Introduction: "National Economy" is an important article column of "Lishi Business Review", which attempts to interpret the latest developments in various core countries around the world from an economic and humanistic perspective, in order to summarize the underlying laws behind the economic changes in different countries. This issue brings readers the Middle Eastern country of Lebanon.

Author: Wang Jian | Produced by Lishi Business Review

Recently, the Middle East has been in chaos.

First, communication equipment equipped by Lebanon's Hezbollah self-destructed successively, prompting Hezbollah to retaliate against Israel, the prime suspect, reigniting the conflict between the two sides.

Immediately afterwards, Israel announced that Hezbollah leader Hassan Nasrallah had been killed, plunging the Middle East into chaos once again.

Domestically, Lebanon's debt crisis, which has persisted for several years, continues to fester.

Since 2019, Lebanon has repeatedly plunged into deep economic crises, with public debt exceeding 170% of GDP, and nearly three-quarters of the Lebanese population living in poverty.

It is hard to believe that this small Middle Eastern country, located at the intersection of Europe and Asia, known for its blend of European and Asian oceanic charm, beautiful women, and fine wines, was once listed as one of the "Top 10 Travel Destinations" and "Must-Visit Tourist Attractions" by Lonely Planet and The New York Times.

Back then, wealthy people from around the world flocked to this "least Middle Eastern of Middle Eastern countries" to indulge in luxury yacht rides, fine wines, and the company of beautiful women, creating a veritable paradise.

Beirut, Lebanon's capital, was hailed as the "Little Paris of the Middle East," filled with a glamorous and enchanting atmosphere.

However, such peaceful days are long gone, and Lebanon has become a "fuse" for war in the Middle East, with the potential for larger-scale conflicts looming large.

Perhaps, Lebanon's troubled history is at the root of its modern misfortunes.

1

Lebanon: A Land Rich in Natural Resources

Located in southwestern Asia on the eastern shore of the Mediterranean Sea, Lebanon borders Syria to the east and north, Israel to the south, and the Mediterranean Sea to the west.

With a land area of approximately 10,000 square kilometers, Lebanon is one of the smallest countries in Asia. Its territory stretches narrowly from north to south, with the narrowest point in the south measuring just 32 kilometers wide. Its coastline spans over 200 kilometers, and most major cities are located along the coast.

Despite being in the Middle East, Lebanon enjoys a pleasant Mediterranean climate, with an annual precipitation of 1,000 millimeters, making it a desert-free country in the region.

Even more enviable is Lebanon's combination of a tropical coastline and snow-capped mountains.

The literal meaning of "Lebanon" is "white," said to be derived from the snow-capped mountains that dominate the landscape.

The Lebanon Mountains, which stretch across the entire country, are famous skiing destinations in the Middle East due to their perpetual snow cover, attracting skiers from around the world.

Nestled at the foot of the Lebanon Mountains lies the Bekaa Valley, stretching over 100 kilometers. Bathed in sunlight and blessed with a humid climate, this region serves as Lebanon's primary agricultural area, particularly renowned for its high-quality wines.

In fact, the ancestors of the Lebanese people have been making wine since 5000 BC.

In other words, Lebanon's history stretches back at least as far as ancient Egypt.

Moreover, the name "Lebanon" has been mentioned multiple times in the oldest epic poems of Mesopotamia, such as the Epic of Gilgamesh, as well as in the Hebrew Bible.

The ancient Lebanese people referred to themselves as "Canaanites," and "Canaan" was described in the Bible as the "Promised Land" filled with honey and milk.

During Roman rule, the Canaanites were known as "Phoenicians," a term that encompassed the inhabitants of Lebanon and a series of city-states along the eastern Mediterranean coast in ancient times.

The Phoenicians possessed fertile soil but were neither adept at agriculture nor military prowess; instead, they excelled in commerce and maritime trade, becoming renowned merchants in Europe and the Mediterranean region thousands of years ago.

