BEIRUT — There is just one ATM working in Mar Elias, one of Lebanon’s longest shopping streets, running from the busy Rue Independence down to Corniche al-Mazraa. All the rest were wrecked last weekend by protestors with hammers and spray-paint.
Three months after demonstrations erupted in what is now known as al-thawra (“the Revolution”), a new government was announced on Tuesday. Despite the venom directed at politicians and banks, little is being said by new ministers, their political opponents, or by protestors as to how the country can emerge from a growing fiscal, currency, and banking crisis.
The government led by 60-year-old engineering professor Hassan Diab has appealed to international donors for $4-$5 billion in soft loans to facilitate imports of wheat, fuel and medicines. At best this is a short-term palliative: Lebanon’s public debt of $87 billion, more than 150 percent of the GDP, continues to increase as the result of a government deficit of around half its revenue.
United States Secretary of State Mike Pompeo was cagey when asked by Bloomberg if Washington will support the Diab government given it includes Hezbollah, the Lebanese Shiite party allied to Iran. On Thursday in Davos, U.S. Treasury Secretary Steve Mnuchin said the U.S. “was speaking with the [Beirut] government about various different economic alternatives.”
Pompeo drew a parallel with protests in Baghdad, suggesting neither were “anti-American protests…[but] protests demanding sovereignty and freedom.” He claimed protests in Lebanon were aimed against Hezbollah rather than against the entire ruling political class that has run up the $87 billion debt or against the Lebanese banks that have largely financed it.
“The protests taking place today in Lebanon are saying to Hezbollah, ‘No mas.’ No more,” said Pompeo. “We want a non-corrupt government that reflects the will of the people of Lebanon. If this government in responsive to that and there’s a new set of leaders that’s prepared to make those commitments and deliver on that, that’s the kind of government that we’ll support.”
Could a government supported by Hezbollah make “such commitments” to the satisfaction of the Trump administration?
Skeptics will point to its steadily strengthening sanctions against Hezbollah, including the party’s deputies elected to Lebanon’s parliament. Pompeo this week called on “all nations” to follow the U.S. in classifying Hezbollah as a “terrorist” group following a decision by the United Kingdom government to add the party, and not just its military wing, to its “terrorism” blacklist.
A long-standing U.S. position, shared with Europe, makes international aid to Lebanon dependent on the government taking serious steps to reduce the deficit and curb rampant corruption. Lack of progress means an international aid package of $11 billion, mainly loans, agreed to in Paris in 2018 has yielded nothing.
But two things have changed in recent months. First, the financial and banking imbalances have reached a tipping point. The Central Bank has effectively allowed a 33 percent devaluation of the Lebanese pound while banks have since November imposed de facto capital controls limiting withdrawals, especially of dollars. Inflows from the sizeable Lebanese diaspora have dried up.
Second, domestic politics has fractured, upsetting the usual Lebanese practice of forming governments with all — or nearly all — parties allocated positions, a consensual practice designed to ensure representation of Lebanon’s various Muslim and Christian sects.
Instead, many of Lebanon’s political parties have refused to join a new government after that of Saad al-Hariri, who leads the main Sunni Muslim party Mustaqbal, resigned as prime minister following the outbreak of al-thawra in October.
Oddly, this leaves some of the parties most responsible for the Lebanese economic strategy — based on high government spending financed by Lebanese banks — refusing to join a government dominated by Hezbollah and its Christian ally, the Free Patriotic Movement led by president Michel Aoun. Neatly, this absolves them from putting forward clear proposals for tackling the financial crisis.
Their move may also make Hezbollah increasingly responsible in the eyes of protestors. This is new ground for the party, which has generally left the administration of government to another Shiite party, Amal, as it concentrates on running the Islamic Resistance, the fighting force with which it has both resisted Israeli invasions, most recently in 2006, and supported president Bashar al-Assad in the war in neighboring Syria.
The banks are understandably nervous. As weeks of negotiations stretched out over the formation of the Diab government, Riad Salameh, the central bank governor, floated a plan on January 12 to Bloomberg for the $1.2 billion Eurobond maturing in March to be renegotiated “voluntarily” with Lebanese banks, who reportedly hold 40 percent of it. Salameh also said the central bank would waive interest payments on Treasury Bills for 2020, saving the government a lira equivalent of $1.9 billion.
Lebanon’s banks, which hold the bulk of both dollar as well as lira debt, have been trapped by their own reliance on high interest rates to attract the deposits with which they have financed the government deficit. But the banks have long argued that the root cause of Lebanon’s problems is government’s overspending, which has stymied the private sector and hampered growth.
