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Recession Without Impact? And why Lebanese Elites Delay Reform? Again, who are these “elites”?

October 2019
Mounir Mahmalat and Sami Atallah, respectively doctoral fellow at LCPS and LCPS director

The survival of Lebanon’s political elites is highly dependent on the well-being of the economy. Why, then, do they delay necessary reforms to avoid crisis?

This column examines the role of politically connected firms in delaying much-needed economic stabilization policies.

Lebanon’s post-war financial and economic woes are perennial.

Initially triggered by the spillover effects of Syrian crisis in 2011, macroeconomic and financial indicators were set on an utterly unsustainable path.

Government debt exploded after prolonged political gridlock led public spending to skyrocket to what is forecast to be more than 158% of GDP by 2021. Combined with increased exposure to external debt and rising interest rates, economic growth may tip into recession this year.

In short, crisis looms.

In an effort to rally support for painful reform to stabilize the country’s gloomy finances, the government of Prime Minister Saad Hariri recently declared a ‘state of economic emergency’. President Michel Aoun accommodates the efforts and calls for ‘sacrifices to be made by everyone’.

Lebanon’s elites finally seem to be eager to reform.

Understandably so, because in Lebanon the personal wellbeing of the political elites is highly dependent on the wellbeing of the economy. A recent analysis by Ishac Diwan and Jamal Haidar shows,[i] of the firms with more than 50 employees, 44% are politically connected and have a board member who is a relative or close friend of a member of the political elite. (Basically, mafia “khouwat”: you get shares without disbursing money in return?)

The few reforms that passed, however, involve little structural change that could, for example, improve the competitiveness of the private sector or curb tax evasion.

Instead, the costs of economic distortion continue to be socialized via tax exemptions, the ex post approval of appropriation of public lands[ii] or high interest rates. Despite the economic challenges, political actors still benefit excessively from the status quo.

In July, for example, seven months into the new year, the parliament ratified what it called an ‘austerity budget’ for 2019. It introduced a number of expenditure cuts and revenue increases that aim to restore the confidence of investors and the international community into a government eager to reform.

But as recent research by LCPS shows, the budget law only formally curbs the budget deficit.

It leaves untouched the structural conditions that gave rise to the economic deterioration in the first place, such as a regressive tax regime that exacerbates existing inequalities and crowds out much needed public investments.

Proposals to tax the salaries, benefits, and pensions of current and former politicians were dismissed during the political bargaining.

Amendments to increase the fees on tinted car windows and the licenses to carry guns, widely used among the security entourage of politicians, vanished in the final documents.

Expenditure targets are achieved by simply deferring the bill of investment projects to the upcoming years.

But when the wellbeing of political elites, in fact their very survival, is so highly dependent on the wellbeing of the economy, why would they delay more structural efforts to contain the budget deficit or make the tax regime more efficient?

The high degree of their entrenchment in key sectors of Lebanon’s economy calls into question how political elites calculate the opportunity costs of political gridlock. (Not just key sectors but monopoly for every consumer goods, energy, services and financial transactions…)

And why is Lebanon’s stabilization delayed?

Research on the political economy of reform explains the delay of stabilization as a consequence of the struggle of powerful interest groups to shift the cost of reform onto each other. Precisely because reform comes at a cost for elites, they prolong political bargain by embarking on a ‘war of attrition’.[iii]

Stabilization, or a change in the status quo, occurs when economic conditions deteriorate sufficiently so that one of the groups concedes and bears a higher burden of the costs.

To understand the war of attrition among Lebanese elites, one must look at the structure of their entrenchment with the private sector.

Politically connected firms concentrate in sectors that are not—or are relatively less—affected by a downturn of the overall economy. Economic conditions, at least until recently, simply exerted little pressure for actors on a personal basis to concede and to bear the costs of reform.

Dis-aggregating the data provided by Diwan and Haidar (2019) shows that economic downturn leaves those sectors comparably well-off in which more than half of all firms are politically connected (we excluded sectors with less than 10 firms in total).

Take the hospitality sector, for instance. Firms running hotels and waterfront resorts are, respectively, 61% and 55% connected to political elites.

Passengers at the Beirut airport increased constantly over the past years, while the number of tourists increased by almost 45% from 2012 to 2017. Accordingly, hotels and waterfront resorts recorded a major improvement in their booking records. The occupancy rates of four and five-star hotels in Beirut reached 69.2% (up from 58.9% in 2018) while the average room yield rose by 29.

The banking sector is another example.

Profiting heavily from the huge margins paid by treasury bills, the profitability of domestic banks remained, until recently, almost unabated.