At that time, coastal areas such as Tyre (modern-day Sour), Sidon (modern-day Saida), and Berytus (modern-day Beirut) in southern Lebanon served as vital maritime trade centers connecting Europe and the Mediterranean.

Unfortunately, despite their wealth, the Phoenicians lacked a strong defense, and in the ruthless jungle of the weak being preyed upon by the strong, their fate was predictable.

From 800 BC to 400 AD, Phoenician city-states were successively ruled by the Assyrians, Babylonians, Persians, and Greeks.

Some cities were destroyed several times, innocent people suffered, and thousands of defeated Phoenicians were reduced to slavery.

It is worth mentioning that the Phoenicians, who struggled for survival in a difficult environment, were not only adept at making money but also relied on their intelligence to create a written language.

Around the 13th century BC, the 22-letter Phoenician alphabet emerged, eventually spreading through maritime trade to Greece, evolving into Greek and Latin scripts, and becoming the forerunner of European culture today.

After the rise of the Roman Empire, Phoenician city-states became subjects of the Roman Empire. The Romans transformed the Phoenician temples in the inland city of Baalbek, Lebanon, into one of the most well-preserved ancient Roman ruins in the world today.

As the Roman Empire flourished, Christianity emerged on its fringes in Palestine.

It quickly spread to Tyre and Sidon in Lebanon and then throughout the region, making Lebanon the only Arab country in the Middle East where Christianity predominates.

During the Crusades, the Crusader States, established by Christians in Lebanon, fought alongside the Crusaders for nearly two centuries. However, the sudden rise of the Mongols and their threat to the heartland of Eastern Europe forced the Crusaders to return to Europe for defense.

The Crusader States, including Tripoli, found themselves isolated and under attack. They were eventually controlled by the Arabs and joined forces to repel another Mongol army invading Egypt.

After the war, some Phoenicians in Tripoli accepted Arab culture, gradually evolving into modern Lebanese Arabs, leading to the eventual extinction of the Phoenician ethnic group.

However, the mountainous terrain and isolated transportation in ancient Lebanon often led to power vacuums, resulting in the emergence of various religious sects within the country.

Over the past millennium, 17 religious sects belonging to Christianity and Islam have emerged in Lebanon.

Among them, Christianity is divided into Maronite, Greek Orthodox, and Armenian Christianity, while Islam encompasses Sunni, Shiite, and Druze sects, creating a highly complex and mutually hostile internal ethnic and religious landscape.

A local saying goes, "If there are three Lebanese, there will be three sects, each with their own militia..."

2

Modern Lebanon

During the Ottoman Empire, Lebanon, though part of the Arab Empire, was plagued by conflicts between religious sects due to their intertwined interests.

Due to their Caucasian ethnicity and predominantly Christian faith, coupled with fluency in languages such as English, French, Spanish, and Portuguese, the Lebanese were viewed as "one of us" by Europeans.

More importantly, Lebanon's strategic location at the intersection of Europe, Asia, and Africa, combined with its Christian majority, made it a "revival base" in the eyes of European Christian nations.

In 1860, after repeated territorial wars with Russia, the Ottoman Empire sold Lebanon's protectorate rights to France in exchange for French and British military intervention, appointing a Christian governor.

However, the Ottoman Empire, plagued by internal corruption, conservatism, and division, as well as external interference and competition, gradually lost much of its territory and influence, facing constant threats from nationalist and revolutionary movements.

Upon the outbreak of World War I, the Ottoman Empire chose to ally with the Central Powers out of hatred for Russia, but this proved to be a misstep.

After the war, as one of the defeated powers, the Ottoman Empire had to cede much of its former territory.

According to the Treaty of San Remo, Britain and France divided the Ottoman Empire's former sphere of influence in the Middle East, with France taking control of Lebanon and Syria, and Britain acquiring Palestine.

Determined to regain its former status, France, upon taking over Lebanon, viewed it as a frontline in the conflict between Christianity and Islam, pouring in significant financial and material support while promoting the French language and education system.

The capital city of Beirut, imbued with European charm, became known as the "Little Paris of the Middle East."

