Lebanon crisis escalates after failure to agree government

Beirut (Reuters) – Lebanon’s financial crisis intensified on Monday after Prime Minister-designate Saad al-Hariri publicly repudiated President Michel Aoun, saying the latter wanted to dictate cabinet membership and grant veto powers on policy to his political allies.

After the latest of more than a dozen meetings with the president to form a new cabinet, Hariri called Aoun’s demands “unacceptable”. Hariri’s televised announcement dashed hopes for an end to five months of political deadlock between the two and a reversal of the country’s financial meltdown.

“This is a catastrophe for the country, we were holding on by a thread but now we’re heading towards a total crash,” one official source told Reuters, asking to remain anonymous due to the sensitivity of the issue.

Lebanon has been without a government since shortly after the Aug. 4 chemical explosion that destroyed the port of Beirut and devastated downtown areas of the capital, killing hundreds of people, injuring thousands and making 300,000 homeless.

The giant blast accelerated the downward spiral of an economy trapped in debt, banking, financial and fiscal crises, while foreign donors refuse to bail out Lebanon until it forms a government of capable technocrats committed to reform.

Aoun sent a list suggesting different scenarios for a cabinet of either 18,20 or 22 ministers, with names to be filled in, Hariri said.

“This is unacceptable because it is not the job of the prime minister-designate to fill forms from someone else or of the president to form a government.”

In a statement read by the presidency spokesperson, Aoun said he was “surprised” by Hariri’s comments and that his proposal to Hariri had not included a blocking minority.

The lack of agreement came after a hint of a breakthrough on Thursday when the two last met and Hariri had said he saw an opportunity to be seized.

“The current deadlock and dim outlook will certainly have a toll on the exchange rate, making it more difficult for the average worker to get by without food aid,” said Mohanad Hage Ali of the Carnegie Middle East Center.

The Lebanese pound dropped to over 13,000 to the dollar on the informal market after news of the outcome of the meeting, having traded earlier in the day at around 11,000.

Lebanon’s economic crisis, which is posing the biggest threat to its stability since the 1975-1990 civil war, has seen the Lebanese pound sink by almost 90%, plunging many into poverty.

As businesses shut down, joblessness and hunger are rising. Lebanon’s banks, having lent 70% of their assets to an insolvent state and central bank, have locked most depositors out of their savings.

Hassain Diab’s cabinet, which resigned after the Beirut port blast, remains in a caretaker capacity until a successor is formed but fractious politicians have been unable to agree a government since Hariri’s nomination in October.

There is no budget and there will soon be no hard currency to pay for imports of subsidised wheat, medicine and fuel.

Under a sectarian power-sharing system, Lebanon’s president must be a Maronite Christian and the prime minister a Sunni Muslim. Aoun is an ally of Hezbollah, listed as a terrorist group by the United States.

Veteran Sunni politician Hariri was nominated to form a cabinet of specialists that could enact reforms and unlock foreign aid.

The Shi’ite Amal movement, headed by Parliament Speaker Nabih Berri who backs Hariri, called for it to be formed urgently on Monday.

But Hezbollah leader Sayyed Hassan Nasrallah said on Thursday that even though he would approve a government of technocrats if formed, a cabinet with no politicians would not last long.