Lebanon faces poverty trap as the elite ‘sabotage’ third recovery plan

Council of Ministers will not be reviewing new plan to reverse the country’s sharp economic decline

They say the third time is a charm.

That is not proving to be the case for the third version of Lebanon’s long-expected government economic recovery plan, aimed at addressing the country’s financial losses that exceed $70 billion and restructuring its insolvent banking sector.

The stakes are high. For depositors, locked out of their savings, it will lay out the mechanisms of restitution. Except for some well-connected Lebanese, most have lost all their life savings. For the banks, it will determine which will survive and which will be forced into bankruptcy.

It is also a condition to secure a much-needed $3 billion loan programme from the International Monetary Fund, a prerequisite for unlocking any foreign financing.

Despite the urgency of the situation, five years into a crisis labelled by the World Bank as one of the worst since 1850, which has pushed 80 per cent of the population into poverty, the government’s economic recovery plan, which was met with staunch opposition, is not on the agenda of the Council of Ministers this Tuesday.

“As such, it is highly unlikely for the plan to be adopted in its current form, given the opposition it has faced,” Deputy Prime Minister Saade Chami, one of the plan’s contributors, told media.

Mr Chami said the 60-page draft law had drawn heavy criticism from various corners – the Association des Banques du Liban (ABL), economic organisations, MPs and some ministers – before it had even been debated.

“Some have criticised the draft law even before reading but they have done so on hearsay and before they had the chance to discuss it with its authors,” he said.

Dismissed as a Ponzi scheme, a fraudulent system in which funds from new investors are used to pay off earlier ones, the Lebanese economy – fuelled by exorbitant interests on deposits – completely collapsed in 2019 after decades of squandering of public funds.

Opponents and defenders of the recovery plan are clashing over how to divvy up the enormous bill of this unsustainable policy among stakeholders – the state, the central bank, shareholders and depositors.

Opponents of the plan argue that it is too lenient towards the state, which should bear the responsibility for misusing the funds lent by the financial sector.

Those who defend it say the state is financially broken and simply lacks the means to bail out depositors – at least for now.

“Any draft law is susceptible to changes and amendments, let alone a law that deals with very complicated and difficult issues such bank resolution and how to deal with the large financial gap that exists in the banking sector,” Mr Chami said.

“Having a plan, even if imperfect, that could be changed and amended is preferable to having none at all. But this requires joint and genuine efforts on the part of those who are responsible for it in the first place. One person alone cannot make that happen.”

The plan, crafted with the assistance of the central bank, Banque du Liban (BDL), was sent to ministers in February for their comments before a scheduled Council of Ministers meeting later that month.

The meeting was cancelled, however, and there has been no word since on when the proposal will be reviewed.

“The plan is stillborn,” Henri Chaoul, a former Finance Ministry adviser, told media.

This resistance to much-needed reforms, he explained, has been coming from the same coalition of politicians and bankers united in one aim – to deny the colossal financial losses.