Back in the 20th century, a new era of structural adjustment programs emerged as a form of aid for countries struggling under the weight of financial and economic burden. This era gained the International Monetary Fund (IMF) and the overall Washington consensus a notorious reputation for delivering “one-size-fits-all” approaches to aid and development.
Countries that received aid from the IMF have reported various common consequences, including heavily misplaced economic policy conditionalities, the most notable of which are privatization, austerity measures, the liberalization of trade and balancing government deficit, and other steps that often don’t take into account regional or country contextualities or rights-based approaches.
The end result of many of these interventions included heavy public refutations and even nationwide demonstrations. More recently, literature has shown that developing countries mostly value ownership and alignment with national strategies when it comes to aid and development interventions – something that has been majorly absent from the IMF’s rescue plans.
However, as in all political economies, and especially in aid and development-related initiatives, a more nuanced contextual approach is needed. Even countries with a negative history of IMF deals can find a suitable pragmatic middle-ground or at least an adequate gray area where development and conditionalities can go together.
IMF and the Lebanese Ruling Class
The latest stage that the Lebanese – IMF negotiations have reached consists of the Staff-Level Agreement reached around a year ago. While previously implementing and agreeing to economically disastrous and miscalculated policies, there’s a reason why the implementation of the current IMF deal has come to a stop.
Some of the more controversial pillars of this agreement include:
Implementing fiscal reforms that coupled with the proposed restructuring of external public debt will ensure debt sustainability and create space to invest in social spending, reconstruction and infrastructure.
Establishing a credible and transparent monetary and exchange rate system.
Cabinet approval of a bank restructuring strategy that recognizes and addresses upfront the large losses in the sector, while protecting small depositors and limiting recourse to public resources.
Parliament approval of an appropriate emergency bank resolution legislation which is needed to implement the bank restructuring strategy and kickstart the process of restoring the financial sector to health, which is fundamental to support growth.
Initiation of an externally assisted bank-by-bank evaluation for the 14 largest banks by signing the terms of references with a reputable international firm.
Parliament approval of a reformed bank secrecy law to bring it in line with international standards to fight corruption and remove impediments to effective banking sector restructuring and supervision, tax administration, as well as detection and investigation of financial crimes, and asset recovery.
Completion of the special purpose audit of the central bank’s foreign asset position, to start improving the transparency of this key institution.
Cabinet approval of a medium-term fiscal and debt restructuring strategy, which is needed to restore debt sustainability, instill credibility in economic policies and create fiscal space for additional social and reconstruction spending.”
When analyzed without any prior reservations, one can now understand the ruling class’ hesitance in proceeding with the deal.
“The process is halted,” said economist Ali Noureddine. “If you want to finalize the deal with the IMF you have to implement these conditions.”
Recognition of losses, bank restructuring, bank secrecy revision, increased transparency, and bank audits and evaluations all aim directly at the playing fields of the Lebanese politico-financial alliance of politicians and affiliated bankers and financial networks.
Any type of evidence-based planning and accountability measures are direct threats to the ruling class’ networks, even when imposed by organizations that previously had relations with the Lebanese government.
“The best way to move forward,” explains Noureddine, is to create “an in-house plan for how you want to deal with the losses [in the sector] and the problem you’re handling.”
This plan isn’t reduced to technical short-term solutions and calculations, as Noureddine explains that the goal is to “arrive at a new economy, a new economic structure… and establish a roadmap based on which you will negotiate with the IMF and reach a final deal.”
This analysis falls closer to the logic of aligning national strategies and priorities to such interventions, which is a necessity at this stage of the country’s multifaceted crisis.
So what are these priorities?
Accordingly, we notice a binary of opposition between the ruling class’s approach to economic restructuring and a people-centered approach.
First, the first approach, or rather the ruling class’ approach, seeks to put the burden of reconstruction on the public sector as well as small and middle-income bank depositors.
In contrast, the second people-centered approach notes that the burden of reconstruction falls on those primarily responsible for the losses and the overall crisis: the Association Des Banques Du Liban, or the association of Lebanese banks, which willfully partook in the economic and monetary trajectory, and willingly influenced and participated in monetary schemes doomed to end in a nationwide crisis.
Second, the ruling class’ approach includes an additional obfuscation of financial sector policies, making them less transparent and vague to the public eye. Playing on historical Lebanese pro-banks narratives of solidity and resilience, they seek to retain the secrecy laws which have hitherto protected big and politically-affiliated depositors from any sort of evaluation.
A people-centered approach would seek to conduct an in-depth investigation and audit on major bank transfers and flows and reveal information hitherto kept secret from public scrutiny.
Finally, while the ruling class implements palliative, ad-hoc, clientelistic, and politically-motivated solutions to the series of trans-sectoral crises, a people-centered and informed approach emphasizes the interconnectedness of social protection policies, banking, monetary and fiscal policies, and a long-term economic plan.
It is based on this last plan that negotiations with the IMF should be led, and political groups and public opinion influencers are required to put as much pressure as possible on authorities and to galvanize public opinion by revealing the current financial schemes being undertaken, in order to demystify the Lebanese banking sector from biased narratives, and change the discourse towards an evidence-based, people-centered one, focused on the protection and the empowerment of the most marginalized, as well as on reviving productive sectors.