Lebanon should join the new paradigm of the Belt and Road. But watch out for the war-party!

In the last three weeks, Lebanon has been poised to join the “new paradigm” in international relations and economic cooperation as envisaged by China’s Belt and Road Initiative (BRI) and Russia’s intervention to end the endless wars and regime/changes in West Asia. The tiny country, with a collapsed physical economy and bankrupt state and banking system, and host to 1,5 million Syrian refugees (compared to 5 million of its own citizens), can also become the most significant battlefield between the pro-old paradigm of Anglo-American geopolitics local agents and those who want to chart a new path for the country, this time eastwards. Many warnings are being issued against a new civil war in Lebanon. The “going east” can become a catalyst if wise heads don’t prevail. In addition, with a neighbor like Israel run by a rabid and trigger/happy Jabotinskyite like Prime Minister Benjamin Netanyahu, a new regional war can be ordered by Anglo-American forces as simply as ordering a pizza. 

Lebanon is also the main trade outlet for Syria. This means that Lebanon will suffer enormously as a result of the new U.S. sanctions imposed since June 17 under the Caesar Syria Civilian Protection Act (Caesar Act). It imposes punishment on anyone doing trade with Syria. For the Syrians, who have already been suffering from previous sanctions that have collapsed the economy, this Caesar act means mass starvation in Syria. The Lebanese leadership and people are put in a position to accept to be complicit in the mass murder of the Syrian people, or suffer the wrath of the U.S.

It was in this context that Hassan Nasrallah the leader of the Lebanese Hizbollah, the main duly elected partner in the coalition government of President Michal Aoun, made a televised speech on June 16 to denounce the Caesar Act and vowed to fight it. However, two other important aspects of his speech were breaking up with the International Monetary Fund and its Western backers, and to contact China again to accept an offer to help rebuild the productive economy of Lebanon.

In his speech, Nasrallah reiterated what he said in November 2019, that Chinese companies were willing to invest billions of dollars in Lebanon in infrastructure, industry and agriculture. He stated in this new speech that China was willing to build a modern railway connecting the coastal cities of the country from Tripoli in the north, through Beirut and to Naqoura in the south. They also pledged to build new power plants and modernize ports. The ailing power sector in Lebanon is one of the main causes of the frustration expressed by the revolting population, and it costs the state 2 billion dollars annually in subsidies and lost revenues, not to mention the losses to other economic activities due to the lack of reliable electricity supply.

While the Chinese government remained silent last year in response to Nasrallah, this time it responded. The Chinese Embassy in Beirut issued a statement which was sent to Lebanese media on June 17 stating: “In answering the inquiries addressed to it, the Chinese embassy in Lebanon indicated that the Chinese side is ready to carry out practical cooperation actively with the Lebanese side on the basis of equality and mutual benefit in the framework of joint work to build the belt and the road”. It further indicated: “China is committed to cooperation with other nations mainly through the role of its companies, the leading role of the market, and the catalytic role of government and commercial operation. Chinese companies continue to follow with interest the opportunities of cooperation in infrastructure and other fields in Lebanon and keep in touch with the Lebanese side in this regard."

In March 2019, a large Chinese delegation visited Lebanon and a major conference on the Belt and Road was held in Tripoli. The Chinese business and official delegations proposed various infrastructure, industrial and agricultural projects to be financed and built by China. However, under the government of Saad Al-Hariri, this offer was rejected. Instead he pushed the previous Anglo-French proposal from 2018 which was backed by the World Bank and European Bank of Development and Reconstruction (EBDR). The offer was made in the Paris CEDRE conference (Conference for Economic Development and Reform through Enterprise) in April 2018, when Lebanon was promised 10 billion dollars in infrastructure projects. Needless to say, none of the projects were implemented. It just made Lebanon loose two more years, while the social and economic conditions further deteriorated.

Now, it seems that Lebanon is left with no choice other than “going east”.

Since 2018, Lebanon have been in negotiations with international “donors” to resolve the government financial crisis. The IMF have proposed, and still proposing draconian measure to privatize what is left of the state-owned enterprises. Besides, Lebanon has come under pressure from the U.S. and the EU to stop all trade with Syria. On June 17, the U.S. Caesar Syria Civilian Protection Act (Caesar Act) came into effect. It imposes punishment on anyone doing trade with Syria. For the Syrians, who have already been suffering from previous sanctions that have collapsed the economy, this Caesar act means mass starvation and famine.