In 2017, Lebanese commercial banks significantly expanded their profits, reaching a return on average equity of above 11.2% for the group of major banks.

Despite the challenging macroeconomic environment and the difficulties sky-high interest rates impose on the Ministry of Finance’s ability to repay its debt, the return on average equity for the sector as a whole (10.8%) is on par with the 11% average of banks in the Middle East and North Africa.[iv]

Other sectors are structurally less affected by economic downturn and exhibit a low elasticity of demand.

Security companies, for example, are employed by politicians, business people and other public figures, for whom security remains a necessity in the face of prevailing political and security uncertainty.[v] The same holds for garbage collection, which continues to be collected at sky-high rates.

Shipping lines are also spared much of the effects of Lebanon’s economic woes, since foreign trade activity must be done by ship after the closure of land routes through Syria in 2011.

In fact, the number of vessels at Beirut port remained almost constant between 2012 until 2018. Public works and investments enjoy rosy prospects due to internationally funded major capital investment programs worth almost 40% of GDP.

The game-changer, however, may be the real estate sector. It is the only major sector with a high share of politically connected firms that suffers from a gradual decline in activity and output.

Since the boom year of 2010, the area of new construction permits has almost halved until 2018: From 17,625 to 9,020 thousand square meters.

Slowing demand lowers the value of sales transactions, which plummeted by 40%, from $4,504 million to only $2,726 million in the first six months of 2017 to 2019.

Given the central role that the real estate sector plays in Lebanon’s economy—the largest contributor to national GDP at 15%—a collapse of major real estate developers can well be the tipping point for the economy to crash.

History might repeat itself.

On several occasions in the past, Lebanon was bailed out by international support when conditions became untenable. Lebanese elites seem to assume that the country remains ‘too small to fail’ for influential regional players.

But with declining interest in the country from Europe and the Gulf countries, this time might well be different.

This time, the war of attrition would not only be lost by Lebanese citizens by suffering through prolonged periods of economic stagnation. As other crucial sectors started to follow the declining trend, uncertainty about the integrity of the pillars of the Lebanese economic model threaten both economic and political stability.

Without concerted effort, Lebanon’s elites cannot win this war either.

This article was first published by the Economic Research Forum.

Note 1: And the mass upheaval (7iraak) that started in October 17, 2019 took every one by surprise. It felt like a miracle that the 2 million protesters all over the cities and the country held only the Lebanese flag and chanted the national anthem. This has been going on for 5 days without interruption.

The government quickly had to pass the 2020 budget with all the associated reforms in a single meeting. The banks were required to deposit $4 bn to get out of that mess and the salaries of all the current and former deputies cut in halves…

But the mass movement is Not satisfied: they lost all confidence in this mafia/militia “leaders” controlled sectarian political system

Note 2: You may read my article on this glorious mass upheaval

What 72 hours reserved by the PM can resolve the plight of 3 decades of militia control system?

72 heures C’est le temps que donne le chef du gouvernement libanais Saad Hariri à ses partenaires du “deal”, pour qu’ils apportent une “réponse convaincante” aux Libanais en général et aux protestataires en particulier, ainsi qu’à la communauté internationale, sur l’existence d’une “décision unanime pour réformer l’Etat, arrêter le gaspillage et lutter contre la corruption”

Sinon, la kel 7édiss 7adiss, vogue la galère. Comme ils sont tous aussi déterminés, on se demande pourquoi ils ne s’entendent pas 🎭

J’ai rédigé deux réquisitoires accablants contre les dirigeants libanais pris en flagrant délit de négligence dans la maintenance de nos bombardiers d’eau Sikorsky ayant eu de graves conséquences.

J’ai dénoncé aussi avec vigueur le gaspillage de l’argent public par le ministre de l’Environnement, Fady Jreissati (Courant patriotique libre), qui n’a pas jugé utile de trouver 100 000 $/an pour faire fonctionner nos bombardiers d’eau, mais qui est en négociation en Espagne depuis des mois pour acheter de nouveaux bombardiers d’eau pour 8 millions $. (You are biased and Not fair on this issue. And you know the issue pretty well. So many older and well entrenched highway robbers in this government and you selected the one who is clean)

J’ai également réclamé sa démission ou son limogeage et une enquête approfondie pour déterminer qui sont ses complices. C’est pour vous dire, moi aussi je suis en colère.

