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Nationwide Protests Erupt in Lebanon as Economic Crisis Deepens

Lin Noueihed and Dana Khraiche

(Bloomberg) -- Thousands of protesters cut off roads and started fires around Lebanon as anger over plans to impose a levy on WhatsApp calls escalated into demands for the government to resign.

Demonstrators carrying Lebanese flags thronged outside government headquarters in downtown Beirut on Friday, as some of the largest protests in years entered a second day.

Chants of “the people want the fall of the regime” and “revolution” rang out and scuffles erupted with riot police as the crowds demanded the politicians currently debating a proposed austerity budget step down and hold early elections.

The economic stakes have rarely been higher for Lebanon, a tiny country that straddles the geopolitical fault-lines of the Middle East, since the end of the 15-year civil war in 1990. One of the most indebted countries in the world, it is struggling to find fresh sources of funding as the foreign inflows on which it has traditionally relied have dried up.

The protests have increased pressure on Prime Minister Saad al-Hariri, who heads a fractious coalition government that has struggled to overcome sectarian and political differences to push through much-needed reforms.

Hariri, a Sunni Muslim, has been traditionally backed by Saudi Arabia, but the kingdom has withheld support in recent years as the Iranian-backed Hezbollah militia’s political influence over the government has grown.

The crisis has catapulted Lebanon into a new and unpredictable phase. If Hariri and his allies resign, Lebanon could end up with a government dominated by Hezbollah, making it even harder to attract investment. Hezbollah’s ministers and parliamentarians have oppose higher taxes to spare their supporters further financial pressure as the U.S. seeks to choke off its funding through sanctions on its members and its patron, Iran.

If the government survives, few observers expect it to overcome the divisions that have frustrated public demands for change.

Foreign Minister Gebran Bassil, the son-in-law of the president and an opponent of Hariri, called for urgent measures to fight corruption and warned in a televised address that the collapse of the government would result in “chaos” and undermine the currency peg.

Hariri, who canceled a cabinet session planned for Friday, is expected to deliver an address to the nation at 6 p.m. local time.

Persistent instability in Lebanon has shaken investor confidence and made it harder to revive an economy already struggling to absorb more than 1.5 million Syrian refugees who have fled the crisis in neighboring Syria.

The yield on Lebanon’s dollar bonds due in 2021 jumped more than two percentage points to 20.38% as of 10:44 a.m. in London, snapping six days of declines. The cost of insuring Lebanese debt against default climbed, with the nation’s five-year credit-default swaps rising 87 basis points to 1,262 -- the highest level on a closing basis since the start of the month.

‘Revolution’

Sporadic demonstrations have erupted for months in Lebanon as the economic crisis has led to shortages of dollars and threatened the pensions of retired soldiers.

The government is under pressure to cut spending, raise taxes and fight corruption -- conditions required by international donors to unlock some $11 billion in pledges made at a Paris conference in early 2018. But the measures are proving deeply unpopular with the public, which widely blames institutional corruption, nepotism and profiteering by politicians for bankrupting the government.

The latest unrest was sparked by plans to impose a fee of 20 U.S. cents on the first WhatsApp call that users make every day, causing outrage in a country where communications costs are among the least competitive in the region and people widely use internet voice applications to save money. WhatsApp, a free messaging and voice platform owned by Facebook Inc., has some 1.5 billion users worldwide.

On Thursday, the government also discussed a proposal for a gradual increase to the value-added tax, currently at 11%, and new levies on gasoline. But Finance Minister Ali Hasan Khalil insisted there were no additional taxes planned for next year’s budget.

As protests spread to the suburbs and provinces, Telecom Minister Mohamed Choucair called LBCI television on Thursday to say Hariri had ordered him to cancel the levy on Internet calls. But the reversal came too late to appease public opinion.

Walls of burning tires and debris effectively severed the main thoroughfares at the northern and southern entrances of Beirut and crowds also headed toward the presidential palace in Baabda, footage aired on Lebanese television stations showed. In downtown Beirut, protesters threw bottles, petrol bombs, metal barriers and other projectiles at riot police and occasional scuffles broke out as they tried to break through the security cordon around the government headquarters.

The International Monetary Fund projects Lebanon’s current-account deficit will reach almost 30% of gross domestic product by the end of this year. Amid the violence on Thursday, it issued a new report predicting that economic growth, stagnant at 0.3% in 2018, would continue to be weak amid political and economic uncertainty and a severe contraction in the real estate sector. Public debt is projected to increase to 155% of Gross Domestic Product by the end of 2019, it said.

(Updates throughout, adds quotes from Basil.)

--With assistance from Alex Nicholson.

To contact the reporters on this story: Lin Noueihed in Beirut at lnoueihed@bloomberg.net;Dana Khraiche in Beirut at dkhraiche@bloomberg.net

To contact the editors responsible for this story: Lin Noueihed at lnoueihed@bloomberg.net, Mark Williams

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