In Lebanon, two days after Nasarallah’s speech and one day after the Chinese embassy press release the Lebanese government cabinet confirmed that is was “going east”. However, it did not want to alienate the West. In a press conference, the industry minister confirmed that the cabinet was in line with what Nasrallah has stressed. However, he said it is like a "bidding process". The party which comes with the best offer will get the job. Actually, in his speech on June 16, Hezbollah leader Nasrallah said the same thing. He stressed that all countries that want to build infrastructure Lebanon are welcome, except for Israel. This includes the United States.

 

In this way, the Lebanese government is not taking sides. But from experience in Africa for example, only China can make such reasonable offers and implement them efficiency and in record time.

To confirm the Chinese intentions, a pro-Hezbollah website Al-Ahednews, published three letters from Chinese companies addressed to the government of Lebanon, one from power corporation (China National Machinery IMP&EXP Corporation) offering to build 3 power plant each with a generating capacity of 700 Megawatts and building a supporting national grid, a railway company (China Machinery Engineering Corporation) to build a railway from north to south of Lebanon (Tripoli-Naquora) and the third corporation to build a strategic tunnel connecting the west and east of the country with a highways. The connection between the Mediterranean and Syria, Iraq, Iran and further to China is obvious in these projects too. The companies offered to finance the projects through loans, but through BOOT (Build, Own, Operate, Transfer) which is actually a method pushed by western countries. Chinese companies are building similar projects in Pakistan.

U.S. Olympic lying team

U.S. State Department Officials are rushing to the scene in Lebanon to saw division and confusion among the Lebanese people who find themselves in a very fragile situation with potential civil war being stirred up by provocateurs of all types and shapes on the streets. One such official is US Assistant Secretary of State for Near East Affairs David Schenker. He remains true to the pedagogical methods of his boss, State Secretary Mike Pompeo, who said in a public meeting (during a Q&A discussion at Texas A&M University as part of the Wiley Lecture Series, in College Station, Texas on April 15, 2019.): “I was the CIA director. We lied, we cheated, we stole. It's – it was like – we had entire training courses."

Pompeo himself had visited Lebanon in March 2019 with the declared intention to denounce the government partner Hezbollah. He threatened the Lebanese government and people in the a press conference that followed his meeting with Foreign Minister Gebran Bassil  ““Lebanon and the Lebanese people face a choice: bravely move forward as an independent and proud nation or allow the dark ambitions of Iran and Hezbollah to dictate your future,” Pompeo said. Bassil responded: “For us, Hezbollah is a Lebanese party, not terrorists. Its members of parliament were elected by the Lebanese people, with high popular support.” At the time of that visit, Saad Al-Hariri, a darling of the Anglo-American forces, was still prime minister. However, by October a popular uprising forced him to resign.

Both Pompeo and the Lebanese people know that it is impossible to disarm and cancel Hezbollah without causing a bloody civil war. Anybody who is proposing this should be aware of this fact.

Schenker, who is most probably a graduate of such a training courses announced by Pompeo, gave an exclusive interview to the Pro-Hariri Lebanese magazine on June 23 in Arabic (https://alhadeel.net/article/109427?fbclid=IwAR13mu9ODkbaLgKQM9le63iR3MQErVXQsam19IwSuExDi2nkN89Ws0NYY8s), repeating the same threats against the Lebanese people and their government, and making empty promises of support. Most interestingly, it seems that he was on a mission to derail the discussion about working with China. Schenker stressed that Lebanon needed to “make difficult decisions that change the way the country is run,” adding that Hezbollah “is not an organization that seeks reform, but rather one that lives on corruption.”

He repeated the call for the Lebanese government to undertake serious reforms and fight corruption. But Lebanon “has not made any serious attempt yet to do so,” Schenker said. “We know that Hezbollah will not abide by any of these steps, but we still hope that the government will fulfil its obligations,” Schenker added.

Schenker then turned to the question of China, noting that that Nasrallah’s calls for Lebanon to “look east” toward China in order to mend the country's ailing economy were “shocking,” and that Lebanon needed to resist falling into such a “trap".

