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Lebanon Forms New Government Amid Economic Crisis, Ongoing Protests

Changes from December 20, 2019 to January 31, 2020

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On December 19, Lebanese President Michel Aoun appointed Hassan Diab—an engineering professor at the American University of Beirut—as prime minister-designate. Diab will replace former Prime Minister Saad Hariri, who resigned on October 29 following nationwide mass protests. While Diab was backed by a simple majority in Lebanon's parliament, he lacks support from some key constituencies, and may struggle to form a new government. Protestors have opposed Diab's nomination, and security and economic conditions in the country continue to deteriorate. Instability in Lebanon could create opportunities for actors of concern to the United States, including Hezbollah and Iran.

The Protest Movement

What triggered the protests? Protests began on October 17, triggered by a proposed tax on internet-enabled voice calls (notably WhatsApp). However, the movement reflects broader dissatisfaction with what protestors describe as government corruption, ineptitude, and economic mismanagement. Demonstrators, who represent a broad economic, political, and sectarian cross-section of Lebanese society, have emphasized that protests are primarily driven by the state's failure to provide sufficient access to basic goods and services, including jobs, education, water, electricity, and garbage disposal. Large-scale protests have persisted nationwide, and the pervasive economic concerns driving them also have largely transcended sectarian divisions.

Figure 1. Lebanon

Source: CRS.

What are their demands? Protestors lack centralized leadership, and their demands vary. Some have called for specific policy and/or leadership changes, such as early elections, a new electoral law, and the resignation of President Michel Aoun (whose term expires in 2022). Other demands have a less clear path towards implementation, such as a change to Lebanon's confessional system (in which power is divided based on sectarian affiliation), the return of "looted public money," and the removal of the entire political elite.

Hezbollah & Iran

Do protestors oppose Hezbollah? Protestors have called for the removal of all political elites, specifically naming Hezbollah leader Hasan Nasrallah. Protests have occurred in cities considered to be bastions of support for Hezbollah and the allied Amal movement. While some Hezbollah and Amal supporters have clashed with demonstrators, others have joined the protests. Those joining the protests generally have not criticized Hezbollah's military operations or stance against Israel, but rather focused on Lebanon's economic mismanagement, high unemployment, and the lack of consistent access to basic services.

What is Hezbollah's position regarding the protests? Nasrallah opposed the resignation of Hariri's government, warning that it would lead to a power vacuum in the country. Nasrallah also suggested that foreign embassies were financing the protests. Similarly, Iranian Supreme Leader Ayatollah Khamenei has blamed the United States for spreading "insecurity and turmoil" in Lebanon. Hezbollah was part of the ruling coalition in Lebanon's outgoing government, and held three Cabinet seats. In November, supporters of Hezbollah and Amal appeared to escalate physical attacks on protestors.

Economic Crisis

What is the economic situation? In September 2019, Lebanese officials declared what they described as an "economic state of emergency." Lebanon's debt-to-GDP ratio stands at over 150%, and debt servicing consumes almost half of all government revenue. The majority of remaining government revenue is expended on public sector salaries and transfers to the state-owned electricity company, severely limiting the government's ability to invest in basic infrastructure and public services. Since protests began, a scarcity of dollars in Lebanon has caused the Lebanese pound to depreciate in the black market and led banks to ration dollar withdrawals. Importers also have struggled to purchase critical goods like fuel, medicine, and food. Restrictions on dollar withdrawals and shortages of basic goods, if prolonged or exacerbated, could increase the risk for broader social upheaval.

What has been the international response? At the April 2018 CEDRE conference in Paris, international donors pledged more than $11 billion in loans and grants for Lebanon, but the funds are contingent on economic reform measures which were not implemented and which cannot be passed until a new government is formed. In late 2019, Hariri requested international funds to help finance imports. However, U.S. officials have stated that Lebanon will not receive a "bailout" unless it implements reform.

