Can Lebanon’s new finance minister steer economy out of crisis?

Finance Minister Ghazi Wazni takes over as protesters hit the streets to decry new cabinet.

Lebanon protests water cannons
Protesters against Lebanon's newly formed government were sprayed by a water cannon on Wednesday [File: Aziz Taher/Reuters]

Beirut, Lebanon – Newly appointed Finance Minister Ghazi Wazni said on Wednesday that he felt the “heavy weight” of his task to steer Lebanon out of an acute financial crisis and gain the trust of a protesting population.

“The economic, financial and monetary situation is very difficult. There is a lot of pressure on the whole government to convince both the uprising in the interior and foreign donors of the reform programme it will put forward to rescue the country,” Wazni told Al Jazeera in a phone interview.

Wazni was appointed on Wednesday as part of Prime Minister Hassan Diab’s 20-member cabinet.

Diab’s cabinet is backed by majority Shia groups Hezbollah and the Amal Movement, as well as the Christian Free Patriotic Movement. Lebanon’s sectarian power-sharing arrangement mandates the prime minister be a Sunni Muslim.

The new government was formed nearly three months after the cabinet of former Prime Minister Saad Hariri resigned amid unprecedented nationwide protests against the country’s rapidly deteriorating economy, as well as rampant corruption and Lebanon’s sectarian political system.

Protesters have pushed for a government of experts or technocrats who are independent of traditional sectarian parties. Some of those demands were met. The new government is mostly technocrats with some political appointees, but almost all of them were picked by traditional political parties.

The reaction on the street has been overwhelmingly negative.

Lebanon announces formation of new government

Roads across Lebanon were blocked Tuesday night as the government was announced, and stone-throwing protesters tried to storm a heavily fortified entrance to Lebanon’s parliament.

Though they retreated around 2am (midnight GMT) on Tuesday night, hundreds had returned by 5pm (15:00 GMT) Wednesday, throwing stones as water cannons were deployed in an attempt to disperse them.

Many say the cabinet simply replaced former ministers with their advisers or people close to them.

Wazni, an economist who has been interviewed by the local press for years, is an adviser to House Speaker Nabih Berri, a former armed group leader and head of the Amal Movement, which is allied with Hezbollah.

Many see Berri as a symbol of the old order and the corruption that has pervaded Lebanon since the end of its 15-year civil war in 1990.

Wazni insists he is not a political appointee and that Berri chose him because he believes he has the right credentials to steward the country through challenging economic conditions.

“We are a government of 20 people who are experts in the full sense of the word,” Wazni said.

Foreign help needed

Diab’s cabinet notably leaves out roughly half of Lebanon’s political spectrum, in a country where most governments in recent years have included all major parties citing sectarian power-sharing considerations.

Many observers have criticised Diab for forming a “one-color cabinet” led by Hezbollah, warning the composition could expose Lebanon to increased pressure as well as possible sanctions from the West, at a time where the country needs all the foreign help it can get.

Hezbollah has been heavily sanctioned under United States President Donald Trump. Last week, the United Kingdom expanded asset freezing measures to encompass all of Hezbollah, rather than just its military wing.

But Wazni said preliminary indications from the West are positive, pointing to a statement on Wednesday by French President Emmanuel Macron that France would “do everything” to help Lebanon get out of its crisis.

He said the cabinet would strive to “convince the international community of Lebanon’s commitment to reform, because there is a big need for foreign support”.

Lebanon has traditionally gained financial support from European powers – chiefly France – and wealthy Gulf Arab nations including Saudi Arabia.

But ties with the Gulf have been strained in recent years over the growing power of Hezbollah in Lebanon, as well as the previous government’s failure to undertake the reforms needed to unlock $11bn in soft loans pledged by the international community at a donor conference in Paris nearly two years ago.

Deepening crises

Wazni is taking over Lebanon’s finance portfolio amid compounding crises in Lebanon that have shaken confidence in the country’s banking system and pushed it closer to defaulting on its debt.

Lebanon is the third most indebted nation in the world as a percentage of its gross domestic product, while dwindling foreign currency reserves threaten its ability to service debt.

The country’s downward financial spiral has deepened further amid unprecedented protests that have rocked Lebanon for nearly 100 days.

Banks closed for two weeks at the start of the uprising and have since put in place harsh capital controls on depositors, limiting withdrawals to about $200 a week. This has caused an outburst of rage against banks, dozens of which have been vandalised across the country, according to Lebanon’s Internal Security Forces.

In a statement on Wednesday, the Association of Banks in Lebanon released a statement saying it hopes the formation of the new government “will have a positive impact on the general conditions in the country, paving the way for the return of stability”.

Wazni said one of his priorities is to remedy the chaotic scenes at banks in Lebanon through policies endorsed by the cabinet.

He also said it is up to the government as a whole to decide whether Lebanon would default on its debt payments or engage in a debt-restructuring process.

He declined to give his personal view on the matter of debt restructuring.

Meanwhile, the country’s currency, the Lebanese pound, which is officially pegged to the US dollar at 1,507, has depreciated by up to 60 percent in recent weeks to 2,500 Lebanese dollars to $1 on a parallel market.

It appreciated to 2,000 Lebanese pounds against the dollar on Wednesday after currency exchange dealers capped the buying at that rate, in an agreement with the country’s central bank.

Wazni said it was “very unlikely” the parallel rate would return to 1,500 Lebanese pounds.

“This shouldn’t be a shocking statement – there are two markets,” he said. “The most important thing is that there is stability in the parallel market, and if things get better in the future, then the price will go down.”

Wazni added that confidence in the currency would have to be restored through work, not talk.

“Our job is to form a ministerial statement that instills confidence and is serious,” he said. “We have to address the situation at banks, the exchange rate, the state of public finance in Lebanon – there are so many things that we have to do.”

But there is one thing Wazni said he won’t do – namely, impose any new taxes that would compound the financial pain already heaped on low-income families.

“The economic situation and the difficult living conditions in the country today do not allow for any new taxes,” he said.

Source: Al Jazeera