“Lebanon cannot sustain its monetary and financial stability with a 150 percent debt to GDP ratio, the third highest worldwide and a fiscal deficit to GDP of 8 percent,” Marwan Barakat, chief economist at Audi Bank, tells me. “We believe that…a soft landing is still plausible if tough choices and measures are implemented…[including] spending austerity, improvement in resource mobilization, bridging the fiscal evasion gap, reforming the electricity sector and registering net savings in debt servicing pertaining to interest rate cuts.”
Others are less convinced, and advocate more drastic action, including default or a serious “hair cut” — the English phrase has entered common parlance — for bank depositors, shareholders, or both. Nasser Saidi, a former finance minister, has suggested that debt restructuring to extend maturities and reduce interest rates would require $20-$25 billion in foreign assistance. In his Bloomberg interview, Salameh appeared to reject a suggestion from Samir el-Daher, a Lebanese former World Bank official, of a one-time graduated “national solidarity tax” to raise $12-$30 billion.
In any case, such proposals float on the periphery of a vacuum. Other than mouthing platitudes on reform and tackling corruption, few politicians seem engaged. There is a sense of unreality alongside the rising anger at both politicians and banks.
Some Lebanese have given up listening to the news, while others avidly follow the latest on social media or the radio. There is much talk of rising prices, and some speculation over unlikely scenarios like an Egyptian-style military takeover. Government employees wonder about getting paid in the coming months, their existing salaries already worth far less in the shops.
Meanwhile, the fiscal crisis deepens as people refuse to pay bills from the loss-making state electricity utility, and as tax yields fall with a growing economic down-turn. On Mar Elias street, no-one is even feeding the parking meters.
Handout photo shows US President Joe Biden (C-R) and Ukraine's President Volodymyr Zelensky (C-L) take part in a bilateral meeting, on the final day of a three-day G-7 summit in Hiroshima, Japan, on May 21, 2023. The final day of the three-day of the Group of Seven leaders' summit is under way in the western Japan city of Hiroshima, with focus on Ukrainian President Volodymyr Zelensky and his talks with international leaders. Photo by Ukrainian Presidency via ABACAPRESS.COM
Roughly 70% of Americans want the Biden administration to push Ukraine toward a negotiated peace with Russia as soon as possible, according to a new survey from the Harris Poll and the Quincy Institute, which publishes Responsible Statecraft.
Support for negotiations remained high when respondents were told such a move would include compromises by all parties, with two out of three respondents saying the U.S. should still pursue talks despite potential downsides. The survey shows a nine-point jump from a poll in late 2022 that surveyed likely voters. In that poll, 57% of respondents said they backed talks that would involve compromises.
The new data suggests that U.S. government policy toward the Ukraine war is increasingly out of step with public opinion on the eve of the second anniversary of Russia’s full-scale invasion.
“Americans’ strong support for U.S. diplomatic efforts to end Russia’s invasion of Ukraine stands in stark contrast to Washington’s reluctance to use its considerable leverage to get Kyiv and Moscow to the negotiating table and end this war,” said George Beebe, the director of grand strategy at the Quincy Institute.
The Biden administration has publicly rejected the idea of negotiating an end to the war with Russia, with U.S. officials saying that they are prepared to back Ukraine “as long as it takes” to achieve the country’s goal of ejecting Russian troops from all of its territory, including Crimea.
Just this week, Russian sources told Reuters that the U.S. declined a Kremlin offer to pursue a ceasefire along the current frontlines in conversations held in late 2023 and early 2024, including a round of unofficial talks in Turkey.
U.S. officials denied the claim, saying there was no “official contact” between Moscow and Washington on the issue and that the U.S. would only agree to negotiations involving Ukraine. Reuters’ Russian sources claimed that American officials said they did not want to pressure Kyiv into talks.
The Harris/Quincy Institute poll involved an online survey of 2,090 American adults from Feb. 8 to 12. The results are weighted to ensure a representative sample of the U.S. population. The margin of error is 2.5% using a 95% confidence level.
As the House weighs whether to approve new aid for Ukraine, 48% of respondents said they support new funding as long as it is conditioned on progress toward a diplomatic solution to the war. Others disagreed over whether the U.S. should halt all aid (30%) or continue funding without specific conditions (22%).
This question revealed a sharp partisan divide on whether to continue Ukraine funding in any form. Fully 46% of Republicans favor an immediate shutoff of the aid spigot, as compared to 17% of Democrats.
