Trapped in Hariri’s shadow

Lebanon’s government has narrowly avoided collapse, but more problems lie ahead over the assassination of former prime minister Rafiq Hariri. Published in MEED, 16 December 2011

The blast that killed former Lebanese prime minister Rafiq Hariri and 22 others in central Beirut in February 2005 left a crater 10 metres wide and two metres deep. The crater has long since gone, but the political reverberations from the blast continue to cause problems for Lebanon and its political leaders.

A government led by Rafiq’s son, Saad Hariri, fell in January because of differences over how to deal with the UN body investigating the murders, the Special Tribunal for Lebanon (STL). The coalition government that replaced it, led by Prime Minister Najib Mikati, narrowly avoided the same fate in November, but serious issues remain unresolved, which could yet prove fatal for his administration.

The dispute that nearly brought down the Mikati administration centred on the funding of the tribunal. Under the terms of UN Security Council resolution 1757 passed in May 2007, Lebanon has to pay 49 per cent of the costs of the tribunal, which amounts to $32.2m for this year. The remaining 51 per cent is met by voluntary contributions from about 30 other countries.

Contentious plan

This year’s funding from Beirut had been due by the end of October, but the government, which includes two members of Shia militant group Hezbollah, is deeply divided on whether it should have any involvement at all with the STL.

While Mikati and some others were in favour of paying, both Hezbollah and the Free Patriotic Movement, the government’s largest party led by Michel Aoun, were firmly opposed to the idea. The issue might not have been so contentious if the STL had not, during the summer, accused four members of Hezbollah of carrying out the assassination.

In the end, Mikati bypassed his cabinet by paying the bill on 30 November out of the budget for his own office. The STL confirmed receipt of the money the following day. The move sparked a torrent of criticism from Hezbollah Secretary-General Hasan Nasrallah, but the government held together.

Yet, Mikati’s deft political footwork may simply have delayed the crisis for another day. The funding issue has exposed deep political divisions within the cabinet. Arguments over whether to provide the funding had dominated political discussions in the country for weeks, even as the crisis in neighbouring Syria has continued to deteriorate - a situation potentially far more dangerous for Lebanon.

“It is saturating newspaper columns and TV airtime beyond anything reasonable,” said one local at the height of the crisis. “The tribunal is a circus that has been going on for a long time.”

These political divisions could well prove fatal to the government when further key decisions come before it in the coming months. Observers warn that there are other potential issues surrounding the STL that could put strains on both the cohesiveness of the Beirut government and Lebanon’s relations with the rest of the world.

One issue is the whereabouts of the four suspects named by the tribunal, Salim Ayyash, Mustafa Badreddine, Hussein Oneissi and Assad Sabra, all of whom are Lebanese citizens. Under resolution 1757, Lebanon is required to cooperate in searching for the suspects and arresting them. According to the tribunal, it is doing so, although there has been no sign of them to date.

“They are making efforts to search for and arrest the accused,” says Marten Youssef, spokesman for the STL. “The Lebanese authorities report to the STL president, David Baragwanath, on a monthly basis on the steps they’ve taken to search for and arrest them.”

Any arrest in Lebanon would cause significant tensions between rival groups within the country and may, ultimately, prove beyond the government’s ability. The court cases could still go ahead without the suspects being present, as the STL’s mandate allows for in absentia trials. The tribunal has already begun to consider whether to press ahead on this basis, but has postponed any decision while it waits for further information from the Lebanese authorities.

Mandate deadline

Another potential issue will come to a head by March, when the current three-year mandate for the STL runs out. At that point, UN Secretary-General Ban Ki-moon will need to extend or renew the mandate, which will be done in consultation with the UN Security Council and Lebanon.

The US and others are likely to put significant pressure on Beirut to allow the tribunal to continue with its work. Already this year, several governments have shown a willingness to consider taking punitive action to ensure Lebanon meets its international obligations to the STL. In an interview with Al-Arabiya television channel on 5 November, US Assistant Secretary of State Jeffrey Feltman hinted at what might happen if Lebanon did not pay its bill for the tribunal.

