Lebanon's Fight for Sovereignty: Reclaiming Control Over Finance and Force

The recent International Monetary Fund (IMF) and World Bank Annual Meetings in Bangkok highlighted a critical challenge for Lebanon: can the state regain full authority over both its security forces and its financial system? While Hezbollah's independent military power has long impacted the state's control over war and peace, true sovereignty today also hinges on the state's capacity to regulate its finances, safeguard savings, collect taxes, extend credit, and enforce laws. Therefore, economic reform is not a separate issue but an integral part of Lebanon's sovereignty debate, a matter now squarely before the IMF.

Nearly seven years after Lebanon's profound financial collapse, depositors continue to bear the brunt of a crisis they did not instigate. Accumulated losses exceeding $70 billion have impacted the state, the central bank, and commercial banks, yet the political question of who will ultimately absorb these losses remains unresolved. As a Member of Parliament, I have witnessed this issue navigate our institutions for years. In August, Parliament took a significant step by approving the amended Bank Resolution Law. However, this progress should not be misconstrued as a unified domestic stance, as reform advocates remain a minority within Lebanon's established power structures. Recent advancements have largely been propelled by pressure from the IMF and other international bodies.

Prime Minister Nawaf Salam has been a notable voice among senior officials advocating for Lebanon's commitment to reform and readiness for an IMF program. Paradoxically, even as he made this case, President Joseph Aoun referred Article 3 of the law to the Constitutional Council, reigniting a dispute over the central bank's powers. Regardless of the legal arguments, this action has cast further doubt on the sincerity of Lebanon's reform message. The next crucial legislative battle will be over the Financial Stabilisation and Depositor Recovery Law, often referred to as the Gap Law, which will determine the allocation of losses and the treatment of depositors. This challenge is as much political as it is technical.

Lebanon's powerful banking lobby, spearheaded by the Association of Banks in Lebanon, continues to exert significant influence. This group has actively sought to shape restructuring efforts, loss allocation, and shareholder accountability, leveraging political allies within Parliament, including members of the Finance and Budget Committee. My firsthand experience in these debates confirms that the pressure extends beyond parliamentary chambers. The banking lobby has consistently employed political and media influence to steer reform agendas. The delay in addressing these issues also carries a security implication.

Lebanon's dollarized cash economy was estimated at approximately $9.9 billion in 2022, representing nearly half of its gross domestic product. While not all cash transactions are illicit, such a large volume significantly reduces the state's visibility over financial flows, complicates tax collection, and heightens the risk of money laundering. Hezbollah has historically relied on cash, exchange houses, and transfer networks operating outside conventional banking channels. Recent reports indicated Hezbollah received $200 million from Iran to aid displaced families, though the US State Department has contested the figure. Regardless of the exact amount, Lebanon cannot effectively counter Hezbollah's financing mechanisms while opaque cash channels persist and financial reform remains stalled.

Lebanon cannot rebuild its sovereignty while allowing either source of state weakness to persist. Hezbollah and the banking lobby are not aligned, nor are they equivalent entities. However, both exploit different vulnerabilities within the state, diminishing Lebanon's capacity to regulate money, enforce laws, and maintain public trust. Treating Hezbollah's weaponry and financial reform as separate issues, a common approach even in Washington, is illogical. A state unable to track financial flows, protect deposits, restore credit, or support businesses is inherently less equipped to compete with a parallel armed, financial, and social system.

Consequently, Lebanon requires both exclusive state control over arms and a robust financial system capable of upholding state authority. The upcoming debate on the Gap Law will serve as a critical test of Lebanon's ability to prioritize the public interest over entrenched privilege. As an elected Member of Parliament, my position is unequivocal: ordinary depositors and taxpayers must not be compelled to absorb losses again while shareholders, insiders, or those who profited from the previous system remain insulated. Losses must be allocated transparently, following a credible hierarchy of claims, ensuring accountability and fostering a viable banking sector that can once again extend credit. This is why the discussions in Bangkok are pivotal. The IMF has clearly stated that an appropriate Gap Law is fundamental to any new program. The critical question is whether Lebanon will present a credible plan for implementation or another diluted reform package that falters domestically. International partners, particularly the United States and the IMF, can support a genuine reform program, but the impetus for reform must originate from within Lebanon. Businesses require credit, citizens need access to their savings, and the state depends on revenue and financial transparency. Therefore, Parliament and the government must advance financial reform in tandem with securing exclusive state control over arms. Lebanon cannot truly restore its sovereignty while leaving either of these fundamental weaknesses unaddressed.