“We all see how China seeks to acquire any country that fails to pay its debt dues,” he said, according to the Lebanese magazine, highlighting “an infamous case” in 2017 where Sri Lanka was forced to grant China a 99-year lease over its port after failing to pay back its debts.

He also asked the Lebanese to look at another case of Chinese deception and learn the lessons. This was the case of Djibouti.

Peeling away the layers of lies

It does not take much peeling to come to the core of this pack of lies.

Let’s look at these two cases specifically, Djibouti and Sri Lanka. We will not use Chinese “propaganda”, but well-researched information produced by Western and American institutions.

Let’s read first what the World Bank, an institution which is dominated by the U.S. and Britain, say about the economic development in Djibouti recently. In its April 2019 “economic update” for Djibouti, it states: https://www.worldbank.org/en/country/djibouti/publication/economic-update-april-2019 : “The medium-term economic outlook is positive, as the Government’s strategy of positioning the country as a regional trade, logistics, and digital hub gains traction. GDP growth is expected to reach 7.0 percent in 2019 before accelerating to 8.0 percent in 20120-2023. Growth will be supported by exports of transportation, logistics, and telecommunication services, as the country harvest dividends from its ambitious investment program.”[Emphasis added]

And what were these “ambitious investments”? Again, in another report, “Djibouti Country Overview” (https://www.worldbank.org/en/country/djibouti/overview) published in October 2019, the World Bank explains:

 “Djibouti’s US$2 billion city-state economy is driven by a state-of-the-art port complex, among the most sophisticated in the world. Trade through the port is expected to grow rapidly in parallel with the expanding economy of its largest neighbor and main trading partner, Ethiopia.. Thanks to massive, public debt-financed investments in infrastructure, Djibouti has seen rapid, sustained growth in recent years, with per capita GDP growing at more than 3 percent a year on average and real GP at 6 percent. Growth is expected to reach 7.5 per cent in 2019.”

And who financed and built all these projects in Djibouti and its main trade partner, Ethiopia?

According to a report published by the U.S. Congressional Research Service in September 2019 under the title “China’s Engagement in Djibouti” (https://fas.org/sgp/crs/row/IF11304.pdf), we can read who is financing the upsurge in the economy of Djibouti: 

“Djibouti is pursuing an ambitious agenda to transform itself into a commercial trade hub for the Horn of Africa region. This effort is being financed largely by the People’s Republic of China (PRC), which is playing a growing role in the tiny country. China’s engagement is multifaceted, ranging from major infrastructure investments to the establishment of its first overseas military base in the country. China considers Djibouti part of its Belt and Road Initiative; in late 2017 the two countries declared that they had established a “strategic partnership.”

China, according to this U.S. Congressional Research Service, has provided nearly $1.5 billion in financing for major infrastructure projects in Djibouti since 2000. Among the projects being built by Chinese firms is a $3.5 billion free-trade zone (FTZ), expected to be Africa’s largest. The first phase was completed in 2018 and is expected to create 200,000 new jobs (Djibouti’s total population was less than one million in 2018!) and handle over $7 billion in trade from 2018 to 2020. Three Chinese companies have stakes in the FTZ, alongside Djibouti’s port authority Other Chinese-backed investment projects include the development of port facilities and related infrastructure, including a railway and two airports (a $420 million contract) and a pipeline to supply Djibouti with water from neighboring Ethiopia (a $320 million contract). Ethiopia, a landlocked country of over 100 million people, relies on Djibouti for the transit of 90% of its formal trade, recently facilitated by a new rail line between the two countries. The line was built and is operated by two Chinese companies, and was financed in part by China’s Export-Import Bank.”

So, Djibouti which was a colony of France from 1883 to 1977, had to wait more than a century to move from being a poor country despite its enormous potential to start the development process described above with the help of China. Even though it was deemed a major strategic control point by the U.S., Britain, Italy, France, Japan, who all have had military bases in this country, they never endeavored to develop its economy. The only thing these Western powers have been reporting about Djibouti is that China has built a naval base there, just next to all the others.