“We fully expect Lebanon to live up to its commitments to the international community,” he said. “If Lebanon is unable to produce its share of the funding for the Special Tribunal, we’re going to have to take some pretty tough decisions, and I think you’re going to see some consequences in terms of the US-Lebanese bilateral relationship, and I’d expect the same thing in terms of some other countries as well.”

Sanctions threat

The EU and Russia made similar statements, adding weight to the US position. The precise nature of the potential consequences was never spelt out, but at the time, credit ratings agency Moody’s Investors Service said it was concerned sanctions could be imposed.

“A decision to fund the STL could lead to a domestic political crisis and, potentially, a fall of the current government,” says Gabriel Torres, a senior credit officer at Moody’s. “Failure to fund the STL could lead to economic or financial sanctions from the international community.”

In the end, the sanctions were not needed as Mikati paid up, but the threat of sanctions could be revived to convince Lebanon to agree to an extension for the STL, according to Karim Makdisi, associate professor of political studies at the American University of Beirut.

“The mandate runs out in March, so Lebanon has to sign again and it may or may not,” he says. “You need parliament to ratify it and the president has to sign. So there are other, bigger issues that they can save sanctions for. I think that’s a card they’re going to hold on to.”

The Lebanese economy can ill-afford such an outcome after the difficulties it has already had to face during 2011. The country had to cope without a government for five months of the year, from mid-January to mid-June, while Mikati tried to piece together a viable coalition to replace Hariri’s cabinet. In addition, the protests and violence in neighbouring Syria have further undermined business activity in Lebanon, keeping both tourists and investors away.

The impact of these events is clear in many areas of economic activity. According to one of the country’s largest banks, Byblos Bank, Lebanon’s customs receipts were down 23 per cent and the number of tourists down 25 per cent in the first nine months of the year, and stock market volumes were down 73 per cent in the first 10 months.

All this has served to push Lebanon’s growth rate sharply lower this year. Gross domestic product (GDP) rose by 7.5 per cent in 2010, but by this summer economists were predicting growth of 2.5-3 per cent for 2011. Since then, that figure has been revised down even further by most observers to about 1.5 per cent.

“Usually it is quite hard to forecast GDP growth in Lebanon given the poor statistical base we have here,” says Nassib Ghobril, head of economic research and analysis at Byblos Bank. “I expect it to be low next year. I think it will be better than this year, but not by much. The economy has been paying the price and missing the opportunities because of the political shocks.”

Under pressure

If sanctions are imposed, the area most likely to be targeted is the country’s banking system, which plays an unusually strong role in the economy. With limited local resources, Lebanon has traditionally relied on a strong financial sector as the engine for economic growth.

According to Moody’s, customer deposits fund 83 per cent of Lebanese banking system assets and are supported by remittances, which account for more than 20 per cent of GDP. Lebanese banks are also the main lenders to the government and their ability to carry on doing so depends on the stability of their depositor base.

The threat of sanctions puts further pressure on a banking industry already feeling the strain from the political and economic upheaval this year. In early December, Moody’s changed its outlook on the entire Lebanese banking system from stable to negative, due to the mix of slower economic growth and pressure from the events in Syria and Egypt, as well as the domestic political environment.

“Lebanon’s stability is very much based on the stability of its financial and banking system, so doing these kinds of sanctions would be opening a Pandora’s box,” says Jean Riachi, chief executive officer of the local FFA Private Bank. “Nobody should try to do it, because we don’t know where it would lead.”

Lebanon may well find the political deal it agreed this time has simply postponed the point at which a real reckoning has to be made. In the meantime, domestic wrangling continues to distract the state from what are arguably far more important issues: trying to boost the economy, while coping with the increasingly serious situation across the border in Syria.