If you’re visiting Beirut, your typical walking tour will span the tip of the peninsula to historic neighborhoods in the eastern quarter. You’ll likely walk along the seaside boardwalk, saunter through the glitzy downtown area, and barhop on Gemmayze street, or its nearby nightlife hotspots.

The end of quick fixes

Lebanon’s leadership consists of a group of sectarian chiefs, many of whom fought one another during the country’s 15-year war. They made peace in 1990 and ushered the war-torn capital into its reconstruction era. Successive governments sought quick fixes, borrowing large loans at exorbitant rates to fast-track the restoration of the country’s central district, build highways and finance high-end projects.

The financial system has relied on a debt structure that generated high returns for depositors, but the economy has nearly no domestic production to speak of. The government never fully fixed damages to its electricity sector, so private generator companies have stepped in to provide electricity during hours-long daily power outages.

Out of sight, out of mind, the country’s political elite seems to say, appearing content to keep festering wounds in the margins.

At first glance, Lebanon’s economy fared well: it has the highest GDP-per-capita among non-oil producing Arab countries. Lebanon has repeatedly made headlines — not only for cycles of violence — but for its “party capital” and its picturesque mountains along the shores of the eastern Mediterranean. Luxury cars are a more common sight in Beirut than in perhaps many of the world’s richest cities. Yachts fill the docks of the country’s many seaside resorts.

But it is also one of the most unequal countries in the world, with a privileged few having raked in large profits from high interest rates that enriched the already wealthy as the country sunk deeper into debt. The economy is almost totally reliant on imports to meet its basic needs, and even the country’s leaders acknowledge that corruption is widespread and systemic.

On Thursday night — the eve of Lebanon’s Independence Day — President Michel Aoun called corruption “the biggest danger” the country faces. Last month, Central Bank governor Riad Salame told CNN’s Becky Anderson that the country was “days” away from economic collapse if a political solution is not found.

Dan Azzi, advanced leadership fellow at Harvard University, compares the economy to a “cartoon world,” propped up by, what he calls, the “financial engineering” of a banking system that threw its weight into keeping the currency afloat, and bankrolling artificially lavish lifestyles.

“The cartoon world of financial engineering … has now spilled out into the real world and has created a Venezuela-like crisis,” said Azzi. “Today, we have two choices. Either we deal with this problem like mature people, or we keep in denial.”

The ‘Range Rover’ diet

Since the summer, panic over an impending economic crisis reportedly induced capital flight. Dwindling foreign currency reserves has raised fears of food, fuel and medicine shortages, analysts and political activists say. Today, the country sees interrupted supplies of fuel and bread, and supermarket shelves are emptying. Banks have imposed capital controls — with withdrawal limits of around $1,000 a week, or less — and there is increasing talk of financial haircuts, or reductions to the value of bank deposits. The problems are only piling up with greater layoffs, salary cuts and closing businesses.

On November 28, one of Lebanon’s Eurobonds worth $1.5 billion will mature, further straining financial reserves. Lebanon has always paid its debt on time, but the prospect of a first-ever default is not out of the question.

Nisreen Salti, assistant professor of economics at the American University of Beirut, says this all amounts to “economic catastrophe.”

In a prescient September 2019 piece for the Carnegie Middle East Center, Salti said increasing pressure on the economy coupled with policies that exacerbated income disparity acted as a social “time bomb.”

“The poorest 60% of the population stands to really suffer. That can be said really confidently,” Salti told CNN.

Strains on the country’s ability to import goods are “going to hit hardest those people who are just above the poverty rate and don’t have options, because we are an economy that doesn’t offer an alternative to imports for most goods,” she said.

The country’s fate boils down to its ability to address its structural deficiencies, and, importantly, the wealthy’s willingness to stomach the lion’s share of the losses.

Azzi calls for “the Range Rover diet,” where the Lebanese cut down on high-end products, like luxury cars and upscale dining. He argues that the country’s impasse could lead to an “egalitarian crisis” that mostly doles out losses to the country’s wealthy. But it relies on strong leadership, he says, who can convince the Lebanese public to endure a time of austerity.

“We have to inform the Lebanese people that they have to go on a vicious diet,” said Azzi.

“We have to take ferocious measures, like that haircut which has never happened in Lebanon’s history and has to happen immediately,” he added. “We need to impose tariffs to alters behavior so that we stop dollars from leaving the country. Then we need to create incentives to produce domestically.”

This difficult phase, analysts warn, could span several years. But the Lebanese can reap the benefits of this period of adjustment, if protesters keep up the pressure on their leadership to turn Lebanon into a “real economy,” said Azzi.

For this to happen, a change in leadership may not just be desirable, but necessary.

“The exact same (monetary) measures would be successful in one scenario and not successful in another, purely based on people’s impressions of the policymakers putting the decisions in place,” said Salti. “So that in some sense is a good incentive to change the whole political team.”

But the country’s impoverishment could prove to be the greater issue at stake. “The macroeconomic issue should be solved but that’s not as immediate an issue as the potential 50% poverty rate,” Salti added.

“The pie is shrinking and ideally we want to stop that,” she said. “But as we try to stop the shrinking, we should make sure that the cake is sliced in a humane way.”