“Debt-trap” Lies exposed

On June 18, a report titled “Debt Relief with Chinese Characteristics” was released by Johns Hopkins School of Advanced International Studies (SAIS) which sought to peel away the onion layers on that question of accusations of China’s “debt trap”. SAIS researchers Kevin Acker, Deborah Brautigam and Yufan Huang reported that after examining over Chinese 1,000 loans to African nations, they found none of the allegations leveled against China are based on evidence.

The conclusion of this report is that since 2000, the state of China is estimated to have loaned over $150 billion to Africa (this is exclusive of “private,” not state-owned lenders, which have loaned much more), of which $3.4 billion has actually been “cancelled.” Over that 20-year period, China has also “restructured and refinanced” $15 billion in debt. Most crucially, the researchers report — in harsh contrast to the “debt trap” hype—China had never seized any assets. “We found no ‘asset seizures’ and despite contract clauses requiring arbitration, no evidence of the use of courts to enforce payments, or application of penalty interest rates.

On the other side, unintentionally or otherwise, the report reveals shocking practices by Western creditors like the Paris Club. African nations have been for decades indeed trapped in a debt spiral through loans extended by the Paris Club and other multi-lateral lender but then doubled and tripled due to penalties imposed on those nations for not being able to service their debt in most cases. How would those nations be able to pay back their debts, when the debt itself is not issued for any productive purpose, but rather out of mere desperation. The report states: “Paris Club members usually imposed punitive penalty charges on arrears (not being able to pay in time). Between 1985 and 1991, Nigeria accumulated US$ 4 billion in interest arrears, late interest charges, and penalty charges, on a Paris Club debt of US$ 17.8 billion..” In a specific and horrifying case of Sudan, one of the poorest countries in the world, it states that in 2010 “Sudan owed Austria, Denmark, and Belgium US$ 4.5, billion, only 20 percent of which was principal.”

Concerning the now famous Sri Lankan port of Hambantota, which Schenker referred to, critics of China lie by omission when they neglect the fact that Sri Lanka was already in a deep debt crisis, before the port started facing problems of profitability. The Hambantota port was allegedly “seized” by China’s China Merchant Port Holdings Limited, as the trophy for Sri Lanka not being able to pay the loan for its building. The Sri Lankan debt crisis was due to the desperate need of the Sri Lankan state to generate capital from international markets through “international sovereign bonds” and similar mechanisms to solve its budgetary and fiscal trouble, following a decades-long destructive civil war. These credits were acquired from international markets at high interest rates.

This background was thoroughly explained by economic researcher Umesh Moramudali. For example, in an article in the Australian Diplomat, “Sri Lanka’s debt crisis and Chinese loans – separating myth from reality”    https://thediplomat.com/2019/05/is-sri-lanka-really-a-victim-of-chinas-debt-trap/ ), Moramudali reveals that in 2017-2018 “Sri Lank faced a severe shortage of foreign reserves in light of the upcoming debt servicing payments, due to the maturity of international sovereign bonds. Therefore, the country had to look for various avenues to obtain foreign currency inflows. Leasing out Hambantota port was one of the ways to increase the country’s foreign reserves.” He further explained that “The money obtained through leasing Hambantota port was used to strengthen Sri Lanka’s dollar reserves in 2017-18, particularly in light of the huge external debt servicing due to the maturity of international sovereign bonds in early 2019.”

So, by the end of 2017, “only little over 10 percent of Sri Lanka’s foreign debt was owed to China and most of that was in the form of concessionary loans” according to Moramudali.

The case is identical in most other countries that are described in Western media as “victims” of the China debt-trap. As this author showed in a lengthy paper on the subject in 2018, the Pakistan case study is almost identical to the case of Sri Lanka. First there was the Paris Club, IMF and World Bank pushing Pakistan into a debt corner, then China came to the rescue. In Pakistan’s case too, in 2018, most of the country’s debt was owed to the Paris Club and other Western multilateral lenders, not to Chinas.

