Lebanon - The Forgotten Key
By: Dr. Sam Vaknin
Also published by United Press International (UPI)
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April 21, 2003
Updated March 7, 2005
In April 2003, a day after he won a parliamentary vote of
confidence, 58-year old Rafiq Hariri, Lebanon's multi-billionaire prime
minister, reluctantly formed a new, overtly pro-Syrian government with 30
ministers, only 11 of whom are new faces. It was to have been his last. He was
murdered in February 2005.
Lebanese Information Minister Michel Samaha was quoted by regional news agencies
as saying at the time Hariri's last government was proclaimed:
"The president indicated that the new government comes at a very sensitive time
regionally. (It comes) in the shadow of pressures and accusations, which Israel
is behind, targeting Syria and Lebanon to give up ... their principled stand
that calls for resistance to occupation ... We must deal with...the importance
of internal solidarity and solidarity with our Syrian brothers so we face as one
the challenges directed at us."
Syria, in other words, is merely securing its Lebanese flank, faced with
mounting tensions and an increasingly unhappy United States. By 2003, Hariri had
formed 5 governments and had been serving as premier for 9 out of the last 11
years. Like Italy's Silvio Berlusconi, Hariri owned various media, including the
Future television channel, a radio station and a newspaper. His tentacular grip
extended to banking, real estate, oil and manufacturing.
Hariri was credited with the reconstruction of Lebanon's infrastructure, reduced
to rubble by 15 years of rabid civil war that ended in 1990. The conflict and
its aftermath have plunged Lebanon into a massive usurious public debt amounting
to 180 percent of its gross domestic product, or $31 billion. Lebanon spends
half its budget - about $3 billion - on interest payments.
Threatened with a default, international donors pledged yet another $4.4 billion
in soft loans in November 2002. The USA, Britain, Germany and Spain refused to
pitch in without the seal of approval of the International Monetary Fund,
withheld until the beginning of the following year. By end-2002, Lebanese banks
have been "convinced" to purchase $4 billion of interest free two-year
government bonds. This slashed the country's debt service by $400 million a
year.
Following the Paris-II donor conference, gross foreign exchange reserves surged
to more than $10 billion. Gross capital inflow - at $3.2 billion - was enough to
cover the trade deficit and yield a balance of payments surplus of $2 billion.
Add to this $45 billion in total bank deposits - seven tenths of which are held
in foreign currency - and the Lebanese pound's strength against the US dollar is
explained. The price of Lebanese Eurobonds jumped 20 percent in the six months
between October 2002 and April 2003.
In its latest financial statements, Banque Audi, a local outfit, pegged 2002 GDP
growth at a miserly 1.5 percent. Exports increased by 15 percent to slightly
more than $1 billion - though the Chamber of Commerce and the Ministry of
Industry and Oil deem these figures wholly inflated. Construction still moves
and shakes the economy with the number of square meters covered by permits up by
one eighth - as is the number of international landings and departures. But
activity in the Port of Beirut dropped, albeit marginally.
Lebanon is notorious for the glacial pace of its reforms. Market liberalization
is peremptory. The country's 37 year old import monopolies are yet to be
scrapped. Much-needed privatization is stalled. The electricity utility and two
mobile phone operators alone can fetch up to $5 billion.
Two austerity budgets in a row - and the introduction of a value added tax in
February 2002 - did nothing to revive the flaccid economy. The tax
administration and the judiciary are infamous hotbeds of venality and bloated
inaptitude. Both the banking system and the business community are risk-averse
and interest rates are still too high, despite recent reductions.
Still, left to its own devices, the country can gradually regain its position as
the banking and commercial hub of the Middle East. With a deep rooted mercantile
culture, a well-equipped coast line, a polyglot, highly educated and high income
population, private media and connections to all the nations of the region due
to its multi-ethic composition - Lebanon is a natural economic anchor as well as
the role model for a democratic, liberal and pluralistic Arab world. It is also
the natural export route for Middle Eastern oil.
Alas, this is but a pipe dream. Lebanon is largely a puppet state, remote
controlled by members of the Syrian secret services and some of its politicians.
