Smoke billows from building rubble at the site of overnight Israeli air strikes in Beirut's southern suburbs, on Oct. 4.IBRAHIM AMRO/AFP/Getty Images
Even today, with Israeli warplanes flattening big chunks of south Beirut and southern Lebanon, and Israeli ground forces fighting Hezbollah inside Lebanon, there is some semblance of normal life in the capital.
In the heart of the city, (where my hotel is), the streets bustle with life, the traffic is insane and restaurants and cafés brim with motormouths from a dozen religious groups, from Druze and Shias to Sunnis and Maronites. The Lebanese are used to war and civil strife – life goes on. On Thursday, when I covered the overnight Israeli missile attack on a civilian medical centre in the heart of the city, which killed nine people and filled the surrounding streets with broken glass and concrete, most shops, bakeries and food counters in the immediate area reopened in the morning.
The images can be deceiving. In Lebanon, it is everyone for themselves, a daily fight for survival.
While there is no precise definition of a failed state, Lebanon is arguably one already. The tiny country, wedged between Israel and Syria, has no president, so it lacks an executive arm, and no functioning government. The economy was a wreck even before the Israeli bombing campaign began a couple of weeks ago and is now deteriorating rapidly as the city centres of Beirut and other cities in the north become overwhelmed with 1.2 million, and rising, domestic war refugees (known as IDP – internally displaced people – in UN argot). That’s almost a quarter of the population.
Displaced by war, Lebanese families file into a Beirut hotel with no water, electricity or beds
The Lebanese economy has been on a roller-coaster ride for decades – until the early 1970s, Beirut was known as the “Paris of the Middle East” – and that ride went on a seemingly irreversible plunge in 2019, when a liquidity crisis hit. Central bank shenanigans made it worse. The upshot was that the Lebanese lira lost its peg to the U.S. dollar and went into free fall. Since then, it has lost 98 per cent of its value. Today, US$1 buys 90,000 lira. Lebanon has become a dollar-based cash economy. No one wants to use fistfuls of lira to buy a pack of cigarettes or a tank of gas.
In 2020, the pandemic and the ammonium nitrate explosion in the Port of Beirut – which killed about 220 people and left 300,000 homeless – finished the economic demolition job. Lebanon that year defaulted on its Eurobonds, which now trade at pennies on the dollar. The International Monetary Fund says the economy shrank 40 per cent between 2019 and 2022, inflation reached triple digits and the banking industry collapsed.
Lebanon would recover a little bit a couple of years later – though electricity is still available only a few hours a day – only to get walloped again by the Israel-Hamas war in Gaza, which sent Hezbollah rockets into Israel and triggered retaliation by the Israel Defense Forces. In late September, Israel launched missile attacks throughout the southern half of Lebanon, followed by a ground invasion, bringing Hezbollah and Israel into all-out war with each other.
According to economists at Bank Audi, the country’s top bank, most of the numbers are going in the wrong direction again. Tourism, which normally represents some 20 per cent of GDP, has vanished, and investment is going into reverse. The investment-to-GDP ratio is now less than 10 per cent; in a good year, it is 20 per cent or so. The country is headed into a fairly deep recession, with predictions for a full-year fall of as much as 2.5 per cent.
Israel faces casualties in Lebanon as it presses ahead on two fronts
The saddest economic news is the poverty rate, which has reached about 80 per cent, double its level five years ago. What prevents Lebanon from sinking below the Mediterranean waves? The Lebanese diaspora, it appears. Some 15 million Lebanese overseas funnel US$7-billion a year into the country, equal to a third of GDP.
To be sure, the news is not an across-the-board disaster. The lira has actually stabilized, inflation has dropped to 20 per cent from 300 per cent and central bank reserves are finally climbing. Still, the crisis is intact and is made worse by the lack of a president. The caretaker prime minister, Najib Mikati, has little power or popularity.
Wars tend to focus minds, and there is rising, though perhaps misplaced, optimism that a presidential election will take place soon, giving the country the political stability it has lacked for so long. A functioning government with a functioning executive is the minimum requirement to deal with potential financial donors such as the IMF, implement UN resolutions, put pressure on Hezbollah to negotiate a ceasefire with Israel and give the country some standing at various summits. Barring a presidential election, Hezbollah runs the show – and the show is ripping poor Lebanon apart.