Meanwhile, 54% of Democrats and 40% of Republicans favored conditioning aid on diplomatic talks. “The American people seem more clear-eyed than Washington in recognizing the urgent need to pair aid for Ukraine’s defense with a diplomatic offensive,” Beebe argued.
The poll also showed that most Americans expect the war to drag into at least 2025. Only 16% of respondents thought the war would end this year. Others were evenly split on how long the war might last, with 46% expecting it to be resolved before the end of 2026 and 38% saying there is no end in sight.
Confiscating Russia’s sovereign assets is an act of economic war. Seizing and transferring these assets to Ukraine may make Washington feel virtuous, but it will not bring peace. Passage of this bill will only reinforce the view of hardliners in Moscow that Russia’s war lies not just with Ukraine, but really with the United States and the West. Any hope that the United States and Russia could work toward stabilizing or improving relations will subsequently be destroyed.
There is no justification for Russia’s invasion of Ukraine, but enacting this bill will make peace less likely. Ukrainians have courageously defended their country for nearly two years, but even Ukraine’s former top military commander General Valery Zaluzhny admits the war is now a stalemate.
Russia’s frozen assets could be used as a bargaining chip during negotiations, but once Congress provides the president the authority to seize Russian assets, there will be immense political pressure on him to carry out the policy to avoid looking weak. President Biden was recently pilloried by the media and members of my party for returning frozen Iranian assets in exchange for five American hostages. He is unlikely to make that decision again.
Confiscation will only convince Moscow that there is no negotiated settlement to be had with Ukraine. The result will be a destroyed Ukraine. More Ukrainian soldiers and civilians will die, and more cities and towns will be turned to rubble.
History is replete with examples of economic warfare turning into violent hostilities. Many historians believe the U.S. embargo of 1807, which was intended to punish France and England for their aggressions at sea, led to the War of 1812. Likewise, FDR’s decision to freeze Japan’s sovereign assets and implement an embargo on oil and gasoline exports led to Tokyo’s decision to attack Pearl Harbor.
The past teaches us the folly of embracing every proposed act of revenge. U.S. senators are duty-bound to ask whether our actions will ensure American security and prosperity. In regard to the REPO Act, the Russians already answered that question for us. Moscow says they will retaliate in kind against the United States and our allies, with some estimates claiming upward of $288 billion in Western assets that Moscow could confiscate.
Nicholas Mulder, an assistant professor of history at Cornell University, highlights the danger of the “destabilizing precedent that western countries would set by seizing assets to end a war they are not openly involved in.” Professor Mulder states that such an action “would broaden the coercive actions that states could take for disputes to which they are not a direct party.”
Confiscating Russia’s assets will also certainly convince other countries, including China, that the United States can no longer be trusted as the guarantor of the global economy. They will seek to move away from the dollar and hold their reserves in other currencies. This process of de-dollarization will be an unmitigated disaster as it will degrade America’s financial strength and ensure the prosperity Americans have come to expect is no longer attainable.
In addition, this bill will hand the Russians another tool to fuel resentment against the United States. American leaders speak of a “rules-based international order” but the theory that the United States can confiscate the assets of another country we are not at war with is legally dubious.
Professor Mulder argues that “economic reprisals are the prerogative of injured states, not of third parties.” Rather than compel respect for international law, our actions will demonstrate to our adversaries that we are flouting it. This bill will be used by the Kremlin to show the world that while Washington demands that others follow the rules, we are happy to break them whenever we see fit.
In a multipolar world, Washington can no longer expect to act with impunity, particularly when dealing with a nuclear power. We understood the serious dangers our country faced during the Cold War. But three decades of repeated foreign policy disasters proves that Washington’s foreign policy establishment is badly broken.
A good way to start on the road to fixing that broken foreign policy is rejecting this disastrous bill.
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Prabowo Subianto, running for president, in Bandung, Indonesia. (Shutterstock/Dhodi Syailendra)
(JAKARTA, INDONESIA) — Soon after voting ended in the world’s fourth-largest country and third-largest democracy, Prabowo Subianto is claiming a knock-out blow winning more than half the vote and the necessary number of provinces to eliminate both his challengers.
According to unofficial tallies, which have been historically accurate, Prabowo has garnered 58% of the vote in today's contest. The official count will not be announced until mid-March and his opponents have yet to concede defeat.
Nevertheless, highly popular incumbent president Joko Widodo (Jokowi)’s backing for the former special forces commander, and active undermining of his own party’s candidate Ganjar Pranowo, is a big reason for the ostensibly lopsided result. But the famously temperamental Prabowo’s clever rebranding as a cute and cuddly grandpa seems to have helped quite a bit, too.
