LEBANON: Resignation gambit means new Hariri government is needed to avert a crisis

GULF COUNTRIES - In Brief 31 Oct 2019 by Rory Fyfe

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The resignation of the Lebanese PM, Saad al-Hariri, is the political wildcard that we were concerned about in our 22 Oct analysis. However, the most likely scenario is that Hariri will actually remain on as prime minister with the authority to rejig the cabinet slightly, including bringing in some independent technocrats, in an effort to appease protestors. He has garnered some approval from the street through his resignation and could leverage this political capital. Protestors are calling for a complete cleanout of the political class, but it is hard to see this happening. If the government were to collapse, the country would be left adrift amidst an intensifying crisis which is disrupting the economy and banking sector and deepening Lebanon’s pre-existing financial challenges. If he is replaced with a figure less amenable to the Gulf states then they are unlikely to provide support. However, his resignation was probably a gambit and he expects to be reappointed and empowered by the process. Nonetheless, Lebanon remains in crisis. Rapid Gulf support to avert a default would be the best outcome for bond investors, but the chance of this happening will in large part depend on who becomes the next PM. An IMF bailout is also a possibility, which would involve pain for bond investors but would be better than a disorderly default. Hariri announced his resignation on Tuesday, saying he was at a loss for ways to appease protestors after two weeks of leaderless protests sparked by a proposed WhatsApp tax as part of the 2020 budget, but more generally by frustration at the inability of Lebanon’s gerrymandered sectarian political system to govern (a similar context to the paral...