Please hold for institutional reforms
Where is the French initiative?
Six months after Beirut’s deadly port explosion, the French initiative seems a lost opportunity in need of resurrection. Post-blast, French President Emmanuel Macron was welcomed in the streets of Beirut on August 6, 2020, while overseeing damages, which was followed by a second visit less than a month later, on August 31, 2020. During his visit, he promised to initiate talks with donors and to come back to Lebanon to bring forward an initiative that would help alleviate Lebanon’s woes and unlock the Conference for Economic Development and Reform through Enterprises (CEDRE) money that had been once considered as a main pillar of Lebanon’s future economic revival. The CEDRE conference was held on April 6, 2018, in Paris, and had pledged $11 billion of infrastructure projects (The pledges include $10.2 billion in loans and $860 million in grants), on the condition of political and financial fiscal reforms: these never materialized. As of February 18, 2021, Macron has delayed sending an envoy to Lebanon, in a sign of frustration with the current political deadlock in Lebanon.
The draft of the initiative was presented on Macron’s second visit to Lebanon on September 1, 2020 to Lebanese governing parties. In broad strokes, it called for: the need to establish an independent government of technocrats to tackle Lebanon’s economic needs; a forensic audit of the Lebanese Central Bank (BDL); a restructuring of Électricité du Liban (EDL)’s chronic deficits; reform of procurement laws; the need to implement laws guaranteeing an independent judiciary; in addition to a demand for legislative elections to be held within a year. This was followed by the nomination of ambassador Mustafa Adib to form a government on August 31, 2020. On September 26, the Prime Minister-designate resigned in the face of deadlocks in forming the government.
Macron, in a press conference held on September 27, 2020, lambasted the Lebanese political class and accused them of “collective betrayal.” Adib’s resignation as Prime Ministerdesignate, was followed by blockages preventing the formation of a new Government led by the new Prime Minister-designate Saad Hariri who was designated to form a government on October 22nd 2020, and failed local mediations to resolve the political deadlock. For these reasons, it seems that any hope put in the former mandatory power’s proposal for Lebanon is now long gone. Nevertheless, as the government formation process is still ongoing, and with many hoping that said government of technocrats could still be formed, the question remains: could the French initiative be revived? And if so, would it help alleviate Lebanon’s woes?
AN INCOMPLETE INITIATIVE?
The most important question in regards to the French initiative is whether it addresses Lebanon’s priority needs. Lebanon suffers from a cross-default on its foreign-currency labeled sovereign debt, losses in the banking sector estimated at $4 bil
lion according to a recent report from the World Bank, a depreciation of the Lebanese pound, and with ever rampant corruption. The French initiative, on the surface, does seem to address some of the main issues, such as EDL’s deficit, the losses at the BDL, and corruption, among others. Nevertheless, it is deemed insufficient according to many economic experts. According to Ziad Hayek, former secretary general of Lebanon’s High Council for Privatization and PublicPrivate Partnerships, the French initiative “touched on some of the most obvious things, some of which are not applicable anymore,” referencing the fact that the proposed reforms are outdated as they rely on assumptions from the CEDRE investment plan. According to him, the French initiative is too general and overlooks two main factors, the first of which is the lack of a coherent governmental economic strategy, and the second is that the plan seems to lack “a proper understanding of the play between economic, monetary and fiscal policies.”
Overall, the French initiative seems to overlook key aspects regarding the lack of effective governance in Lebanon. Lebanon ranks 143rd in the Ease of Doing Business Index, it’s competitiveness iIndex is 56,29 (ranked 88 worldwide), and it’s Fragile State Index is 84,9/120. This opinion is seconded by that of Mounir Rached, president of the Association of Lebanese Economists. “There is too much focus on general issues, but not enough on what needs to be done,” he says. According to him, Lebanon needs an economic roadmap, and precise measures to reform governance and boost the economy (issues that were addressed by Executive Magazine in its Economic Roadmaps 1.0, 2.0, 3.0 and 4.0).
Indeed, if anything, the French initiative does seem to lack details, as it focuses on some of the “main” issues affecting Lebanon from a deficit standpoint, and the audit of the BDL (to determine the exact losses of the institution), but has little to say about how to promote economic growth or on monetary policy.
The French initiative is also not clear concerning an overall economic strategy to get Lebanon’s economy back on track, instead of relying on the need to obtain funding from the International Monetary Fund (IMF) through negotiations. Though negotiations with the IMF, which are part of the measures mentioned in the French Initiative, have stalled, little has been done to revive such talks on the part of the executive branch in Lebanon.
With regards to EDL reform as proposed by the French Initiative, according to Hayek, the plan relies on many assumptions from the CEDRE investment plan, which needs to be reviewed in light of the current economic situation. He cites for example the need, mentioned in the French initiative, to build new power plants, “Serious thought should be given to distributed generation instead of building large power plants, because it would be difficult to attract proper large investor interest at this stage.” This is because large power plants require large foreign investments, whereas distributed generation is decentralized and adopts more flexible technologies that are located close to the load they serve, with more limited production capacities.
STATUS QUO
French President Macron, having postponed his visit to Lebanon originally planned for December 22, 2020 after contracting Covid-19, meant to send an envoy to Beirut (with no concrete date proposed yet). With new Prime Minister-designate Hariri’s consultations to form a government showing little to no progress since September, little has been done on the Lebanese political side to help advance the initiative. Indeed, bitter disputes regarding the formation of a technocratic government, with political parties arguing over cabinet portfolios, has frozen efforts to form a government, one of the main points of the French initiative to help restart the negotiations with the IMF and engage the necessary reforms. “We need a government,” says Rached, “and for now there is little sign of progress”.
THE FRENCH INITIATIVE WITHOUT THE FRENCH?
The reforms proposed in the French initiative, though deemed incomplete, appear nevertheless to be necessary. The question remains then: would it be possible to engage in these reforms without French backing?
Such reforms are mostly local and do not require direct foreign assistance, since they could be the result
Without decisionmaking, Lebanon is not able to propose an effective economic roadmap and implement reforms
of local governmental initiatives. Rached and Hayek both believe that the Lebanese are capable of implementing large parts of the French initiative, without the French, and see no reason to delay. Indeed, many of the recommendations mentioned in the initiative, such as ending EDL’s deficits, an audit of the BDL and others require only a political decision.
The decision seems to be, first and foremost, political, and the lack of decision-making in Lebanon is a result of ineffective governance. Since the cabinet of Prime Minister Hassan Diab resigned in the aftermath of the August 4 Beirut explosion, Lebanon has been without an effective government for the past seven months, though the Diab cabinet is still acting