Anti-Syrian lawmakers and businessmen are harassed on a regular basis, often
under the pretext of a security agreement between the two countries. In a
notorious case, a television station owned by Gabriel Murr, a Christian
candidate, was silenced in September 2002 on flimsy legal grounds.
Syria's pernicious influence is all-pervasive. The Central Boycott Office in
Damascus - set up by the Arab League in 1951 to blacklist all firms with
operations or subsidiaries in Israel - moved to renew its activities. Lebanon is
one of its members. Such trade restrictions will do nothing to lure sorely
needed foreign direct investment to its battered economy. But it can hardly be
expected to resist Syrian pressure to comply.
As recent demonstrations prove, many denizens feel that Syria should emulate
Israel and unilaterally withdraw from Lebanon its 20,000 troops and agents - an
"occupying force" according to American Secretaries of State, Colin Powell and
Condolenzza Rice. Others are still wary of their southern trigger-happy neighbor
and regard Syrian presence as a kind of insurance policy. As recently as
September 2002, Israel again threatened war over the diversion of water from the
Wazzani, a border tributary of the Hasbani river.
The Hizbullah - a militant, well-armed, trained, Iranian-sponsored, anti-Israeli
and anti-American militia cum political party in the south - would be only too
happy to partake in future skirmishes. It receives $100 million annually from
Iran and Syria in cash and in materiel. In a patently suicidal interview on CBS
television's 60 Minutes, Hassan Nasrallah, the leader of the Shiite Muslim
militant group proffered this thinly veiled threat:
"American policies in the region encourage this kind of retaliation, whether we
agree with it or not ... I believe the continuation of American policy will make
enemies of all Arabs and Muslims - 1,400,000,000 Muslims around the world. Lots
of groups will surface, not necessarily al-Qaida. And they'll be impossible to
bring to justice."
The war in Iraq, though mercifully shorter than feared, is an added burden. In
April 2003, Mustapha Nabli, the World Bank's Middle East Chief Economist, warned
of collapsing tourism (a mainstay of the Lebanese economy), surging oil prices
(Lebanon is a consumer, though Syria a producer), faltering trade in with Iraq
(a crucial import destination and source of subsidized crude) and dwindling
foreign direct investment. Central Bank first vice-governor and former economy
minister Nasser Saidi believes that the conflict shaves 1 to 2 GDP percentage
points off Lebanon's growth annually.
Lebanon's economy is heavily dependent on expat remittances. According to the
Saradar Investment House quoted by the Lebanese Daily Star, these equal one
seventh of its GDP and have been growing by a whopping one quarter every year.
This, on average, is five times both the amount and growth rate of foreign
direct investment in the country.
The entire banking system relies on these familial flows. Growth in remittances
outweighed the increase in foreign currency deposits by two to one and amounted
to more than triple the leap in non-resident foreign currency deposits. But a
global slump - and an Arab recession - may send many Lebanese emigrants packing
and render this fount of foreign exchange desiccated.
Desperate to extricate itself from the Middle East's surrealistic quagmire,
Lebanon is looking to the European Union. In June 2002 it joined the
Euro-Mediterranean Partnership by signing an Association Agreement. It is thus
eligible for free trade in industrial goods by 2010 and for cuts in tariffs and
quotas till then. Lebanon runs a $3 billion trade deficit with the EU.
Nasser Saidi openly exhorts Arabs to resist American hegemony by teaming up with
the Europeans. He reminds the EU that the Middle East is the origin of one third
of its energy needs. He is all for the much proposed Euro-Mediterranean
Investment Bank in conjunction with GAFTA the Greater Arab Free Trade Area and a
World Bank-like EuroMed Investment guarantee Agency (EMIGA).
Saidi is representative of the philosophy of Lebanese civil servants and
businessmen. But whether the EU is listening is another matter altogether.
Patching up bruised relations with the USA may prove to be a higher priority and
one that necessitates the sacrifice of Syria and its appendage, the nominally
independent state of Lebanon.
Also Read:
God's Diplomacy and Human Conflicts
The Economies of the Middle East
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