Last Sunday, the Lebanese went to the polls to renew the 128 deputies sitting in Parliament. The final results released on Tuesday are therefore analyzed by foreign investors who are scrutinizing the evolution of the country’s situation, in crisis since the summer of 2019 and in default of payment on its foreign currency obligations since the spring of 2020. A country which must convince the International Monetary Fund (IMF) to help it by launching a series of reforms to which the current executive has committed itself.
Among the quickest to react, Bank of America (BoA) communicated its analysis in one of its traditional notes sent to its customers and which L’Orient-Le Jour was able to consult. The American investment bank expresses its reservations, judging that the new Parliament will probably be “polarized on political issues and divided on the subject of economic reforms”.
Fragmentation
As L’Orient-Le Jour recalled on May 17, the results highlight several decisive developments since the last election in 2018. Hezbollah and its allies thus lost their majority (58 deputies instead of 71), even if the Shiite party kept the same number of elected members (ie 13). The other member of the Shiite tandem, the Amal movement, has 15 seats instead of 17 4 years ago. On the Christian side, the Lebanese Forces become the first Christian party with 19 elected (i.e. 5 more than in 2018) against 17 (i.e. 1 less) for its rival the Free Patriotic Movement. The FL and CPL parliamentary blocs have the same number of elected members, including their affiliates. The Kataeb won a seat to total 4, while the Marada lost 1 to only have 2. The protest movements are making a strong entry with 13 deputies, 12 more than in 2018. There are a total of 16 independent deputies, some of whom are in fact in tune with the different political orientations represented. Among the Druze, the Progressive Socialist Party and its affiliates lost one seat (8 deputies), while the Syrian Nationalist Social Party lost its three elected members. Nagib Mikati’s Sunni bloc finally has only one MP left, against 4 just as many years ago.
BoA fears that this “fragmentation” of the political forces composing the new Parliament will lead to a new period of paralysis and prevent the emergence of a “consensus within an appropriate timeframe”. She also considers it “unlikely” that the traditional political class, largely represented in the new Parliament, will support a comprehensive reform of the economy, seeing it rather content with adopting a few isolated measures.
BoA also does not rule out the possibility that the country will experience a new period of “institutional vacuum” in 2022, which could “postpone or derail” the outcome of discussions with the IMF on the definitive release of a program of financial assistance. Lebanon approached the organization in the wake of announcing its default on eurobonds – the first in its history – in March 2020. But it took until April 7 for a preliminary agreement envisaging the release of 3 billion dollars over 4 years be announced by both parties.
A window of 3 to 4 months
For the IMF to agree to lend this money, Lebanon must first engage in several reform projects: approval by the executive and then Parliament of a strategy to restructure the banking sector; an audit of each of the country’s 14 largest banks (in terms of assets and deposits) by an international firm; the vote on a bill reforming banking secrecy; the finalization of a complete audit of the accounts of the BDL which includes its assets in foreign currencies; the establishment of a debt restructuring strategy by the executive; the adoption by Parliament of a budget for 2022 and the adoption of a unified exchange rate regime – together with the establishment of formal capital controls to address the issue of illegal banking restrictions in place since end of 2019.
While some progress has been made by the authorities in place, none of these projects has yet been completed. In April, BoA had “suspected the technocrats and the international community of having concluded a ‘staff level agreement’, i.e. a preliminary agreement, between the Lebanese State and the IMF, in an attempt to establish a roadmap”, in order to “push for the gradual implementation of reforms” and to “restrict” the government’s room for maneuver after the legislative elections.
