mr Jaber says the right things about restructuring. He talks of a three-tier plan. Depositors with less than $100,000 in the banks, who make up 84% of the total, would get their money back—albeit over a period of many years. The biggest depositors would take haircuts. He has also resumed bail-out talks with the IMF.
Versions of this plan have circulated for years, though, and Mr Jaber is vague on the details. Even if he is serious, he will face opposition. Some bankers believe they survived the crisis and no longer need dramatic reforms, which would wipe out their equity and shut small banks. Some MPs agree. “There’s a majority in the cabinet for reform,” says another minister. “But anything that requires parliament, forget it.”
Then there is Hizbullah. Hundreds of thousands of people converged on Beirut last month for the funeral of Hassan Nasrallah, the group’s longtime leader, who was killed in an Israeli air strike in September. The militia hoped the crowds would be a show of strength. Yet many in Lebanon saw the event as a funeral for Hizbullah itself. Mr Nasrallah was a charismatic figure; his successor, Naim Qassem, is tedious. The group’s arsenal is depleted. Residents of southern Lebanon grumble that Hizbullah has offered little help to fix their ruined homes and businesses.
Some officials spot an opportunity to drive a wedge between the party and its supporters. Perhaps the state can help them rebuild where Hizbullah cannot. Mr Aoun has been clear that he wants the army to disarm Hizbullah, but conciliatory in his language towards the group. “You don’t want to remind them every day that they are leaderless, that they are weak,” says one Shia critic of Hizbullah.
A weakened Hizbullah is not powerless, though. It is unwilling to disarm. Mr Aoun’s foreign allies are upset that he has not taken a harder line. When he visited Saudi Arabia earlier this month, his first foreign trip as president, he was welcomed at the airport only by the deputy governor of Riyadh, a pointed snub. Gulf states are reluctant to invest in Lebanon until they see Hizbullah further diminished.
All this presents something of a catch-22. Lebanon needs money to reform the state and bolster the army. But it cannot attract much money unless it first reforms and defangs Hizbullah. Mr Salam is also working against the calendar. Lebanon is meant to hold parliamentary elections next spring, which leaves him with as little as 13 months to govern. He needs to do many things at once—and he has little time to do any of them. ■
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