In numbers

136.7 per cent: Lebanon’s debt as a percentage of the country’s gross domestic product

18: Number of seats that Hezbollah and its allies have in Lebanon’s 30-member cabinet

Sources: IMF; MEED

On 17 August, the UN-backed Special Tribunal for Lebanon issued indictments to prosecutors for four members of the Shia-backed militant group Hezbollah for the assassination of former Prime Minister Rafiq Hariri. It was the latest in a chain of events this year that have threatened Lebanon’s political and economic stability.

The ultimate fate of this government [in Lebanon] is linked to developments in Syria

Paul Salem, director, Carnegie Middle East Centre

The investigation into Hariri’s death in 2005 was the trigger behind the collapse of the national unity government in January. The refusal of the government, led by Saad Hariri, the son of Rafiq, who was at the time prime minister, to distance itself from the tribunal resulted in Hezbollah and its allies toppling the government. The collapse has prevented Beirut from implementing a series of structural reforms vital for boosting its economy and helping reduce the government’s enormous debt pile. Lebanon’s debt stood at 136.7 per cent of its gross domestic product at the end of 2010, according to the Washington-based IMF.

Balance of power in Beirut

On 13 June, after five months of political wrangling, the appointed Prime Minister Najib Mikati formed a new government. The 30-seat cabinet is a semi-coalition, with the pro-Syrian Hezbollah and its allies claiming a majority of 18 seats. It reflects a shift in the balance of power in Lebanese politics in favour of Hezbollah, which began when the Shia group took control of Beirut in 2008. The indictment of Hezbollah members for Hariri’s death was expected, but the cabinet backed by the Shia group will now be under increasing international and internal pressure to arrest suspects.

“The key challenge for the government will be to avoid confrontation with the international community and UN, and to maintain peace internally to keep the government together,’’ says Nadim Shehadi, Middle East analyst from London-based think-tank Chatham House. “But this is not easy and will become more difficult over time.’’

The Hariri tribunal poses problems for the new government and political paradigm in Beirut, but arguably the biggest threat to Lebanon’s stability is the current unrest in neighbouring Syria.

“The ultimate fate of this government is linked to developments in Syria and particularly whether the Syrian regime can survive the current unrest or not,’’ says Paul Salem director of the Carnegie Middle East Centre in Beirut.

After 30 years of heavy military presence, Syria withdrew its army from Lebanon in 2006 under pressure from Western powers in the wake of the killing of Hariri. However, the removal of Syrian soldiers did not end Damascus’ significant political influence in Lebanon.

Syria, along with Iran, has long been considered a supporter of Hezbollah and Western governments have repeatedly accused Damascus of smuggling weapons and missiles over the border to the Shia group.

The Al-Assad dynasty in Syria, which began when the current president’s father Hafez seized control in 1963, has used oppression to maintain an iron grip on Syria. This resulted in a period of stability and relative peace until earlier this year when it became the latest state to confront pro-democracy protests in its towns and cities.

An estimated 2,000 people have been killed and thousands imprisoned as a result of the regime’s brutal crackdown on anti-government protests. It has drawn widespread condemnation from the international community. On 18 August, heads of state from the US, UK, France, Germany and EU called for Al-Assad to stand down.

Many now see the overthrow of Al-Assad as inevitable. “It is more a case of when, rather than if Al-Assad is deposed because I don’t see him regaining popular support – it is only a matter of time and cost,’’ says Shehadi.

Syrian aftermath

Al-Assad’s departure would likely lead to a collapse of the Lebanese government and swing the balance of power in Beirut back towards the March 14 Alliance, led by Hariri. “Allies of Hezbollah have supported Al-Assad and when the Syrian regime falls, they may well pay the price,’’ says Shehadi.

The political uncertainty in Lebanon is having a negative impact on the economy. The number of tourists dropped by almost 19 per cent for the first five months of the year and export costs are rising.

“Lebanese exports go through Syria, which is the only land transit outlet and because of what is going on there, exportation costs have increased,’’ says Nassib Ghobril, chief economist at the local Byblos Bank.

Damascus has long cast a shadow over Lebanese politics, the indictments for the Hariri trial and the unrest in Syria are exacerbating tensions in Beirut.

For Lebanon to attain sustainable growth it will require a government that is able to achieve consensus and implement vital economic reforms. It may take a change in the political order in Beirut and Damascus before this can be achieved.