Next Steps

Who is Prime Minister-designate Hassan Diab? Diab, a Sunni Muslim, is vice president of the American University of Beirut, where he also teaches engineering. Between 2011 and 2014 he served as education minister in the government of former Prime Minister Najib Mikati. He is not formally affiliated with any political party. Diab received a Ph.D. in computer engineering from the University of Bath in the United Kingdom.

Why has Diab's appointment generated controversy? According to Lebanon's constitution, the country's prime minister must be a Sunni Muslim. However, Diab received only six out of a possible 27 votes from Sunni MPs in support of his nomination, leading to some accusations that he does not represent the Sunni sect. Diab was nominated mostly on the strength of support from non-Sunni elements: Hezbollah, the Amal movement, and the Christian Free Patriotic Movement. 42 MPs abstained from the vote, including Hariri's Future Movement—the largest Sunni bloc in parliament.

What could a new government look like? Protestors have called for the formation of a government of independent technocrats that excludes representatives of political parties. While Hariri endorsed this demand, President Aoun and most Lebanese parties have rejected it. Aoun has called for the formation of a blended "techno-political government," while Hezbollah has called for the formation of a national unity government representing all parties in parliament. Diab may struggle to form a government, as he received only a slight majority (69 out of 128) votes in support of his nomination.

Outlook

While protests have not directly challenged the broader role of Hezbollah in Lebanon, both Hezbollah and Iran appear to view protests as a significant threat to their influence within the country—particularly given concurrent protests in Iraq. Hezbollah supported the appointment of prime minister designate Hassan Diab, and will likely work to ensure that its interests are represented in any new cabinet.

Any efforts by Iranian-backed groups to destabilize Lebanon could place pressure on the Lebanese Armed Forces, which the United States has sought to bolster in the hopes that the institution can serve as a counterweight to Syrian and Iranian influence. In early December, the Trump Administration lifted a hold on $105 million in FY2019 Foreign Military Financing (FMF) funds allocated for Lebanon. In mid-December, Secretary of State Pompeo intervened to release a hold on $115 million in Economic Support Funds (ESF) for LebanonJanuary 21, Lebanese Prime Minister Hassan Diab announced the formation of a new Lebanese government, 85 days after nationwide protests triggered the resignation of former Prime Minister Saad Hariri. The new cabinet is comprised entirely of parties allied with the March 8 political bloc—headed by the Christian Free Patriotic Movement (FPM), Hezbollah, and the Amal Movement—leading some to describe it as one-sided. The new government faces significant challenges, including ongoing protests and an escalating economic crisis. However, the political composition of the new government—and the perceived influence of Hezbollah in its formation—may reduce the willingness of some international donors to provide financial assistance absent significant economic reforms.

The New Government

What is the political composition of the new government? Lebanese press has described the political breakdown of the cabinet as follows:

  • FPM (Christian): 6 seats. Ministries: Defense, Foreign Affairs, Energy, Justice, Economy, Displaced Persons.
  • Diab pick (Selected by the prime minister. No listed party affiliation, mostly Sunni): 4 seats. Ministries: Interior, Telecommunications, Environment, Education.
  • Hezbollah (Shi'a): 2 seats. Ministries: Health, Industry.
  • Amal Movement (Shi'a): 2 seats. Ministries: Finance, Agriculture & Culture.
  • Marada (Christian): 2 seats. Ministries: Labor, Public Works.
  • Lebanese Democratic Party (Druze): 2 seats. Ministries: Social Affairs & Tourism, Information.
  • Tashnag (Armenian Orthodox): 1 seat. Ministry: Youth and Sports.

What is Hezbollah's role? Hezbollah held three ministries in the outgoing government (Health, Youth and Sports, and Parliamentary Affairs). In the new cabinet, Hezbollah has retained the Health Ministry and gained the Industry Ministry—a post it last held in 2018. Hezbollah also reportedly played a significant role in the selection of incoming Prime Minister Diab.