In 1926, Lebanon, supported by France, became a republic with a total population of 1.3 million, predominantly Arab, with roughly equal numbers of Muslims and Christians.

In the 1920s, with French support, the Maronite faction forcibly incorporated Beirut, the Bekaa Valley, and the Amil Mountain region, which were disputed territories between Syria and Lebanon, into modern Lebanon.

This historical backdrop explains the repeated border disputes between Syria and Lebanon in subsequent decades.

A brief introduction to the "Maronite faction": In the 5th century AD, to evade Roman military persecution, Syrian Christian priests fled to the mountains of Lebanon.

Over the next millennium, these Christian descendants thrived in Lebanon, eventually gaining European Christian support in the 19th century and dominating political power in the region for an extended period.

After World War II, though France surrendered, the Free French organization, with German consent, continued to control Lebanon.

In June 1941, the Free French organization surrendered to British forces and ended its mandate over Lebanon.

On November 22, 1943, Lebanon declared independence with British support.

Prior to independence, an unwritten "National Pact" was reached between the Maronite Christians and Muslims, stipulating that the three most powerful positions – President, Prime Minister, and Speaker of Parliament – would be held by a Christian, a Sunni, and a Shiite, respectively, a tradition that continues to this day.

In December 1946, after the withdrawal of British and French troops, Lebanon faced another turning point in its destiny.

As Lebanon's economy flourished, Israel declared its independence, becoming a thorn in the side of the Arab world and escalating tensions that ultimately led to the outbreak of the Middle East wars.

However, as the conflicts initially remained confined to border areas, the First and Second Middle East Wars had limited impact on Lebanon's economy.

In the 1960s, Lebanon leveraged its strategic location by the Mediterranean Sea to strengthen friendly exchanges with Europe and the United States.

With its political stability and close trade ties with Europe, Lebanon emerged as one of the most open and prosperous countries in the Arab world.

3

From Kindness to a Wolf in Sheep's Clothing

Situated at the intersection of Asia, Europe, and Africa, Lebanon boasts both blonde-haired, blue-eyed Western beauties and dark-haired, dark-eyed Eastern beauties veiled in mystery, truly a land where "veils coexist with bikinis."

The port of Beirut was once a hive of activity, with luxury cruise ships from around the world docking regularly. Water sports like water skiing and windsurfing, as well as lavish parties, were abundant. Leveraging the natural resources of the Bekaa Valley, Lebanon was also renowned for producing famous wines like Arak, exporting millions of bottles annually.

At its peak, Lebanon welcomed 3 million foreign tourists annually, with the capital Beirut bustling with nightlife.

This abundance of tourism resources significantly boosted Lebanese incomes, propelling the country to the forefront of economic development among Arab nations.

Unfortunately, the good times didn't last long. With the outbreak of the Third Middle East War, a massive influx of Palestinian refugees into Lebanon foreshadowed its decline.

Amid the Middle East conflicts, Lebanon, under strong pressure from its Muslim population, chose to accommodate Palestinian refugees despite reluctance from other countries.

This humanitarian gesture, however, inadvertently invited trouble into the country.

Firstly, the influx of Muslim refugees fundamentally altered Lebanon's demographic makeup.

After the end of the 1975 Middle East War, UN statistics revealed that in Lebanon, with a population of less than 3 million, Christians accounted for just 40% of the total, while Muslims comprised 60%. Specifically, Maronite Christians made up 27%, Sunnis 26%, and Shiites 27%.

This meant that within three decades, Lebanon transformed from a diverse country with a Christian majority to one dominated by Muslims.

Not only did this impose a significant economic burden on Lebanon, but it also angered Israel, as many of these refugees were members of Palestinian guerrilla groups, inevitably dragging Lebanon into the conflict.

With the influx of Palestinian refugees, the PLO, supported by Lebanese Islamic factions, established a "state within a state," using southern Lebanon as a base to resist Israel and engage in repeated armed conflicts, posing a headache for Lebanon caught in the middle.

