A Year On: An Academic Perspective of the October 17 Uprising – Part III

In the final part of our series, LAU’s Dr. Tamirace Fakhoury and Dr. Walid Marrouch assess the implications of the uprising and of the financial crisis.

By Editorial Staff

Alumna Hayat Nazer’s (BSc ‘10) unnamed statue, which she created out of the rubble from the August 4 explosion, stands proud as a symbol of the Lebanese people’s solidarity and endurance. (Photo credit: João CB Sousa, Courtesy of Hayat Nazer).

In conclusion, was the October uprising a success or a failure? The answer may not be clear-cut, but what can be determined are the transformations it realized despite myriad obstacles, suggests Dr. Tamirace Fakhoury.

Among these debacles were the devaluation of the currency, the destruction of the peg to the dollar and ensuing hyperinflation. Last year, we had asked Dr. Walid Marrouch whether it had been wise to adopt the peg in the first place and whether a single currency policy might help the economy. As this has become a reality, now what?

Read on for more insights from our faculty members at the School of Arts and Sciences and the Adnan Kassar School of Business in this follow-up to their perspectives in the special supplement of the LAU Magazine & Alumni Bulletin.

Dr. Tamirace Fakhoury, Associate Professor of Political Science and International Affairs/Director of the Institute for Social Justice and Conflict Resolution at LAU

One year after the onset of Lebanon’s phenomenal protest movement, we are bound to reflect on its significance. The uprising or thawra didn’t arise out of nowhere and must be situated in the dynamics of Lebanon’s politics of sectarianism. Everybody knew that Lebanon had reached a tipping point, yet no one was sure when the collapse of post-war Lebanon and its political economy would take place. And it happened.

The uprising has had an enormous social impact. It has cut across social classes, bringing together people from different walks of life. Still, as exciting as this seems, the landscape soon changed. Security forces started to forcefully disperse protests. Following the outbreak of the pandemic and the ensuing lockdowns, the protests understandably contracted – but they did not abate. With the rapid deterioration of livelihoods, the free fall of the Lebanese pound, and the procrastination of reforms, the protest wave gradually evolved into a more resentful movement of contestation, directing its wrath against politicians, shops, and banks.

What are the implications of these protests? How can we explain the fact that they have not led to dismantling the political class and the system as the protesters had initially hoped? A year later, are these protests to be dismissed as a failing episode of contention?

The answer is complex. Lebanon’s uprising has not been able to overthrow an extremely resilient sectarian regime that has managed across decades to consolidate its apparatus of control. This extremely resilient political system inhibits collective action by deploying various strategies such as reifying political fragmentation, co-opting people, inviting external interference and weakening the “civic state.”

Nevertheless, the protest wave has instigated profound symbolic and societal transformations. A case in point is the fact that today, grassroot groups are tirelessly working to establish new collective and people-centric organizations as trade unions and professional associations are defunct or politicized. Many activists have embraced Lebanon’s thawra as an atemporal way of life that needs to be sustained over time, irrespective of direct policy gains and outputs.

Against this backdrop, we are called to look at Lebanon’s latest wave of contention through another perspective, rising beyond the binary of whether we have had a successful outcome in the sense that the challengers seized power or whether the uprising has failed to accomplish its goals. Indeed, it might be more interesting to assess the significance of this experience and what it says about Lebanon’s history, current context, and future options.

This wave of contention has so far triggered a radical reassessment of our political values and ways of life, confirming that the Grand Liban as it was once created and institutionalized is in dire need of a re-engineered pact of power-sharing. This time, the re-engineered pact will have to be citizen-led.

Dr. Walid Marrouch, Associate Professor of Economics and Assistant Dean of Graduate Studies and Research

A year after the beginning of Lebanon’s worst economic and financial crisis since the end of the civil war, the so-called dollar crisis sent the Lebanese economy reeling.

What started in September 2019 as a US dollar liquidity problem and a minor bank run soon became a full-blown banking and currency crisis. In October 2019, banks closed their doors and online platforms for several days only to return with strict capital controls on local and international dollar transactions, demolishing confidence in the banking system and creating a bona fide black market for dollar banknotes.

Despite the ephemeral optimism that came with the formation of a new government in early 2020, March witnessed a catastrophic government decision. For the first time in Lebanon’s history, the government unwisely defaulted on its public debt obligations without a plan, which officially denied the country access to the international market for debt financing.

Soon after the Central Bank’s decision in April to restrict withdrawals from dollar accounts to pounds only, the local currency went into a tailspin devaluation fueled by an ever-growing supply of freshly printed banknotes with the black market rate reaching a high of 10,000 LBP-USD in June. By September 2020, the quantity of pound banknotes had risen by a factor of five compared to a year earlier!

Last year, in an interview with LAU Magazine, I had stated that “abandoning the [LBP-USD] peg abruptly would result in a severe reduction in the purchasing power of the Lebanese population, which will negatively affect living standards across the board.” In 2020, this prognosis became a sad reality with the de facto destruction of the peg. In less than a year, Lebanon dropped from upper-middle income to lower-middle income country status. Essentially, a currency-induced economic depression coupled with a yearly inflation in excess of 100 percent had destroyed the middle class, which spread poverty and economic misery across all economic sectors.

Despite the possible long-run benefits of currency devaluations that I had also alluded to last year, the COVID-19 pandemic and the token maintenance of the peg at the official level did not allow the tourism sector to benefit from the windfalls.

Looking ahead, it seems that the public policy debacle in dealing with the Lebanese economic crisis so far points to a clear recommendation. Monetary policy conducted by the Central Bank should not be a substitute for fiscal policy conducted by the government.

Moreover, the independence of the Central Bank must be restored as soon as possible to regain control over monetary policy and to stabilize the exchange rate. Failing to do so was indeed one of the major causes of our current predicament in Lebanon, a predicament caused by a nefarious alliance between the government, the Central Bank, and the banks. Under this alliance, the government came to rely increasingly on the Central Bank and the banks to finance its debt to unsustainable levels, while the banks relied on the government to generate super profits that also proved unsustainable.