Who is not represented in this government? All 20 ministers in the new government are affiliated with the March 8 political bloc. March 8 favors friendly ties with Iran and Syria, in contrast to the rival March 14 bloc, which maintains closer ties to the United States, France, and Saudi Arabia. Parties affiliated with March 14, which opposed Diab's nomination to the premiership, reportedly told the new prime minister that they would not take part in the new government.

  • March 14 parties absent from the new government include the Future Movement (Sunni) led by former Prime Minister Hariri, the Lebanese Forces (Christian), Kata'eb (Christian), and the Progressive Socialist Party (Druze), which at times has fluctuated between the two blocs.
  • While the outgoing government had a March 8 majority (reflecting the results of the 2018 parliamentary elections), it also included 11 ministers (out of 30) affiliated with March 14. Out of the 128 seats in Lebanon's parliament, 68 currently are held by March 8, 47 are held by March 14, and 13 MPs are not formally members of a bloc.

What is the sectarian composition of the new government? While the new government excludes the political opposition (March 14), it does include most of Lebanon's primary religious sects. As with Lebanon's parliament, the new cabinet is evenly split between Christians and Muslims and includes:

  • 4 Sunni, 4 Shi'a;
  • 2 Druze (Druze are classified as Muslim for the purposes of seat allocation, although they do not consider themselves as such); and
  • 10 Christians (4 Maronite, 3 Greek Orthodox, 2 Greek Catholic, 1 Armenian Orthodox).

What distinguishes this cabinet from the previous government? Prime Minister Diab's cabinet will be the first Lebanese government since 2005 composed entirely of parties from a single political bloc. The new cabinet is significantly smaller than the outgoing government—20 ministers, a reduction of 10 seats—resulting in the combination of some ministerial portfolios. The new cabinet also includes the highest percentage of female ministers to date (six out of twenty), as well as Lebanon's first female defense minister.

Does the new cabinet address protestor demands? The ongoing protest movement, which began in October 2019 and led to the resignation of the previous government, called for a variety of reforms including the formation of a technocratic government, the removal of all political elites, and a change to Lebanon's confessional system (in which power is divided based on sectarian affiliation). In a partial concession to protestor demands, the new government contains few career politicians; more than half of the new ministers are university professors or administrators. However, observers have noted that many ministers have connections to established political parties (in some cases they formerly served as policy advisors). Many protestors have rejected the new government, and clashes between some protestors and security forces continue.

How has the U.S. government reacted? When asked whether the United States would work with the new Lebanese government, Secretary of State Michael Pompeo responded, "We'll have to take a look at it. I don't know the answer to that yet [...] We've been very clear about the requirements for the United States to engage. Lebanon has a terrible financial crisis that lays in front of it in just the weeks ahead. We're prepared to engage, provide support, but only to a government that's committed to reform." Regarding whether the United States would support the provision of international financial assistance to Lebanon, Pompeo stated that only a Lebanese government "capable and committed to undertaking real and tangible reforms will restore investor confidence and unlock international assistance."

Outlook

Economic concerns are likely to dominate the new government's agenda. Lebanon has a debt burden of about $88 billion, roughly 160 percent of the country's GDP, and debt servicing consumes almost half of all government revenue. Since protests began in October 2019, inflation has approached 30 percent, and the Lebanese pound has depreciated roughly 40 percent against the dollar, leading banks to ration dollar withdrawals. Importers also have struggled to purchase critical goods like fuel, medicine, and food. Lebanese leaders currently are debating whether to repay a $1.2 billion Eurobond maturing in early March, or to use limited foreign exchange reserves to finance imports.

The 2018 CEDRE donor conference pledged more than $11 billion in loans and grants for Lebanon, but the funds are contingent on economic reform measures which have not been enacted. U.S. officials have stated that Lebanon will not receive a "bailout" unless it implements reform. Newly appointed Finance Minister Ghazi Wazni has stated that one of the priorities of the new government would be to secure up to $5 billion in soft loans from the international community to finance the import of wheat, medicine, and fuel oil.