The Trump administration has laid down a clear condition for Lebanon's reconstruction after two wars with Israel: Hezbollah must give up its weapons. State Department spokesperson Tommy Pigott said last month that "billions of dollars can be injected into Lebanon," but only after the group's disarmament. While that demand is justified, it is dangerously incomplete.
Lebanon is in dire need of funds. Prime Minister Nawaf Salam has told parliament that losses from the wars since 2023 could exceed $27 billion, and the World Bank projects the economy will contract by 6.4 percent this year. Visiting the devastated city of Nabatiyeh in early October, Salam admitted the state cannot rebuild the south alone.
But recovery hinges on three separate settlements: the fate of Hezbollah's arsenal, who bears the roughly $70 billion in losses from the 2019 banking collapse, and who controls the reconstruction money. American terms address only the first. The other two will determine whether aid rebuilds the Lebanese state or props up the patronage networks that have hollowed it out.
Seven years after the financial crash, Lebanon still has no functioning credit system. The so-called gap law, which would allocate losses among the state, central bank, commercial banks, and depositors, remains stalled in a parliament that has extended its own term to 2028. The International Monetary Fund has made that law—along with a 2027 budget and a medium-term fiscal plan—a precondition for any new program. Creative stopgaps like the Salim Khalil mechanism, which routes dollar transactions through regulated institutions and has kept the pound near 89,500 to the dollar since 2023, buy time but do not substitute for reform.
Without working banks, reconstruction runs on cash. Families in the south will rebuild with grants, not mortgages or insurance payouts. Whoever hands out that cash collects the political credit. After the 2024 war, Hezbollah's construction arm, Jihad al-Binaa, paid an estimated $400 million to affected families—more than the World Bank's $250 million emergency loan. Since August, the state has channeled about $132 million through the Council for South Lebanon, a body exempt from prior audit and closely tied to Parliament Speaker Nabih Berri's Amal movement, Hezbollah's ally.
Lebanon has been here before. After the civil war, the state borrowed heavily to rebuild while former warlords, amnestied and back in government, divided contracts and public jobs among their followers. Lebanese banks financed the state's debt with depositors' money and, by early 2020, held $12.7 billion of the roughly $30 billion in outstanding Eurobonds. When dollar inflows dried up in March 2020, the state defaulted, turning the banks' losses into depositors' losses—which the gap law must now address.
A deal that trades Hezbollah's heavy weapons for Gulf money while leaving the banks unresolved and the cash economy intact would repeat that mistake. Hezbollah might lose its arsenal but keep its financial networks, including the unlicensed lender al-Qard al-Hassan that is vital to its community and influence.
The disarmament track is itself fragile. Under the June 26 U.S.-brokered framework, the Lebanese army has to clear weapons from "pilot zones" while Israel withdraws. Fewer than 10 percent of residents had returned to Zawtar al-Gharbiyeh, the first zone, by August. Israel is threatening a new campaign over reports that Hezbollah is rearming, and UN peacekeepers begin withdrawing after Dec. 31. If reconstruction waits until full disarmament, the south may suffer for years, and Hezbollah will fill the vacuum.
As the World Bank's largest shareholder and the Lebanese army's main donor, the U.S. has the leverage to do better. Congress, which funds that army and oversees the U.S. vote at the World Bank, can write that leverage into appropriations. Three changes would help.
First, add financial benchmarks to the security benchmarks. Large-scale reconstruction funds should be contingent on the passage of an IMF-approved gap law, as well as on verified disarmament. That would put the cost of delay on the parliamentary blocs causing it. Second, separate emergency recovery from disarmament. Shelter, water networks, and hospitals cannot wait for verification teams. If the Lebanese state does not deliver them this winter, Jihad al-Binaa will. Third, insist that any reconstruction funds flow through accountable state channels—a public damage registry, direct applications from households, electronic tenders, and a single verification body for all donors. Salam has made a start here, with 23 public tenders for debris removal, roads, and hospital equipment in Nabatiyeh.
Lebanon has its most reform-minded leadership in decades, and Hezbollah is currently debilitated. This creates a real but narrow opening. Lebanon's friends in Washington and elsewhere should not make disarmament, however critical, the only demand of a political system still captured by entrenched interests. Otherwise, Lebanon may see calm on its border and some reconstruction, while the losses of 2019 go unresolved and a sprawling cash economy enables Hezbollah's regeneration. That would be another reconstruction of the old order, financed this time by Gulf grants instead of Eurobonds.
