Lebanon is going through turmoil.   Clashes between supporters of Lebanon’s caretaker prime minister, Saad al-Hariri, and Shi’ite groups Hezbollah and Amal turned into gunfire in Beirut late on Monday, reported state news agency NNA.

The clashes marked the second consecutive night of violence linked to Lebanon’s political crisis, threatening to tip largely peaceful demonstrations directed at the country’s ruling elites in a more bloody direction.

A video posted by Lebanese broadcaster LBCI showed heavy gunfire around Cola Bridge in Beirut. The source of the gunfire was not immediately clear. No injuries were reported.

Lebanese media reported: In the southern town of Tyre, supporters of Hezbollah and Amal tore up protest tents and set them on fire, prompting security forces to intervene and fire into the air.

The protests that have swept Lebanon since October 17 are fueled by deep resentment to a ruling class mired in corruption and driving the economy into crisis. The divided political leadership, deeply sectarian, has yet to find a way forward.

Supporters of Amal and the heavily armed Hezbollah have occasionally sought to break up the demonstrations and clear roads cut off by protesters. They destroyed a main protest camp in central Beirut last month.

The groups were influential in the coalition government led by Hariri, who quit on October 29 after the protests began. They had opposed Hariri’s resignation.

In a statement, Hariri’s Future Movement warned its supporters to refrain from protesting and stay away from large gatherings to “avoid being dragged into any provocation intended to ignite strife.”

Groups of men on motorcycles, some waving Amal and Hezbollah flags, were seen roving streets in Beirut and Tyre, according to witnesses and videos broadcasted on Lebanese media.

Adding to tensions, two people were killed when their car slammed into a traffic barrier on a coastal road on Monday, sparking criticism from Hezbollah and others of protesters that have cut roads as a primary tactic to keep up pressure.

Lebanon is facing the worst economic strains since its 1975-1990 civil war.

Protesters defiant

Protesters remained defiant on Monday after supporters of main Shia groups Hezbollah and Amal attacked demonstrators overnight, sparking a UN call to keep protests peaceful.

Frustrated by the stalemate protesters called for roadblocks and a general strike on Monday, but an attack by supporters of allied parties Hezbollah and Amal on Sunday night weakened the turnout.

Businesses announce strike

A business group representing much of Lebanon’s private sector called on Monday for a three-day general strike to press for ending the crisis that has brought the economy to a standstill.

The group issued its statement hours after the flyover clashes broke out between Hezbollah and Amal and anti-government protesters.

“The economic bodies have decided unanimously to call for the implementation of a general strike to close all private institutions in the country on Thursday, Friday and Saturday,” said the Lebanese Economic Bodies, a group that includes private industrialists and bankers.

“The political forces have not assumed their national responsibilities and have not shown the seriousness necessary to produce solutions to the current crisis,” it said in a statement.

Without elaborating, it added its “escalation” would continue until a new government is formed.

Shortage of dollars

There have been widespread concerns over Lebanon’s economy. One of the worries is the shortage of US dollars, which has caused several businesses to close and many people losing their jobs.

Banks are limiting access to the US dollar and that has created a black market, causing the local currency to lose 25 percent of its value while leading to a rise in the cost of goods in Lebanon where “almost everything is imported.”

Begin reforms “from politicians’ bank accounts”

On streets, demonstrators shouted: “Break it, rip the whole thing apart.”

During a demonstration, the young men lifted and tossed a rectangular box from side to side. Then, they rammed a street sign into the box again and again, until it finally cracked, spilling coins on to the ground. Numerous hands scrabbled around on the tarmac for loose change.

“I have no income. This will help me with expenses and food and drink,” said a soot-covered young man who said he had taken 25,000 Lebanese lira ($16) from the meter box.

“I am barely living,” he said. “I take drugs and spend my nights out on the street messing with this or that person because there’s no work. I swear to God there’s no work.”

The protesters representing a broad cross-section of the society blocked roads across the country. They raised slogans “Revolution!” and “We want the fall of the regime.”

Tax the wealthy

“The economic reforms starts from the [bank] accounts of our politicians,” said 27-year old Mohammad, who works as a driver, as protesters rushed past him shouting at the soldiers attempting to clear them from Riad al-Solh Square.

Mohammad said he had accrued debts of $24,000, for simple living expenses.

“You tell me how I’m supposed to pay more taxes when I earn $800 and spend $400 for an apartment and pay two electricity bills and two water bills,” he said.

