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Riot police pass flames rising from the tents of the anti-government protesters, in Beirut, Lebanon, on Jan. 18, 2020.

Hussein Malla/The Associated Press

The mass demonstrations in Lebanon that brought down the government in October entered a new, dangerous phase over the weekend when battles erupted between protesters and police, pushing the economy another step closer to collapse.

Various media reports said the clashes Saturday night, near Beirut’s main police station, and Sunday night at the parliament buildings injured about 400 protesters, with 120 taken to hospital. Dozens were arrested. Police used water cannons to clear the streets and fired tear gas canisters and rubber bullets.

Human Rights Watch accused the riot police of “launching tear gas canisters at protesters’ heads, firing rubber bullets in their eyes and attacking people at hospitals and a mosque.”

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Lebanon has been on the edge of anarchy since mid-October, when the nearly bankrupt government announced a series of new taxes, including one on WhatsApp calls, that sent hundreds of thousands of people from all sects into the streets.

Within two weeks, Saad Hariri, the Sunni prime minister who was struggling to come up with an economic salvation plan, and his cabinet resigned, just as the Lebanese economy and the banking system were falling apart.

The protests were largely peaceful. That changed last week, when commercial bank outlets and the Banque du Liban, the central bank, were attacked. Over the weekend, the protests expanded and turned into pitched battles between protesters and police. “Another day without a government, another night of violence and clashes,” said Jan Kubis, the UN’s special co-ordinator for Lebanon, in a tweet Sunday.

The protesters want the appointment of a new cabinet composed of independent technocrats who can launch a crisis plan to stabilize the economy. As the demonstrations turn violent, the pressure is mounting on the political blocs controlled by the Sunni, Shia, Christian and Druze parties to put their differences aside and appoint a cabinet under prime minister-designate Hassan Diab, an engineer and academic who has won the parliamentary support of the big Christian and Shia coalition, including Hezbollah, Iran’s powerful political and paramilitary proxy in Lebanon.

The political stalemate has pushed the economy and the banking system into turmoil. A senior Lebanese government technocrat, who is not being identified by The Globe and Mail, said: “We have clearly reached the point where the system is financially, economically and politically dead. The protests will be violent.”

When the weekend protests erupted, geopolitical tensions in Lebanon were already high. The U.S. assassination on Jan. 3 of Qassem Soleimani, Iran’s top military commander, brought Iran and the United States to the brink of war and put Hezbollah on high alert. After the killing, Hezbollah leader Hassan Nasrallah, whose militia is more powerful than the Lebanese army, called for attacks on U.S. military sites.

The Lebanese economy suffers from endemic corruption, lack of capital investment – Beirut’s roads and power plants are crumbling, and the city has no public transportation system – and an unbalanced financial system that is running short of U.S. dollars, which are used to support the fixed peg between the dollar and the Lebanese pound (also known as the lira). The peg is becoming unsustainable, and the pound, whose fixed rate is 1,500 per dollar, is now trading on the black market at about 2,300.

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The financial crisis has triggered a run on the dollar, which has drained the liquidity of the commercial banks. To stem the outflow, the banks recently implemented informal capital controls, which have squeezed the supply of the currency to families and businesses, many of which are going broke. The anger over the short supply of dollars helped spark the protests in October. Lebanese social media is full of videos showing fights between security guards and irate bank customers.

On Monday, a note published by the economics team at Byblos Bank said the financial crisis is severely damaging the economy. New car sales fell more than 33 per cent last year, and the hotel occupancy rate in Beirut in November, a month after the protests started, was a mere 18 per cent; a year earlier, it was 69 per cent.

In a note published earlier this month, the Carnegie Middle East Center, led by Maha Yahya, said the crisis has left the banks “effectively insolvent and illiquid” and will push Lebanon into deep recession, trigger high inflation and push up poverty rates dramatically. “The consequences of the current path are catastrophic,” it said.

It recommended a 10-point plan to reverse Lebanon’s fortunes that would include debt restructuring, recapitalizing the banks and a sovereign bailout of as much as US$25-billion that would be overseen by the International Monetary Fund. Many Lebanese think such a bailout is inevitable but fear that IMF demands for government spending controls – austerity – might push the economy into a long, Greek-style recession.

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