Lebanon Defaults

Lebanon has announced that they intend to default on their dollar-denominated debt on Monday.

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First off, Lebanon is a failed state. Forty years of terrorists (the PLO moved there in the 1970's, and Iran started fomenting local Shiites in the 1980's), civil war (mostly religion based, starting in the 1970's), foreign invasion (Israel occupied southern Lebanon starting in the 1980's, and Syria invaded and partially occupied more than once since the 1970's). When I was in college, Lebanon was the our version of how you students probably view Afghanistan and Iraq.

Secondly, Lebanon is and was a country without a nation. It was created out of territories the French took from the Turks after World War I. Up until 1975 it did pretty well. Part of the problem is that within the borders of Lebanon are a dense array of different religious, often with small well-defined areas of control. And, not only is there a mix of major religions, there are also smaller ones that are for the most part only found there: Maronite Christians (the only eastern sect that follows the Pope in Rome), Druze (an offshoot of Islam that's so different they are not considered Moslem at all), and Alawites (Moslems that are not very similar at all, but definitely closer to Shiites than Sunnis).

Third, the current state of Lebanon has only partial control of part of the area that you might see on a map. There are unofficial states linked to some of the religious minorities.

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I think it's useful to ask who would want to loan money to the Lebanese state. On the other hand, I'd hesitate to call the state there "the good guys", but in a lot of ways they are definitely "the better guys", so loans could be a way to tip the balance in their favor. But, no matter, someone did loan them money.

A default means they are going to stop making payments on that debt.

Typically this leads to some restructuring. But, in international politics, this is not an easy thing to do. Governments have few assets that could be "repossessed", and even fewer short of invasion — which is something richer countries stopped doing in the 1960's. In practice in the 21st century, default makes it harder for firms on the ground in the defaulting country to operate internationally.

There are lists of countries that have defaulted. In most of these, the IMF manages some sort of workaround, and Lebanon will probably turn into one of those cases. The last complete default was Argentina in 2001.