Divided by religious forces, Lebanon became a land of northern Christian enclaves and southern Muslim gatherings.

Complicating matters, while Lebanese Christians initially sought to coexist peacefully with Palestinian refugees, the influx of Islamists not only refused to coexist but also encroached on Christian territories, leading to frequent small-scale armed clashes.

In April 1975, a PLO attack on a Christian church in Lebanon resulted in multiple casualties, incensing Lebanese Christians.

In retaliation, Lebanese Christian militias bombed a crowded Palestinian bus.

This action ignited long-simmering religious tensions, prompting the PLO to view Lebanese Christian militias as enemies on par with Israel.

Finding refuge in Lebanon, the PLO, bolstered by Islamic factions, regained its footing and began proactively provoking Israel. They would attack Israeli outposts and then flee to densely populated Lebanese areas, leaving Israeli troops helpless.

Initially, the PLO had sought refuge in fellow Islamic nation Jordan.

However, during their stay, the PLO's frequent clashes with Israel left Jordan to clean up the mess.

Worse still, the PLO deemed Jordan's aid insufficient and even secretly incited anti-government forces, attempting to meddle in Jordan's politics.

Angered, the King of Jordan expelled the PLO and Fatah, led by Yasser Arafat, to Lebanon, the only Middle Eastern country willing to take them in at the time.

Little did Lebanon realize that its act of kindness would backfire.

4

The Complex Sectarian Struggles Behind Lebanon

In 1975, amidst the intricate religious sectarian disputes, Lebanon plunged into full-blown civil war.

Fearing that the flames of Lebanon's civil war would spread to its borders, Syria intervened militarily.

Iran, deeply hostile to Israel, voiced support for Lebanon's Shiite militias and joined the complex regional game.

The heavily battered "Hezbollah" in Lebanon today was formed during this period by over 3,000 members of Iran's Revolutionary Guard and Lebanese Shiite militias. They were the first armed group to receive Iranian support and be used as a tool for advancing its political agenda.

To prevent Syria from dominating Lebanon and out of vigilance towards Iran, Middle Eastern countries, concerned about the excessive expansion of Lebanese Shiite forces, formed a coalition led by Sunni nations like Saudi Arabia and intervened simultaneously.

To stabilize this "powder keg of the Middle East," major powers including the UK, US, France, and the Soviet Union intervened in Lebanon's civil war, only to complicate the situation further, making it increasingly intricate and intractable.

The Shiite armed forces in Lebanon, supported by fellow Shiite Iran, began to stir up trouble in the hope of bringing the war to Israel.

To maintain a balance of power, Lebanon's Christians secretly contacted Israel and received a commitment to cooperate.

However, this partnership failed to turn around Lebanon's situation, instead allowing the Syrian army to deepen its control over Lebanon.

In 1982, an exasperated Israel invaded Lebanon, bombing the capital Beirut into ruins, never to regain its former prosperity.

Israel's military operation quickly achieved initial success, successfully capturing PLO positions in southern Lebanon. Arafat and his leadership were forced to leave Lebanon and withdraw to Tunisia.

In 1985, at the request of the United Nations, Israeli troops withdrew from most of Lebanon but continued to control a security zone in the south to prevent cross-border terrorist attacks.

While Lebanon seemingly gained a rare peace, due to Syria's strong influence, it became a battleground for Middle Eastern powers like Israel, Syria, and Iran, with war continuing.

Years of war and terrorist attacks not only fragmented Lebanese identity among various ethnic groups but also deepened hostility between factions, resulting in heavy casualties.

Lebanon has estimated that the civil war killed at least 150,000 people and turned 900,000 into refugees scattered worldwide, accounting for nearly 40% of the pre-war population.

In 1990, after tireless efforts by the United Nations and Arab nations, Lebanon's two major sects finally reached a reconciliation and signed the historic Taif Agreement, bringing an end to the 15-year-long civil war.

For Lebanon's beleaguered government, the civil war seemed over, but a new armed force emerged: Hezbollah.