Arriving in Jakarta just as the three-day “quiet period” was beginning spared me all the raucousness of the election campaigning. But the billboards of the three candidates — Anies Baswedan, Ganjar Pranowo, and Prabowo — were prominently plastered across the city. The few everyday folk I spoke to seemed to favor the former general. A young hotel housekeeper told me she voted for Prabowo (as did almost all her friends and family) as he was “a strong leader, and honest.” Reports here speak of the youth vote as being a big factor in the result.
Much of the U.S. commentary has pointed out that Prabowo was once banned from entering the U.S. for his links to a military unit accused of human rights atrocities. To that the feisty general might say: get over it. After all, the United States was forced to lift the ban on his entry after Jokowi — after beating Prabowo in a bitterly-fought election in 2019 — invited him to become his defense minister.
Now that Prabowo is likely to become president, such musings are chiefly academic. While my interlocutors in town seemed worried about democratic backsliding in the country (and this has been apparently underway for a couple of years), relatively few voters appear swayed by this concern. And in an increasingly multipolar world, Washington is less able to influence how other countries choose their leaders, and tell them how they should govern.
For his part, as president Jokowi has focused relentlessly on economic growth and domestic issues, though he also skillfully steered Indonesia’s G20 presidency in the turbulent wake of the Ukraine war. Under him Indonesia has not only prospered, but also put into place a tough industrial policy, including limiting or banning the export of certain valuable natural resources, such as nickel. This encourages these resources to be processed in-country, which helps grow and sustain economically valuable industries that require these resources, such as electric vehicle parts, thereby diversifying and strengthening the Indonesian economy.
The European Union has responded by taking him to the WTO, and the United States has not been exactly enthusiastic on these “downstreaming” policies. But China has played ball, building ore-processing plants in the country. Beijing has also built shiny new infrastructure, most prominently a new “Whoosh” bullet train from Jakarta to Bandung.
Meanwhile, Jakarta has not expressly taken sides in the U..S-China tussle. This is hardly surprising. Non-alignment (or bebas dan aktif — free and active — as the Indonesians call it in Bahasa) is a core Indonesian grand strategy principle. Indonesia was a foundational contributor to the idea of non-alignment in the Global South, with the famous 1955 Bandung conference being held there.
Even under the authoritarian leader Suharto, who tilted toward the United States, Indonesia maintained strong relations with arch-communist Vietnam. Though China was shunned by Suharto — and the Chinese-Indonesian minority treated poorly — it all seems in the rear-view mirror in today’s Indonesia. China is Indonesia’s biggest trade partner and among its biggest investors. Hoardings commemorating the Chinese new year are visible in parts of the city and the community is much better integrated than in the past.
Furthermore, when it comes to Russia, Indonesian social media has been rife with sympathy with Moscow on the Ukraine war.
What will Prabowo’s foreign policy be like? His past record indicates that the ex-general is much more a strong-willed, if volatile, pragmatist than an ideologue. Today, this means a continuation of Jokowi’s policy record of economic growth and the development of domestic industry and infrastructure. Thus business-friendly relations with Beijing, as also attempts to attract more American investment and trade, will continue.
Prabowo is also far more exposed in his youth to the world than was Jokowi when he was sworn in. The former general has lived in Europe and Singapore and was trained by the U.S. military. Which means that Indonesia under him could be somewhat more vocal on regional and international issues than it has been. Recall Prabowo’s bold play on a Ukraine peace plan at the United Nations last year.
Nevertheless, unless Washington makes a big deal of past human rights issues (unlikely), there are opportunities for incremental strengthening of ties. Military exercises between the two have been on an upswing lately. Indonesia has also softened its earlier opposition to AUKUS and refrained from joining BRICS, partly keeping relations with Washington in mind.
Trade relations are something to watch however, with Washington’s new focus on imposing labor standards on its major trading partners. This is not always welcome in Global South capitals which see lower labor costs as a comparative advantage. Unlike the United States these days, Indonesia is also very comfortable with trade integration. It was the most important ASEAN member leading the RCEP process and continues to lead in shaping the implementation of the world’s largest trade agreement.
Should there be a Republican in the White House next year, issues such as trade deficits could loom large. Indonesia also seeks a critical minerals agreement with the United States and hopes to benefit from the Inflation Reduction Act’s clean energy subsidies, but it will be a long haul to get there.
As long as Washington understands that Indonesia is committed to a non-aligned rise, there is much scope to deepen ties. Indonesians see their relations with other major powers as being defined on their own merits and not as a byproduct of any other relationship. That ought to be a good basis for moving forward.