Many in Lebanon are forced to rely on private suppliers of water and electricity with the government unable to provide services around the clock since the country’s 1975-1990 civil war.

The poor state of public services is just a small part of the grievances that have led the protesters to call for the downfall of the political elites ruling the country since the war.

Protesters are accusing politicians of enriching themselves as the economy stuttered. The country’s growth has stagnated since the outbreak of war in neighboring Syria in 2011. The unemployment rate among youths is 37 percent, and remittances – a key source of income for the country – have started to dry up.

Taxes on the massive profits

Ali Chalak, a professor of applied economics at the American University of Beirut, said taxes on the massive profits accumulated by those politicians and their close business associates in Lebanon’s banking and real estate sectors was the way forward.

“Wealth needs to be taxed, not the incomes of average people,” he said.

He also said high interest rates on deposits in Lebanon’s banks have stunted investment in a real economy, meaning that those with large funds have continued to accumulate money while the average person has seen their living standards drop as the economy stagnated.

Thousands of ghost jobs

Nassib Ghobril, the chief economist at Byblos Bank, one of Lebanon’s largest, said the government should focus on cutting wasteful costs and fighting corruption before imposing any new taxes including on banks.

“The 2019 budget was almost entirely focused on tax increases, with very shy and unconvincing attempts at reducing costs,” he said, noting that there were some 90 state institutions that could be decommissioned and thousands of unproductive “ghost jobs” in the public sector.

Ghobril pointed out that officials had also failed to make the largely symbolic move of slashing their own salaries, an issue which had been debated in cabinet but never took place.

There was some hope a lifeline would come in the form of $11bn pledged by donors at an international conference in France last year to shore up Lebanon’s economy, which is burdened by the third-highest debt to GDP ratio in the world.

However, the money is tied to spending cuts, reforms to the country’s crippled electricity sector – which costs the state approximately $2bn a year – and combating rampant corruption.

Widespread graft

Transparency International, an anti-corruption group, said graft is widespread in Lebanon and “permeates all levels of society”, with the country’s confessional power-sharing arrangement fueling “patronage networks and clientelism”.

However, the Lebanese government has little to show in terms of progress in fighting graft a year later.

“These reforms are problematic because they are based on expenditures not exceeding revenues,” Chalak said. “This doesn’t work because, in a capitalist system, all growth is debt-driven, whether for a small business or a country; today’s debt is covered by tomorrows growth and profits. So, not only are you causing hardship currently, you’re also hurting future growth.”

If the current state of affairs continues, Chalak sees pressures on the state’s currency – pegged to the dollar for over two decades – increasing, and the state’s finances falling further into disarray, though he does not envision a devaluation of the currency in the near future, nor does he see a bailout by the International Monetary Fund as necessary.

“[Central Bank Governor] Riad Salameh has somehow been able to keep the country afloat by its own bootstraps, because most of the debt is internal,” Chalak said.

“I think at some point policymakers will have to get some of that debt written off. Go sit with the big holders of capital and say, ‘You’ve made your money, now is the time to return the favor.'”

Debt burden

Sfeir said the banks were liquid but “the wave of uncertainty is very strong.” “I have never seen as many people in our banks as we have seen lately,” he said.

The economic crisis is rooted in years of state waste and corruption that have landed Lebanon with one of the world’s heaviest public debt burdens.

It has been compounded by diminished inflows of capital upon which Lebanon depends to finance the budget and current account deficits. The Lebanese pound has weakened below its official rate.

The Institute of International Finance has said deposits declined by more than $10 billion since the end of August. Half of this had been withdrawn from the country and the other half was being kept at home.

Since the protests began, Sfeir said inflows to Lebanon had “not stopped but they have weakened certainly”.

“What is really hurting is the reaction of people … It is safer to keep your money in a bank than to keep it at home.”

Some investors have suggested that seizing a proportion of bank deposits or a haircut on government bondholders, reducing the value of their asset, may be needed to escape the crisis.

“I don’t see how a haircut would solve our situation. Our situation would be solved through political stability,” Sfeir said, adding any such decision would need to be taken by government and passed by parliament.

“It will scare everybody. The diaspora – our people have plenty of money overseas. This money will never come back if there is a haircut,” he said.

The central bank last week said it was allowing banks to borrow dollars without limits at 20% interest to secure depositors needs on condition the funds were not sent abroad.

While the central bank had opened its “vaults” to help in case of a liquidity squeeze, “the interest rate of 20% is an obstacle to take advantage of this situation”, Sfeir said.


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