In fact, due to its extremist violence and terrorism, Hezbollah has been designated a terrorist organization by most Arab countries. However, with Iranian support and covert assistance from fellow Shiite-led Syria, it rapidly expanded its influence.

Furthermore, adhering to the principle that "the enemy of my enemy is my friend," Hezbollah allied with Hamas and the Houthis, who also view Israel as an enemy, exchanging information and causing trouble for Israel from time to time.

Precisely because Hezbollah consistently antagonizes Israel, its leaders and members have all been placed on Israel's assassination blacklist.

Nonetheless, Lebanon seized a rare opportunity for development after the ceasefire.

5

Lebanon's Chaotic Quagmire Without a Solution

In the early 1990s, after taking office, Prime Minister Saad Hariri secured $4.4 billion in international aid for Lebanon through significant tax cuts and foreign investment attraction, initiating a slow national recovery.

In 1997, the Lebanese government implemented a fixed exchange rate policy linking the Lebanese pound to the US dollar and issued high-interest treasury bonds denominated in Lebanese pounds, sold to domestic commercial banks to balance government finances.

Lebanese financial institutions, in turn, attracted European and American millionaires, wealthy Middle Eastern nations, and domestic elites to invest and save at low interest rates, profiting handsomely from the interest rate spread.

In essence, Lebanon's economic reforms represent a free-market model constrained by both foreign capital inflows and domestic elite distribution, ultimately benefiting entrenched interest groups.

With relative stability, Lebanon's GDP grew from $17.2 billion in 2000 to $56.6 billion in 2018, translating to a per capita GDP of over $9,000 based on a population of 6 million.

Finance and tourism, as pillar industries, accounted for over 65% of GDP.

While Lebanon's GDP is not particularly high compared to some oil-rich Middle Eastern countries, it fares better than some and worse than others.

However, this stability concealed hidden dangers.

As significant social wealth was gradually “laundered” into the pockets of influential individuals through various financial instruments, the government became increasingly bloated.

According to a UN survey, individual assets accounted for only 43% of Lebanon's total banking assets, while the privileged class, led by the Hariri family, held over 50% of total commercial bank assets.

To maintain power, Lebanon's three main factions continually stuffed government departments with their people, causing the civil service to balloon. By 2017, it had surged to 25%, meaning one in every four Lebanese was on the government payroll.

Well-connected civil servants crowded out limited job opportunities, and with few suitable domestic opportunities, ordinary Lebanese citizens sought work in nearby Gulf countries, devastating Lebanon's service sector, particularly tourism.

Worse still, Lebanon's complex internal politics strained relations with Saudi Arabia, accelerating the outflow of vital petrodollars and plunging the economy into decline.

In 2020, as the global pandemic spread, Lebanon's economic crisis erupted fully.

According to World Bank estimates, Lebanon's economy shrank by 60% from 2019 to 2021, with currency depreciation reaching 95%.

In January 2020, under public pressure, Prime Minister Saad Hariri announced his resignation and was replaced by Hassan Diab, a former education minister, but he proved unable to stem the tide.

In fact, Lebanon's GDP had already fallen to $33.3 billion in 2020, with sovereign debt soaring to nearly $100 billion, equivalent to at least $10,000 in public debt per Lebanese citizen.

Following the devastating 2020 Beirut port explosion and rising oil and gas costs due to the Ukraine conflict, Lebanon's economy teetered on the brink.

Almost overnight, one-third of Lebanese citizens, who had previously enjoyed a European-like standard of living, found themselves plunged into extreme poverty, unable to meet their basic needs.

On April 4, 2022, an overwhelmed Lebanese government and central bank declared bankruptcy.

…

To this day, tensions remain high between Lebanon's government, opposition forces, and different religious sects, facing an uncertain and arduous future.

When the economy was booming, factions competed to 'divide the pie,' at least managing to coexist peacefully.

But with the economy in shambles and Hezbollah's conflict with Israel intensifying, Lebanon's turbulent future is all too clear.