Assad nominates Hariri for PM!

Hussain Abdul-Hussain's blog highlights the author's own article in Kuwait's Al-Rai paper. The Washington-based author says that Bashar Assad has approached US officials to suggest that he is ready to recommend (to his allies in Beirut) the nomination of Saad Al-Hariri as Prime Minister of Lebanon again. Read the whole article here (Arabic).

If true, this confirms that Assad is desperate to re-ingratiate himself with Arabs, by appearing to move away from his alliance with Iran. Tony Badran has an excellent piece on why Assad will not move away from Iran.  For an in-depth look at the complex relationship between Hizbollah and Syria, I recommend this piece by Emile Hokayem.

It is easy to look at Assad's gesture as a kiss of death. But it does not need to be. March 14 have been re-invigorated by the recent protests, and are back "on message" by focussing squarely on Hizbollah's weapons.  Assad cannot deliver Hizbollah's weapons to the negotiating table, and it is difficult to imagine another Hariri premiership now that can duck the question of those weapons. This nomination will only expose Assad's own impotence.  

Nasrallah hedges his bets

It was easy to miss Nasrallah's speech today, given everything else happening in the Middle East. But it was noteworthy.

His thrust was characteristically rambling, but his tone wasn't especially angry. He even made an attempt at puerile humour (Hariri will not defend Lebanon with his jacket), which seemed well tailored to his happy audience. 

Overall, there was nothing new in what he said, but what he did not say was noteworthy. His rhetoric about the "before and after" of the STL indictment is gone! He's now saying that the indictment does not matter, because it is known known, rather than a known unknown.

It was also noteworthy, though hardly surprising, that he talked about Arab uprisings everywhere but did not mention Syria. 

Nasrallah is nervous. He's going to lose his biggest ally, and he knows it. 

Lebanon's $18,000,000,000 Question

Whoever becomes Prime Minister and Finance Minister in Lebanon in the next government will face the same challenge that every previous Cabinet faced: how do you manage Lebanon's debt? The answer depends to a large extent on the degree of confidence they can instil in the markets.

The chart below shows the maturity profile of Lebanon's debt obligations. Most of Lebanon's debt is due within the next 24 months, of which $18 billion is due this year. Before anyone starts pointing fingers and blaming anyone, you should recall that this maturity profile is NOT unusual. Brazil, Turkey and other successful developing countries have similar maturity profiles. This is because countries without a long history of economic or political stability cannot issue long-term debt easily, unless they are prepared to pay very high interest rates.

Importantly, most of Lebanon's debt is not owed to any foreign government or entity. Most of this debt (85%) is owned locally.  Under the circumstances, the success or failure of Lebanon's economy and currency hinges to a large extent on the ability of the government to maintain the confidence of Lebanese citizens who have - either directly or indirectly - financed this borrowing.  Hariri and his team were able to instil this confidence. Can Hizbollah and their allies do the same?

The maturity profile of Lebanon's debt can lead to self-fullfilling virtuous or vicious cycles very quickly.  As long as there is confidence in the system, the government will be able to roll-over the debt at reasonable interest rates.  If confidence is shaken, interest rates will rise. Refinancing debt at higher interest rates will send the debt dynamics on an explosive path.

Who is in a position to help Lebanon with emergency financing if there is a shock to confidence? We have seen the international community deliver generously during previous crises. But will they deliver to an Iranian-Syrian backed government, whose raison d'être is to flaunt UN resolutions? Assistance cannot come from cash-strapped Syria or an Iran reeling under international economic sanctions.

I am not suggesting that Lebanon will necessarily have an economic crisis. This is because most of the debt is owned locally and the Central Bank has a healthy reserve cushion. But a Hizbollah-inspired government will have to try harder than a Hariri-led government to instil the confidence needed. This is in part because they have no track record in government, and in part because their past pronouncements on economic issues are reckless, especially those of the Aoun-clan.  All of this means that Aoun and his prodigies, like Gibran Bassil and the economist manqué Charbel Nahhas, need to have their mouths shut for a while. A few misplaced words of their wisdom can send the country to hell.

Now is the time for March 8 to move beyond their usual "it's a Zionist conspiracy" fetish and come up with a coherent outline of their economic plans and priorities. The country needs to see this very very very soon.

We should be happy the Syria-Saudi mediation failed

An-Nahar published the text of the document that Jumblatt said constituted the Syria-Saudi settlement.  An English translation is available at YaLibnan.com.  As widely reported, Hariri would have been expected to abolish cooperation with the STL, stop further funding, and withdraw the Lebanese judges. In return, Hariri would have expected a few concessions that include:

1. An end to the "false witnesses" witch-hunt and withdrawal of the Syrian arrest warrant. Promises not to attack Hariri's team.

2. Disarming of Palestinians who live outside the camps

and.....hold your breath for this one ..

3. Implementation the Taif accord.

What sort of concessions are these? Didn't we agree to implement the Taif accord 20 years ago? Wasn't the issue of Palestinian arms agreed in 2006?  The new concession that Hizbollah would be making is not to pursue a legally invalid witch-hunt, and not to harass Hariri's team....and we all know how they stick to their promises.

If this is indeed the outline of the settlement proposed, it is reassuring that Hariri and his allies refused it.  It speaks well of them.

The only "grand bargain" that is worth contemplating is to find a way to suspend cooperation with the STL in return for a complete and verifiable disarmament of Hizbollah. They won't accept that, of course, but neither can Lebanon afford contemplating anything short of full cooperation with the STL.

I have been critical of Hariri in the past, but this episode is making me warm up to him again.

Howls of a wounded beast

While visiting Washington yesterday, I  was surprised to read this in the Washington Post:

"Iranian President Mahmoud Ahmadinejad sought to pull Lebanon firmly into his country's fold Wednesday in a visit that underscored the growing power of Tehran and its Lebanese ally, Hezbollah ."

No.

Iran is not a "growing power". It has an imploding economy.  Years of economic mismanagement mean that the economy cannot create enough jobs to stabilise the rapidly rising rate of unemployment.  International sanctions are also working wonders in compounding the economic decline. I recommend reading this recent Wall Street Journal article, which documents the collapse of the riyal in the black market. Iran's economy is not going to converge with Zimbabwe's any time soon, but Ahmadinejad has his hands full dealing with his own unpopularity back home.

I would not be too complacent and assume that Hizbollah will decline in perfect tandem with Iran.  Nasrallah runs an efficient operation that delivers the best bang for Ahmadinjad's increasingly precious buck. I doubt they will reduce funding to Hizbollah. Nonetheless, Hizbollah's main crutch is getting weaker, not stronger.  The cacophony of rhetoric out of Tehran and Dahiyeh is the howling of a wounded beast, not a threat that should make us tremble.