Mais en ce temps des émeutes de rues et des esprits fumants, où chacun a son idée sur la marque de l’interrupteur qu’il faut installer pour que ‘bé kabsitt zirr’ tout soit résolu 🎭, je pense pour ma part qu’il vaut mieux investir dans une bonne boussole plutôt 🧭, afin de ne pas perdre le nord

Il nous revient en tant que citoyens responsables de nous rappeler trois principes fondamentaux de la vie en société :

1. Rien, absolument rien, ne justifie le recours de gens mécontents à la violence quelles qu’en soient les raisons et les époques. Les auteurs doivent être poursuivis selon les lois en vigueur.

2. Brûler des pneus, du mobilier urbain, des bennes de recyclage et des panneaux publicitaires, reste comme l’acte le plus primitif qu’un être humain ayant 100 milliards de neurones est capable de faire. Il doit être sévèrement puni par la justice. D’autant plus que ces émeutes sont devenues criminelles, on compte déjà plusieurs morts.

3. Les cercles du pouvoir, le Grand Sérail, le Parlement et le Palais présidentiel, ainsi que l’accès aux centres vitaux du pays -comme la Banque centrale, l’aéroport et le port de Beyrouth, les raffineries, les centrales électriques et téléphoniques, etc.- sont des lignes rouges. Quiconque s’y aventure doit être traduit devant les tribunaux et condamné avec la plus grande sévérité.

On peut ignorer ces principes, mais il faut assumer les conséquences, c’est la voie grande ouverte au chaos qui précipitera le #Liban dans l’abîme à la vitesse du son.

Respecter ces principes et tout sera permis. Tout acte civique doit s’inscrire dans le respect des lois en vigueur dans notre pays. Sinon, il est nul et non avenu.


. Qui a des revendications légitimes sur l’enquête concernant le scandale des Sikorsky, la taxation des narguilés, la cherté de la vie, le cumul des taxes, la hausse des prix scolaires et universitaires, la gestion des déchets, la pollution, la corruption, le népotisme, l’incompétence, les négligences, le confessionnalisme, le communautarisme…

Le recyclage, l’assurance maladie, la justice sociale, la relance de l’économie, le droit au logement, les locations anciennes, l’extension de la souveraineté de l’État sur tout le territoire libanais…

Le trafic illégal sur la frontière syro-libanaise, la réhabilitation d’Assad, le retour des réfugiés syriens installés au Liban en Syrie, la lutte contre Israël, la dissolution des milices palestiniennes, le désarmement du Hezbollah, est totalement libre de les exprimer dans le respect des lois en vigueur.

. Qui a envie de se perdre dans des slogans creux, « al sha3eb youreed eskatt el nizaam » (à bas le régime), « sawra » (révolution), « yi fello kelloun » (qu’ils partent tous), « tol3et ri7etkon », (You smell) « ta7élouf watani », les revendications vaseuses de la société civile 🎭, roue libre, dans le respect des lois en vigueur.

. Qui a un agenda politique déclaré, « faltaskout el 7oukoumi » (démission du gouvernement / revendications de la société civile, Parti socialiste et parti des Forces libanaises qui appellent à manifester mais dont les ministres ne démissionnent pas 🎭)

Et « intikhebaat niyabiyyé moubakkira » (législatives anticipées / revendications de la société civile, Kataeb), ou un agenda politique non déclaré comme et surtout le Hezbollah (agiter la rue pour faire pression sur le gouvernement libanais afin de le contraindre à adoucir les conséquences des sanctions américaines sur le parti-milicien chiite), qu’il aille fumer sa moquette, il vaudrait mieux.

. Qui veut carreler la mer (société civile en général), qu’il ne se gêne pas, yi rou7 yi balto el ba7er.


OUI aux manifestations pacifiques à #Beyrouth, Baalbek, Tripoli, Sour, Jounieh, Saïda, Nabatiyeh etc.

NON aux manifestations violentes aux quatre coins du Liban, même à celles qui consistent à couper les routes avec des pétales de roses !

Réclamer la baisse des tarifs des communications mobiles exorbitants est légitime, mais pénétrer dans les immeubles des compagnies pour les saccager est illégal.

On n’ hiberne pas 365 jours par an, pour ne se réveiller que le 366e jour, une fois tous les quatre ans, avec dans la tête l’idée incongrue de jouer au « Che » et de se prendre pour des « révolutionnaires » 🎭

Qui veut changer le monde s’implique en politique et travaille tous les jours pour cela dans le respect des lois en vigueur.

S’il n’est pas content des lois, il n’a qu’à militer d’arrache-pied pour les changer.

Jamais les citoyens n’ont disposé d’autant de moyens pour peser sur les décisions politiques. Il faut vraiment comprendre, que l’activisme agressif de nos jours est contre-productif par rapport à l’activisme pacifique qui est beaucoup plus efficace s’il est intelligemment mené.


