Lebanon to Hold Breakthrough Election With $11 Billion at Stake

(Bloomberg) -- Lebanon will hold its first parliamentary elections in nine years, a pivotal moment for the country as it tries to ease a crippling debt burden and avoid being dragged deeper into some of the Middle East's escalating crises.

Polls open on Sunday under a new law based on proportional representation that's meant to more accurately represent Lebanon's complex sectarian demographics. With few expecting major changes to the delicate balance of power, the post-ballot focus will be on building a cabinet able to carry out measures sought by donors, a complicated task in a country where divisions have stymied reforms for decades.

“Irrespective of who wins the elections, Lebanon will face hurdles implementing reforms,” said Hani Sabra, founder of Alef Advisory, a New York-based consultancy. Results will be released May 7, according to ballot observers.

In order to receive $11 billion pledged at an April conference in France, the incoming government will have to take steps to control the world's third-biggest debt burden, including cuts to public spending and a crackdown on corruption. Making the challenges more daunting is a heated confrontation between Israel and Iran, one that could degenerate into a war involving Hezbollah, the Shiite armed group backed by Tehran and which plays a key role in Lebanese politics.

Refugees

Hezbollah is the only group that kept its weapons after the end of Lebanon's civil war. Along with its partners, Hezbollah could win about a third of the 128 seats in parliament, giving it the “power to block decisions,” said Rosanna Bou Monsef, a political commentator for the An-Nahar daily. Still, Hezbollah's leaders might downplay electoral successes that could “drive investors away,” she said.

There are signs that's already happening. “The new law allows diversity to be represented,” Hezbollah lawmaker Hasan Fadlallah said in an interview. “Lebanon's makeup is sectarian and doesn't allow the defeat of one at the expense of another.”

Elections were last held in 2009 and parliament has since extended its own term twice, citing security concerns related to the Syrian conflict -- which has forced 1.5 million refugees into Lebanon -- and claims by Christian groups and others that they were under represented under the old vote rules.

Under the power-sharing agreement that ended the civil war, Lebanon's prime minister must be a Sunni Muslim, the president a Maronite Christian and parliament speaker a Shiite Muslim.

Syria War

Hezbollah is set to benefit from the collapse of the main Saudi Arabia-backed Sunni-led coalition, as well as the new electoral laws.

Founded in 1982 to fight Israel's occupation of southern Lebanon, the group has carved out a powerful political role with two ministers in the government of Prime Minister Saad Hariri.

Its presence is felt elsewhere, too, with Hezbollah fighters backing the forces of Syrian President Bashar al-Assad. Israel has repeatedly struck targets in Syria in part to block weapons transfers to Hezbollah, which is sanctioned by the U.S. as a terrorist organization. Concerns are growing of a direct Iran-Israel clash.

A third force in Lebanese politics is controlled by Christian President Michel Aoun. It will likely attempt to build ties with Gulf Arab countries and the West while not damaging its existing links to Hezbollah, said Paul Salem, senior vice president at the Middle East Institute in Washington.

“They don't want to come to blows with Hezbollah, but they also want economic growth and development and to make Aoun's presidency a success,” he said.

--With assistance from Donna Abu-Nasr

To contact the reporter on this story: Dana Khraiche in Beirut at dkhraiche@bloomberg.net.

To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Mark Williams, Stuart Biggs

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