Stability points to a prosperous future
SINCE THE END OF LEBANON'S DEVASTATING CIVIL WAR IN 1991, SIGNIFICANT PROGRESS HAS BEEN MADE IN REBUILDING THE IMAGE OF WHAT WAS ONCE THE MIDDLE EAST'S PRIME BANKING HUB. RECOVERY HAS TAKEN THE FORM OF IMPRESSIVE ANNUAL ECONOMIC GROWTH, POLITICAL AND MONETARY STABILITY, AND THE RECONSTRUCTION OF A WAR-TORN INFRASTRUCTURE

A PROMISING PANORAMA The regeneration of Beirutís central business district is a key step towards consolidating the countryís recovery.

Before 1975, when Lebanon’s 16-year civil war started, the country was a thriving economic crossroads linking East with West. After the war the whole infrastructure emerged seriously damaged, with national output cut by half and its role as a Middle East banking hub virtually over. Recovery has been slow but steady, helped by a sound banking system, outstanding debt service and a resilient business economy. Though monumental challenges remain, the GDP has risen, inflation fallen and the Lebanese pound gradually stabilized. The stock exchange, dormant for the past three years, is expected to recover once the economy has been liberalized.

The Governor of the country’s central bank (Banque du Liban), Ryad Salame, views 1993-98 as a period of consistent improvement with over 5% average growth per year. “This growth was essentially driven by the government’s reconstruction programs and private sector initiatives taken in order to rebuild the economy,” he says. “We witnessed a slow-down between 1998 and 2000 but this year we are looking at a growth of around 3% which means the economy is starting to rebound.”

He attributes this result to lowered duties, tariffs and social security costs and an ‘open skies’ policy resulting in increased imports and a regained importance in the banking, financial and service areas. “Lebanon is resuming its role as a center for trade in the region,” he declares.
Mr. Salame rules out devaluation as it could erode confidence and spur inflation, and feels that current high interest rates have not harmed the economy. “It is more important to have stability and let markets fix rates,” he says. Measures are being implemented to control the budget deficit and reduce public sector costs and, in spite of resistance by political parties and labor unions, privatization and consolidation are seen as necessary steps in revitalizing industry.

OPEN FOR BUSINESS Lebanon is once again resuming its historic role as a key Middle Eastern trading center.

The government is trying to reduce public sector costs as well as its own size in the economy. “The pre-war public sector represented 17% of the GDP,” says Mr. Salame. “Today it is over 30%. As part of its reforming policies the government is trying to cut down the public sector by privatization.” This largely unpopular policy has also been applied to the media, television and other businesses such as MEA (Middle East Airlines) where it resulted in 1,400 employees being made redundant and 700 transferred to affiliated sectors such as catering and ground services. The aim is for the company to reduce losses, make a profit and then be eligible to be sold. Further important restructuring since 1993 has included the elimination of 20 banks through mergers.

In the past year, the Minister of Finance Fouad Sinioura has launched a program of reforms to revive the economy, reducing taxes, lowering tariffs to promote freer trade, and imposing VAT by 2002. He plans to give the private sector a prominent role but regards a private monopoly as no more desirable than a public one, preferring a balance between the two. Another aim is to generate more revenue by reducing large budget expenses, increasing capital expenditure, finding new methods of revenue and solving the problem of accumulated public debt. Tax collection is a further problem which is slowly improving.

“Lebanon has an open system with liberal, political and economic policies,” he says and believes that his country has a great will to succeed. He is strongly in favor of Arab integration and sees the proposed customs-free trade area, due in 2008, as a great unifying step. American support is regarded as highly important and, though the September 11 attacks have had a negative impact on U.S. investment in the region, imminent new incentive laws will be aimed at tempting overseas investors, particularly those from the U.S.

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