Mon soutien est total à la population pacifique qui manifeste dans le RESPECT ABSOLU des lois en vigueur au Liban.

Je n’apporte aucun soutien aux protestataires agressifs dans la rue.

Vu cette « violence » qui prend différentes formes et ces « revendications » de toutes sortes, que je vois et j’entends depuis jeudi, mon soutien est aussi total au président Michel Aoun, au Premier ministre Saad Hariri, au chef du Parlement Nabih Berri, au commandant de l’armée libanaise Joseph Aoun, au directeur général des forces de sécurité intérieure Imad Osman, au gouverneur de la Banque centrale Riad Salamé, et à chacun-e des 128 députés de la nation.

(I doubt that the more than a million protesters all over the country agree for Nabih Berry to remain chairman of the Parliament after 29 years of continuous tenure, or for Imad Osman who remained on vacation in Chili while all the unrest was going on, or Riad Salami who is the middleman for all the highway robberies of the mafia/militia “leaders”…)

Je ne le fais pas spécialement par estime aux personnes citées, mais par respect à ces hauts représentants des institutions de la République libanaise et du peuple libanais, jusqu’à nouvel ordre, qui ne peut survenir qu’à travers des élections organisées dans les délais prévus par la Constitution libanaise et jamais sous la violence de la rue.

(But what kind of fair election law?)

Halte au populisme à 5 piastres. Demander des élections présidentielles alors qu’il a fallu 900 jours de vacances pour y parvenir la dernière fois est grotesque.

Réclamer des élections législatives en octobre 2019, alors qu’on vient d’organiser en mai 2018 est une aberration démocratique.

Saad Hariri est incontournable au niveau internationale pour mettre en oeuvre les accords de la conférence CEDRE, promesses de $11 milliards de prêts avantageux et de dons contre des réformes structurelles.

Former un gouvernement de technocrates apolitiques, alors que le Parlement est politisé à 99% est une chimère, il faut 9 mois pour y parvenir et ne tiendra que 3 mois.

En abolissant le “Parlement des singes” au profit de “Kangaroo courts” populaires qui se prennent pour des tribunaux révolutionnaires, nous ne sommes pas en train de construire un Etat de droit digne de ce nom, mais une ferme au fin fond d’une jungle 🎭

(No body among the protesters demanded Kangaroo court or vigilante courts)

Note: I posted my second article on this mass upheaval

Vive la République, vive le Liban. A bon entendeur, salut ! 🇱🇧

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“Oh God! Here We Go Again” in Iraq

We marvel at the Big Brass Ones on some people who feel the need to offer their opinions about how the U.S. should conduct itself with regards to recent rise of extremist elements in the country and the loss of two of its major cities to al Qaeda.

David Ferguson published this June 13, 2014

The seven people who need to STFU about Iraq right now

These people seem to believe that their previous dire wrongness on everything about the topic of Iraq shouldn’t preclude them from opining about our nation’s current course of action, goodness no.


Mika Brzeznski 

1. Andrew Sullivan, who has devoted any number of column inches lately to slamming the NeoCons and the war “they” advocated for. In a post today — the elegantly titled “The Neocons Get A War Chubby” — Sullivan roundly mocked and scolded re-interventionists, warning the country not to “sink the U.S. right back into the Iraqi quicksand.”


Sullivan has long-since disavowed the infamous 2001 column in which he said war critics might collude with al Qaeda to try and take down the U.S. from within, but it tends to linger on in the memory, much as forgotten sushi leftovers will leave behind their distinctive odeur to linger in that drawer in your refrigerator.

“The middle part of the country — the great red zone that voted for Bush — is clearly ready for war,” Sullivan wrote in the U.K.’s Sunday Times. “The decadent left in its enclaves on the coasts is not dead — and may well mount a fifth column.”

We’ve got your “fifth column” right here, Andy. It’s in our pants.

2. Judith Miller, the Bush administration’s “humiliated and discredited shill” on WMDs was once thankfully banished to writing a household hints column for the West Egg Pennysaver — or something.

Nonetheless, on Friday, the reporter known as “the most infamous example of the press’s failure in the run-up to that war” was unflushably bobbing up on Fox News to discuss the media’s portrayal of Iraq as Irony let herself into the garage and started the car without opening the garage door and waited quietly for the end.

3. Thomas Friedman, the hot air specialist who rhapsodized in May of 2003 that American military might had rightly told the Iraqi people to “suck on this.”

When the Iraqis declined his offer and the occupation spiraled completely out of control, Friedman insisted over and over that the situation would stabilize in just 6 more months.