How the myth of China-debt of assets was created is explained by the SAIS report: “Although this was a misreading of the Sri Lanka case, apprehension rose among other borrowers. The rating agency Moody’s warned that countries “rich in natural resources, like Angola, Zambia, and Republic of the Congo, or with strategically important infrastructure, like ports or railways such as Kenya, are most vulnerable to the risk of losing control over important assets in negotiations with Chinese creditors.” These allegations then were repeated all over the Western media without any real evidence or research. The SAIS report authors stress: “These assumptions of a malign China were repeated in publications like The New York Times, which contended that Chinese loans “frequently use national assets as collateral” and require refinancing “every couple years” (our Africa data supports neither of these statements).”

What is more important is that there is key difference between Western loans and Chinese loans in all these cases, a difference entirely ignored by both uniformed economists or prejudiced geopolitical think-tankers and government officials in the West when talking or writing about this matter.

This point is that there is difference between issuing credit to build infrastructure that would enable a deeply indebted country to raise its productivity and thus be able to repay its debt, as opposed to borrowing more money from international lenders to pay old debt ending up in a real debt trap. This point was thoroughly discussed by this author and Physical-Economics expert Jason Ross in a paper issued in August 2018 under the title “Why China’s ‘Debtbook Diplomacy’ is a Hoax”. The authors used the case study of Pakistan and the Chinese investments in the China-Pakistan Economic Corridor (CPEC). (https://schillerinstitute.com/why-chinas-debtbook-diplomacy-is-a-hoax/)

 

So, for the Lebanese people, their leadership and economists, it is important to get an informed evaluation of all these matters, before falling prey to the desperation that pushed other nations into the abyss of borrowing money to resolve short term fiscal and budgetary crisis thus accumulating a mountain of debt without investing in anything productive. In 1998, Russia’s desperate short-term borrowing to fill gaps with the support of IMF and World Bank packages, lead to the famous GKO-bond crisis. Russia’s physical economy and productivity were destroyed through the “reforms” proposed by these international institutions. This should be a lesson for every nation, and for Lebanon today. When you are most desperate to solve a financial crisis whether national or personal, the loan sharks can have you for lunch.

It is becoming obvious that a tiny country like Lebanon, but fully sovereign and independent, can break the back of a global empire by opting to follow the path of progress, national sovereignty and international cooperation according to the win-win model offered by China. This does not mean cutting all bridges to the West. It is necessary to keep those that are in the true interest of Lebanon and its people. If the U.S. and Europe wish to change their policies and join China in offering Lebanon power, transport, water and agro-industrial investments, the Lebanese people and their leadership would take them with open arms.

Watch out for provocations!

The only thing to worry about now, is if the forces of the Anglo-American empire will chose to turn Lebanon once again into an inferno of ethnic and sectarian wars, or if Israel’s Netanyahu government will launch new military provocations against Lebanon and Syria to “change the subject”.

Concerning the internal situation in Lebanon, President Aoun made a statement in the emergency national meeting of party representatives in the Presidential Palace of Baabda televised speech on June 25, in which he said: “We have alarmingly had a brush with the atmosphere of civil war and movements were suspiciously launched, loaded with confessional and sectarian feud and mobilizing emotions.”

President Aoun explained the severity of the crisis saying: “Today, our country is going through the worst financial and economic crisis, and our people are experiencing daily suffering, fearing for their lifelong savings, concerned for their future, desperate about losing their jobs and their decent living.”

Provocateurs and political elites that are still inclined to towing the line of the dying old paradigm, are being encouraged by the U.S. to bring chaos to the streets of Lebanon to prevent any serious discussion of the economic solutions that can save the nation. Under these circumstances, the IMF in moving quickly to offer “help packages” in return to “reforms” to a desperate government. This would be akin to drinking kool aid.

In the meantime, Israel has increased its aerial bombardments of Syria and overflights over Lebanon. The border between Lebanon and Israeli can quickly become a fuse for a big bomb again, leading to a major war. As in past experiences of Israeli-Arab wars, and especially with between Israel and Hezbollah of Lebanon, the Israeli commanders know how to start such a war, but never know how to end it. Given the massive tension in the whole region, such a conflict will not stop within the borders of Lebanon.

An offer of win-win has been extended to all parties. It would be extreme folly and reckless negligence to reject it at this moment in time. It is equally foolish for the U.S. and Europe to reject the offer of joining hands with China to rebuild the world economy and restore social and economic stability in their own societies too.

Hussein Askary (Economic and strategic analyst)

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