BEIRUT: The resignation of Prime Minister designate Saad Hariri last week had a serious impact on the local market as the dollar rate exceeded LL22,000 following this news.
The negative repercussion was not surprising as many Lebanese were still hoping that a new Cabinet with a clear mandate would salvage the economic situation, which has reached its lowest point in the past two years.
Now the search for a new prime minister will be in full swing in a bid to restore some confidence and to reassure the international community that Lebanon is keen to implement all the required reforms.
It is now clear that any new Cabinet should pursue radical reforms and prepare the public for the total lifting of subsidies on all essential items.
Economists and financial experts say irrespective of who takes office, the incumbent must pursue the painful path of reforms and above all accept the remedies proposed by the International Monetary Fund if Lebanon truly wants a massive cash injection.
The IMF’s commitment to give Lebanon its $860 million share despite the absence of an effective Cabinet was seen as a silver lining in this dark tunnel and raises hope that the country can still take some actions even at the level of a caretaker Cabinet.
Marwan Barakat, Group Chief Economist and Head of Research of Bank Audi told The Daily Star that what was needed in this political volatility period was to have concerted efforts between government, parliamentary and monetary authorities to try to lessen, as much as possible, the burden of political uncertainty on the Lebanese population.
“Such measures include fortifying the security situation to avoid potential drifts, prohibiting harmful speculation against the national currency, narrowing the excessive money creation and ensuring the materialization of the $860 million IMF disbursement to Lebanon in relation to its Special Drawing Rights,” Barakat said.
But he added that given the mild margin of maneuver within the context of a wide loss of confidence and a lack of available tangible financing, any support measure would prove to be of limited impact amid the massive current and upcoming socioeconomic pressures.
“The observed collapse of Cabinet formation efforts might put the country in a political vacuum that adds to the political cloudiness, increases monetary fears and [increases] black market volatility and fuel inflationary pressures,” Barakat said.
He stressed that the Lebanese must keep their fingers crossed so that legislative consultations are held imminently, a new prime minister is appointed promptly and a credible government is formed quickly, with the mission of overlooking parliamentary elections, formulating a crisis exit strategy and resuming negotiations with the International Monetary Fund.
“This is the only way out looking forward to avoid increasingly grim economic perspectives that would accentuate pressures on the real economy, monetary situation and social conditions at large,” he noted.
Financial analyst Hassan Khalil told The Daily Star said reforms were still possible but the .
“In principle every government can do something ... in term of reforms. But no government can do something that could relief pain for people without securing financial resources,”
He added that the financial resources are not available in Lebanon for the time being.
“The situation in Lebanon has attracted international powers like a magnet and everybody has an interest from Russia, America, Britain, France, Saudi Arabia, Iran, Syria, Qatar and Egypt. Everybody wants a stake in Lebanon,” Khalil explained, adding that some powers were pushing the country towards the point of "explosion".
Habib Zoghbi, an economist, financier and President of the Harvard Business School Club of Lebanon, did not believe that the impact of Hariri’s departure after nine months of trial would have a big impact on the market because since three weeks ago it has been already mostly discounted.
“Also since Hariri was not yet in an executive position, all players are the same and using the same methods,” Zoghbi said.
The economist is convinced that Diab can relieve some of the pain if he adopts some crucial steps.
“In my view he can act on the following: convert part of the World Bank $900 million commitment to social assistance and productive projects, and ensure it is executed; stricter control on smuggling of fuel and [diesel] to Syria through GPS technology and a chip in every driver and car that receives a license to carry them. Create a control room for this.”
Zoghabi proposed using drones along the border, increasing number of scanners and getting assistance by recieving regular satellite images.
“Work to get the new IMF facility offered now for an amount of $860 million. Lebanon is entitled to it and it will be ready on Aug. 20,” he added.