Lebanon's PM Walking to economic tightrope
Financing the controversial salary scale has triggered a flood of reactions from economists, the business community and labor unions amid deep concern that any new taxes in these delicate circumstances in Lebanon and the region could backfire. One of the proposals submitted by Prime Minister Najib Mikati was a 10 percent tax on the construction cost of additional floors in newly constructed buildings, a suggestion which was not well received by some economists and environmentalists.
In principle, the proposed tax will target newly constructed buildings in Beirut and other regions and would allow developers to rise higher than current zoning regulations permit but on condition that the additional floor would be subject to a higher tax.
The proposal was met with skepticism and even ridicule by some financial experts who believe that this suggestion is not practical and difficult to implement on short notice.
“This is a long-term project and the revenues cannot be generated in the first year. In will also ruin the scenery and harm the environment,” Nassib Ghobril, the head of economic research at Byblos Bank, told The Daily Star.
He added this tax will be passed to the end user or the consumer who will be forced to pay more money either to buy or rent the apartment.
Economist Elie Yashoui did not voice any objection to the idea of higher wages for the public sector as long as revenues for this purpose are secured.
“Why should we contemplate new taxes which will burden the citizen if we can utilize the resources of the Central Bank? We can, for example, fund the higher wages by using part of the gold appreciation since the gold was acquired by the Central Bank a long time ago,” Yashoui explained.
He stressed that the Central Bank governor resorted to this step in 2004 following the Paris II donor conference which provided Lebanon with $4.5 billion in the form of grants and soft loans.
“Salameh at that time paid the treasury $2 billion to reduce the public debt. The money came from the appreciation of gold or more simply the rise in the value of the Central Bank’s gold reserves. All this was done on paper. In other words, Salameh did not have to liquidate or sell an ounce of gold. He merely benefited from the surge of the gold prices in 2005,” Yashoui said.
He insisted that this measure would not cost the treasury anything and will not have a major impact on inflation.
“If we inject around $2 billion from this measure we can easily finance the salary scale in the first year. But in the coming few years the government should invite the private sector to take part in infrastructure projects to ease the burden on the state,” the economist argued.
But Ghobril opposed any attempt to touch the monetary system.
“We should differentiate between the fiscal policy and monetary system. The gold reserves should not be touched because they bring confidence to the investors,” he added.
Louis Hobeika, professor of economics at Notre Dame University, saw no reason not to sell a small part of the gold reserves.
“I don’t think harm will be done if we sell 1 million ounces of the 9 million ounces held by the Central Bank. At the current rate, Lebanon can generate $1.7 billion if they sell 1 million ounces. We will still have plenty of gold even if we sell a small part of it,” Hobeika said.
But liquidating the gold or using it as collateral to obtain soft loans is not welcomed by the Central Bank and officials who view these reserves as a buffer zone during difficult times.
Lebanon has the second-largest gold reserves in the Middle East after Saudi Arabia.
Under the current rates, Lebanon’s gold reserves are valued at more than $15 billion.
Makram Sader, the secretary-general of the Association of Banks in Lebanon, told the paper that facts have demonstrated that a country or bank cannot use assets it possess to generate extra revenues.
“Take the example of the United States. The banks there suffered huge losses after prices of properties plunged sharply. These banks accepted the houses as collateral from the borrowers because they assumed that the prices of properties would continue to rise, and all of a sudden the value of these houses declined sharply and incurred heavy losses. For this reason I am not in favor if either liquidating the gold reserves or using them as collateral,” Sader said.