To commemorate this very special failure as a pundit and prognosticator, lefty wags created the Friedman Unit, a six month span of time in which nothing ever happens.

4. The New York Times seems to have conveniently forgotten how sad and diminished the Gray Lady looked locked out on the Bush administration’s porch in her bloomers, poor old thing.

Today, columnist Tyler Cowen lamented that the economy is suffering because we don’t have any major wars planned after forces come home from Afghanistan at the end of the year.  Peace, the libertarian fretted, is bad for business.

Funny they should endorse war as an economic engine right as Iraq appears to be shitting its bed and playing with matches in a fireworks store. I mean, what are the odds?

5. The whole of the so-called Juicebox Mafia. The lines of that particular claque have expanded and contracted to include Ezra Klein and Matt Yglesias and a passel of other Beltway post-teens who were so excited they got to sit at the big kids’ table they forgot that they didn’t know jack shit about foreign policy and endorsed a war of choice in one of the most volatile regions of the world, wheeee! What could go wrong? We’re smart! And cute!

A big, preemptive “Shut it!” goes out to Peter Beinart who, in January, 2003, joined the National Review‘s Jonah Goldberg in a CNN panel discussion in which the two giggled and leered over accusations that U.N. weapons inspector Scott Ritter was a child molester because of allegations that he had communicated over the Internet with a 16-year-old girl.

“I think that he didn’t have any credibility to begin with,” said Beinart of Ritter. “I mean, this is the guy who never really explained, as Jonah said, why he flipped 180 degrees and became a Saddam mouthpiece. So for me it’s irrelevant. I never listened to what he had to say on Iraq to begin with.”

“He’s now just basically joined Pete Townsend on the Magic School Bus,” Beinart continued. “Pete Townsend of the WHO has also been implicated in child porn and things of that nature. But as everybody said, Ritter’s credibility, just on the basics of Iraq, was completely shot and now there’s even less reason to listen to him.”

Scott Ritter’s alleged crime? Pointing out that Saddam Hussein didn’t have any WMDs and that a U.S. invasion was a bad idea.

6. Ari Fleischer, one of the most pugnacious, pugilistic, and sometimes breathtakingly condescending White House press secretaries in history.

Fleischer functioned as a lying administration’s able mouthpiece both here and in the combat zone and served the unlikely function in life of making fellow Bush administration shill Dan Senor seem almost non-slimy.

Fleischer piped up on Twitter Friday morning to simultaneously absolve the Bush administration of blame and passive aggressively accuse the Obama administration of squandering gains made by his own masters. Trouble is, he got the year wrong.

“Regardless of what anyone thinks about going into Iraq in 2002,” he tweeted — apparently forgetting that the first bombing raids began in March of 2003, “it’s a tragedy that the successes of the 2007 surge have been lost & abandoned.”

Bush administration folks are still around, apparently, to remind us in the reality-based community that facts is HARD and stuff.

7. John McCain, you angry, corn-teethed fossil.

You’ve never met a foreign conflict that didn’t require MOAR U.S. TROOPS, have you? At least you’re consistent, after a fashion. Oh, who are we kidding, you’re not consistent at all about anything that might score you some political points and get you on TV!

Things didn’t go super well for you on Morning Joe on Friday, though, did they? Impeccably-coiffed refrigerator magnet Mika Brzeznski actually woke up from her boredom-induced coma and called you out right to your face, didn’t she, old man?

“What about going [into Iraq] in the first place, and what about churning the hate, and what about taking the Sunnis out of leadership positions in 2003, what about the fact that there might have been some parts of this that were on the previous administration that might be litigated as well?” Brzezinski said.

Then she went on to ask the question everyone in the country should be asking, why does anyone listen to you anyway? If we’d taken your advice, she said, we’d be knee-deep in Syria right now.

“So we’re going to be in Iraq and Afghanistan, and then we’re also going into Syria, in your estimate?” she asked. “I mean, I’m just wondering how long can we do this? How long can we do this? How long can you ask this of American troops and think it’s okay?”

She’s right, John. You’re like a jumped-up rich boy with no real capital of his own who’s bellied up to the blackjack table blowing every single penny of his wife’s money just to catch that fleeting winner’s high.

Oh, no, wait, that’s exactly what you really are, isn’t it?

Or, as TBogg so eloquently observed, “Hush you guys. The guy who thought Sarah Palin would make a good vice-president is explaining to us what we should do in Iraq.”

David Ferguson
David Ferguson
David Ferguson is an editor at Raw Story. He was previously writer and radio producer in Athens, Georgia, hosting two shows for Georgia Public Broadcasting and blogging at and elsewhere. He is currently working on a book.





March 2023

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