Commentary by Joshua Landis 

The situation in Lebanon becomes ever more dire as word circulates that Saudi Arabia is withdrawing its ambassador from Syria. The stalemate in Lebanon over the presidency threatens Lebanon's economy. Lebanese authorities are asking Saudi Arabia to plug the holes in the country's economic dike by upping its deposits in Lebanese banks and helping to subsidize the public debt, which cannot be refinanced.

The Syrian government and Lebanese opposition parties insist that for the Presidential crisis to be solved, the Lebanese government must concede an "enabling" third of the cabinet to the opposition.

Syrian authorities argue, "Lebanon is no longer a card that Syria can play in the region. It is a card that is being used against us. We have no choice but to neutralizing it." For this reason Syria believes its allies must have a third share of cabinet seats in the next government. This will ensure that the US cannot use Lebanon to threaten Syrian interests through international tribunals, Security Council resolutions, or by disarming or attacking Hizbullah and its allies in Lebanon.

Syrians claim that the US and its March 14th allies treat Lebanese politics as a zero-sum game. They insist on dominating the political scene. Syria and allies call the third representation that they seek in the cabinet an "enabling third," rather than a "blocking third," as March 14 calls it. This is because they insist that only through power-sharing will the Lebanese enable a new government to come into existence and end the present crisis.

"Syria has no interest in hurting Lebanon or 'burning' it, as some claim," one Syrian official told me. "It is in Syria's interest to have a prosperous Lebanon, as we demonstrated in the 1990s. We want regional growth and prosperity, because then all ships will rise, but we cannot allow Lebanon to be used to undermine us and destabilize Syria. What is so horrifying about allowing the Lebanese opposition one third of the cabinet to protect itself and veto measures meant to hurt it? Why must the US and March 14th insist on a zero-sum game? It is not Syria that is the spoiler in Lebanon, it is March 14th and its allies in Washington who refuse to compromise. They have become stubborn and intransigent."

Syria and its Lebanese allies have no intention of abandoning the Lebanese government to Saad Hariri, Jumblat, and Geagea. They believe that they have the better position from which to wage the economic war that will surely decide the fate of both Lebanese and Syrians.

Saudi Arabia Withdraws Ambassador From Syria, Al Watan Reports
2008-02-27 02:01: By Nadim Issa

Feb. 27 (Bloomberg) — Saudi Arabia withdrew its ambassador from Syria as the two countries clash on how to resolve Lebanon's current political crisis, the Syrian daily Al Watan newspaper reported, citing unidentified diplomats. The kingdom will move its official to Qatar where it hasn't had an ambassador for some 5 years as the two neighboring countries disagreed over content broadcast on Qatar-based al Jazeera television, the report said.

Syria: 'Important results' in Mugniyah murder probe Ynetnews, Israel - 9 hours ago

Sources say probe points to involvement of Arab country in killing Syria has reached "important results" in its investigation of the assassination of …

Egypt's Mubarak says Syria part of Lebanon crisis Reuters South Africa

"The summit will be held in Syria and Syria is linked to the Lebanese problem. Therefore I hope that Syria would solve the problem," Mubarak said in remarks aired on Al Arabiya television on Tuesday. "We should not be (in Damascus) resolving a problem that Syria is a party to," Mubarak said during a visit to Bahrain as part of tour of Gulf Arab countries aimed at unifying positions ahead of the annual Arab League summit.

Arabiya said Mubarak's remarks, among his most explicit comments regarding Syria's role in the crisis over electing a new president in Lebanon, were originally broadcast by Bahraini television.

Lebanese Prime Minister Fouad Siniora said last week the Arab summit would collapse if Lebanon remained without a president because of a power struggle pitting his Western-and Saudi-backed government against an opposition led by the Shi'ite Hezbollah group, supported by Syria and Iran.

Lebanon Wants Arab States to Loan Funds, Salameh Says
By Massoud A. Derhally

Feb. 27 (Bloomberg) — Lebanon's government wants Arab states to lend it money to finance the fiscal deficit and help maintain its currency peg as a political crisis prevents it from selling new bonds, central bank Governor Riad Salameh said.

The country has had no president since November and the government is unable to push laws through parliament. Its debt totals more than $41 billion, according to the Economist Intelligence Unit, or 190 percent of gross domestic product.

“The objective of the government was to generate deposits from Saudi Arabia and other friendly countries so that the balance sheet of the bank remains strong,'' Salameh said in an interview in Beirut yesterday. The government “cannot issue new debt and therefore meet foreign currency obligations without recourse to the reserves of the central bank.''

Lebanon needs the money to finance a fiscal deficit that reached 10 percent of GDP last year. It also needs to guarantee a currency peg that ensures confidence in the banking system and enables the country to attract billions of dollars from the Lebanese community living abroad. For the moment, all the government can do is roll over its existing debt.

On Feb. 8, Aref al-Abed, spokesman for Prime Minister Fouad Siniora, said in an interview that Saudi Arabia may deposit $1 billion in Lebanon's central bank to shore up the country's financial system. Salameh said Siniora was also talking to Kuwait and the United Arab Emirates about deposits.

Saudi Arabia deposited $1 billion and Kuwait $500 million in Banque du Liban during the 2006 war with Israel, when the country's exchange-rate peg to the dollar came under pressure.

Political Crisis

Lebanon has been without a head of state since Nov. 23, when Syrian-backed Emile Lahoud left office at the end of his term. Lawmakers have failed to elect a new president on 15 occasions.

“The key factor for the resilience of the Lebanese financial and monetary system is the stability of the Lebanese currency,'' said Nassib Ghobril, head of research at Byblos Bank. “Going to the Gulf countries is a preventive measure in case there is any pressure on the currency and it helps the government meet its financing needs in the absence of privatization and a functioning parliament.''

Lebanon has $12.6 billion in foreign currency reserves, Salameh said, compared with the record $13 billion they had in March of last year.

The currency peg helps ensure that many of the 12 million Lebanese living abroad deposit part of their savings in local banks. Deposits grew last year by more than 10 percent, or about $6 billion, Salameh said.

Economic progress in the country has been hurt by the political stalemate between the ruling pro-Western governing coalition and the Syrian-backed opposition.

Last month Lebanon's government postponed the auction of two mobile-phone companies, which it hopes will raise more than $7 billion, because of a political stalemate.